Q2 2024 Marel hf Earnings Call
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Speaker Change: We have joined the meeting as an attendee and will be muted throughout the meeting cough geopolitical tension assistant inflation and high interest rate environment.
Sebastiaan Antonius Theodorus Boelen: of Geopolitical Tension, Persistent Inflation, and a High Interest Rate Environment. This was perhaps most felt in the Pool 2 segment, where a number of orders we were expecting in the second quarter are shifting and are now expected to come in the second half. However...
Speaker Change: This was perhaps most felt in the poultry segment, where a number of orders we were expecting in the second quarter are shifting and now expect it to come in the second half.
Speaker Change: However, the softness in poultry was compensated by the auto segments origin P. P F improved significantly quarter on quarter, our meat and fish showed some improvement.
Sebastiaan Antonius Theodorus Boelen: The softness in poultry was compensated for by the other sectors. Orders in the PPF improved significantly quarter-on-quarter, and meat and fish showed some improvement. Having said that, we do see commercial activity increasing, and the feedback we are hearing from our customers is more constructive and positive, as the overall external environment continues to show signs of improvement with lower input costs and better pricing for our customers. The main message here is that there is a healthy pipeline and that we expect stronger orders to be received in the second half.
Speaker Change: Having said that we do see commercial activity, increasing and the feedback we are hearing from our customers is more constructive and positive.
Speaker Change: The overall external environment continues to show signs of improvement with lower input cost and better pricing for our customers. The main message here is that there is a healthy pipeline and we expect stronger orders received in the second half.
Speaker Change: Yes.
Speaker Change: Hey.
Sebastiaan Antonius Theodorus Boelen: Our revenues were 450 million, which is flat to quarter one and down just under 2% year-on-year due to the soft orders in the past quarters and the low order book. The lower revenues are mainly on the back of lower project or refill orders in the order book. Though the project revenues in 2014 were ticking up 3.5% compared to the prior quarter, they are still below Q2 last year. In comparison, our average quarterly project revenues in the past eight quarters were approximately 240 million per quarter, 11% higher than the second quarter. Recurring aftermarket revenues remain healthy, with trading 12-month levels staying again above $800 million this quarter. Aftermarket revenues were at 48.5% of total revenue. And we expect to continue on this road.
Speaker Change: Our revenues were $450 million, which is flat to quarter, one and down just under 2% year on year due to the soft orders in the past quarters and the low order book.
Speaker Change: Lower revenues are mainly on the back of lower project, our refill orders in the order book.
So to project revenues of 214 were taking up three 5% compared to the prior quarter Theyre still below quarter two last year.
Speaker Change: In comparison, our average quarterly project revenues in the past eight quarters were approximately $240 million per quarter, 11% higher than the second quarter.
Speaker Change: Okay.
Speaker Change: Recurring aftermarket revenues remained healthy with trailing 12 months' level staying again above $800 million. This quarter. After market revenues were at 48, 5% of total revenues.
Speaker Change: We expect to continue on this road our installed base is large and growing and with a focus on quality service. We are confident we can continue this trend underpinned by our significant inventory of infrastructure investment such as the global distribution Center, which went live in June.
Sebastiaan Antonius Theodorus Boelen: Our installed base is large and growing, and with a focus on quality service, we are confident we can continue this trend underpinned by our significant infrastructure investment, such as the Global Distribution Center, which went live in June. Now, some good news as we see operational performance trending in the right direction. EBIT on a similar volume as in Quarter 1 came to $37.7 million, resulting in an EBIT margin of 9.1%, which is an improvement both quarter on quarter and year on year. The event margin also improved sequentially to 13%.
Speaker Change: Now some good news as we see operational performance trending in the right direction EBIT.
Speaker Change: EBIT on a similar folium messing quarter, one came to $37 7 million, resulting in an EBIT margin of nine 1%, which is an improvement both quarter on quarter and year on year.
Speaker Change: EBIT margin also improved sequentially to 13%.
Sebastiaan Antonius Theodorus Boelen: Our continued focus on improvement efforts and cost discipline across business spend, personnel spend, and non-product related spend is starting to come through. However, some of these savings are being offset by continued investment in the aftermarket. OPEX was flat in quarter two compared to quarter one, but gross margin improved quarter on quarter due to a better mix in projects and in aftermarket and also because of better efficiency and cost coverage on the back of our many initiatives.
Speaker Change: Our continued focus on improvement efforts on cost discipline across the business spend personnel spend in non product related spend is starting to come through some of these savings are being offset by continued investment in aftermarket.
Speaker Change: Opex was flat in quarter, two compared to quarter one.
Speaker Change: Gross margin improved quarter on quarter due to better mix in projects and in aftermarket and also because of better efficiency and cost coverage on the back of our many initiatives.
Sebastiaan Antonius Theodorus Boelen: Further cost-initiative actions include footprint rationalization and more internal benchmarking and synchronized metrics across manufacturing to drive efficiency. Furthermore, due to the short-term uncertainty and the potential business combination with JBT, a hiring freeze was implemented in July to ensure further cost control and attentive workforce planning.
Speaker Change: Vertical initiatives actions include footprint rationalization, and more internal benchmarking and synchronized metrics across manufacturing to drive efficiency.
Speaker Change: Furthermore, due to the short term uncertainty and the potential business combination with JBT a hiring freeze was implemented in July to insure for the further cost control and attentive workforce planning.
Sebastiaan Antonius Theodorus Boelen: I will go into how each of the segments performs later on, but all the books were 538.5 million and a book-to-bill ratio of 0.95. This is a soft order book representing 32% of trading 12 months revenue. Order book levels are, amongst others, driven by our project orders and Greenfield orders. A certain lumpiness in the orders received and signed, and financially secured, is therefore to be expected. Having said that, building up the order book and getting a book-to-bill ratio above one is a key priority, as the order book profile determines to a great extent our revenue forecast, our working capital, as well as our cash generation and ability to de-levy. Operating cash flow in quarter 2 was negative by 4 million, impacted by an increased working capital commitment. The Working Capital Focus Program, initiated last year, continues to progress well.
Speaker Change: I will go into how each of the segments before later on.
Speaker Change: Our order book.
Speaker Change: <unk> was $538 5 million and a book to Bill ratio Zero point 95.
Speaker Change: This is a soft order book, representing 32% of trailing 12 months revenue order book levels are amongst others driven by our project orders in Greenfield orders a certain lumpiness in the orders received and signed and financially secured is therefore to be expected.
Having set up building up the order book and getting a book to Bill ratio above one is a key priority.
Speaker Change: The order book profile determines to a great extent, our revenue forecast, our working capital as well as our cash generation and ability to deleverage.
Speaker Change: Operating cash flow in quarter, two was negative by 4 million impacted by increasing increased working capital commitments.
Speaker Change: The working capital focus program initiated last year continues to progress well, we continue to focus on improvements in accounts receivables and accounts payables, even though we had a slight increase in accounts receivables mainly due to timing.
Sebastiaan Antonius Theodorus Boelen: We continue to focus on improvements in accounts receivables and account tables, even though we had a slight increase in accounts receivables, mainly due to timing. However, inventory continues to trend downwards. However, the fourth element, net contract liabilities, had a negative 36 million impact on working capital, which is, of course, explained by the fact that net contract liabilities are driven by lower orders received. This resulted in a net increase in working capital of 53 million in a quarter, and the group that is excluding capitalized R&D was at 5.6 million in the quarter. 1.3% of revenues, which is low because of our focus on cash flow after a period of elevated capex in recent years. A more normalized level is around 2-3%.
Speaker Change: Inventory continues to trend downwards.
Speaker Change: However, the fourth element net contract liabilities had a negative 36 million impact on working capital, which is of course explained by the fact that net contract liabilities are driven by lower orders received.
Speaker Change: This resulted in a net increase in working capital of $53 million in the quarter.
Speaker Change: Capex, excluding capitalized R&D.
Speaker Change: Was it $5 6 million in the quarter.
Speaker Change: One 3% of revenues, which is low because of our focus on cash flow. After a period of elevated capex in recent years, a more normalized level is around 2% to 3%.
Sebastiaan Antonius Theodorus Boelen: Leverage increased to 3.9% on higher working capital in the quarter. While our leverage is above our target level of 2 to 3 times, we have ample liquidity consisting of cash on hand and committed credit facilities. And we are within our covenant, which is 4.5 times in the quarter on poultry.
Speaker Change: Leverage increased to $3 nine on higher working quite.
Speaker Change: Working capital in the quarter, while our leverage is above our target level of two to three times, we have ample liquidity consisting of cash on hand, and committed credit facilities and we are within our covenant, which a 4.5 and quarter two.
Speaker Change: On poultry.
Sebastiaan Antonius Theodorus Boelen: Revenues and EBIT for poultry were above expectations at 206 million and 15.6% EBIT. However, the EBIT margin had a small decline compared to Q1, due to the volume drop impacting operating leverage, partially offset by Betamix and project control. However, like I mentioned before, project orders in the poultry segment were particularly soft in the quarter, mainly due to order shifting later as customers are taking longer to discuss scope and make a final decision. Needless to say, these larger project orders tend to be quite lumpy in nature, with an inherent impact on the order.
Speaker Change: Revenues and EBIT for poultry were above expectations at $206 million and 15, 6% EBIT.
Speaker Change: The EBIT margin had a small decline compared to quarter, one due to the volume drop impacting operating leverage partially offset by better mix and project control. However, I can mentioned before.
Speaker Change: Project orders in the poultry segment were particularly soft in the quarter, mainly due to order shifting later as customers are taking longer to discuss scope and making a finalization.
Speaker Change: Needless to say these larger protects orders tend to be quite lumpy in nature with the inherent impact on the order book.
Sebastiaan Antonius Theodorus Boelen: The soft order book and low project orders received are expected to negatively impact revenues and operational performance for Poultry in the next quarter compared to quarter two. However, the pipeline in poultry is healthy, and project orders are expected to materially increase in the second half with the building up of the order book as market fundamentals in the poultry industry are improving, and there is noted interest in our industry-leading solutions, such as the US line split solution. This should support gradual improvement in operational performance in the fourth quarter and into 2025. Meat has improved its upbringing performance despite continued challenges in the market environment.
The soft order book and low project orders received are expected to negatively impact revenues and operational performance for poultry in the next quarter compared to quarter two.
Speaker Change: However, the pipeline in poultry is healthy and project orders are expected to materially increase in the second half with the building up of the order book as Marcus for then fundamentals in the poultry industry are improving and Theres noted interest in our industry, leading solutions such as the U S line split solution.
This should support gradual improvement in operational performance in the fourth quarter and enter 2025.
Speaker Change: Meet.
Speaker Change: <unk> had a improved operating performance. Despite continued challenges in the market environment orders received improved in the quarter with market fundamentals in pork showing signs of improvement in some geographical areas, while beef continues to be challenging.
Sebastiaan Antonius Theodorus Boelen: Orders received improved in the quarter, with market fundamentals in pork showing signs of improvement in some geographical areas while beef continues to be challenged. Revenues were stable quarter on quarter, with aftermarket revenues remaining resilient, and Yvette Martin improved on VectorMix and continued costing issues. The outlook for the meat industry continues to be challenging, and focus is on continued action toward driving commercial activity and building-up the order book, continued cost control, and other measures to improve profitability. It's important to note that recovery will take time, in particular for B.
Speaker Change: Revenues were stable quarter on quarter with aftermarket revenues remaining resilient EBIT.
Speaker Change: EBIT and EBIT margin improved on better mix and continued cost initiatives.
Speaker Change: Outlook for the meat industry continues to be challenging.
Speaker Change: Focus is on continued action towards driving commercial activity and buildup of the order book continued cost control and other measures to improve profitability.
Speaker Change: But it's important to note that the recovery will take time.
Speaker Change: <unk> for beef.
Sebastiaan Antonius Theodorus Boelen: Fish had a weak performance in quarter two with a low volume and soft orders. Orders received were stable quarter on quarter, but still at a low level. There are some signs of fundamentals improving, especially in the salmon industry. However, the Whitefish segment remains challenged.
Speaker Change: Fish had a weak performance in quarter, two with a low volume and soft order book.
Speaker Change: I've received were stable quarter on quarter, but still at a low level.
Speaker Change: There are some signs of fundamentals improving especially in the salmon industry.
Speaker Change: White fish segment remains challenged.
Sebastiaan Antonius Theodorus Boelen: Revenues were up 8.8%, quarter on quarter, up both project revenues and aftermarket revenues. Gross profits showed a decrease driven by lower project margins. Ebert Martin remained negative at 5.5% and negative 2.3 million on the back of these lower project margins.
Speaker Change: Revenues were up eight 8% quarter on quarter up in both project revenues and aftermarket revenues. However.
Speaker Change: Gross profit showed a decrease driven by lower protect margins EBIT.
Speaker Change: EBIT margin remained negative at five 5% and negative $2 3 million on the back of these lower project margins.
Sebastiaan Antonius Theodorus Boelen: FISH has taken a number of significant measures to lower their cost base, and the cost reductions are starting to flow through the P&L. There are some signs of improvement for the order outlook in the second half, but the timing continues to impact conversion from pipeline to order. And, of course, a further buildup of the order book is needed to improve operational performance. And there's continued focus on actions that increase commercial success and build up the order book, as well as margin-enhancing actions like cost control and operational efficiency. And lastly, Plant, Patent, Feed.
Fish has taken a number of significant past years to lower our cost base and the cost reductions are starting to flow through to P&L.
Speaker Change: There are some signs of improvement for the order outlook in the second half.
Speaker Change: Although timing continues to impact conversion from pipeline to orders.
Speaker Change: And of course, a further buildup of the order book is needed to improve on the operational performance and there is continued focus on actions that increased commercial success and build up the order book as well as margin enhancing actions of cost control and operational efficiency.
Glenn: Lastly, Glenn.
Glenn: Glenn patent feet PBF had a good quarter with healthy improvement in operational performance.
Sebastiaan Antonius Theodorus Boelen: PPF had a good quarter with healthy improvement in operational performance. The order book improved on the back of a strong level of orders received, driven mainly in the companion animal segment and the United States. Revenues were up 25.8%, quarter on quarter, mainly driven by quarterly revenues, while aftermarket remained stable. The higher EBIT margin was driven by a higher growth profit level on higher volumes and improved mix. Outlook is solid for PPF with a good pipeline and improving markets outside North America. Management expectations for PBS profitability are unchanged and in line with their historical performance. And with this summary, I would like to hand over to Arni for an update on Outlook and on JVT's offer.
Speaker Change: The book improved on the back of a strong level of orders received driven mainly in the companion animal segment and the Americas.
Revenues were up 25, 8% quarter on quarter, mainly driven by project revenues, while aftermarket remained stable.
Speaker Change: The higher EBIT margin was driven by higher gross profit level on higher volumes and improved mix.
Speaker Change: Look as solid four bps with a good pipeline in our proven markets outside North America.
Arnie: Management expectations for Pbf's profitability is unchanged and in line with our historical performance and with the summary, I'd like to hand over to Arnie for an update on outlook and on Jbt's offer.
Arnie: Thank you Sebastien.
Arni Sigurdsson: Looking now to the outlook for the full year 2024 and beyond, while we expect orders received to pick up in the second half, the book-to-bill of 0.95 in the second quarter and a low order book at 32% of revenue will impact our Q3 revenues and profitability, especially for the poultry sector. We are therefore expecting a low single-digit revenue decline and an EBITDA margin of 13-14% and EBIT margin of 9-10% for the full year 2020, which is, though, a higher margin than last year despite the lower revenue.
Arnie: Looking now to the outlook for the full year 2024 and beyond.
Speaker Change: While we expect orders received to pick up in the second half the book to Bill of <unk> 95 in the second quarter, a low order book at 32% of revenue will impact, our Q3 revenues and profitability, especially for the poultry segment.
Speaker Change: We are therefore expecting low single digit revenue decline.
EBITDA margin of 13% to 14% and EBIT margin of 9% to 10% for the full year 2024, which is though a higher margin than last year. Despite the lower revenues.
Arni Sigurdsson: As Sebastian said, we continue to take action to control costs and manage our business in line with demand. In the quarter, we continued to rationalize our footprint, where we, for example, took the last step in consolidating activities in Iceland from four sites into one. We improved our discipline and control over non-product-related spend and lowered personnel costs.
Speaker Change: As a bastion said, we continue to take action to control costs and manage our business in line with demand.
Speaker Change: In the quarter, we continued to rationalize our footprint, where we for example took the last step in consolidating activities in Iceland from four sites into one.
We improved our discipline and control over non product related spend and lower personnel costs.
Arni Sigurdsson: Due to the short-term uncertainty and the potential business combination with JBT, a hiring freeze was also implemented, like Sebastiaan said, to ensure further cost control. We've also been taking actions on the commercial side, with Opportunity Focus teams to convert the pipeline into orders, and we have adopted our go-to-market strategy to improve focus on small to medium-sized customers. As we look to the midterm outlook, we remain confident that as we move through the trough of the cycle, our leading position in the food processing industry, attractive growth markets, and focus all underpin our confidence in delivering our midterm target.
Speaker Change: Due to the short term uncertainty and the potential business combination with JBT a hiring freeze was also implemented like Sebastien said to ensure further cost control.
Sebastien: We've also been taking actions on the commercial front with opportunity focus teams to convert the pipeline into orders and we have adopted our go to market strategy to improve focus on small to medium sized customers.
Sebastien: As we look to the midterm outlook, we remain confident that as we move through the trough of the cycle, our leading position in the food processing industry attractive growth markets and focus all underpin our confidence in delivering our midterm targets.
Sebastien: Okay.
Arni Sigurdsson: We continue to innovate and improve our product portfolio to better serve our customer needs, strengthen our position in the market, and drive our business and industry forward. I want to show you a few new solutions in poultry where we are, without a doubt, raising the bar in our industry. The first one that I want to talk about is the automated duck breast deboning. You might remember when we acquired PMJ back in 2021, a small bolt-on acquisition. Twenty-five employees; it was around five million in revenues, but a key pillar to become the leader in the duck market.
We continue to innovate and improve our product portfolio to better serve our customer needs and strengthen our position in the market and drive our business and industry forward.
Speaker Change: I want to show you a few newer solutions and poultry that we where we are without a doubt raising the bar in our industry.
Speaker Change: The first one that I want to talk about is the automated duck breast the bony you.
Speaker Change: You might remember when we acquired P. M. J back in 2021, a small bolt on acquisition 25 employees. It was around $5 million in revenues, but a key pillar to become the leader in a dark market.
Arni Sigurdsson: If you fast forward three years... Then we're proud to launch the first joint innovation with BMJ on a combined technology platform. This new solution will cement a strong position for Marel in the duck market and is the first automated filleting solution that delivers excellent yield and versatility. Although the dot market is smaller than broilers, it is a market that is growing and presents exciting market opportunities for models. Speaking of broilers, the second one is the Athena, a next-generation of broiler-brushed deboning. This is a highly automated solution that delivers serious labor savings for our customers. We're talking 30 to 40% fewer people compared to other solutions in the market.
Speaker Change: If you fast forward three years.
Speaker Change: Then we're proud to launch the first joint innovation with Bmj on a combined technology platform.
Speaker Change: This new solution will cement, our strong position for model and adult market and is the first automated filling filling solution that delivers excellent yields and versatility.
Speaker Change: Although the top market is smaller than broilers. It is a market that is growing and percents I exciting market opportunities for modest.
Speaker Change: And speaking of <unk>. The second one is the Athena and next generation of broiler brushed the bony.
Speaker Change: This is a highly automated solution that delivers a serious labor savings for our customers, we're talking 30% to 40% fewer people compared to other solutions in the market.
Arni Sigurdsson: What I find really impressive about the Athena is the vision and sensor technology to detect color and other accurate measurements to tailor the deboning to each individual piece, and that results in a higher yield and quality of the end product. The solution also has traceability of each piece individually, and it can be integrated with other solutions in the next step, such as a sensor X or a portioning machine, to ensure full traceability for each product on the line and improve process management.
Speaker Change: What I find though really impressive about the Athena is the vision and sensor technology to detect color and other accurate measurements to tailor the de boning to each individual piece.
Speaker Change: And that results in a higher yield and quality of the end product.
Speaker Change: The solution also has traceability of eats piece individually and it can be integrated to other solutions in the next step such as a sensor X or apportioning machine.
Speaker Change: And that is to ensure full traceability for each product on the line and improved process management.
Arni Sigurdsson: This is, of course, cloud-enabled and allows for remote monitoring. And then there is the Alpine, the next generation in anatomic leg prosthesis. The reason why the Alpine is so great is not just the high yield, the automated consistent performance, and that it can adapt cutting to individual pieces like the Athena, but also the fact that it is an important decision-making factor for our customers on which partner to choose also for the broader line. The reason for that is that the Alpine is a step before all Lactobonians.
Speaker Change: This is a of course cloud enabled and allowing for remote monitoring.
Speaker Change: And then the third one is the alpine the next generation and anatomic leg processing.
Speaker Change: The reason why the alpine is so great is not just the high yield the automated consistent performance and that it can adopt the cutting to individual pieces like the Athena, but also the fact that it is an important decision making factor for our customers on which partner to choose also for the broader line.
Speaker Change: The reason for that is that the alpine is the step before all like the bony.
Arni Sigurdsson: What makes me excited about those two solutions, the Alpine and the Athena, is how well they cross sell with the US line split solution that we mentioned a couple of times. So when our customers want to increase line speed, they need to think about and redesign what happens next in the process, giving us a great opportunity to upsell the Alpine and the Athena solutions in the U.S., as it is all designed to work holistically as an integrated line, all combined.
Speaker Change: What makes me excited about those two solutions the alpine in the Athena is how well they cross sell with the U S line split solution that we've mentioned a couple of times.
Speaker Change: So when our customers want to increase the line speed they need to think about and redesign what happens next in the processing line, giving us a great opportunity to upsell the alpine in the Athena solutions in the U S. As it is all designed to work Holistically as an integrated line.
Speaker Change: Okay.
Speaker Change: All combined we are very well positioned in the poultry market like we've talked about and very excited about the next quarters and years to come.
Arni Sigurdsson: We are very well positioned in the poultry market, as we've talked about, and we are very excited about the next quarters and years to come. Moving now to the update on the potential combination with JBT. We reached a few important milestones in the quarter as we progress to a potential combination with JV... We signed a transaction agreement in April, and then in June, JBT launched a voluntary takeover offer for all Marel's shares. The offer is based on the terms and conditions set out in the transaction agreement, and the offer expires on September 2nd but can be extended in the case, for example, if regulatory approvals are taking longer
Speaker Change: Moving now to the update on the potential combination with JBT.
Speaker Change: We reached a few important milestones in the quarter as we progress to a potential combination with JBT.
Speaker Change: We signed a transaction agreement in April and then in June JBT launched a voluntary takeover offer for all of them are all shares.
Speaker Change: The offer is based on the terms and conditions set out in the transaction agreement and the offer expires on September 2nd but can be extended and the case for example, if regulatory approvals are taking longer in certain markets.
Arni Sigurdsson: The Board of Directors of Merel has published its recent statement where the Board unanimously supports the offer and recommends that modern shareholders accept it. It is worth to note that we expect that Marel shareholders will be able to elect Nasdaq listed shares in Iceland of the combined company as the secondary listing of JBT Marel is expected to be effective at close. The proposed transaction is subject to customary conditions, including the main three conditions.
Speaker Change: The board of directors of morale.
Speaker Change: <unk> published its recent statement, where the board unanimously supports the offer and recommend that modest shareholders accepted.
It is worth to note that we expect that that modest shareholders will be able to have liked NASDAQ listed shares in Iceland of the combined company as the secondary listing of JBT model is expected to be effective at closing.
Speaker Change: The proposed transaction is subject to customary conditions, including the main three conditions.
Arni Sigurdsson: The first one is regulatory approvals, and we are progressing well on that front, with U.S. waiting periods having expired. Similarly, our work as it relates to other relevant jurisdictions is progressing well. Second, is JBT stockholder approval. The JVT stockholder meeting will be on August 8th, and the proposal requires 50% approval of the cast vote. And then third, modern shareholders need to tender at least 90% of their shares into the office. The transaction is then expected to close by year end.
Speaker Change: The first one is the regulatory approvals and we are progressing well on that front with U S waiting periods having expired.
Speaker Change: Our work as it relates to other relevant jurisdictions is progressing well.
Speaker Change: Second is the JBT stockholder approval the JBT stockholder meeting will be on August eight and the proposal and the proposal requires 50% approval of the cast at volt.
Speaker Change: And then third modern shareholders needs a tender at least 90% of their shares into the offer.
Speaker Change: The transaction is then expected to close by year end.
Arni Sigurdsson: I want to encourage all modest shareholders to familiarize themselves with the offer and the information which has been disclosed in relation to the offer. We see compelling strategic rationale for the combination, and at a joint investor meeting on June 24th, Brian Deck, JVT's CEO, Matt Meister, JVT's CFO, and myself went through the industrial logic of the merger.
Speaker Change: I want to encourage all modest shareholders to familiarize themselves with the offer and the information which has been disclosed in relation to the offer.
Speaker Change: Okay.
Speaker Change: We see compelling strategic rationale for the combination and in a joint Investor meeting on June 24th Brian deck, Jbt's CEO, Matt Meister JBT as CFO and myself went through the industrial logic of the merger and I encourage you all to take a look if you haven't done so already.
Arni Sigurdsson: And I encourage you all to take a look if you haven't done so already. Before I hand it back to Tinna, I want to thank our team. I really appreciate the dedication and valuable contribution of our teams across the world in navigating this changing environment, driving our business forward, and transforming the way food is processed in partnership with our customers. Thank you.
Speaker Change: Before I hand, it back to Timna I want to thank our team.
Timna: I really appreciate the dedication and valuable contribution of our teams across the world in navigating this changing environment driving our business forward and transforming the way food is process and partnership with our customers. Thank you.
Tinna Jnsdttir Molphy: Thank you, Arni Sigurdsson and Sebastian. And just to reiterate that all the information related to the JBT offer launch, including stock exchange announcements, presentations, and other relevant materials, is available on morel.com.jbt as well as on the website of arianbankie.ie. Now, moving to Q&A. We will start with a question from Akash Gupta, who I see has raised his hand. Please go ahead.
Timna: Thank you.
Sebastiaan Antonius Theodorus Boelen: Dan Sebastian and just to reiterate that all the information related to the JBT of launch, including stock exchange Nansen presentations and other relevant materials are available on morale dotcom slash JBT as well as on the website of audience <unk> Das I ask.
Now moving to Q&A.
Speaker Change: And we will start with a question from at a cost of debt, which I see you have it has raised his hand and please go ahead.
Speaker Change: Okay.
Operator: Hi, good morning. Thanks for your time. I have two, and I'll ask them one by one.
Speaker Change: Hi, Good morning, Thanks for your time I have two and I'll ask one by one.
Operator: The first one is on aftermarket growth. When we look at the chart, it looks like the growth is plateauing at a high level. Sorry, the aftermarket revenues are plateauing at a high level. Could you please talk about what is driving that? Is this because you have already kind of reached a very high level of aftermarket penetration in your installed base, and therefore growth should be more of a reflection of your installed base growth, which is low currently due to weakness in new equipment? Or is there any other factor, like potentially some disruption from this global service center that you came out with in June? So maybe some color on aftermarket growth that was a bit weaker in the quarter.
Speaker Change: The first one is on the after market growth and when we look at the chart. It looks like the Glutes plateauing at a high level.
Speaker Change: And so do the aftermarket aftermarket revenues is quite doing it off at a high level could you. Please talk about what is driving that and is this because you have already kind of reached out to a very high level of aftermarket penetration in your installed base and therefore growth should be more of a reflection of.
Your aftermarket your installed base growth, which is low currently due to weakness in new equipment or is that any other factors like potentially some disruption from this global service centers that you came out in <unk> in June.
Speaker Change: So maybe any any color on aftermarket growth that was a bit weaker in the quarter.
Speaker Change: Yes, I will I'll answer that.
Arni Sigurdsson: I'll answer that. The question on aftermarket, I would like to split it in sort of what happened this quarter and how we look at it going forward. This quarter indeed had slightly lower revenues, mainly driven by a lower number of business days. We tend to have a very good trend on our business days, and that is the main driver of the small drop that we saw this quarter. This quarter, for example, or the one we are in now, has more business days, so we expect that to come back.
Speaker Change: The question on aftermarket I would like to split it and sort of what happened this quarter and how we look at it going forward.
This quarter was indeed, a slightly lower revenues, mainly driven by <unk>.
Speaker Change: Lower number of business days, we we tend to have a very good trend on our business days and that is the main driver of the small drop that we saw this this quarter next quarter for example, or the one we are in now has more business days. So are we expecting that to come back you also mentioned in our installed base, we have a great install.
Arni Sigurdsson: You also mentioned an installed base. We have a great installed base, but we know we don't serve all our customers with all the aftermarket that we would like to. So there are a lot of programs in place to actually increase that. That is the basis for a lot of the forward-looking growth that we would see in our aftermarket, where there are still a lot of things we can do for our customers.
Speaker Change: Base, but we know we don't sell serve all our customers with all the awesome accurate that we would like to so there are a lot of programs in place to actually increase that that is the basis for a lot of the forward looking growth that we would see in our after market, where there's still a lot of things we can do for our customers. It's the spare parts is to surface.
Arni Sigurdsson: It's the spare parts, it's the service, and it is, of course, also the remote control and others that we are trying to offer to our customers that will help us with all that. So in the aftermarket, I would say the trend has been good in the past, and I would expect that to go forward with the elements that we have.
Speaker Change: And it is of course also the remote control and others that we are trying to offer to our customers that will help us all that so on the aftermarket I would say the trend has been good in the past and I would expect that to go forward with the elements that we have.
Arni Sigurdsson: Thank you, and my second question is on demand recovery. I think you made some comments on poultry that there were some delays in orders from Q2 to the second half. Can you be a bit more specific on when we expect some of these orders to close, i.e., could they be in Q3 or, more likely, in Q4? And then maybe if you can confirm there is no market share concern where you might be losing market share to your competitors. And finally, on the same topic, could you also provide some breakdown of these large poultry order pipelines into various geographies where you see more active pipeline versus others? Yes,
Speaker Change: Thank you and my second question is on demand recovery I think you made some comment on poultry that there was some delays in orders from Q2 to second half.
Speaker Change: Can you be a bit more specific on when shall we expect some of these orders to close I E could they be in Q3 or more likely in Q4.
Speaker Change: And then maybe if you can confirm there is no market share concern and where you might be losing market share to your competitors and finally on the same topic could you also provide some breakdown of these large poultry order pipeline into various geographies, where do you see more active pipeline versus the others.
Arni Sigurdsson: Yeah, so on poultry in particular, I would say that we talked about the second half. We did not mention quarter four in particular, and that was intentional.
Speaker Change: Yeah. So.
Speaker Change: On on kind of poultry in particular, because then I would say that we talked about the second half we did not mention quarter four in particular and that was an intentional so I would expect to see.
Arni Sigurdsson: So I would expect to see some pickup on the poultry side in the third quarter already. And kind of what I would say on the poultry side, we've talked about the line split solution. I went through some of the new innovations that we're launching as well. So we feel very good about our comparative kind of advantage compared to some of the other players in the industry. So we feel very comfortable about that.
Speaker Change: Some pick up on the poultry side and in the third quarter.
Speaker Change: <unk> already.
Speaker Change: And kind.
Speaker Change: Kind of what I would say on the poultry side, we've talked about the line split solution I went through some of the new innovations that are kind of that we're launching as well. So we feel very good about our comparative.
Speaker Change: Kind of advantage compared to some of the other players in the industry.
We're going to be we feel very comfortable about that and if we look towards the different geographies.
Arni Sigurdsson: And if we look at the different geographies, poultry has been particularly challenged in North America. So I would say that we see... That market continues to be strong. I mean, if you look at some of the fundamentals in North America, then pricing continued to be strong in the second quarter, after a pickup in the first one, production costs continued to be low, and inventories also. So the dynamics in that market continue to be good for our customers.
Speaker Change: Poultry has been particularly challenged in North America, So I would say that we see.
That market kind of continue.
Speaker Change: <unk> continues to continues to be strong I mean, if you look at some of the fundamentals in North America, then pricing continued to be strong in the second quarter are kind of went after a pickup in the first one production cost continued to be a low inventories also so kind of the dynamics in that market.
Speaker Change: You need to be good for our customers. So we're looking we're looking at a kind of a bit more activity there and a healthy pipeline for North America is obviously, you're going to have also some other areas, but if I were to kind of call out one.
Arni Sigurdsson: So we're looking at a bit more activity there and a healthy pipeline for North America. It's obviously going to have some other areas, but if I were to kind of call out one, that would be the market. Thank you.
Speaker Change: That would be the market.
Speaker Change: Thank you.
Operator: Thank you, Akash. Next up, we have Klas Bergelind from SISI. Please go ahead.
Kash: Thank you Kash next up we have cloth bag linson Stacy. Please go ahead.
Operator: Yes, hi Arni, Sebastianiaan, Tinna, Klas at City. So my first one is on the gross margin. Obviously, poultry came in better than I expected and also better than you expected. But now it seems like trading will worsen again, looking at sales and margin here into the third quarter. And obviously, from some pull forward there, as you have said, and then also the weaker orders. Now that suggests that even your new lowered margin guidance is pretty backward for the year into the fourth quarter because poultry, when it is doing well, then that is good for the gross margin.
Speaker Change: Yes, hi, one it's about damn peanut catheter. So my my first one is on the gross margin obviously poultry.
Speaker Change: Embedded in I expected and also better than you expected, but now it seems like trading will worsen again looking to sales and lowered adhering to the third quarter.
Speaker Change: And obviously from the some pull forward there.
Speaker Change: As you have said and then also the weaker orders no. That's it is that even your new lowered margin guidance is pretty back end loaded in the year into the fourth quarter because poultry when they are doing well then that is good for the gross margin. It's typically higher because we sold it mix. So how should we think about the gross margin.
Operator: It's typically higher because of the solid mix. So how should we think about the gross margin now, quarter on quarter into the third? And what can you do on SG&A further to mitigate that potential pressure? Thank you.
Speaker Change: Quarter on quarter into the third and what can you do on SG&A further to mitigate that potential pressure. Thank you.
Arni Sigurdsson: Yeah, I mean, you are right that the margin was quite good, and what our business is like is not what I would call, we're not in the quarterly business. So if you look at how our orders come in and sometimes how revenues are recognized, it can fluctuate between quarters, and that's something we've talked about for a long time because in some cases, when you have these big projects and integrated systems, you sometimes get kind of third-party components that are part of the system, but they don't go through your manufacturing side.
Speaker Change: Yeah. I mean, you you are right that the margin what was kind of quite good and what is going to have.
Speaker Change: Our business is not what I would call we're not in the quarterly business. So if you look at our kind of our orders come in and sometimes how kind of the revenues are recognized it can fluctuate between.
Speaker Change: Between quarters, and that's something we've we've talked about for a long time because in some cases when you have these big projects.
Speaker Change: In integrated systems, you, sometimes are getting kind of third party components that are a part of the system, but they don't go through your manufacturing side. So that can impact your cost call rates. Both on the what I would call kind of semi semi fixed or kind of the indirect side on the indirect.
Arni Sigurdsson: So that can impact your cost coverage, both on the, what I would call kind of semi-fixed or kind of the indirect side of the indirect cost, which is included in the gross profit. So that's a bit of the dynamic which can sometimes make it difficult to compare quarters exactly one to another. But I would say that we were strong on poultry this quarter; we'll see some weakness going into Q3, which is more related to kind of the revenue side and then that cost coverage that we've talked about, but then the fourth quarter should kind of recover again.
Speaker Change: Which is included in the gross profit so that's a bit the dynamic which can sometimes make it difficult to compare quarters exactly kind of what we want to another but I would say it is that.
Speaker Change: We had strong strong on poultry this quarter, we'll see some weakness going into going into Q3, which is more related to kind of the revenue side and then that cost coverage that we've talked about.
Speaker Change: But then kind of fourth quarter to kind of recover again and if you look at also just kind of how we see the pipeline and the insights that we have then.
Arni Sigurdsson: And if you look at also just kind of how we see the pipeline and the insights that we have, then just the nature of the sales cycle and the project, then we have the best visibility into the pipeline on the poultry side. So we've gone through quite well, and that's why we're comfortable putting out what we did today in yesterday.
Speaker Change: The nature of the sales cycle and the projects then we have the best visibility into the pipeline on the poultry side.
Speaker Change: So we've kind of we've gone through quite well and that's why we're that's why we're comfortable putting putting out what we did today yesterday okay.
Arni Sigurdsson: My second one is on the order pipeline, actually, and coming back to Aker's question. We're getting some signs that the US across our broader industrial coverage is a bit weaker than in the first quarter. I mean, you, Arni, you still seem very confident in a second-half recovery. I'm trying to understand, is this sort of feed costs going up, prices going – feed costs going down, prices going up, which is sort of enhancing profitability, or is this actually Tyson and others telling you that they're going to place more orders? I'm trying to sort of understand where this confidence comes from when we hear that the US is getting a bit weaker. Thank you. Yeah,
Speaker Change: My second one is on the on the order pipeline actually in coming back to Jeff's question, we were getting some signs that the U S across our broader industrial coverage is a bit weaker than in the first quarter. I mean, you only you still seem very confident in in a second half recovery I'm trying to understand is do sort of feed costs going up prices.
Boeing.
Speaker Change: Vehicles coming to home prices going up which is sort of enhancing profitability or is it actually ties and other is telling you that they're going to place more orders I'm trying to sort of understand where this confidence comes from when we hear that U S is getting a bit weaker thank you.
Speaker Change: Yeah. So.
Arni Sigurdsson: So it's a great question. On the poultry side, we have more evidence than just about pricing and the profitability of the cost. So I would say that we have more insights into how we see that development. We're obviously coming from a pretty, I would say, deep, or maybe more fair to say, a long cycle that has gone down. So I think the fundamentals of the industry will, at least on the poultry side, probably outweigh some of the macro dynamics. But there are a lot of things happening in the US as we speak, on the interest rates and geopolitical front.
Speaker Change: Great question on on the poultry side are we have more evidence than just kind of the pricing and the profitability of the customers. So I would say that we have we can have more insights into kind of how we see that development.
Speaker Change: We're obviously coming from a pretty it could have I would say the borough of maybe more to fair to say along kind of cycle that went down as.
Speaker Change: So I think the fundamentals of the industry.
Speaker Change: We'll at least on the poultry side, probably outweigh some of the macro dynamics boat could have.
Speaker Change: There's a lot of things happening in the U S. As we speak on the on the on the interest rates and kind of a geopolitical side. So you can have we don't know exactly but due to that kind of that long a site.
Arni Sigurdsson: So we don't know exactly. But due to that long cycle and now the improved dynamics, we believe that our customers are in a need to invest. So more confidence there. If you look at meat, on the other hand, I would say the pipeline that we're tracking there is not as strong. It's kind of soft, as we outlined. It's not as strong as in poultry. So we have less visibility there.
Speaker Change: Cycle and now the improved dynamics, we believe that our customers are in a need to invest so so can I have more confidence are there. If you would look at meat on the other hand, I would say are going to be ordered with a pipeline sorry Ah that we're tracking there is not as.
Speaker Change: Our strong it's kind of soft as we have outlined is not as strong as in poultry. So we have less visibility there. So when we talk about improved improved go to market dynamics on the meat side I would characterize that more in the category of Hey, we see production costs going down profitability.
Operator: So when we talk about improved market dynamics on the meat side, I would characterize that more in category A. We see production costs going down, profitability as they're in positive territory now for pork processing, and a little bit more positivity from the customer side. But we still need to see that kind of hard evidence to get more comfortable with the outlook on meat. Thank you. Thank you, Klas. Next up, we have a raised hand from...
Speaker Change: They are in the positive territory now for our pork for pork processing, a little bit kind of little bit more positivity from from the customer side, but we still need to see that kind of more hard evidence.
Speaker Change: Two do we get more comfortable on the outlook on the meat side, just to kind of contract contrast, it to.
Speaker Change: Thank you.
Operator: Thank you, Klas. Next up, we have a raised hand from Andre Mulder from Kepler.
Andre Mulder: Thank you Klaus and next step we have raised from Andre Mulder from Kepler. Please go ahead.
Speaker Change: Are you there.
Operator: Please go ahead. Can you hear me? Yes, we can indeed. Okay, first question on the book-to-bill. Do you expect that the book-to-bill will be over one in the second half of the year?
Andre Mulder: Can you hear me.
Andre Mulder: Yeah.
Andre Mulder: Okay.
Speaker Change: First question is from the on the book to Bill.
Speaker Change: Do you expect that to your book to Bill will be ofer warm in the circumstance.
Speaker Change: Half of the year.
Arni Sigurdsson: Yes, thank you for the question. Yes, we do. We believe that.
Speaker Change: Yes. Thank you for the question.
Speaker Change: Yes, we do we do believe that that's S already said earlier there.
Arni Sigurdsson: As Arni said earlier, the outlook from our customers is better. The pipeline seems to be good. There is a bit of a difference, of course, as was mentioned, between poultry and meat. We also have fish and our PPF sector. But overall, we do see that order pipeline improving.
Speaker Change: The outlook is for my customers is better the pipeline seems to be good a bit of difference of course is supposed mentioned between poultry and meat. We also cross fish and MLP if P. P F sector, but overall, we do see that order pipeline improving.
Arni Sigurdsson: So the second question is on the merger at JBT. Looking at the shareholder blocks, there are four in my view, and it's, of course, IREA with 25% that's already done. You have 2% shares of your own, and then something like a small 50% is in the hands of the Icelandic pension funds. Surely you have talked to them. What do you feel is their stance? That remaining part would then be something like 25%. Can you give an insight into how that is composed?
Speaker Change: Second question is on the.
Speaker Change: The merger to JBT.
Speaker Change: Now looking at TD shareholder blocks.
Speaker Change: Therefore in March you had.
Speaker Change: Mr question, IRA with 25% that's already done.
Speaker Change: For 2% shares of your own something like small 50% is in the hands of the Icelandic pension funds.
Speaker Change:
Speaker Change: Surely you will have talked to them or what the what do you feel is their stance.
Speaker Change: The remaining part will then be something like 25%.
Speaker Change: Can you give any insight on how that is composed.
Arni Sigurdsson: So what we see is that after the joint call that we talked about earlier, or I mentioned earlier, we met some of our shareholders and went through the industrial logic and a very similar, similar overview as we did on that call and went through Q&A. And what I would say is that, generally, I would probably characterize it as positive, but some are clearly kind of still doing their work, holding their cards close, because they want to fully understand the case, evaluate it from an economic standpoint, and also from a wider stakeholder standpoint.
Speaker Change: Yeah. So.
Speaker Change: Well, what we see is that we after the the joint call.
Speaker Change: That we talked about.
Speaker Change: Earlier I mentioned earlier.
Speaker Change: We can imagine.
Speaker Change: Kind of some of our shareholders and went through the the industrial logic and can have very similar a kind of a similar overview as we did on that call and went through Q&A and what I would say is is that.
Speaker Change: Good of our shareholders are kind of I would say generally I would probably characterize it as positive but some are clearly kind of still doing their work are holding their cards close because you. They want to fully understand the case evaluated from an economic standpoint, and also from a wider stakeholder stand.
Arni Sigurdsson: So they're doing their work, and they know they have a bit more time to get to a final decision. And it's also, for example, with the pension funds; it is not only the chief investment officers; there's also a board and so on. So we're just kind of staying close and having the conversation and answering any questions so they can make a well and informed decision on what they want to do.
Speaker Change: Point, so they're doing their work and they know they have a bit more time to get to a final decision and it also for example, with the pension funds. It is not only are the chief investment officers of ultra aboard and so on so we're just gonna have staying close and having the conversation and answering.
Speaker Change: Any questions. So they can make a well informed decision on what they want to do on the.
Arni Sigurdsson: On the shareholder base, we have aided, obviously, there with 25%. We have a good chunk that is international shareholders, which we built up after the dual listing on the Euronext. We have somewhere in the mid to high 30s, the pension funds, and then it is also high net worth individuals, retail, and so on. So those are kind of the buckets that I think are worth highlighting in the context of our shareholder registration.
Speaker Change: On the on this shareholder base.
Speaker Change: Yeah, we have aided obviously, there with 25% we have a we have a good chunk that is.
Speaker Change: Kind of what kind of international shareholders, which we built up kind of after the dual listing on euronext, we have what kind of somewhere in the mid to high Thirty's. The pension funds and then it is also kind of high net worth individuals retail and so on.
Speaker Change: So those are kind of the buckets are.
I think it's worth highlighting in the context of our shareholder registry.
Arni Sigurdsson: Okay, then the last question, probably the most important one, looking at where you currently are in terms of covenants. Are there any measures that you already have in mind? Shouldn't there be an improvement in order intake with a negative impact on working capital, and you're moving closer to the covenant levels?
Speaker Change: Okay. Then the last question from me.
Speaker Change: The most.
Speaker Change: Critical one.
Speaker Change:
Speaker Change: Looking at where you currently are in terms of FERC governance.
Speaker Change: Are there any.
Speaker Change: Measures that you already have in mind.
Speaker Change: Should there be not an improvement in order intake with a negative impact on working capital.
Speaker Change: You're moving closer to the call from that level.
Arni Sigurdsson: Great question. We are fairly high indeed on the covenants. I would say, though, based on the outlook on orders received for the next quarters, we expect the working capital to turn around and improve the leverage numbers. We also still see a higher EBITDA level in 2024 than in 2023, again improving a bit on those leverage numbers. There is, of course, short-term uncertainty. But we will continue to focus on our working capital and cost controls.
Speaker Change: Yes, great. Great question, we are a fairly high indeed on the confidence I would say, though the outlook on orders received for the next quarters, we expect the working capital to turn around and improve the leverage numbers.
Speaker Change: We also still see a higher EBITA level, and 24% and 23 again, improving a bit on those leverage numbers. The rest of course short term uncertainty, but we will continue to focus on our working capital and cost controls and hiring teams is for example, the deal teams on seals on sales that we have we have looked at <unk>.
Arni Sigurdsson: And hiring teams is, for example, the deal teams on sales that we have. We have looked at scenarios, different scenarios on timing as it relates to our facilities, and we are ready to react if our base case doesn't play out. We have great relationships with our banks, who have been with us for quite a while. But that's what I would answer on this one.
<unk> a different scenarios on timing as it relates to our facilities and we are ready to react if our base case doesn't it doesn't play out.
Speaker Change: We have great relationship with our banks, who have been with us for quite a while but that that I would answer on this one.
Speaker Change: Okay. Thank you.
Okay.
Operator: Thank you, Andre. There have been many interesting questions raised here today. If you have any further questions or require follow-up, of course, the IR team is available. On behalf of the team, I sincerely thank you for your time and attention today. Take care and have a great summer.
Speaker Change: Thank you Andre so and indeed, many interesting questions right here today, if you have any further questions and follow up of course, the IR team is available and on behalf of the team I sincerely. Thank you for your time and attention today take care and have a great summer.
Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Operator: Good Bye!
Speaker Change: Goodbye.