The financial statements for the Marel Group for the year 2005 were approved at Marel hf.’s Board of Directors meeting today, 7 February 2006.

The Marel Group at the end of December 2005 comprises 17 companies with operations in 14 countries. The following changes occurred during the fourth quarter of 2005: Pols hf merged with Marel hf, and Marel TVM merged into Marel Deutschland. New additions to the Group are Dantech Food Systems in Singapore and Carnitech/Marel s.r.o., which is a manufacturing company in Slovakia.

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

Sales in 2005 totaled EUR 129.0 million (ISK 10.1 billion), compared with 112.3 million (ISK 9.8 billion) the previous year. Sales have therefore increased by about 14.9%.

The contribution margin of product sales for the year was EUR 43.2 million, or 33.4% of sales, compared with EUR 41.0 million or 36.5% of sales during the same time the previous year. This proportional decrease was foreseeable and is mainly attributed to an unfavorable exchange rate. Income in Icelandic krona was about 3.8% of the group’s total sales, while expenses were about 24%, mainly employee wages in Iceland. The krona has strengthened by about 11,5% against the euro from the average in 2004 to the same time in 2005. As has been previously stated, the company experienced almost no protections against currency fluctuations during the second half of 2005.

Operating expenses other than cost of goods sold totaled EUR 34.5 million, which was 26.7% of sales, compared with 26.3% the year before. Work has systematically progressed of projects intended to strengthen the company’s organic and external growth. Sales and operating expenses were EUR 16.1 million, an increase of about 15.7% over the previous year. Emphasis has focused on increasing the development of new markets in Asia, Oceania, East Europe and South America where growth opportunities for the company are significant. Charged development expenses, including depreciation of product-development costs, were EUR 8.0 million, an increase of about 22%. As a percent of sales, product-development expenses were 6.2%.  The primary emphasis in sales and marketing, as well as in product development, has been to improve productivity and synergy by increasing integration within the Marel Group, thereby supporting the company’s growth objectives.  Administrative expenses were EUR 10.4 million, compared with EUR 9.1 million the year before, an increase of about 14.3%. Emphasis has increased on preparations for external growth, both with bought consulting services and inner effort. The Group’s wage expenses totaled EUR 54.9 million, which is about 42.5% of sales, compared with 41.9% for the same period the previous year.

Profit from operations for 2005 was EUR 9.7 million, or 7.5% of sales, compared with 12.1 million 2004 (10.7%).

Net finance costs totaled EUR 2.6 million, compared with EUR 1.8 million last year. The increase may be traced to increased loans, currency exchange losses and interest rate on over 40% of the company’s debts that has been fixed for 3-5 years. 
Net profit for the Marel Group in 2005 totaled EUR 5.7 million (ISK 445 million), compared with EUR 8.0 million (ISK 694 million) the previous year. The decrease is in particular the result of three factors: a lower contribution margin because of unfavorable exchange rates, increases in fixed costs because of organic and external growth, and because of increased finance cost. 

Profit from operations during the fourth quarter was about EUR 1.3 million, compared with EUR 2.8 million the year before. The decrease may be traced to lower contribution margins on projects during the period, stemming from both an unfavorable exchange rate, and several projects that had lower contribution margins than expected. The increase in fixed costs is the result of development work for the company’s future organic and external growth.

Total assets of the Marel Group at the end of 2005 were booked at EUR 114.9 million, an increase of about 19.4 million or 20% since the previous New Year. This increase is mainly the result of increases in inventory and accounts receivable. Inventory increased by about EUR 4.1 million (19.4%), and accounts receivable by about EUR 7.7 million, from the previous New Year. These increases in inventory and accounts receivable are explained by an increase in turnover on the one hand, and many deliveries around and after the end of the quarter on the other. It is anticipated that increases in accounts receivable will to a large extent turnaround during the first quarter of 2006.

Investment in property, plant and equipment during 2005 was EUR 3.8 million, compared with 1.6 million during the same period last year. Part of investment during this period may be attributed to estimated investment for 2004 having been moved forward to 2005.

Net cash from operating activities totaled EUR 3.0 million, compared with 13.2 million the previous year.  The main reason for this is increased financial commitment in inventory and accounts receivable. At the end of 2005, cash amounted to EUR 3.9 million, a decrease of about 11% from the same period in 2004.

On average, 895 employees worked for the Marel Group during 2005, compared with 836 for the same period the previous year. Of the 895 employees, 335 were employed in Iceland, while 560 were employed abroad at 17 companies in 14 countries
5-year comparison

*) 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 ten sales and services offices, and Carnitech a/s and its five subsidiaries. The following is a synopsis of the main elements of each operation.
 

Marel companies
Sales by Marel companies during 2005 were EUR 71.6 million, an increase of about 12.5% over the previous year. Profit from operations (EBIT) of Marel companies during the period was EUR 6.7 million, or 9.3% of turnover. The companies’ operations progressed well during the first nine months of the year, but there was an operating loss of EUR 0.4 million in the fourth quarter. This may be traced in particular to a worsening operational environment in Iceland due to significant strengthening of the Icelandic krona and unfavorable contribution margin on projects during the period. The company was in part protected from the influence of exchange rate changes on operating expenses in Iceland until last September. This unfavorable development, along with stiff competition on markets, creates considerable pressure on the company’s contribution margin. To combat this, the company has implemented diverse rationalisation measures, for example standardising products, making organisational changes, and moving part of purchasing and subcontracting to Asia and East Europe. The company will continue to pursue ways to rationalise operations.

Carnitech
Carnitech´s turnover was EUR 57.4 million in 2005, an increase of about 18%.  Profit from operations (EBIT) was EUR 3.0 million, compared with 2.8 million the previous year.   Carnitech’s operations developed well during the fourth quarter of 2005. Operating profit totaled EUR 1.6 million, or about 9.9% of sales. Work is progressing on implementing significant organisational changes with the aim of improving operations, thereby bringing them into an acceptable state. The effect of these measures on performance in 2005 was, however, negative, as various segregated costs are required to implement the measures. A timeframe of 20 months has been demarcated to bring Carnitech’s performance into an acceptable state, which is a profit from operations (EBIT) of 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. The primary measures being implemented are the following:

• A new subsidiary has become operational in Slovakia, Carnitech/Marel s.r.o., which will take over part of Carnitech’s manufacturing operation. Slovakia’s operational environment is considered very economical for industrial companies. The country is a member of the EC, has a long industrial tradition, the level of education is very good, and costs are economical.
• Carnitech purchased all shares in Dantech Food PTE Ltd. in Singapore. The company primarily manufactures and sells individual quick-freezing and other equipment for warm water shrimps. That part of Carnitech which offers comparable products has been consolidated with Dantech to improve utilisation of fixed costs, and most manufacturing has been transferred to Singapore where production costs are significantly lower. Dantech will not impact on Marel´s consolidated financial statements until the fourth quarter 2005.  Employees are 95 in Dantech.
• The operations of CP-Food/Geba merged with Carnitech on 1 January 2006. This created a strong entity within Carnitech that specialises in equipment for salmon processing, and will be the largest dealer of such equipment in the world. The merger will become effective on 1 January 2006. This change will ensure improved utilisation of fixed costs and better customer services.

Prospects
The Group’s order book at the end of 2005 totaled about EUR 16 million, compared with about 20 million at the end of September 2005. The sales outlook for the year is considered good, and several new products that incorporate major advances and significant value-added for customers will be marketed during the first part of the year.  Sales at the start of the year, however, have begun slowly and therefore it is anticipated that performance for the first quarter will be slack.

Trends in exchange rates, however, have lately been unfavourable for the company. The strengthening of the Icelandic krona has resulted in increases in the company’s Icelandic expenses, along with increases in domestic costs. Forward short-term exchange rate contracts have reduced the affects of exchange rate changes, but they are no longer having an impact.  Short-term prospects are therefore difficult, and it is considered problematic to sustain the contribution margin’s current level over the coming months.

It is still believed that rationalization measures will succeed in reversing worsening operating conditions. Over the long term, however, prospects are positive for a correction in the Icelandic krona’s exchange rate, in addition to new production components being well positioned in an advantageous operational environment, effective rationalisation measures bringing results and operations at Carnitech improving.

The Marel Group’s vision
At the meeting to present the company’s performance results for 2005, there will also be a presentation of Marel’s future vision for the company’s continued development, as well as a view of how its markets will develop in future. Among topics of discussion will be schemes and measures to triple the company’s turnover in the next 3-5 years, and measures to reduce the effect of the Icelandic krona on operations.

Consolidated Financial Statement publishing for 2006

Marel will publish the Financial Statements for 2006 on the following days:
1st quarter:  Tuesday 9 May 2006
2nd quarter:  Thursday 10 August 2006
3rd quarter:  Tuesday 7 November 2006
4th quarter:  Tuesday 13 February 2007

The Annual General Meeting for Marel hf. is scheduled for Thursday 8 March 2007.

Marel will present performance results for the fourth quarter of 2005 at a meeting on Tuesday 7 February 2006 at 17:00 at company headquarters at Austurhraun 9 in Garðabær, Iceland.