Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tomra Systems ASA (TMRAF, Financial) reported a strong cash flow from operations of EUR34 million for the quarter.
- The company achieved a gross margin of 44%, up 2 percentage points compared to the same quarter last year.
- The collection division delivered a 15% increase in revenue, driven by strong sales in regions like Romania and Austria.
- Tomra Systems ASA (TMRAF) has an all-time high order backlog at the end of Q2 2024, providing good visibility for future quarters.
- The food division's restructuring program is on track, with a focus on profitability and cost savings expected to deliver an EBITA run rate of 10% to 11% by the end of the year.
Negative Points
- Recycling division's order intake was down 12% and the revenue decreased by 15% compared to the same quarter last year.
- The food division experienced a 16% decline in revenue due to a softer market sentiment and delayed customer investments.
- Operating expenses remained high at EUR101 million, consistent with the previous quarters.
- The company had a small one-off cost of EUR0.5 million linked to the food restructuring program.
- Tomra Systems ASA (TMRAF) expects a slowdown in the second half of the year for the collection division, despite a strong first half.
Q & A Highlights
Q: Recycling guiding now for flattish growth year-over-year would require some 70% uplift Q-over-Q in Q4 versus Q3 now. Can you elaborate a bit on the dynamics there and why you expect it to jump so much?
A: Of course. So we expect Q4 to be very strong when it comes to the revenues to deliver on the flat year-over-year growth. And we are preparing accordingly on the production, on the shipping side, and these are confirmed orders to be delivered. - Eva Sagemo, CFO
Q: Can you also comment a bit on the project mix, which you're stating is strong? And I think it's for both food and recycling. And what then to expect from gross margins in the quarters ahead?
A: Yes. So the product mix is that if we start with recycling, we have a diversified portfolio with different segments into that. But we see that the waste segment is delivering good still. And with that, we sell mainly AUTOSORT machines into. So we are confident that we will deliver gross margins and margins in line with what you have seen in the past in recycling. When it comes to food, it's a mix in the order backlog. As I have mentioned, potato is strong. But with the initiatives and the restructuring program, we see that the focus we have and the cost savings that we take, we will maintain good margins also in food for when you look at the gross margin. - Eva Sagemo, CFO
Q: But then just to confirm, you shouldn't extrapolate the quite extreme gross margins that we've seen in Q2 for the rest of the year then?
A: No. You should not do that. As I said, in the recycling, you should expect the gross margin to be in line with what we have seen in the past. And then you would expect some uplift in the margin in food compared to last year, but not necessarily compared to the previous years. - Eva Sagemo, CFO
Q: On the collection side, with mid- to high single-digit growth, is there any significant variations in Q3 and Q4 with Austria now and Romania being strong with that drop off in Q3 or in Q4?
A: It's difficult to predict exactly how the quarters will come in, but we have given them an indication of the second half. - Eva Sagemo, CFO
Q: So should we expect that collection growth rate continues to accelerate from here, especially as the Poland DRS scheme -- earlier, you were saying it will probably get delayed, but now it seems that it will actually go live on January 1, 2025. So could you just help us dimensionalize like whatever rough numbers you would -- like how should we think about -- I understand you will not give us a guidance, but it's more like how should we think of scenarios around Poland, Austria, whatever else is happening with PPWR, with more DRS schemes.
A: We believe that probably -- and based on -- there is significant activity in Poland, there is significant activity on their work on the regulations and getting everything in place to go live. There is also a significant activity on the commercial side, but our belief is still that there will be more a soft launch beginning next year. And that's why we have then for our estimate for this year, not built in significant sales into Poland. - Tove Andersen, CEO
Q: On the food side, like if I just look at your order backlog chart now for years, so it is like flattish. And your projections -- you assume that it should grow 5% to 7% CAGR. So when is it that you will conclude that your projection is probably not borne by what you have done historically?
A: We believe over a period that the annual growth level in the food category is as you say, 5% to 6%. But of course, there will be variations year-on-year. Currently, we don't have -- currently, the market sentiment is softer due to lower commodity prices and higher interest rates. However, we are still very firm that over time, and if you look over a five-year period, for example, that you would see the 5% to 6% annual growth. - Tove Andersen, CEO
Q: Just on the recycling side, yes, 45% conversion rate this quarter, 45% next quarter. That obviously implies one or two very, very big projects in Q4. Is there any risk that those projects may be just don't go through? Or are you very, very confident that they will be kind of landed in Q4 and there's no risk to kind of them being delayed into Q1 next year?
A: So our order backlog is very firm. So we have really any cancellations in our order backlog. Of course, there could always be delays, and we can never exclude delays. But based on what we know now and based on what we see now, yes, Q4 will be a very strong quarter. And if we then achieve based on the guidance we have given, what we are saying, it will be a record quarter for recycling. We are, as Eva said, we are gearing up for it. We are producing and we will produce in advance and make sure that we are ready to deliver. - Tove Andersen, CEO
Q: In terms of the recycling margins for Q3, if the -- is it fair to assume that if that kind of conversion rate is similar for Q3 and that for revenue is same as Q2, is it fair to assume similar EBITA margins in Q3 through recycling to Q2?
A: So when you look at Q4 and with that high volume, you would expect the EBITA in that quarter to be at higher levels. But when you look at the year overall, we should be in line with what we have delivered over the previous years. - Eva Sagemo, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
