Tomra Systems A/S/A S/Adr

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

Thank you, Daniel. And welcome for me as well to our Q3 presentation. The results in this quarter has been muted due to facing of new deposit markets in collection and a continued weak market in recycling. Food, however, is continuing to perform in line with our expectations on both top line and bottom line. And in addition, we see a strong momentum in orders in food, which is positioning this division well for future growth. And despite the overall financial results being muted in the quarter, the activity level has been anything but that. And we are very excited about the prospects going forward. So let me run through an update on our three divisions and horizon. As always, I start with collection. In collection in the quarter, we saw solid growth of 6% in our existing markets. So we are on track on delivering on our strategic ambition, which is to have 5% annual growth in existing markets. And in the quarter, 90% of the revenue stems from these markets, which really provides a strong and stable foundation for our collection business. We did have a decline in contribution from new markets in the quarter. As last year, Q3, we had good contributions from Austria, which went live with the deposit scheme early this year. Well, this quarter, we see that the main rollout in new markets like Poland and Portugal is yet to come. So what is then the status in these two markets? First of all, Poland reached a significant milestone on October 1st. The deposit scheme went live. This was of course expected, but it's always nice to see that this happened without any additional delays. As we have communicated before, the launch in Poland is what we call a soft launch with a three month grace period. That means that currently there are very few beverage bottles and cans in the market sold with the deposit label and the deposit value. And this also means that during Q4, there will be very few bottles and containers returned to the retailer. And this is why many of the retailers have not seen an urgency in investing in infrastructure, reverse vending machines yet. But this will change now. As of 1st of January, all containers put on the market needs to have a deposit value. So the number of bottles and cans that will be returned to the retail shops will then gradually increase during 2026, and thereby also the demand for automating this collection through reverse vending machines. But there are always some customers who want to be early, and we have already more than 1,600 Tomra RVMs in Poland. When we estimate the market potential in Poland, we believe that the initial rollout will be with the large retail chains. And that will take place from now till then mid next year. And we expect that market potential to be roughly 10 to 12,000 RVMs. In addition to these large retail chains, you have tens of thousands of small retailers and independent stores in Poland. And it's very difficult to estimate how many of these will buy an RVM. But they can represent the potential of 5,000 machines or more. So we believe what you will see in Poland is a fairly long tail of sales, similar to what we have seen in Romania. We have so far been delivering them to three leading retail chains in Poland. And as you probably have picked up in the stock release we sent out yesterday, we have now also signed with Dino. Very pleased that they have selected us as their provider. In addition to that, we have preferred supplier agreements with a dozen of franchise groups of independent retailers. And how that works is that these franchise groups will then sign a frame agreement, but then the decision will be up to the independent retailer if they will buy an RBM and from whom they will purchase from. We are very pleased with the position we have achieved so far in Poland. This position provides a strong foundation going forward, and we are really excited to take part in making this a successful deposit return scheme for our customers, for Poland and for the environment. Then over to Portugal. There is still no firm go-live date communicated in Portugal, but the expectation is that the deposit scheme will go live late Q1 or early Q2 next year. Compared to Poland, the market is showing more normal market dynamics, and the majority of the market is already signed. We are working with five leading retailers in Portugal and the rollout is expected to then step up now in Q4 and continue first half of next year. As always, we show on this slide the list of upcoming markets. I will not comment on all of them, but both UK and Spain is of course of particular importance due to their size. In the UK, we already see significant activity by the retailers to prepare themselves for the upcoming deposit schemes. That's good to see. Also, it's good to see the positive development in the activity in Wales, which now has drafted their legislation. You might remember that the current planned deposit scheme is covering England, Scotland and Northern Ireland, not Wales. It's early days, and of course still uncertain, but Wales could then potentially join the rest of the UK when this will go live late 2027. In Spain, they are running the process to appoint a scheme operator, which is expected to be in place by mid-2026. Also nice to see in Spain that there is some activity on the ground. We participated in a small pilot in Sanguesa, where there has been collected 150,000 bottles during three months in this summer. And these pilots are important to engage community and local authorities to then both get the buy-in but also preparing them for the upcoming deposit return scheme. I will end my update on collection with the exciting news about our acquisition of Klink in the US. Clink provides backdrop collection solutions. This means that instead of them depositing one and one beverage container, you put it in a bag, you deposit the whole bag, and then you will get the deposit back a few days later. And this can be an attractive collection method in certain markets, complementing then a reverse vending machine and replacing depots and redemption centers. This acquisition will in itself generate significant value as we have large synergies between their operation and our material recovery business in the US. And we have indicated that the price that we have paid will then be equal to a 2027 EV EBITDA multiple below 10. In addition to being a profitable acquisition in itself, the Clink solution will be a great addition to our portfolio, especially in the US market, where we do see strong growth potential for this type of backdrop solutions. Then to recycling. Recycling delivered a weak Q3, both on the P&L and on order intake. We see that the depressed market sentiment continues in Europe and the US, both within the plastic and the waste segment. This is driven by lack of profitability of plastics recycling and geopolitical uncertainty. However, there are still regions and segments performing better. We still see good activity in Middle East, Asia, and Eastern Europe, and in certain segments like the metal segment. However, based on what we see currently, we believe that the weak market sentiment will continue next year and potentially also the following year. Therefore, we are taking measures to address the current market situation in order to improve the profitability of the division. Our ambition is to get the profitability level in recycling above 20% EBITDA as fast as possible. I want to stress that we are still confident about the positive outlook medium to long term for this division. As legislation as the packaging and packaging waste regulation and custom commitments to CO2 reduction will drive demand for recycled content. If you only look at Europe, the requirements in the packaging and packaging waste regulation for 2030 means that at least you need to double, potentially triple the infrastructure in Europe. So the market will come back. We will revert with more details on the planned actions to restore profitability in our Q4 results presentation. Then to food. Food is again a highlight in the quarter as they continue to deliver in line with our top line expectations and profitability ambition. I said it before, but I want to stress it again, that I'm very proud of the whole food organization on how they have turned this business around. And now we see the market and orders are picking up as well. Q3 is typically the quarter with the lowest order intake, but it was up 6% on the same quarter last year. And it leaves us to end the quarter with a record high order backlog of 138 million euros. Our plan for this year has really been about focusing on profitability at the same time as we position us for growth in 2026. And we are definitely on track for that. And then part of them positioning us for future growth has been to upgrade and work on upgrading our product portfolio in selected categories. We need to have the best solutions in the categories we focus on in order to continue profitable growth. So in addition to then do the cost reductions, do the turnaround, we have had and invested in focused R&D in parallel. And I'm very excited about the launch of our new 4C for nuts and frozen vegetables. Our goal for this solution is that our customers will save time, they will reduce operational costs, and it will really raise the bar for the quality in nuts and frozen vegetable sorting. Our AI solution, Lukai, is integrated into the 4C. So this brings in deep learning to the nut industry. And here we are building on the successful Lukai applications we already have launched for apples, blueberries, cherries, and citrus. This is then the first bulk sorter to run the entire spectrum of artificial intelligence in tandem, allowing then the customers to have power to instantly adapt to changing conditions. And what really sets this product apart is the ability it has to achieve a false reject rate of less than 1%. What does that mean is that you have a very low volume of good quality produce that are being rejected. So this ensures that the processors can maintain a really high product quality without sacrificing yield, which equals profit. It will be very interesting to follow now the development of sales of this product. Then let me conclude my part with providing an update on Horizon, our portfolio of adjacent business building activities, which today consists of our two organic ventures, Tomra Feedstock and Tomra Reuse, and our acquisition last year, SeedPrice. The whole portfolio is progressing very well and delivering on their plans. In cTrace we see strong momentum and they are delivering both top line and profitability in line with our expectations when we did the acquisition. In reuse there is lots of exciting developments. If you remember here we are focusing both on a city solution and an event solution for then take away packaging to replace single use packaging with reusable ones. For the event solution, we had a successful pilot at the music festival Øya in Norway this summer, and more pilots will be run during this autumn. And in the city solution, we have, of course, the Aarhus pilot up and running and are now commencing installations in Lisbon in Portugal. Then over to Tomra Feedstock, which is in a very exciting period, as the Omro plant is now up and running. This is a feedstock sorting plant in Norway, which is designed to take all plastic packaging waste in Norway and turn it into valuable raw materials. The plant is a joint venture between us and the producer organization Plastretur. The construction project has been on time and on budget. And in addition, the quality of the output has also been in line, or even a bit better than our expectation. So it's been a fantastic job by both the FITSOC team and our Tomra recycling team to achieve this, and also our external partners, including then Sutko, which has been the plant builder. And we are currently now producing 10 high quality output fractions from mixed plastic waste. On capacity, we will now in the beginning have a utilization rate of one third of the capacity with a plan to increase it to two thirds during next year. And as previously communicated, we are expecting a positive EBITDA, just to make sure we have the D in there, run rate end of this year, and a neutral and positive EBITDA contribution in 2026, given successful capacity ramp up and current market prices. With that, I end my update and will hand over to Eva on the financials and outlook.

Thank you, Tove. Let's start with the group P&L in the quarter. The third quarter came in at 306 million euros, down 6% compared to Q3 last year. As timing of revenues from new markets have been uncertain, collection ended 5% down compared to Q3 last year. Recycling was down 32% due to the weak market sentiment and food down 2%, however strong delivering on the estimated conversion ratio. Gross margins in the quarter ended at 44% up from Q3 last year, which were at 43%. Strong cost control across divisions, with OPEX of 104 million euros in the quarter, up compared to Q3 last year, where most of the increase is explained by seed trace, feedstock activity and acquisition costs from Klink, as well as inflation. This results in an EBITDA of 30 million euros in the quarter and an EBITDA margin of 10%. Looking into collection, revenues came in at 179 million euros, down 5% compared to a strong third quarter last year. Last year we had strong sales in Europe, with Austria preparing for their DRS launch, while this quarter sales are yet to pick up from the new markets, then being Poland and Portugal this year. Existing markets are trailing well in line with our expectations of 5% growth year over year, currently 6% in the quarter and 6% also year to date. We continue to see strong gross margins in collection, ending the quarter at 42% compared to then 41% last year. And gross margins in the quarter is positively impacted by the business mix. We have a good cost control in the collection with OPEX of 47 million euros up compared to last year, but flat adjusting for the acquisition cost of Klink. EBITDA ended at 29 million euros resulting in an EBITDA margin of 16%. Looking into recycling, recycling came in weak in the quarter at 40 million euros down compared to Q3 last year and 3 million lower than the estimated conversion ratio that we gave back in Q2. As you can see from the overview, the weak performance is in our biggest markets, Europe and North America, and that is explained by the weaker market sentiment, especially in the European plastic recycling segment, but also in the waste sorting segment in North America. Gross margins ending at 44% week compared to Q3 last year, where we had higher volumes as well as favorable product and business mix. And as we have seen this year, also relevant for this quarter, we have a higher share of metal projects recognized in the P&L, which then impacts the margin negatively. The underlying product margins are still intact for recycling. We have good cost control in recycling, OPEX now of 21 million euros, slightly up from Q3 last year, mainly explained by inflation. And that results in a negative EBITDA in the quarter of 3 million euros. Looking at P&L, that also came in weak in the quarter due to the challenging market situation. Order intake was then down 30% compared to Q3 last year, ending at 42 million euros. That also results in a declining order backlog in the quarter of 19%, ending then at 109 million euros. When we look at the trailing 12 months for order intake, we are down 17%. And then for food, food came in strong at 76 million euros in the quarter, down 2% compared to Q3 last year, but higher than the estimated conversion ratio for the quarter. Revenues were relatively stable in the different regions, as you can see from the overview. Gross margins ending at 45% up compared to Q3 last year, explained mainly by positive product mix and cost savings that has been realized. Tariff cost has been 1 million euro in the quarter, but that has been fully mitigated. When we look at OPEX in food, we ended at 26 million euros down from Q3 last year, then driven mainly by the cost savings, resulting in an EBITDA margin of 10% in line with the overall target for the year. Looking at order intake in food, we had a strong order intake of 77 million euros, up 6% compared to Q3 last year. And all regions are performing well, with strong sales in citrus and also continued solid performance in potatoes, those being the two largest categories in food currently. The strong order intake results also in the strongest order backlog recorded, ending at 138 million euros, then up 21% compared to Q3 last year. And also here, looking at the trailing 12 months for order intake, we are up 8%. We are still in a healthy position looking at the balance sheet and cash flow from operations came in at 64 million euros in the quarter compared to 99 million euros in Q3 last year. When we look at cash flow from operations year to date we are more or less in line with last year ending at 147 million euros than year to date this year. Equity ratio of 33% in the quarter and a gearing of 2.2 times. The gearing is up in the quarter and mainly related to the acquisition of Klink. And that also goes into the explanation of the Roki trailing a bit down compared to Q2. That's based on lower profitability, but also the higher goodwill that we have in our balance sheet. Looking at the financial position ending in Q3, we had a 40 million euro bridge loan to fund the acquisition of Klink, now in Q3. And our current weighted average debt maturity is at 3.7 years. And important to mention is that all of our bonds are green. And we also just recently launched our new green financing framework, replacing our green bond framework that was launched in 2022. And then over to the outlook, and we start with collection. There is a high activity related to deposit return systems in new markets, as well as growth in existing markets. In short, the mid-term performance will depend on the timing of new markets, but also replacement sales, introduction of new innovation, and variation of product and business mix. The revenue growth in existing markets for 2025 is estimated at approximately 5% and we are trailing well on that one currently. The overall revenue growth for collection in 2025 is dependent on the rollout in new markets being Poland and Portugal this year. Having already secured contracts in both countries in combination with Poland being live since 1st of October this year, we expect rollout activity to ramp up now in Q4. And for the contracts signed in Poland, the rollout is expected until the first half of 2026. But it is challenging to estimate how much of that will be recognized as revenue in Q4. Because this depends on whether the customers are ready, as they are responsible for preparing installation sites. But on our hand, we are fully prepared and ready to start. Gross margins should continue to stay above 40%. And we also expect good cost control to continue. However, we might experience quarterly variations in the OPEX, depending then on investments into new markets. And related to that, we have a ramp up OPEX run rate for new markets, which has an estimated level of 20 million euro for the full year. And then looking at recycling, as Tove said, while long-term drivers such as regulation and the demand for recycled materials remains solid and are expected to create growth opportunities, the market is currently facing significant challenges. Ongoing trade tensions and a subdued European plastic recycling market, in addition to considerable macroeconomic uncertainty, have impacted the market sentiment negatively. And that makes the timing of orders less predictable for us. This market environment is expected to continue throughout 2026 and potentially then into 2027. More short term, based on the order backlog at the end of this quarter, a 70% conversion ratio is estimated to be recognized as revenues in the fourth quarter. With this conversion rate, revenues for 2025 are estimated to decline approximately 15 to 20% for recycling. And important to note, with the market uncertainty, there is a risk that orders may be postponed over quarters. And as we know, volumes and product mix impact the gross margin in recycling. And this year we have had a higher share of metal orders being delivered, impacting the overall margin negatively. And looking at Q4, we have a more balanced mix of waste and metal orders being delivered, meaning we estimate some improvements in the gross margin for Q4. And also, Tove touched upon that, that measures to restore our profitability have started in recycling. And we are going to give further updates then in Q4. Our objective is to come back to an EBITDA margin above 20% as soon as possible. And then the outlook for food, the need for optimization along with the increased quality and safety requirements for food production continue to serve as drivers for growth and opportunities in food. While the market now is normalizing, ongoing macroeconomic uncertainty may still influence customers' willingness to invest. And based on the order backlog ending in the third quarter, a 60% conversion ratio is estimated to be recognized as revenue in Q4. And with this conversion rate, the revenue growth for 2025 is estimated at mid single digits. However, also here, given the market uncertainty, orders may be postponed over quarters. And the cost reduction program has improved our gross margins in food. However, we will continue to see quarterly variations in the gross margins, dependent then on volume and product mix. And we have talked about tariffs impacting margins negatively in Tomra, and especially for the food division. However, due to mitigating actions, we do not estimate material negative impact in the gross margins for food in Q4. And then following last year's cost reduction program, the target is to achieve an EBITDA margin of 10 to 11% in 2025. And then lastly, the outlook for Horizon, which then consists of feedstock and reuse and seed trays. While the underlying OPEX for feedstock and reuse are expected to remain in line with the 2024 levels, around 8 million euros, there will be an increase in costs related to the Amro plant now being in production. And that gives us a total OPEX run rate for feedstock and reuse estimated south of 20 million euros for full year 2025. And then CAPEX related to Horizon is estimated currently at 30 million euros for 2025, which is then primarily related to our feedstock plants where we currently have spent 20 million euros. And that's Daniel and my presentation.