Marel Q3 2020: Strong margins and strategic moves
EXECUTIVE SUMMARY
Financial highlights Q3 2020
- Orders received were EUR 282.5m (3Q19: 285.0m).
- The order book was EUR 434.3m (2Q20: 439.0m, 3Q19:
431.9m).
- Revenues were EUR 287.2m (3Q19: 312.5m).
- EBIT* was EUR 44.1m (3Q19: 44.3m), translating to an EBIT*
margin of 15.4% (3Q19: 14.2%).
- Net result was EUR 29.4m (3Q19: 33.4m).
- Basic earnings per share (EPS) were EUR 3.93 cents (3Q19: 4.38
cents).
- Cash flow from operating activities before interest and tax in
the quarter was EUR 54.1m (3Q19: 47.7m). Free cash flow at EUR
36.6m (3Q19: 29.0m).
- Net debt/EBITDA was 0.5x at quarter end (2Q20: 0.6x). Targeted
capital structure is 2-3x net debt/EBITDA.
- Successful closing of TREIF acquisition on 8 October 2020,
leverage was at 1.1x post the acquisition.
Financial highlights 9M 2020
- Orders received were EUR 914.4m (9M19: 919.5m).
- Revenues were EUR 894.5m (9M19: 963.6m).
- EBIT* was EUR 114.5m (9M19: 141.4m), translating to an EBIT*
margin of 12.8% (9M19: 14.7%).
- Net result was EUR 73.5m (9M19: 99.9m).
- Basic earnings per share (EPS) were EUR 9.75 cents (9M19: 14.19
cents).
- Marel took actions earlier in the year that will deliver EUR 8m
in annualized savings with around EUR 4m in non-recurring
cost.
- Cash flow from operating activities before interest and tax was
EUR 178.7m (9M19: 129.6m).
* Operating income adjusted for purchase price
allocation (PPA) costs related to acquisitions
Arni Oddur Thordarson, CEO
“We are pleased to publish our results in the
third quarter and first nine months of 2020. We are humble and
upbeat when we look at the results and the outlook. Orders received
in Q3 and in the first nine months of 2020 were on par with the
respective periods last year. Demand for automation and more
customer channel flexibility in the poultry, meat and fish segments
is building up similar to other food value chains. The speed of
change is fast, driven by consumers around the world seeking
ready-to-cook products as part of a balanced diet that is both safe
and affordable. Marel’s digital platforms and global reach with
local presence on every continent have proven to be key
differentiating factors in these challenging times.
In Q3, we delivered revenues of EUR 287 million
with EBIT margin of 15.4%. Even though revenues are down
year-on-year, we deliver stable EBIT of EUR 44 million. The good
operational results are driven by strong gross profit that is the
result of a good mix, excellent delivery performance and lower
operating expenses. By leveraging local teams with strong remote
support from our hubs of specialized experts, we lower costs as
well as the carbon footprint with less fly-in and fly-out services.
This is a journey that was expected to take years but is now
accelerated by the pandemic.
High margins and robust cash flow continues to
support further growth and value creation. On 8 October, we
successfully closed the acquisition of TREIF and remain financially
strong with leverage post acquisition at x1.1 EBITDA. TREIF is a
great strategic fit, their product portfolio is highly
complementary and will strengthen our full-line offering in the
meat segment. There is also great potential to cascade TREIF’s
cutting edge technology into the poultry and fish segments. TREIF
enjoys a blue-chip customer base and their installed base is
substantial.
Marel is in a pole position to further transform
the food industry in good partnership with our long-standing
customers. We will continue to systemically invest in innovation
and infrastructure, well above the industry standard and use
acquisitions and strategic partnerships to accelerate our journey.
There is no way back, the speed of digital transformation is
immense, and a more demand-driven food value chain will
significantly contribute to the availability and affordability of
safe and healthy food, while at the same time reduce waste and
better utilize available resources. In times of such transformation
on top of economic uncertainties, there will be fluctuations
quarter-by-quarter. At Marel, we remain fully committed to our
ambitious mid-, and long-term targets with continued growth and
value creation.”
Subsequent events: Acquisition of
TREIF
On 8 October 2020, Marel concluded the
acquisition of German food cutting technology provider TREIF
Maschinenbau GmbH. Further information available here.
Financial performance
Orders received during Q3 and 9M 2020 on par
with last year
Orders received in the quarter were EUR 282.5m,
up by 0.9% QoQ and down 0.9% YoY. Orders received for 9M20 were on
par with last year, reflecting Marel’s long-standing and strong
customer relationships.
Orders received continue to be well balanced
between large projects, standard equipment and maintenance
projects.
The need for automation and digital solutions in
the food value chain is driven by secular trends like population
growth and urbanization. Additionally, the pandemic is
placing more focus on minimizing human intervention as a means to
improve hygiene and disease, as well as traceability and trust in
the food value chain. Marel is uniquely positioned to support the
food industry with the use of robotics, increased tracking &
tracing and process control.
Marel remains committed to its R&D
investment of ~6.0% of revenues to maintain its technological
leadership in the industry.
Solid order book
The order book in the third quarter was EUR
434.3m (2Q20: 439.0m, 3Q19: 431.9m). This equals 35.8% of 12-month
trailing revenues. The book-to-bill ratio was 0.98 (2Q20: 0.92,
3Q19: 0.91).
Greenfields, such as large equipment orders, and
large 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 book.
Marel is a full-line provider to the poultry,
meat and wild whitefish industry. With its strong product portfolio
of solutions, software and services, Marel is well positioned to
lead the transformation of the food processing industry and support
food processors channel flexibility to chase consumer-ready
products.
The acquisition of cutting technology provider
TREIF will enhance standard equipment sales for the meat industry,
as well as its other segments focused on improving automation, food
safety and flexibility and time to market for consumer-ready
product offerings.
Revenues reflect seasonality
Revenues totaled EUR 287.2m in 3Q20, down 6.1%
QoQ and down 8.1% YoY.
Aftermarket was 41% of total revenues (2Q20:
38%, 3Q19: 37%), including recurring service and spare parts
revenues. Although service revenues were lower due to travel
restrictions, this was compensated by growth in spares and good
delivery performance.
Marel’s global reach with a local presence, with
sales and service engineers servicing customers in over 140
countries, has proven to be a key differentiating factor in
operational resilience, delivering the right quality at the right
time. The local teams with virtual and remote global support from
industry experts, have shown great solution-driven leadership in
installation and aftermarket services, reducing the carbon
footprint of fly-in fly-out.
Strong gross margin, good mix and low OPEX
delivering 15.4% EBIT
Gross profit margin improved to 39.2% in the
quarter (2Q20: 37.4%, 3Q19: 38.2%). The product mix was favorable
with good levels of spare parts sales and good delivery
performance. Gross profit was EUR 112.5m in the quarter (2Q20:
114.2m, 3Q19: 119.5m).
Operating expenses were similar to 2Q20, with
more focus on online solutions and virtual events as travel
restrictions remain and trade show activity is yet to pick up.
EBIT* margin was at 15.4% (2Q20: 14.7%, 3Q19:
14.2%).
Net result was EUR 29.4m, down 4.2% QoQ and down
12.0% YoY.
Basic EPS at EUR 3.93 cents (2Q20: 4.07 cents,
3Q19: 4.38 cents).
Solid cash flow generation
Cash flow was solid in the third quarter.
Operational cash flow was EUR 54.1m (3Q19: 47.7m) and free cash
flow was EUR 36.6m (3Q19: 29.0m).
Inventories leveled off QoQ with EUR 180.6m at
quarter-end (2Q20: 182.9m).
Tax payments for 3Q20 were EUR 2.3m (3Q19:
11.5m) affected by timing of tax payments. In the 2021 budget of
the Dutch Government, there is a proposal included to reverse the
reduction of the corporate income tax rate. If the proposal is
enacted, it would result in a negative impact on the Q4 2020 tax
expense.
A total of around EUR 100m has been returned to
shareholders in the form of dividends and share buybacks in the
first nine months of the year. In March 2020, a dividend of EUR
43.9m was declared for the operational year 2019 of which EUR 38.1m
was paid in 2Q20 and EUR 5.8m was paid in 3Q20.
Marel continues investing in the fundamentals.
Cash flow related to investment activities in the quarter at EUR
15.2m (3Q19: 7.2m).
Strong financial position with leverage at
0.5x, moving to 1.1x post TREIF acquisition
Leverage was 0.5x at the end of 3Q20 (2Q20:
0.6x) and 1.1x post TREIF acquisition which is well below the
targeted capital structure (2-3x). Low leverage position enables
Marel to take a leading role in the ongoing industry consolidation
wave.
Marel continues to have a strong financial
position that will support continued investment and facilitate
future strategic moves in line with the company´s 2017-2026 growth
strategy.
Marel has secured liquidity of EUR 728.9m at
quarter-end and fully committed funding in place until 2025.
During 1Q20, Marel drew EUR 600m on the new
syndicated revolving credit facility as a precautionary measure.
The EUR 600m was repaid in the second and third quarter.
Successful closing of TREIF
acquisition
On 8 October 2020, Marel closed the acquisition
of German food cutting technology provider TREIF as announced on 4
September.
With EUR 80m in revenues and 500 employees,
TREIF’s leading cutting technology is highly complementary to
Marel’s existing product portfolio and will strengthen Marel’s
full-line product offering, increase standard equipment sales and
leverage aftermarket potential. TREIF’s largest business segments
today are within meat and baked goods, and its technical
capabilities can be cascaded to Marel’s poultry and fish segments
to accelerate the innovation roadmap.
TREIF has established a blue-chip customer base
and its installed base is substantial. By leveraging Marel’s
digital platform and global reach with local teams in all key
regions, further growth is expected from cross- and upselling Marel
products, exploring new customers retail channels and adjacent
industries as well as aftermarket potential.
The purchase price on a cash and debt free basis
was paid with EUR 128m in cash and 2.9 million Marel shares.
Ability to use Marel shares listed in EUR as acquisition currency
was one of the objectives for Euronext listing.
Resilient business model in challenging
times
Significant investments in recent years in
Marel´s global reach, digital platform and infrastructure, have
been instrumental in positioning the company to successfully
navigate a business environment colored by geopolitical
uncertainty, trade constraints and change in consumer behavior
already accelerated by the ongoing changes.
Marel has a global manufacturing presence and
flexibility in production, reducing supply chain risk. During the
pandemic Marel has systematically built up sufficient safety stock
of spare parts across locations to serve customer demand and ensure
timely delivery.
Sustainability focus is embedded throughout
Marel´s organization. Not only is it ingrained in our substantial
innovation investments and the full-line product portfolio enabling
sustainable production and reducing waste, new ways of working are
also having a postitive impact on Marel´s CO2 footprint, with
online solutions and less fly-in fly-out.
Industry performance Q3 2020
Marel Poultry: 55% of total
revenues and 21.1% EBIT margin in 3Q20.
Full-line offering with one of the largest
installed bases world-wide, focusing on roll-out of innovative
products and market penetration through cross-selling of secondary
and further processing solutions.
After a very strong start of the year orders
received for Marel Poultry were softer in 3Q20, while the pipeline
is building up, particularly in solutions to enhance channel
flexibility for consumer-ready products.
Revenues for Marel Poultry in 3Q20 were EUR
157.7m, down 5.5% YoY (3Q19: 166.8m). EBIT was EUR 33.3m (3Q19:
29.7m) and the EBIT margin was 21.1% (3Q19: 17.8%).
Marel Poultry´s EBIT margin continued on a
strong level, driven by favorable product mix and strong
aftermarket. Solid performance of Marel Poultry while the
environment is colored by the pandemic.
Poultry has proven the most resilient during the
pandemic due to its convenience, affordability and ability to adapt
to supply relatively quickly.
Marel Meat: 31% of total revenues and 8.4%
EBIT* margin in 3Q20.
Full-line offering with focus on strong product development,
increased standardization, modularization and market penetration
and further cross- and upselling.
The TREIF acquisition will double standard equipment sales for
Marel Meat and enhance the full-line offering from post-farm to
dispatch of consumer-ready products. Marel is at the center point
to meet processors demand for more advanced solutions to serve the
growing ready-to-cook segment.
Orders received for Marel Meat are at a good level in 3Q20 and
the pipeline is building up as customers are in need for more
automation and flexibility, though the timing of orders is
uncertain. After the downturn in China due to African Swine Fever,
the rebuild and transformation of the value chain is starting up
with higher investor confidence coming from that region.
Revenues for Marel Meat in 3Q20 were EUR 90.1m, down 13.4% YoY
(3Q19: 104.1m). EBIT* was EUR 7.6m (3Q19: 11.0m) and the EBIT*
margin was 8.4% (3Q19: 10.6%).
Management continues to target medium and long-term EBIT* margin
expansion for Marel Meat.
Marel Fish: 12% of total revenues and 7.6% EBIT margin in
3Q20.
Full-line offering to the wild whitefish industry since 2020.
Strong line offering with opportunities to improve breadth through
innovation and / or M&A to reach full line offering across
whitefish and salmon.
Orders received for Marel Fish are at a similar level as prior
quarter. Marel has installed reference plants with its innovation
partners like Brim in Iceland, making the value chain more agile,
dealing with different consumer channels for bone-free,
ready-to-cook products at home and for high-end restaurant
chains.
Revenues for Marel Fish in 3Q20 were EUR 33.0m, 9.8% down YoY
(3Q19: 36.6m). EBIT was EUR 2.5m (3Q19: 2.9m) and the EBIT margin
was 7.6% (3Q19: 7.9%).
Management continues to target medium and long-term EBIT margin
expansion for Marel Fish.
Outlook
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 have on Marel.
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 4-6% average annual market growth 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 21 October 2020
On Wednesday 21 October 2020, 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
third quarter.
The virtual meeting will be webcast live on
www.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 7520 NL: +31 207 219 496UK: +44 33
3300 9035 US: +1 833 823 0586
Upcoming virtual investor events
-
- Berenberg, Pennyhill Conference London, 2 December
For the latest roadshow calendar please visit
www.marel.com/ir
Upcoming Marel Live virtual events
-
- Whitefish Showhow – 21-22 October
- Whitefish Showhow, South Europe – 17 November
- Case Ready Steak, LatAm – 18 November
- Case Ready Hamburger, LatAm – 19 November
- Whitefish Showhow, LatAm – 25 November
- Salmon Showhow – 17 February
For the latest schedule please visit
www.marel.com/events
Financial Calendar
Marel will publish its financial results according
to the below financial calendar:
-
- Q4 2020 – 3 February 2021
Financial results will be disclosed and published
after market closing of both Nasdaq Iceland and Euronext
Amsterdam.
Investor Relations
For further information, please contact Marel
Investor Relations via email IR@marel.com or tel. (+354) 563
8001.
About Marel
Marel (NASDAQ: MAREL; AEX: MAREL) is a leading
global provider of advanced food processing equipment, systems,
software and services to the poultry, meat and fish industries.
Following the closing of the TREIF acquisition on 8 October 2020,
Marel has around 6,800 employees in over 30 countries. In 2019,
Marel delivered EUR 1.3 billion in revenues, and invests around 6%
of revenues in innovation annually. By continuously advancing food
processing, Marel enables its customers to increase yield and
throughput, ensure food safety and improve sustainability in food
production. Marel was listed on NASDAQ Iceland in 1992 and
dual-listed on Euronext Amsterdam in June 2019.
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.
- Marel Q3 2020 Condensed Consolidated Financial Statements -
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- Marel Q3 2020 Condensed Consolidated Interim Financial
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- Marel Q3 2020 Press Release_vF