Annual report 2018
Global challenges ranging from climate, water and food crises, to poverty, conflict and inequality are in need of solutions that require the combined efforts of the public, private and civil sectors. We are inspired by the UN Sustainable Development Goals and Global Compact’s call to the corporate sector for responsible business operations. Our response is to apply our culture of innovation and collaboration to address some of the societal challenges ahead.
Marel’s vision is founded on the strong belief that we can create economic value and have a positive social impact at the same time: In partnership with our customers, we are transforming the way food is processed. Our vision is of a world where quality food is produced sustainably and affordably.
We are proud of our achievements in 2018. Excellence in operations and disciplined capital allocation are the foundation for us to effectively serve our customers and other stakeholders, as well as provide a healthy return to our shareholders.
When we brought accurate data collection to the fishing grounds with the first motion-compensating marine scales forty years ago, we tipped the scales towards increased efficiency throughout the value chain. Marel’s marine scales, developed by passionate entrepreneurs at the University of Iceland, introduced data collection to the Icelandic fishing grounds. Using decades of precise data, we’ve continuously developed solutions that ensure quality food at the lowest cost – to businesses and to the environment. This is a great example of both the power of numbers, and how our extraordinary and talented team here at Marel use their power in numbers.
In 2018, we celebrate the 35th anniversary of the founding of Marel. The listing of Marel’s shares on NASDAQ Iceland in 1992 was an important milestone in Marel’s progress from a start-up to a leading global provider of advanced processing systems and services to the poultry, meat and fish industries. At the end of 2018, Marel had over 6,000 employees, working in more than 30 countries, and total revenues of EUR 1.2 billion. Quite a contrast to the company’s 45 employees and revenues of EUR 6 million at the time of listing.
Marel’s remarkable average revenue growth of over 20% per year since its listing in 1992 has been fueled by innovation and several strategic acquisitions, made possible by strong shareholder support. The acquisitions of Scanvægt in 2006 and Stork in 2008 were funded with an equity contribution of EUR 268 million, while the more recent acquisitions of MPS, Sulmaq and MAJA in 2016-2018 were financed with support from banking partners, operational results and cash flow.
A review of financial developments over the last 5 years shows just how great the company’s progress has been. Revenues increased by 13% CAGR in the past five years and earnings per share rose 43% on average yearly. During that same period, Marel’s share price also climbed by an average of 27% per year in EUR terms.
In 2018, revenues increased by over 15% and earnings per share by 31%. Operational performance has improved significantly, with EBIT averaging around 15% for the past three years. The share price rose 15% in 2018 and the number of shareholders grew from 2,206 to 2,491.
In 2018, EUR 28.9 million were paid in dividends to shareholders for the operational year 2017. In line with our capital allocation and dividend policy, the Board of Directors will propose to the 2019 Annual General Meeting (AGM) that shareholders be paid a dividend of around EUR 5.57cents per share, which corresponds to approximately 30% of profits for 2018.
Although listing on NASDAQ Iceland has served Marel well, there have been clear indications for some time now that we are outgrowing the small Icelandic stock market. We are a global company with ambitious growth plans. Furthermore, even though capital controls in Iceland have been lifted, having Marel’s shares listed in Icelandic krona has proven to be an obstacle for potential international strategic investors.
As announced at the AGM in March 2018, Marel engaged independent international advisors to evaluate potential listing alternatives to further advance the company’s global vision and provide continued strong shareholder returns. The objective is to facilitate trade and ensure fair pricing of Marel shares for the benefit of all shareholders.
After thorough analysis of the three options considered, i.e. to remain listed on NASDAQ Iceland only, to list both in Iceland and on an international exchange, and to delist from Iceland and relist on an international exchange, the conclusion was to aim for dual listing of Marel shares in 2019. The optimal listing venue has yet to be decided, but the primary focus is currently on Euronext Amsterdam and NASDAQ Copenhagen. A total of five exchanges were reviewed with an eye to various aspects such as market depth and sector awareness, access to international investors, analyst coverage, index inclusion, valuation and peer group positioning. Several Marel-specific considerations were also taken into account, such as our operational presence in these countries, reporting currency, and technicalities such as clearing and settlement mechanics. We are focused on ensuring a smooth journey for our current and future shareholders.
To better align the interests of current and future shareholders in connection with the dual listing, the Board of Directors convened an Extraordinary General Meeting on 22 November 2018. There it was proposed to reduce share capital by 53 million shares and initiate a formal share buyback program to purchase of up to 34 million shares, corresponding to 5% of issued share capital. The plan is to announce the final dual listing location at the 2019 Annual General Meeting, following which the execution phase is expected to take up to nine months. The precise timing will depend on both developments in Marel’s business and general financial market conditions.
Our growth targets are ambitious. We aim to increase revenues on average by 12% per year in 2017-2026, capitalizing on strong innovation and market reach, complemented by strategic acquisitions and partnerships.
Marel has both the premises and prerequisites for such growth. Our industry is experiencing robust global growth driven by population growth and changing consumer behavior, coupled with secular demands for traceability, food safety, nutrition and sustainability. The value of the consumer market for animal protein is estimated at EUR 1,200 billion annually. Marel, the global leader in food processing solutions, software and services for the poultry, meat and fish industries, had revenues of around EUR 1.2 billion in 2018. In spite of our leading position, therefore, our market is still fragmented and there is significant room for growth and consolidation.
Innovation is at the core of our strategy – and in our DNA. A key competitive strength is our long-standing commitment to research and development, where we invest around 6% of revenues annually, well above the industry standard. Our ongoing investment and strategic focus on exploiting opportunities offered by digitalization and automation have great potential. Not only are we improving yield and throughput in the food processing industry, resulting in higher quality products at better value, but also reducing waste and providing full traceability throughout the value chain.
The world’s population is expected to rise from today’s 7.6 billion to 10 billion by 2050 – an increase of almost one-third. Active consumers at the same time are expected to rise by 60 million a year, the equivalent of the UK population, as levels of well-being and purchasing power rise. Together with urbanization and changes in consumer behavior, this is expected to increase demand for food by 70% by 2050, a figure which is practically incomprehensible in view of the planet’s limited land, water and other resources.
Waste in the food value chain is estimated at around 33%, equivalent to 1.3 billion tons of food lost. This needs to change. Innovation and optimization of food production, together with changes in consumer behavior, are the only solution to the enormous challenge of feeding the planet. Marel is at the forefront in adapting to prevailing trends and needs. In partnership with our customers, we have a unique opportunity to create economic and social value at the same time.
We view the future in a positive light. Despite a number of factors of uncertainty on the horizon, such as geopolitical concerns, trade constraints and Brexit, we are convinced that our determined advance in transforming how food is processed will continue to provide a strong foundation for long-term sustainable value creation - for all Marel’s stakeholders.
Marel’s success is the result of efforts by a united and diverse team of more than 6,000 people around the world, with a wealth of process know-how and industry experience. The company’s senior management team has a clear vision and an excellent execution track record. Earlier this year, the Board of Directors had the privilege of visiting our expanding operations in Brazil – both our dedicated team in Piricicaba and our new team members from Sulmaq in Guapore – as well as our operations in Kansas, USA. It is truly spectacular to experience at first hand the relentless passion and dedication of our team around the world.
On behalf of the Board of Directors, I congratulate the Marel team on the impressive results and achievements of 2018, achieved not least thanks to their dedication and hard work. May I also express our appreciation of the continuing commitment and support of our shareholders.
Ásthildur Otharsdóttir,
Chairman of the Board