Marel Food Systems hf. - Financial Statement Release

Marel Food Systems hf. Q1 2009 Financial results

Good cash flow despite postponement of large projects by customers

Results from core business
• Revenues from core activities totalled EUR 103.2 mln, compared to a record Q1
2008 (EUR 140.5 mln), a decrease of 27%. The drop in revenues is a consequence
of low order intake at the height of the financial crisis in the second half of
2008. 
• Operating loss (EBIT) from core business before restructuring charges was EUR
1.7 mln (Q1 2008: profit of EUR 13.4 mln). One-off costs related to
restructuring were EUR 3.5 mln. EBITDA was EUR 0.4 mln. (Q1 2008: EUR 18.4
mln). 

Marel Food Systems' core business is to provide equipment and systems for the
poultry, fish and meat processing industries worldwide. The salmon and freezing
parts of Carnitech, as well as its U.S. operations, are now operated under the
Marel name and management. Defined now as non-core business are Food and Dairy
Systems (F&D), Scanvaegt Nordic and the remaining operations of Carnitech.
Redefined turnover of core business in 2008 amounts to EUR 548 mln. 

Consolidated results
• Consolidated revenues totalled EUR 130.3 mln, compared to EUR 74.0 mln in Q1
2008, an increase of 76%. Net losses after taxes are EUR 7.0 mln (Q1 2008:
profit of EUR 0.7 mln). 
• Due to strong operating cash flow of EUR 16.8 mln (Q1 2008: EUR 1.8 mln) and
limited capital expenditure, the cash position increased from EUR 21 mln to EUR
33 mln. 
• Net interest bearing debt amounts to EUR 373 mln (Q4 2008: EUR 379 mln). The
average maturity of debt is about four years. 

Outlook is positive
• In Q2 2009, the company has disposed of non-core business assets for a total
of EUR 37.5 mln, of which EUR 35 mln will be paid in cash, and for a profit in
excess of EUR 10 mln. 
• Market trends are favourable with rising poultry and fish prices at the same
time as major cost items such as corn and oil prices are falling and interest
rates are at historical lows. 
• Total sales in April are very satisfactory with sales of standard equipment
at record high levels. Sales translate into revenues in 4-8 months. 
• Revenues in 2010 are expected to be back at the same level as they were in
2008. Due to extensive rationalization measures, the company will then be
operating at a sustainable lower cost base. The company target is to continue
to grow above the market rate and deliver an EBIT margin above 10%. 


Theo Hoen, CEO:

“The operational results for the first quarter of the year continue to reflect
the effects of the international financial crisis. As expected, our customers
continued to find it difficult to finance investments in large systems.
However, the effects of the current market conditions on our spare parts
business and the sale of standard machines have been limited. 

We see strong indications that sales are picking up. In the United States, in
particular, there are clear signs that a recovery is underway. Since it takes
4-8 months for sales to translate into revenues, the improvement in revenues
will be gradual during the course of the year. 

We have responded to the slowdown in order intake by cutting costs. The
measures implemented in Q4 2008 and Q1 - including a 12% reduction in the
number of employees from a year ago - will begin to be reflected in lower costs
in Q2. There are two areas that we have left untouched - our innovation
capacity and our global sales and service network, the two pillars of our
strategy for future growth and value creation. 

The long-term prospects of the business remain excellent and the underlying
growth in the industry is strong. Protein consumption continues to grow and our
customers are making profits. They rely on us to develop the products that
enable them to capture the growth in the most profitable way. We are confident
that once the market turns, we will achieve our objectives of growth above the
market average and an EBIT of more than 10% compared to sales.  With the
rationalization measures we have undertaken, the company will emerge even
stronger than before once the crisis subsides.” 

Prospects

Global financial and market conditions continue to impact Marel Food Systems'
operations, particularly the sale of larger systems and installations, often
for new factories. The sale of such systems normally accounts for approximately
one-third of the company's revenues. Marel Food Systems' customers have had
difficulty in obtaining financing for such projects. Since these projects have
been postponed rather than cancelled, it is likely that an accumulated need
will have built up by the time that conditions in the financial markets
improve. 

In the last few months, we have seen slow but gradual improvements in a few of
our key markets, following what seem to be a general improvement in the global
financial markets. In the U.S. in particular, Marel Food Systems' largest
market, there are clear signs that a recovery is underway. Sales for the month
of April in the U.S. are at a record high and there are positive signs in the
underlying business trends. 

These results correspond well with general market conditions. Measures of U.S.
manufacturing and consumer confidence for April jumped to their highest levels
since the credit crisis intensified in September. While the economic slump is
expected to persist for the coming months, the figures are seen as a clear sign
that efforts to lower borrowing costs and unclog lending are beginning to pay
off. 

In the food industry specifically, the trends in consumer behaviour are
developing as expected. 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. As a result, companies like
Aldi, Lidl and McDonald's are seeing an increase in sales and operating
profits. Marel Food Systems' customers, the food processors who supply these
outlets with products, are also benefitting. They are running their processing
lines at the same level as before the crisis and they are using the same amount
of parts and service as before. This is significant since spare parts and
service, which the financial crisis has affected to only a limited degree,
normally account for about 35% of the Marel Food Systems' revenues. 

The sale of standard equipment and smaller systems, which normally accounts for
another 35% of revenues, is also going well and has not been affected to a
significant degree by the financial crisis. Customers are continuing to invest
in such equipment as long as the payback time is under two years and they have
clearly identifiable advantages for the customer. With its unique and
innovative product range in this category, Marel Food Systems has a clear
competitive advantage vis-à-vis its competitors. 

It is Marel Food Systems' expectation that the company's cash flow will remain
positive through the course of the year. Sales and operating results are
expected to improve slightly in the latter part of the year as market
conditions improve. The drop in corn prices and base interest rates is likely
to make it easier in the months to come for food processing companies to make
the investment required to be able to respond to changing consumer demands. 


Presentation of results 7 May 2009

Marel Food Systems will present performance results at a meeting on Thursday, 7
May 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 

Publication dates of the Financial Statements for 2009:

2nd quarter					6 August 2009
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) 563-8000
Sigsteinn Grétarsson, Managing Director of Marel ehf.	Tel: (+354) 563-8000

Attachments:

q1 2009 report.pdf

news release q1 2009.pdf