Sales for the first quarter of 2006 totalled EUR 32.5 million (ISK 2.5 billion), compared with EUR 29.9 million (ISK 2.4 billion) during the same period the previous year. Sales therefore increased by about 8%. 

The order book at the end of March 2006 was about EUR 22 million, compared with EUR 16 million at the end of 2005.

Profit from operations EBIT was EUR 0.5 million (ISK 36 million), compared with 3.1 million (ISK 246 million) last year.

Net profit in the period was EUR 0.6 million (ISK 43 million) compared to 1.8 million (ISK 143 million) last year.

Expenses related to restructure of Carnitech have been expensed.

It is assumed that healthy organic growth and much better financial performance will be achieved in the latter part of the year 2006.

The average exchange rate of EUR against ISK in the first quarter 2006 was 78,29.  The effects of forward contracts are minimal.  The company has made forward contracts to protect it against the fluctuations of the ISK to middle of the year 2007.  The secured average rate EUR/ISK for the period is 92.

Hörður Arnarson, CEO:

“This quarter’s performance is slack, which is in accordance with information accompanying last year’s financial statements. The quarter was characterised by sluggish orders at first, a difficult exchange-rate environment, and Carnitech’s restructuring which peaked during the period.  Orders increased rapidly as the quarter progressed and the order book has never been better than it was at the end of March.  The company’s operating environment has greatly changed for the better with the weakening of the Icelandic króna since the New Year.  Prospects for the second half of the year are therefore good.”

The quarterly report for the Marel Group for the 1st quarter was approved at Marel hf.’s Board of Directors meeting today, 5 May 2006.

The Marel Group comprises 17 companies with operations in 14 countries.

The following are the main results from the consolidated financial statements for Marel:

Operations for the 1st quarter 2006 in thous. of euros
Operating results	2006	2005
Sales	32,467	29,928
Cost of goods sold	(22,025)	(19,409)
Contribution margin	10,442	10,519
Other operating income	274	130
Sales and marketing expenses	(4,834)	(3,678)
Development expenses	(1,652)	(1,694)
Administrative expenses	(3,776)	(2,221)
Profit from operations EBIT	454	3,056
Finance costs - net	141	(872)
Profit before tax	595	2,184
Tax expense	(44)	(383)
Net profit	551	1,801
EBITDA	1,876	4,180
Percent of sales
Contribution margin	32.2%	35.1%
Sales and marketing expenses	14.9%	12.3%
Development expenses charged	5.1%	5.7%
Administrative expenses	11.6%	7.4%
EBITDA	5.8%	14.0%
EBIT	1.4%	10.2%
Net profit	1.7%	6.0%
Financial position at end of period	31.03.’06		31.12.’05
Total assets	154,325		114,890
Equity	40,496		41,032
Working capital	41,575		16,557
Cash flow for 1st quarter	2006		2005
Working capital from/(to) operations	(2,618)		3,512
Cash generated from/(to) operations	(8,171)		1,486
Increase in net cash	26,255		330
Net cash at end of period	30,131		4,933
Highlights at end of March	2006		2005
Return on owners’ equity	5.4%		27.1%
Return on total assets	1.6%		7.4%
Current ratio	1.8		1.7
Quick ratio	1.0		0.7
Equity ratio	26.2%		34.7%
Earnings to Price last 12 months	0.02		0.05
Price to Earnings last 12 months	46.5		21.0
Earnings per share in euro cents	0.23		0.77
Market cap. in millions of euros based on exchange rate of 31 March	207.7		174.0

Sales for the first quarter of 2006 totalled EUR 32.5 million (ISK 2.5 billion), compared with 29.9 million (ISK 2.4 billion) the previous year.  Sales have therefore increased by about 8%.

Despite an 8% sales increase, sales were somewhat lower than company projections. This may be traced in particular to orders received in January and February not meeting projections. However, orders increased significantly in the latter part of the quarter.  The order book has improved substantially and totalled about EUR 22 million at the end of March.

The contribution margin of product sales during this period was EUR 10.4 million, or 32.2% of sales compared with 10.519 million or 35.1% of sales during the same period last year.  This change to the contribution margin may be traced in particular to a lower contribution margin on products manufactured in Iceland.

Operating expenses other than the cost of goods sold totalled EUR 10.3 million, an increase of about 35% from the same time lat year.  Since the first quarter of 2005, five companies have been added and three merged with other companies within the Marel Group.  Employees have increased by 176 or 21% over last year. Forward short-term exchange rate contracts did not exist during the first quarter of 2006, although in 2005 they reduced the negative affects of exchange rate changes.  Sales and marketing expenses were EUR 4.8 million, which is about 31% more than the previous year. Charged development expenses, including depreciation of product-development costs from previous years, was about EUR 1.7 million, which is virtually unchanged from last year.  Administrative expenses were EUR 3.8 million, compared with 2.2 million the previous year or an increase of about 70%.
Profit from operations was EUR 0.5 million or 1.4% of sales, compared with 10.2% in 2005.

Profit from operations from the Marel Group for the first quarter of 2006 totalled EUR 0.6 million (ISK 43 million), compared with EUR 1.8 million (ISK 145 million) the previous year.

The Group’s total assets at the end of March 2006 were EUR 154.3 million, an increase of about 39.4 million or 34%% since the New Year. This increase is primarily due to the influence of an ISK 3.0 billion bond issue last February. Inventory and sold projects in production increased by about EUR 6.5 million, or about 19%. Accounts receivable, however, decreased by about EUR 2 million, or about 8.3% since the New Year. 
Investment in fixed assets during the first quarter of 2006 was EUR 2.6 million, compared with 1.2 million for the same time last year, particularly in equipment and premises for manufacturing.

Cash generated from operations totalled EUR 8.2 million, compared with 1.5 million the year before.  At the end of the first quarter 2006, cash generated from operations was EUR 30.1 million, compared with 4.9 million for the same time in 2005.

On average, 1,021 employees worked for the Marel Group during the first quarter 2006, compared with 845 for the same period the previous year.  Of the 1,021 employees, 352 were employed in Iceland and 669 abroad.

5-year comparison

 

Key figures from Marel’s operations for the 1st quarter
Thous. EUR	2006	2005	2004	2003*	2002*
Sales	32,467	29,928	25,072	24,096	26,158
Profit from operations (EBIT)	454	3,056	2,309	987	1,025
EBIT as % of sales	1.4%	10.2%	9.2%	4.1%	4.1%
Net profit/(loss)	551	1,801	1,516	665	485
Total assets	154,325	99,477	87,976	87,819	82,602
Equity	40,496	34,539	28,242	22,585	22,724
Working capital	41,575	20,389	16,750	12,473	14,467
Cash generated from operations	(8,171)	1,486	3,849	3,079	(1,758)
Net cash at end of period	30,131	4,933	6,538	5,223	2,966
Return on owners’ equity	5.4%	21.7%	21.8%	11.7%	8.2%
Current ratio	1.8	1.7	1.6	1.4	1.5
Quick ratio	1.0	0.7	0.8	0.8	0.7
Equity ratio	26.2%	34.7%	32.1%	25.7%	30.5%
Earning per share in millions of euros based on the exchange rate of 31 March	207.7	174.0	98.7	62.7	68.9

*) Previous presentation that is not in conformity with IFRS

Overview of the Group’s main elements

The Marel Group comprises two principal operations: Marel companies with headquarters located in Iceland and 11 sales and services offices on the one hand, and Carnitech a/s and its 4 subsidiaries on the other hand. These two elements work somewhat independently, whereas their synergism is considerable. The following is a synopsis of the main elements of each operation.
 

Key figures from the operations of Marel and Carnitech for the 1st quarter
	Marel companies	Marel companies	Carnitech	Carnitech
Thous. EUR	2006	2005	2006	2005
Sales	18,426	17,186	14,041	12,742
Profit from operations, EBIT	1,005	3,048	(551)	8
EBIT as a % of sales	5.5%	17.7%	(3.9%)	0.1%
Net profit/(loss)	1,135	1,826	(584)	(25)
Number of employees at end of period	502	418	527	418

Marel companies

Sales of Marel companies for the first quarter 2006 totalled EUR 18.4 million, an increase of about 7.2% compared to last year. Profit from operations (EBIT) of Marel companies during the period was 1.0 million, a decline of about EUR 2.0 million from the previous year.  This may be traced in particular to a sluggish order book early in the first quarter, and a difficult operating environment because of the very strong Icelandic króna during the period. The companies are well prepared to handle the additional orders received last March and April without any accompanying increase in fixed costs. 

Carnitech

Sales by Carnitech was EUR 14.0 million during the first quarter 2006, an increase of about 10.2%.
After slow sales in the first months of the year, orders picked up significantly in the latter part of the quarter. The quarter was characterised by major restructuring changes in connection with increased growth in the Slovak Republic, the moving and merging of CP-Food/Geba with Carnitech, and coordinating the product mix of Dantech and Carnitech. These restructuring changes generate one-time costs that appear as direct costs, as well as reduced performance, which results in revenue being entered in the following quarter.
It is anticipated that Carnitech’s performance will have reached an acceptable level in the second half of 2007, with the company’s profit from operations (EBIT) then registering over 8% of turnover. It is projected that positive results from these measures will begin impacting the company’s performance during the latter part of this year.

AEW Delford Systems

Marel took over operations of AEW Delford Systems on 10 April. The company’s turnover last year was about EUR 38 million, and it returned a corrected EBITDA of about EUR 2.9 million. Approximately EUR 2–2.5 million has been earmarked to restructure operations in 2006.  It is projected that this will return an operating profit of about three million euros from the middle of 2007.

LME Holding Company

Last February, Marel hf. founded, along with Eyri Invest and Landsbanki Íslands,  the LME Holding Company for the purpose of purchasing shares in the Dutch company Stork NV (www.stork.com ), which is now in the process of going from public to private.  Stork NV owns Stork Food Systems, a leading company in the production of poultry processing equipment. Stork Food systems and Marel have worked closely together for many years.
This investment has been implemented to reinforce the close co-operation of the companies.  LME ehf. has purchased about 4.79% of Stork NV’s stock for a total of EUR 75.1 million, which is financed with loans from company shareholders and other loans.  Marel’s share in LME is 20%, and the capital tied up is in line with the ownership.

Bond issue

Marel hf. has issued a bond for ISK 6 billion. Half was issued last February, and the second half in April 2006. Marel has furthermore concluded an interest swap agreement for part of the amount by issuing the bonds that ensure the company receives financing in foreign currency with interest and principal to be paid at the end of six years.
The purpose of the bond issue is to finance the company’s future growth in accordance with the growth objectives that were introduced at the company’s Annual General Meeting last February.

Prospects

The order book at the end of the first quarter 2006 was about EUR 22 million, compared with 16.0 million at the beginning of the New Year, which is the Group’s best-ever order book.  Sales prospects for the year continue to be considered good, and new products that have been introduced over the past months have been well received.
Trends in exchange rates have recently been favourable to the company. The correction of the Icelandic króna reduces the company’s Icelandic costs and boosts its operating profit. 
Prospects for the second half of 2006 are therefore good.

Consolidated Financial Statement publishing for 2006

Marel will publish the Financial Statements for 2006 on the following days:
2nd quarter:  Thursday 10 August 2006
3rd quarter:  Tuesday 7 November 2006
4th quarter:  Tuesday 13 February 2007
The Annual General Meeting for Marel hf. is scheduled for Thursday 8 March 2007

Marel will present performance results for the 1st quarter of 2006 at a meeting on Friday 5 May 2006 at 16:00 at company headquarters at Austurhraun 9 in Garðabær, Iceland.