Tomra Systems A/S/A S/Adr

Good morning from Asker, ladies and gentlemen, and welcome to Tomra's third quarter results presentation for 2024. My name is Daniel Sundahl, and I'm head of investor relations. As usual, our CEO, Tove Andersson, is here to give you the highlights of the quarter. And afterwards, our CFO, Eva Sagamo, will dive deeper into the numbers. At the end of the presentation, we will open up for Q&A for participants in the Teams webinar. A link to the webinar can be found in this morning's Stock Exchange release. But before we start, I would just like to take this opportunity to thank all our investors and analysts who joined us in Alicante last month for our Capital Markets Day, and all of you who tuned in to the webcast as well. It was a pleasure to see you there, and for those of you who missed it, the video and the presentation is of course available on the Tomra Investor Relations website. But without further ado, I give the word to Tove Andersen.

Thank you, Daniel, and good morning from me as well. I also want to say a big thank you to everybody that joined our Capital Markets Day. I really enjoyed the engagement, the discussions and the comments to our strategy and our updated targets. But then let's go into the quarter Q3 2024. This quarter we report strong performance in collection. It's also very pleasing to see the improvements in food based on the restructuring and reorganization that we have been implementing and i'm very pleased with how the whole organization has pulled together to deliver on that and then recycling is reporting lower volumes but in line with our expectations and they are ramping up for a very busy q4 so let me take you through the financial highlights So on revenue, we report a growth of 6%, landing then at 326 million euros. The contribution comes from collection and food, where collection is up 14% and food 12%. Recycling then down 18%, but as I said in the introduction, it is in line with our estimated conversion ratio for the quarter. We had a good gross margin of 43% that is in line with the same quarter last year. But if you look underneath the figure, we can see improvements both in collection and in food. And then recycling has a lower margin this quarter due to the lower volumes. As we previously communicated, we have a fixed cost element in our COGS. So with lower volumes, we also get somewhat lower gross margins. Operating expenses in the quarter was 97 million euros, which is lower than the three previous quarters. It's nice to see now that we are seeing the improvements in food and the reduction in OPEX in food, while we continue to invest in business expansion and growth overall in Tomra, especially then in collection. This gave us then an increased EBITDA of 15%, adjusted EBITDA of 15% compared to the same quarter last year and landed at 44 million euros. We had a small one-off cost in the quarter linked to the food structuring of 0.5 million euros. Very pleasing to see the cash flow in the quarter. We have focused a lot on working capital management in Tumre and we are now seeing the results of that and we had a very strong cash flow of 99 million euros. Then looking at the order intake and order backlog in recycling, the order intake was 61 million euros. That is somewhat up versus the same quarter last year. And we are ending the quarter then with a record high order backlog of 134 million euros. And a significant portion of that will be delivered in Q4. On food, we have had good improvements on both order intake and order backlog in the quarter. Order intake was up 20% to 73 million euros, and the order backlog is up 30% to 114 million euros. However, it is important to keep in mind that Q3 last year was a weak quarter, so it is low comps that we are comparing against. However, at the same time, it is nice to see that we have a good intake and that we are building up a solid order backlog. A highlight in the quarter was that we got confirmed and validated now our science-based targets from the science-based target initiative. We submitted the targets just before summer and they have now been validated. This means that we have now targets on scope one and two we want to and aim to reduce 55% to scope one and two by 2033 and 90% by 2050. And we are targeting a 62% reduction on our scope three intensity target. Sustainability has always been at the core of what Tomra is doing and the solutions that we are providing, and it's important for us to walk the talk on sustainability. And at our Captain Marcus Day, we presented some of the initiatives that we are running currently to reach these targets, and we will pursue looking for more initiatives to ensure that we reach them. It's not going to be straightforward. It's going to be requiring additional innovation, but at the same time, we believe it's important that we walk the talk, that we do the right thing, but also we believe that this will give us a competitive edge. Let me then take you through the three divisions and highlights from the three divisions. As I said in my introduction, this is a very strong quarter for collection, continued growth. Collection grew than 14% in the quarter versus the same quarter last year. And as you see on the graph here, I think it's really nice to see how we consistently have been growing this business over the last year, really showing the strength of our compositions and the breadth of our collection business. The growth is coming from both existing markets and new markets. This quarter in existing markets, we had good throughput volumes in North America. One of the contributors is the increased deposit value in Connecticut, driving up volumes there. Also this quarter, we then launched our R2. We have talked about that before. That is our new multi-feed reverse vending machine. And we have already sold more than 100 R2s. Also, we have continued having good sales of our roll pack RVM. I also talked about that one before. That is the one where we use these roller cages to make it easy to handle for the employees of the retailers and also where you can store then more beverage containers per square meter. So continued good sales of that RVM as well, and we have now sold more than 1,000 of our roll packs. On new markets, what we have seen in the quarter is really high activity that has continued in Austria. Austria will go live with the deposit scheme for single-use beverage containers first over January 2025. We also have seen continued good sales and installations in Romania, which went live then last year, even though it is somewhat lower than in Q2. And then in Hungary, which went live earlier this year, 1st of January, we are now seeing that we're coming to the end of the initial rollout there. A highlight for collection in the quarter was Tasmania, where we were then appointed as the sole provider for the upcoming deposit scheme in Tasmania that will go live mid-next year. And when Tasmania has gone live, Australia will then be the first continent that has these deposit schemes throughout the whole continent. Also in the quarter, we completed the launch of our RVM solutions in Victoria, and we will then gradually see increased revenues from that state. Then, as normally, we have included here on the slide the countries that have a firm and announced a firm go-live date for deposit return schemes. There is, of course, many other countries where there are processes ongoing to implement deposit schemes, but when we list it on this slide, we choose to list those that have a firm communicated launch date. And I'll take you through the update since last quarter. I already mentioned Austria. Then to Poland, there is good progress in Poland linked to licensing operators. Poland is a decentralized system, which means that there will be several licensing operators, and four licenses have been granted so far. There is also good progress on an amending act for the deposit return system. So this is the act that will contain the required details that haven't been detailed out yet for making the system operational. At the same time, there are ongoing discussions regarding the go-live date. The official date in Poland is 1st of January 2025. We have said that we don't think it's realistic that the whole of Poland can go live then. and we have expected a gradual rollout. The beverage industry and the retailers have gone out and asked for both that this amending act should be put in place as soon as possible, but that they would like a delay until 1st of January 2026. The environmental minister in Poland has come out with a proposed compromise, which is a go-live date, the 1st of July 2025. This is normal in these kind of processes that we see these kind of discussions and for us it's not really having a significant impact on our estimates and forecasts as we have expected Poland to be implemented gradually over a couple of years. Tasmania already covered. Singapore has changed their go-live date to 1st of April, 2026. Their system operator has been appointed and there is significant activities now detailing out the system and how to tender it. Uruguay still has on this slide a go-live date, December 2024. We don't believe that is realistic and we're expecting a new date to be announced shortly. Then over to the recycling business. As I said, the revenues in the quarter is lower, but it is in line with our expectations. We have had a strong order backlog, but also we have known that due to the size of the order, a significant share of that backlog has a longer lead time than normal. So we then leave the quarter with an all-time high order backlog, 134 million euros. These are firm orders which will be delivered and we are now really ramping up for a very busy Q4 because a significant portion of this order backlog is estimated to be delivered then. If you look at the market sentiment in recycling, it is a mixed picture. We still see plastic recycling, that there is a softer market, especially than in Europe. While, for example, in Asia, we had the highest quarter, I think we had the highest quarter ever on sales there. There are, of course, some positive signs. If you look at the macro picture, you see reduced interest rates, which will have an impact on the willingness to invest. You can also see from the graph here where we have illustrated the PET prices and recycled PET prices that there is starting to be an upswing. But currently, we don't see that in the order intake for plastic recycling. On the other hand, we see waste sorting continuing to be a good market for us. The drivers there are more linked to automation and modernization. We also see very good interest and activity within the aluminum segment, especially then linked to our new auto sort pulse linked to which can then sort alloys. aluminum alloys where we then see good market momentum and also nice to see now that we are getting orders in for wood sorting which is one of the categories that we have focused on over the last couple of years. Then I will go to food. So food compared to last quarter or Q3 last year had a very good improvement in revenue, order intake and order backlog. But as I said, it's important to keep in mind that last year was a weak quarter. However, you know, it's nice to see the 12% revenue growth and it's also nice to see how we now have recovered the gross margin. When we look at the market sentiment in food, it varies region by region and category by category. Still in this quarter, we continue to see a strong market momentum in potatoes. We have talked about this for a few quarters that there has been a potato cycle and that will soften over time. However, we don't see any signals on that yet currently. On categories where we see an improved market sentiment is in blueberries and cherries. In cherries, we see increased investments in Latin America linked to the increased consumer demand in Asia. And on blueberries, we see increased plantings in Europe to meet the increased demand there. However, as we have said before, focus in our food division is profitability. And I'm very pleased to see how that is progressing and how the whole organization in food has pulled together to deliver on the targets that we set. So we have said that we will deliver 30 million euros of savings by end of this year, which is a combination of OPEX and COGS. And we are now at around 20 million euros and we will deliver on the 30 by end of the year. Similar on the run rate of 10 to 11% EBITDA. But also nice to see is the restructuring and the reorganization that we have done, which also then is an implementation of a regional structure, also have benefits beyond the cost reduction. And we are now seeing that being closer to local customers is also starting to pay off on tenders and deals and then winning deals versus competitors. So that's also very important to see, because after restructuring, we do see significant growth opportunities in food in the medium to long term. So that was the business updates in the quarter, and I will then hand over to Eva Sagmo.

Thank you for that, Tove. And it's really nice to see and confirm with our figures that we've seen our results in the restructuring program in food. Starting with the group P&L, looking at the financials, as Tove mentioned, we have had a strong quarter in Q3, but a bit of a mixed picture. Collection has delivered strong quarter yet again this year. Food and recycling has delivered in accordance with the conversion ratio that we indicated back in Q2. where food is progressing well on the improvement program, and we see stable development in recycling. So total revenues for the group ended at 326 million euros in the quarter, up 6% compared to the same quarter last year. Collection up 14%, recycling down 18%, and food up 12%. Our gross contribution ended at 141 million euros, which gives us a gross margin of 43%. As you can see from the overview, it's a stable margin comparing to the same quarter last year. But here we have seen improvement in the collection and food and recycling is a bit down due to the softer volumes. Operating expenses ended at 97 million euros, which is up 1% compared to same quarter last year, but down compared to Q1 and Q2. That gives us an EBITDA adjusted of 44 million euros, which is up 15% compared to the same quarter last year, which gives us an EBITDA percent of 13%. And as Melitova mentioned, we have also had some costs related to the restructuring in food this quarter, around 0.5 million euros. Then digging into the different business divisions and starting with collection. As I said, we have had a strong quarter in collections this quarter. More or less similar levels as we had in Q2. And we see good activities, strong performance in new markets, but also in existing markets. In new markets, we have already mentioned Austria, which will go live then 1st of January next year. And we have been delivering good volumes into that market as we did in Q2. Also in Romania, we have continued to deliver the machines and equipment and as well as in Hungary. But as Tove mentioned, Hungary is now slowing down due to the initial phase of the rollout. Looking at the existing markets, we have had strong performance in the US. Normally in Q3, that is a seasonal effect coming out of the summer in the US. But we also have seen good volumes, especially then from the Connecticut state, where we have effects from the deposit increase, which was implemented 1st of January this year. We have also had improved volume in Australia, given that we have now Victoria added in as a state as of November last year. So overall, the revenues ended at 189 million euros in the quarter, which is then up 14% compared to same quarter last year. Gross contribution at 78 million euros, which gives us a gross margin of 41%, up from 40% same quarter last year. So good margin in collection this quarter. It's coming from price effects where we had this pressure point over quite some time. Now we see good effects coming in from that, but also the seasonal effect in the US and the volume there. Operating expenses at 44 million euros, which is more or less in line with what we have seen in Q1 and Q2, slightly down, but up compared to same quarter last year, which gives us an EBITDA in collection of 34 million euros and an EBITDA percent of 18%, which is a nice drop-through effect from the top line. Moving over to recycling. um recycling has delivered lower volumes this quarter as expected given the conversion ratio that we indicated back in q2 and that is related to softer markets especially in eu and the plastic upgrades projects but also that we have an order backlog consisting of longer projects longer lead type projects that will be delivered over time We also have some timing effects on the orders. And as you know, we will have a very strong quarter coming up in Q4. Total revenues ended at 59 million euros, down 18% compared to the same quarter last year. Gross contribution at 30 million euros gives us a gross margin of 51%, which is then lower than the same quarter last year due to the softer volumes. but also a bit of product mix operating expenses at 20 million euros as you can see we have good opex control or good cost control in recycling and we are trailing at the same level as we have had over the last quarters that gives us an ebitda of 10 million euros and an ebitda percent of 17 percent Moving over to the order side of things, we are delivering an order intake of 61 million euros in the quarter, which is then up 4% compared to the same quarter last year. And as you can see, we have a very strong order backlog, up 25% compared to the same quarter last year, ending at... 134 million euros, a record high. But as you know, we will release quite some orders into Q4. Then moving over to food. As expected, food has delivered in accordance with our conversion ratio. And also here, the P&L is a result of the softer order intake that we have had over the last years. The revenues ended at 78 million euros in a quarter, which is up 12% compared to the same quarter last year. But as Tove mentioned as well, this is low comparables. Gross contribution of 33 million euros, which gives us a gross margin of 43%. In the margin, you see a nice improvement in the margin from 40% last year to 43% this year. And here it's a product mix, but also that we see the restructuring, the savings having a positive impact on the gross margin. Operating expenses ended at 27 million euros in the quarter, which is down compared to the same quarter last year. Same story here. We see now clear effects coming in from the savings and the restructuring program in food. And as I mentioned, we had some special items this quarter as well of 0.5 million euros. When it comes to the savings cost, as Tove mentioned, we have had the year today 20 million euros in. It's a mix of COGS and operating expenses. Roughly one third in COGS and the rest in OPEX. Looking at the order side of things for food, it's nice to see the positive 20% improvement compared to the same quarter last year, ending at 73 million euros. Important to notice that Q3 was also a soft quarter last year. That gives us an order backlog up 30%, ending at 114 million euros. It's good to see that based on what we have done on the working capital management in Tomra over the last quarters, that we have a very strong cash flow in the quarter, ending at 99 million euros. Also here, a record high in a quarter. It's compared to a negative cash flow last year, which was heavily impacted by the cyber attack. good to see that we also have a positive development in the solidity and the gearing this quarter up from q2 this year so equity ratio of 40 and a gearing of 1.9 and as you can see we have added a graph on the return on capital employed which is one of the six targets that we have now for our strategic ambitions up until 2030. And here the target is to deliver a ROKI above 18%. And in the quarter, we ended at 16% ROKI. Financial position. We have early October, end of September, early October, we have placed one billion NOC private placement of a new 10-year senior unsecured green bond, which will then be implemented into the figures in Q4. So the weighted average debt maturity end of this quarter is 2.2 years, and this will then be improved when we go into the next quarter, reflecting the new bond placement. Undrawn facilities end of this quarter ended at 130 million euros. And then to the currency risk or the currency impacts in the quarter, we don't have significant impacts coming from the US dollar euro, as you can see from the graph, but we have had some negative currency effects in the P&L related to then balance sheet items, especially then in the Norwegian entities this quarter. These are mainly then unrealized items and a mix of long and short positions. Total effect this quarter is 4.2 million euros in the net financials in the P&L. And then over to the outlook. And we start with collection as always. As you know, high activity related to new and existing markets should be expected also going forward. Where then for new markets, it's mainly DRS legislations that are being put in place. And then for existing markets, it's innovation, scheme expansion, replacement and so on that will drive growth. But of course, the quarterly performance will be dependent on the timing of these events. We have delivered again a strong quarter this quarter, which then confirms the assumed mid to high single digit growth this year for full year. we expect a slowdown in q4 but then we also expect good momentum coming in from for example austria so it's important when you look at the figures that q4 last year was a really strong quarter with a lot of machines delivery into hungary so the comparables is quite tough but still we expect a solid quarter in q4 ending the year at mid to high single digit growth Gross margins have been improved over the last quarters and we expect that to stay above 40% also in the next quarter. For OPEX, we expect that to stay in the same level as we have seen now in Q3 and year-to-date ratios. And then for the ramp-up cost that we always comment on, the current run rate is around 20 million euros. And we believe that is more or less the right range going into the full year delivering Q4. If we are looking into 2025, we will come back to that of course in the next quarter. But we believe that the existing markets will continue to deliver good growth also next year. For new markets activities we expect still to have some deliveries into Austria in Q1 and then of course the big question mark is Poland and we need to come back how that plays out for next year once we know more in on the legislation side in Poland or the development related to that. Then moving over to recycling. It is a softer market sentiment still, so no recovery yet, especially then in EU and upgrading for plastics. Full year is expected to be flattish, as we said back in Q2. But it's important to remember that this is still regarded as a strong year for recycling, given the current market conditions in some areas and segment that also 2023 was a really, really strong year. Year-to-date revenues in recycling are down 17%, but with a conversion ratio of 75% of the strong backlog that we have, we are confident that we will be able to deliver in line with the expectations for the year. So we have a strong Q4 ahead of us and we are preparing for that to be able to deliver on it, both on production, but also on shipments and customer dialogue. So we have strong beliefs in the organization that we are able to deliver on that strong Q4. Gross margins for the year, it's estimated to stay in the range low to mid 50s, as we have seen also in previous years, and we estimate to maintain profitability in line with last year, as well as we maintain good cost control in this division. Next year, we expect growth in recycling. So that's at least what we can see currently. Over to food. It's good to see that some projects are coming in and that we have some movements in the activities in different markets and different categories. But also here, it's not a significant recovery yet, but it's good to see the positive momentum in food. The focus for us this year has been the restructuring program and to deliver on the improved profitability in this division. And we are confident that we will be able to deliver on that. We see clear now the savings coming in in both COGS and in OPEX. And as you remember, we have an estimated 30 million euro run rate for savings that we will have with us going into 2024. When it comes to the restructuring cost, we expect to have some costs also in Q4. Year to date, we have 2.6 million euros and we estimate the second half to be in the range of the same as we had in the first half. As we have said before, for the full year, we are not expecting growth this year, given the current market momentum, but also the focus that we have in this division. And we also confirmed that with the conversion ratio that we are estimating to have an 80% conversion ratio of the order backlog into Q4. On the gross margin sides, we estimate to stay at the low to mid 40% and EBITDA run rate to be confirmed to be at the level of 10 to 11% as a run rate out of this year into next year. And then we also have some comments related to the Horizon activities in Tomra. As we have indicated before, we will have capex of around 50 million euros for the full year. So far, we have taken in 30 million euros, so 20 million euros is expected in the coming quarter. We also expect to have some internal sales between recycling and Horizon in the coming quarter, more or less at the same level that we had in Q1, around 4 to 5 million euros, similar margins than for Q4 as we had in Q1. And I think with that, we can hand over to Daniel and the Q&A section.