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Marel Q3 2020: Strong margins and strategic moves


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, ...

Författare Marel hf.

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