CEO's review

The year 2018 was yet another excellent one for Marel. We are delighted to report record revenues of EUR 1,200 million representing a 15% year-on-year revenue growth, of which 12.5% was organic. Operational performance was solid with 14.6% EBIT. We have been operating at close to 15% EBIT in the past three years with robust cash flow.

The strong cash flow enables us to invest in talent, innovation, infrastructure and global market presence. Operational cash flow was EUR 206 million in 2018, and free cash flow after our extensive investments and payments of taxes and interests amounted to EUR 121 million or over 10% of revenues.

Global market leader with blue-chip customer base worldwide

We are a global leader in providing advanced solutions and services to poultry, meat and fish processors. Our customer base ranges from small family-owned companies to the largest players in the food industry. Our long lasting customer relationships are due to our strong partnerships in transforming the way poultry, meat and fish are processed. Attracting new customers and retaining existing ones is driven by our constant commitment to service and innovation and being at the customer -for the customer out in the field. Today, we have more than 6,000 dedicated team members operating in over 30 countries serving our customers across 180 countries.

We have a healthy mix of revenues deriving from greenfield projects, modernization and maintenance of our existing customers’ installed base worldwide. Maintenance is transitioning from reactive services to more preventative maintenance that include long-term service level agreements, spare parts packages and remote monitoring. Taking a proactive approach with our customers prevents unexpected downtime at their production facilities and ensures consistent peak productivity. 35% of total revenues derives from recurring service and spares business, underpinning our high quality of earnings. Our customer base is diverse with the single largest customer in any calendar year accounting for less than 5% of total revenues.

Growth driven by secular trends

Population growth, urbanization and technological disruption are significant trends shaping the world today. We are witnessing the most rapid urbanization and growth of the middle class in history or at around 3-4% annually. These active consumers are seeking and consuming a balanced diet that is rich in vegetables, fruits and proteins. The need for increased automation, improved productivity and more innovative solutions to process quality food safely and sustainably, is clearer than ever. We must find ways to do more with less. The only reliable solution is for food processors to step up investments and vertically integrate the supply chain.

Marel is at the center point of prevailing trends. With continuous innovation and complementary acquisitions, we have managed to extend our playing field gradually.

Last year we successfully launched the ATLAS system, our live bird handling system that achieves new animal wellbeing standards while simultaneously increasing the quality of the inputs to the factory. Thereby moving our operating window from serving only the factory level to serving processors all the way from post-farm gate to dispatch of the final products.

A sizeable market serving the basic needs

The annual retail value of poultry, meat and fish products is estimated to be EUR1,200 billion. With current urbanization rates, there is a rapid transition from small back-yard grown farming into a fully commercialized approach. Consequently, the underlying demand for new greenfield processing plants is high, especially in poultry, pork and fish processing deriving from aquaculture. However, the current annual value of solutions and services to serve the needs within our playing field is estimated to be only EUR 12 billion, of which Marel revenues are EUR 1.2 billion.

Based on our position as a product pioneer with an extensive sales and service network around the globe, our target is to continue to grow organically above the market rate. Moreover, Marel is at the forefront of consolidating the fragmented market of equipment and solution providers. We have a solid track record in M&A where our primary focus is on closing application gaps to compliment innovation and accelerate the process of becoming a full-line provider to our customers.

Innovation drives transformation

In 2018, we increased investments in innovation to a level of 6.2% of revenues compared with 5.6% of revenues for the previous year. The step up was mainly in investments in the overarching Innova software platform that collects and distributes data that improves operational efficiency and ensures full traceability of products throughout the value chain.

We are continuously becoming better and better in utilizing technologies and realizing synergies across the three industries we operate in. The best example of this is the SensorX, an X-ray detection system that was initially developed for the fish industry and has now become a huge success in the poultry industry by providing bone and contamination free meat for products like chicken nuggets. We are now further mirroring the SensorX technology into the red meat industry.

In addition to detecting bones and other contaminants, the SensorX-system is capable of monitoring and blending fat and lean muscles with high accuracy and speed to meet the growing demands for “home-style” premium burgers at affordable prices.

Are there any structural differences between the three industries?

Our poultry segment accounts for 53% of total revenues and delivered around 18% EBIT in 2018. At the same time the meat segment accounted for 32% of total revenues with 11% EBIT followed by Fish with 13% of revenues with around 8% EBIT.

We frequently get questions from our current and potential shareholders whether there are any structural differences between the poultry, meat and fish segments that explain the difference in margins. Management’s view is that there is no fundamental difference across the three industries and the growth and value drivers are similar. It is all about comparative business advantages within the segments.

In poultry, we have been very successful in closing application gaps and providing full lines with the speed of 15,000 chickens per hour in a highly automated process. We interlink the processing steps seamlessly from primary processing to secondary and further processing to enable our customers to meet various consumer demands. With improved standardization and modularization, we lower the execution risk in large projects and simplify the modernization and maintenance business. This takes focus and time to build up and is difficult to replicate.

The task in the meat segment is to standardize and modularize the offering in primary processing and further drive our customer value creation by vertically integrating the value chain from primary to secondary and further processing. In the fish segment, we have successfully managed to improve standardization across our product line and we are already starting to reap the benefits mirrored in higher service and spare revenues and gradually improving operational margin. Within the fish segment, we are focusing on closing application gaps in primary processing and further automating all processes in line with what we already accomplished in the poultry segment. This is the journey ahead of us.

A global scene for a global leader

We have had great support from the Icelandic stock exchange and our shareholders since listing in 1992. The dual listing of Marel shares on an international stock exchange in addition to its listing in Iceland is on track. It is important for a global leader to have a global stage to support its ambitious growth plan. An international listing and access to a broader investor base is expected to drive fair day-to-day trading and continued shareholder returns.

Liquid and tradable shares are an important acquisition currency, as many of our potential acquisition targets are well-run family-owned companies. In many cases, the owners of these companies want to stay in this attractive industry and join forces with Marel, a product pioneer with a global sales and service network and strong digital platform. By offering them Marel shares that are listed on an international stock exchange they can become a part of the Marel growth story going forward.

We are in a partnership

Our team is dedicated and passionate. We are guided every single day by our shared vision and we share the values of Innovation, Unity and Excellence. We put great emphasis on being a dynamic workplace with diverse and well-educated team members. 

For several years, we have run an internal Marel leadership program, where we select talent from across the company worldwide for a general management training in cooperation with universities and consultancies. Many of our senior managers come from the ranks of this leadership program, including two members of the executive team. Since mid-2017, we have also trained more than 500 employees to apply what they learned in “The 7 Habits” to their professional and personal lives.

This well-known leadership framework highlights important paradigms to become more effective through proactive behavior, prioritization, time management, empathic listening, and synergistic thinking. 

I would like to sincerely thank our shareholders, customers, partners, and employees for their continued trust and support. We are all in this together! Together, we are transforming the way food is processed.

Árni Oddur Thórdarson,
Chief Executive Officer