Tomra Systems A/S/A S/Adr

Good morning from Asker, ladies and gentlemen, and welcome to Tomra's first quarter result presentation of 2025. My name is Daniel Sundahl, and I'm head of investor relations. As always, CEO Tove Andersen will start by giving you the highlights of the quarter, and afterwards, CFO Eva Sagamo will dive deeper into the numbers and present the updated outlook. At the end of the presentation, we will open up for Q&A for participants in the Teams webinar, and the link to the webinar can be found in today's Stock Exchange release. We aim to conclude the presentation around 8.40. But without further ado, I give the word to Tove Andersen.

Thank you, Daniel, and welcome from me as well to our first quarterly result in 2025. We report today a good first quarter in line with our expectations, both on top and bottom line. I'm especially proud of Food in a Quarter, where we continue to see the benefits of the turnaround, and they report record-strong first quarter EBITDA and double-digit growth in both revenues and new orders. Let me then take you through the financial highlights. So we delivered a revenue of 306 million euros in the quarter, which is up 5% versus the same quarter last year. Collection was slightly down compared to a very strong quarter Q1 last year. Recycling in line with last year and then food 16% up. It's very nice to see the continued improvement in gross margin, which landed then at 43%, three percentage point up versus 10 quarter last year. We see improved margins in collection and also the high volumes and cost savings in food is improving the gross margins there. Our operating expenses is 3% up in the quarter at 104 million euros. We continue to have good cost control while we are investing in future opportunities. This then gave us an EBITDA of 26 million euros. There were no special items in the quarter and we have delivered a strong cash flow from operations of 65 million euros. Going then to order intake, the recycling order intake was soft in the quarter at 61 million euro, but we'll end the quarter with a solid order backlog of 122 million. Food had a strong order intake in the quarter of 87 million euro, and also there we enter Q2 with a strong order backlog of 125 million euros. Let me then dive into the different divisions. Collection delivered another good quarter with stable revenues compared to a strong Q1 last year. We have to keep in mind that last year we had the rollouts in Romania, Hungary and Ireland contributing to Q1. This quarter we had strong revenue growth in all regions except continental Europe due to this brief pause in new markets. In the new markets, we see a slowdown in Austria after their launch January 1st this year, while Romania actually continued to be strong despite going live more than a year ago. We actually had our highest quarterly revenue in Romania this quarter. And it's really great to see how the deposit market is developing in Romania and the high collection rates that they are achieving. So year to date, the collection rate for all beverage containers included in the scheme was above 87%. So this high collection rate drives the need for more collection infrastructure with our existing customers. But also we see that smaller independent stores are now investing into RVMs. In existing markets, we continue to see good growth in the quarter, and we are trending well to achieve our target of 5% growth in existing markets. And also very nice to see that the profitability continues to increase gradually, where we then landed in collection with a gross margin of 41%. Also, I want to highlight Tasmania, even though that didn't happen in Q1. It happened last week, 1st of May, where we then went live with the deposit scheme in Tasmania. Tasmania is, of course, a fairly small market with 50 collection points featuring a bit more than 100 RVMs. And it is a throughput market. But it is an important and final step to make then Australia the first continent which is fully covered by deposit return system. And we are very proud to have been selected together with our partner Clean Away to be the sole provider to Tasmania's deposit return system. As always, we have included here on the bottom right side, the list of countries that have announced deposit return schemes with a firm go live date as well. And as you can see, this is a strong pipeline. Of course, most exciting this year, it is Poland and Portugal. If you look at the potential for these two countries combined, the market potential, it is similar to the potential of the markets that went live between 2023 to 2024. So Poland and Portugal is similar to Romania, Victoria, Hungary, Ireland and Austria combined. And both of these markets are progressing in line with expectations and there are high commercial activities ongoing. Also, we got some big news regarding UK yesterday. So UK Deposit Management Organization has been confirmed as the system operator of their upcoming DRS. This is an organization representing both producers and retailers across England, Northern Ireland and Scotland, which also we will say is best practice. And this is an important step in the process to then be ready for a go live late 2027. Then over to recycling. Recycling division delivered revenues in line with our expectations, marginally below the estimated conversion ratio. But it is in line with the revenue levels that we had same quarter last year. The disappointment in the quarter is the recycling order intake, which is down 16%. However, quarterly variations is normal, and we had a strong order intake in Q4. And we always recommend to look at trailing 12 months when you look at order intake. And if you look at trailing 12 months, our order intake is down 3%. The lower order intake in the quarter is within waste management, mainly then in the US. What we are currently seeing in the US is postponement of investment decisions and delays of waste management projects due to macroeconomic uncertainty, which has been amplified by the trade war. We have had very good sales into the U.S. waste management industry the last couple of years. And this has really been driven by modernization of the infrastructure. And these type of projects can typically be somewhat pushed out in time without having a significant short-term consequences of the operations. And that's what we are seeing. If you look at the metal segment already in taking a quarter, it is in line with the same quarter last year. Also then the same for ore sorting and plastic recycling. We have previously talked about the softness in the European plastic recycling market. And despite an increase in the RPED prices as shown on the graph here, we don't see signs of recovery yet, but the market has stabilized. Service revenue is important for us in the recycling division, and it represented 21% of the revenue last year. And we do see continued good development here. both because we have increased the install base of 30% between 2021 and 2023, and as part of our strategy, we have increased focus on new service solutions to increase the sales of services. Services provides us with a secure recurring revenue, and we expect services in recycling to grow double-digit this year. The underlying drivers for the recycling business is strong. So what we are currently seeing is not a change of the fundamentals, but rather a timing issue where needed modernization is somewhat delayed and the race to increase the needed additional capacity to meet the legislative requirements in, for example, PPWR has not started yet. However, and we continue to position ourselves for the future, and I'm very proud to see that one of our innovations, the AI-based GainNext technology, has been named the recycling machinery innovation of the year at the Plastic Recycling Awards in Europe. GainNext is based upon deep learning technology, and it complements our autosorts to improve recovery and purity level. Currently, we have sold 128 units of GainNext. Then to food. As I said in my opening, I'm especially pleased with the performance of our food division this quarter. They deliver strong revenue and order intake growth, and the profitability is improving according to plan. Europe and South America were the key contributors to the revenue increase. South America was particularly strong with deliveries into blueberries, cherries and potatoes. Due to seasonality in food, with winter in the northern hemisphere, the first quarter is usually the quarter with lowest activity. But for the first time, we had a positive first quarter EBITDA contribution from food. We are really seeing the effect of the improvement program in the figures. In addition, the market sentiment has improved. providing us with a strong quarterly order intake in both vegetables and potatoes, and with further potential in, for example, citrus. Of course, there is a risk that trade tensions lead to postponement of investment decisions in food as well. However, for several segments, we see a need for investments into food sorting technology as new plantations are ready to bear fruit. Then to Horizon, our portfolio of adjacent business building activities. Tomre Fysøk is entering an exciting period now. Tomre Fysøk is a venture where we focus on solving circularity of plastics. And what you see on the bottom right here is a picture from our Norwegian plant. advanced sorting plant, which is now entering the commissioning phase. Actually, we had the first bale going through the plant last week, and everything is progressing as planned, and the official opening is planned later this year. In Tomre Reuse, where we want to solve the challenges linked to takeaway packaging, the focus is continued piloting, both our city solution and our event solution. The Aarhus pilot is continuing while we are preparing for the pilot in Lisbon. C-Trace, the company, a smart waste management company that we acquired late last year, is progressing well. And it was very pleasing to see the contract that they landed in Bratislava with Ole Bratislava to bring next level digitalization to the city's waste collection. Then, before ending my update, I want to summarize how we see the current trade war and tariff situation impacting us. If you look at our total revenues, approximately 25% of our revenue is from the US. However, only 60% of that is based on imports from outside the US and therefore are exposure tariffs. As you will see from the bar in the middle, less than 5% is imported from China, while more than 95% comes from the EU. Also, what you see is that food is a division with the highest revenue exposure, representing approximately 60%. And we have looked at the effects both as first-order effects and second-order effects. So if you first look at the first-order effects, that is really the direct tariff effect on our COX, we estimate it to be maximum one percentage point on our gross margin. And this estimate is based on a scenario where the EU tariffs will go up to 20% and the China tariffs stay as is today at 145%. So the impact in recycling and collection is estimated to be marginal, but we will get the Q2 impact in food on the import from China. Going forward, different mitigating actions will limit the impact. Second order effects are of course harder to estimate as the situation is constantly evolving, but we see both challenges and opportunities arising from the situation. Tariff uncertainty and lower GDP growth may delay recycling and food customers' investments. However, our global customer base and diversified segment exposure balances the risk. The collection division is deemed to be largely unaffected. On foreign exchange, our main exposure is towards euro. A strengthening or weakening of euro toward other currencies of 10% will normally decrease or increase, respectively, EBITDA with 5%. And if we focus then on the US dollar and euro exposure, if the US dollar weakens in line with forecasted FX curves, that is a 10% weakening towards the euro up until the end of the year, and with everything else equal, this may impact our EBITDA percentage negatively with one percentage point. However, we do have a currency hedging strategy in place for future predicted cash flows to mitigate the effects. But we also see opportunities arising from the situation. Increased focus on supply security and reduced global trade will increase the need for more recycled material and circular solutions. And for food, changes to trade flows can create new export markets and thereby increase the need for investments into food grading and sorting equipment. So in Tomra, we are well positioned to handle both the first order and the second order effects linked to the trade war. We are diversified, operating in many segments and all regions of the world. And we do have an agile can-do culture, which means that we're able to adjust quickly. So we are monitoring the situation closely to adapt as and when we see fit to mitigate impact and to explore the opportunities. With that, I will hand over to Eva.

Thank you for that, Tove, and good morning from me as well. Starting with the group P&L. We ended the revenues at 306 million euros, which is then 5% up compared to Q1 last year. The quarter on top line has been according to our expectations, and we have had a good quarter in Tomra. We are very pleased to see the improvement of the gross margin ending at 43%, up 3 percentage points compared to same quarter last year. As said, we have a strong cost control in the group, OPEX ending at 104 million euros in the quarter. That gives us an EBITDA of 26 million euros and an improvement in profitability with three percentage points, ending at 8% in the quarter. Then moving over to collection. Top line ended at 185 million euros, slightly down 2% compared to a very strong Q1 last year, where we had high activities from new markets. This quarter, the strong performance, we have had strong performance in existing markets with the contribution from both innovation, but also good throughput volumes. in new markets we have had a decline compared to the high activity in q1 last year but that is as expected due to the timing of the rollout in new markets This quarter, new markets represents approximately 15% of the revenue. And we classify or categorize Romania, Poland, and Portugal, but also Austria as new market in the quarter. But it's mainly revenue coming in from Romania and Austria in the quarter related to new markets. Good to see improvements in gross margins in collection. We are now trailing at 41% in the quarter. up one percentage point compared to the same quarter last year. Good cost control in the collection, ending the uptakes at 46 million euros, which gives us an EBITDA of 30 million euros. Moving over to recycling. And in recycling, the revenues came in at 46 million euros, according to our expectations, slightly lower than the ratio that we indicated back in Q4. We have had lower revenues in Americas. That is due to timing of orders. And as you probably remember, we had very strong revenues from that market in Q4. In the quarter, we have had strong performance in aftermarket sales and in service sales. The gross margin ended at 45%, a softer margin compared to the same quarter last year on the same volumes, but that is due to the product mix in the quarter. Good cost control in recycling, ending the OPEX at 21 million euros in line with the same quarter last year. That gives us an EBITDA of minus one percentage point. One percent, sorry. Looking at the order intake, that has been soft in the quarter. As we have seen over quite some time, we have had a softer market sentiment in Europe for plastics, but also now in the quarter, we see postponements in the US within the waste management segment. We are down 16% compared to the same quarter last year, ending at 61 million euros. However, as Tove said, it's important to look at the trailing 12 months, and we are down then 3% on the trailing 12 months. Order backlog ends at 122 million euros in the quarter. Over to food. Food has had a strong performance on top line, ending revenues at 70 million euros in line with the conversion ratio that we indicated back in Q4. We have had especially strong performance in our main markets, which is Europe and in Americas. It's also very good to see the improvement in the gross margins ending at 44%. Quite a good improvement compared to Q1 last year. And it's related to the cost-saving program, but also on the volume side. good cost control, coming from, of course, the cost savings program, but also that we have continued strong focus on cost in the business division. So we ended the OPEX at 27 million euros in the quarter. That gives us a positive EBITDA for the quarter, first ever in the first quarter in food, and we are very pleased with the results, giving us an EBITDA margin of 5%. Looking at the order intake, we are up 13% in the quarter, ending at 87 million euros. And we have seen especially good intake in core categories being vegetables and potatoes. Looking at the trailing 12 months in food, we are up 3%. And we end the quarter with a very strong order backlog of 125 million euros. In the quarter, or at the end of the quarter, we have a strong and healthy balance sheet. And as you can see from the KPIs on the slide, we have a strong cash flow from operations ending at 65 million euros compared to the 19 million euros in Q1 last year. And that is a result from higher profit in the quarter, but also that we operate with lower working capital now being at 10% end of Q1. We have an equity ratio of 38% and a gearing of 1.6. Looking at the return on capital employed, we are trailing now at 19% above the strategic target that we have set for Tomra at 18%. And then on the financial position, as you can see on the slide, we have a good spread of weighted average debt maturity, now being at 4.1 years. And looking at the undrawn facilities, we end the quarter at 143 million euros. So in a good financial position for future. And then over to the outlook, and we start with collection. It's a high activity. High activity is expected in both existing and new markets in 2025. The activity and growth in existing markets this year is driven by replacement sales, introduction of new innovation, as well as volume growth in throughput markets. Looking at the new markets, the activity is expected from Romania. Even with that market going live back in 2023, the rollout is expected to continue, but at a slowing pace throughout the year. As you have heard today, Q1 was the strongest quarter in Romania. where we have had sales to both existing customers but also to smaller independent stores. And the sale is driven by consumer behavior and high deposit returns. And we expect sales to continue due to the technology need to handle the high deposit volumes in the country, trailing now above 87% year-to-date. The next new market is Poland, and the market plans to go live in October this year, and we expect sales to materialize in the second half of the year. As mentioned earlier, commercial activity in the market is high, and we expect that retailers are beginning preparations for the go-live date. Back in Q4, we mentioned that we experienced a high or an interest for both sales and service, but also throughput sales, which is also currently the case. And we believe that the market will be a mix of those, but we are leaning now more towards sales and service. And how much Poland will contribute to the collection growth in 2025 will depend on the sales setup and also contracts being signed in the year. And we expect the rollout to continue into 2026 and also in 2027. The next market is Portugal. High activity in Portugal as well, and the market plans to go live early 26. We expect sales towards the end of the year related to this market. And then, of course, mentioning Tasmania that went live just last week. It's a small throughput market, but nevertheless, we will have revenue coming in from that market over time. So all in all, in connection, we expect a revenue growth in 25 of approximately 5% in existing markets, whilst growth in new markets will highly depend on the sales models in Poland. Gross margins should stay north of 40%. And then on the OPEX revenue levels for full year, then excluding the ramp-up variations, should stay in line with the 2024 run rate. And currently for ramp up, we are trailing on a full year run rate at 20 million euros. Then over to recycling. The underlying drivers for recycling business is still strong, being regulation, decarbonisation, as well as the need for modernised and automated recycling sorting processes. And even with important commitments in EU for packaging, we experienced a softer market sentiment in, for example, plastic recycling. On top, The increased macroeconomic uncertainty and trade tension lead to slower short-term growth, especially down in the waste management segment in US. We still expect growth in 2025 in recycling, but lower than the previous indicated mid single digit growth for the year. Where we will end the year will depend on the development of the macroeconomic situation. Looking into growth, important drivers continue to be growth in the service and aftermarket sales, as well as the growth in the metal segment. We expect strong cost control in this business division and to maintain healthy margins. However, product mix may reduce full year margin with approximately one percentage point. And then we're talking about the EBITDA margin. We estimate a 50% conversion ratio of the order backlog to be recognized as revenue in Q2. However, given the market uncertainty, we may experience orders being postponed over the quarters, which could push the conversion ratio some percentage points down in Q2. Over to food. The need for optimization and increased quality and safety requirements create opportunities mid and long term for our food business. We are currently seeing a positive shift in the market sentiment following two years of challenging conditions. However, renewed macro uncertainty may impact customers' investment willingness. With a positive momentum in the auto intake and that in several segments, there is a need to invest in food sorting technology as new plantations being produced begin producing food fruit and we are keeping then our full year outlook with an indication of low single digit growth in 2025 for food we expect the gross margins in the mid 40s and profitability of 10 to 11 percent ebitda and further improvement of profitability is expected when the top line growth materializes Important to mention is that we expect extra COGS in Q2 of approximately 4 million euros created to tariffs in US. And for the rest of the year, we plan with mitigating actions to limit the impact from trade war. Based on the order backlog end of Q1, we estimate a 75% conversion ratio of the order backlog to be recognized as revenue in Q2. And then lastly, on Horizon, we have high activity in feedstock, where the Norwegian plant Omro will start operations in 2025, whilst the German plant is expected then in 2026. Remaining capex for these two plants is approximately 40 million euros for the year. where 10 million euro is remaining for Omroa. Year to date, we have spent around 6 million euros. As we prepare to begin operations in Norway, we anticipate a shift in the operating expenses for Horizon. The run rate for the year for Horizon will be approximately at 2024 levels, but on top we will have an increase, so we will double the run rate, and the increase will be entirely driven by the costs associated with the plant operations in Norway. Looking at the revenue profile, the plant in Norway is expected to be modest at launch, but will grow in line with ramp up in capacity over time. And that said, we expect the plant to reach a positive EBITDA run rate by the end of 2025. And with that, we end the Outlook session, Daniel, and move to Q&A.

Thank you, Torben. Thank you, Eva. We'll move over to Q&A, and we have four questions coming in, starting with Elliot Jones at Danske Bank. Please go ahead, Elliot.

Good morning, guys. Congrats on the results. Just in the collection section, we heard about tariffs. How are your confidence levels, say, in Poland now versus the Q4 stage with regards to Poland contribution later on in the year. With your conversations with the customers, has that changed? Have you heard them talking about tariffs over here in Europe a lot? Or in that segment, is it a much more kind of limited segment?

Yeah, no, as I said when I talked about tariffs in general, we think that the collection division is not really significantly or will not really be impacted by the tariffs, not on both direct and indirect effects. Poland is progressing according to plan. Commercial discussions are progressing according to plan. The setup is also then progressing well, so we don't see any changes there. We actually see, I would say, you know, it's firmer now than last quarter because we have seen that, you know, the things are progressing as expected.

Got it. Thank you. Thank you, Elliot. And the next question is coming from Adela Dashian at Jefferies. Please go ahead, Adela.

Thank you, Daniel. I'm going to continue on Poland, if that's OK. Could you maybe just help us understand? I mean, you are expecting revenues to ramp up now in H2, but the market is going live in October and it seems like there is, at least not in this quarter, any revenue contribution from Poland. Have you sold a single machine to that market yet? And if the case is no, then is that because you're still in agreements about what type of, or waiting to hear about what type of model that will go live, which is delaying the agreement processes?

So we have signed contracts in Poland. We have installed more than 1,000 reverse vending machines in Poland. The go-live is set to be October 1st, but also as we communicated before, we expect that there will be at least a three-month grace period. So probably the firm go-live will be more end of the year.

Got it. So there has been a machine sold in H1 already to the Polish market.

And last year. So it's not significant in Q1, but we have already now more than 1,000 machines installed. But we expect in a way to be a busy period from now till the end of the year in Poland.

Okay, great. That's all for me. Thank you.

Thank you, Adela. And the next question is coming from Victoria Adesina at Barclays. Please go ahead, Victoria.

Hi, guys. Morning, yep. Here on behalf of Goro Jane. Just a few from me. So in recycling, obviously, we've seen order intake is slightly down, gross margin slightly down as well year on year, but then OPEC still remains, you know, at slightly elevated levels. Could it be the case that there needs to be some restructuring here or is there something that we're missing?

So recycling, first of all, recycling is a well-run, very profitable business for Tomra. We believe in the future prospects of growth. However, we are always looking at cost optimization and operational excellence. And I think recycling has always shown that they've had good cost control. So this is something that we work on as a continuous improvement agenda. but we don't see a need for a significant restructuring in the recycling division. We have consistently delivered EBITDA above 20% in that business.

Okay, I think we lost Victoria, but if she has a follow-up question, we'll bring her back later. The next question is coming from Thomas Darlingness at Sparbunk N. Please go ahead, Thomas. So we might have some technical issues. There we go. Can you hear me now? Now we can hear you, Thomas.

Okay, great, great. Good morning, guys. You're saying that the tariffs may delay food and recycling orders. And seeing that we are halfway through the second quarter already, could you give us some more color on the current impact you are seeing? on order intake.

Yeah, so we don't necessarily give indications on the order intake in the quarter, unless given kind of like the outlook going forward. And what we say is that we expect a softer dynamics on the recycling side, but also that in food, that it might impact orders going forward when we talk about the uncertainty in the market related to macro. Remember that we have had a strong intake in food this quarter and a softer order intake in recycling. But please look at the trailing 12 months. I think that is the best indication. And then we need to come back to the order intake in Q2 for Q2 reporting.

Yeah. Obviously, I didn't want any concrete figures. It's more, is it kind of a 5%, 10% impact or is it... Yeah, we got preliminary truck orders in April. Yesterday or Friday, it was down 50% year-over-year. So it was more in kind of the magnitude of impact.

We have given them an updated guidance for the year, where we say that we expect to still have growth in the recycling division. So I think that gives an indication based on what we see. So yes, we do see some postponement. But we are a very diversified business operating in many different segments and regions of the world. So, yes, we see some impact. But, you know, still, we believe that we'll be able to deliver growth in recycling this year.

OK, thank you.

Given the current market sentiment.

Absolutely. Could I also add just one quick question on the cost side? You're saying that you're able to to to there will be some impact on COGS in 2021. second quarter, but then you will be able to impact the tariffs going forward. Is that the full effect or should we expect kind of a gradual implementation of those mitigating effects?

Yeah, so we have, based on the order backlog and what we are going to deliver in, we know that we will have an impact of around 4 million for food in Q2. We have been working a lot over quite some time now, looking into mitigating actions, being, of course, how we are pricing our products, how we are... looking at the terms and conditions in the contracts and so on and so forth so that's also why we believe into when we look into q3 and q4 and the rest of the year that we will limit the impact but we can't promise a zero impact so we need to go back come back to that later thank you thank you so much

Thank you, Thomas. And then I see Victoria is back in the meeting. Victoria, please go ahead and follow up your question.

Yeah, I had some tech issues. Sorry about that. But I'll check the transcript for the response on recycling. Just the other questions. So obviously it was great to see the turnaround in food. Is there anything you're able to share on how Q2 performance has been so far in terms of if that's continuing on that same strong trajectory? And then lastly, just on FX, is there anything notable to note in terms of impact or anything else you can share on the currency hedging for the rest of the year?

Yeah, first question on food. So with the outlook that we have given today, we stay firm on what we said in Q4 for the year. So I think that is the answer on that question. We can't go into more details on what we see in Q2. and moving forward. But we are confident on the outlook that we have given, of course, based on the situation that we see today. And then on FX, not significant impact on FX in the quarter. And we have not changed the hedging strategy in Tomra for currency. But this is something that, of course, we are using as a tool to mitigate any currency impacts for Tomra. So monitoring that on a weekly basis or even daily basis, especially on the US dollar.

Okay, great.

Thank you, Victoria. And as there are no more questions in line, then we have reached the conclusion of today's presentation. Thank you very much for tuning in. We will be back here with our next set of results on the 17th of July for the second quarter. Have a nice day. Goodbye.