Marel — Investor Presentation 2018

Apr 24, 2018

marel

Advancing food processing

Q1 2018

Financial Results

April 24, 2018

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ARNI ODDUR THORDARSON

Chief Executive Officer

LINDA JONSDOTTIR

Chief Financial Officer

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STRONG ORGANIC GROWTH AND SOLID PERFORMANCE

Strong revenue growth. EBIT of around 15% for nine consequent quarters and the order book is at an all-time high with record orders received in 1Q18.

HIGHLIGHTS

• Revenue growth of 14%
• All industries delivered good order intake and strong revenues
• 15.2% EBIT margin
• Orders received were robust and up 12% YoY
• Strong order book provides good foundation for 2018

REVENUES
EUR 288m

ADJUSTED EBIT
EUR 44m

ORDERS RECEIVED
EUR 329m

ORDER BOOK
EUR 529m

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BALANCED REVENUE MIX

Good market conditions and overall balanced product mix. Focus on the three industries to counterbalance fluctuations in operations. Long term outlook is good for all industries.

POULTRY

55% of revenues
18.6% EBIT margin

• Strong quarter with robust order intake, strong volume and solid operational performance
• Good market conditions and strong competitive position

Marel is reaping the benefits of a steady flow of innovative products with standard blocks and full line offering

All financial numbers relate to the 2018 Condensed Consolidated Interim Financial Statements. Other segments account for 1% of the revenues.

MEAT

31% of revenues
12.0% EBIT* margin

• Marel is now a full-line supplier to the meat processing industry
• Good order intake in primary and secondary processing of Meat
• Organizational changes announced at the beginning of 2Q18 with increased focus on innovation and selling full-line solutions

Focus going forward on increased standardization and modularization

• Operating income adjusted for amortization of acquisition-related intangible assets

FISH

13% of revenues
8.6% EBIT margin

• Strong order intake and improved operational results
• Investments in innovation and standardization have delivered good order intake and improved margins in core business

Focus on full line offering for wild whitefish, farmed salmon and farmed whitefish

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ORDERS RECEIVED

Orders received in Q1 2018 were robust amounting to EUR 329 million, compared to revenues of EUR 288 million

• At quarter-end, the order book was 49% of trailing twelve months revenues
• Greenfields and projects with long lead times constitute the vast majority of the order book
• Standard equipment and spare parts run with shorter cycles than larger projects
• Maintenance, spare parts and services, represent over a third of revenues

REVENUES AND ORDERS RECEIVED
EUR m

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SOLID
OPERATIONAL
PERFORMANCE

LINDA JONSDOTTIR
Chief Financial Officer

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FIRM STEPS TAKEN TO IMPROVE PROFITABILITY

Strong earnings growth with healthy profit margin of around 15% EBIT for nine consecutive quarters

• Following the robust production ramp up in 4Q17, revenues and EBIT remained strong in 1Q18
• Improved flexibility with more scalable operations following 'Simpler, Smarter, Faster' and strategic investments in innovation and infrastructure
• Ongoing and continued investment in future platform to serve customers' needs better and sustain competitive edge

Note: Operating income adjusted for amortization of acquisition-related intangible assets (PPA) in 2016-2018. 2015 EBIT adjusted for refocusing cost and acquisition costs.

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INCOME STATEMENT: Q1 2018

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Revenues were EUR 288.4m with an adjusted EBIT of EUR 43.8m or 15.2% EBIT margin. Gross profit was EUR 111.5m or 38.7% of revenues.

In EUR million unless stated otherwise	Q1 2018	Of revenues	Q1 2017	Of revenues	Change
Revenues	288.4		252.5		+14%
Cost of sales	(176.9)		(153.0)		+16%
Gross profit	111.5	38.7%	99.5	39.4%	+12%
Selling and marketing expenses	(32.6)	11.3%	(31.0)	12.3%	+5%
Research and development expenses	(17.4)	6.1%	(13.9)	5.5%	+25%
General and administrative expenses	(17.7)	6.1%	(16.9)	6.7%	+5%
Adjusted result from operations	43.8	15.2%	37.7	14.9%	+16%
Amortization of acquisition-related (in)tangible assets	(2.3)		(6.2)		-63%
Result from operations	41.5	14.4%	31.5	12.5%	+32%
Net finance costs	(6.0)		(3.8)		+58%
Result before income tax	35.5		27.7		+28%
Income tax	(7.2)		(6.4)		+12%
Net result	28.3	9.8%	21.3	8.5%	+33%

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ORDER BOOK

Market conditions are good and the order book grew to an all-time high of EUR 529m, projects were well distributed geographically and between the poultry, meat and fish industries

HIGHLIGHTS

• Order book at quarter end was EUR 529m
• IFRS adjustment on opening balance was EUR 16m and delay of revenues in 1Q18 was EUR 4m
• The strong order book provides a good foundation going into the remainder of 2018 operational year
• Order book mix is different per industry, in particular the level of service revenues

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BALANCE SHEET: ASSETS

Q1 2018 Consolidated Financial Statements

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HIGHLIGHTS

• Marel is advancing the manufacturing and innovation facilities and improving the working environment across the company
• Lease assets have now been added to the balance sheet in relation to IFRS16
• Working capital items impacted by higher volumes
• Overall working capital is decreasing compared to 2017, primarily caused by down payments on projects

ASSETS

In EUR million	31/3 2018	31/12 2017	Change
Property, plant and equipment	146.5	144.7	+1%
Right of use assets	31.1	-	-
Goodwill	643.0	643.9	-0%
Intangible assets (excluding goodwill)	259.5	262.7	-1%
Trade and other receivables	3.8	4.0	-5%
Derivative financial instruments	1.5	0.9	+67%
Deferred income tax assets	0.2	4.4	-95%
Non-current assets	1,085.6	1,060.6	+2%
Inventories	129.4	124.4	+4%
Contract assets	35.4	48.2	-27%
Trade receivables	146.8	128.9	+14%
Other receivables and prepayments	49.4	46.6	+6%
Cash and cash equivalents	19.1	31.9	-40%
Current assets	380.1	380.0	+0%
TOTAL ASSETS	1,465.7	1,440.6	+2%

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BALANCE SHEET: EQUITY AND LIABILITIES

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Q1 2018 Consolidated Financial Statements

HIGHLIGHTS

• Borrowings increased due to purchase of treasury shares and dividend payment amounting to around 30% of net profit FY17
• Leverage remains at similar level
• Lease liability has now been added to the balance sheet in relation to IFRS16
• Contract liabilities (Production contracts) reflect down payments from customers on projects that will be produced

EQUITY AND LIABILITIES

In EUR million	31/3 2018	31/12 2017	Change
Group equity	505.6	541.9	-7%
Borrowings	381.5	370.5	+3%
Lease liability	24.1	0.2	-
Deferred income tax liabilities	54.1	61.3	-12%
Provisions	7.5	8.6	-13%
Other liabilities	3.4	3.6	-6%
Derivative financial instruments	2.7	2.7	+0%
Non-current liabilities	473.3	446.9	+6%
Contract liabilities	240.3	209.6	+15%
Trade and other payables	192.6	195.9	-2%
Current income tax liabilities	12.6	11.0	+15%
Borrowings	24.3	26.2	-7%
Lease liability	7.4	-	-
Provisions	9.6	9.1	+5%
Current liabilities	486.8	451.8	+8%
Total liabilities	960.1	898.7	+7%
TOTAL EQUITY AND LIABILITIES	1,465.7	1,440.6	+2%

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IMPACT OF IFRS ON THE FINANCIAL STATEMENTS

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Standards 16, 9 and 15 implemented per 1 January 2018. Impact for full year 2018 expected to be minimal, where impact could fluctuate quarter by quarter.

IFRS 16 – Lease

Impact from January 1, 2018

• Only 2.3% of total assets added to assets and liabilities in the opening balance sheet, EUR 33m, with no effect on retained earnings in equity
• Non material impact on adjusted EBIT
• Annual effect on EBITDA is estimated around EUR 8m and net interest bearing debt increased by EUR 31m, resulting in a v2.0 net debt/EBITDA leverage ratio at end of 1Q18
• Impact in 1Q18 is in line with what was estimated at year-end 2017

IFRS 9 – Financial Instruments

Impact from January 1, 2018

• Profit from amended financial liability recognized in the opening retained earnings in equity of EUR 3.7m, that will be spread over the life time of the loan
• Finance cost therefore increases by around EUR 0.4m in 1Q18
• Profit of EUR 0.4m recognized in opening retained earnings in equity for doubtful debt provision, non material impact in the quarter
• Impact in 1Q18 is in line with what was estimated at year-end 2017

IFRS 15 Revenue Recognition

Impact from January 1, 2018

• Change in timing of revenue recognition (deferral of revenue) leads to EUR 8.9m reduction in opening retained earnings in equity and to EUR 15.7m increase in opening order book
• Delay in revenue recognition in 1Q18 of EUR 3.8m with impact on adjusted EBIT of EUR 3.3m and on net result of EUR 2.5m
• In the quarter the order book further increased with EUR 3.8m as a result of IFRS 15
• Impact in 1Q18 is higher than what was estimated at year-end 2017, reason for deviation is mix and timing of delivery of orders to our customers

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STRONG CASH FLOW

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Strong cash flow enabled continued investment in infrastructure and the platform, free cash flow in 1Q18 amounted to EUR 35 million

• Free cash flow growing with operational improvement and revenue growth
• Strong order intake results in working capital improvements
• Good cash conversion despite focus on investments to grow the business
• EUR 56m returned to shareholders through dividend and purchase of treasury shares

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EARNINGS PER SHARE

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Favorable development in Earnings per Share (EPS) over recent quarters, management expects EPS to grow faster than revenues

• At the 2018 AGM, the Board of Directors proposed a dividend of EUR 4.19 cents per share for the operating year 2017, the equivalent to 30% of 2017 net results
• Dividends or share buy-backs are targeted at 20-40% of the net result
• At the AGM, the Board of Directors authorized management to purchase own shares for nominal value of 20 million, thereof 10 million have been executed

EARNINGS PER SHARE (EPS)
Trailing twelve months, euro cents

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KEY FIGURES QOQ

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Comparison of the Interim Consolidated Financial results quarter-on-quarter (QOQ)

REVENUES
EUR m

ORDERS RECEIVED
EUR m

ORDER BOOK
EUR m

ADJUSTED EBIT MARGIN
%

FREE CASH FLOW
EUR m

LEVERAGE
Net debt/EBITDA

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FINANCIAL TARGETS

The growth strategy laid out in 2017 states goal of achieving 12% average annual revenue growth in the next ten years

	TARGET	1Q18	FY17	FY16
REVENUE GROWTH	12%
average annual
revenue growth in
2017-2026	14%
QoQ	6%	20%	Marel's management expects 4-6% average annual
market growth in the long term*. Marel aims to grow
organically faster than the market, driven by
innovation and market penetration. Solid
operational performance and strong cash flow to
support 5-7% revenue growth on average by
acquisition**.
INNOVATION
INVESTMENT	~6% of revenues	6%	5.5%	6.5%	To support new product development and ensure
continued competitiveness of existing product
offering
Earnings per Share
(euro cent)***	EPS to grow faster
than revenue	14.8	13.7	10.6	Marel's management expects Earnings per Share to
grow faster than revenue
LEVERAGE	Net debt/ EBITDA
x 2-3	X2.0	x1.90	x2.25	The leverage ratio is estimated to be in line with the
targeted capital structure of the company
DIVIDEND
POLICY	20-40% of net profit	30%	30%	20%	Dividend or share buy-back targeted at 20-40% of
net profits. Excess capital used to stimulate growth
and value creation, as well as paying dividends

Growth will not be linear but based on opportunities and economic fluctuations.
Operational results may vary from quarter to quarter due to general economic developments, fluctuations in orders received and timing of deliveries of larger systems.
**Trailing twelve months, EUR cents

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BUSINESS & OUTLOOK

ARNI ODDUR THORDARSON
Chief Executive Officer

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GOOD QUALITY OF EARNINGS

Good market conditions in all industries, strong track record of a well diversified revenue structure across business segments and geographies

REVENUES BY INDUSTRY %
55%
31%
13%
12%
1Q18
Poultry Fish
Meat Other

REVENUES BY GEOGRAPHY %
30%
31%
39%
1Q18
North-America
West-Europe
Rest of the world

REVENUES BY BUSINESS MIX %
EUR 288m
1Q18
Greenfield and projects
Modernization and standard equipment
Maintenance
Service and repairs

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BRUSSEL – SEAFOOD PROCESSING GLOBAL

Our focus at the 2018 Seafood Processing Global is on how its cutting edge technology increases processing automation while ensuring the highest yield, throughput and product quality

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LIVE FROM BRUSSELS

SIGURDUR ÓLASON
EXECUTIVE VICE-PRESIDENT OF MAREL FISH

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Q&A

ÁRNI ODDUR THORDARSON
CEO

LINDA JONSDOTTIR
CFO

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THANK YOU