Tomra Systems A/S/A S/Adr

Good morning from Asker, ladies and gentlemen, and welcome to Tomra's second quarter result presentation for 2024. My name is Daniel Sundahl, and I'm head of investor relations. Today, CEO Tove Andersen will start by giving you the highlights of the quarter, and afterwards, CFO Eva Sagermoh will dive deeper into the numbers. At the end of the presentation, as usual, we will open up for Q&A for participants in the Teams webinar. A link to the Teams webinar registration can be found in this morning's Stock Exchange release. But without further ado, I give the word to Tove.

Good morning from me as well and welcome to our second quarter presentation. Before I dive into the quarterly highlights, I wanted to do a bit of promotion for our Capital Markets Day. We will have a Capital Markets Day on September 5th in Alicante, Spain. There we will give updates, me and my leadership team, on our businesses and our strategy. You will have the opportunity to join breakout sessions, to have one-to-one engagements also with senior management, and we will arrange a visit to one of our food customers. So you will have the opportunity to visit a citrus packhouse in operations and really see live how our sorting and grading equipment is key for optimizing the production day.

Good morning from Asker, ladies and gentlemen, and welcome to Tomra's second quarter result presentation for 2024. My name is Daniel Sundahl and I'm head of investor relations. Today, CEO Tove Andersen will start by giving you the highlights of the quarter and afterwards, CFO Eva Sagenmo will dive deeper into the numbers. At the end of the presentation, as usual, we will open up for Q&A for participants in the Teams webinar. A link to the Teams webinar registration can be found in this morning's Stock Exchange release. But without further ado, I give the word to Tove.

Good morning from me as well, and welcome to our second quarter presentation. Before I dive into the quarterly highlights, I wanted to do a bit of promotion for our Capital Markets Day. We will have a Capital Markets Day on September 5th in Alicante, Spain. There we will give updates, me and my leadership team, on our businesses and our strategy. you will have the opportunity to join breakout sessions to have one-to-one engagements also with senior management and we will arrange a visit to one of our food customers so you will have the opportunity to visit a citrus packhouse in operations and really see live how our sorting and grading equipment is key for optimizing the production there So I hope many of you will be able to join us there. But of course, there will also be an option to watch it live on the web. Registration closes at August 16th. And for more information, please go to our dot com page. Then let's dive into the quarter. Second quarter 2024 was a good quarter for us. The recycling division delivered in line with expectations and our estimated conversion rates and with good gross margins. Our food business also overall delivered in according to our expectations, but with somewhat higher revenue versus what we had estimated. And then it is collection that stands out in the quarter, which delivered also above our own expectation. And I'll come back to that a bit later when I That happened. So this gave us a revenue for the quarter of three hundred and thirty three million euros, which is flat compared to the same quarter last year. Collection and being up 15 percent and then recycling and food down 15 and 16 percent respectively. It's very pleasing to see that we had good gross margins in the quarter, 44%, which is two percentage points up versus the same quarter last year. And especially it's pleasing to see that all three divisions increased gross margin versus same quarter last year. The improvements are driven by business mix, it's product mix, it's also then price adjustment, especially in collection, and also cost savings in our food division. Our operating expenses in the quarter was in line with the two previous quarter and landed on 101 million euros. And that gave us then an EBITDA adjusted for special items of 44 million euros, which were 2 million euros down versus same quarter last year. We had a small one-off cost in the quarter linked to our food structuring program of 0.5 million euros. In the quarter, we had a strong cash flow from operations of 34 million euros. If you then look at the order intake and the backlog, the recycling order intake was down 12% and landed them at 65 million euros in the quarter. However, our order backlog grew with 9% to 133 million euros. while the food order intake was more or less in line with same quarter last year, 83 million euros. And the order backlog is now 23% higher this quarter, end of this quarter, compared to the end of same quarter last year. Combined, this gives us then an all-time high order backlog at end of Q2 2024, which gives us good transparency and visibility for the coming quarters to come. Then I'll go through the three divisions. As I said in my introduction, Collection had a very strong quarter. And I think if you look here on the lower left side, it's nice to see how this business has developed over the last five years. In this quarter, we saw strong sales in all regions. And when we look at the new markets, it's especially Romania and Austria that stood out. Romania, as you know, they launched a deposit system end of last year. And we have seen then continued high sales into Romania also now in Q2. and austria will then launch a deposit system early next year for single-use beverage containers and the sales into austria came a bit sooner than we had anticipated and was one of the contributors for why we over delivered versus our expectations in the quarter another highlight in the month was that we have in the quarter was that we opened our european distribution hub We have grown significantly in collection in Europe over the last years, and we also anticipate significant growth there going forward. And we have now created a European distribution hub in Poland to optimize our logistics and our inventory levels. This will position us well to handle the future growth to come, and also it will reduce our CO2 footprint. I talked quite a bit about innovations in the last quarters and how we will drive also growth in existing and new markets through innovation. And I talked quite a bit about the multifood solution and R2 that we have launched, which is a new multifood solution. And also I mentioned before the roll pack. A highlight in the quarter has been that our rollback solution have actually won two design awards, the IF and the Red Dot Design Award for the functionality and innovation and the outstanding design. Rollback is what you see here on the picture. And what are the problems and benefits Rollpack is providing our customers? It's really two. One thing is that it optimizes how many beverage containers you can store per square meter because it uses the height. And of course, for retailers, square meters are very expensive because they want to use that to sell products, not to store empty beverage containers. The second thing with the Rollpack is that the customers can use this... Roller cages, so it's the red one you see on the picture. Those roller cages, they also use for many other products into the store. It's easy to handle. It also then means that their employees doesn't need to lift heavy bags. So also it's a convenience for the employees of the customers. So the roll pack so far has been a success on the design and the wars, but also it's been a commercial success. And so far we have sold 750 or actually more than 750 roll packs. And Austria is the main market for it currently. Then on the bottom right here, as always, we have included the countries that have a firm date communicated regarding going live with the deposit system. The list is the same as we had the last quarter, so I'm not going to go through that in detail. But of course, it's important to remember that there's always political processes linked to this and that there might be delays. Then moving over to recycling. So recycling delivered a quarter in line with the expected lower backlog conversion that we estimated last quarter. And why is there a lower backlog conversion? It's really that we have a higher share of large projects in our order backlog, and those typically have longer lead times than smaller projects. However, it's nice to see that our order backlog is continuing to increase and that we end this quarter actually with the highest order backlog we have ever had in our recycling business. Looking at the market sentiment in recycling, there is still a soft market sentiment in the recycling segment, especially plastic, but also in metal. However, waste management, which is our main segment in this business, is still healthy. And that's also why you see that still we have a good order intake and that we have a good order backlog. From the picture or the graph down on the right hand side, you see then the updated figures on pricing or recycled PET versus virgin PET. And of course, you see that the prices have lifted up a bit, but we are currently not really seeing a significant recovery yet in the market. A highlight in the quarter, and also a highlight for me because I attended the opening, it was the opening of Triplast in Enns in Austria. They're written here as the most advanced sorting plant in Austria, but they will claim it's the most advanced sorting plant in Europe. It has a capacity of 100,000 tons, which covers half of Austria's sorting capacity need for lightweight packaging. And it will have the input raw material here will come from both Austria and Germany, and they will take then source separate the plastic, so mixed plastic in as the raw material. This plant is a good example of what we see and how we see the market in recycling sorting is developing. It's a big plant. It has 38 of our auto sort units, all powered with our AI solution. It's sourced then into, of course, all the different plastic fractions like PE, PP, PET, etc. But also, you know, it's sourced, for example, PE film into five different fractions. So this is what we see is that these sorting plants are getting more and more advanced and they want to sort into pure and pure qualities so that you can enable really closed loop recycling. Then over to food. So food delivered a revenue slightly above our estimated conversion ratio and a good margin for the quarter. And it's also good to see that we have a solid order backlog at the end of the quarter, up 23% versus the same quarter last year. Market sentiment is more or less similar to what I talked about in Q1. Still soft market sentiment in the fresh food categories. However, we see investments being made. We see projects coming, but the competition is also then quite fierce for those projects being out there. Well, processed food and especially then the potato category continues to perform well. However, it's also what we communicated before in food, our focus this year is not about growth. It is about profitability. We have communicated that we launched an improvement program approximately a year ago. We will take out 30 million euros in cost and we will have an EBITDA run rate of 10 to 11 percent by end of this year. And the restructuring program and the cost reduction program is progressing as planned and are on track to deliver that. Also in previous quarter, we have explained a bit more about what we are doing as part of the restructuring. And the key element of that is to optimize our production footprint. In the quarter, the last plant or the last product, sorting product was produced at our Hamilton plant in New Zealand. So that has closed and it's all been transferred to our plant in Slovakia. We also have one more production plant in New Zealand, Auckland. that will be closed during second half of this year. With that, I will end my presentation and hand over to Eva Sagmo to give you an update on the financials and the outlook.

Thank you for that, Tove. And before we start with the financials, I would like to make an important note. This is the first quarter that we present the Tomra figures in euros. And previous years and comparison figures have been also adjusted accordingly. starting with the group P&L. As Tove said, we have had a good quarter this second quarter of 2023. We have delivered a flat growth compared to same quarter last year, but also year to date. As you have seen from the figures, we have delivered a very strong result in collection, a bit higher than what we expected as well. While recycling and food come in a bit softer, but according to our expectations. So the revenue for the quarter ended at 333 million euros. The gross contribution in the quarter ended at 145 million euros, which gives us a strong gross margin of 44%. That is up two percentage points compared to the same quarter last year, but also a good growth compared to Q1. Explaining a bit about the strong margin this quarter, one thing is the volume, but also that we have a good product mix in the quarter. We have also higher share of service revenue, especially down in food and recycling, and we also start to see cost-saving effects being positive in the gross margin of food. The operating expenses ended at 101 million euros in the quarter, which is in line with the run rate that we have had both in Q1 and Q4 last year. That gives us an EBITDA of 44 million euros and an EBITDA percent of 13%. Moving over to collection. As I said, collection has delivered a strong quarter. It came in a bit higher than we expected. And that was the main reasons are because Romania has been stronger than what we anticipated, but also that deliveries into Austria has started earlier than what we expected. So the revenues ended at 193 million euros in the quarter, up 15% compared to the same quarter last year. And year to date, we are up 14% compared to the first half last year. Looking at the regional split in collection this quarter, we see two regions standing out, which is then Europe, but also the rest of the world on volumes. And in the rest of the world is mainly Australia, where also the state of Victoria went live with a DRS in November last year. So we see volumes picking up in Australia. When it comes to Europe, that's also where all of the new market activities are happening now, materialising into the P&L, mentioning then Romania, Hungary and Austria in particular. And out of the growth in the quarter, 70% has come from new market activity. That gives us a gross contribution of 78 million euros and a gross margin of 40%, which is also up compared to the same quota last year and slightly up compared to Q1. It is nice to see that positive development in collection. Operating expenses ended at 46 million euros, up compared to same quarter last year, but in line with what we have seen as a run rate both in Q4 and Q1 this year. EBITDA at 32 million euros gives us an EBITDA percent of 16% in the quarter. Moving over to recycling. And as we have said, recycling has experienced a softer market sentiment over the last quarters. And that is materialising in the P&L, giving us a revenue of €57 million in the quarter. That is in line with the conversion ratio, but it's a decrease compared to the same quarter last year, 15% on the top line. Year to date, recycling is down 16% compared to the first half last year. Looking at the regional split in recycling, we have had a strong Europe this quarter, but a softer Americas. And I want to highlight that there's nothing specific happening here. It's just the timing of the orders coming out of the order book. That gives us a gross contribution of €30 million in the quarter and a gross margin of 53%. So a strong margin in the quarter for recycling, up compared to the same quarter last year, and also significantly up if you look at Q1. Reasons for that is one is the volume that has been picking up compared to the Q1 result, but also that we have had a very good product mix in the quarter and also a higher service revenue this quarter as well. We have operating expenses of 20 million euros, slightly up compared to the same quarter last year, but down compared to Q1. So good cost control in recycling with lower top line volumes. That gives us an EBITDA of 10 million euros and an EBITDA percent of 17%. Looking at the order intake, it ended at 65 million euros in the quarter. That is down 12% compared to the same quarter last year. But as you can see on the slide, the Q1 and Q2 quarter last year were extraordinary strong quarters on the order intake side. We have a record high order backlog in the quarter, up 9%, but ending at 133 million euros for recycling. So very strong order backlog, which gives us visibility into future deliveries. Moving over to food. And food has experienced a weaker market sentiment for quite some quarters now. And that is also materialising in the revenue for the quarter, ending at 82 million euros. That is down 16% compared to the same quarter last year, and down 16% year-to-date compared to the first half last year. Nothing specific to mention on the regional split in food, but worth mentioning that potato segment is still contributing strong into the figures. We have a gross contribution of 37 million euro in the quarter. which gives us a strong gross margin of 45%. And also here, more or less the same explanations as in recycling, volume, good product mix, but also that we have higher share of service revenue, which is in accordance with the strategy in food, but also that we see now savings materialising into the gross margin this quarter. Operating expenses at 29 million euros, which is then down compared to the same quarter last year, but more or less in line with Q1. And I also want to highlight here that even if the operating expenses is at the same level as Q1, we still have savings in, but we have also variations in the cost base quarter on quarter in food. So we are on track on the cost savings program. EBITDA ended at 8 million euros with an EBITDA percent of 10%. And we have 0.5 million euros in restructuring costs in this quarter. Year-to-date, 2.1 million euros. Looking at the order intake in food, it's ending at 83 million euros, down 2%, and a solid order backlog ending at 119 million euros, up 23%, compared to the same quarter last year. Going over to the balance sheet and the cash flow, we have had a strong cash flow from operations this quarter at 34 million euros. That gives us also a strong cash flow from operations year to date at 54 million euros. Nothing specific to mention on the balance sheet. Networking capital and capital expenditures are trailing at the respectively close to 19% of revenue and 5% of revenue this quarter. But what you can see is that we have had some equity transaction this quarter and we have had the distribution of the dividend 50 million this quarter. That's what you can see in the equity. So the equity ratio ends at 39% and the gearing at 2.3%. Looking at the financial position, we have had two events this quarter. So first, I would like to mention that Scope Ratings affirmed the rating of Tomra in June at the A- stable. And then also we issued one billion NOC of green bonds early April. That gives us a weighted average debt maturity of 2.4 years, including the RCF, and an undrawn facility of 94 million euros in the quarter. Looking at the currency risk and hedging policy, this one has also been updated accordingly with the change of presentation currency of Tomra. And now, US dollar, Euro is the more important currencies to look at. And looking at the development in the quarter, it has been at one percentage point, and then year to date it has been rather flat. The split of the revenues and expenses in the different currencies is unchanged, but we have updated the currency sensitivity towards the Euro instead of the NOC, which will then, with a change of the Euro of 10%, that will give a change in the EBITDA of 5%, so lower than what we have had previously in Tomra. And then to the outlook, starting with collection. Higher activity related to new and expanding markets should be expected, where especially innovation and scheme expansion will drive growth in existing markets, and then new DRS legislation will drive growth in new markets. But needless to mention that the quarterly performance will depend upon the timing of these new initiatives. The first half has been stronger than anticipated when we started the year, which now gives us room for a mid to high single-digit growth for the full year in collection. We expect a slowdown in the second half compared to the first half, but we expect also the good momentum in Austria to continue in the next half. On margins, we stay firm that they should be above 40% and OPEC's run rate in percentage of sales should be in line with the current levels. Ramp-up cost is currently at 20 million euros for the year, so the run rate for ramp-up, and that is unchanged looking at the outlook going forward. Important to note that that might change given the market development and in this outlook we have not built in significant volumes coming in from Poland because that is too early to predict. Moving over to recycling. As I said, recycling has experienced a softer market sentiment, which has then led to slower short-term growth in the business division. We don't see a recovery yet in the market. And as Tove mentioned, especially the plastics and the metals that are performing on the softer side. So we are now adjusting the full year outlook for recycling for the year. So at a flat year-over-year growth this year. Still, it's important to mention that we believe that 2024 will still be a strong year for recycling. We estimate the margins to maintain strong with the good cost control that we have seen in the business division. Looking into the coming quarter, Q3, with the order backlog of 133 million euros, we estimate a conversion ratio of 45% to be recognized as revenue in the third quarter. And then on food, as also here I mentioned that food has experienced a weaker market sentiment and delayed customer investments due to many reasons. Even if we now see that more projects and activities are ongoing in the market, we don't see a significant recovery yet. So our focus in food remains. The focus is to deliver on the restructuring program and not focus on growth, but to deliver on improved profitability. So we don't expect growth to come in 2024 in food. We are confident that we will deliver on the cost reduction program, saving 30 million euro at the cost run rate going into 2025, ending the EBITDA margin at 10 to 11% end of 2024. Looking at the coming quarter, we have now estimated a conversion ratio of the order backlog of €119 million of 65% conversion to be recognized as revenue in the third quarter. We have also listed here the capital expenditures in horizon at 40 to 50 million euro expected for the year. We have spent 45% of that already in the first half. So the remaining will then come in the second half of the year. And the run rate when it comes to costs in Horizon will remain at the levels that we have indicated before, around 8 million euros. And then as an ending point, it's important to note that we have changed now the presentation currency in Tomra from NOC to euro, and then also we'll have a different profile when it comes to the currency fluctuations in our figures. And that's what I had, Daniel.

Thank you, Eva. Thank you, Tove. Thank you. And with that, we will move over to Q&A. And please remember to ask a question, raise your hand in the Teams webinar. And I see, let's see, we have a few questions coming in already, starting with Fabian Jørgensen at Carnegie. Please go ahead, Fabian.

Thank you, Daniel. Recycling guiding now for flattish growth year over year would require some 70% uplift Q over Q in Q4 versus Q3 now. Can you elaborate a bit on the dynamics there and why you expect it to jump so much?

Of course. So we expect Q4 to be very strong when it comes to the revenues to deliver on the flat year-over-year growth. And we are preparing accordingly on the production, on the shipping side. And these are confirmed orders to be delivered.

Great. Can you also comment a bit on the project mix which you're stating is strong? I think it's for both food and recycling and what then to expect from gross margins in the quarters ahead.

Yes. So the product mix is that if we start with recycling, we have a diversified portfolio with different segments into that. But we see that the waste segment is delivering good still. And with that, we sell mainly auto sort machines into. So we are confident that we would deliver gross margins and margins in line with what you have seen in the past in recycling. When it comes to food, it's a mix in the order backlog. As I have mentioned, potato is strong. But with the initiatives and restructuring program, we see that the focus we have and the cost savings that we take, we will maintain good margins also in food for when you look at the gross margin.

Okay, but then just to confirm, you shouldn't extrapolate the quite extreme gross margins that we've seen in Q2 for the rest of the year then?

No, you should not do that. As I said, in recycling, you should expect the gross margin to be in line with what we have seen in the past. And then you would expect some uplift in the margin in food compared to last year, but not necessarily compared to the previous years.

Great, thank you. And just finally, on the collection side, with mid to high single digit growth, is there any significant variations in Q3 and Q4 with Austria now and Romania being strong with that drop off in Q3 or in Q4?

It's difficult to predict exactly how the quarters will come in, but we have given them an indication of the second half.

Thank you, Eva.

Thank you, Fabian. And the next question will come from Gaurav Jain at Barclays. Please go ahead, Gaurav. You are on mute, I think, but you're free to talk.

Sorry about that. I hope you can hear me now. So good morning, everyone. So a few questions from me. One is on the collection side. So You know, clearly, you know, at the end of the year, you were guiding to weak 1H and it has turned out to be very strong. And your expectation was that 2H will be much stronger. So should we expect that collection growth rate continues to accelerate from here, especially as the Poland, you know, DRS scheme, you know, earlier you were saying it will probably get delayed, but now it seems that it will actually go live on 1 Jan 2025. So could you just help us dimensionalize like whatever rough numbers you would Like, how should we think about it? I understand you will not give us a guidance, but it's more like how should we think of scenarios around Poland, Austria, whatever else is happening with PPWR, you know, with more DRS schemes. So if you could just help us with that, that would be great. And second is on the food side. Like, if I just look at your order backlog chart now for years, it is like flattish. And your projections... You know, you assume that it should grow 5 to 7 percent CAGR. So when is it that you will conclude that your projection is probably not born by what you have done historically? So those are the two questions. Thank you.

Yeah, I can start and then Eva can add on. But if I start on the food business. So we believe, you know, over a period that the annual growth level in the food category is, as you say, five to six percent. But of course, there will be variations year on year. Currently, the market sentiment is softer due to lower commodity prices and higher interest rates. However, we are still very firm that over time, and if you look over a five-year period, for example, that you would see the 5% to 6% annual growth. When will it pick up? That is, of course, the big questions. As we said, we are seeing signs of orders coming, investments being made. But this will depend also on interest rates and also in general crop prices and harvests. So if you have a good harvest for a certain category, the farmers will earn more money and then they will reinvest. So we believe that this will come gradually and that we will start to see some recovery, hopefully then also already next year. And then the other question was linked to the collection and how we see different scenarios there. And as we say in the outlook, you know, the quarterly performance will depend on new initiatives. We believe, you know, as we said, Austria will go live beginning next year. And we're already seeing good sales in this quarter and that we expect to then continue during second half. While, for example, in Romania, which went live last year, we will expect that to be phasing out. And also we expect Hungary to be phasing out the second half of this year. And based on that, we have said that our current belief is that we will end up then this year with a growth of mid to high single digits. In that figure, we have not included significant sales into Poland. We have included some sales into Poland, but not significant sales. So that is a potential upside if they go live full blast first over January. We believe that probably, and based on there is significant activity in Poland, there is significant activity on their work on the regulations and getting everything in place to go live. There is also significant activity on the commercial side. But our belief is still that there will be more a soft launch beginning next year. And that's why we have then for our estimate for this year not built in significant sales into Poland. Nothing to add, Eva? Nothing to add.

Okay.

Thank you so much.

You're welcome. Next question will come from Elliot Jones at Danske Bank. Please go ahead, Elliot.

Morning, guys. Yeah, congrats on the results. Just on the recycling side, yeah, 45% conversion rate. this quarter 45% next quarter that obviously implies one or two very very big projects in Q4 is there any risk that those projects maybe just don't go through or are you very very confident that they will be kind of landed in Q4 and there's no risk of them being delayed into Q1 next year

so our order backlog is very firm so we have really any cancellations in our order backlog of course there could always be delays and we can never exclude delays but based on what we know now and based on what we see now yes q4 will be a very strong quarter and uh if we then achieve based on the guiding we are given. What we are saying, it will be a record quarter for recycling. We are, as Eva said, we are gearing up for it. We are producing and we will produce in advance and make sure that we are ready to deliver. That's what we are aiming for and that's what we will work hard to be able to deliver on. But of course, you can never exclude that there could be one or two months delay on a project. But then that is not really a key issue for us if it then lands Q4 or early Q1.

Got it. And then in terms of the recycling margins for Q3, is it fair to assume that if the kind of conversion rate is similar for Q3 and therefore revenues are similar to Q2, is it fair to assume similar EBITDA margins in Q3 for recycling to Q2?

So when you look at Q4 and with that high volume, you would expect the EBITDA in that quarter to be at higher levels. But when you look at the year overall, we should be in line with what we have delivered over the previous years.

Got it. Thanks, guys. And it doesn't look like we have any more questions coming from the floor. So with that, we have reached the end of the presentation. I hope we will see many of you in Alicante on the 5th of September. If you haven't registered, please do so and join us in Spain in September. Otherwise, we'll be back here with Q3 results in October. Thank you very much. Have a nice day. Enjoy your summer. Bye-bye.