avatar Marel Poultry B.V. Manufacturing

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    ANNUAL REPORT 2005


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    The Marel Group The Marel Group comprises two principal companies: Marel and subsidiary Carnitech, along with 15 other subsidiaries in 14 countries and branch offices in four countries. In addition, the Group has a network of over 50 agents and distributors that market, sell and service its products around the world. Over two-thirds of overall sales are achieved through subsidiaries, or directly from Marel or Carnitech. The company has sold products to over 60 countries with a wide diversity of languages, cultures, operating practices and technological capabilities. The Marel Group has devel- oped a dynamic sales and marketing operation, and provides customer services on all its markets. Marel hf, Iceland Marel Spain, Spain Marel Carnitech office in Vietnam, Marel Australia, Australia Marel UK, England Vietnam Marel Chile, Chile Marel USA, United States Carnitech A/S, Denmark Marel Deutschland, Germany Marel Russland, Russia Carnitech Norge, Norway Marel Canada, Canada Marel office in Poland, Poland Carnitech US, United States Marel New Zealand, New Zealand Marel office in Italy, Italy Carnitech Marel Slovakia, Slovakia Marel Scandinavia, Denmark Marel Carnitech Thailand, Thailand DanTech, Singapore Subsidiaries Agents


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    Fish Meat Poultry The Marel Group has been on the In recent years, machinery, equipment The Marel Group provides both stand- leading edge of the revolution in fish and new flowline concepts based on alone equipment and full systems for processing innovation both on land innovative Marel Group technologies chicken, turkey, and duck process- and at sea. From raw-material grading have generated remarkable advances ing. From simple production flow im- and trimming to portioning, grading in meat processing. We provide com- provements to large-scale turnkey and packing, the Group consistently plete processing solutions that fully processing plants, we focus on pro- implements new technologies into fish utilize raw materials and maximize viding equipment and software that processing. value-added profits. increases yields, reduces labor costs and improves end quality for poultry producers. Organization Board of Directors / Managing Director Marel Carnitech Marel Marel Marel Marel Marel Marel Marel Marel Marel Marel Carnitech Australia Chile Deutschland Canada Scandinavia Spain UK USA Russia Thailand Carnitech Carnitech Carnitech DanTech Marel Norway US Singapore Slovakia Cooperation Together, the companies that make up the Partners in Processing group supply a complete range of processing equipment to all sectors of the food processing industry.


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    We design with flexibility and insight


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    Marel hf Annual Report 2005 23rd Operating Year Annual General Meeting 28th February 2006 Marel will publish the Financial Statements for 2006 on the following days: 1st quarter: Tuesday 9 May 2006 2nd quarter: Thursday 10 August 2006 3rd quarter: Tuesday 7 November 2006 4th quarter: Tuesday 13 February 2007 The Annual General Meeting is scheduled to be held on Thursday, March 8th, 2007


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    The Marel Group Marel hf Gardabaer Iceland Marel Australia PTY LTD Morningside QLD Australia Marel Canada Dartmouth, NS Canada Marel Carnitech Thailand LTD Bangkok Thailand Marel Carnitech Vietnam Ho Chi Minh City Vietnam Marel Chile S.A. Puerto Montt Chile Marel Deutschland GmbH & KG Osnabrück Germany Marel Deutschland GmbH & KG Bruckmühl Germany Marel New Zealand Woolston New Zealand Marel Italy Rubiera RE Italy Marel Poland Warsaw Poland Marel Russland LTD Moskva Russia Marel Scandinavia A/S Støvring Denmark Marel Spain S.L. Vilagarcia de Arousa Spain Marel UK LTD Bromsgrove England Marel USA INC Lenexa, KS USA Arbor Technologies S.A. Landevant France Carnitech A/S Støvring Denmark Carnitech Norge Ålsund Norway Carnitech US Seattle USA Carnitech Marel Slovakia Nitra Slovakia DanTech PTE LTD Singapore Singapore


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    INDEX 6 The Marel Group 7 Financial Summary 8-9 Chairman’s Address 10-11 Director’s Address 12-13 News 2005 16-19 Performance in 2005 22-23 Sales & Marketing 24-25 Product Development 26-27 Manufacturing 28-29 Service 30-31 Corporate Social Responsibility 32-33 Human Resources 34-35 Marel Group Administration 36-37 Shares & Shareholders 37 Corporate Governance 40-41 Board & Managing Director’s Report 42 Auditors’ Report 43 Financial Ratios 44 Consolidated Income Statement 45 Consolidated Balance Sheet 46 Consolidated Statement of Changes in Shareholders’ Equity 47 Consolidated Cash Flow Statement 48-77 Notes to the Consolidated Financial Statements


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    THE MAREL GROUP Our vision is to be an international leader in developing and marketing high-tech processing equipment for the food processing industry in order to increase the productivity of our customers. Our approach is simple. Innovative designs, Our products cover the entire production high-tech development, quality craftsmanship process, from primary processing to pack- and excellent installation and service . . . ing and freezing. The Marel Group designs all combined for one purpose: to deliver and manufactures scales, weighing units, higher yields, better working conditions and conveyor systems, diverse graders, moni- value-for-money for the world’s fish, meat toring equipment, trimming and deboning and poultry producers. The result is a lines and intelligent portioning machines, healthier bottom line. as well as grinders, mixers, freezers and packing systems. MPS Production Control Software ties any or all of this equipment together into a seamless whole, which provides real-time information and comprehensive production overviews presented in simple, easy-to- read formats. To make things even simpler, our solutions are available to customers at fifteen Marel Group subsidiaries located in North and South America, Eurasia, Europe and Oceania. We also operate a network of agents and distributors conveniently situated in some 30 countries around the world. For nine years, we have operated with an ISO 9001 Certification for our quality system, which covers product development, sales, manufacturing and after-sales services. Quality and reliable products and services that make a big difference. It’s as simple as that. 6


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    FINANCIAL SUMMARY The year 2005 was the next-best operational year in the history of the Marel Group. Sales for the year totaled € 129.0 million, an increase of 14.9% from the previous year. Profit from operations (EBIT) was € 9.7 million. Net profit was € 5.7 million, a decrease of 28% from the year before. Net profit per share was 0.0242. Working capital from operations was € 12.5 million. Sales Net cash from operating activities Thous. € Thous. € 140,000 14,000 120,000 12,000 100,000 10,000 80,000 14,000 60,000 8,000 40,000 4,000 20,000 2,000 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Operating profit before depreciation, Purchase of property, plant EBITDA and equipment Thous. € Thous. € 18,000 16,000 16,000 14,000 14,000 12,000 12,000 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005


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    CHAIRMAN’S ADDRESS Marel is at the forefront of the developing and marketing of high-tech applications for the international fish, meat and poultry industries. By using Marel technology, customers have managed to increase productivity significantly with better utilization of raw material and manpower. Marel was formally founded in 1983, but the company’s roots lie in a research project conducted at the University of Iceland a few years earlier. The industry in which Marel operates is interesting. While food processing in general has grown in line with economic growth, further processing has grown faster, and sales of processing solutions have grown twice as fast as economic growth over the last ten years. With hard work and diligence, Marel management and employees have managed to strengthen the company’s position during this period and gain an increased market share on this fast-growing market. Profitable internal and external growth The company’s expansion has been based on profitable internal and external growth through the acquisitions of other companies operating in similar fields. Employees have succeeded in increasing profitability without reducing effort in product development and marketing, which will generate income growth in the coming years. Marel was one of the first companies in Iceland listed on the Icelandic Stock Exchange, and it is safe to say that the company has enjoyed the goodwill and trust of investors from the start. With the ongoing support of principal share- holders and smaller investors, Marel has succeeded in raising necessary capital to finance acquisitions that have strengthened the company technologically, and significantly improved its access to markets. I had the pleasure of becoming acquainted with the company as a financial consultant during its acquisition of Carnitech in 1997. This merger was fortuitous regarding technological transfer, cooperation in marketing and reducing operational fluctua- tions. Since then, both Carnitech and Marel have made numerous smaller acquisitions that have proven financially beneficial for the Group. In recent years there has been a significant financial improvement in Marel’s operations, and the value of shares has increased considerably. Changed ownership and new board members Significant changes have occurred in the ownership of Marel shares in recent years, which have led to changes on the company board. The new board has systematically increased its knowledge of the company as well as the industry as a whole. The board of directors, along with managers, has visited many of the company’s customers, first in Iceland where companies in the fish and meat processing industries were visited, followed by trips to interesting clients in Europe and North America. In addition, major fisheries and poultry exhibitions were visited. These trips provided the opportunity to see how technologically advanced Marel is, and it was gratifying to listen to satisfied clients that have succeeded in greatly increasing their productivity and utilization in recent years by using the newest technology from Marel. Corporate Governance The board of Marel has approved guidance regarding corporate governance that the Iceland Chamber of Commerce, Icelandic Stock Exchange and Confederation of Icelandic Employers have published for the purpose of improving the credibility of listed companies in relation to the stock market. The board has appointed two committees – auditors’ committee and compensation committee – to discuss and prepare matters between board meetings. The auditors’ committee has reviewed the internal and external audit of the company, and held meetings with the company’s accountants. A new stock option plan was recently approved for a wide group of employees, which is intended to intertwine their interests with those of company shareholders. The stock option plan was a cooperative effort between the compensation committee and the managing director, and was later approved by the board. The board’s approval is based on the plan’s acceptance at the respective stockholders’ meeting, which has the final say regarding the issuance of new shares and determining dividends. The operating environment in Iceland is unacceptable In general it is good to operate companies in Iceland, although conditions have worsened considerably in recent years compared with other countries. The government has encouraged major investments in the power-intensive aluminum industry, which has also stimulated major investments in power-intensive industries. A State-backed loan system com- petes with other banks to make investment and consumption loans to the public. To slow down the economy, the Central Bank of Iceland has chosen to increase interest rates, which has caused the currency exchange rate to increase 8


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    Árni Oddur Þórðarson, Chairman significantly and prompted foreign parties to invest in commercial paper at those interest rates. The high exchange rate constricts export fields while stimulating the consumption of imported consumer goods. At the same time, municipalities have greatly increased taxation on companies to meet their increased operational and wage commitments. Almost 1000 people work for the Marel Group, about one-third in Iceland. These are generally well-educated employees on good salaries and they, along with the company, have generated considerable value for the society. The board and management of Marel have made the decision that all company growth will occur abroad, and will at the same time endeavor to protect the knowledge center that has been built up in Iceland. The government has discussed setting up a fund and credit-transfer system to increase research work in the country. Experience of such systems is not sufficiently good. It is necessary to create a general system where those who put money into research will bear the cost as well as the future profits. This would be manageable by permitting additional tax deductions for research costs. The growth will take a place abroad Marel’s board has taken the decision to develop extensive operations in Slovakia. The production facility to be built is similar to that which Marel operates in Garðabær in Iceland, and is scheduled to be in full production by the beginning of 2008, with between 200-300 employees. The first step has been taken with the leasing of a smaller manufacturing facility that has commenced production. In addition, a production facility was acquired in Singapore last year with close to 100 employees, which provides the company with the opportunity to manufacture products in a dollar zone at lower cost. Both of these projects are handled by Carnitech’s management in cooperation with the Group’s management and board of directors. It is clear that the weight of Iceland in operations will greatly diminish in the coming years, as will the company’s exchange-rate risk since today up to one-fourth of the total costs are in Icelandic krona and only a small percentage of the income. Exciting times ahead The board and executive management of Marel have worked on a development strategy and an implementation plan for the coming years. This work has involved studying Marel’s competitive position and the position of the industry, and has included working closely with domestic and foreign consultants. There is no single party that has a decisive leadership position on the market; instead there are numerous smaller companies. It is apparent that major integration will be occurring in the coming years and that Marel intends to lead it. Over the next years, 2-4 strategic acquisitions will be made that will expand Marel’s unique technological position, and improve access to markets. It is expected that the company’s turnover will triple over the next 3-5 years. Integration will be implemented primarily among companies now operating in Europe and North America. A company made larger and stronger by mergers will have a greater ability to guide the development of new markets in East Europe, Asia and South America. In conclusion, I would like to thank my fellow board members, the managing director and all of Marel’s employees for their excellent cooperation and work well done. I thank the shareholders for their considerable support, and customers for their dedication and close cooperation. The coming years will be challenging, and I am convinced that we will succeed in making Marel the global market leader in developing and marketing high-tech equipment in its field. Árni Oddur Þórðarson Chairman of the Board


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    DIRECTOR’S ADDRESS Operation The year 2005 was a successful one for the Marel Group, experiencing a strong growth of 15%. Organic growth was driven by strong product development, and strengthening sales and marketing activities. The unfavorable exchange rate of the Icelandic currency resulted in reduced profitability after a record year in 2004. The Group continues to focus on increasing productivity and decreasing production costs by standardizing production and exercising economy in purchasing. Opportunities for external growth were developed by the acquisition of the company DanTech based in Singapore, a company specializing in IQF freezers with considerable synergy with Carnitech’s product line. Markets The Group’s key markets have been North America and Europe, and in 2005 the Group continued to reinforce opera- tions in these markets. At the same time, effort was focused on market expansion by increasing operations in key growth markets such as Eastern Europe, South America, Asia and Australia where excellent opportunities exist for the Group’s solutions. New subsidiary companies where established in Spain and Russia to support these markets. In 2005 the Group secured major contracts with many of the largest fish, meat and poultry processors in the world. These large contracts for processing solutions are a result of long-term sales and marketing efforts that have delivered strong organic growth in 2005. Customers The Marel Group works hand in hand with food processing companies on all continents to produce the best possible solutions for varying processing needs. Among the aquaculture industry, 22 out of the top 23 processors are our customers, and the statistics are similar in whitefish. Out of the top 50 meat and poultry processors in the world, 42 are our customers. Cooperation with customers is a key issue when developing new solutions, as the Group constantly monitors current and emerging trends and requirements within each industry sector. Our customers must respond to changes in their customer requirements, an ongoing development that the Marel Group monitors diligently. We focus on helping our customers maximize profits by increasing yield, throughput and efficiency. To improve customer services, the Group offers the Partners in Processing scheme. Intended primarily to utilize the full range of complete solutions offered by the companies comprising the Marel Group, Partners in Processing has successfully resulted in increasing awareness of the Group’s full product range. Product development One of the primary factors in a successful operation is progressive product development. The Marel Group annually invests 6-7% of revenues in product development to strengthen its leading position on the market and fulfill customer needs. Product standardization was one of the objectives for 2005, and it proved to be a successful factor in increasing efficiency, lowering production costs and strengthening the Group’s competitive position. A host of new products was introduced in 2005. The OptiCut Portioning Machine is designed to portion meat with high accuracy, and is capable of feeding portions directly into trays using another new product, the Quick Loader. The Sure Track grader was introduced, which uses a revolutionary new grading principle that makes it possible to grade whole salmon at higher capacity and accuracy – integrated in a fully automatic packing solution. Also making its debut was a Computer Vision controlled fresh slicing machine that achieves excellent portioning accuracy. Carnitech introduced two heavy-duty grinders in 2005, which can handle both fresh and frozen product. The company also launched a new vertical plate freezer. The system is a block-freezing breakthrough: the freezers are designed with automatic unloading, and can be built together as space-saving systems with automatic palletizing of the blocks at the outlet of the line. Carnitech also released the IPS 3000 system, a complete solution for automatic and efficient produc- tion of sliced salmon in Party Packs for the retail sector. 10


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    Hörður Arnarson, Managing Director The Group saw an emerging trend for further processing solutions for the meat industry, and established an operation that develops and produces machinery and processing lines for burgers, minced meat, salami and sausage lines. This has fast become a growth sector for part of the Group. The Group carries out an active patenting strategy to secure its position as a leading developer of high-tech solutions for the processing industries. The strategy is designed to protect the intellectual property and unique solutions created within the Group’s product development processes. The Group applied for 15 patents in 2005. Stock development One of the main corporate goals is to maximize the Group’s stock value. A 32% increase in stock value occurred in 2005, on top of an 80% increase in 2004. The group’s stock turnover rate on the Iceland Stock Exchange in 2005 was 47%. Market-making is provided by the MP Investment Bank, which has led to a lower spread and more active trading. The average spread in 2005 was 0.86%. Paid dividends The Marel Group paid a dividend of ISK 0.2 per share in 2005. Most of the year’s net profit was earmarked to finance the growth of the Group, including future growth through product development and marketing activities. The Marel Group will continue to utilize growth opportunities as they present themselves. Prospects The group’s order book at the end of 2005 totaled € 16 million, compared with € 19 million at the beginning of the year. Intensive product development and the ongoing work over the years to bolster the company’s marketing operations have placed the company in a strong competitive position. Prospects on the company’s primary markets are currently satisfactory. Trends in exchange rates, however, have been unfavorable for the company. The strengthening of the Icelandic krona has increased expenses. Increased oil prices have brought about increased prices of various raw materials, in particular plastics and stainless steel. There are still opportunities to increase productivity and reduce operating expenses with continued emphasis on expanding the company’s standardized products, as well as increasing ration- alization in purchasing. Hörður Arnarson Managing Director


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    NEWS 2005 JANUARY 2005 APRIL 2005 AUGUST 2005 Quality Assurance System Intelligent Salmon Marel Carnitech The IPE Poultry Show in Atlanta Trimming System Thailand Established became the venue for Marel’s in- Marel unveiled the new Marel ITM, In August 2005, Marel and Carni- troduction of QVision, quality sam- Intelligent Trimming System for tech strengthened their operation pling system. The new QVision sys- salmon at the Brussel Seafood in the Asian market with the offi- tem from Marel makes automatic Show in April. The ITM is one of the cial launch of Marel Carnitech Thai- feature measurement and data first robotic machines from Marel land Ltd. Headed by director Chej collection for SPC reporting easier and is designed to automatically trim Mektaveegul, the subsidiary pro- and more reliable than ever before. fish fillets into pre-defined shapes or vides sales and services of Marel Using the QVision System - with its patterns at great speed. Equipped and Carnitech equipment to Thai- fully standardized feature meas- with an advanced vision system that land and Vietnam. urement - also allows processors to ensures a high precision cut, the perform more samplings with fewer ITM makes the entire process – from QA operators. measuring to trimming – efficient and productive. FEBRUARY 2005 Marel Documentation Team Wins STC Awards APRIL 2005 Marel’s Documentation & Localiza- Vision Grader with 3D tion team won awards in the “STC Vision SEPTEMBER 2005 Trans-European Technical Commu- A new Vision Grader that intel- nications Competition 2004” organ- ligently grades product by shape Marel Poland ized by The Society for Technical A Marel branch office was estab- and weight was introduced in the Communication (STC). The awards lished in Warsaw, Poland in Septem- spring. The Vision Grader uses 3D were in the following two catego- ber 2005. Sales representative vision technology to grade products ries: the Documentation Sets cat- Rafal Bernatowski runs the office by shape, measuring both geome- egory and in the Hardware/Soft- and will focus on further servicing try and weight of the raw material. ware Combination Guides category. the Polish and East-European mar- The Shape Grader utilizes dynamic Lára Hallgrímsdóttir, manager D&L, weighing and laser vision to meas- kets. accepted the awards for her ure product features automatically. department. 12


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    SEPTEMBER 2005 OCTOBER 2005 Carnitech Acquires Mentor: The Marel Educa- DanTech tional Center Established In September 2005, DanTech Marel is highly committed to develop- Food Systems Pte. Ltd. became ing and maintaining employee skills part of the Carnitech group. By and knowledge to enable them to merging the activities of Carni- carry out the company’s directive and tech and DanTech within the field goals in the best way possible. With of IQF Freezing & Warm Water this in mind, different areas of training Shrimp Processing, our range of programs within the company were equipment and processing lines joined under Mentor: the Marel Educa- will be among the very best and tional Center, in November 2005. comprehensive on the market. Headed by new recruit Bryndís Our future activities within these Ernsdóttir, HR Consultant, the Center areas will operate under the offers comprehensive training on a DanTech Brand, with the head wide range of subjects for both Marel office and main manufacturing employees and agents. located in Singapore. SEPTEMBER 2005 OCTOBER 2005 Marel Italy New Focus on Mike Reynolds heads the new Carnitech Salmon Marel branch office in Italy, estab- To increase focus on our salmon ac- lished in September 2005. Located tivities, and to further strengthen the in Rubiera, the Marel office will position of the group within the sal- conduct sales and service to a mon industry, Carnitech, in the fall of growing customer base in Italy. 2005, announced the merger of all its DECEMBER 2005 salmon-related activities into one organization effective January 1, New Division at Carnitech - 2006. The new division, Carnitech Quality Steel Salmon, will operate from new Effective January 1, Carnitech’s premises in Nørre sundby. Carnitech production of table tops and other Salmon will in future be in a better stainless elements for the kitchen position to undertake larger projects and catering industry has been combining Carnitech, CP and Marel placed into an independent divi- equipment. sion, Quality Steel. The business area is still part of the Carnitech group, but has its own individual identity and logo. The goal is to increase focus on sales as well as product develop- ment and more efficiently increase market share.


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    PERFORMANCE IN 2005 The year 2005 was a good one for the Marel Group. Profit for the Marel Group in 2005 Year 2005 Year 2004 totaled € 5.7 million, compared to € 8.0 Selling and marketing expenses 12.5% 12.4% million the year before. External circumstan- Research and development expenses 6.2% 5.8% ces were in many ways unfavorable to the Administrative expenses 8.1% 8.1% Group, in particular the exchange rate of the Icelandic krona. On average 10% fewer Icelandic krona were received for the € in 2005 than in 2004. The same applies to the The group will continue to focus on an in- USD. These two currencies stand for a ma- creased contribution margin in manufac- jority of the sales revenues, while 24% of turing in 2006 with standardized products, expenses are in Icelandic kronas, mainly em- rationalization in purchasing and increased ployee wages in Iceland. The year 2005 saw production in cost-efficient countries. good performance from the Marel Group. In- vestments and rationalizations carried out in Operating profit before depreciation, finan- the preceding years weighed heavily in the cial items and taxes (EBITDA), and operat- year’s success as in the year before, making ing profits before financial items and taxes up for the unfavorable external conditions (EBIT), were as follows: the group had to contend with, especially on the foreign-exchange market. The financial accounting policies have been Year 2005 Year 2004 changed for 2005 and now fully comply EBITDA in thousands 14,814 16,527 with the IFRS, International Financial Re- EBITDA as a % of sales 11.5% 14.7% porting Standards. According to EU regu- EBIT in thousands 9,721 12,066 lations, companies that are listed on stock EBIT as a % of sales 7.5% 10.7% exchanges in the European Economic Area are directed to follow the IFRS standards beginning in 2005. Comparative figures for 2004 have been changed in accordance with the numbers presented for 2005. Operating revenues and expenses in 2005 The Marel Group’s operating revenues totaled € 129.0 million, compared to € 112.3 million in the previous year. Operating rev- enues increased by 14.9%. Cost of goods sold was € 85.9 million, an in- crease of 20.5% from the previous year. The contribution margin increased from € 41.0 million in 2004 to € 43.2 million in 2005. As a ratio of sales, the margin has decreased. It was 33.4% in 2005 compared to 36.5% the year before. Other operating expenses, including sales and marketing expenses, in- creased by 16.7% to € 34.5 million in 2005. As a ratio of operating revenue, the expen- ses have developed as follows: 16


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    Net finance costs totaled € 2.6 million, com- Income tax was € 1.4 million compared to pared with € 1.8 million the previous year. € 2.2 million the year before. Total taxes The increase may be traced to increased for the Group were calculated at 19.3% of loans, currency exchange losses and interest profits before taxes, compared with 21.7% rates on over 40% of the company’s debts the previous year. The Group operates in an that have been fixed for 3-5 years. environment with an income tax rate in the range of 17%-42%. The Group’s operation in € millions: Q4 ’05 Q3 ’05 Q2 ’05 Q1 ’05 Q4 ’04 Sales 34.8 30.4 33.9 29.9 29.1 Operating profit (EBIT) 1.3 2.1 3.3 3.1 2.8 EBIT % 3.7% 7.0% 9.6% 10.2% 9.8% Net finance expenses 0.6 0.8 0.4 0.9 0.6 Net profit 0.6 1.2 2.1 1.8 1.9 EBITDA 2.8 3.4 4.5 4.2 4.0


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    Assets and liabilities Liabilities at the end of 2005 totaled at the end of 2005 € 73.9 million, an increase of € 10.0 million or 15.6%. Long-term liabilities decreased Total assets of the Marel Group at the end by € 6.0 million and short-term liabilities in- of 2005 were booked at € 114.9 million, creased by € 16.0 million. Increased short- an increase of about 19.4 million or 20% term liabilities are mainly due to previously since the previous New Year. This increase issued bonds becoming payable in the year is mainly the result of increases in inventory 2006 and increased payables. and accounts receivable. Shareholders’ equity at the end of 2005 was Inventory increased by about € 4.1 million € 41.0 million, an increase of € 9.4 million (19.4%), and accounts receivable by about during the year. Following is an itemization € 7.7 million, from the previous New Year. of the change in € thousands: These increases in inventory and accounts receivable are explained by an increase in turnover on the one hand, and many deliv- Owners’ equity eries around and after the end of the 4th quarter on the other. 2005 2004 Investment in property, plant and equipment Profit 5,715 7,984 during 2005 was € 3.8 million, compared Own stock sold in excess of bought 3,679 (3,029) with € 1.6 million during the same period Paid dividend (590) (407) last year. Part of investment during this Other 633 809 period may be attributed to estimated Increase in shareholders’ equity 9,437 5,407 investment for 2004 having been moved forward to 2005. The equity ratio at the end of 2005 was 35.7%, compared to 33.1% the previous year. The current ratio was 1.4, compared to 1.6 at the end of 2004. The ratio of “pure gearing” (interest-bearing liabilities less cash and cash equivalents divided by shareholders´ equity) was 0.98 compared to 1.08 at the end of 2004. Current Ratio Operating profit before depreciation, 1.8 EBITDA as a percentage of sales Thous. € 1.6 140,000 18.0% 1.4 120,000 14.0% 1.2 100,000 12.0% 1.0 80,000 10.0% 0.8 60,000 8.0% 0.4 40,000 6.0% 0.4 20,000 2.0% 0.2 0 0.0% 0.0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Turnover EBITDA as ratio of sales 18


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    Equity Ratio 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 0.5% 0.0% 2001 2002 2003 2004 2005 Shareholders’ equity Thous. € 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2001 2002 2003 2004 2005 Total assets Thous. € 140,000 120,000 Cash Flow 100,000 The working capital from operations amounted to € 12.5 80,000 million, compared to € 13.5 million in the year 2004. At the end of 2005, cash and cash equivalents were € 3.9 million, 60,000 a decrease of 0.5 million from the previous year. 40,000 20,000 0 2001 2002 2003 2004 2005


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    SALES & MARKETING The distribution network has also been in- tegrated to maximize marketing effort and efficiency for the Group’s salmon products. Sales efforts The group focused on achieving increased productivity and economy in sales and mar- keting, while simultaneously expanding and strengthening the Group’s market reach in 2005. The external environment was generally favorable in 2005. Marel focused efforts on increasing sales of standardized solutions and products, and results fulfilled projections. Investment in larger projects for 2005 was less than projected. The Avian influenza in Asia led to postponement of purchasing by the poultry industry on the continent. Other markets saw an increase in investments by food processing compa- nies, creating an upbeat environment for Marel. The company did well on the Euro- pean markets, meeting all the goals set for the year. Sales at Carnitech met expecta- tions, primarily due to larger projects that generated good results. In 2005, Marel continued to provide solu- tions for fast-food and catering businesses, both to existing and new customers, as the trend for fixed-weight portions for the retail and catering market continue to grow. The year was a good one for the Group’s salmon solutions. Salmon prices rose during the year, which increased optimism and belief The year 2005 saw the focus in Sales in the industry. Major integration by manu- and Marketing directed at strengthening facturers called for increased investment and co-operation between the companies com- more rationalization, which resulted in fur- prising the Marel Group, thereby increasing ther investment. The Group’s performance the synergy of global sales and marketing on this market was very successful and the operations. Marel, Carnitech and our sub- market share increased. The Marel Group has sidiaries can jointly provide a full range of a leading position on this market, and new solutions that meet the needs of the fish, market activities delivered one of the best meat and poultry processing industries. years for the Group in the salmon industry. During the year, emphasis focused on inte- Investments in meat trimming and deboning grating sales and marketing efforts in the solutions from both Marel and Carnitech were salmon industry. At the beginning of 2006, less than expected, and many projects were all work relating to this field merged under postponed. one roof: CP Food and Carnitech’s salmon Carnitech’s new further-processing busi- operation now operate under the name ness sector showed strong performance Carnitech Salmon. In addition, Marel’s and was well received by the meat industry. salmon consultants work closely with the This operation focuses on the development, new company. With this move, Carnitech production, sales, and marketing of stand- Salmon has become a knowledge center for alone machines and complete solutions for the salmon industry within the Marel Group. burger-, mince-, salami- and sausage lines. 22


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    Good response by the industry has acceler- Mentor: ated the growth of this sector, which has become one of the more promising new The Marel Educational Center market entries for the group. Marel places ever-increasing emphasis on knowledge and training employees. This Marel continued to develop its distribution has been underscored with the founding of network, as sales offices in Russia and Mentor: The Marel Educational Center, Spain were transformed into independent which thoroughly trains Group employees subsidiaries. Sales offices were also found- for work in sales, marketing and services. ed in Italy and Poland, while Marel Australia opened a branch office, Marel New Zea- land. Carnitech has operated Carnitech Asia in Thailand since 2002. In 2005, Marel took over operations, renamed it Marel Carni- tech Thailand and implemented major per- sonnel changes. Carnitech purchased German company Geba, which manufactures machines to cut salmon slices. The operations and sales de- partment merged with Carnitech, and the product line is sold through the Group’s sales network. In addition, Carnitech pur- chased the company DanTech in Singapore, which manufactures IQF freezers. DanTech is one of the larger manufacturers of IQF freezers in the world, and will strengthen Carnitech’s position on the IQF market. Carnitech sales activities increased in Seat- tle, USA, in particular for land-based fish and salmon processing plants. The Group’s growth potential for 2006 lies in the meat and poultry industries, as well as in the introduction of new products into growing market sectors such as the process- ing of prepared food. Emphasis will focus on strengthening cooperation among Marel companies serving the meat industry.


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    PRODUCT DEVELOPMENT The Marel Group focuses on servicing cus- products in 2005, while Carnitech unveiled tomers by approaching them as strategic 4. During the year, the Marel Group applied partners in developing market-driven prod- for 15 patents. It currently holds 25 pat- ucts. Our Product Development Team works ents and applies for 5 to 10 patents yearly, closely with processors and others to bring making it among the more active compa- innovative, high-quality products to the nies in this field. Patent protection is vital to market. Emphasis is placed on standard- sustaining the company’s value and leader- ized, high-quality products and solutions ship position, since its success is to a large designed for unproblematic serviceability. degree structured on technological innova- tion and employee experience. The Marel Group´s product development strategy aims at creating the best products The fundamental role of the Group’s inno- on the market in terms of functionality, reli- vative product development strategy was ability, safety, hygiene and operating costs, underscored in 2005 by the hiring of new a strategy that has maintained our leader- team members at both Marel hf. and Carni- ship position in innovation and high-tech tech A/S. Product development at Pols was application release. New product turnover fully integrated into Marel hf. during the ratio between 2003 and 2005 averaged year. Employees working on product devel- 18%, with distribution between food opment for the Marel Group totaled 9% of processing industries varying within the total staff in 2005. At Marel hf. alone, 15% Group’s companies: each focuses on its of the workforce was employed in product particular strengths. development. An advanced Research and In line with our ongoing product develop- Technology Group is operated, which has ment strategy, Marel hf. introduced 9 new the primary function of increasing know- 24


  • Page 27

    ledge in new technologies that are likely to be utilized by the Marel Group – both long- and short-term – thereby further strength- ening the overall technological base. The Marel Group maintains strong connec- tions with the scientific community, for ex- ample by welcoming research guests, and by providing scientists with research facili- ties for special projects that are applicable to the company’s operational fields.


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    MANUFACTURING The Manufacturing Process ensures that the duction and increase productivity. The unit is functionality of all delivered products meets one of the best on the market – and ensures customer specifications – and the company’s fast, efficient and highly reliable metal fabri- tight quality standards. Our strategy focuses cation. on creating a competitive advantage with a reliable, fast and flexible production process, Lean Manufacturing as well as improving and increasing quality Marel used Lean Manufacturing methodology and production. to streamline the production process in 2005. Several projects aimed at shortening Value of produced goods in 2005 was the the production process with good results. highest in Marel’s history, an increase of 7% All production cells started a program called from the previous year. The order book by the the 5S, which involves cleanliness, order middle of 2005 was higher than ever and and organization in the work area. Contin- called for increased production capacity. uous improvement using Lean Thinking methodology will be emphasized in 2006. Marel responded by hiring new staff and increasing subcontracting. At the end of the Material costs were decreased by moving year, 150 people were employed in manufac- subcontracted parts production from turing at Marel, Garðabær, and 14 in Ísafjörður. several contractors to new ones abroad More final product manufacturing was out- offering lower prices. sourced than the previous year. Two standard products were moved entirely to Carnitech’s The Group will continue seeking the most manufacturing division with good results. cost effective ways to produce parts in 2006, with the main emphasis centered on building Carnitech A/S bought a new high-tech Trumf up our own production in Slovakia. 5 kW laser-cutting machine to optimize pro- 26


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    New Manufacturing Plant A 2000-m² facility has been leased until the end of 2007, which was renovated to fit in Slovakia Marel’s and Carnitech’s needs. In addition, While a reduction in material costs was a 40,000-m² industrial lot was purchased in achieved by changing subcontractors, pri- Nitra, and construction there on a new mary emphasis will be placed on developing manufacturing plant is scheduled for com- our own parts-production manufacturing pletion at the end of 2007. in Slovakia to supply the Marel Group. Carnitech’s machine processing centre, Although most of Marel’s manufacturing which had been facing stiff competition, growth over the coming years will be in has to a large degree been moved from Slovakia, production in Iceland remains Denmark to Slovakia. very important, and will continue to be de- veloped. New equipment, tailor-designed Conditions in Slovakia were first surveyed solutions and larger systems will carry on in March 2005, and parts production com- being made in Iceland, while growth in menced in November. The country was Slovakia will be in parts production and the selected on the basis of low labor costs, a manufacture of standardized products. good infrastructure (transportation, etc.) and good access to a well-educated and ca- At the end of 2005, it was announced that pable workforce. Final product manufactur- production facilities at Austurhraun in ing will begin being moved there during the Garðabær would be expanded. Scheduled second half of 2006. for completion in 2006, the additional 4000-m² space will be used in particular to The production facilities in Slovakia are sit- meet the growing needs for production of uated in the city of Nitra in western Slova- larger systems. kia, a short distance from the capital of Bratislava and the Austrian border. Pols merges with Marel Marel and Pols in Ísafjörður were integrated under the Marel brand in September 2005. The bulk of operations in Ísafjörður are manufacturing, and emphasis in 2006 will be on specializing and focalizing produc- tion. With the implementation of specializa- tion, conditions for increased productivity in Ísafjörður are good, and such increases will be the primary aim there in 2006. Being the best Professional dedication to being the best characterizes the work at Marel’s manufac- turing facilities. A Marel employee became the Icelandic Welding Champion 2005, the third year in a row that Marel wins the title.


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    SERVICE With customers in over 60 countries around in other countries. In 2005, three technical the world, Marel focused on bringing service experts were transferred from the Marel as close to them as possible in 2005. Efforts parent company to take over technical were put into further building up technical management in subsidiary companies. Sup- know-how and expertise within the Group’s porting these efforts is a periodical techni- subsidiaries and agent companies. Transfer cal newsletter and an Extranet specifically of technical knowledge was achieved designed for Marel technicians. through the periodical training seminars held at Marel’s headquarters in Iceland, pri- Currently, Marel employs 125 service tech- vate seminars and Marel experts visiting nicians worldwide. This group is continu- various countries, as well as a transfer work ously expanding and in 2005 Marel subsidi- program where local specialists go to work aries added heavily to their service resources. The biggest teams are at Marel USA, Germany and Denmark while Spain, Canada, Australia, UK, Russia and Chile are growing fast. With these additions, Marel subsidiaries became more self-sufficient, creating an opportunity for the service team in Iceland to focus more effort on supporting new market areas and the home market in Iceland. The Icelandic team consists of 18 service technicians with different areas of exper- tise. Besides supporting Icelandic custom- ers, the Icelandic service team supports their colleagues in other countries through telephone, email and remote connections. They also take care of service in new or remote market areas, where local technical support has not yet been built up. The Marel technical training program was recently reorganized into an ambitious Technical School, now a part of Mentor: The Marel Educational Center. The Center provides comprehensive sales and service courses for its agents and employees. 28


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    The agreements offer processing consultancy, as well Marel Customer Care as direct access to service and follow-up, that ensure the best operation achievable. Marel specialists make sure that equipment, training and software systems are The Perfect Partnership Program always up-to-date. Knowledgeable, reliable technicians and To enhance customer service, Marel offers a new Partner- specialists are on call for preventive maintenance, process- ship Program tailored to meet the needs of different opera- ing consultation, in-depth customer training seminars, tions. Marel offers three different service levels: Platinum, spare parts handling, and inventory, as well as remote on- Gold and Silver, with flexibility within each to provide the line service and monitoring. best possible solution. With this system Marel has created a program that goes The Partnership Program can range from basic equipment far beyond regular service contracts. It not only ensures service to extensive consultancy and preventative main- preventive maintenance of equipment, but also covers em- tenance. Service agreement contracts ensure minimum ployee training, remote system check-ups and assistance, downtime, up-to-date training and maintenance, and first- as well as processing consultancy. class processing consultancy, all focused on giving Marel customers exactly what they need.


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    CORPORATE SOCIAL RESPONSIBILITY Responsible business conduct and consist- Social responsibility activities and projects ent effort in community involvement char- differ from country to country, depending acterizes the Marel Group’s corporate social on local conditions. Our subsidiaries responsibility strategy. The Marel Group participate in local community issues, as strategically implements responsible cor- well as carry out their role in the Group’s porate behavior, and pursues community overall strategy. As the Marel Group involvement objectives that meet the ex- develops and implements its strategy based pectations of our customers as well as com- on mutual goals and concerns of the munities. Our management and employees company and the community, the group’s demonstrate support, commitment and main focus is on supporting innovation, participation in identifying and monitoring science and empirical science education on issues important to the Group’s operation all educational levels. Our strategy is based and reputation. on partnership, and our employees actively participate in diverse cooperative programs We promote the involvement of all our sub- on various levels. sidiaries and other operations in imple- menting the Group’s strategy. In 2004, the Group established a long-term plan for the support of science education on all educational levels. Both personnel and financial resources were allocated to the project in 2005. With our contribution, both financial and hands-on, we strive to support and enrich innovation, science and mathematical education, as well as increase the awareness of the value of a strong scientific education in the communities where we operate. The Marel Group’s focus over the coming years will be to support youth innovation and science contests and university engin- eering contests as a main sponsor, as well as contributing to the development of a children’s science museum and other science programs with active participation and financial support. We work closely with local municipalities to support science teaching and coordination, while maintaining strong ties with universities and research bodies to support innovation and excellence in science exploration and research. Glöggur, the Space Mascot at the Children’s Science Museum. 30


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    Teams compete on special tracks using legos in the First Lego League competition. The obstruction course at the annual University of Iceland mechanical and industrial engineer student competition.


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    HUMAN RESOURCES The human resource strategy of the Marel Group integrates the spirit of an innovative high-tech organi- zation with an ambitious and positive work environment. We follow specific objectives each year that have been formulated incorporating employee input on strategy and benchmarking. Our framework is solid but flexible, and we encourage creativity and individuality coupled with responsibility. Creativity is integral to success in a highly competitive business, and while our goals are clear, thinking outside the box to attain them is encouraged. The Marel Group is dedicated to providing a safe, comfortable work environment. We thoroughly monitor all safety and health aspects of the physical work environment. Good ergonomics are vital to a produc- tive work force. Stable growth continues to characterize employment activities in the Group. The total number of employ- ees increased from 773 in 2003 to 895 in 2005. The Marel Group benefits from low employee turnover, which was 6.85% in 2005. This number is in line with the average turnover of the last few years. New Educational Center Established Marel is a learning organization with an emphasis on continuing education. With this in mind, different training programs within the company were united under Mentor: the Marel Educational Center, in No- vember 2005. The Mentor mission is to ensure that our employees, subsidiaries and agents have the knowledge and skills needed to carry out the company’s vision. Mentor comprises the Technical School, Service School and the Sales School as well as other specialized education for different groups such as management training and coaching, basic education for all new- comers and knowledge sharing throughout the Marel matrix. In addition, Mentor offers the “Ready for Anything” program for courses unrelated to work. Internal Survey Results The Human Resource Division conducted a qualitative employee survey in 2005. The results were en- couraging as the majority saw the company as having an encouraging, informal and solid culture. The survey also revealed good team spirit and co-operation between people as well as the benefits of a rich open-door policy and a relatively flat hierarchy. Respect and encouragement is experienced between employers and employees. Employees found the Group to be hard working, professional, good at problem solving and willing to walk the extra mile if needed for success. People felt proud to work for the Group and valued the opportunity to affect their work and work independently. An employee survey conducted in 2004 reflected the same results, which show just how solid our company culture has be- come. We Promote Creativity and Fun In the Marel community we believe in doing creative, en- tertaining things together. Group activities in 2005 includ- ed hiking Mt. Esja, a Mexican theme lunch, family bar- beques at the zoo and participating in a citywide Bike to Work program. The annual racquetball and golf tourna- ment also took place. Fostering a team spirit is important and our teams are encouraged to organize their own activities. 32


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    Number of employees, average pr year Division of education 1200 1000 1% 3% 9% 9% 1% 800 11% 600 400 40% 23% 3% 200 Junior secondary school/equivalent Technical College 0,0 Commercial Diploma BS/BA 2001 2002 2003 2004 2005 2005 Diploma MS/MA/MBA at year end Matriculation Examination Ph.D In Iceland Outside Iceland Other


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    MAREL GROUP ADMINISTRATION Marel hf Ásgeir Ásgeirsson Ásgeirsson started working for Marel hf in Director of Product Development 1986 and worked on product development from 1993-1996. From 1996 until 2001, Ás- Education: geirsson held the position of IT director at Electronic Engineering M.Sc., 1993, Marel and became Director of Product Devel- University of Washington. opment in 2001. In 2004, Ásgeirsson also Computer Science B.Sc., 1990, took on the position of Managing Director of University of Iceland. subsidiary Pols in Iceland. Electronic Engineer B.Sc., 1986, University of Iceland. Jón Þór Ólafsson Ólafsson worked as a specialist at the Science Director of Product Development Institute of the University of Iceland from 1978 to 1983 where he began exploring the possibilities of developing and manufacturing Education: scales for the effective control of production Electronic Engineering, B.Sc., 1978, in fish processing plants. This work became University of Iceland. the foundation of Marel, which was estab- Science Degree, 1973, lished in 1983. Ólafsson has been with the Technical University of Iceland. company from the start, and became a Direc- tor of Product Development in 1987. Kristján Þorsteinsson Þorsteinsson was a Director in the finance di- Director of Finance vision of Eimskip Shipping Company from 1978 until 1996. In 1996 he became manag- ing director of a shipping agency in England, Education: owned by Eimskip. He joined Marel in 1999 as Business Graduate, B.Sc., 1976, Director of Finance. University of Iceland. Lárus Ásgeirsson Ásgeirsson was employed as a research engi- Director of Sales and Marketing neer for the Icelandic Fisheries Laboratories in Iceland between 1983 and 1986. He be- came the Operation Manager of Lýsi Ltd in Education: 1986 and the General Manager of the Icepro Mechanical Engineering, M.Sc., 1982, Group in the USA from 1987 to 1991. In 1991, Oklahoma State University. Ásgeirsson joined Marel as Director of Sales Mechanical Engineering, B.Sc., 1981, and Marketing. He is also the deputy for the University of Iceland. Managing Director of Marel. Magnús Þór Ásmundsson Ásmundsson joined the product development Director of Manufacturing process at Marel hf in 1990, and became Hu- man Resources manager in 1998. In Decem- ber 1999, Ásmundsson took over as Director Education: of Manufacturing. Electrical Engineering, M.Sc., 1990, Technical University of Denmark. Electrical Engineering, B.Sc., 1987, University of Iceland. 34


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    Hörður Arnarson Arnarson joined Marel hf in 1985, two years Managing Director after the company was founded, as a project manager. In 1994, he became Director of Product Development, and Director of Pro- Education: duction in 1998 until 1999 when he became Engineering, Ph.D., 1990, the Managing Director of Marel and the Marel Technical University of Denmark. Group. Arnarson is vice chairman of the board Electronic Engineering, B.Sc., 1985, of the Association of Icelandic Industries, and University of Iceland. on the board of the Icelandic Chamber of Commerce. Guðjónsson worked as an engineer at the Pétur Guðjónsson Science Institute of the University of Iceland Director of Sales and Marketing from 1982 to 1984, and taught at the Techni- cal University from 1982-1985. He joined Education: Marel in 1984 as an engineer, among the first Electrical Engineering, B.Sc., 1982, group of employees of the company. In 1985, University of Iceland. Guðjónsson became the Director of Marel Canada and headed the subsidiary until 1991 when he became Director of Sales and Mar- keting at the company’s headquarters in Ice- land. Sigurpáll Jónsson Before joining Marel in 1985, Jónsson worked as Director of Customer Service an engineer for ISAL, the Icelandic Aluminum Company, for five years. From 1989 to 1996, he directed various departments within Marel. He Education: became director of Marel USA when the sub- Electrical Engineering, Graduate Studies, sidiary was founded in 1996. Jónsson operated 1979, ETH in Zurich. Marel USA until 2000, when he returned to Electrical Engineer, B.SC., 1978, headquarters and took over the position of Di- University of Iceland. rector of Customer Service. Since 2003, Jóns- son has also been Director of Purchasing. Carnitech A/S Thorkild Christensen Christensen was one of the founders of Carni- Managing Director, Carnitech A/S tech A/S in 1981. Before that, Christensen held jobs as a locksmith and supervisor in dif- ferent companies. In 1983 he became the Education: managing director of Carnitech A/S. Locksmith, 1966, Østre Brønderslev Centralskole, Denmark. Tage Thesbjerg Thesbjerg joined Carnitech A/S in 1991 and Financial Director, Carnitech A/S became its financial director in 1997. Before that, Thesbjerg spent 5 years at the Danish auditing company Mortensen & Beirholm, fol- Education: lowed by 2 years at Sabroe Refrigeration’s Auditor, 1984, Ringkjøbing Handelsskole, subsidiary in Gothenburg, Sweden as its fi- Denmark. nancial manager. Aksel Andersen Andersen was one of the founders of Carni- Technical Director, Carnitech A/S tech A/S in 1981. Before that, Andersen worked as a mechanic, locksmith, and super- visor in different companies. After only a few Education: years in Carnitech A/S, Andersen became re- Mechanic, 1965, Tylstryp Centralskole, sponsible for the production as well as the Denmark. drawing office, and has operated the two as Technical Director since 1983.


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    SHARES & SHAREHOLDERS INVESTORS ISK 15.6 billion. The number of shares is 240,064,000. At the end of 2005, 1176 Marel’s shares are listed on the Icelandic shareholders had shares in Marel hf, down Stock Exchange (ICEX) and are included in from 1354 shareholders at year-end 2004. the selected share index ICEX-15. The share price rose from ISK 49.2 at year’s end 2004 There were considerable changes in the to ISK 65.00 at year’s end 2005, an increase shareholder group in 2005. Most notable is of 32%. During the same period the ICEX- that Landsbanki Íslands hf has become the 15 index increased by 65%. The year’s largest shareholder, holding 36.5% at year highest end-of-day share price was ISK end 2005, and Eyrir Invest ehf holds 29.3%. 69.00 in September, and the lowest end-of- Marel sold 4.8 million of own shares in ex- day share price was ISK 48.80 in January. cess of bought shares in 2005. As of Febru- ary 6th, 2006, Marel’s own shares were The total market value of Marel shares 1,769,142. traded in 2005 was ISK 6,859,895,687 and the turnover rate was 47%. The average end-of-day spread was 0.86%. The market value of the company at year-end 2005 was Marel stock price compared to the ICEX-15 index 180.0 160.0 140.0 Marel % ICEX-15 120.0 100.0 80.0 8.2.2005 8.3.2005 8.4.2005 8.5.2005 8.6.2005 8.7.2005 8.8.2005 8.9.2005 8.10.2005 8.11.2005 8.12.2005 8.1.2006 8.2.2006 36


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    Top 10 shareholders 8.2.2006 Shareholders Shares % 20.8% 36.5% 1 Landsbanki Íslands hf 87,626,069 36.5 2 Eyrir Invest ehf 70,407,877 29.3 4.1% 3 Ingunn Sigurðardóttir 4,750,000 2.0 2.7% 6.5% 4 Helga Sigurðardóttir 4,750,000 2.0 29.3% 5 Súsanna Sigurðardóttir 4,714,500 2.0 6 Tryggingamiðstöðin hf 4,160,946 1.7 7 Egill Vilhjálmur Sigurðsson 3,800,000 1.6 8 Traustfang ehf 3,467,368 1.4 Landsbanki Íslands hf Eyrir Invest ehf 9 Eignarhaldsfélag Hörpu ehf 3,326,000 1.4 Financial Institutions and Investment Funds Pension Funds 10 Landssjóður hf 2,641,104 1.1 Employees and Board Others CORPORATE GOVERNANCE Marel hf Board of Directors complies in its ties comply with the guidelines set forward procedures with the Company’s Articles of in Corporate Governance presented by the Association. It has also formalized Internal Icelandic Stock Exchange, the Icelandic Rules of Procedures which are closely fol- Chamber of Commerce and SA-Confedera- lowed. These rules and the Board’s activi- tion of Icelandic Employers.


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    THE BOARD & MANAGING DIRECTOR’S REPORT The consolidated financial statements for the year 2005 comprise the financial statements of Marel hf. and its subsidiaries. The consolidated financial statements are for the first time prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The effects on shareholder’s equity as a result from adoption of IFRS are disclosed in note number 5. Total sales of the Group according to the income statement were EUR 129 million in the year compared to EUR 112.3 million in the year 2004. Net profit of the Group amounted to EUR 5.7 million compared to EUR 8 million in the preceding year. Assets of the Group amounted to EUR 114.9 million according to the balance sheet and shareholders' equity amounted to EUR 41 million at year-end. During the year an average of 896 employees were employed by the Group, with 335 employed by the parent company. Total wages and salaries for the group amounted to EUR 49.5 million. The number of shareholders in Marel hf at year's end 2005 was 1,176 a decrease of 178 during the year. Two shareholders had a holding interest of more than 10% in the company, Landsbanki Íslands hf, with 36.49% and Eyrir Invest, with 29.33%. The board of directors suggests that a dividend amounting to 48 MISK, 0,20 per share, to be paid in the year 2006, but refers to the financial statements regarding appropriation of the year's net profit and changes in shareholders' equity. The board of directors and managing director of Marel hf hereby ratify the financial statements for 2005 with their signatures. Garðabæ, 7 February, 2006 Árni Oddur Þórðarson Arnar Þór Másson Friðrik Jóhannsson Þórólfur Árnason Egill Tryggvason Managing Director Hörður Arnarson 40


  • Page 44

    The board of directors from left to right: Arnar Þór Másson, Árni Oddur Þórðarson, Friðrik Jóhannsson and Þórólfur Árnason. Helgi Magnússon was not present. 41


  • Page 45

    Report of the auditors To the board of directors and shareholders of Marel We have audited the accompanying consolidated balance sheet of Marel hf (the company) and its subsidiaries (together, the group) as of 31 December 2005 and the related consolidated statements of income, cash flows and changes in shareholders´ equity for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes, based on our assessment of materiality and risk, an analytical review and an examination, on a test basis, of evidence supporting the amounts and disclosures in the financial statements. The audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall annual accounts presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the accompanying consolidated financial statements give true and fair view of the financial position of the group as of 31 December 2005, and of the results of its operations and cash flows for the year then ended, in accordance with law and International Financial Reporting Standards as adopted by the EU. Garðabæ, 7 February 2006 PricewaterhouseCoopers hf Ólafur Þór Jóhannesson Þórir Ólafsson 42


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    Financial ratios 2005 2004 2003* 2002* 2001* Operating results Sales ......................................................................... 129.039 112.301 106.104 100.654 94.116 Gross profit ............................................................... 43.162 41.016 34.617 - - Profit before depreciation (EBITDA) ......................... 14.814 16.527 10.129 5.712 8.432 Profit from operations (EBIT) .................................... 9.721 12.066 6.568 2.278 5.979 Net profit .................................................................. 5.715 7.984 3.749 50 2.106 Cash flow statement Net cash from operating activities ............................. 2.987 13.207 4.724 1.004 1.098 Investing activities ..................................................... (10.180) (6.389) (1.955) (17.959) (12.585) Financing activities ................................................... 7.210 (7.263) (1.153) 16.906 4.238 Financial position Total assets ............................................................... 114.890 95.482 81.334 82.602 68.829 Working capital ......................................................... 16.557 19.807 17.700 12.740 14.978 Equity ........................................................................ 41.032 31.595 25.167 22.724 23.654 Various figures in proportion to sales Gross profit ............................................................... 33,4% 36,5% 32,6% - - Selling and marketing expenses ............................... 12,5% 12,4% 12,8% - - Research and development expenses ...................... 6,2% 5,8% 6,8% - - Administrative expenses ........................................... 8,1% 8,1% 8,1% - - Wages and benefits .................................................. 42,5% 41,9% 41,0% 43,5% 40,7% Profit before depreciation (EBITDA) ......................... 11,5% 14,7% 9,5% 5,7% 9,0% Profit from operations (EBIT) .................................... 7,5% 10,7% 6,2% 2,3% 6,4% Depreciation/amortization ......................................... 3,9% 4,0% 3,4% 3,4% 2,6% Net profit .................................................................. 4,4% 7,1% 3,5% 0,0% 2,2% Other key ratios Current ratio .............................................................. 1,4 1,6 1,7 1,4 1,6 Quick ratio ................................................................ 0,6 0,7 0,8 0,7 0,8 Equity ratio ................................................................ 35,7% 33,1% 30,9% 27,5% 34,4% Return on owners' equity .......................................... 18,1% 30,5% 16,5% 0,2% 9,4% Return on total assets ............................................... 5,4% 9,0% 4,6% 0,1% 3,2% Earnings to price ....................................................... 0,03 0,06 0,05 0,00 0,03 Price to earnings (P/E) .............................................. 36,7 17,7 19,7 990,0 32,5 *Amounts 2001-2003 are not in conformity with IFRS. *Amounts 2001 are translated from Icelandic kronur into the currency of EUR based on average exchange rate of each year for the operating items but the year-end rate for the balance sheet items. Marel hf. Consolidated financial statements 2005. Amounts in thousands of EUR 43


  • Page 47

    Consolidated income statement 2005 2004 2005 2004 Notes Q4 Q4 Sales .................................................................. 6 34.785 29.122 129.039 112.301 Cost of sales ..................................................... (23.484) (18.520) (85.877) (71.285) Gross profit 11.301 10.602 43.162 41.016 Other operating income ..................................... 349 180 1.052 598 Selling and marketing expenses ........................ (4.413) (3.673) (16.067) (13.888) Research and development expenses ............... (3.014) (2.087) (8.004) (6.542) Administrative expenses .................................... (2.948) (2.174) (10.422) (9.118) Profit from operations 1.275 2.848 9.721 12.066 Finance costs - net ............................................. 8 (576) (596) (2.639) (1.768) Profit before tax 699 2.252 7.082 10.298 Income tax expense ........................................... 10 (120) (332) (1.367) (2.236) Net worth tax expense ........................................ 0 (25) 0 (78) Net profit 579 1.895 5.715 7.984 Earnings per share (expressed in EUR cent per share) Basic earnings per share .................................. 11 0,25 0,81 2,42 3,40 Diluted earnings per share ................................. 11 0,24 0,79 2,38 3,33 The notes on pages 48-77 are an integral part of the consolidated financial statements. Marel hf. Consolidated financial statements 2005. Amounts in thousands of EUR 44


  • Page 48

    Consolidated balance sheet Assets Notes 31/12 2005 31/12 2004 Non-current assets Property, plant and equipment ........................................................................... 13 33.242 31.847 Goodwill ............................................................................................................. 14 9.580 7.861 Other intangible assets ...................................................................................... 14 8.518 6.360 Investments in other companies ........................................................................ 28 0 753 Available-for-sale investments ........................................................................... 29 680 0 Receivables ....................................................................................................... 29 92 Deferred income tax assets ............................................................................... 22 1.231 1.334 53.280 48.247 Current assets Inventories ......................................................................................................... 15 25.274 21.166 Production contracts ......................................................................................... 16 8.921 5.859 Receivables and prepayments ........................................................................... 17 23.517 15.844 Derivative financial instruments ......................................................................... 19 18 0 Cash and cash equivalents ................................................................................ 18 3.880 4.366 61.610 47.235 Total assets 114.890 95.482 Shareholders' equity Ordinary shares ................................................................................................. 26 2.637 2.637 Treasury shares ................................................................................................. 26 (8) (75) Share premium .................................................................................................. 12.671 9.059 Fair value and other reserves ............................................................................ 27 225 (408) Retained earnings .............................................................................................. 25.507 20.382 Total shareholders' equity .................................................................................. 41.032 31.595 Liabilities Non-current liabilities Borrowings ......................................................................................................... 21 24.881 31.442 Deferred income tax liabilities ............................................................................ 22 3.520 3.349 Derivative financial instruments ......................................................................... 19 404 0 28.805 34.791 Current liabilities Trade and other payables .................................................................................. 20 24.719 21.118 Current tax liabilities ........................................................................................... 278 328 Borrowings ......................................................................................................... 21 19.262 7.024 Provisions .......................................................................................................... 23 794 626 45.053 29.096 Total liabilities 73.858 63.887 Total equity and liabilities 114.890 95.482 The notes on pages 48-77 are an integral part of the consolidated financial statements. Marel hf. Consolidated financial statements 2005. Amounts in thousands of EUR 45


  • Page 49

    Consolidated statement of changes in shareholders' equity Fair value Share Treasury Share and other Retained Notes capital shares premium reserves earnings Total Balance at 1 January 2004 2.637 (48) 10.794 0 14.473 27.856 Tax corrections from prior years ..................... 2 (1.668) (1.668) Restated balance at 1 January 2004 2.637 (48) 10.794 0 12.805 26.188 Cash flow hedges: – net fair value gain/(loss), net of tax .............. 27 (20) (20) Currency translation differences ..................... 27 (388) (388) Net income/(expenses) recognised directly in equity .............................................. 0 0 0 (408) 0 (408) Sale (purchases) of treasury shares, net ........ (62) (2.967) (3.029) Business combination ..................................... 31 35 1.232 1.267 Dividend .......................................................... (407) (407) Net profit ........................................................ 7.984 7.984 0 (27) (1.735) (408) 7.577 5.407 Balance at 31 December 2004 2.637 (75) 9.059 (408) 20.382 31.595 Adoption of IAS 32 and IAS 39 ....................... 0 0 0 0 0 0 Balance at 1 January 2005 2.637 (75) 9.059 (408) 20.382 31.595 Cash flow hedges: – net fair value gain/(loss), net of tax .............. 27 (257) (257) Currency translation differences ..................... 27 890 890 Net income/(expenses) recognised directly in equity .............................................. 0 0 0 633 0 633 Sale (purchases) of treasury shares, net ........ 67 3.612 3.679 Dividend ......................................................... (590) (590) Net profit ........................................................ 5.715 5.715 0 67 3.612 633 5.125 9.437 Balance at 31 December 2005 2.637 (8) 12.671 225 25.507 41.032 The notes on pages 48-77 are an integral part of the consolidated financial statements. Marel hf. Consolidated financial statements 2005. Amounts in thousands of EUR 46


  • Page 50

    Consolidated cash flow statement 2005 2004 Notes Cash flows from operating activities Cash generated from operations ...................................................................... 28 5.762 15.801 Interest paid ...................................................................................................... (1.959) (1.548) Tax paid ............................................................................................................ (816) (1.046) Net cash from operating activities 2.987 13.207 Cash flows from investing activities Acquisition of subsidiary, net of cash acquired ................................................. (1.939) (1.758) Purchase of property, plant and equipment ...................................................... 13 (3.752) (1.642) Purchase of intangibles .................................................................................... 14 (4.811) (3.118) Proceeds from sale of PPE ............................................................................... 322 117 Proceeds from sale of shares ........................................................................... 0 12 Net cash used in investing activities (10.180) (6.389) Cash flows from financing activities Proceeds from (purchase of) treasury shares, net ........................................... 3.678 (3.030) Proceeds from borrowings ................................................................................ 8.285 2.452 Repayments of borrowings ............................................................................... (3.681) (6.004) Finance lease principal payments .................................................................... (482) (274) Dividends paid to group shareholders .............................................................. (590) (407) Net cash used in financing activities 7.210 (7.263) Net increase in cash and cash equivalents 17 (445) Exchange gains/(losses) on cash and bank overdrafts .................................... (503) 84 Cash and cash equivalents at beginning of year .............................................. 4.366 4.727 Cash and cash equivalents at end of period 18 3.880 4.366 Cash generated from operations 28 Net profit .......................................................................................................... 5.715 7.984 Adjustments for items not affecting cash .......................................................... 9.585 8.122 Changes in working capital ............................................................................... (9.538) (305) 5.762 15.801 Working capital from operation ......................................................................... 12.525 13.512 The notes on pages 48-77 are an integral part of the consolidated interim financial statements. Marel hf. Consolidated financial statements 2005. Amounts in thousands of EUR 47

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