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Marel Investor Presentation 2019
2191_rns_2019-04-30_dd5ebddb-a1b5-4f57-86ec-e87b49eaeab7.pdf
Investor Presentation
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Cmarel
Q1 2019
Investor meeting
30 April 2019
DISCLAIMER
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FORWARD-LOOKING STATEMENTS
Statements in this press release that are not based on historical facts are forward-looking statements. Although such statements are based on management's current estimates and expectations, forward-looking statements are inherently uncertain.
We therefore caution the reader that there are a variety of factors that could cause business conditions and results to differ materially from what is contained in our forward-looking statements, and that we do not undertake to update any forward-looking statements.
All forward-looking statements are qualified in their entirety by this cautionary statement.
MARKET SHARE DATA
Statements regarding market share, including those regarding Marel's competitive position, are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates.
Where information is not yet available to Marel, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.
US DISCLAIMER
Any sale of Marel hf.'s ordinary shares has not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act), and will not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
There will be no public offer of the ordinary shares in the United States (for these purposes, the "United States" means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia).
ÁRNI ODDUR THÓRDARSON
Chief Executive Officer
LINDA JÓNSDÓTTIR
Chief Financial Officer
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Q1 2019 FINANCIAL HIGHLIGHTS
Strong organic growth, resilient profitability and cash flow generation
– 12.6% organic revenue growth year-on-year and gross profit margin of 38.6%
HIGHLIGHTS
- Orders received were EUR 323m, up 9.2% QoQ and 1.8% lower than the record orders received in 1Q18
- Rise in orders from Asia and China, while US and Europe remain stable
- Revenues in 1Q19 were EUR 325m, up 12.6% YoY and EBIT¹ margin in line with FY18
- Book-to-bill ratio was 0.99, and order book stands at 38% of 12 month trailing revenues
- Net profit in 1Q19 up 13.8% YoY
- EUR 70m returned to shareholders through dividend and share buybacks
- Robust operational cash flow supports leverage at 2.2x net debt / EBITDA
REVENUES
EUR m
ORDERS RECEIVED
EUR m
ORDER BOOK
EUR m
EBIT* MARGIN
%
FREE CASH FLOW
EUR m
LEVERAGE
Net debt/EBITDA
*Operating income adjusted for purchase price allocation (PPA) costs related to acquisitions
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GOOD QUALITY OF EARNINGS
Strong track record of a well diversified revenue structure across industries, geographies and business segments
REVENUES BY INDUSTRY %
54%
31%
13%
2%
1Q19
Poultry Fish
Meat Other
REVENUES BY GEOGRAPHY %
32%
45%
23%
1Q19
North-America
Europe
Rest of the world
REVENUES BY BUSINESS MIX %
1Q19
Greenfield and large projects
Modernization and standard equipment
Maintenance
Service and repairs
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BALANCED REVENUE MIX
Global reach and focus on full-line offering across the poultry, meat and fish industries counterbalance fluctuations in customer demand
POULTRY
EUR 174m revenues 1Q19
17.6% EBIT margin 1Q19
- Revenues up 10.5% year-on-year, continues to deliver strong growth and operational performance as the most advanced industry within Marel
- Solid operational performance in the quarter was underpinned by high assembly load and deliveries, especially in the US, and positive revenue mix of service and spare parts
- Orders received in 1Q19 were good with large orders booked in China, Australia, the US and Columbia
Full-line offering with one of the largest installed bases world-wide, focus on roll-out of innovative products and market penetration through cross-selling of secondary and further processing solutions
MEAT
EUR 101m revenues 1Q19
12.6% EBIT¹ margin 1Q19
- Revenues up 13.5% year-on-year, in part due strong growth in Asia and Oceania and the MAJA acquisition having a positive revenue and margin contribution
- Management is targeting medium and long-term EBIT margin expansion for Marel Meat
- Total order book for Marel Meat is robust, with large projects booked in the quarter came from the US, Vietnam and Oman
Full-line since 2016, focus going forward on strong product development, increased standardization, modularization and market penetration and further cross-selling and up-selling
FISH
EUR 41m revenues 1Q19
7.4% EBIT margin 1Q19
- Revenues up 5.5% year-on-year, in part due to higher proportion of revenues from service and spare parts
- Management is targeting medium and long-term EBIT margin expansion for Marel Fish
- The order book for Marel Fish was stable between quarters with good geographical and product diversity in orders received in 1Q19, and a significant part from recurring revenue items
- Large projects booked in the quarter came from Russia, Ireland and Norway
Aim to fill certain primary processing applications with innovation and / or M&A to accelerate full-line offering of data-driven processing focused on salmon, wild whitefish and farmed whitefish
Source: Company information, Note: All financial numbers relate to the Q1 2019 Condensed Consolidated Interim Financial Statements. Other segment account for around 2% of the revenues.¹ Operating income adjusted for purchase price allocation (PPA) costs related to acquisition.
EARNINGS PER SHARE
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Favorable development in Earnings per Share (EPS) over recent quarters and 26% growth in EPS from 1Q18-1Q19, management expects EPS to grow faster than revenues
- Robust growth and operational improvements with best in class cash flow
- Cash flow reinvested in innovation, infrastructure and global reach to sustain growth and value creation
- Dividends paid out in recent years within the targeted dividend policy of 20-40% of net profit
- 2019 AGM approved a dividend of EUR 5.57 cents per share for the operating year 2018, or 30% of net result
- EUR 70m returned to shareholders through dividend and share buybacks
EARNINGS PER SHARE (EPS)
Trailing twelve months, euro cents
FINANCIAL PERFORMANCE
LINDA JONSDOTTIR
Chief Financial Officer
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T Marel
TOP-LINE GROWTH SUPPORTED BY HIGH ORDER INTAKE
Healthy mix of revenues deriving from greenfields, modernisation, and standard equipment, 35% of revenues derive from maintenance of existing customers' installed base world-wide
- Orders received were EUR 323m, up 9.2% QoQ and 1.8% lower than the record orders received in 1Q18
- Order book was 38.5% of trailing 12m revenues and primarily constitutes greenfield projects and large projects with long lead times
- Book-to-bill ratio was 0.99 in the quarter
- Significant proportion of Marel's revenues derived from the service and spare parts business, in total around 35% of Q1 2019 revenues
- Recurring revenues derive from service level agreements, spare parts and ad-hoc repairs
- Limited seasonality in orders received and revenues
Source: Company information.
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STEADY OPERATIONAL PERFORMANCE
Double-digit revenue growth in the quarter of 12.6% YoY with adjusted EBIT margin of 14.6%
- Adjusted EBIT margin of 14.6% in 1Q19 (1Q18: 15.2%) and 14.6% in FY18
- Revenues increased by 12.6% YoY in 1Q19 and adjusted EBIT by 8.4% YoY
- Ongoing and continued investment in the future scalability of our platform, IT infrastructure and global reach
- Fluctuation in adjusted EBIT margins quarter on quarter can be expected as timing of big projects and product mix can have an effect
ADJUSTED EBIT EVOLUTION¹
EUR m
Source: Company information.
Note: ¹ Adjusted for PPA costs related to acquisitions, from 2016 – 2019 and refocusing costs in 2014 and 2015 relating to "Simpler, Smarter, Faster" programme. PPA refers to amortisation of acquisition-related, intangible assets. ² Adjusted EBIT in Q4 2015 is not adjusted for 3.3m cost related to the MPS acquisition, which was described in the Company's Q4 2015 report and recorded in general and administrative expenses.
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ROBUST ORDER BOOK
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A robust and well-diversified order book continues to provide a good foundation for the rest of 2019
- Order book consists of orders that have been signed and financially secured with down payments and / or letters of credit for the outstanding amount
- Meat projects have in general longer lead times than poultry, while fish projects have shorter cycles
- SLA contracts including spare parts are included in the order book
- Low customer concentration with no customer accounting for >5% of the total revenues
- Well diversified order book by size with widely spread delivery times
Source: Company information. Note: ¹ The order book reflects Marel's estimates, as of the relevant order book date, of potential future revenues to be derived from contracts for equipment, software, service and spare parts which have been financially secured through down payments and/or letters of credit in line with the relevant contract terms. These estimates reflect the estimated total nominal values of amounts due under the relevant contracts less any amounts recognised as revenues in Marel's financial statements as of the relevant order book date. ² Orders received represents the total nominal amount, during the relevant period, of customer orders for equipment, software, service and spare parts registered by Marel. ³ One-time effect related to the adoption of IFRS 15. ⁴ Including acquired order book of Sulmaq of EUR 17m. ⁵ Including acquired order book of MAJA of EUR 2m.
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INCOME STATEMENT: Q1 2019
Gross profit was EUR 125.4 million or 38.6% of revenues
and net result was EUR 32.2 million
| In EUR million | Q1 2019 | Of revenues | Q1 2018 | Of revenues | Change |
|---|---|---|---|---|---|
| Revenues | 324.6 | 288.4 | +12.6% | ||
| Cost of sales | (199.2) | (176.9) | +12.6% | ||
| Gross profit | 125.4 | 38.6% | 111.5 | 38.7% | +12.5% |
| Selling and marketing expenses | (37.3) | 11.5% | (32.6) | 11.3% | +14.4% |
| Research and development expenses | (20.6) | 6.3% | (17.4) | 6.1% | +18.4% |
| General and administrative expenses | (20.0) | 6.2% | (17.7) | 6.1% | +13.0% |
| Adjusted result from operations¹ | 47.5 | 14.6% | 43.8 | 15.2% | +8.4% |
| PPA related costs | (2.6) | (2.3) | +13.0% | ||
| Result from operations | 44.9 | 13.8% | 41.5 | 14.4% | +8.2% |
| Net finance costs | (3.8) | (6.0) | -36.7% | ||
| Result before income tax | 41.1 | 35.5 | +15.8% | ||
| Income tax | (8.9) | (7.2) | +23.6% | ||
| Net result | 32.2 | 9.9% | 28.3 | 9.8% | +13.8% |
Note: The income statement as presented above provides an overview of the quarterly Adjusted result from operations, which management believes to be a relevant Non-IFRS measurement.
The income statement as presented in the Condensed Consolidated Financial Statements is shown in the appendix.
¹Operating income adjusted for purchase price allocation (PPA) costs related to acquisitions
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BALANCE SHEET: ASSETS
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Q1 2019 Condensed Consolidated Interim Financial Statements
HIGHLIGHTS
- Marel continues to invest in the business to prepare for future growth with the objective to achieve its full potential
- Total operating working capital increased EUR 19.7m over the quarter due to increase in inventories and trade receivables
- Inventories rising partly due to high volume and increase in fast moving parts to secure shorter delivery times
- Trade and other payables (liabilities) rose in line with higher volume
ASSETS
| In EUR million | 31/03 2019 | 31/12 2018 | Change |
|---|---|---|---|
| Property, plant and equipment | 178.1 | 175.6 | +1.4% |
| Right of use assets | 35.3 | 33.3 | +6.0% |
| Goodwill | 642.1 | 641.3 | +0.1% |
| Intangible assets (excluding goodwill) | 265.1 | 267.0 | -0.7% |
| Trade and other receivables | 3.1 | 3.2 | -3.1% |
| Derivative financial instruments | 0.8 | 1.3 | -38.5% |
| Deferred income tax assets | 12.5 | 10.2 | +22.5% |
| Non-current assets | 1,137.0 | 1,131.9 | +0.5% |
| Inventories | 159.1 | 149.9 | +6.1% |
| Contract assets | 37.9 | 44.0 | -13.9% |
| Trade receivables | 147.6 | 138.8 | +6.3% |
| Other receivables and prepayments | 53.3 | 45.0 | +18.4% |
| Cash and cash equivalents | 50.1 | 56.3 | -11.0% |
| Current assets | 448.0 | 434.0 | +3.2% |
| TOTAL ASSETS | 1,585.0 | 1,565.9 | +1.2% |
BALANCE SHEET: EQUITY AND LIABILITIES
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Q1 2019 Condensed Consolidated Interim Financial Statements
HIGHLIGHTS
- Leverage ratio 2.2x net debt/ EBITDA
- Dividend payments and share buyback of EUR 70m in 1Q19
- No share buyback since AGM in March 2019
- Contract liabilities (production contracts) reflect down payments from customers on projects that will be produced
EQUITY AND LIABILITIES
| In EUR million | 31/03 2019 | 31/12 2018 | Change |
|---|---|---|---|
| Group equity | 523.9 | 560.9 | -6.6% |
| Borrowings | 461.8 | 429.3 | +7.6% |
| Lease liability | 27.7 | 27.1 | +2.2% |
| Deferred income tax liabilities | 57.0 | 57.3 | -0.5% |
| Provisions | 9.5 | 9.2 | +3.3% |
| Other liabilities | 3.0 | 3.0 | - |
| Derivative financial instruments | - | 1.4 | -100.0% |
| Non-current liabilities | 559.0 | 527.3 | +6.0% |
| Contract liabilities | 214.5 | 212.1 | +1.1% |
| Trade and other payables | 230.5 | 217.0 | +6.2% |
| Current income tax liabilities | 16.2 | 9.3 | +74.2% |
| Borrowings | 24.8 | 24.8 | - |
| Lease liability | 8.1 | 6.7 | +20.9% |
| Provisions | 8.0 | 7.8 | +2.6% |
| Current liabilities | 502.1 | 477.7 | +5.1% |
| Total liabilities | 1,061.1 | 1,005.0 | +5.6% |
| TOTAL EQUITY AND LIABILITIES | 1,585.0 | 1,565.9 | +1.2% |
KEY PERFORMANCE METRICS
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Proven track record of earnings results and value creation
EARNINGS PER SHARE¹
EUR per share
- Consistent and high EPS growth trajectory supported by strong free cash flows and cash conversion
- Earnings per share expected to increase faster than revenue growth subject to continuing operational improvement and value creation
FREE CASH FLOW²
EUR m
- Free cash flow continues on a strong level or EUR 44m (1Q18: 35m)
- Marel continues to invest in the business to prepare for future growth with the objective to achieve its full potential
- Investments into innovation and IT have continued on a high note in the first quarter, while at the same time facility investments are scaling down after a period of significant investments
NET DEBT / EBITDA
Leverage (x)
- Stable leverage in recent years
- Maintained leverage levels within targeted range of 2-3x net debt / EBITDA despite acquisitions of MPS, Sulmaq and MAJA in 2016, 2017 and 2018
- EUR 70m returned to shareholders through dividend and share buybacks
Source: Company information.
Note: ¹ Basic earnings per share, trailing twelve months. ² Free cash flow defined as cash generated from operating activities less tax and net investments.
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CAPITAL ALLOCATION
Marel has consistently returned capital to shareholders while expanding the business and maintaining targeted leverage levels, EUR 70m returned to shareholders through dividend and share buybacks
- Dividend or share buyback targeted at 20-40% of net profits
- Excess capital used to stimulate growth and value creation, as well as paying dividends and executing share buybacks
- Dividend policy first disclosed at AGM in 2011 and has remained at 20-40% of net profits since then
CAPITAL RETURNS
EUR m
| Acquisition | mPS
best processing systems | sulmag | MOR |
| --- | --- | --- | --- |
| Enterprise value (EUR m) | 382 | 26 | 36 |
| Dividend pay-out ratio | 20% | 30% | 30% |
| Leverage
(Net debt / adjusted EBITDA) | 2.3x | 1.9x | 2.0x |
Source: Company information.
Note: 1 Share buybacks include purchase of treasury shares and expenditures relating to formal share buyback programmes.
BUSINESS & OUTLOOK
ÁRNI ODDUR THÓRDARSON
Chief Executive Officer
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Listeria marel
LISTING ON TRACK
Preparation of the intended dual listing and offering of Marel shares on Euronext Amsterdam, in addition with current listing in Iceland, is progressing as planned
EURONEXT
A pre-summer listing expected in 2019
FRAMAI
FROM START UP TO A GLOBAL LEADER
Marel had over 6,000 employees working in +30 countries and EUR 1.2 billion in revenues in 2018, a stark contrast to its 45 employees and revenues of EUR 6 million at the time of listing in 1992
- Good support from shareholders since listing on Nasdaq Iceland in 1992
- Growth strategy announced and agreed at the 2006 AGM
- Acquisitions of Scanvaegt and Stork Food Systems financed with equity contribution of EUR 268 million
- MPS, Sulmaq and MAJA acquisitions financed with support from banking partners, strong operational results and cash flow
INVESTING IN GROWTH
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Target of 12% average annual revenue growth in 2017-2026, capitalizing on R&D investments and strengthening the value chain organically and via strategic investments
INNOVATION
R&D commitment of ~6% of revenues
ORGANIC
Annual market growth expected at 4-6%
...driven by innovation and market penetration, Marel aims to grow faster than market
STRATEGIC
Annual revenue growth expected at 5-7%
...acquisition growth to accelerate full line offering and market penetration
Growth is not expected to be linear but based on opportunities and economic fluctuations
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AT THE FOREFRONT OF INNOVATION
Marel has introduced over 50 new products to the market in the past 3 years, with numerous examples of advanced product development providing full-line solutions for customers
Source: Company information. Note: 1 Chemical lean ratio.
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MAREL MEAT AT IFFA 2019
Marel meat is introducing 7 new solutions at IFFA this year, both new solutions but also new improved generations of previously launched technology
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MAREL FISH AT BRUSSELS SEAFOOD SHOW 2019
In addition to releasing four new products for sale at Brussels, the Marel Fish stand will feature numerous products introduced in the past 12 months
4 NEW PRODUCT RELEASES IN BRUSSELS
- The fully automatic RoboBatcher Thermoformer
-
Makes filling orders easier and more efficient by automatically adjusting processing based on which product weights and sizes best match the order requirements
-
The new and improved Compact Grader
-
Features a user-friendly interface with a new display and multiple programs that make grading even easier
-
The revolutionary FleXicut pinboner and fillet portioner with the FleXitrim trimming line,
-
Its advanced feedback capability gives operators the information they need to improve trimming results
-
For grading and packing, the new M2400 Scales
- An advanced, high-precision weighing and monitoring with full digital control scales based on the M2200, which has served as one of the most accurate scales or over 30 years on the market
NEW IN SALMON PROCESSING
- 3 new products already released in 2019
- Improve processing results in terms of end-product quality, yield and reduced labor costs
- Great examples of how Marel makes salmon processing more intelligent – and therefore more efficient, more sustainable, and more profitable
1 QC Scanner
2 FleXicut Salmon
3 The Pacelnfeeder for the Filleting Machine
INNOVA – NEW IN SMARTER PROCESSING
- New releases from Innova this year include Innova for FlexiTrim
- Includes individual performance monitoring for yield, throughput and quality, and a more streamlined infeed to FleXicut.
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FINANCIAL TARGETS AND DIVIDEND POLICY
Marel is targeting 12% average annual revenue growth from 2017-2026 through market penetration and innovation, complemented by strategic partnerships and acquisitions
| FY17 | FY18 | 1Q19 | TARGET | |||
|---|---|---|---|---|---|---|
| Revenue growth1 | Organic | 5.0% | 12.5% | - | 12% average annual revenue growth in 2017-20261 | Market conditions have been exceptionally favorable but are currently more challenging in light of geopolitical uncertainty. Marel enjoys a balanced exposure to global economies and local markets through its global reach, innovative product portfolio and diversified business mix |
| In the period 2017-2026, Marel is targeting 12% average annual revenue growth through market penetration and innovation, complemented by strategic partnerships and acquisitions | ||||||
| Up to 2026, management forecasts 4-6% average annual market growth. | ||||||
| Marel aims to grow organically faster than the market, driven by innovation and growing market penetration | ||||||
| Solid operational performance and strong cash flow is expected to support 5-7% revenue growth on average by acquisition | ||||||
| Acquired | 2.1% | 2.9% | - | |||
| Total | 7.1% | 15.4% | 12.6% YoY | |||
| Innovation investment | 5.6% | 6.2% | 6.3% | ~6% of revenues | To support new product development and ensure continued competitiveness of existing product offering | |
| Earnings per share (EUR cent)2 | 13.7 | 18.0 | 18.7 | EPS to grow faster than revenues | Marel's management targets Earnings per Share to grow faster than revenues | |
| Leverage | 1.9x | 2.0x | 2.2x | Net debt / EBITDA 2-3x | The leverage ratio is targeted to be in line with the targeted capital structure of the company | |
| Dividend policy | 30% | 30% | - | 20-40% of net profit | Dividend or share buyback targeted at 20-40% of net profits. Excess capital used to stimulate growth and value creation, as well as payment of dividends / funding share buybacks |
Source: Company information. Note: 1 Growth is not expected to 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. 2 Trailing twelve months, EUR cents.
Q&A
ÁRNI ODDUR THÓRDARSON
CEO
LINDA JÓNSDÓTTIR
CFO
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APPENDIX
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CONSOLIDATED STATEMENT OF INCOME: Q1 2019
The bridge between Result from operations and Adjusted result from operations, showing PPA related costs separately, is presented below.
| 2019 as reported | PPA related charges | 2019 non-IFRS measures | 2018 as reported | PPA related charges | 2018 non-IFRS measures | |
|---|---|---|---|---|---|---|
| In EUR million | YTD 2019 | YTD 2019 | YTD 2019 | YTD 2018 | YTD 2018 | YTD 2018 |
| Revenues | 324.6 | - | 324.6 | 288.4 | - | 288.4 |
| Cost of sales | (199.2) | - | (199.2) | (176.9) | 0.0 | (176.9) |
| Gross profit | 125.4 | - | 125.4 | 111.5 | 0.0 | 111.5 |
| Selling and marketing expenses | (39.0) | 1.7 | (37.3) | (34.2) | 1.6 | (32.6) |
| Research and development expenses | (21.4) | 0.8 | (20.6) | (18.1) | 0.7 | (17.4) |
| General and administrative expenses | (20.1) | 0.1 | (20.0) | (17.7) | 0.0 | (17.7) |
| Adjusted result from operations^{1} | 2.6 | 47.5 | 2.3 | 43.8 | ||
| PPA related costs | (2.6) | (2.6) | (2.3) | (2.3) | ||
| Result from operations | 44.9 | - | 44.9 | 41.5 | - | 41.5 |
| Net finance costs | (3.8) | - | (3.8) | (6.0) | - | (6.0) |
| Result before income tax | 41.1 | - | 41.1 | 35.5 | - | 35.5 |
| Income tax | (8.9) | - | (8.9) | (7.2) | - | (7.2) |
| Net result | 32.2 | - | 32.2 | 28.3 | - | 28.3 |
Operating income adjusted for purchase price allocation (PPA) costs related to acquisitions
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