Solid level of orders received in the quarter and for the full year
Orders received in the quarter were EUR 319.7m, up 13.2% QoQ and 5.7% YoY. Orders received in fourth quarter include TREIF. Orders received in FY20 were EUR 1.234.1m, on par with last year.
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. COVID-19 has been an accelerator for these trends, 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's competitive position remains strong with the pipeline trending upwards, particularly in automated solutions. Timing of conversion of pipeline to committed orders remains uncertain.
Strong revenues in 4Q20 with solid recurring aftermarket revenues
Revenues totaled EUR 343.3m in 4Q20, up by 19.5% QoQ and 7.2% YoY, with TREIF included in 4Q20, positively contributing to revenues and margins. Full year revenues were 1,237.8, down 3.6% YoY. Organic revenue growth -5.4% and acquired growth +1.8% in 2020.
Full-year aftermarket revenues were 40%, compared to 37% in 2019. Aftermarket in the quarter was 38% of total revenues (3Q20: 41%, 4Q19: 40%) due to higher proportion of project revenues in 4Q20 than in prior quarters.
Good delivery performance during the pandemic and growth in aftermarket revenues over the year, especially in spare parts, compensated for lower revenues from projects in 1-3Q20. Although service was impacted by the limitation of field service engineers to be on customers sites due to travel restrictions, the ability to offer remote support was paramount during this period.
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.
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.
Resilient profitability in 2020 supported by lower OPEX
Gross profit margin 37.4% in the quarter (3Q20: 39.2%, 4Q19: 36.2%) and gross profit was EUR 128.5m (3Q20: 112.5m, 4Q19: 116.0m), impacted by revenue mix, lower margin on projects due to higher cost and more complex execution associated with the pandemic. For the full year, gross profit margin was 37.4% (FY19: 38.3%) and gross profit EUR 462.5m (FY19: 491.1m).
Operating expenses at similar levels as last two quarters, lower costs due to travel restrictions, reduced physical trade show activity and more focus on online solutions and virtual events.
EBIT* margin was strong in fourth quarter at 15.2% (3Q20: 15.4%, 4Q19: 10.0%) and 13.5% for the full year (FY19: 13.5%).
To increase transparency of one-off costs related to acquisitions and better reflect underlying business performance, Marel has changed its adjustments of EBIT. Previously, Marel adjusted result from operations to exclude the impact of PPA related costs, and beginning in 2020, will exclude the impact of PPA related costs and acquisition related expenses.
Net result was EUR 29.1m in the quarter, down 1.0% QoQ and up 185.3% YoY. For the full year, net result was EUR 102.6 (FY19: 110.1m)
Basic EPS was EUR 3.87 cents (3Q20: 3.93 cents, 4Q19: 1.34 cents), and EUR 13.62 cents for the full year (FY19: 15.33).
Order book on par with last year
The order book at year-end was EUR 415.7m (3Q20: 434.3m, 4Q19: 414.4m). This equals 34% of 12-month trailing revenues and includes EUR 5.0m acquired order book from TREIF.
The book-to-bill ratio in the quarter was 0.93 (3Q20: 0.98, 4Q19: 0.95), while at 1.00 for the full year (FY19: 0.95).
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 order book.
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.
Strong cash flow generation in 2020
Operational cash flow in the quarter was EUR 38.9m (4Q19: 60.2m) and EUR 217.6m (FY19: 189.8m) for the full year.
Free cash flow in 4Q20 was EUR 17.7m (4Q19: 44.0m) and EUR 140.5m (FY19: 115.3m) for the full year.
Strong cash flow generation FY20 and positive working capital development, despite strategic buildup on inventories.
Cash flow in the fourth quarter was impacted by payment of pension liabilities, elevated investment levels, and timing of invoicing. Partly offset by improved net contract liabilities.
Marel paid EUR 107.0m for the acquisition of TREIF, which contributed positively to operational cash flow in 4Q20.
Marel continues to invest in its infrastructure and platform. Net cash used in investing activities, excluding business combinations and investments/loans in associates, was EUR 18.4m in the quarter (4Q19: 11.5m), or EUR 51.7m (FY19: 37.5m) for the full year equivalent.
Strong financial position with leverage ratio below 1.0x
Marel has committed liquidity of EUR 646.4m at year-end 2020 and fully committed funding in place until 2025.
Leverage was 1.0x at the end of 4Q20 following the TREIF acquisition closing in October 2020, compared to 0.5x at end of 3Q20.
Over the year, a total of around EUR 100m in dividends payout and share buybacks. In addition, Marel acquired TREIF for EUR 128m and 2.9m shares in Marel (net working capital settlement to be finalized in 1H21, purchase price allocation in progress and provisional).
Leverage is well below the targeted capital structure (2-3x) and coupled with Marel's strong financial position, will support continued investment and facilitate future strategic moves in the ongoing industry consolidation wave, in line with the company´s 2017-2026 growth strategy.
In Dec 2020, a new corporate tax law was enacted in the Netherlands. Consequently, the reduction in corporate tax rate from 25.0% to 21.7% as approved by Dutch Government in 2019 will be reversed and the Dutch corporate income tax rate will remain at 25.0%, resulting in a negative impact of EUR 5.7m on the 4Q20 tax expense.
Resilient business model in challenging times and a united team
Significant investments in recent years in Marel's global reach, digital platform and infrastructure, have been instrumental in positioning the company to successfully navigate a business environment colored by the pandemic, geopolitical uncertainty, trade constraints and change in consumer behavior already accelerated by the ongoing changes.
The pandemic continues to accelerate Marel's approach in providing virtual and remote support to engage and connect with our customers.
Marel is a critical infrastructure company in the food industry. Earlier in the year, Marel's manufacturing sites in close cooperation with our suppliers, diligently organized themselves to ensure business continuity and safety for both employees and customers.
All manufacturing sites have remained open throughout the pandemic, although we did see increased inefficiencies (e.g. absenteeism and logistics costs). Uncertainty still remains for 2021 as to the impact of COVID-19 and the severe lockdowns on efficiency of operations.
Marel's effort in recent years, to shorten production lead times and co-locate production, created more resilience in the supply chain. This together with the strategic inventory build-up allows us to be more agile, serve customers' needs and ultimately keep the food value chain running.
Marel implemented a Global Pay Policy during COVID-19 in April 2020, to secure minimum pay for a defined period of time if employees could not, for one reason or the other, conduct their work due to COVID-19.
Marel did not make use of government support or rent discounts related to COVID-19 in 2020. If government support was provided due to local laws, an equivalent or greater amount was donated to charity by Marel.
Dividend proposal of 40% payout ratio for upcoming 2021 AGM
In line with Marel's targeted capital allocation and dividend policy of 20-40% payout ratio, the Board of Directors will propose a 40% payout ratio at the 2021 Annual General Meeting, to be held on 17 March 2021 (2020: 40%, 2019: 30%).
Based on a EUR 5.45 cents dividend per outstanding share paid for the operational year 2020, or 6% lower than in 2020, the estimated total dividend payment will be around EUR 41.0m.