Marel — Investor Presentation 2014

Jul 24, 2014

Q2 2014
Presentation

Arni Oddur Thordarson, CEO
Erik Kaman, CFO
Sigsteinn Gretarsson, COO

24 July 2014

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Arni Oddur

Thordarson
CEO

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Strong order intake – Refocusing on track

• Revenue €170 million compared to €178 million in Q2 2013
• Order book €156 million compared to €138 million in last quarter
• €188 million in orders received
• Adjusted EBIT of €10.7 million or 6.3%
• Strong cash flow conversion
• The refocusing plan of becoming simpler, smarter, and faster proceeding according to plan

• Refocusing costs in Q2 amount to €7.2 million.

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Strong order intake in Q2 2014

Orders received €188 million

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Business overview

Poultry	Fish	Meat	Further Processing
Profitability for poultry improving
Key projects in Saudi Arabia, U.S. and India secured in the quarter
Two innovation awards for an integrated SmartWeigher solution	Salmon activities delivering healthy profits
Whitefish segment underperforming
FleXicut – a breakthrough solution for the whitefish industry – is a commercial success	Good reference sales of StreamLine and Case Ready solutions secured around the globe
Revenue gradually increasing and operational breakeven reached	Order intake increasing but financial performance still underperforming
Orders with leading global providers of convenience food secured
RevoPortioner sales to the fish industry

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Simpler, smarter and faster Marel

Refocusing proceeding according to plan

• Recurring annual cost saving targets from actions taken in first half of the year amount to 8 million compared with one-off cost of 10.7 million

Marel is commercially strong but the cost base is too high

• Marel is commercially strong with a good portfolio of unique solutions and a strong positioning with its global sales and service network
• Marel is simplifying its organization and market approach to lower cost and stimulate sales and service revenues
• Marel's manufacturing footprint will consist of few multi-industry sites

2017 EBIT target in excess of €100 million

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Transfer of operations from Oss to Boxmeer

• Boxmeer is a strategic multi-industry site
• Serving poultry, meat and further processing
• Ample opportunities to step up innovation by sharing best practices across industries
• Direct cost savings in administration, innovation and manufacturing will crystallize in 2015 and onwards

Sharing of best practices across industries provides further opportunities in innovation

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Transfer of salmon activites to Stovring

• Marel has successfully finalized the transfer of Salmon activities from Norresundby to Stovring in Denmark
• Stovring is a large and modern multi-industry site with capacity to take on foreseen growth in the salmon business
• Marel is leading supplier to the Salmon industry. The demand for Salmon is steadily increasing due to sushi trend and Omega 3

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Marel acquires after sales services and business

• Marel has acquired from an agent the after sales services and business in Denmark and Sweden
• Marel now provides the full offering of large systems, standard equipment and after sales services in the Nordic region
• The aim is to serve the customers' needs better and to strengthen further the recurring revenue base

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Erik Kaman CFO

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Business results

EUR thousands	Q2 2014	Q2 2013	Change in %
Revenue	169,848	178,430	(4.8)
Gross profit before refocusing cost	60,344	59,517	1.4
as a % of revenue	35.5	33.4
Before refocusing costs
Result from operations (adjusted EBIT)	10,741	12,313	(12.8)
as a % of revenue	6.3	6.9
Adjusted EBITDA	18,011	18,977	(5.1)
as a % of revenue	10.6	10.6
After refocusing costs
Result from operations (EBIT)	3,553	12,313	(71.1)
as a % of revenue	2.1	6.9
EBITDA	13,022	18,977	(31.4)
as a % of revenue	7.7	10.6
Orders received (including service revenues)	187,826	159,135	18.0
Order book	156,427	131,811	18.7

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Development of business results

Firm steps to improve profitability

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Order book stands at EUR 156 million at the end of Q2

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Condensed consolidated balance sheet

ASSETS	30/6 2014	31/12 2013
EUR thousands
Non-current assets
Property, plant and equipment	99,172	104,707
Goodwill	385,153	378,708
Other intangible assets	119,253	118,561
Receivables	268	691
Deferred income tax assets	10,692	9,611
	614,538	612,278
Current assets
Inventories	96,680	91,796
Production contracts	26,770	24,829
Trade receivables	68,054	68,737
Assets held for sale	2,500	-
Other receivables and prepayments	23,617	22,135
Cash and cash equivalents	17,362	19,793
	234,983	227,290
Total assets	849,521	839,568

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Condensed consolidated balance sheet (continued)

LIABILITIES AND EQUITY	30/6 2014	31/12 2013
EUR thousands
Equity	419,734	419,339
LIABILITIES
Non-current liabilities
Borrowings	203,189	214,846
Deferred income tax liabilities	12,212	13,885
Provisions	6,202	6,065
Derivative financial instruments	6,583	7,184
	228,186	241,980
Current liabilities
Production contracts	51,227	44,881
Trade and other payables	121,961	105,662
Current income tax liabilities	3,811	3,526
Borrowings	18,682	22,077
Provisions	5,920	2,103
	201,601	178,249
Total liabilities	429,787	420,229
Total equity and liabilities	849,521	839,568

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Q2 2014 cash flow composition and changes in net debt

• Currency effect, Change in capitalized finance charges and Treasury shares. ** After sales network in Denmark and Sweden.

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Net interest bearing debt reduced by EUR 12.6 million in H1

Private placements:
- EUR 8 m in Q2 2009
- EUR 38 m in Q4 2009

Dividend payments:
- EUR 6.9 m in 2011
- EUR 7.1 m in 2012

Pension payments:
- EUR 22 m 2011 and 2012

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Arni Oddur

Thordarson
CEO

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Three-track world

USA back on growth track

• Food processors with good profitability and sound balance sheet
• Need for expansion and modernization
• Marel has strong foothold in USA

Q2 Highlights

Good sales in poultry and further processing to key customers

Europe on slower track

• Untapped opportunities for modernization of customer's equipment and solutions
• Increasing demand for traceability throughout the value chain, especially after high-profile food scandals
• Installment base generates good service revenues for Marel

Q2 Highlights

Large meat system sale in France

Emerging markets on a long-term growth track

• Retail and food service have increased significantly in recent years while investment in food processing is lagging behind
• Marel has strong foothold in South America and aims to capture growth in Asia in coming years

Q2 Highlights

Good order intake from India, China, Saudi Arabia, Mexico and Brazil

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Capturing growth in emerging markets

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China – Milestone sale to the meat industry in Q2

• Marel is gaining foothold in the important Chinese meat market
• Food safety high on the agenda
• Marel provides various monitoring and traceability solutions
• Transition from small-scale pig farming to modernized large-scale operations is taking place
• Repeated sales to a pioneer meat processor in the Chinese region of Inner Mongolia in little more than a year
• 400 heads/day StreamLine system

China's pork consumption compared to the U.S.

Source: USDA

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India – Greenfield project in the poultry industry

• Highly automated processing plant with an initial capacity of 6,000 birds per hour
• Expandable to a capacity of 12,000 birds per hour

• It incorporates all the latest Marel technology

• The Indian poultry processing market is developing fast and Marel is ready to grow with it

• On average Indians consume annually 2kg of poultry meat compared to 22kg on average in the EU

• Marel opened a sales and service unit in India in 2011

Source: USDA

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Saudi Arabia – Building on prior successes

• Modernization and upgrade of three poultry lines which will increase the capacity to 36,000 birds per hour
• Existing plant was delivered as a greenfield project 15 years ago
• The upgrade includes the latest technology and will lead to higher yield and increased food safety
• Saudi authorities actively support domestic production with food safety high on the agenda

Source: USDA

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The way forward

Simpler, smarter, faster

• Merge business units
• Optimize manufacturing footprint and improve capacity utilization
• Simplify organizational structure

Benefits

• Lower fixed cost base
• Improved profitability
• Simpler organization
• Customer excellence
• Reduced time to market
• Faster market penetration

Benefits

• 2014 adjusted EBIT target revised to €40-50 million
• 2017 EBIT target in excess of €100 million

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Q&A

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Disclaimer

• This Presentation is being furnished for the sole purpose of assisting the recipient in deciding whether to proceed with further analysis of this potential opportunity. This Presentation is for informational purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of securities.

• The information set out in this Presentation may be subject to updating, completion, revision and amendment and such information may change materially. Even though Marel hf. has given due care and attention in the preparation of this Presentation, no representation or warranty, express or implied, is or will be made by Marel hf. as to the accuracy, completeness or fairness of the information or opinions contained in this Presentation and any reliance the recipient places on them will be at its own sole risk. Without prejudice to the foregoing, Marel hf. does not accept any liability whatsoever for any loss howsoever arising, directly or indirectly, from use of this Presentation or its contents or otherwise arising in connection therewith. Any recipient of this Presentation is recommended to seek its own financial advice.

• There is no representation, warranty or other assurance that any of the projections in the Presentation will be realised. The recipient should conduct its own investigation and analysis of the business, data and property described herein. Any statement contained in this Presentation that refers to estimated or anticipated future results or future activities are forward-looking statements which reflect current analysis of existing trends, information and plans. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially and could adversely affect the outcome and financial effects of the plans and events described herein. As a result, the recipient is cautioned not to place undue reliance on such forward-looking statements.

• Transactions with financial instruments by their very nature involve high risk. Historical price changes are not necessarily an indication of future price trends. Any recipient of this Presentation are encouraged to acquire general information from expert advisors concerning securities trading, investment issues, taxation, etc. in connection with securities transactions.

• This Presentation and its contents are confidential and may not be further distributed, published or reproduced, in whole or in part, by any medium or in any form for any purpose, without the express written consent of Marel hf. By accepting this Presentation the recipient has agreed, upon request, to return promptly all material received from Marel hf. (including this Presentation) without retaining any copies. In furnishing this Presentation, Marel hf. undertakes no obligation to provide the recipient with access to any additional information or to update this Presentation or to correct any inaccuracies therein which may become apparent.

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Thank you
Dank u wel
Takk fyrir
Mange tak

INNOVATION
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