Marel Food Systems hf. - Financial Statement Release

Marel Food Systems hf. Q2 2009 Financial results

Strong cash flow; reduced costs contribute to improved results 

- Consolidated revenues for Q2 2009 amounted to EUR 132.0 mln (Q2 2008: EUR
145.0 mln). 
- Revenues from core business for Q2 2009 totalled EUR 107.2 mln compared to
EUR 103.2 mln in Q1 2009 (Q2 2008 pro forma: EUR 143.2 mln). 
- Consolidated EBITDA was EUR 28.0 million in Q2 2009 (Q2 2008: 16.4 mln).
EBITDA from core businesses excluding one off items was EUR 12.2 mln (Q2 2008:
EUR 19.9 mln). 
- Consolidated operating profit (EBIT) was EUR 21.6 mln in Q2 2009 (Q2 2008:
EUR 11.1 mln). EBIT from core business excluding one off items was EUR 6.5 mln
(Q2 2008: EUR 15.1 mln). 
- Profit after tax was EUR 17.3 mln for Q2 2009 (Q2 2008: EUR 10.1 mln).
- Net interest bearing debt was reduced to EUR 349.4 mln due to strong
operational cash flow, limited capital expenditure, sale of non-core assets and
an equity increase. The average maturity of debt is four years. 

Highlights of the first six months of 2009

- Consolidated revenues for the first six months of the year totalled EUR 262.3
mln (1H 2008: EUR 219.0 mln). 
- Revenues from core business for the first six months of the year totalled EUR
210.4 mln (1H 2008: EUR 283.7 mln). 
Consolidated EBITDA for the period was EUR 28.8 million (1H 2008: EUR 21.4
mln). EBITDA from core businesses excluding one off items was EUR 14.6 mln EUR
(1H 2008: EUR 38.3 mln). 
- Consolidated operating profit (EBIT) was EUR 15.8 mln for the first half of
the year (1H 2008: EUR 13.3 mln).  EBIT from core business excluding one off
items was EUR 3.3 mln (1H 2008: EUR 28.5 mln EUR). 


Theo Hoen, CEO:
“We are pleased with our improved operating results for the quarter. We have
increased our cash flow, improved our financing structure and closed several
large orders with our customers. The orders received from our core business
increased for the second quarter in a row and we expect them to continue to
grow, though figures may vary from quarter to quarter due to the influence of
large projects. At the operational level, we are now profitable and operating
in a more stable financial environment after a successful refinancing of short
term debts. We will continue to focus on reducing costs to support our
operating results. 

Our view of the long-term prospects of the market and the strong underlying
growth in the industry remains unchanged.  We are aiming for a growth rate of
at least two percent above the prevailing market rate. We are confident that we
will emerge from the crisis stronger than before after having sharpened the
strategic focus of the company and implemented a series of rationalisation
measures that have driven our cost base down to sustainable lower levels.
Protein consumption continues to grow and our customers are profitable. They
rely on us to develop the equipment and systems that enable them to capture the
growth in the most profitable way possible.” 


Prospects 

Marel's key markets are gradually improving. 
• Order intake has increased by 17% between quarters and several large orders
have been closed. However, the volume of activity is not yet back at 2008
level. Order intake leads to revenues in 2-6 months. 
• The increase reflects Marel's strong position as market leader and favourable
prevailing consumer trends. 
Increased activity in all industry segments. 
• The fish industry is picking up with processors looking to invest in new
plants and new technologies. 
• The poultry industry shows the strongest signs of recovery and order intake
is expected to increase. 
• In fresh meat, the first signs of improvement are emerging in many markets
with interest in advanced meat processing systems growing. 
• Added value processors have benefitted the most from changes in consumer
behaviour. 

Markets

There are indications of slow but gradual improvements in Marel's key markets.
The order intake from Marel's core business continues to improve, with a 17%
increase between quarters. In general terms, the markets in Europe and North
America appear to be improving although the speed of recovery varies from
country to country. Still, global financial and market conditions continue to
take their toll on the company's operations, especially the sale of larger
systems and installations, which under normal circumstances account for
approximately one-third of the company's revenues. On the positive side, most
of Marel's customers are profitable and doing well. We are confident that an
accumulated need for investment will have built up once market conditions
improve further. 

The improvement in Marel's order intake between quarters reflects Marel's
strong position as an industry leader, as well as the favourable prevailing
trends in consumer behaviour. Consumers are eating out less at mid- and
high-priced restaurants and choosing instead to go to fast food outlets or
purchase low-cost ready-made meals at discount supermarkets. Food service
companies and retailers active in these segments are profiting and so are our
customers, the food processors who supply these outlets with products. They are
continuing to operate their processing lines at normal levels. For Marel, the
result has been that the economic slowdown has had no impact on the sale of
spare parts and services, which normally accounts for roughly one-third of
revenues. Moreover, the impact on the sale of smaller systems and standard
equipment, which normally accounts for another third of revenues, has been
limited. 

The food industry

Developments in the first half of the year show that the downturn of the global
economy and the resulting changes in consumer eating habits have created
opportunities for the food processing industry. With its strong integrated
brands and comprehensive range of innovative products and solutions, Marel is
ideally positioned to exploit these opportunities and to meet its customers'
needs. The company's focus on innovation remains unchanged, with 5-6% of
revenues invested in new product development, the highest ratio in the
industry. 

- Fish: In Q2, the markets began picking up again after a slow start in Q1.
Customers in both the salmon and whitefish industries are investing in new
plants, as well as new technologies to improve the productivity of existing
plants. Salmon processors, for example, are increasingly drawn to complex
robotic systems, such as intelligent trimming of salmon fillets. While the
Chilean salmon market is down, other key markets like Norway and the United
States are doing well and salmon prices are high. In Norway, there has been an
increase in investment in the fish industry over the past 12 months, with major
contracts having been concluded in Q2 in both the salmon and whitefish
industries. 

- Poultry: The poultry industry shows the strongest signs of recovery of all
the protein segments of the food processing industry. Processors are profiting
from the fact that the financial crisis has caused the consumption of the less
expensive proteins like poultry to increase. As a result, Marel has seen an
increase in turnover from poultry processing equipment and systems, with
several large-scale projects having been concluded in Q2 with processors in
Europe and South America. Activity is also picking up in the Eastern
hemisphere, with notable successes recently in China. 

- Meat: Overall, the global fresh meat market is still not performing as well
as other industry segments. Although corn and oil prices have dropped
considerably after having reached record highs in the summer of 2008, they are
still high for meat producers - particularly since beef and pork have muchhigher feed conversion ratios than poultry and fish.  Nevertheless, the first
signs of improvement are emerging in many markets, including Europe, the U.S.
and Australia. Attitudes are beginning to change as a result of the concerted
marketing efforts undertaken in recent months and years, and interest in
advanced meat processing systems is growing in all sub-segments of the
industry, i.e. beef, pork and lamb. Sales are expected to continue to increase
with growing customer awareness of the benefits of the latest processing
systems in the form of increased yield, productivity and traceability. 

- Further processing: Added value processors have benefitted most from the rise
in popularity of fast food and the current ‘eat at home' trend and processors
have continued to invest in Marel's RevoPortioners, bacon slicers and QX
system. A significant percentage of bacon is sold to the food service industry
pre-cooked, with companies such as McDonald's and Burger King being major
users. Marel's newly developed pre-cook bacon slicer has already found eager
customers and this sector of the market is expected to make a significant
contribution to our slicer business. 

- Customer focus - Salm Partners, LLC: Marel's commitment to pushing the
envelope in the development of new technologies continues to help food
processors of all sizes, in all markets, to operate at peak productivity and to
enhance the overall quality and value of their products. U.S.-based company
Salm Partners, which operates in the further processing segment of the market,
is one such company. The company recently invested in their third QX
Coextrusion System from Townsend for their Denmark, Wisconsin, business. The
system will be installed in early 2010. With QX, a unique technology for making
sausages, reducing the cost price of the sausage by at least 10%. Following the
acquisition of their first two lines, Salm Partners became a major producer of
“cooked in package” sausages in the U.S., with distributions in all markets
across the country. “Our company is based upon working with our business
partners to bring new technologies into the market,” says Chris Salm. “Because
we have a strong belief in the consumer benefits of the QX technology, we have
built our business on it.” 

Outlook

Despite the effects of the challenging market conditions on the sale of our
larger systems in particular, we expect to be able to maintain strong cash flow
throughout the year. Sales are expected to increase slightly in the second half
of the year as market conditions continue to improve. As a result, operating
results are also expected to improve. Marel Food Systems will continue to
support this trend with an unrelenting focus on cost control, which has had a
significant effect on the operating results in Q2. 


Presentation of results, 7 August 2009 

Marel Food Systems will present its results at a meeting on Friday, 7 August
2009, at 8:30 a.m., at the company‘s headquarters at Austurhraun 9, Gardabaer. 


Publication days of the Consolidated Financial Statements in 2009 and the
Annual General Meeting 2010 

3rd quarter - 3 November 2009 
4th quarter - 4 February 2010 
Annual General Meeting of Marel Food Systems hf - 3 March 2010 


For further information, contact: 
Erik Kaman, CFO Tel: (+354) 563-8072 
Sigsteinn Grétarsson, Managing Director of Marel ehf. Tel: (+354) 563-8072

Attachments:

financial statements q2 2009.pdf

news release q2 2009.pdf