ADVANCING FOOD PROCESSING

2016 was yet another good year for Marel. It was a year of strategic growth and a further strengthening of our foundations. Amidst significant shifts in the world’s geopolitical landscape – resulting in both political and economic uncertainty – the strategic drivers in our industry remained intact. The immense social challenge of how to feed the world’s population in the future continues to present Marel with opportunities for sustainable value creation by advancing the way food is processed.

THE CHALLENGE

The only way we as a society can address these immense challenges is with technology, innovation and changes in behavior. We have to find ways to do more and better with less. This represents countless opportunities for Marel and its customers. Armed with innovation – the core of our strategy – Marel pursues its vision of transforming the way food is processed, in partnership with our customers. Marel is continuously seeking new ways of doing more with less, enabling our customers to increase yields, minimize waste, decrease the use of water, energy and other valuable resources while increasing food safety and improving the working conditions of employees.

THE OPPORTUNITIES

Today’s global population of 7.5 billion is projected to rise to around 9.7 billion in 2050. This, along with continued urbanization, increased prosperity and changes in consumer behavior, is expected to lead to a substantial rise in the demand for food. The UN’s Food and Agricultural Organization predicts the increase will be up to 50%. At the same time, the focus on sustainability and environmental matters is continuously growing. We are using too much of scarce resources such as water, land and energy for food production. On top of this, we waste an unconceivable amount of food. It is estimated that around one third of the food produced in the world today is wasted somewhere in the value chain. That is equivalent to 1.3 billion tons of waste, worth around $1 trillion.

In 2016, Marel invested €63m in innovation, corresponding to 6.5% of our revenue. In a world where the pace of technology-driven change is faster than ever before, we must be vigilant and remain agile, finding the right balance between addressing customers’ current needs and leading the future development of the industry. The industrial Internet revolution, digitalization and big data are changing Marel’s business like the rest of the world. We see great future opportunities in our Innova Food Processing Software, which has already been installed in over 1600 plants worldwide. Innova enables food processors to optimize their performance and provides full traceability, adhering to ever changing food safety standards. Marel’s future success is based on the ability to bring innovation to the market and deliver value to customers, fueling further investments in our own business and future growth.

PROGRESS IN LINE WITH STRATEGY

Over the last decade, Marel’s revenues have grown around 20% per year on average, one-third through organic growth and two-thirds through acquisitions. The target continues to be set at the organic growth being greater than the market, which has been growing by 4-6% per year in the past. The market is still fragmented and ripe for further consolidation. Our aim is to continue to leverage Marel’s strong foundation and create additional value for shareholders through acquisitions. In 2016, organic growth was fueled by the continued strengthening of our product portfolio and the introduction of several new, state-of-the-art solutions. Significant investments were also made in advancing our own business, upgrading manufacturing equipment, improving facilities and IT platforms.

In the beginning of the year, the acquisition of MPS was closed, supporting Marel’s full line offering in the meat processing industry and contributing to a more balanced revenue split between industry segments and geographies. Revenues increased by over 18% during the year and are approaching one billion with healthy profitability. Profit for the year amounted to €75.8m and earnings per share increased by 34%, reflecting the strong operating results and the fact that the MPS acquisition was completed without issuing new equity capital. The progress in 2016 is fully in line with our strategy.

DISTRIBUTION OF PROFITS

Marel’s financial position is strong with net debt to EBITDA well within the target range of 2-3. In line with the company’s capital allocation and dividend policy, the Board of Directors has proposed to the 2017 Annual General Meeting that a dividend payment of €15.3m, corresponding to approximately 20% of net profits, is paid to shareholders. Furthermore, the Board of Directors has authorized the purchase of own shares for up to €15m to be used as payment for potential future acquisitions.

CORPORATE RESPONSIBILITY

Marel’s Board of Directors is committed to good corporate governance and ethical business practices that promote the long-term interests of shareholders. In the beginning of 2016, we were awarded a recognition as “Exemplary in Corporate Governance” by the Research Center for Corporate Governance at the University of Iceland, Nasdaq Iceland, the Iceland Chamber of Commerce and the Confederation of Icelandic Employers. During the year, significant progress was made in developing and executing a formal approach to corporate social responsibility. Guiding principles for the approach to people, the planet and profitability were introduced throughout the organization and Marel became a signatory to the UN’s Global Compact. For further information, reference is made to the Corporate Responsibility section of this report. During the year, the Board held meetings in Iceland, the Netherlands and the US, providing board members with a great opportunity to visit Marel’s operations as well as customers in these countries. Board members also participated in several trade shows, providing valuable insights into market dynamics.

POSITIONED FOR FUTURE VALUE CREATION

Marel is well positioned to capture long-term profitable growth. We stay true to our purpose of partnering with customers to transform the way food is processed. Our vision is of a world where quality food is processed sustainably and affordably. On behalf of the Board of Directors, I congratulate the Marel team on the results and achievements made in 2016 and extend our appreciation for the dedication and hard work. We thank the company’s shareholders for their continuous commitment and support.