Financials

• Orders received increased by 15%, and revenues rose by 26% compared to 2021.
• We achieved record aftermarket revenues for 11 consecutive quarters, accounting for 40% of total revenues in 2022. This reflects Marel’s strong market position as a trusted maintenance partner and underpins our 2026 target of having 50% of revenues come from software and services.
• Improved operational performance was achieved through higher volume, enabled by automation and infrastructure investments, solid customer deliveries and better price/cost coverage.
• We are committed to achieving the run-rate of 14-16% EBIT target for year-end 2023.
• We remain committed to our 2023 financial and operational targets and 2026 growth plan.

Marel closed the year with orders received at a record level of EUR 1,734.0 million. Demand for our pioneering solutions has been strong since the third quarter of 2021, with orders received exceeding EUR 400.0 million every quarter during this period. Based on this new level of market demand, resulting from a catch-up effect from the past years and a tailwind in the market, Marel raised its forecast of short-term organic market growth to the range of 6-8% until 2026, compared to the 4-6% market growth expected in the long term.

Prolonged inflation, rising interest rates and global recessions have historically shifted consumer demand as well as investments in the food industry from large projects toward standardized solutions, aftermarket and less capital-intensive projects.

Favorable secular trends, which are focused on automation, robotics technology and digital solutions that support sustainable food processing, will continue to support the organic growth outlook in the long term. In the short term, the current macroeconomic backdrop is causing elevated uncertainty.

Marel’s order book at year-end was EUR 675.2 million, up by 18.7% compared to EUR 569.0 million at year-end 2021, representing 39.5% of 12-month trailing revenues. The book-tobill ratio was 1.01 for the full year, compared to an average of 1.09 in the past four quarters (4Q21 to 3Q22) and 1.10 at year-end 2021.

Marel’s order book consists of orders that have been signed and financially secured with down payments or letters of credit. The vast majority of the order book is composed of greenfields and projects, while spare parts and standard equipment move through the system more quickly.

In 2022, we actively raised prices, which gradually filtered through the system. The new price/cost levels filter through at varying rates depending on business mix. Aftermarket takes around 6-8 weeks, standard equipment takes around 3-6 months and larger projects take around 9-12 months.

Revenues for the full year were EUR 1,708.7 million, an increase of 25.6%, with acquisitions contributing EUR 129.3 million. Organic revenue growth was 16.1%, and acquired growth was 9.5% in 2022. Challenging market conditions in the first half of the year, such as supply chain disruption and high inflation, led to missing parts and inefficiencies in manufacturing, which affected revenues.

Revised year-end 2023 financial target

Operational performance was below expectations in the first half of 2022, hampered by high operating expenses, cost pressures due to inflation and disruptions in logistics and the supply chain. Moreover, ramp up of revenues was slower than expected.

As a result, Marel revised its year-end 2023 financial target to a run-rate of 14-16% EBIT in the second quarter, down from the previously stated 16%, allowing for a 2% contingency buffer due to volatility in market conditions.

Other 2023 financial targets were unchanged, with a gross profit of around 38-40%; selling, general and administrative expenses (SG&A) of around 18%; and investment in innovation at the 6% strategic level.

Infrastructure investments improved operational efficiency

In the second half of 2022, Marel’s strong order book and the full benefit of our pricing actions supported the ramp up in revenues and improved price/cost coverage and operational performance. Our transformative infrastructure investments to further automate and digitalize the platform helped to improve operational efficiency and increase volumes through solid customer deliveries. Although these investments added to nonrecurring costs in 2022, they are expected to have a positive impact in the future.

Full Potential program to support EBIT margin expansion

For the full year, the adjusted EBIT was EUR 163.4 million (2021: EUR 153.6 million), translating to an adjusted EBIT margin of 9.6% (2021: 11.3%). To support further EBIT margin expansion, we launched the Full Potential program as a global top priority in the second half of 2022. As part of this program, we have already enacted various actions that we expect will positively impact the EBIT margin. These include pricing actions that have been filtering through and the 5% global workforce reduction, which is expected to result in annualized cost savings of around EUR 25.0 million.

Further initiatives are centered around price/cost discipline, improving Service Level Agreements (SLA) attachment rates, and further aftermarket penetration on the current installed base, in addition to optimizing the manufacturing footprint and supply base.

Operating cash flow in 2022 was affected by lower operational performance, including one-off costs related to acquisitions and restructuring. Operating cash flow for the year was EUR 96.4 million, compared to EUR 212.3 million in 2021.

At the same time, net working capital movements, continued investments and an inventory buildup earlier in the year impacted free cash flow, tying up capital and cash flow. Free cash flow was negative by EUR 18.1 million, compared to EUR 116.0 million in 2021.

Marel’s cash flow model remains unchanged and aims to reach historical cash conversion levels by year-end 2023.

Following the acquisition of Wenger in the second quarter, Marel’s leverage ratio was 3.6x at year-end 2022, compared to 1.0x at year-end 2021 and 3.9x at the end of the third quarter of 2022. Marel’s current leverage is temporarily above the targeted capital structure of 2-3x net debt/EBITDA, with the objective to be within the targeted range at the beginning of 2024.

The main drivers of deleveraging will be improvements in EBIT and net working capital. Marel’s strong cash flow model has enabled the company to deleverage quickly after transformational acquisitions in the past.

On 2 November, Marel signed a three-year USD 300 million term loan with its banking group consisting of ABN AMRO, BNP Paribas, Danske Bank, HSBC, ING, Rabobank and UniCredit. This new term loan has an initial margin of 250 basis points on top of the Secured Overnight Financing Rate (SOFR), which will move in line with the net debt/EBITDA ratio. Additionally, the loan has a two-year uncommitted extension option.

While Marel is within the acquisition spike and covenant terms of the EUR 700 million revolving facility, Marel and the banking group agreed on additional covenant headroom as a safety measure for temporary swings in cash flow and operational performance, as well as foreign exchange (FX) volatility.

Marel had committed liquidity of EUR 243.8 million at yearend 2022.

In April 2022, Marel announced the USD 540 million acquisition of US-based Wenger, a global leader in extrusion systems. Over 60% of Wenger’s revenues derive from pet food, they have a strong foothold in the North American market and over 40% of revenues come from services. Headquartered in Sabetha, Kansas, US, the company has a strong foothold in the North American market and around USD 190 million in annual revenues, with 500 fulltime equivalents (FTEs).

Marel also concluded the bolt-on acquisition of Sleegers Technique in April 2022. Sleegers is a Dutch provider of interleaving, stacking, loading and slicing solutions for prepared foods such as hamburgers, bacon and cheese processing. Headquartered in Nieuwkuijk, the Netherlands, Sleegers has around EUR 5 million in annual revenues and 27 FTEs.

In February 2022, Marel also acquired the remaining 50.0% of the shares of Curio, an innovative primary processing equipment provider for whitefish processing. Curio and Marel have worked closely together since 2019.

Then in November, Marel, Tyson Ventures and a group of investors announced they are partnering to invest in Soft Robotics, a leading US-based technology company that designs and builds automated picking solutions that utilize proprietary soft robotic grippers, 3D machine perception and artificial intelligence (AI). As part of Soft Robotics’ initial Series C funding round, Marel invested a total of USD 3 million, with Soft Robotics raising a total of USD 26 million from new and existing investors.

Our Poultry segment’s competitive position remains strong due to its established full-line offering. With one of the largest installed bases worldwide, Poultry focuses on rolling out innovative products and penetrating the market by cross-selling secondary and further processing solutions.

Poultry had a good number of orders received in 2022, with a mix spanning the whole value chain including primary, secondary and consumer-ready products. The demand in North America remained strong throughout the year.

The segment started 2023 with a healthy order book, thanks to double-digit growth in orders. Although the pipeline is good, the timing of converting the pipeline into orders is uncertain in the current market environment, and demand could shift between geographies.

Poultry’s revenues in 2022 were EUR 832.1 million, up 30.2% from 2021, driven by growth in both equipment and aftermarket sales. The adjusted EBIT margin for the full year was 14.2%, compared to 14.3% in 2021.

Management targets short-term EBIT margin expansion for Poultry. However, operational results may vary from quarter to quarter due to general economic developments, fluctuations in orders received and timing of deliveries of larger systems.

The Meat segment is a full-line supplier to the meat processing industry. Its focus is on strengthening product development and increasing standardization, modularization and market penetration, as well as further cross- and upselling.

In 2022, the meat industry was impacted by challenging market conditions such as geopolitical unrest, sanctions, lockdowns, inflation and the reappearance of African Swine Fever. Additionally, focus on sustainability has shifted consumer preferences from meat to poultry and plant-based proteins. The outlook for North America and Latin America is promising, but it is softer for other geographies in current market conditions.

Revenues remained steady in 2022 at EUR 514.1 million, similar to 2021 due to a slowdown in orders in the second and third quarters that impacted volume for the year. Challenging market conditions resulted in an adjusted EBIT margin of 4.1%, compared to 9.2% in 2021.

Management continues to target EBIT margin expansion for Meat, with an emphasis on improving operational performance, including optimizing the manufacturing footprint by investing in infrastructure initiatives to support aftermarket and modernization opportunities in primary processing. Recent product launches in secondary processing are showing great promise and relevance in the current inflationary environment.

The Fish segment’s objective is to achieve a full-line offering across farmed and wild whitefish and salmon by focusing on innovation and mergers and acquisitions (M&A).

After a record first half of the year, orders received for Fish were on the softer side in the second half of 2022. This was due in part to the closing of several larger projects being moved into 2023 and the impact of proposed tax changes in Norway.

The segment’s revenues in 2022 were EUR 191.5 million, an increase of 18.9% from 2021, while the adjusted EBIT margin was negative 0.5%, compared to a margin of 5.6% in 2021.

Management continues to target EBIT margin expansion for Fish by focusing on faster conversion of the order book to revenues, in addition to improving the segment’s product mix, productivity and cost efficiency through load balancing in key locations.

In the third quarter, Marel consolidated the newly acquired Wenger business in its segment reporting under the name of Plant, Pet and Feed. This segment also includes sales of retail and foodservice solutions.

In line with expectations, Plant, Pet and Feed performed well in 2022, with a stronger second half of the year compared to the first half due to the timing of orders and shipments.

Revenues in the third and fourth quarters totaled EUR 121.8 million, including EUR 21.3 million in revenues that were historically reported under the Other segment, which includes everything not categorized into the four business segments. The adjusted EBIT margin also met the expectations of 14-15%, with margins of 14.7% and 15.7% in the third and fourth quarters, respectively.

Wenger’s strong foothold in the North American market is providing Marel with a better diversification of revenues across geographies. By leveraging Marel’s global reach and digital platforms, Marel can proactively create value in Wenger’s sizeable and high-growth markets.

Utilizing customer relationships to cross-sell the companies’ combined portfolios also allows for a more proactive approach. Other planned initiatives include expanding manufacturing capacity to respond to high demand in Wenger’s core markets, particularly in pet food.