Tomra Systems ASA (TOM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. And welcome to TOMRA's Second Quarter Results Presentation for 2026. My name is Daniel Sundhal, and I'm Head of Investor Relations. As always, CEO, Tove Andersen, will start today's presentation by giving you the highlights of the quarter. And afterwards, CFO, Eva Sagemo, 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. So without further ado, I give the word to CEO, Tove Andersen.

Thank you, Daniel, and good morning and warm welcome from me as well to our Q2 2026 presentation. This quarter, record installations of RVMs in Poland contributed to all-time high revenues for TOMRA Group. Poland is now our second largest deposit market in Europe, and our leading position provides a solid foundation to continue to grow from over the next years, in line with our ambition for all new deposit markets to come. Collection revenues grew 45%, mainly due to Poland, but also Portugal, Singapore and Romania contributed. And we had good growth in existing markets. The high number of RVM sales as a share of total revenues in the quarter translates into a decline in collections gross margin, while the division's EBITDA increased with 58% Recycling revenues were down 11% following the decline in orders over the past year. The gross margin improved due to product mix. And for the first time in over a year, the division saw growth in the order intake. Food delivered 5% growth, but lower gross margin due to that we still delivered a large share of third-party peripheral equipment. The market sentiment is positive, but we currently see a lower pipeline conversion of large projects, resulting in a decline in the order intake. Let's then dive into the divisional updates. Looking closer at the quarter in collection, revenues ended at EUR 246 million, up 45% year-over-year. We had high activity level and contribution from our existing markets. We saw growth in throughput volumes in Australia, where we have invested in improved collection infrastructure. In addition, higher commodity prices contributed to increased revenue, both in U.S. and Australia. CLI, which we acquired last year, also contributed to the growth in existing markets and is developing in line with our business case, both on top line and on the synergy realization. In Australia, our contract as network operator in New South Wales expires July next year. And the New South Wales government is currently running a tender process. Two weeks ago, together with our JV partner, Cleanaway, we submitted our new offer, and we expect the outcome of the tender process during the second half of this year. Then over to the new deposit markets. Bottom right on the slide, you see as in every quarter, the list of upcoming deposit markets. EU legislation deems that all EU countries need to collect 90% of beverage containers, both PET bottles and cans by 2029. And experience shows that they will not be able to do that without introducing a deposit scheme. So what has happened in this market since our last quarterly presentation. In Spain, we are waiting for the approval of a system operator. The process is progressing and has now moved to federal level. The approval can be in place before the end of this year. And after a system operator is appointed, it will take at least 1 to 2 years before the deposit system will go live. France has initiated a consultation process on DRS and Italy has launched a parliamentary process for a national deposit return scheme. It's still early in the process for these countries, but the steps that are being taken support our view that it's not a question about if these countries will implement DRS, but about how and when. Let's then move back to the current new markets. U.K. is set to go live October 2027, and there is significant commercial activity with many ongoing tender processes. We expect the majority of these to be concluded this year. We are well positioned for the U.K. market, and we have the clear ambition to become the market leader. The overall market size of U.K. will depend on the type of machines selected and the penetration within the smaller store segment. Our current estimate is that the initial rollout, what we typically call Phase 1 represents a market potential of around 25,000 RVMs. 2027 will be the peak installation year with some smaller volumes late this year and with a part of the installation spilling over into 2028. In the quarter, we signed our first major customer agreement in the U.K. for around 2,700 machines. And yesterday, we announced that we have been appointed majority provider to another leading retail chain for around 1,200 RVMs. -- to a total of around 3,900 so far. Deliveries are expected to start in Q4 this year, but the majority will take place in 2027. In Portugal, which went live with DRS in April, the first phase of the rollout is largely saturated, and we have secured a good position with an installed base of 1,600 RVMs. Total market is indicated to be 2,500 RVMs, but with the potential to grow over time. Singapore DRS also went live in April and is progressing well after the launch. It's nice to see that we, in the quarter, have received additional orders. Our installed base is now 400 machines, and we expect some more installations during second half of this year. However, in the quarter, Poland is the highlight. We have sold and installed more RVMs than we had expected this quarter. It is the result of great operational performance by our team in Poland. I'm really proud of what they have achieved. They were able to catch up the delayed installations in Q1 and front-loaded installations in preparations for the summer months where high container return volumes are expected. It's now 9 months since the launch of DRS in Poland. And with the first phase of installations behind us, I wanted to use this opportunity to give some more insight into the status of the Polish DRS market. Poland went live with their deposit return October last year. And bottom right, we have included an illustration of the deployment in Poland. As you will see, we had some early installations in '24 and '25, but the main deployment is taking place this year. The first phase mainly represent installations with the large retailers. There are roughly 13,000 RVMs in Poland now, of which over 7,000 are TOMRA RVMs. We believe the total market might grow to around 15,000 to 17,000 RVMs over the next 1 to 2 years and potentially reach around 20,000 RVMs by 2030. The driver behind this growth is expansion with the large retailers as collection rates increases and penetration of RVMs with the smaller stores. This is what we call Phase 2. We are slowly seeing interest picking up among small retailers, but even more so, we are receiving additional orders from existing retail chain customers. In addition, service revenue will kick in 1 to 2 years after the installation. All TOMRA RVMs will be serviced by us and 95% of our RVMs are sold with service contracts, underscoring the value of the large installed base we are building. When we talk about the size of a new market as Poland, it's important to keep in mind that there is a broad range of RVMs being offered into the market, ranging from very small stand-alone machines to large, flexible high-volume systems as illustrated bottom left on the slide. Medium stand-alone RVMs has been the dominant model in this first phase in Poland, representing approximately 80% of our sales. The S2, which we developed specifically to meet the customer requirements in this market is probably the most common RVM in Poland as of today and one of the reasons for why we have been successful in this market. Other key differentiators are our digital solutions, our service network, reliability and competence. The stand-alone RVMs have a lower price point than the typical large high-volume systems with front and backroom units, but they are good entry point solution for retailers as they gain experience with DRS. We do expect that over time, the market will shift towards more high-volume systems as the retailers gain experience with the deposit system and understand the value such solutions bring. Each deposit market is unique. And what has been special about Poland is a concentrated retail market dominated by discount chains with limited experience with deposit markets. As a result, the Polish market has been very competitive. Securing a good market position from the start has been important for us as it will drive value in the next sales phase and through after market economics. An important metric we follow in all deposit markets is the number of beverage containers collected in total and through our RVMs. This is a good representation of our position in the markets. Top right on the slide, you can see that until end of May, around 1.6 billion beverage containers have been collected in total. 85% of those collected containers are returned through reverse vending machines. The remaining 15% is collected manually. The share, 15% highlights the tail opportunities that I talked about, to sell RVMs to retailers who have started collection manually. In the same period, our RMs have collected around 800 million containers, representing 58% of the volume collected by RVMs in Poland. To summarize, -- the first phase of installation in Poland has been completed, but there are still significant opportunities ahead, and our leading position provides a solid foundation to capture additional sales and service revenues. Turning to recycling. Revenues were down this quarter following the decline in orders over the past year due to the subdued market sentiment we have experienced. However, for the first time in over a year, the division saw growth in the order intake, which was up 40%. We see good momentum in metals recycling. We experienced particularly strong orders of our auto sort pose for aluminum alloy sorting, which we have talked a lot about since this was launched 1.5 years ago. high metal prices and an increased focus on supply security drives investments into the segment. Demand remains stable within our largest segments. -- waste recovery and plastics recycling. Even though we see small indications of improved investment sentiment within waste in Europe. As mentioned last quarter, higher virgin plastic prices are improving the relative competitiveness of recycling. But customers need to see those prices as sustainable before they translate into investment decisions. And the market is not there yet. However, we are confident that the market will recover due to the underlying drivers of legislation, supply security and decarbonization. 12th of August, the PPWR will come into force, which contains circularity targets, which will mean a requirement to at least double the capacity in Europe. However, as timing of recovery is uncertain, we have taken action to rightsize our cost base and the cost reduction program is progressing according to plan. We are confident that we will reach a target of EUR 16 million gross savings. The workforce reduction program has been concluded in line with our targets. -- and people will leave during the year with the majority done by end of this month. An important milestone of our restructuring was reached in the quarter as we have consolidated production and central warehousing to our main site in Slovakia. As part of the restructuring program, we have evaluated different strategic options for our mining business. A strategic player in the mining industry might see more value in this business, a it can provide a different scale than us. We have therefore initiated a process to explore the option of divesting our mining subdivision. Potential divestment will also create increased focus in our recycling division on our core segment. And then the food being the global leader in food sorting and grading our Food division delivered 5% revenue growth in this quarter, following strong orders over the past year. As in Q1, we had a large share of third-party peripheral equipment to large pack houses in our deliveries, impacting our gross margin in the quarter. The order intake in the quarter was down 22% against a strong comparison quarter, including significant contributions of large orders. We experienced that the positive sentiment in small project continues -- and while we see a solid pipeline of large potential projects to come, we do, however, see a lower pipeline conversion of these currently. We just carried out a market service with 120 of our customers in the Americas to understand better the recent slowdown. More than 2/3 of the customers surveyed plan to invest over the next 6 to 12 months, and they cite different reasons holding them back currently. Financing cost was a common reason given. LatAm customers also manage access to capital as a challenge, while North American customers highlighted market uncertainty holding them back in making the final investment decision. In addition to gaining insight directly from customers, we monitor plantings as new or increased plantings drives the requirement for additional sorting and grading capacity. Currently, we see significant new plantings in all regions and in many of our core categories. This gives us confidence in our growth ambition for our Food division. Moving to Horizon. Within our portfolio of business building initiatives, our current focus is to realize the value of the existing portfolio. And it's great to see that revenues are starting to build after a period of investments. Sears, our smart waste management business continues to deliver in line with our expectations. The revenues are up 26% so far this year, with an EBITDA margin above 20%. In feedstock, the focus is on the ramp-up of our Omuro plant, which is progressing as planned. Well, actually, we are a bit ahead of plan. We had the target for the plant to be EBITDA positive by end of the year. but it's great to see that Omura already this quarter generated positive EBITDA contribution. Reuse is the least mature unit in our Horizon portfolio with limited revenue generation currently. We have our city pilot in orders and are currently rolling out the city solution in this bond. We have also run several successful pilots for our event solution a key milestone in the quarter was that we have installed our first full-fledged permanent event solution at the utility arena in Oslo. This will be an important reference as the focus going forward is to commercially scale the event solution. With that, I will hand over to Eeva, who will go through the financials and outlook.

Thank you, Tara. And let's start with collection. Revenues came in at EUR 246 million in the quarter, up 45% compared to Q2 last year. Growth was driven by strong execution in both new and existing markets. And new markets contributed with EUR 69 million, led by Poland, Portugal, Singapore and Romania. Existing markets delivered 15% growth or 10% excluding the contribution from kink with EUR 7 million. The growth reflects a combination of a relatively soft comparison second quarter last year for our existing sales and service market, together with higher volumes and favorable commodity prices in throughput markets, such as U.S. and Australia. Gross margins ended at 38.6%. As expected, margins were impacted by business mix and strong deliveries into Poland, which represented then the largest contribution from new markets this quarter. The margin came in somewhat below our expectations as Poland revenues were higher than anticipated, increasing the effect from new market mix. And the 3.2 percentage point decline in gross margin compared to Q2 last year was mainly driven by product and business mix, reflecting a higher proportion of RBM equipment sales in the quarter. While higher-margin service and throughput revenues accounted for a relatively smaller share of the business mix. After gross margin declined approximately 2 percentage points was related to mix effect and around 1 percentage point to lower product margin in Poland, broadly then in line with what we had in Q1. of EUR 51 million in the quarter, up compared to EUR 43 million in Q2 last year, an increase is explained by activity levels in new markets such as Poland and U.K. with EUR 4 million, the addition of link with EUR 1.5 million as well as inflation and FX effect accounting for around EUR 2.5 million. This resulted in an EBITDA of EUR 44 million in the quarter for collection, up from SEK 27 million compared to Q2 last year. And looking at the short-term 2026 outlook. And we normally do not guide on new market revenues at the start of the year due to limited visibility. With 6 months behind us, we now have sufficient visibility to provide an expected range for the second half of this year. And revenues in the second half is expected with a range of EUR 400 million to EUR 440 million with more tilted towards Q4, driven by the growth in existing markets, in line with our mid-single-digit annual growth ambition. We have the addition of Clink, -- and we expect a slowdown in new markets compared to first half with Poland, Portugal and Singapore being done in Romania continuing study. And deliveries to U.K. are expected to start in Q4 this year, but the majority will take place in 2027. And then we will have some installations continuing into 2028. Gross margin is expected to increase to above 40% in the second half of the year with a gross margin of around 40% for the full year. The slightly lower 2026 gross margin guidance is due to a higher share of RBM sales and sales into Poland than previously anticipated. And quarterly OpEx expected around EUR 52 million in second half of the year as OpEx space remained stable through 2026. And then moving over to recycling. Revenues came in at EUR 51 million in the quarter, slightly ahead of the indicated conversion ratio, but down 11% compared to Q2 last year. following a decline in orders in 2025. And the combination of a favorable product mix with higher share of waste recovery projects improved the gross margin, 2.5 percentage points in the quarter compared to Q2 last year, ending then at 48.9%. And of EUR 20 million in the quarter, marginally down compared to previous quarter and Q2 last year. And saving initiatives are progressing as planned, although partly offset by quarterly activity variations and inflation. And as a result, EBITDA was EUR 5 million in the quarter for recycling, down from EUR 6 million in Q2 last year. And we had an order intake of EUR 58 million in the quarter, up 40% compared to Q2 last year, and that has been driven by mainly mining and metal projects. The trailing 12 months order intake is down 16%, but trending positive compared to the last 3 quarters. And we end the quarter with an order backlog of EUR 105 million. And also here, looking at the short-term 2026 outlook. Full year revenue is expected in the range of EUR 200 million to EUR 215 million. A 50% conversion ratio of Q2 backlog is estimated at revenues in Q3, and gross margins is expected at around 45% to 50% in Q3. OpEx gradually come down quarter-by-quarter as the cost reduction measures at approximately EUR 16 million gross and gradually being implemented with full effect from 2027. -- whereas 2/3 of the gross savings are related to OpEx. And then moving over to food. Revenues came in at EUR 99 million in the quarter, slightly ahead of the indicated conversion ratio and up 5% compared to Q2 last year, following deliveries of large orders from 2025. Gross margin was 43.1% in the quarter, down 3.3 percentage points compared to Q2 last year. And the decline is reflecting the lower margin profile communicated in Q1 and driven by the continued impact of project mix, including a high share of third-party equipment with lower gross margins. OpEx of EUR 28 million in the quarter, in line with last quarter and up from EUR 27 million in Q2 last year, reflecting then our continued focus on cost efficiency and operational improvements. And as a result, EBITDA for food was EUR 15 million in the quarter, down from EUR 17 million in Q2 last year. An order intake of EUR 83 million in the quarter, down 22% on a strong comparison with Q2 last year, which included then EUR 25 million of large orders. As a result, trailing 12-month order intake is down 7%. We ended the quarter with an order backlog of EUR 121 million. And looking at the short-term 2026 outlook for Food, we expect full year revenues in the range of EUR 340 million to EUR 360 million, a 65% conversion ratio of Q2 backlog is estimated as revenue in Q3. And gross margin is expected in the range of 43% to 47% for the second half of the year. And we will continue to deliver third-party equipment in the coming quarter, but less than in Q4. And quarterly OpEx is expected to remain at current levels. And then looking at Horizon, revenues came in at EUR 10 million, more than doubling from Q2 last year, with strong momentum in Ctrac delivering double-digit growth as well as the positive contribution from our feedstock plant Una. Gross margins was 49.2% in the quarter while down from 65.2% compared to last year due to the depreciation of the Omo asset. The gross margins improved from 48.4% last quarter as the portfolio continues to scale. And OpEx of EUR 6 million in the quarter, flat compared to last quarter and up from EUR 5 million in Q2 last year on higher activity levels. And as a result, EBITDA was negative with EUR 1 million in the quarter, however, improved from negative EUR 2 million last quarter and last year. And as the Horizon matures, our focus is on revenue growth, earnings progression and also capital efficiency. And the short-term outlook for 2026 reflects this. Full year revenue is expected in the range of EUR 45 million to EUR 50 million with second half being seasonally stronger due to contract structure in strains. Full year OpEx is expected at around EUR 30 million with the increase in the second half linked to operational growth in sea trade and feedstock and scaling of reuse. And tell year CapEx expected at around EUR 10 million to support growth in Seatrade, ramp-up in feedstock and the scaling of reuse. And then looking at the group, combining the results from all divisions, the group achieved total revenues of EUR 405 million in the quarter, a 25% increase compared to Q2 last year. And the gross margin was 41.3% in the quarter, down from 44.3% compared to Q2 last year, explained then by product and business mix effects and collection and product mix effects in food. We had an OpEx of EUR 110 million in the quarter, up from EUR 100 million compared to Q2 last year, explained by ramp-up in the U.K. and Poland. And in addition, we had Clink, and then also affect and inflation. And this resulted in an EBITDA of EUR 57 million in the quarter, up 30% compared to same period last year. And this quarter, we have included an FX bridge to illustrate the impact of currency movements on the reported results. And as you can see from the slide, FX was largely neutral in the quarter and did not have a material impact on our reported performance. Moving over to cash flow and capital. Cash flow from operations was EUR 38 million in the quarter compared to EUR 17 million last year on improved profitability and more positive working capital development than last year. Working capital was 19% of revenue in the quarter, up compared to 16% in the same quarter last year. mainly driven by strong activity levels in new GRS markets. And during the quarter, we saw a shift from inventory into receivables as installations and delivery is progressed which we then expect to support cash flow in the coming quarters. Cash flow from investments was EUR 28 million in the quarter, down from EUR 34 million last year and lower investments in Horizon. And with investment activity being front-loaded in the first half, we expect a lower investment level in the second half, while remaining on track for full year investment at approximately EUR 90 million to EUR 100 million, mainly then within our core divisions. ROCE ended at 15% in the quarter, down from 19% compared to same quarter last year, reflecting the inorganic investments, strategic business building and lower profitability in recycling. And looking ahead, we expect improvements on higher EBITDA, lower working capital, but also lower CapEx. And then over to our financing slide. Our average debt maturity at the end of the quarter was 3.7 years with a liquidity buffer of EUR 112 million in undrawn facilities. Our equity ratio at the end of the quarter was 34%. We have good headroom being covenant intact with improvement expected in the following quarters. Our gearing at the end of the quarter was 2.46x, up from same quarter last year. which reflects the recent debt finance acquisitions. And gearing is expected to be gradually reduced with earnings and cash flow contributions over the following quarters. And then over to the outlook. This slide brings the outlook together, both the short-term outlook and our long-term drivers. And I will not revisit the outlook since we just covered that on the divisional slides. We want to emphasize the long-term fundamentals supporting the Tomras business. Across all divisions, we continue to see strong structural tailwinds from regulation, decarbonization, with or scarcity, automation and demographic developments. While these drivers are different across collection, recycling and food, they all point in the same direction. -- increasing demand for technologies that improve resource productivity and support the transition into a more circular economy. These trends remain unchanged and continue to provide a strong foundation for Tomras long-term growth. And with our strong market position, proven technology and track record of execution, Tomra is well positioned to benefit from these trends and deliver sustainable profitable growth over time. Finally, we invite you to save the date for our Capital Markets update on 25th of November 2026. So this year. Here in -- as and at the head office, this will be an opportunity where we will share more details on our strategy execution, growth opportunities and value creation agenda. And with that, I hand it back to you, Daniel.

Thank you, Eva, and thank you, Tove. We will now move over to Q&A. [Operator Instructions] The first 1 coming in from Barclays from -- more Adesina.as go ahead.

So the first one, just on Poland, I understand as you said that we are only in Phase I so far. And so we could see more higher volumes coming through later on. Does that then mean that we could see this negative product mix impact on margins in Poland for some time until those service revenues kick in, in 1 to 2 years. I just want to try and understand how that mechanism will work going forward. And then is there anything you can share so far on the rollout into the U.K.? Are you seeing more stand-alone VMs as you're seeing right now in Poland? Or is it more of a mix of RVMs with the backroom solutions?

Yes, I can start, and then Eva can comment a bit on the impact on margins going forward from continued sales in Poland. If we then start with the U.K. As I said, there is a lot of discussions and tender processes ongoing. Currently, the retailers in the U.K. is asking for offers for all types of RVMs from small standalones to really flexible high-end volume solutions where they will land exactly it's still a bit too early to say as they are still kind of developing what kind of infrastructure they want. We still expect significant portion of the medium stand-alone solutions, but not as high as we have seen in Poland. That is our current expectations, but we will know more during the second half of this year, and we'll come back to it then. Then on Poland, as I explained, we have now finished this really peak deployment. You will not see the same impact as you've seen in this quarter going forward because it will be spread more out. And also, as we have said that going forward, we believe over time, there will be a conversion then into also larger systems there. Do you want to add something, Eva on the margin impact?

Yes. Maybe we can just emphasize the market -- the margin impact that we have had in the quarter and in the first half with Poland. So we've had quite a high share of the new market sales coming from Poland. And of course, we have the market -- or the product mix coming from the new market sales and also the pricing levels has also impacted the margins overall for Tomra collection. Going forward, we estimate since this was the peak, we estimate that the revenues coming from Poland will go down in the coming quarters and then be more normalized into the tail. So we don't expect to have these large negative impacts on the product mix, as we have had now in the first half if you just look at the Poland revenue. So of course, going into a more normalized steady state with recurring revenues on service and also higher volume machines, the margin should be lifted.

Thank you. And the next question is coming from Pareto. Fabian Jergenson.

And also, I just want to highlight the new guidance and the outlook here is very helpful. On pricing, and competition and so on. You mentioned that it is a consolidated market in Poland, a few tenders giving a lot of competition. It's very different in the U.K. we will look at the retailer structure there. Can you say anything about how the tenders are going in? And if there is a similar type of pricing pressure there or if the focus from the retail is there different?

Yes. As you also point out, every deposit market is different and unique, what we have seen in Poland. -- is that you have this with 2 large discount retailers really dominating the market. Also what you are seeing in Poland or these -- the large retailers don't have really experienced with the posted systems from other markets before. U.K. is different. Many more retailers, many of those have experienced from deposit markets from other European markets. So that's why it's a different dynamic there. Still, it's a competitive market. All of us want to get a significant share of these new markets. We feel that we are well positioned, and we have the clear ambition that we want to be also the leading player in the U.K.

Yes. And maybe can I add something to that, Tove. I think it's also important. What we have seen now in the first half on the margin is also coming from the product mix, right? So when you have really large volumes coming into new markets and equipment sales accounts for a relatively higher share of the total revenue, you would also have a negative impact on the margin overall in collection which, of course, will turn positive when you go into a more estate. And that could also be the situation in the U.K. if you deliver high volumes into specific quarters, for example, thinking a bit into 2027.

Great. And just finally from me here. Can you give some color on the size of the mining subdivision now?

Yes. So on mining, mining is approximately 2% of the total Tomra and then 10% of recycling with revenues of around EUR 30 million last year.

And the next question is coming from ABG. Please go ahead, Daniel Vardaga.

Yes. And congrats on this quarter. I have 2 questions. So the first is on Spain. So when I'm comparing kind of your commentary on Spain in the slides versus what you said in Q1, it seems to me that Spain is actually maybe moving a little bit forward. So could you just comment on -- have you kind of changed your view on whether that scheme will be delayed or whether they are now actually taking action going ahead? And then my second question is on the gross margin. This is for Eva. You just mentioned that when you have a lot of RBM deliveries, gross margins are coming down. You also see that in the history. So that's not very shocking. But at the same time, you normally don't have kind of a big increase in your OpEx -- so even though the kind of -- there's a negative margin impact on the gross margin, it will be positive anyhow on the EBITDA margin. So do you agree with that? That's my 2 questions.

Yes, I'll start with Spain. So Spain is already delayed because they were supposed to go live and on this year. They're currently now running this process to get the system operator in place. It's a bit of a complicated political process in Spain, where first, it needs to be approved by Madrid and then it's going to be approved by the federal is currently ongoing. What's good to see is that is now moved from ad to the federal -- so the question now is when will the system operator be appointed. As I said, it could be appointed this year, then it should take or then it will at least take 1 to 2 years. If you say end of '26 is appointed -- 2 years from that is end of '28, we still will be kind of our most likely timing for the Spanish market.