Q2 2021: Record orders and cash flow, revenues and EBIT stable between quarters

Record orders received in the first half of the year

Record orders received in 2Q21 of EUR 371.3m, with strong orders across all industries and all processing stages.

Strong first half of the year with combined orders of EUR 740.7m in 1H21, up 17.2% from EUR 631.9m in 1H20.

M&A continues to fuel organic growth and accelerate the innovation roadmap. In the quarter Marel secured important orders where a broader product portfolio following recent acquisitions of TREIF (meat and other), Curio (fish) and PMJ (poultry) were key.

Marel Poultry secured a landmark order from Prestage Farms for a highly innovative and fully automated turkey processing plant, including multiple lines and the largest inline air chilling tunnel for turkeys in the US, focused on digitalization and sustainability to improve end-to-end traceability, nutrition and product quality.

In the fish industry, the first full-line solution for tilapia was sold to C.Vale in Brazil, increasing flexibility to handle both fresh and frozen products, and optimizing the use of raw material, less water usage, less CO2 emissions and data collection to measure progress.

Within prepared foods, orders for new avenues such as the pet market were secured in the second quarter.

Pipeline is strong across all industries and processing stages

The pipeline for large greenfields and modernization projects is building up in all industries. Marel has stepped up market coverage and recently launched revolutionary solutions in consumer-ready products.

The need for automation and digital solutions in the food value chain is driven by secular trends like population growth and urbanization. COVID-19 improved the outlook for automation in the animal protein industry and has been an accelerator for the underlying secular trends in terms of social distancing, access to labor and hygiene. In addition, shifting market dynamics and change in consumer behavior are also driving demand.

Revenues of EUR 328m with 40% solid recurring aftermarket revenues

Revenues were EUR 327.5m in 2Q21, up by 7.1% YoY, down 1.9% QoQ.

Aftermarket, comprising of services and spare parts, represented 40% of total revenues in the quarter (1Q21: 39%, 2Q20: 38%).

A strong order book and a book-to-bill ratio of 1.13 in the quarter

The order book at end of June was EUR 499.1m (1Q21: 455.3m, 2Q20: 439.0m), representing 39% of 12-month trailing revenues.

The book-to-bill ratio in the quarter was 1.13, compared to an average of 0.98 in the past 4 quarters (2Q20-1Q21).

Greenfields, such as large equipment orders, and projects with longer lead times constitute the vast majority of the order book while services, spares and standard equipment have shorter lead times and run faster through the order book.

Profitability continues to be hampered by rising logistics costs, step up in sales and service coverage

Gross profit margin was 36.2% in the quarter (2Q20: 37.4%) and gross profit was EUR 118.6m (2Q20: 114.2m). Margins impacted by increased costs due to mobility and logistical challenges, as well as faster rebound in the world economy than expected.

COVID-19 continued to have an impact on 2Q21 results, both in terms of supply chain and efficiency of operations. Ensuring timely delivery and installation for customers during a period of significant challenges in mobility and logistics, led to higher costs in manufacturing, aftermarket and transportation.

Decisive steps in 2Q21 in journey to transform spare parts handling with focus on investments in fulfillment centers and digitizing and automating the end-to-end parts handling to ensure shorter lead times.

Sales and marketing (S&M) costs were at a level of 12.2% of revenues and reflect the step up in market coverage in line with plans to leverage global reach and digital solutions to drive organic growth.

General administrative (G&A) costs were 6.2% of revenues and innovation cost was at the 6.1% strategic level.

Marel is committed to the mid-term targets to achieve gross profit of 40%, SG&A of 18% and maintain the innovation investment at the 6% strategic level by year-end 2023.

Marel does not adjust results for non-recurring costs, except for PPA and acquisition related costs.

Continued focus on EBIT margin expansion

EBIT¹ was EUR 38.6m (1Q21: 38.0m, 2Q20: 45.0m), translating to an EBIT1 margin of 11.8% (1Q21: 11.4%, 2Q20: 14.7%).

Profitability for Marel Poultry was lower as a result of soft orders for larger projects as stated in 1Q21 and high logistics costs to ensure timely delivery of projects, or 12.2% (2Q20: 19.8%). Strong orders received in 2Q21 and a strong pipeline in Marel Poultry supporting stronger volume and mix in coming quarters.

Management continues to target medium and long-term EBIT margin expansion for Marel Meat and Marel Fish.

Robust cash flow generation to support continued investments

Record operational cash flow mainly driven by down payments for new orders improving working capital.

Strategic buildup of inventory to ensure timely delivery to customers of EUR 19.2m.

Cash generated from operating activities in the quarter was EUR 77.9m (2Q20: 63.1m).

Free cash flow in 2Q21 was EUR 54.6m (2Q20: 47.6m).

Strong cash conversion supports continued investments in innovation, infrastructure and strategic inventory buildup.

Investments to support organic and strategic growth

To best serve customer needs and capture growth opportunities from changing market dynamics, Marel is focusing on increasing digitalization and agility, leading to an increased level of investments in the coming years.

Important initiatives identified, e.g. stepping up market coverage, innovation investments in digital solutions, and improvement projects to streamline the back end, as well as automating and digitizing the manufacturing platform, supply chain and aftermarket.

In July, Marel will open a new demo center and sales and service office in Campinas, Brazil, with new facilities opening in Shanghai, China later in the year.

Low leverage ratio of 0.8x, strong financial position to support the 2017-2026 growth strategy

Low leverage, committed liquidity of EUR 672.3m at the end of June, including fully committed all-senior funding in place until 2025, enables continued investment and will facilitate future strategic moves in the ongoing industry consolidation wave, in line with the company’s 2017-2026 growth strategy.

Over the quarter, a dividend of EUR 41.0m paid out in April, or 40% of net results (2020: 40%, 2019: 30%), in addition to a EUR 6.0m partial working capital settlement for the TREIF acquisition.

Leverage was 0.8x at the end of 2Q21 (1Q21: 0.8x), well below the targeted capital structure of 2-3x.

Subsequent events: Marel to acquire Valka, an innovative provider of advanced processing solutions for the global fish industry

Marel aims to acquire 100% of Valka's share capital. An agreement has been reached to acquire over 90% of the share capital of Valka, and the remaining shareholders will be offered to sell their shares at the same terms.

Valka is an Icelandic provider of advanced processing solutions for the global fish industry, and its product range includes waterjet cutting, trimming, and grading solutions for whitefish and salmon.

Valka is based in Iceland and Norway and has around EUR 17 million in annual revenues and 105 employees.

This transaction will strengthen Marel's full-line offering to the fish processing industry and increase scale to serve customer needs better. The shared technical know-how in the combined team will accelerate the innovation roadmap allowing fish processors swiftly adapt to a rapidly changing market.

The transaction is subject to customary closing conditions, including anti-trust approval and is expected to be completed later this year.

Market conditions have been challenging due to geopolitical uncertainty and the ongoing COVID-19 pandemic. Marel enjoys a balanced exposure to global economies and local markets through its global reach, innovative product portfolio and diversified business mix. At the moment it is not known what the full economic impact of COVID-19 will be on Marel in 2021.

Marel is committed to achieve its mid- and long-term growth targets. Our strategic mid-term targets are to achieve gross profit around 40%, SG&A of around 18% and Innovation at the 6% strategic level by year-end 2023.

In the period 2017-2026, Marel is targeting 12% average annual revenue growth through market penetration and innovation, complemented by strategic partnerships and acquisitions.

• Marel’s management expects average annual market growth of 4-6% in the long term. Marel aims to grow organically faster than the market, driven by innovation and growing market penetration.
• Maintaining solid operational performance and strong cash flow is expected to support 5-7% revenues growth on average by acquisition.
• Marel’s management expects basic EPS to grow faster than revenues.

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.

Virtual investor meeting and live webcast/conference call 22 July 2021

On Thursday 22 July 2021, at 8:30 am GMT (10:30 am CET), Marel will host a virtual investor meeting where CEO Arni Oddur Thordarson and CFO Linda Jonsdottir will give an overview of the financial results and operational highlights in the second quarter.

The virtual meeting will be webcast live on marel.com/webcast and a recording will be available after the meeting on marel.com/ir.

Members of the investment community can join the conference call at:

• IS: +354 800 7437 (PIN: 79078208#)
• NL: +31 10 712 9163
• UK: +44 33 3300 9032
• US: +1 631 913 1422 (PIN: 79078208#)

Financial Calendar

Marel will publish its (Condensed) Consolidated Financial Statements according to the below financial calendar:

• Q3 – 20 October 2021
• Q4 – 2 February 2022

Financial results will be disclosed and published after market closing of both NASDAQ Iceland and Euronext Amsterdam.