Tomra Systems A/S/A S/Adr

Good morning from Asker, ladies and gentlemen, and welcome to Tomra's second quarter results presentation for 2025. As always, CEO Tove Andersen will start today's presentation by giving you the highlights of the quarter, and afterwards, CFO Eva Sagamo will dive deeper into the numbers. And at the end of the presentation, we will open up for Q&A for participants in the Teams webinar. The Teams webinar link can be found in this morning's Stock Exchange release. We will conclude today's presentation at around 8.45. But without further ado, I give the word to CEO Trove Andersen.

Good morning from me as well, and welcome to our Q2 results presentation. In this quarter, we have seen large variation in the market dynamics between our three divisions. In collection, there has been high activity related to preparation for Poland and Portugal's upcoming deposit return systems, while the quarterly revenue is down compared to same quarter last year, reflecting the facing of new deposit markets. Recycling delivers revenues in line with same quarter last year, but the order intake is weak due to struggling plastic segment and macroeconomic and tariff uncertainty, which is postponing customers' investment decisions. Food is the highlight in the quarter, delivering a record quarterly EBITDA, a record order intake and an all-time high order backlog. We do see encouraging signs of an improved market sentiment, and the benefits of the restructuring is visible in our P&L. Let me then take you through the different divisions. In collection, the second quarter reflects the facing of new markets. But let me say a few words about existing markets first. In existing markets, revenues continue to grow at a steady pace. We have been growing 5% in the first half year compared to the first half year last year, which is in line with our strategic ambition. If we then go to new markets, we had an intense rollout period in Austria last year, which meant that the market was well prepared at the go-live date, which was 1st of January this year. Therefore, activity in Austria has significantly come down, leading to lower revenues in Q2 this year compared to the same quarter last year. In Romania, as also commented in the last quarterly presentations, installations continue due to high collection rates and sales to independent retailers, but at a slower pace this quarter than in Q1. For second half this year, Poland and Portugal are the key markets. There is high commercial activity in both countries. Some countries are signed, others are under negotiations. And we expect installations to pick up in the coming half year. If you then turn to the upcoming deposit markets that we have listed here as normal, I will only comment on the changes in this list versus what we presented in the last quarter. First of all, it's good to see that UK is progressing well and Scotland have then passed its amended Deposit Return Regulation in June to make sure that that is aligned with UK who is planning to go live in October 2027. Also good to see progress in Spain and May 22nd was the deadline to apply to be the system operator of Spain. We have removed Uruguay from the list as we are still waiting for communication regarding updated goal update for that country. But we have added Moldova. They announced in June that the government had adopted an implementation framework for a deposit return system and that the system is to be implemented within one year from the approval of the system operator, but no later than January 2027. And overall, there is a very good pipeline of growth opportunities for our collection business in the years to come. Then over to recycling. In recycling, we continue to see setbacks within the plastic recycling segment and in North America, which is the reasons for the weak order intake in the quarter. We have and I have talked a lot about the weak European plastic market for many quarters now, and we are not seeing an improvement. What has happened in the plastic segment is that we have seen depressed version prices for over two years, as you will see from the graph here. And one reason has been the overcapacity of supply in Asia, leading then to imports of cheap version plastics in Europe. And recycled plastic prices have followed suit, which has then put economic pressure on plastics recyclers. And this has again been reinforced by high energy costs, which means that the business case for plastic recycling in Europe is challenging currently. And there is still yet very few legal requirements to use recycled plastics. However, this year we have the introduction of the 25% recycled content requirement for plastic bottles in the EU. And as you can also see from the graph, this looks to be supporting then a higher and an increase in the RPET prices. At the same time, the increased difference in price between recycled and virgin plastic makes it economically rational option for producers to then buy virgin plastics if they and when they need to optimize margins and they don't have legal targets yet. But this will change. The mid to long term outlook for this segment is strong and positive. In 2030, the EU packaging and packaging waste regulation will require up to 35% minimum recycled content in plastic packaging. And this means somewhere between a doubling or tripling of the recycled content versus today. So we are very positive about the medium to long term outlook. Adding then to a challenging plastic market is how the global macroeconomic uncertainty and trade war is impacting our US business, which we also talked about in the last quarter. US has been a good market for us the last years, especially in the waste segment, due to a strong drive to modernize and automate. So far this year, there has been very low activity in the US due to customers delaying their investment decisions, as there is a high uncertainty regarding their capex. They need to make an investment decision and put an order today that will be delivered three, six, or nine months ahead. And to do that when you don't know if the tariff will be 10%, 20%, 30%, or higher, of course, delays that decision. However, the fundamental drivers as modernization and automation remains intact, but certainty on tariffs is needed to get this market back. On a more positive note, the metals recycling segment has performed well in the quarter. I have talked a lot about the aluminum and our new capabilities of sorting alloys with our AutoSort Pulse in previous quarters, which has contributed positively in this segment. On this slide, we have added a bridge below to show the market developments from first half last year to first half this year. As you will see overall, the development is flat, but the metals recycling market excluding North America has increased, while both the global plastic market and North America has decreased. As a result, the metal segment currently makes up a significantly larger share of what we are delivering to the market these days, which is impacting our margins. Then over to food. After a record strong first quarter, food delivers another record quarter with the highest EBITDA, the highest order intake and the highest order backlog we have had so far. This is due to both our own efforts to restructure the organization to improve profitability and an improving market sentiment. As we mentioned at our Q1 presentation, when plantations area are ready to bear fruit, the urgency to invest in food sorting can be strong. It's very good to see larger scale projects coming back in the fresh food categories because this was the pain point and one of our challenges a few years back. We have had good order intake in the quarter in all three regions. We have received large orders in all three regions, APEC, EMEA and Americas. And also it's nice to see that that comes in different categories, including potatoes, avocados and citrus. Citrus is one of the categories we have kept a close eye on and regard as a core category in our refocus portfolio. It's a category where our technology provide high value add for the customers and where we are the technology leader with our Lukai solution. And it's a crop where we see potential for customer investments. Sutris represents 17 to 18% of the overall share of fruit consumption and the industry has last year's been heavily impacted by climate change and diseases. And as it is a tree crop, time to full production is between six to 10 years. So it's time from planting till you have done the full production, depending on the variety. But when it's ready, you will need to have the infrastructure in place for sorting, grading, and packaging. And what we're currently seeing in citrus is that America is rebounding and there is an increased interest for automation due to labor challenges. We also see increased capacity requirement in APAC, particularly in Australia because of better climate conditions lately. So you get a higher volume that needs to be processed, more plantations and increased need for automation. So it will be interesting to follow the investment cycle of citrus in the next years. Despite a great start to the year, our food business is not immune to the tariff uncertainty. We do see some postponements and delayed investment decisions in the US also for food, but to a lesser extent than in recycling. As in some cases, there is an urgent need for the investment. It cannot be delayed. In addition, we see growth in other regions compensating for the delays in the US. But there is, of course, also risk in our food business linked to the macroeconomic situation and tariffs. Then over to Horizon, our adjacent business building. And I will give an update on our feedstock and our reuse venture. Tommere Feedstock is where we are focusing on solving the issue on plastic by investing in advanced sorting facilities. And we are entering a very exciting phase for our Norwegian plant, Omro, as we have started the commissioning. Last month in June, we had processed 1,880 tonnes in the facility and the commissioning is going very well. We see very good yields and we also see very good high purities. So commissioning will continue during the autumn and we will take over the plant during the second half of this year. Then on tumular reuse, tumular reuse is where we are focusing on solving the issues linked to takeaway packaging, both littering and CO2 emissions, by then introducing reuse options. Exciting development in the quarter is the preparations for Lisboa, where we are planning then to install 17 return points across the downtown area by October. And you'll see on this picture that we had the first tumular reuse installation in Lisboa happening, and now in June. Also what we have done in the quarter in reuse is that we have launched or shown our new collection point because our objective in reuse is not to only have solutions for beverage cups, reuse cups, but also for other types of food packaging. So you can see bottom right here, this is our new reuse collection points where you can then also use it for boxes, bowls, trays and so forth. This is now piloting and we have live testing on it ongoing in Aarhus. Overall, the different ventures in our Horizon portfolio is progressing in line with the plans and expectations. With that, I will hand over to our CFO, Eva Sagmo.

Thank you, Tove. And we start with the Group P&L for the second quarter. The top line came in at 325 million euro, down 2%, compared to a strong Q2 last year. As we expected, the revenues in collection were down 12% due to the timing of new markets. Recycling down 1% due to tariffs and macroeconomic uncertainty, and food up 15%, delivering on the estimated conversion ratio from a strong order backlog in the first quarter. Gross margins were in line with Q2 last year, ending at 44%. We maintain strong and good cost control across our divisions with OPEX of 100 million euros in the quarter, slightly down compared to Q2 last year. That results in an improved profitability, up two percentage points, giving an EBITDA of 15%, including special items. Looking at the collection, revenues came in at 169 million euros, down 12% compared to a strong second quarter last year. Sales were up in all regions except for Europe, mainly explained by the lower new market activity in this region. In Q2 last year, we had strong sales from both Austria and Romania, but as expected, these are down with Austria going live 1st of January this year, and Romania, as indicated before, continues to roll out RVMs in the market, but at a lower pace currently. We continue to see an improvement in our gross margin, ending at 42% in the quarter compared to 40% last year, and that is explained by the business mix in this quarter. Good cost control in connection with OPEX, down compared to last year, ending at 43 million euros, resulting in an EBITDA of 16%, same as last year on lower top line. Recycling came in at 57 million euros stable compared to Q2 last year. And as we said in Q1, we estimated a conversion ratio of around 50%. However, with a downside risk due to the uncertainty linked to macroeconomic and tariffs. As you can see from the overview, we were down in our main market, Europe, and also down year to date in North America. Gross margins ending at 46%, a weak margin compared to a strong Q2 last year, where we had a favorable product and business mix. This quarter, the gross margin is weak due to the product mix being more flakes and metal projects in the P&L. Important to note is that the underlying product margin in recycling are intact. We have a good cost control in recycling as well, OPEX of 20 million euro in line with Q2 last year, resulting then in an EBITDA margin of 11% in Q2. Looking at the order intake, as Tove said, we had a weak order intake in the quarter due to the continued challenging market in Europe and in the US. The order intake was down 37% compared to Q2 last year, ending then at 41 million euros. That results in a decline in the order backlog of 20%, ending then at 107 million euros. Looking at the trailing 12 months for auto intake and recycling, we are down 9%. Food came in strong on top line, delivering 94 million euro of revenue, up 15% compared to Q2 last year. In the quarter, sales were up in all main regions except for then the rest of the world. gross margin ending at 46 percent up compared to q2 last year explained by high volumes higher installation revenues and cost savings realized in the quarter we had tariff impact in the quarter as we talked about in q1 that we expected a bit more than four million euros of tariff impact in the in the margin in q2 we landed at 1.2 million euros in the quarter and that is explained by the intermediate tariff reduction between china and us OPEX in the quarter ended at 27 million euros down from Q2 last year, the remaining by cost savings, resulting in a record EBITDA margin of 18%. We also had a special item this quarter for food. It was a positive item of 3.7 million euro, related to the restructuring costs, coming from the lease agreements in New Zealand, now being a lease that has been subleased or either terminated. And including the special items, the EBITDA margin ended at 22% in the quarter. As Tove said, we have had the strongest order intake record in food of €106 million in the quarter, up 28% compared to Q2 last year. It has been strong in all regions and includes large orders, mentioned being potatoes, citrus and avocados, accounting for more than 25 million euros together. The strong order intake results in also the strongest order backlog recorded, ending at 137 million euros, up 15% compared to Q2 last year. And looking at the trailing 12 months for order intake in food, we are up 11%. Cash flow from operations ended at 17 million euro for the quarter, down from 34 million in the second quarter last year. Year to date, we have 83 million euros compared to 54 million euros last year, year to date. And this is really related to timing of inflows. 35% equity ratio, gearing of 1.8 times and a return on capital employed trailing now above our long term target of 18%. Happy to announce that Scope Ratings affirmed our ratings for Tomra in June at A minus stable, being business risk profile of BBB plus and a financial risk profile at A. Our weighted average debt maturity is now at 4.2 years and we end the quarter with a 92 million euro undrawn liquidity buffer for Tomra. And then over to the outlook. There is a high, and we start with collection as normal, there is a high activity related to deposit return systems in new markets and growth in existing markets. Short and mid-term performance will depend upon the timing of new markets, in addition to replacement sales, introduction of new innovation and variations in product and business mix. The growth prospects in 2025 are dependent on developments in upcoming deposit markets, such as Poland and Portugal. However, we estimate the existing markets to grow approximately 5% year over year. Gross margins should continue to stay above 40%. And we also expect the good cost control to continue in recycling, I mean in collection. However, with quarterly OPEX variations dependent on investments into new markets, where we have an annual ramp up OPEX run rate of approximately 20 million euros. Outlook for recycling, the regulation and demand for recycled materials is expected to create growth opportunities. Short and mid-term performance will largely depend upon installation volumes and variations in product and business mix. The market sentiment is currently affected by a soft European plastic recycling market, trade tensions and a high degree of macroeconomic uncertainty. And this leads to increased uncertainty in the timing of orders. Revenues in 2025 are dependent on developments in this market environment and how customers will react to these challenges. Based on the order backlog at the end of the second quarter, a 40% conversion ratio is estimated to be recognized as revenue in the coming quarter. However, given the market uncertainty, orders may be postponed over quarters. And for gross margins, volumes and product mix have an impact, which can also be seen historically. There is a currently higher share of metal recycling installations in our backlog, which generally then have lower gross margins than other product segments. Gross margins may also be negatively impacted by tariffs, all dependent on sales into the US. And we expect the business division to maintain good cost control also going forward. Outlook for food, the need for optimization and increased quality and safety requirements create opportunities. And we are experiencing an improved market sentiment. However, the current macroeconomic uncertainty may impact customers' investment willingness, also here. Revenue growth in 2025 has potential to reach mid single digit levels. And based on the order backlog at the end of the second quarter, a 55% conversion ratio is estimated to be recognized as revenue in the third quarter. However, also here, given the market uncertainty, orders may be postponed over quarters. The cost reduction program has improved our gross margins in food. However, we will continue to see quarterly variations in the gross margin depending on volume and product mix. As we said, tariffs have impacted the margins in Q2 and it may continue to impact gross margins also going forward. Following last year's cost reduction program, the target is to achieve an EBITDA margin of 10-11% in 2025. And then the outlook for Horizon. Horizon consists of our venture activities in feedstock and reuse, in addition to the newly acquired smart waste company Seatrace. While the underlying operating expenses for feedstock and reuse are expected to remain in line with 2024 levels, there will be an increase in costs related to the feedstock plant Områ, which goes into operations end of this year. So the total OPEX run rate for feedstock and reuse is estimated south of 20 million euros for full year 2025. And then when we talk about the investments, so the capex of Horizon, it's approximately 40 million for this year, so 40 million for 2025, and that is mainly related to our two feedstock plants, where we have currently spent around 10 million euros. And I think I'll hand it over to Daniel.

Thank you, Tove, and thank you, Eva. Before moving over to the Q&A, I would like to mention that Områ, our Norwegian feedstock plant, will officially open on the 5th of November, and we're happy to invite everyone who's interested to join this ceremonial event to contact Investor Relations. And we're also, of course, happy to organize other investor site visits to view the plant in live operations. So stay tuned for that as well. But with that, we will open up for Q&A. And I see that we have a few questions coming in already. And the first question is coming from Adela Dashian in Jefferies. Please go ahead, Adela. I think you are muted if you, there we go. Now we hear you. Perfect.

A few questions for me. Firstly, if we start with recycling, are you able to clarify your expectations for the news this year? I mean, given the declining order backlog pretty strong pickups in H2 to T4 year growth. So what's your visibility on that and what you currently have in the pipeline and what gives you confidence in a potential rebound already in the second half?

Thanks. So far, year to date, we have had revenues in recycling of a bit more than €100 million.

And the data point that we have indicated for the coming quarter is a 40% conversion ratio of the order backlog. That's the data points that we have given and then we have also said it's an uncertainty in the market related to the macroeconomic situation and the tariffs and revenues for 2025 will depend on how customers will react to these challenges.

So would it be fair to say that with that conversion ratio you're currently not expecting growth in 2025?

I can just repeat myself that it's a very uncertain market and these are the data points that we can give at this point in time.

Got it. Then if we move to food, very strong margin development here in Q2. Do you feel like the current full year targets might be a bit too conservative because As it stands now, it looks like you're not expecting double digit margins in H2 despite the restructuring benefits and strong order momentum. So what would then be driving a more cautious outlook?

Yeah, so the profitability in food, it's very high. It's very strong and good now in Q2. It's a mix of many things. Of course, as I said, volume plays a part, the product mix plays a part, and the business mix plays a part. So that's what when we say, when we talk about gross margins, we indicate that it will be quarterly variations. But of course, with the cost reduction program that we had over the last year, We have seen improvements in the margins in food.

But with the current order backlog, is there a mix variation, a more negative mix in H2 that makes you feel like you will not achieve double digit margins?

So we don't necessarily go into the details of the order backlog, but what I can say is that we have the target still of reaching the EBITDA of 10 to 11% for the full year in food.

Okay, lastly on collection, are you able to provide us with an update on how things are progressing in Poland? Maybe specifically what go-to-market model that's been adopted or it's being planned to be adopted. And then maybe also an update on how you would characterize your competitive positioning versus both local and regional players.

Yeah, so it's a very exciting time now in Poland, a lot of activities going on. We have a good and strong team in place in Poland with more than 50 people already. We have signed some contracts and we are in negotiations related to other contracts. We have talked about in the past that we have had discussions both on throughput models in Poland and sales and service. And what we are seeing currently is that it tilting more towards sales and service. So we think currently that the majority of the business models will be a traditional contract linked to then selling the equipment and do the service afterwards.

And I guess how competitiveness right now, is it the same as you've already established in previous quarters or are you seeing a intensifying or yeah?

I think it's always very competitive in these new markets that are being launched. And I think when we looked at the competitive situation in Poland a year back, you had the mix of the local players, new local players, and the more international ones. What we have seen now is that the small local players are very difficult to compete in the market. So the ones that we're seeing active now is the traditional competitors that we see in all markets. we are very confident in the service that we are offering to the customers we have 50 years of history we have the largest experience background from different markets we have the broadest portfolio we have the best software solution we have the most reliable product we also have developed some specific products for poland because many stores in poland will not be able to have the rvms inside so they want to have it outside so also we have launched a new product now specifically for poland So we believe that we are very well positioned to take a significant share of the Polish market.

Great, thank you. I'll jump back in the queue.

Thank you, Adela. Next question will come from Mariah Desina in Barclays. Please go ahead.

Hi, morning, yep, here on behalf of Gaurav, Jane. Just one question from me on food. So obviously last quarter, you were expecting around 4 million tariff impacts. Is there any colour you can give us here on what you're expecting for Q3? And I don't know if there's any more, you know, sort of colour you can give us in terms of the improvement in food. How much of that can be attributed to the restructuring programme versus improved market sentiment? I don't know if there's anything you can share on that.

Yeah. So if we start with the restructuring program, we had a target to save 30 million euros. And what we said was that one third of that should go into the gross margins. And then, of course, as we have said today, we have quarterly variations in the gross margin, depending on volume, product mix and business mix. And also this quarter, we had the tariffs end of one point two million euros impacting the margin negatively with more than one percentage point. Going forward of course that depends on first of all that the tariffs are being fully landed so you can have predictability into what that means for the shipments into the US but also income terms plays a role and how you also negotiate with your customers. But so what I would like to say is that tariffs might impact the margins going forward, all dependent on what we have in the order backlog and what we would sign on orders in the US going forward at which terms. So it's a bit difficult to estimate precise what will be the tariff impact in Q3 and Q4. And we just need to come back to that.

I can just add one comment. What we have done in food, because in food we have been exposed both to Chinese and European tariffs into the US, because we had some products also being produced in China. During now Q3, we will also have that capability in Europe to produce what we are currently producing in China, so that we are able to flex between those two production locations based on the tariff situation.

Great, thanks so much.

Thank you, Mario. Next question will come from Elliot Jones in Danske Bank. Please go ahead, Elliot.

Hey, good morning, guys. Thanks for taking my questions. Just starting on collection. You noted, I think, gross margins of 42% as a two percentage point increase year on year. Is there a reason to kind of think that these margin levels will be kind of lower from this level as we move through the year? I know you have the kind of baseline target of above 40%, but just trying to get a kind of idea of, I don't know, maybe the mix or how we can expect to see this gross margin develop through the year.

Yeah, so as we said, the gross margin should stay above 40% and we will have quarterly variations depending on what we sell in the quarter. So we had the positive business mix now in Q2 related to throughput volumes, less new sales of machines. Of course, that impacts the gross margins. Going into the second half, We expect the new markets to pick up with Poland and with Portugal. And when you sell more machines into a quarter, that also impacts the gross margins in collection. So think about the more than 40% gross margin for collection for the full year.

Got it. And then just on Poland, yeah, good to hear that you guys are signing contracts. Things are developing. I was just digging a bit deeper there. Are you expecting kind of a meaningful set of installations in Q3 and Q4? Or is this just based on the contracts you've seen and signed? Is this kind of a market whereby it's, you know, nothing in Q3 and a big rush in Q4 just to get a bit of color there? And then in Portugal, just quickly, how are things looking there with regards to how a similar question but how how ready the market is prior to go live are you expecting decent installation rate before the go live date in portugal or is that one where you know it's going to be a big rush in q1 for example and then a longer tail

Yeah, so if you start with Poland, so the official go-live date is October 1st. We have always said that we think there will be a three-month grace period, which means that this will go live 1st of January next year. And also what we have said is that we believe that the rollout there will be more similar to Romania, where you will have a longer rollout. However, at the same time, we do believe that installations will pick up significantly during second half. We have ramped up production to be ready to do that. And also, you know, as commercial negotiations are progressing, our expectations is that installations will pick up during second half. In Portugal, you can say Portugal has a later go-live date than Poland, but are a bit more advanced in the commercial discussions. It's also different than Poland, because in Poland you have the additional complexity of many system operators, while the system operator in Portugal has been known for quite some time. So there we see that it's more mature than Poland. We have signed uh contrast with three of the large players in poland as the majority now in portugal as the majority supplier and we would also then expect installations in portugal to happen during second half year and then continuing and next year as well great and then sorry two further questions on on spain um i think there's been some kind of progress there and you mentioned that as well is is

I think that the consensus is that Spain is, was definitely going to be delayed quite significantly. Um, would you agree with that? Or are you seeing progress there that actually makes you think that there could be, you know, we could be hitting the ground on time in Spain and, uh, And things are actually looking good for kind of a Q4 launch there. And then the final question is on food again. Just in terms of orders, you spoke about a more positive environment. Is there any reason to suggest this is a massive one-off? Or if things don't change, could you expect similar order intake levels in Q3 and Q4?

Yeah, so in Spain, I guess also our expectations was that when this kicked in and they were going to go live within two years, that there would be some delays because we often see that in markets. However, when you see how Spain is progressing now, there is no reason why they shouldn't be able to go live as planned then. But this we just need to monitor. I think the key thing now is that we see that there are, you know, they're taking the steps that you need to take to get ready for the launch of a deposit return system. They now have, you know, had this tender out for then applying to be a system operator. They will evaluate that. So I think we'll learn more as we go. But the positive thing is that we see that they are progressing.

on the order intake question for food so we had a very strong order intake now in q2 and important to mention that we had large orders into that order intake of more than 25 million euros So that's important to note when you model going forward. And what we have said is that we see an improvement in the market. We see orders coming in in the regions in the different categories. But it is also still a risk within the food market because we have also seen postponement there on the investment willingness due to the uncertainty generally in the world.

And we always say, you know, he said that there will be quarterly variations. We always recommend you to look at the trailing 12 months. And we also say that when the order intake has been good. But if you look at the trailing 12 months for food, I think it's up 11%. 11%. Yeah. That's great.

Thank you very much, guys.

Thank you, Elliot. As there are no further questions in line, we have reached the end of this presentation. The next time we will be here is in exactly three months on the 17th of October. In the meantime, we wish you a wonderful summer. Have a nice day. Goodbye.