Strong orders received in the quarter
Orders received in the quarter were EUR 369.4m, up 15.5% QoQ and 5.0% YoY. Orders received in the first quarter include orders from the newly acquired entities of TREIF (meat and other), Curio (fish) and PMJ (poultry).
Across all industries, orders received were strong for standard equipment and aftermarket. Marel has stepped up market coverage and recently launched revolutionary solutions in consumer-ready products.
Marel Meat secured several landmark orders in the quarter, while conversion from pipeline of large orders was soft for Marel Poultry and Marel Fish. The pipeline for large greenfields and modernization projects is building up in all industries.
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 in terms of social distancing, access to labor and hygiene. In addition, shifting market dynamics and change in consumer behavior are also driving demand.
The book-to-bill ratio in the quarter was 1.11, compared to an average of 1.00 in the past 4 quarters (1Q20-4Q20).
A healthy order book with landmark orders from China and Brazil
The order book at end of March was EUR 455.3m (4Q20: 415.7m, 1Q20: 464.6m), representing 36% of 12-month trailing revenues.
Marel Meat secured a landmark order from Muyuan Group, the world's second-largest pig breeder. Muyuan is building sophisticated processing facilities in China, close to the pig farms to help control and eliminate ASF and other animal diseases. Muyuan is adopting Marel's most advanced primary meat processing lines to take best advantage of industry-leading electronic and digital technology.
Another landmark project for Marel Meat is the Frimesa pork processing plant in Brazil, which will be the largest and the most advanced in Latin America.
Greenfields, such as large equipment orders, and 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.
Revenues of EUR 334m with 39% solid recurring aftermarket revenues
Revenues were EUR 334.0m in 1Q21, up by 10.7% YoY, and down 2.7% QoQ.
Aftermarket represented 39% of total revenues in the quarter (4Q20: 38%, 1Q20: 41%). Robust spare parts revenues compensated for lower service revenues due to travel restrictions and logistical challenges.
Revenues from consolidation of Curio (as of 4 Jan 2021) and acquisition of PMJ (as of 21 Jan 2021), were around EUR 3m in 1Q21. The 40% stake in Stranda Prolog is categorized as investment in associates.
Profitability hampered by rising logistics costs, step up in sales and service coverage and strategic improvement initiatives
COVID-19 had an impact on 1Q21 results. As the pandemic escalated in Jan-Feb, stringent lockdowns across several key geographies had an impact on the efficiency of operations. Ensuring timely delivery and installation for customers during a period of significant challenges in mobility and logistics, led to higher costs in manufacturing, aftermarket and transportation.
Gross profit margin was 37.2% in the quarter (1Q20: 35.6%) and gross profit was EUR 124.4m (1Q20: 107.3m), positively impacted by mix but volume and margin were negatively impacted by mobility and logistics challenges.
Sales and marketing (S&M) costs were at a level of 12.0% of revenues and reflect the step up in market coverage, and innovation cost was at 6.2% in line with plans to leverage global reach and digital solutions.
General administrative (G&A) costs were high or 7.7% of revenues, rising temporarily due to several improvement projects to increase resilience and agility of operations. These are important initiatives to better service our customers and prepare for the organic growth ahead in line with a growing pipeline. Marel does not adjust results for non-recurring costs.
EBIT1 was EUR 38.0m (4Q20: 52.3m, 1Q20: 25.4m), translating to an EBIT1 margin of 11.4% (4Q20: 15.2%, 1Q20: 8.4%).
Net results was EUR 21.2m in the quarter (4Q20: 29.1m, 1Q20: 13.4m).
EPS was EUR 2.82 cents (4Q20: 3.87 cents, 1Q20: 1.76 cents).
Robust cash flow generation to support continued investments
Both operational and free cash flow was robust in the quarter.
Cash generated from operating activities in the quarter was EUR 60.2m (1Q20: 61.5m).
Free cash flow in 1Q21 was EUR 45.5m (1Q20: 38.6m).
Strong cash conversion supports continued investments in innovation, infrastructure and strategic moves.
Investments to support organic and strategic growth
To best serve customer needs and capture growth opportunities from changing market dynamics, Marel is focusing on increasing digitalization and agility, leading to an increased level of investments in the coming years.
Important initiatives identified, e.g. stepping up market coverage, innovation investments in digital solutions, and improvement projects to streamline the back end, as well as automating and digitizing the manufacturing platform, supply chain and aftermarket.
In 2021, Marel will open sales and service offices, as well as new demo centers in both Shanghai, China and Campinas, Brazil.
Leverage ratio of 0.8x and strong financial position to support 2017-2026 growth strategy
Low leverage, committed liquidity of EUR 668.4m at the end of March, including fully committed all-senior funding in place until 2025, enables continued investment and will facilitate future strategic moves in the ongoing industry consolidation wave, in line with the company's 2017-2026 growth strategy.
Leverage was 0.8x at the end of 1Q21, compared to 1.0x at the end of 4Q20 following the TREIF acquisition closing in October 2020, and well below the targeted capital structure (2-3x).
For acquisitions of Curio and PMJ, in addition to the 40% holding in Stranda Prolog, EUR 21.7m was paid out during the quarter.
Dividend paid out in April corresponding to EUR 41.0m or 40% of net results (2020: 40%, 2019: 30%).
Resilient business model in a quarter of lockdown and logistics challenges
The full economic impact of COVID-19 on Marel is uncertain.
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 rapidly changing market dynamics and shifts in consumer behavior.
Marel is a critical infrastructure company in the food industry. All manufacturing sites have remained open throughout the pandemic. In early 2020, Marel's manufacturing sites in close cooperation with our suppliers, diligently organized themselves to ensure business continuity and safety for both employees and customers.
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 allowed more agility in terms of serving customers' needs better and keeping the food value chain running.
Marel provides virtual and remote support from our global platform to our local teams to engage and connect with our customers.
The 2021 virtual AGM approved all proposals and new board elected
Arnar Thor Masson will lead the Board as Chairman, and Olafur Gudmundsson as the Vice-Chairman of the Board.
After serving on the Board for 11 years, thereof more than 7 years as Chairman, Asthildur Margret Otharsdottir did not declare candidature. The Marel Board and management sincerely extend their gratitude for her strategic direction and excellent leadership throughout the years.
Dr Svafa Gronfeldt is a new director elected to the Board. A Professor of Practice at MIT, Svafa is a founding member of MIT's newest innovation accelerator DesignX focused on the design and development of technology- and service-based ventures created at MIT, and a co-founder of the MET fund, a Cambridge based seed investment fund. Svafa is a director of the Board and Audit Committee of both Össur and Icelandair.
Remuneration policy was approved with ESG added as a parameter for the Executive Team total remuneration.