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    Marel – Annual Report 2017 ANNUAL REPORT 2017 TO OUR STAKEHOLDERS 1


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    Marel – Annual Report 2017 CONTENT TO OUR STAKEHOLDERS 3 Chairman’s statement 4 Chief executive officer’s review 6 MAREL IN BRIEF 8 Who we are 9 Vision and values 10 Business model 11 Strategy 16 DELIVERING GROWTH 19 Poultry 20 Meat 25 Fish 31 Innova 37 Innovation 40 Sales and services 44 Global supply chain 45 INVESTORS 49 Shares 50 Financials 55 Investor relations 62 RESPONSIBLE GROWTH 64 Corporate responsibility 65 Social 68 Environmental 72 Economic 76 Corporate governance 79 Board of directors 83 Executive team 87 Organizational chart 90 Risk management 91 2017 CONSOLIDATED FINANCIAL STATEMENTS 94 TO OUR STAKEHOLDERS 2


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    Marel hf. – Annual Report 2017 TO OUR STAKEHOLDERS TO OUR STAKEHOLDERS 3


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    Marel – Annual Report 2017 CHAIRMAN’S STATEMENT We are proud of the achievements of the Marel team in 2017. It was a great year with strong financial results. Revenues exceeded EUR 1 billion, operating profit margin was above 15% and net profit increased by almost 28% over 2016. Significant investments were made in strengthening Marel’s foundation and important progress achieved towards our growth targets, benefitting both customers and shareholders. This year, Marel celebrated the 25th anniversary of its listing on NASDAQ Iceland and 2018 will mark the 35th anniversary of its founding. Those of us who have the privilege of being part of Marel today are grateful for the courage and passion of those who paved the way and laid the groundwork for our great company, a leading global provider of advanced food processing systems and services. The unprecedented speed and magnitude of change today demands no less. Courage to challenge convention and explore new directions, spot opportunities and take calculated risks to reach strategic goals. Passion in believing we can accomplish great aspirations, such A strong foundation as transforming the way food is processed, by continuously Marel is well positioned for this journey. A broad product striving for excellence, doing more with less, being better than offering, superior technology, global presence and significant yesterday. investments in our infrastructure in recent years provide a strong foundation to build on. Revenues are well diversified Investing in profitable growth across business segments and geographies. Digitalization and At the 2017 Annual General Meeting, an ambitious growth further automation present new opportunities to work with strategy for the next 10 years was introduced. Marel targets our customers to advance food processing. Marel’s Innova 12% average annual revenue growth, both organic and food processing software has already been installed in over through acquisitions. Organic growth, driven by innovation 1,800 plants worldwide and offers countless opportunities. and market penetration, is expected to outstrip average market growth, and strategic acquisitions will further accelerate our Capital structure and distribution of profits full line product offering and market penetration. Earnings Marel’s financial position is strong. In 2017, EUR 15.3 million per share are expected to exceed revenue growth. In other were paid in dividends to shareholders, treasury shares were words, we are investing in profitable growth. purchased amounting to EUR 63.5 million and Sulmaq in Brazil was acquired for a combination of cash and treasury shares. Significant investments were made in solidifying the company’s footing as a global leader in its field and preparing for its future growth, including investments in: innovation; taking IT to the next level; expanding our existing manufacturing facilities; and improving the working environment of our employees. Strong operating results and debt reduction resulted in a leverage of 1.9 times debt to EBITDA at the end of the year, which is just below the lower end of the 2-3 times targeted leverage ratio. TO OUR STAKEHOLDERS 4


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    Marel – Annual Report 2017 In line with our capital allocation and dividend policy, the Board of Directors will propose to the 2018 Annual General Meeting that a dividend of EUR 4.19 cents per share, corresponding to 30% of net profits for 2017, be paid to shareholders. Furthermore, the Board of Directors has authorized the purchase of treasury shares of up to 20 million participated in NASDAQ’s Sustainable Markets Initiative in nominal value, which can be used as payment for potential 2017. We are proud of the advancements made in corporate future acquisitions. social responsibility reporting during the year and will continue on that journey in 2018. Shared value creation Calls for rethinking the role of businesses in society grow ever louder. Companies are continuously being pressured to play a more prominent role in addressing social challenges. The demand for greater private sector involvement in achieving the United Nations’ Sustainability Development Goals is a good example. The combined forces of public, private and civil actors are necessary to achieve the required scale and impact. Since its listing, Marel has created excellent value for shareholders. In 2017, the share price increased by close to The immense societal challenges of sustainably feeding 33%, measured in Icelandic krona, and 27% measured in euros. the world’s growing population can only be addressed with The number of shareholders increased from 1,907 to 2,206. technology, innovation and changes in behavior. We simply must find ways to do more with less. This is the core of Marel’s Corporate social responsibility business; increasing yields and quality, optimizing the use Marel’s Board of Directors is committed to good corporate of scarce resources such as water and energy, increasing governance and ethical business practices, promoting the food safety and traceability, as well as improving employee long-term interests of shareholders. We strive to be a good satisfaction and animal welfare. corporate citizen. We emphasize corporate social responsibility not least because we are convinced it is good business. A good Our business is about creating economic value that also makes reputation, responsible use of resources, taking care of the a positive contribution to society. In partnership with our environment and having employees who take pride in their customers we are transforming the way food is processed. Our work is good business. vision is of a world where quality food is produced sustainably and affordably. To guide the organization on responsible conduct, Marel has established a policy on corporate social responsibility, On behalf of the Board of Directors, I congratulate the Marel which focuses on three areas: people, planet and profits. We team on their impressive results and achievements in 2017. We are a signatory of the United Nations’ Global Compact and express our recognition of their dedication and hard work. We fully appreciate the continuing commitment and support of our shareholders. Asthildur Otharsdottir, Chairman of the Board TO OUR STAKEHOLDERS 5


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    Marel – Annual Report 2017 CHIEF EXECUTIVE OFFICER’S REVIEW I would like to begin by expressing my gratitude for the continuing trust and support of our shareholders, customers, partners and employees. Together we are transforming the way food is processed. Marel is a global leader in a dynamic growth industry with over EUR 1 billion in revenues and an EBIT margin of 15%. Our team of 5,400 dedicated members, located in more than 30 countries, serves poultry, meat and fish processors that have operations in more than 100 countries. Our core values are Unity, Innovation and Excellence. Our vision is of a world where quality food is produced sustainably and affordably. Robust operational performance In transforming the way food is processed we have also been growing and advancing Marel as a company. We are proud of our 2017 results with revenues of EUR 1,038 million and Clear vision and gradually expanding operational profits of 15.2%. Revenues are up by 6% year- playing field on-year and we have now been operating at EBIT level of In our everyday work we are guided by our clear vision and set around 15% for eight consecutive quarters. With an innovative of values. Our playing field has been gradually expanding and portfolio and continued good partnerships with our customers our business operations continuously improved, reflecting our we had a record order intake of EUR 1,144 million in 2017, up core value of Excellence. 13% over last year. Our playing field has expanded from its original focus The strong cash flow from our operations enables us to invest solely on yield and throughput in the Icelandic fish sector in a stronger infrastructure to prepare for the future. to become the global leader of today, serving poultry, meat and fish processors from post-farm gate to dispatch of final In the past two years we have also acquired two companies, products. The emphasis is on increased value, quality, safety MPS and Sulmaq, at a cost of over EUR 400 million without and sustainability of production, in addition to high yield requesting any additional equity contribution from investors. and throughput. Innovative solutions that have recently We have continued to invest around 6% of revenues in been introduced also focus on taking animal welfare to new innovation and have purchased our own shares and paid standards. dividends in line with our long-term strategy. The financial position is strong at year-end with around two times net debt The Sulmaq acquisitions closed successfully in August 2017 and to EBITDA. I would like to restate my welcome to the Sulmaq team. Most of our acquisitions have been focused on closing application We are entering 2018 with a strong order book equaling to gaps in our full-line offering, in particular Scanvaegt, Stork and 45% of trailing twelve-month revenues. TO OUR STAKEHOLDERS 6


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    Marel – Annual Report 2017 most recently MPS in 2016. A key driver behind the Sulmaq Marel is also situated at a crucial point in the value chain when acquisition was to gain foothold in the rapidly growing markets it comes to data collection. Connectivity of our processing of South and Central America and get access to the talent pool equipment has been a key element in Marel innovation from in those markets. Today the US and Canada, with 360 million the very beginning, helping our helping customers connect inhabitants, account for around 30% of our revenues while the dots. Latin America, including Mexico with 640 million inhabitants, accounts for around 8% of our revenues. We are already well By collecting and storing equipment information, Innova’s established in the poultry and fish industries and will continue advanced analytics software can translate data into action, to strengthen our position in the meat market. thereby enabling new services and new experiences for our customers. High quality of earnings Our customers range from small food processors to global Innova enables processors to maximize yield and throughput leaders in the field. Our customer base is well diversified with and ensure food safety, with traceability built into every step no single customer accounting for more than 4% of annual of the process. Our passion for innovation is driving new revenues. Our revenues are well balanced geographically, integrated technologies and improving resource efficiency. To consisting of a healthy mix of greenfield projects, that end, Marel’s software is a key element in harnessing the modernization and extension projects with steady recurring potential of digitalization and the Internet of Things. revenues coming from our maintenance business. A compelling growth story Marel shares were initially listed on the Icelandic Stock Exchange in 1992. In the 25 years since listing, annual compounded growth has been over 20% and our earnings quality is strong. The outlook is promising and in 2017 we introduced an ambitious growth plan for the next ten years with a target of 12% average annual growth. Organic growth is driven by We have prioritized investments and strengthened processes innovation and market penetration which is complimented by to be better able to deliver complex solutions to customers strategic partnerships. We have a compelling equity story. with the right quality at the right time. As evidence of our commitment to return value to our shareholders, earnings per Food is our passion share increased by 29% year-on-year. Marel is a global leader in providing advanced solutions and services for the poultry, meat and fish industries. It is energizing Marel connects the dots to work with all of Marel’s talented and dedicated employees Indeed, some 60 million people are becoming new active and on behalf of the team I would like to thank our customers consumers every year due to rapid urbanization and improved for their partnership contribution that is a cornerstone of our economic prospects. Consumers are demanding quality food at success. Together, we are advancing food processing. affordable prices. In developing as well as developed markets, consumers seek to increase their consumption of proteins and We are firmly committed to delivering increased value to our vegetables at the cost of simple sugars and grains. Marel is society, customers and shareholders by enhancing safe and positioned at the center point of these prevailing trends. sustainable food processing. That is our passion. Arni Oddur Thordarson, Chief Executive Officer TO OUR STAKEHOLDERS 7


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    Marel hf. – Annual Report 2017 MAREL IN BRIEF MAREL IN BRIEF 8


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    Marel – Annual Report 2017 WHO WE ARE MAREL IN BRIEF 9


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    Marel – Annual Report 2017 VISION AND VALUES UNITED UNDER ONE VISION AND ONE SET OF VALUES In partnership with our customers we are transforming the way food is processed. Our vision is of a world where quality food is produced sustainably and affordably. MAREL IN BRIEF 10


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    Marel – Annual Report 2017 BUSINESS MODEL An innovative, high-tech approach has brought Marel to the forefront of the food processing equipment industry. As a leader in the field, we provide advanced equipment and systems to the fish, meat and poultry industries around the world. Our business model is to maintain a good balance across our industry segments and geographies. We design and make food processing Strong culture of innovation solutions We are a company defined by our dedication to innovation, Our customers are predominantly companies using advanced reflected in our extensive R&D investment. Marel began as an and high-end equipment; we serve producers looking to idea at the University of Iceland in 1977 and innovation is and increase the automation of their production processes. has always been at its heart. We invest around 6% of revenues in research and development annually, which translated into We give them full control over their production with Innova, EUR 58 million in 2017. our advanced, overarching food production software. As our lines are high-tech, software is an integral part of optimizing Our approach to innovation is not limited to mechanical production. engineering to optimize the performance of each application, but also encompasses integrated technologies Seamless flow and integration between different applications and connectivity. Data analytics and software control are result in higher overall efficiency and production capacity. becoming increasingly important. From the start, we have bundled software and equipment together. Today, Marel is We have a dedicated team of 5,400 employees working in the center point of information gathering for one of the most subsidiaries and offices in over 30 countries around the world. important value chains in the world. We also enhance our local presence with a network of over 100 agents and distributors. Marel is also known for applying its technology across industries. In 2017, we continued to leverage our strong Our customer base includes most of the world’s blue-chip innovation investments in one field to successfully develop food processors. Our partnerships are strong, built on co- solutions for other protein product groups, across processes operation and teamwork across industries and geographies. and geographies. Marel’s playing field is gradually expanding to cover the entire production process from farm to fork and from catch to consumer. MAREL IN BRIEF 11


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    Marel – Annual Report 2017 € 1 1 1,038.2 969.7 1000 10% 818.6 800 8% EUR million 600 6% 400 4% 200 2% 0 0% 2015 2016 2017 Revenues R&D expenses as % of revenue Three key industry segments Marel Poultry At Marel we focus our efforts on our three main industries of Marel Poultry offers the most complete product range and operation; poultry, meat and fish. Our teams analyze trends has the largest installed base worldwide. We provide in-line and anticipate processing challenges, enabling us to stay on poultry processing solutions for all process steps and all top of market conditions and changes in the industries we processing capacities for broilers, turkeys and ducks. serve. Marel Meat Marel Poultry, Marel Meat and Marel Fish are constantly Marel Meat supplies advanced equipment and systems to the working on new ways to improve existing processes, increase red meat industry. We focus on slaughtering, deboning and automation and streamline product processing. trimming, case ready and food service solutions. Our aim is to be a full-line supplier from farm gate to finished pack. Marel Fish Marel Fish is the leading global supplier of advanced stand- alone equipment and integrated systems to the fish industry. We provide innovative equipment, systems and software for processing whitefish and salmon, both farmed and wild, onboard and ashore. MAREL IN BRIEF 12


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    Marel – Annual Report 2017 Customer focus Our strong and long lasting relationships with our customers We expect automation in food processing to increase steadily, form the bedrock of our business model. We’re here to partner especially in emerging markets. This means higher growth with our customers. Together we innovate and create prod- in advanced and high-end segments of the food processing ucts that set new benchmarks in the industry and achieve con- equipment industry. Our expertise in this segment focuses on tinuous improvements in line with our customer needs. helping customers become more efficient, more sustainable, more profitable and get more from their businesses. This shared success creates higher margins and better value, both for our customers and for Marel. VERY HIGH-END EQUIPMENT FAST LINE SPEED FAST ADVANCED EQUIPMENT MEDIUM SLOW LOW-END EQUIPMENT NON-AUTOMATED SEMI-AUTOMATED FULLY-AUTOMATED DEGREE OFAUTOMATION Sales and service network Marel’s extensive sales and service network, spread out across We serve a diverse customer base around the world. Our more than 30 countries on all continents, is a key competitive professional team of field service engineers ensures the edge. The network is Marel’s first line of contact for customers uptime and reliability of our large installed base. Service level at the local level. It brings first-rate service, consistency and agreements, a dedicated service commitment and our track continuity to our partnership with our clients. record have translated to strong customer loyalty and repeat business. • Sales and service in over 30 countries • Global sales organization of over 500 employees • Global service organization of over 1,000 full time equivalent employees MAREL IN BRIEF 13


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    Marel – Annual Report 2017 Customer collaboration As a high-tech provider at the forefront of the industry, we have This example of a ten-year relationship with a customer in the built strong customer relationships based on collaboration meat industry is a good indicator of how we do business. It is and partnership. Our cooperation with customers in terms of also a good reflection of our revenue mix, where greenfields, innovation, new projects and process improvements further maintenance and service and spare parts account for around supports our ability to transform the industry and increase a third each. customer value in the advanced and high-end segments. • Customer starts in primary processing and then expands into secondary processing. • After-sales revenue from spare parts and service starts around year three. MAREL IN BRIEF 14


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    Marel – Annual Report 2017 A balanced revenue stream and high quality of earnings Our customers’ access to raw material and their requirements Our main revenue stream drivers are both turnkey projects, for optimal yield are some of the key factors influencing encompassing brownfields, greenfields, modernization our production. We are constantly pushing technological and maintenance, and the production of modular, standard boundaries to meet their needs. equipment and processing lines. The stand-alone, modular portfolio is the building block for larger projects and the entry Marel’s presence in multiple protein segments serves as a point for new customers. countercyclical buffer. It gives us flexibility and the opportunity to transfer technical know-how, solutions and expertise Our installed base is large and growing, effectively driving our across borders, both industrial and geographical. We strive to resilient service and parts revenues. capitalize on the technological advances made in one sector by implementing them in another. REVENUES BY BUSINESS SEGMENT REVENUES BY REGION AND COUNTRY REVENUES BY BUSINESS MIX 1% 1% 3% 13% 24% 44% 32% 54% 28% Poultry Fish Meat Others Iceland The Netherlands Europe other Greenfields & large projects North America Other countries Service & spare parts Modernization & standard equipment MAREL IN BRIEF 15


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    Marel – Annual Report 2017 STRATEGY Marel has set a target of 12% average annual revenue growth for 2017-2026, both organic and through acquisitions. Our growth plan involves capitalizing on our strong R&D investment to drive growth and market penetration. We will also focus on strategic partnerships and acquisitions to fill gaps in the value chain, and to accelerate our full-line product offering and market penetration. Leading global provider of systems and services Marel’s strategic objective is to be a full-line provider to the and monitoring of throughput and yield that is hard to poultry, meat and fish industries. Our focus is to bring our replicate. Seamless flow and integration between different advanced, automated systems and solutions to every step of applications result in higher overall efficiency and improved the production process and cover the relevant geographical yield. Marel has thus become a one-stop shop for the customer areas in our industries. Strong organic growth and strategic from an equipment, software and service standpoint. acquisitions have helped make Marel a leader in its field. In line with our growth strategy, we have actively reinforced Our full-line approach includes standalone equipment, our value chain in recent years. We will continue to fill the individual systems and full production lines all controlled and remaining application gaps in our value chain through integrated with Innova, our overarching software solution. innovation, organic growth, strategic partnerships and acquired growth. This offers our customers process control, real-time traceability MAREL IN BRIEF 16


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    Marel – Annual Report 2017 Investing in growth Acquired growth Marel aims to achieve an average of 12% annual revenue We will also supplement our full-line offering and accelerate growth in the next decade. Around a third of this will be market penetration through acquisitions. We believe our solid organic growth and two-thirds will be acquired growth. operational performance and strong cash flow can support 5-7% revenue growth on average through acquisitions. Organic growth Growth will not be linear but reflect opportunities and The market for food processing equipment is expected to economic fluctuations. grow 4-6% annually on average in the long term. Driven by our extensive innovation investment and market penetration, we aim to grow organically faster than the market. A good example: how Marel fills value GAPS Acquisition of MPS paved the way for entry into primary meat processing • Marel became a full-line provider to the meat industry • Complementary geographical presence and product portfolio • Integration is proceeding well with all meat solutions united under the Marel Meat brand MAREL IN BRIEF 17


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    Marel – Annual Report 2017 A good example: how Marel improves the geographical footprint The acquisition of Sulmaq strengthens Marel’s market • IImproved foothold in the rapidly growing meat market in presence in Latin America. South and Central America • Strong customer relationships enable further sales of complementary equipment • Solid workforce with strong engineering know-how • Future manufacturing hub that can be scaled to support the region Strong cash flow supports future growth Our solid revenue growth and strong cash flow have made it The recent acquisitions of MPS and Sulmaq in 2016-2017 were possible to make a significant investment to support organic financed with support from our banking partners, our strong growth by innovation, advancing our manufacturing facilities operational results and cash flow without issuing new shares. and updating our IT platform across geographies. It has also It is also worth noting that Marel undertook no new loans to allowed Marel to undertake strategic acquisitions that have finance the the acquisitions of Sulmaq. closed application gaps in our value chain or complimented existing product portfolio. The Scanvaegt and Stork Food Systems acquisitions in 2006- 2008 were financed with an equity contribution of EUR 268 million. REVENUES FROM 2005 TO 2017 20% CAGR (7% ORGANIC CAGR) 1000 1,038.2 969.7 818.6 750 714 712.6 668.4 661.5 EUR million 600.4 540.1 531.7 500 289.8 250 208.7 129 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 MAREL IN BRIEF 18


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    Marel – Annual Report 2017 DELIVERING GROWTH DELIVERING GROWTH 19


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    Marel – Annual Report 2017 POULTRY The poultry industry is one of our three key protein industries at Marel. With the most complete product range and the largest installed base worldwide, Marel Poultry is a leading global provider of advanced food processing systems and services for broilers, turkeys and ducks. Marel Poultry contributed EUR 560 million in revenue in 2017, or 54% of total revenues, translating to an EBIT of 19.5%. The consumer value of the global poultry, meat and fish equipment for poultry, meat and fish and its maintenance market is currently estimated to be around EUR 1,200 billion, is estimated to be around EUR 10 billion. Of this, poultry with the poultry market accounting for EUR 400 billion. processing equipment is estimated to be around EUR 3 billion More specifically for Marel, the market for food processing – and is expected to grow annually by 4-6%. DELIVERING GROWTH 20


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    Marel – Annual Report 2017 Overview Products The year 2017 saw Marel Poultry go from strength to strength. Sales were good in 2017. Our approach is always customer- Our state-of-the-art, high-tech processing systems supported oriented, aimed at preparing our clients for the future. Driven our strong position in the market. Our teams worked diligently by strong product development, we saw our regular sales on maintaining both our good customer connections grow significantly. In addition, Marel was also involved in large, and our innovative, solid equipment offering. The most greenfield projects and strengthening partnership initiatives. prominent trend we saw in the dynamic 2017 market was the diversification in broiler breeding, as the concept chicken The big picture gained considerable ground on the high feed-to-meat ratio Our upselling strategy worked well for both Marel Poultry and broilers that have been the standard in previous decades. The our customers in 2017. Marel Poultry always keeps the big concept chicken is a slower growing – sometimes heritage – picture in mind when selling solutions. It matters to us that breed that is organic and marketed under names like ‘Better our customers can seamlessly integrate the machinery they Life’, ‘Chickens of Tomorrow’ or ‘Label Rouge’ in Europe. The purchase and easily add new equipment to their line when same trend has been seen in the US, while the Chinese market they see the benefits of the initial installation. Our systems still prefers the standard yellow broilers. are designed to make these additions smooth and easy to perform. Upselling from a standalone machine to a completely Production flexibility new department is no exception. The increasing focus on sustainability in “local breeding and eating”, means that current processing facilities need to be A synergistic vision able to receive and process a more diverse range of birds, Marel emphasizes the synergies arising from transferring both in terms of size and weight. To meet this requirement, methodologies and solutions across industries. Our logistics Marel Poultry has focused on helping processors become and overhead deboning systems are great examples of just more flexible than ever. Our solutions are designed to provide this. Developments in logistic solutions initiated by Marel not only the throughput, yield and quality that the market Poultry are now welcomed by other industries. The modular demands but also ensure the diversity and flexibility needed configuration of our SystemFlex intelligent conveyor system for current processing challenges. has been widely acclaimed in the poultry industry. This new logistic concept has taken automation to a completely new Strengthening partnerships level and found its way across industry boundaries. The same Faced with the need for greater investments in advanced goes for the overhead conveyor deboning process. Originating food processing equipment and systems, the poultry industry in the poultry industry’s FHF and AMF deboning systems, the requires partners who are ready to listen to and work with DeboFlex meat solution adopted the same inline processing them; partners that can offer the technology that delivers the concept. throughput, quality and yield they need. Marel Poultry has proven to be that partner. DELIVERING GROWTH 21


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    Marel – Annual Report 2017 Innovation We are constantly seeking ways to automate the production Creating first-grade thigh meat process. In 2017, Marel Poultry rolled out its first ATLAS Consumers are no longer content with using only the breast supply system. Developed to offer full control of all aspects meat of carefully reared chicken and underrating the rest of the of live bird handling, the system operates in an efficient yet bird. Given the increasing attention being paid to sustainable humane manner to ensure animal welfare. Its connection to production, it is entirely logical to add as much value as the CAS SmoothFlow anesthetization is superior to that of all possible to each part of the chicken. Which is why the Marel other existing systems. When it comes to animal welfare, the Poultry Thigh Fillet System perfectly matches sustainability induction phase is the most important of all. Together, ATLAS goals. and CAS SmoothFlow ensure that the slaughtering process is humane and complies with most halal requirements. Deboning the thigh meat upgrades it to retail class A quality, equal to a breast fillet. Processors no longer need to downgrade Adaptive automatic filleting leg meat, freeze it and ship it as a low-priced by-product. With The new AMF-i breast filleting solution is the result of our system, they can add optimal value to benefit both their continuous development. This year we saw it reach a new level production and their customers. of perfection, thanks to its added intelligence. Projects Now the measurement unit of the AMF-i system automatically Some of our largest projects involved supermarkets around detects changing dimensions in incoming products. It sends the world that are looking for complete vertical integration its instructions to the downstream modules, which auto- to keep production of primary products in their own hands. adjust their settings accordingly for adaptive automatic To gain full control of their value chain these companies are filleting. The result is accurately filleted breast caps without building their own poultry processing facilities. Our customer human intervention. Coles was the first one to establish its own processing plant in Australia and others have followed suit. AMF-i produces a wide range of breast fillet products for retail and industrial customers and harvests valuable by-products. New Costco Greenfield project In 2017, Costco Wholesale in the US planned a USD 300 The high-tech heart of poultry Processing million chicken processing facility in Fremont, Nebraska. In 2017, we highlighted the fact that processors at all stages Costco teamed up with Marel Poultry to realize this huge, of automation benefit from the Innova Food Production hypermodern greenfield project. It heralds the first US Software. The software is always promoted in tandem with installation of the ATLAS system with the CAS SmoothFlow relevant products, enabling us to display its benefits to a broad stunning application. The facility will also include a complete customer base over the course of the year. Our customers Marel Poultry evisceration department, a shock/maturation require the process control and monitoring that Innova air-chilling tunnel, two distribution lines with SmartWeigher provides. and IRIS, deboning with AMF-i and SensorX quality control. The Innova IMPAQT (Intelligent Monitoring of Performance, The entire factory will be tied together with our Innova Food Availability and Quality Trends) module has been extremely Processing Software, a fully integrated production control and well received, as customers find that it is more than just monitoring system that gives real-time overview of the entire an Overall Equipment Effectiveness (OEE) application. It process. far exceeds the usual functionalities of OEE software by pinpointing exactly the reasons for any production losses or Modernization in the Polish poultry industry variations in processing in real-time. Poland remained the leading producer of poultry meat in the European Union in 2017. Our efforts in 2017 resulted in Marel Poultry becoming the poultry processing equipment supplier with the largest market share in the country. We secured orders from several leading Polish companies, which intend either to modernize their existing facilities drastically or to equip fully new greenfield plants. All facets of poultry processing are covered by our solutions and services in these plants, from live bird handling to final product packs. DELIVERING GROWTH 22


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    Marel hf. – Annual Report 2017 CUSTOMER STORY Costco teams up with Marel Poultry Marel Poultry will supply Costco Wholesale and its newly formed poultry processing company, Lincoln Premium Poultry, with a full poultry processing line for a state-of-the- art greenfield plant in Fremont, Nebraska. This order marks the largest single order for Marel to date and will be delivered by the end of 2018. State-of-the-art processing Marel Poultry will supply Lincoln Premium Poultry with three complete slaughter lines, from live bird reception to chilling. Each line will make use of ATLAS, Marel Poultry’s latest live bird reception system, designed to improve animal welfare and sustainability while retaining high levels of transportation efficiency. From there, the plant will run complete CAS stunning, killing and evisceration systems, all incorporating the latest technology, followed by chilling. Costco’s goal is to produce two million chickens a week (25,200 bph). The new Lincoln Premium Poultry facility will process birds of 2.7 kg (6.0 lbs) average live weight and will handle about a third of the raw and rotisserie products for the company. Innova Food Processing Software, fully integrated throughout the plant, will help management achieve full traceability and lift efficiency levels. From chilling to automated, smart packing For chilling, Marel Poultry will install three shock/maturation air chill systems. Two distribution lines complete with SmartWeigher and IRIS vision grading will be installed post- chilling, allowing Costco to make well-founded decisions about downstream product allocation. After whole bird selection, all remaining products will be cut up on four Marel Poultry cut-up lines. Deboning will be done using five of the newest AMF-i cap deboners and two in-line Thigh Fillet Systems. Deboned parts will pass through one of five Marel SensorX machines for bone detection. A combination of Marel robots and Multihead Weighers will align cut portions automatically for thermoform packing. Metal detectors and full specification Marel weight-price labeling lines will box each pack in cartons. DELIVERING GROWTH 23


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    Marel – Annual Report 2017 Sustainability Global production and trade trends Improved utilization of raw materials has become increasingly In 2018, global production of chicken meat is estimated to rise important as the world population grows and demand for by 1.2% and reach 91.3 million tons. Global trade in chicken protein increases. Our answer lies in the adage ‘waste not, meat is expected to grow by 3.3% and reach 11.4 million tons. want not,’ as our customers require systems that enable them to use every part of the broiler and obtain a better price for The US is expected to continue to be the leading producer in a more valuable product. Maximizing the value of every part 2018 with 21% of the total production, followed by Brazil with of the chicken is therefore high on Marel Poultry’s agenda; 15%. by so doing we contribute to both internal and external sustainability goals in the industry. In 2017, the European Union overtook China to become the third-largest producer of chicken meat in the world and is Growth drivers expected to hold that position in 2018. Market demand for higher throughput is our division’s main growth driver. We will continue to supply technological Brazil continues to be the world’s leading exporter of chicken solutions that increase automation and mechanization to meat with 4.0 million tons in 2017, expected to rise to 4.2 realize these requirements. million tons in 2018. Another growth driver is the demand for increased product value using an integrated inline process that can lower cost per product processed. Our approach is to create solutions that automate labor and improve yield, uptime and product quality, while increasing sustainability through lower water and energy consumption. DELIVERING GROWTH 24


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    Marel – Annual Report 2017 MEAT The meat industry is one of Marel’s three key protein industries. Marel Meat is a leading global supplier of integrated systems and advanced stand-alone processing equipment to the red meat industry – from live animal receipt to finished packs. Marel Meat contributed EUR 334 million in revenue in 2017, or 32% of total revenues, translating to an EBIT of 11.5% (operating income adjusted for amortization of acquisition-related intangible assets). The consumer value of the global poultry, meat and fish market market for food processing equipment and its maintenance is estimated to be around EUR 1,200 billion. Meat is the largest for poultry, meat and fish is estimated to be around EUR 10 market segment, with an estimated value of EUR 600 billion, billion. Of this, meat processing equipment is estimated to be followed by poultry and fish. More specifically for Marel, the around EUR 5.5 billion and is expected to grow annually by 4-6%. DELIVERING GROWTH 25


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    Marel – Annual Report 2017 Overview Products Integration was the key theme for Marel Meat in 2017. Over Our product offerings link up to cover the entire value the course of the year we worked diligently on the integration chain. This was reinforced in 2017 with both the launch of of new team members into the front-line sales team as recent new products and improvements to previous machinery. acquisitions have made us a full-line supplier to the meat Marel Meat introduced a new design for the beef deboning processing industry. We unified our product offering and the StreamLine system that meets the latest hygiene standards team providing it. Our approach was simple yet effective: the and the SpeedBatcher by-product packing solution. We whole team was trained to be able to represent the full product released an optimized Trim Monitor reject-system for meat, line, from farm gate to final pack. Intra-company logistics and created a new paceline infeed and finalized the design of wastewater treatment were also areas of focus, with successful the I-Cut 130 for red meat applications. The I-Saw automatic projects undertaken in both fields. frozen portioning machine was released in 2017. Our launch of the DeboFlex pork fore-end deboning solution was very well Full-line supplier of primary, secondary and further received with new systems delivered to Brazil, North America processing solutions and Europe. The MPS (Meat Processing Systems) acquisition closed in 2016 and key elements in integrating the company were Intelligent processing successfully realized in 2017 and will continue in 2018. The Our highly effective Innova software was a key aspect in expertise and product offering of MPS support Marel’s growth the promotion of our full-line processing equipment. Our strategy in the meat sector. The acquisition has made Marel software is at the heart of many of our cutting and deboning a full-line supplier to the industry by closing the value chain solutions where product traceability is essential. It enables gaps previously existing in the primary processing segment. our customers to mitigate operational risk, providing full Extensive new, full-line projects undertaken in China, South traceability from farm to fork. America and the US are clear testimony to the success of the integration. Increased automation The efforts of 2017 have placed Marel Meat in a strong Improving geographical reach position in the market for automated solutions. Automation Another major milestone towards closing the remaining is employed on many levels of processing and can range from gaps in our product offering and geographical reach was simple machine installations to fully automated robotic lines, the acquisition of Brazilian meat processing equipment controlled by food production software that monitors and manufacturer Sulmaq in Q3. Sulmaq was operated as a stand- manages the production. We saw increased opportunities for alone company in 2017 while Sulmaq and Marel developed automation at every processing step in both the pork and beef strategies to optimize the synergies of the partnership. sectors in 2017. A unified team Case-Ready and Food Service Sales and service have to go hand-in-hand and integration Marel Meat focused on supplying stand-alone systems and efforts for the Marel Meat service organization were a key equipment to the case-ready and food service sector. We focus in 2017. We brought all service activities under one have a strong foothold in this segment and flexibility and end management structure and further strengthened our regional product differentiation were key issues in 2017. We delivered support teams through repositioning and training. systems and solutions that help our customers keep pace with the ever-increasing demands of retailers and consumers for case-ready products at competitive prices. DELIVERING GROWTH 26


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    Marel – Annual Report 2017 Innovation In 2017, Marel Meat continued to work on innovative Our motto at Marel Meat is to keep our innovations on equipment and software solutions for the industry. As a the cutting edge of modern technology, while delivering company thriving on innovation and the development of the exact functionality, durability and production stability high-tech applications, Marel sees opportunities where our customers need to maintain their position in the meat others see challenges. Our teams at Marel Meat are adept at processing industry. turning ideas into reality; challenges into solutions. Intelligent software applications have become an integral part of the Projects meat production solutions we offer our clients. Thanks to strategic acquisitions and organic growth, Marel Meat now covers the entire value chain; from live animal intake Intelligent robotic slaughter lines to finished consumer product. Our projects in 2017 reflect this Increasing automation at some of our more high-tech scope, as larger installations and greenfield projects became customers was a key issue in 2017. During the year, Marel more prominent. Some of our largest greenfield projects took Meat developed practical and efficient solutions for every us to Spain, France, Mexico and Korea. level of automation. Each application was built on in-depth processing know-how, decades of experience and our We worked with GrupoJorge, one of Spain’s largest meat innovative approach to intelligent automation. Some of our producers, on extending the capacity of their existing factories, most successful projects in North America, Brazil, Europe, for example. In addition, Marel Meat developed completely Russia, China and Australia included our intelligent robotic new processing facilities for Granjas Carroll de Mexico in slaughter lines that have set a new standard in slaughter line Mexico and for PuKyung Pig Farmers Agricultural Cooperative robotization. in Korea. Greenfield projects like these are our specialty, as they enable us to utilize our processing and technological Meat processing software expertise to help our customers reach their goals. We continued to develop our overarching software solution, Innova. It is designed to control and monitor every aspect of meat processing to increase yield, quality and throughput. We work closely with our customers and other divisions within Marel to create systems and solutions that allow food to be processed in an affordable and sustainable way. DELIVERING GROWTH 27


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    Marel – Annual Report 2017 CUSTOMER STORY Seeing what the human eye cannot The Foyle Food Group supplies high quality beef to leading retailers, manufacturers, food service providers and butchers across the world. It has now installed Marel’s Trim Manage- ment System in three of its five processing plants and reports major advantages gained from the systems. “Our main reason for installing the Trim Management System was to be able to meet the increasingly varied requests for CL content,” says Michael McKay, General Manager at Foyle Food Group. The company can now measure and verify the fat/lean (CL) content in their meat supply and deliver final batches of meat of specified weight with a fixed CL as prescribed by the customer. The system also beats the human eye at detecting bones and other hazardous objects (down to 5 mm), enabling the company to meet increasingly high demands for food safety and hygiene. “That is a great benefit and makes a huge difference to profit. As a matter of fact, we have gotten new customers onboard because of the system’s efficiency,” says McKay. DELIVERING GROWTH 28


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    Marel – Annual Report 2017 Sustainability Growth drivers Animal welfare is and will always be an issue of the utmost With different trends governing our sector, Marel Meat sees importance in the protein sector. Consumers are conscientious opportunities for expansion in both traditional growth and want products that are produced sustainably and markets and what some would call saturated markets. ethically. Marel Meat worked closely with customers in As a well-established provider with a full-line offering for 2017 on these issues, delivering systems and equipment primary, secondary and further processing, we see our basic that improve production sustainability, both in terms of raw growth being driven by traditional demands, for instance, for material utilization and energy and water consumption. We improvements in yield, quality and throughput. emphasize helping processors to be flexible in their product offerings, while simultaneously adhering to animal welfare In the more advanced sectors of the market, where automation standards in the primary part of their processing and ensuring and production optimization have already occurred, we see sustainability throughout the value chain. This applies to their growth opportunities in the need for a sustained margin. processing facilities and their equipment set-up. Our approach is to introduce new technologies to increase automation and boost yield. Marel Water Treatment Wastewater treatment is another area where Marel Meat We have witnessed a clear trend in recent years towards directly contributes to clients’ sustainability efforts. The Marel increased requirements for automated systems and processing Water Treatment division is a part of Marel Meat. This long- procedures. As processors face tougher competition with standing, internationally recognized division was integrated increased automation, they realize that they need to from MPS in 2017 and offers primary, secondary and tertiary implement new technologies to stay on track and meet treatments for all types of food processing wastewater. fluctuation in consumer demands. Marel water treatment systems are efficient, easy to use and characterized by low maintenance. 1 DELIVERING GROWTH 29


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    Marel – Annual Report 2017 Global production and trade trends Beef and veal In 2018, global production of beef and veal is estimated to rise The US is forecast to continue as the leading producer in 2018, by 1.9% to 62.5 million tons. Global trade in beef and veal is accounting for 20% of total production, followed by Brazil with expected to grow by 2.7% and reach 10.1 million tons. 16%. In recent years, India has been the world’s largest exporter On the import side, China (including Hong Kong) overtook the of beef and veal and is expected to remain in top place in US as the world’s largest importer in 2017. 2018, closely followed by Brazil. However, it should be noted that unlike the other major exporters, India’s beef exports are based on water buffalo meat, as export of cow, oxen and calf meat is prohibited by Indian law. Pork In 2018, global production of pork is estimated to rise by 1.8% The EU is the world’s largest exporter of pork, closely followed to 113.1 million tons. Global trade in pork is expected to grow by the US. by 2.6% and reach 8.5 million tons. China continues to be the largest importer followed by Japan, China continues to dominate the pork market, accounting for which it overtook in 2016. an estimated 48% of total production in 2018, followed by the EU with 21%. DELIVERING GROWTH 30


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    Marel – Annual Report 2017 FISH The fish industry is one of Marel’s three key protein industries. Marel is a leading global supplier of advanced standalone equipment and integrated systems for all stages of the fish processing value chain. Our systems range from single scales to integrated production lines and turnkey systems, onboard and ashore. Marel Fish contributed EUR 132 million in revenues in 2017, or 13% of total revenues, translating to an EBIT of 4.3% which is below long term targets. Marel Fish has been transformed in recent years and is on the right track as investments in innovation and standardization of the business has delivered good orders received and improved margins. The consumer value of the global poultry, meat and fish equipment and its maintenance for poultry, meat and fish is market is estimated to be around EUR 1,200 billion, with estimated to be around EUR 10 billion. Of this, fish processing the fish market accounting for an estimated 200 billion. equipment is estimated at around EUR 1.5 billion and is More specifically for Marel, the market for food processing expected to grow annually by 4-6%. DELIVERING GROWTH 31


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    Marel – Annual Report 2017 Overview Products In 2017, Marel Fish focused on enabling fish processors Marel Fish revolutionized the cod processing industry yet again to generate higher value through better utilization of raw with the addition of a new pre-trim line and robot packing material and maximize throughput, quality and process solution for FleXicut that offers automatic pinbone detection control. The wild whitefish segment continues to occupy an and removal. FleXicut has been very well received, with sales important place in the Marel Fish portfolio due to its long- to both land-based operations and onboard processing term use of technology and modern fishing and processing throughout Europe and North America in 2017. methods. Marine sourcing of wild fish is a relatively fixed resource with little potential for growth due to the state of In salmon, Marel continued to push the boundaries, developing fish stocks and quota limitations. Thanks to their investment innovative new primary plants in Norway and Denmark. As the in high-tech onboard solutions, whitefish processors are now year progressed, unusually high whole-salmon prices returned able to meet rising demand for products by improving the to a more moderate level, stimulating the trend towards utilization and value of their catch. consumption of filleted, portioned and sliced salmon – all added-value products in which Marel has invested heavily to Growth opportunities in the farmed fish sector create the leading processing equipment in the industry. Aquaculture has been the fastest growing food production segment in the last decade and Marel Fish has a strong An almost hands-free process foothold in the sector, especially in the salmon part of the Marel Fish demonstrated an almost hands-free process industry. We have also worked for many of the world’s largest throughout the production chain at our Whitefish Showhow processors of tilapia, sea bream and sea bass. Our efforts to with a new configuration of a FleXicut line. further our market penetration in this sector in 2017 have given us a strong position to continue this expansion in 2018 The concept, with a new pre-trim solution and packing robots and beyond. further down the line, means that pre-trim is the last place the fish is touched by human hands. The packing robots are yet another cross-industry application that was originally developed for poultry and is now applied to fish. Transferring technology between industries The FleXicut pinboning and portioning system is a perfect example of how Marel transfers technology between processes and industries. Its technology is the result of innovation and development of x-ray technology that started with the SensorX in 2004 – a machine that is now the quality assurance standard in the poultry industry – and image processing and computer applications that Marel started using in its intelligent slicing machines in the 1990s. This technological transfer has continued with FleXicut in 2017. Initially developed for whitefish, the equipment underwent extensive testing in 2017 for salmon applications. The successful results were demonstrated at the 2018 Salmon ShowHow in February. Smart software – smart factories Data is increasingly valuable in today’s high-tech processing environment. The ability to track and analyze data is key to competitiveness for fish processors. Innova was featured at ShowHows and other events during the year where customers could see machines generate data in real time and learn how Innova uses the data to provide full production control. A comprehensive Innova conference attracted a large group of fish processors in 2017. The aim was to help them stay on top of production control and realize the full potential of our overarching software solution. DELIVERING GROWTH 32


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    Marel – Annual Report 2017 Innovation Projects In 2017, visitors to several major exhibitions and Marel’s For Marel Fish, 2017 was a productive year with an increase in Whitefish ShowHow were given the opportunity to walk greenfield projects, which average 25% of our overall project through a computer rendered model and a 360° video from load, with standard equipment and system installations inside a high-tech cod processing plant equipped with a accounting for 75%. The whitefish segment had steady sales FleXicut line. The experience gives unique insights into fish of standard systems to current and new customers in all processing advances, without having to transport an entire our regions and the farmed fish team participated in large factory to various locations around the world. We also began greenfield projects in Scandinavia. The following examples using Virtual Reality (VR) in the development phase of products, illustrate the variety of those projects we undertook in 2017. saving engineering hours and shortening development time. The use of VR shows how we make full use of technology both Nordic hi-tech to develop and to demonstrate our products. In 2017, we undertook our largest ever project in this industry, a greenfield facility for Norwegian fish processing giant Leroy From one industry to another Seafood Group. Another major greenfield project involved a In 2017, we released the results of primary innovative work new, ultramodern whitefish plant for Primex, Norway, which undertaken to meet current market demands. We are known will set a new benchmark in the whitefish industry. The project for taking our technology across industries and this year we includes completely new robot technology that will improve transferred results from innovative work in robot technology product distribution and handling. from the poultry sector into fish processing. The solution is called RoboBatcher Flex. We use this award winning Fish in the desert robotic application for batching fixed-weight products and The Saudi Arabian processing giant NAQUA continued to automatically styling them into retail trays. This improves yield work with Marel to improve processing. In 2017, the company and greatly reduces giveaway. decided to double its already impressive throughput and install new packing lines and the Innova Paperless Quality Innovative applications Control (QC) system. This was an extensive project with The FleXitrim pre-trim line was another step forward for the multiple installation phases, most of which were completed whitefish processing industry in 2017. The new features during the year. of the FleXitrim, fully integrated with the current FleXicut system, make it the only solution on the market that offers the Cooperation across borders sophisticated combination of automated quality control and Marel, Icelandic processor Samherji and Dutch processor full traceability of individual portions all the way to the final Parlevliet & Van der Plas entered into a substantial partnership pack. The new M360 wrap-around labeler was well received in agreement to modernize the processors’ operations onboard the fish industry. It employs the latest technology in flexible, and onshore with FleXicut systems. Samherji and Marel have linerless labeling. worked closely together for decades on developing advanced fish processing solutions, and this extensive cooperation The MS 2720 salmon deheading machine, released on January contract reflects the two companies’ shared passion for 1, 2018, was pre-released at the Marel Salmon ShowHow in innovation. February 2017. This innovative solution offers some of the highest levels of throughput, yield and quality ever achieved for this process. DELIVERING GROWTH 33


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    Marel – Annual Report 2017 CUSTOMER STORY Largest processing facility in Brazil In 2017, C.Vale opened the largest and most advanced fish processing facility in Brazil, fitted with processing equipment and systems from Marel. The new modern factory is just over 10,000 m2 and has an initial processing capacity of 75,000 tilapia per day. “Our next goal will be to reach 300,000 per day. We have a consolidated customer base who are waiting for our fish products both in the domestic and foreign market,” says Alfredo Lang, the president of C.Vale. C.Vale and Marel have a long shared history spanning over two decades, mainly in the area of poultry and further processing. “This new project is not just a watershed in the fish industry in Brazil, it also reiterates and strengthens the partnership between the companies,” says Francisco Leandro, General Manager of Marel in Brazil. The plant is designed not just to meet current needs but also allows for the future expansion of productive capacity that C.Vale is planning in partnership with Marel in the coming years. DELIVERING GROWTH 34


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    Marel – Annual Report 2017 Sustainability Marel Fish contributes both directly and indirectly to increased Changing dietary habits and a continuous rise in the demand, sustainability in the world of food processing. Our focus on not only for seafood in general but also for differentiated and improving product utilization and increasing yield serve sus- value-added seafood products are major growth drivers in the tainability in various ways. Improved raw material utilization industry. Innovative solutions in both salmon and whitefish preserves resources, both natural and economical. Our equip- will set a new industry standard in coming years, with major ment is designed for optimal energy and water usage and to fa- Norwegian and Icelandic processors leading the way. Water- cilitate cleaning, all geared towards using resources sparingly. shed installations are already underway and will set the tone for others to follow. Growth drivers For Marel, the key factors for future market growth include the Changing dietary habits and a continuous rise in the demand, expansion of the farmed whitefish segment and the overall rise not only for seafood in general but also for differentiated and in automation in fish processing around the world. Processing value-added seafood products are major growth drivers in the volumes in farmed whitefish are expected to rise exponen- industry. Innovative solutions in both salmon and whitefish tially in the years to come. Currently automated factories will will set a new industry standard in coming years, with major increase their level of automation, highly automated players Norwegian and Icelandic processors leading the way. Water- will look towards robotics and hands-free processing and an shed installations are already underway and will set the tone increase in entry level automation is expected. Reduction of for others to follow. manpower is the driver in Europe and North America, where companies are increasingly prepared to invest in technology to compensate for a diminishing supply of labor. DELIVERING GROWTH 35


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    Marel – Annual Report 2017 Global production and trade trends Salmon In 2018, global salmon production is estimated to rise by 7.6% 2018, followed by Chile with 29%. Salmon production in Chile to 2.6 million tons. Atlantic salmon is expected to account is forecast to increase by 11% in 2018, compared to an 8% for 94% of production. Norway continues to dominate increase in Norway. The market will continue to be dominated production with an expected 50% of the total production in by these two countries. Tilapia and catfish In 2018, global production of tilapia and catfish is expected to China continues to lead the market with a 25% share, followed rise by 2.6% to 6.5 million tons, of which catfish will comprise by Egypt with 15%. 1.3 million tons. Cod According to forecasts, global production of cod will shrink In 2018, the cod catch is expected to decrease in all leading to 1.7 million tons in 2018, a decrease of 5.4%. Atlantic cod is countries except Iceland. Icelandic production has increased expected to account for 75% of production. Russia continues each year from 2014, as stronger cod stocks have enabled to lead with a 27% share of the market, followed by Norway higher total allowable catches (TACs). with 22%. DELIVERING GROWTH 36


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    Marel – Annual Report 2017 INNOVA FOOD PROCESSING SOFTWARE Innova is our revolutionary food processing software that provides full production control and traceability, giving a complete overview of the product’s journey through processing from reception to dispatch. To date, we have around 1,800 Innova installations worldwide, software. Innova can be implemented as an all-inclusive with the result that many of the largest food processing production system, adapted for specific production units and companies in the world already use this leading-edge even connected to third party equipment. DELIVERING GROWTH 37


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    Marel – Annual Report 2017 The future of intelligent production control Streamlined order management Utilizing the latest technology and cloud analytics, Innova is Innova not only provides full production control and the future of intelligent production control. It enables plants to traceability, it also helps improve the entire order processing, manage, monitor and improve the entire production process, making it more streamlined and easy to manage. Innova allowing producers to spot inefficiencies on the factory floor by can optimize workflows, enable cost effective inventory presenting the information needed to maximize throughput, control and efficient order management. The system includes quality and yield. purchase orders, production orders, inventory orders and sales orders. Food producers need to be able to keep pace with ever- increasing industry and regulatory demands for animal Innova connects to third-party equipment welfare, traceability and quality control. Innova provides Innova Food Processing Software is set up to work with efficient, high-performing software solutions that enable the third party equipment, systems and solutions that are them to do just that. independent of Marel equipment. That way, our customers can install a single software system to oversee production and Direct traceability integrate with their existing systems. Innova can be applied to every processing step, providing a complete overview of the product’s journey through It’s all in the label processing from reception to dispatch. It controls and monitors The label designer in Innova is a very powerful tool. All the the animal reception and registration, the production flow and traceability information on the product is collected through the deboning, packing and dispatching processes. processing and available on the final product label.The flexible system means you can easily design the labels to fit Having Innova manage the entire operation creates a direct the information and the final product package. line between the slaughtered animal and the customer, giving unique advantages. DELIVERING GROWTH 38


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    Marel hf. – Annual Report 2017 CUSTOMER STORY High-grade software for high-grade salmon The Mt Cook Alpine Salmon processing facility at Timaru in New Zealand opened in late 2013 and processes very high-grade salmon. The dynamic company is a fully integrated operation with its own supply chain and exports most of its salmon to discerning markets around the world. With a strong focus on the high quality of its end products, it is important to Mt Cook Alpine Salmon that they own and control all the steps from farm through to sales. Innova Food Processing Software has supported this from the start, providing traceability from farm to pack and ensuring that critical information is always on hand in real time. High-tech for quality products In modern salmon processing, high-tech equipment and food processing software is an absolute necessity. “We looked at various systems and approaches for managing our production,” says Brent Keelty, plant manager at Mt Cook Alpine Salmon. “We’re glad we decided to go with Innova from Marel; it’s a best-in-class solution for fish processing.” Return on investment Mt. Cook Alpine Salmon use Innova for receiving fish from farms to the factory and into production. They use Innova for order control and different stages of inventory management, as well as for weighing, labeling and packing of finished goods all the way through to the dispatch processes. This translates to order management, yield control and performance analysis across the plant. The overall gains in efficiency are valuable and, in particular, being able to produce to order adds a lot of value: “Innova helps us maintain optimum inventories and produce exactly to the orders,” says Keelty. “As a result, we minimize over- and under-production and our products are always consistent and reliable.” The value of automation and traceability Keelty explains that the value of having the automated production system was quickly apparent. “It’s a robust system and provides us real-time production management and a powerful tool for maintaining traceability from our salmon farms to dispatch orders,” says Keelty. “We can monitor production performance in real time and make any changes on the go. It helps us improve throughput and reduce giveaway, and it gives us live production control.” Easy to use Despite the complexity and scope of some of the challenges it solves, Innova Food Processing Software is designed to be as user-friendly as possible. “Our operators like it because the system is easy to use and it’s consistent,” Keelty agrees. “We also use it for trend analysis in our production through live reports and dashboards, we can easily do aged analysis, reporting on various areas including sales, harvest volumes, production tonnages and fish size.” DELIVERING GROWTH 39


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    Marel – Annual Report 2017 INNOVATION Innovation is and has always been at the heart of Marel. We invest around 6% of revenues in research and development annually, which translated into EUR 58 million in 2017. With over 20 solutions introduced to the market in 2017, it is safe to say that innovation is simply in the DNA of our people. Our experts are relentless in their efforts to meet the next challenge in the market with an effective solution. We have over 700 dedicated technology professionals in 9 Data analytics and software control are becoming increasingly countries, working in partnership with our key customers to important. Our approach to innovation is not limited to me- change the way food is processed. People are our greatest as- chanical engineering but also encompasses integrated tech- set in driving innovation: it is all about their mindset. You have nologies and connectivity. From the start, we have bundled to be creative, passionate and brave. software and equipment together. Today, Marel is the focal point of information gathering for one of the most important value chains in the world. DELIVERING GROWTH 40


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    Marel – Annual Report 2017 Keeping ahead of trends At Marel, we analyze current trends and anticipate processing In poultry the RoboBatcher is intelligently connected to the challenges as part of staying informed of the market I-Cut in the award-winning concept: ‘The robot with a knife’. conditions and changes in the industries we serve. Key trends The RoboBatcher Flex is a highly flexible system for automated that will continue to characterize the food processing industry fixed-weight batching and tray styling of poultry fillets. in coming years are the emphases on productivity and process Designed for high throughput and accuracy, the RoboBatcher optimization, together with demands for food safety and Flex can batch and style up to 300 fillets per minute depending sustainability. We work on these issues daily by putting our on the version and keep giveaway to a minimum. extensive product know-how and processing skills to work to provide the innovative solutions our customers need. The Robobatcher Flex has now been made available for fish, while the leading SensorX technology has been reinforced Strategic focus by adding SmartSort to its system for better handling of Innovation strategically focuses on three key areas: new downstream products. product development, modernization of existing product lines and creating a common core technical platform for Marel. The newly launched DeboFlex automatic deboning system has set a new standard in the meat industry. A large proportion of Marel’s development of new products creates breakthrough the time spent on deboning in a pace line is currently used innovations to meet the challenges facing customers. In for turning and moving products around. By reducing this addition to new equipment and solutions, product upgrades handling time DeboFlex increases the actual cutting time and and incremental additions to existing machines and systems boosts yield. make sure our equipment stays competitive. We also focus on modularization and standardization as drivers to maximize Another new release was the I-cut 130 PortionCutter, a next- synergies available across the company. To that end, we are generation portioning machine. This new system provides committed to collaborative innovation with our customers superior programming flexibility and a variety of specialized and partners to ensure our products add value in a way that cutting patterns. It guarantees consistently superior accuracy suits their specific needs. and optimum usage of raw materials, resulting in high-quality products with maximum return on investment. Product launches 2017 In 2017, we released over 20 products onto the market. Among these successful product launches are the FleXicut for fish, the ATLAS live bird handling system, AMF-I and the Thigh Fillet System for poultry. DELIVERING GROWTH 41


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    Marel – Annual Report 2017 Product-focused innovation hubs R&D is organized around three innovation hubs, each of which field experience to reach the best results. Marel empowers its has its own specific technology and industry focus while also employees by fostering teamwork and connections between capitalizing on the synergies between product groups. Our the different hubs, providing training and good facilities, tools experts draw on their different educational backgrounds and and equipment to work with. Creating intelligent equipment for the smart Robobatcher Flex factory This year we successfully transferred our award winning From the early days of the digital revolution to the current robotic technology from the poultry sector to fish processing. opportunities opened up by what has been labeled the The RoboBatcher Flex batches fixed-weight products fourth industrial revolution, Marel has always linked together automatically and styles them into retail trays. This ensures software and automation to create innovative solutions to maximum batching flexibility and high product utilization food processing challenges. with virtually no give-away. Marel’s high-tech approach has led the way in using intelligent automation to increase yield, throughput and quality in food processing. In poultry, our recently launched AMF-i is the first intelligent breast filleting system using automatic adaption to breast cap size, resulting in higher yield, capacity and product quality. Our sophisticated sorting algorithms have been controlling our graders for decades, while the latest 3D laser vision systems work with advanced software to calculate the best cutting patterns for our automatic portioning systems. Technology is, SensorX however, advancing at lightning speed with rising computing Originally created to detect pinbones in whitefish, the SensorX power a major catalyst. Virtual Reality (VR) and Artificial bone and contaminant detection system has now become Intelligence (AI) will further transform our industry in the a staple in poultry factories around the world, working in future. In 2017, Marel started to build up the competencies tandem with the next generation of quality assurance systems needed to design and integrate use of these technologies in for ground meat and meat trim. The system uses advanced our products. X-ray technology to scan for bones in fish and poultry or analyze fat/lean content in meat. From one industry to another Marel is known for applying its technology across industries. In 2017, we continued to leverage our strong innovation investments in one field to successfully develop solutions for other protein product groups, across processes and geographies. SensorX and the RoboBatcher are two great examples of products that were developed for one industry but have been successfully adapted for all of Marel’s industries. We will continue to realize the synergies available to a company of our scale and scope, delivering innovative products for our customers and creating further growth opportunities. In particular, major opportunities lie in the secondary and further processing parts of the value chain, e.g. portioning, batching, weighing and marinating, where the processing steps become more homogenous across industries. DELIVERING GROWTH 42


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    Marel – Annual Report 2017 Innovation A TRUE PET PROJECT A testament to both the creative mindset of our innovation team and the excellent cooperation we enjoy with our strategic partners is the mewing story of FleXicut. Before officially launching FleXicut, a trimming robot for high precision bone detection and removal, we ran a prototype machine in close partnership with one of our key customers, Vísir. Not lacking in either creativity or imagination, the team members from both Marel and Vísir soon adopted the test machine as their pet project, in various senses of the word. The name FleXicut, aptly reflecting its flexible water approach to more efficient cutting patterns, was soon nicknamed the ‘Cut’ among the team. As the word ‘cut’ is pronounced exactly the same way as the Icelandic word for cat – kött – FleXicat quickly became the team’s pet project name. During the testing period, sometimes the cat was up and running, other times the kitty needed a bit of petting, cleaning or was hungry for spare parts. When a second FleXicut was rolled out, the team decided it was time to give their pets names. They became Puff and Inky from the classic children’s books by Pierre Probst, to better distinguish the two. Today, our innovation team can track all their cats in a real time environment – hopefully purring contentedly in their new homes - and collect data on how to improve efficiency and service support. We believe that a working environment where creativity flourishes and innovative thinking thrives allows us to create new, smarter solutions for our customers. One global new product Development process New product developments follow a global progression with multi-disciplinary development teams and knowledge- sharing throughout the company. Solid infrastructure ensures standardization and modularization of our equipment, as well as the proper tools to carry out high-quality engineering. To take full advantage of the scale of our business, we focus especially on leveraging common technologies across our product portfolio. To this end, we are working towards developing one technical platform for all Marel equipment to run on. This will ensure technical integrity in designing our solutions while at the same time making them more accessible for our customers. DELIVERING GROWTH 43


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    Marel – Annual Report 2017 SALES Marel’s global network of dedicated sales representatives is one of the company’s strongest and most visible assets. Our sales operation consists of local representatives in over 30 countries, 19 regional organizations and a global network of more than 100 agents and distributors. With such a large network, Marel can serve large and small Demo centers for customer demonstrations, food processors and food retail companies on location, wher- conferences and training ever they are. Our industry specific segments – fish, meat and Marel operates four demonstration facilities for customers: poultry – are manned with specialized sales people, working one in Copenhagen, Denmark, another in Boxmeer, the in partnership with customers around the world. We are ded- Netherlands and two in the USA, in Lenexa, Kansas and Des icated to bringing top-of-the-line services, consistency and Moines, Iowa. Three of the centers are built exclusively for the excellence to each project we undertake. purpose of customer demonstrations, conferences, training and internal meetings, while the innovation center in Des Moines is more focused on new product development. The facilities offer a hands-on environment where customers can see how Marel innovations can improve their food production, employee expertise and operational outcomes. Progress Point in Copenhagen Progress Point in Copenhagen is the flagship of our four demo centers. The 2,700m2 custom designed building, located on a 10,000m2 site, is a unique training and demo facility designed to bring customers and processing experts together to experience the full potential of Marel equipment and integrated systems in a hands-on environment. At Progress Point, we host four major events every year for the salmon, meat and whitefish industries and a bi-annual event for poultry. These unique events bring together processors from all over the world to explore the latest advances in food processing and hear guest speakers address some of today’s key processing challenges. The ShowHows give processors the opportunity to discover how Marel’s industry leading products can help them organize their daily production and address the critical factors that affect raw material utilization, processing times, labor costs and food safety. These events also give customers an opportunity to provide valuable input and exchange ideas with Marel employees. Marel also hosted its first Capital Markets Day at Progress Point on November 2, 2017. Over 100 investors and analysts attended the meeting, which was a great success. DELIVERING GROWTH 44


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    Marel – Annual Report 2017 GLOBAL SERVICES As a service-oriented operation, we focus on assisting our customers in maintaining optimal production flow, uptime and output. We run a global, well-organized service and maintenance operation that is and will continue to be one of the main sources of our revenue and growth. Delivering around 40% of the company’s revenues, the service and spare parts business is a clear growth opportunity, driving value for both customers and shareholders. Our focus is on proactive service that includes preventative The results were already evident in 2017, with ServiceMax maintenance, spare parts packages and long-term service providing us with the first consolidated, full range overview contracts. Our experience shows that an increasing number of the installed base, customers and workforce. Efficiency of customers prefer this model. Working proactively with has increased, as field data is shared with the office more customers prevents downtime in their production facilities quickly and the positive effects are evident in improved and ensures consistent peak productivity at all times. service delivery and sustainable growth. Response times have shortened, on-time performance has improved and there are Improved efficiency following consistent productivity improvements in the field. implementation of ServiceMax To improve service even further, Marel implemented one A key source of recurring revenues global field service management platform, ServiceMax, on a Service will continue to be a key source of revenue and company-wide basis in 2016. This was an important step in growth for Marel in the coming years. Major investments have advancing our global service strategy. Equipping all our field been made in business improvements in the last few years, service engineers with iPads and dedicated software enables including IT and employee development. This has created a them to coordinate schedules and projects and to deliver solid foundation for future growth and profitability from the regular service reports. By standardizing the company’s company’s service operations. processes and IT platforms, we aim to raise our service network to an even higher level. DELIVERING GROWTH 45


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    Marel – Annual Report 2017 GLOBAL SUPPLY CHAIN The global supply chain at Marel is responsible for procurement and manufacturing within the company and operates worldwide, integrating the company’s fish, meat, poultry and further processing industry units. A team of over 2,000 people supports product development We now run 12 manufacturing sites for machines and parts and with new equipment and service parts. Our experts make 4 main distribution centers for service parts. These changes sure that our modernization projects, large greenfields increase the reliability and consistency of productivity and developments and individual machine installations run output. on schedule and are delivered and serviced in line with agreements. We work closely with logistics services and key Quality, responsiveness and efficiency are the cornerstones material and parts suppliers around the world. of our operation. Our approach is based on the simple yet effective premise of ensuring that all parts and equipment are In 2017, we realized the benefits of previous restructurings delivered to the right place, at the right time and with the right and consolidation of the supply chain footprint. quality and cost. This applies to all phases of manufacturing and distribution as well as to our procurement and supplier’s processes. DELIVERING GROWTH 46


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    Marel – Annual Report 2017 AN ENABLER FOR GROWTH With the benefit of unique scale and skills, Marel’s activities In order to improve this part of our operation we also have a major competitive advantage. In 2017, we experienced implemented a company-wide operating model, making a noticeable strengthening of our operational performance major changes to our KPI reporting. We took steps to reduce following the co-location of product manufacturing to the the number of suppliers and focus more on partnerships with best fitting site. This has improved supply chain performance key suppliers of parts, assemblies and equipment. and provides a sustainable base for growth. This year we also focused on strengthening our internal The 2017 acquisition of Sulmaq and the previous integration operations, improving processes and working procedures in of MPS into our meat unit create even further opportunities general to optimize the way we structure our supply chain. for global synergies in Marel’s supply base. To take advantage This enables us to meet demands of both market and product of these opportunities, our leadership organization has been development, creating the best possible supply chain for strengthened with new hires. This will further support our Marel globally. growth strategy for the future, allowing us to continue to benefit from and expand our global synergies and focus more Site competences utilized more effectively intently on our key competencies. Today, there are 12 manufacturing sites strategically positioned around the world. The refocusing program launched in 2014, Developing partnerships with our suppliers optimized the manufacturing footprint from 19 sites thereby The consolidation steps made in previous years continued to reducing complexity. This laid a cornerstone for the operational deliver benefits in 2017. We saw further improvement resulting excellence and scalability needed to support future growth. In from the reduction of suppliers and product standardization, particular, we have marked Brazil, Slovakia and China as our both of which delivered cost reductions and stronger supplier key growth platforms. relations. Optimizing manufacturing affected our site in Slovakia Marel’s suppliers and their sub-tier suppliers are critical parts considerably. The two locations were consolidated into a of our supply chain. Without them, we would not be able to single facility, improving the efficiency and efficacy of local deliver high quality products reliably to our customers. Just processes. Currently, our site in Slovakia accounts for about as internal efficiency is essential, so is working effectively with 10% of total production volume and we are ready to increase our suppliers. this to about 20% of our internal capacity. We focus on standard and mature products at this site, which is now more streamlined. It also offers opportunities for even better utilization in the future. DELIVERING GROWTH 47


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    Marel – Annual Report 2017 Supporting the launch and development The smart factory of new products - automation and industry 4.0 All products produced at Marel have a designated home, Our factories are getting smarter as we contribute to the either a mother site or a co-location site. The mother site development and implementation of automation in the is responsible for product life cycle management and how food processing industry. We now have a global industrial the product is manufactured. Co-location sites are focused engineering approach leading to standardization in processes on scale manufacturing, producing large volumes in a cost and investments at all sites. effective manner in close proximity to the customer resulting in improved optimal lead-time and cost. As investments in IT We have always been a high-tech company, leading the systems progress, products will more easily be producible at automation of our industry and we are now exploring the co-location sites. potential of Industry 4.0. A good example of how successful cooperation between We see an abundance of opportunities that will enable us to multiple disciplines within the company can achieve improve supply chain expediency even further by utilizing this remarkable end results is the new live-bird handling system new reality. It will enable us to deliver more rapidly and flexibly for the poultry processing industry launched this year. under any conditions. With successful co-operation and a flexible production We continue our own automation efforts: this year, Marel’s platform, the supply chain was able to contribute significantly seventh manufacturing site purchased a robot welder. This to the success of this new product launch. On top of this, is part of our ongoing strategy to expand robot welding and improved automation drove the supply chain performance standardization in robot welding techniques, enhancing to a high and sustainable level on this project. We view this quality and making reproduction easier over all sites while achievement as a benchmark for future performance. minimizing costs. DELIVERING GROWTH 48


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    Marel – Annual Report 2017 INVESTORS INVESTORS 49


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    Marel – Annual Report 2017 SHAREHOLDER INFORMATION The largest company on NASDAQ Iceland, Marel had a market capitalization of ISK 237.6 bil- lion at year-end 2017, or EUR 1.9 billion. Since its original listing in 1992, Marel has created excellent Market capitalization value for its close to 2,200 shareholders. As the only large cap Marel is the largest company listed on NASDAQ Iceland by listed in Iceland, the company’s investor base is dominated market capitalization. The market value of the company at by Icelandic investors. Although capital restrictions were year-end 2017 was ISK 237.6 billion (EUR 1.9 billion) compared fully lifted in Iceland in 2017, the NASDAQ Iceland exchange to ISK 178.7 billion (EUR 1.5 billion) at year-end 2016, an maintains some specific market limitations. In particular, increase of ISK 58.9 billion (EUR 0.4 billion). the denomination of shares in Icelandic krónur (ISK) and the limited overall size of the domestic securities market. INVESTORS 50

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