Tomra Systems ASA

OSE:TOM

Earnings Call Transcript 2018-Q2

[Stefan Ranstrand, President & CEO]

Good morning, ladies and gentlemen. My name is Stefan Ranstrand. I'm the Head of the TOMRA Group. Welcome to the second quarter 2018 results. With me today, I have our CFO, Espen Gundersen; our IR Manager, Elisabet Sandnes; and our new IR Manager, [ Bing Tsao ]. Elisabet is moving on to a new role within the group, so Bing will, step-by-step, take over this function, but they will work in parallel for time being. Let me come back to the quarter, a quarter with which we can be all pleased. We have a growth on the group level of 7%, so that is coming from both collection where we have a good contribution from New South Wales, but also organic growth. And from sorting. And particularly for sorting, it's interesting to note that we have continuous, really, good momentum on the order side. We are -- experienced good growth in all business streams, and I will come back a little bit deeper to that. But we can take away there was a good order intake in Sorting Solutions, a good growth in both collection and in sorting. And of course, event in the month is that we have good contribution from the New South Wales new initiative. Gross margin, fairly flat; slightly up in Sorting Solutions. And then we have a quite a lot of increase right now in operating expenses, both coming from, of course, that we have made acquisitions. So BBC, which were on board on 1st of March. So it's the first full quarter where we have the results of the operating expenses there. But also that we are having New South Wales operation and building up some other market initiatives and new business development. We are in a stage where we see that the market is favorable short term and long term. And as a result of that, we are willing to invest in going after that.Looking a little bit at the bigger picture, we do have quite a lot of drivers right now around both collection and sorting in recycling. And if you want to label it under one umbrella, it is actually the circular economy. And the main drivers in here are, for sure, the plastic oceans. The plastic oceans are affecting our lives, and it's very emotional, and it -- the population drives debate here, which, of course, ends up on the table of the politicians. United Nations in December 2017 appealed to all countries in the world to introduce a deposit system to reduce litter and the plastic ocean. In May 2018, the European Union regulation -- or regulatory framework are working on a proposal for reducing single use of plastic and to collect used beverage containers to a degree of 90% by 2025. And the European Water Bottle Association have gone out with a commitment that by 2025, they are targeting to collect 90% of all bottles sold in Europe. And on top of that, they aim for having minimum of 25% of recycled materials in every new bottle being produced. These are big steps not seen before, which gives us good encouragement when it comes to the future market development. The European Water Bottle Association are thinking about how to collect bottles, how to use collected material. They want to innovate in new material types, and they also want to engage the consumer. So this is, all in all, we think, a very positive statement, a good way to do it. It will drive collaboration in the industry. And if it's lived up to, I think it will be cleaning up Europe quite a bit and, with that also, a good possibility for us to contribute to a better, sustainable -- and more sustainable society.In addition to that, we have one more big player, which is China, which until now actually have imported significant volumes of waste from all over the world. So many countries have actually neglected their, should I call that, requirement or their duty to install waste treatment facilities in their own countries, handling their own waste. It was simply put on ships and gone to China, and they are being handled. China said, "No, this is not the way forward. We do not want to be the waste dump of the world." They have launched an initiative sometime back called National Sword. That was mid last year, pretty much 1 year ago. And we see clear effects of that. We see that countries are clearly struggling with handling their waste. The waste dumps are -- or landfills are getting full. The mountains of PET bottles are piling up, and the only real way forward for them is to build a local infrastructure to handle the waste. And that's not bad. It creates a more sustainable society and it creates green jobs. So it's just to do it. But we see this happening, and these are 2 really main drivers, which we are observing and we are seeing driving our business as we speak and, we think, for a foreseeable future as well.With that, I will actually hand over to Espen to talk on some financial matters.

[Espen Gundersen, Deputy CEO & CFO]

Thank you, Stefan. Starting, as always, with currency, somewhat mixed picture where the stronger euro versus Norwegian krone has partly been offset by the weaker U.S. dollar. So in collection, those 2 effects are, more or less, eliminating each other out. In sorting, we have a negative effect because of the overweight of U.S. dollar revenues and the overweight of euro and some extent, New Zealand dollar cost. This will also be reflected in the comparable currency-adjusted figures that you will see on the next pages.As Stefan said, healthy 8% top line growth in the quarter. Sorting and collection is almost identical in size now. Sorting is leading this quarter, but very close. And sorting is also the one that contribute to us like higher gross margin in the quarter. Collection is stable in that respect. And also, as Stefan said, we have an increase in operating expenses at New South Wales. It's BBC and is a general ramp-up cost in both collection and sorting. Looking at the balance sheet, comparing against the balance we had 12 months ago, intangibles are increasing because of the BBC acquisition. Fixed assets or tangible noncurrent asset is increasing because of kiosk and RVMs in New South Wales. Working capital, here defined as inventory, plus receivable, minus noninterest-bearing liabilities, are increasing with 7%, 8%, in line with the increase in activity. And also there's some additional inventory preparing for third quarter.So looking at the cash flow, we have a slightly weaker cash flow than last year. But still, compared to the usual cash flow in the first half, it's okay, so to say, in line with what we have had, more or less, on average for the last 5 years. And going back to the balance sheet and looking at the interest-bearing debt, it has increased because of BBC acquisition, because of investment in New South Wales and also the dividend that was paid out in May this year. So we are now at NOK 1.8 billion when compared to around NOK 1.5 billion in interest-bearing debt 1 year ago. And again, as a consequence of this, the interest-bearing debt on [ EBITDA ] has increased to 1.2 from 0.7 1 year ago, but still a very solid balance sheet, close to 50% equity and pretty much in good shape.And then we move to collection.

[Stefan Ranstrand, President & CEO]

Thank you, Espen. Yes, it's a fine business, Collection Solutions. And if we look back on it years before 2015, we were on a fairly stable rate with a slow growth. And then we had the rapid development as a result of the replacement in Germany, which actually started really in 2015, late '14. And we are still on that, so to say, wave when it comes to especially Europe. And if I start with that, you can see the graph in the bottom-right corner. We saw the increase in '15 going up sharply from the year before. '16 stayed on the same high level. And they were, in our view, stronger than we had anticipated the 2 first years there. And therefore, we anticipate that '17 would be somewhat slower. And '18, we anticipated to be, more or less, similar to '17. And as it looks right now, we are tracking spot on there. But this still is, in combination, a very good level we are in, in collection and in Sorting Solutions. And if we look at the whole quarter, we experienced 10% growth. 3% is organic and the rest is coming from the new growth driver this year, which is New South Wales. And when I talk about New South Wales, I think we can be only pleased. We had a little bit of a bumpy start. We have commented about that predominantly resulting out of the time it took for us to identify and get approval for all the different sites we had to install. Today, we have about 1,000, round number, of reverse vending machines installed. And they are then in about 250 automated sites. And we will continue to install a little bit more as we go forward. But we should be completed with the total installation and building up by the third quarter.And if we look from December 1 until today, we have collected about 500 million beverage containers. It's supported by the public. It is more and more seen as a positive contributor. And these 500 million, many of these bottles would otherwise have ended up in the nature and in the ocean. So I think we are in a good way to meet the targets set out by New South Wales government, which was to reduce littering by 40%. And I think that's something really meaningful in today's world as we -- especially if we think of what I talked about before with the ocean littering.Looking at the traditional markets, we are -- experienced good situation across the board, strong -- or better momentum in North America, whilst more flattish in the European markets. But in the sum, a 3% organic growth, a 10% growth all in all. There are also a number of new deposit markets coming up, but I thought I'd let Espen take that part.

[Espen Gundersen, Deputy CEO & CFO]

To get a meaningful growth in collection, we usually need support from legislation, new deposit initiatives. And historically, there's always been a lot of initiatives out there. Most of them have failed because of resistance from the retailers, from the beverage industry. And it's political processes. You never know the outcome of these processes. And -- but every second, every third year, on average, a new market has opened up for TOMRA. But all this have been cautious of market turmoil based upon the positive initiatives because the uncertainty around outcome, because of, to some extent, the resistance and the political processes that you don't have any control over. So that said, we will continue to be cautious on market TOMRA based upon this. But it's also fair to say that there's never been so many deposit opportunities out there than we see today also. And it's also probably more likely that more of them may materialize because we see -- because of the general trends that the resistance against deposit systems has been more and more limited. This is not so controversial anymore, and there's a lot of support for them. So what we can do is point out the processes that's ongoing, and we don't know the outcome, but we feel that at least 4 of them is worth mentioning because there is good processes. And some of them are very close to conclude really. The first one is Queensland. This is -- turn it. Queensland is the state north of New South Wales and Brisbane area in Australia. They have a tender process out, so we are expecting a conclusion every end of day. It will be a different process or a different system than we have in New South Wales. The industry has been given the responsibility to organize this. So it's the beverage industry that runs the system and it's -- we will assume that automation will be less on the convenience, probably not the same as you see in New South Wales. And again, consequently, it's probably harder to find a material role for TOMRA in this system. So based upon current understanding, TOMRA will be present in Queensland. We will -- but we will not have a major role in this. As soon as we get a final clarification from the tender process, we will inform you also about the outcome of that process. It will be soon.Western Australia is also committed to introduce deposit. That process is ongoing. We have performed and also finished the consultation period. Now it seems like they're looking to Queensland and New South Wales and, to some extent, South Australia to see what kind of system they want to set up. And that's, for us, unclear what they will end up with, but we assume that also in this market, pretty soon, we will get the conclusion on what type of system.Scotland is the third market where the First Minister last year went out and committed her and her government to introduce deposit. There is a consultation period that ends in September. And we assume also that 1st of July is the best guess on the start-up date of this initiative. The -- there has been mentioned several different models. Four has been communicated in a separate paper, where both return to retail and return to drop-off points and combination of this is mentioned. So it's an -- still an open question what type of Scotland -- system Scotland will end up with. And then we have England where the U.K. Minister of Environment went out and also started the process in March. And they are currently in the phase of collecting input in a consultation process, probably will end by the end of the year. And so this is a little further down the road. And hard to guess, but if -- one estimate is that they will start the 1st of January 2021 if this process goes on and concludes in the way, of course, we hope it will do.So Collection Solutions financials. As Stefan said, stable in Europe. Good growth in this quarter in U.S., both on sales and throughput, even though the figure looks [ rather ] similar. Again remember, the dollar has been weaker, so that explains that there still is growth behind those figures. And rest of the world is mainly New South Wales and the activity down there. Stable margins and OpEx increased because of New South Wales and ramp-up cost, in general. On to Sorting Solutions.

[Stefan Ranstrand, President & CEO]

Yes. The Sorting Solutions, we are, as I have mentioned before, in a good situation when it comes to the market. We have built a leading position over years now, where we are #1 in the world in food, which is the biggest part of Sorting Solutions; in recycling; and in mining, which is rather smaller. And we are happy to see that all business streams, all 3 of them, are developing soundly with good market momentum. I will talk a little bit more about that. But in summary, we had a orders growth of 20% in the quarter. We are reporting an all-time high order backlog, despite the fact that we had the revenues growth of 10%. Organic revenues growth was 4%, so rather small if you look at it. But that is now all in the backlog and to come, but the -- we included BBC as a first quarter, so to say. They came in, in March, as I said before. And of course, they also contribute to the situation. All in all, I think BBC was a very good opportunity for us to get. We are pleased with the performance. And they are playing a leading role in sorting of small fruit or berry objects, like blueberries and some cherry solution. So that is really a good fit to our portfolio, where we didn't have that kind of solutions before, a good fit there and everything. Margins, slightly up, but nothing significant to talk about there. So the main highlight, I think, is really the order intake and a revenues growth of 10%.So going a little bit deeper then, talking about food. As you know, food is a global business and increasingly global. We see that with e-commerce, which is also more and more handling food products over the platforms, it's really literally possible to be anywhere in the world, produce some good food products and to sell them to any markets. This is a disruption, which we have not seen before. If you think that you are a small farmer producing, let's say, honey, just as a -- not that we sort honey, but it's easy to think of, could also be a pear, and you are doing a special type of product, you can today actually reach out to the global markets with fairly limited costs through platforms like Alibaba, Jingdong or Amazon maybe, to mention a few of the big names here, and really reach consumers. And if you hit that sweet spot of what the market is looking for, you are into business. This is something we haven't had in the past. It was actually not possible. So if we think of that, we see that the demand, the opportunities for food products not only by -- but that the population is growing, and we have more and more rich people on this planet or less poverty, if I may say it that way, that all drives the consumption. So we look favorably into this. And we see also the more stringent needs for quality, for productivity, for guaranteeing the taste, for guaranteeing a consistent quality. That all is -- are in favor of what we do in the food. Our sorters are contributing to more consistent quality, to more consistent taste experiences and overall guaranteeing that our -- the brand owners can both protect and enhance their brands with this kind of equipment, which is actually not possible if you do it by manual sorting because, to give you an example, you could not talk about the sweetness of an apple by looking at it. We have to look at it with our senses, and we do that. So that's very nice, and I think we are here seeing a good growth, both now that we anticipate that to continue, unless there are some disruptive changes happening on the political landscape. But all we can see right now is a good situation there.Recycling is really participating on the effects of the National Sword and on the overall more environmental awareness. We also see a lot of large corporations now taking a much more active role in going for more sustainable businesses, meaning that they try to work on programs, whereby they can use recycled materials when they produce new goods. And we, of course, as a leading player here, having the vast experience, both from household waste sorting into packaging waste sorting, into e-waste and to end-of-life vehicles, we have the broadest offering in the industry and can really work with these companies. And we are demanded for in that regard also to help them drive their processes towards a more sustainable business. That sustainable call comes from, I think, more and more, yes, the leadership of the companies start looking more differently into it. It's not only about the dollars. It's also about developing a more sound business and, also, of course, the political pressure with social media and so on. People are more and more aware that they have to work on their reputation. So we see this is not a trend that is short term. This is something that actually accelerating. We can talk about the National Sword being an event that will last for a while. We think that will last for quite some time because there's so much catch-up work to be done here in the markets to build up the local infrastructure for recycling. But the corporate social responsibility, that's rather accelerating from a rather low level. But I see that is going favorably into the future. So we are on a short-term strong momentum. And I think the long-term momentum will also accelerate. Then if we think more into the future with the circular economy, smart cities, there will be another way, which we'll handle that and talk about more in detail when it comes to our Capital Markets Day September 21.Then mining, it's small, but nothing insignificant. And we do experience solid development here. Both recycling and mining are talking about good growth. And all streams are in the double-digit zone. So we are pleased with this development. So I have no reasons to be other than very satisfied with the development. And I think we look favorably into how this continues in the future. And I will not talk more about the numbers because Espen will do that and also talk about the outlook then.

[Espen Gundersen, Deputy CEO & CFO]

Yes. A quick look at the figures. The growth is around 4% organic and then BBC is included with NOK 63 million, combined NOK 1,073,000,000 on top line this quarter. The margin is up 3 percentage points. All business streams has reported improved margins. And there are also some positive effect from some product mix. And so overall, a good performance on the margin side. Operating expenses is increasing as a consequence of the BBC acquisition and higher activity in general.At the order side, we came in with, as we saw, NOK 1,073,000,000 on revenues. That's almost spot on what we indicated 3 months ago on where we thought we will end on the top line, meaning a lot of orders has been taken to P&L because this is an all-time high revenue. But at the same time, the order intake has been very satisfactory, 20% up in the quarter. And consequently, we, again, end the quarter with a new all-time high backlog. We're almost NOK 1.6 billion. The conversion ratio is estimated to 70%, meaning revenues in next quarter is assumed to end up around 70% of the current order backlog. And as I always say, this is not a guiding, just an indication for you that want to model TOMRA on a quarterly basis.Outlook. Yes, and as Stefan touched upon, it's stable in Germany. The 2 first quarters this year is, more or less, in line with 2 first quarter last year. And we also assume that trend will continue for the next 2 quarters. This also goes for the other markets. Base business is rather stable in TOMRA. No significant swings expected for the next 2 quarters. But then, of course, New South Wales will come on top. The ramp-up period will end during third quarter, so we will be close to breakeven in third quarter. And the fourth quarter will be profitable, both because the ramp-up periods are over and then we also go over into the summer season with higher activity. Because of all the opportunities out there, TOMRA needs to invest. And we will employ people, and we will be present. The biggest mistake we can do now is probably not being prepared, so this also has some financial consequences. And you should expect, as you started to see this quarter, that also coming quarters will be subject to more operating expenses. Exactly how much on the timing is very much depending upon how the markets -- the niche markets develop and so on. But higher activity will also mean something for the P&L going forward.On Sorting Solutions, there's good momentum in all business streams. And based upon the indication we gave, 70% of the NOK 1.6 billion order backlog. You will see that also it seems like a record quarter is coming up in third quarter. On sorting, let me get some question on this trade dispute, trade war, China, U.S., and so on, whether that will influence us. And so far, we have not seen much. We have production in China. We have sales in both China and in U.S. So there might be some minor disturbances, but nothing significant to report so far. But the end of this, no one knows. So of course, we follow and monitor the situation closely. I may come back on later quarters if there are anything additional to communicate in that respect.Currency situation is, as always, dependent on U.S. dollar and euro. And actually, with today's exchange rate, it seems like it gets some tailwind in the third quarter because of a very weak U.S. dollar third quarter 2017. But that remains to be seen. It's only 2 weeks behind us in third quarter, so there are many weeks left to -- we're going to report third quarter.With that, we end the presentation and we open up for questions. There is no one in the audience, so it has to be from the web.

[Elisabet V. Sandnes]

Yes. We do have some questions from the web. First question is from [ Frederik Caster ], company unknown. How is the outlook in Japan?

[Stefan Ranstrand, President & CEO]

I can take that one. Japan is one of the -- and I assume we are talking about the Collection Solutions here. I will focus on collection. I can mention briefly that we have a good situation in sorting also in Japan, both when it comes to recycling where we are strong. And we also have good activity levels in food. Mining, I'm not aware of. I don't think there's any mining activity there. But if I zoom in on Collection Solutions, it's an interesting market because that's one of the only markets where we can talk about the certain success, despite that it's not a deposit market. So we have been working there for some 10 years now. We used to be quite struggling to get some response from the market and used to have an installed base of about 300, 400 machines. And I think, as we look today, we are a little bit north of 1,000 machines. So we had a good development there. And -- but it's nothing really moving. Again, there is no regulatory drive in the market, so it needs all to be on voluntary basis where the industry, i.e., retail or recycling industry, are looking for this. And that makes it slower. There are some things in the future. Looking at the Olympics 2020 might drive some needs. There are also some new fresh discussions going on, on political side. And of course, that could influence and change it, but there is no major shift. We are having a leading position. We're having a fairly stable position in Japan.

[Elisabet V. Sandnes]

Thank you. A second question from [ Frederik Caster ]. Any new deposit states in the U.S.?

[Stefan Ranstrand, President & CEO]

Since you had deposit before, I'll let you take this one, too.

[Espen Gundersen, Deputy CEO & CFO]

Yes. I wish I could communicate the long list of the new potential opportunities in the U.S. Unfortunately, that's not a reality. It's a rather stable market. You have deposits. It mirrors the political map. So in the blue states where you have the Democrats, it's usually have deposits. In the other states, you don't have, and that's been the case for several years. So don't expect any significant changes in the near future when it comes to U.S.

[Elisabet V. Sandnes]

Thank you. A question from Mikkel Nyholt with Carnegie. Depending on how the new markets may be designed, please give some flavors on your thoughts on TOMRA's balance sheet and financial position to meet such strong growth.

[Stefan Ranstrand, President & CEO]

You have to take that one, too.

[Espen Gundersen, Deputy CEO & CFO]

Yes, of course, it's an interesting question. And we also internally try to model the different scenarios there. And it's a difficult task because, as you all understand, there are opportunities out there. And some of them could be rather costly, meaning, we have to invest to execute upon them. It's mainly in the collection where the need is visible today. And there has been some tendants, at least the last 2 markets in collection has been a throughput market, where TOMRA has owned and operate the infrastructure. So it's more capital-intensive, but also with some opportunities. So the first question is, which direction the new markets will take? Will there be more throughput or more traditional return to retail, owned and financed by retail? That an open question. And I think the different market will go the different direction, choosing different solutions there. And then also the speed of this. But to try to give you some general indications, we are of opinion that we have a very strong balance sheet today. We have a lot of gearing because of all the recurring revenues that we have in current business. It's possible to leverage TOMRA's balance sheet significantly more than we have today. To mention the figures, 3 maybe 3.5x EBITA is probably doable without losing control of the company. So we are willing to use our balance sheets as long as possible. But if scenarios where even more money is needed, then we need to think alternative measures, but that's far too early to speculate on that. With the things we have in the near pipeline, the situation is comfortable, so to say.

[Elisabet V. Sandnes]

Thank you. We have a question from Eivind Veddeng with DNB. How are you positioning yourselves towards the ongoing processes in Scotland and England? From what we can see in media, a competitor machine is being used in both trial systems in the U.K.

[Stefan Ranstrand, President & CEO]

Yes. Well, I think we can say that when it comes to the island area, we have been active very early. We have run trials in Scotland. We have had installations for quite some time. It is natural that we will see a lot of competitors going into these markets. They are not so far away. They are handleable. So this is -- and it's good. We are in favor of an open competition. This stimulates the market in a better way. There are alternative solution. People can compare. So we are definitely committed to serve the markets, provided that the systems are something which we find attractive enough and that we can feel that we can contribute to a better society and a better economy, both for the market as such and for TOMRA. But we anticipate that there will be a stiff competition here. And hence, you will also see competitor being -- testing out their equipment there. I think we have -- as we have developed over the last years, quite nicely in the portfolio, we have now a very complete offering where we can have smart city, small footprint solutions. We have small retail solutions. We have hypermarket solutions. We have even industrial solutions. So you can say we have an offering for all. So I feel that we are, at least, well positioned to be a player in these markets.

[Elisabet V. Sandnes]

Thank you. The second question from Eivind Veddeng. Can you elaborate on your role in Queensland compared to what is in place in New South Wales?

[Stefan Ranstrand, President & CEO]

Why don't you take that one?

[Espen Gundersen, Deputy CEO & CFO]

Yes. I think we answered that. As far as we can do at current stage, and respecting that the tender process is not finished, we said that we will have a minor role, not major. And knowing also that Queensland is a smaller state, I think it's 5 million citizens compared to the 8 million in New South Wales, you can do some calculation and see that this will probably not be a significant unit for TOMRA compared to the size of collection in general. I think we have to leave it at that for now.

[Elisabet V. Sandnes]

Thank you. Second question from Mikkel Nyholt with Carnegie. You say very strong short-term momentum in sorting and emphasizes good long-term growth as well. Is it possible to say for how long the current growth may last?

[Stefan Ranstrand, President & CEO]

Yes. I hope I have not misquoted myself there. But we are experienced really good, sound -- especially, as I said, in recycling and also very strong in mining, but also strong momentum in food. So I call the others very strong and food strong, and that's the truth. So let's look down piece by piece. In recycling, we have the main driver being the National Sword, which is now leading to that many nations on this planet really have a big catch-up work to do, and that will take years. That is not over in a quarter. That will take time because there's huge amount of material being -- that needs to be -- and infrastructure that needs to be placed up in order to handle this. So that, we are seeing as a quite strong driver for some times. And accelerating in recycling business is the corporate social responsibility effect of large corporations, clearly, now working towards using more recycled materials in the production of new goods, and that's an accelerating trend. So that's from a low start right now, but I think that is really for the long term. In addition to that, we must remember that the e-commerce side will contribute to more packaging waste. So if you buy an object in the store, in a retail, it will normally have some kind of packaging. If you will buy the same object over e-commerce, it would have an additional packaging, and e-commerce is accelerating. With that, we will see additional packaging waste being and coming. So these are the main trends I would like to talk -- look into. Then we have some specific events like -- I know -- I think -- I don't have the exact figures, but I think it's about 50 million cars being entered into the market in China every year. There will also be an end-of-life vehicle business there. And there are demands in e-waste, which are still continuing. So we have many sectors of growth in recycling. So we rather see that it's stable. We should never, however, forget that recycling is exposed to commodity prices. We don't need to go further back to -- than to 2008, 2009 and we saw quite a sharp decline because many of our customers found their economic models unviable when the raw material prices went down dramatically. Because remember, they are competing with volume material as per the output. That will, of course, be more limited when any of these corporations go more into corporate social responsibility. They will also be more immune to these swings when we have the demand to handle the waste locally, instead of exporting it to China. But there are effects of that. I think the effects will actually be smaller in the future of commodity prices, but we should not neglect them. So I hope that covers for recycling. When it comes to food, there is a increasing demand. There is increasing globalization. There is increasing demand for high quality, for better, consistent taste and the like, and that is not going to change. There's also driving industry to improve -- or increase automation to work on cost levels and automate in order to secure the quality consistently. So I think also here, we see a long-term trend, but slower growth than in recycling because there are bigger events, if I call it, in recycling, but a more long-term steady growth I see in food. Mining, I think we are -- in some sectors here, we are strong in gemstones. We have some good activities in lithium, which we use for battery production, which is also in favor of the trends there. I think we should be careful in talking about the trends and so on. But yes, hope that gives a good summary of how we see it.

[Elisabet V. Sandnes]

A follow-on question from Mikkel Nyholt that you quite possibly have answered already, but here it comes. Besides China opening borders for waste again, what could cause the momentum to slow down? On the other side, what could happen -- what would happen if, say, Thailand or Malaysia also closed borders?

[Stefan Ranstrand, President & CEO]

Yes. I think, right now, we see a certain tendency to that. And some other volumes are shifted from China to some other markets. But ultimately, the big demand for that raw material will, again, be China. So what they then do is that they might shift into, say, Thailand, Vietnam or Malaysia, which, I think, is not the right solution. But I said, I think everybody should care for their own plastic or their waste locally and work for a circular economy. But if that happens, the plastic will be upgraded to a certain quality level that is then approved as raw material, for instance, into China. So I don't think that will have major effects not -- we will see some increase in demand in some of these markets probably, but no -- it's probably small in the big scale, I think.

[Elisabet V. Sandnes]

Last question from Mikkel Nyholt with Carnegie. Will hiring of personnel for meeting market opportunities be booked to collection, sorting or group? Is it possible to give a bare minimum of the expected OpEx increase going forward? Is NOK 4 million to NOK 5 million per quarter a decent proxy?

[Espen Gundersen, Deputy CEO & CFO]

It's -- this is a difficult one because it will -- we have to maneuver. And internally, we actually started to use rolling forecast now because it's a dynamic world. And we have to monitor the situation closely quarter by quarter here. So as a general indication, I can say that we will, this year, at least, increase, so the -- within 1 percentage point effect on EBITA line and going probably to 2% next year. But this will be also significant swings. Just remember, fourth quarter last year, when we were in the ramp-up of New South Wales, it had a 6 percentage point EBITA influence. And so just illustrating, if we get more than one of these in parallel, this effect can be very big. So it's -- we have to follow it. It's nothing that's going to explode earlier, but we have to start to invest. And 1 going to 2 percentage point into next year is maybe an indication that can help you. And hopefully, it's not too far away. It will be mainly booked in collection. But also a few resources will be on group, but that's minor in this respect.

[Elisabet V. Sandnes]

Thank you. A question from Henrik Nyblom with CapeView Capital. Sorry if you already addressed this in the presentation, but what was the negative EBITA drag from the ramp-up in New South Wales in Q2 and H1, respectively?

[Espen Gundersen, Deputy CEO & CFO]

It's just the fact that we did not have employees in New South Wales. And we own and operate the collection infrastructures. And this has to be built. And so building up an organization and building -- installing the centers and getting everything up and running is expensive. TOMRA is rather conservative when it comes to capitalizing expenses into the balance sheet. So what you find in the balance sheet is the RVMs, the kiosks are placed in on the direct installation cost. Everything else of overhead, the ramp-up cost is charged to the P&L as the core.

[Elisabet V. Sandnes]

Thank you. A question from [ Thomas Ravior ], company unknown. What is the link between Incom and TOMRA in Asia?

[Stefan Ranstrand, President & CEO]

Yes. We have a joint venture with a company called Incom in China for developing, producing, selling and servicing RVMs for China market. That is the definition. There might also be some small other markets served. And we are producing a adapted technology for the China market. And if that is needed in other markets, we might also sell it there, but that's the main principle. So this is a joint venture with them.

[Elisabet V. Sandnes]

Thank you. And with that, last question from [ Peter Rollins ] with [ Pick Net ]. If the EU directive on single-use containers is required by 2025, should we expect a potential bottleneck in RVM production the coming years? And would this require investment in RVM production?

[Stefan Ranstrand, President & CEO]

As we are set up in production today, we have more of a model where we rely quite a lot on our supplier. So the main value generation for production actually comes from our suppliers where they produce modules for us, which we then install fairly simply in our machines. If we go back to 2006, we can remember, TOMRA came from a very small level and could actually already in 1 year produce 8,800 machines. That was a dramatic ramp-up. We could do that because we had our own facility in Norway. And we had a licensed manufacturing in Poland. We are still operating the same model. So when it comes to assembly, we are relying on these 2 capacities. We are continuing to invest in our own facility too and we have done that all the time. So that's not something dramatic here. But we will continue to upgrade it, so we can increase the capacity, in-house capacity. But then we have the other support, that is the licensed manufacturing, which is more flexible. This is a manufacturing company, which is dedicated to do manufacturing for other providers. So there, I feel that we have a good flexibility in ramping up capacity, in short, without investing too much. And of course, important is that we invest in time in working on the supply base, that the supplies are geared up also if and when it comes. And that, we are, of course, doing.

[Elisabet V. Sandnes]

And a very last question from Mikkel Nyholt with Carnegie. Looking longer down the road, what is TOMRA's market position 15 to 20 years from now? What kind of new trends in material handling peculiarities may be discussed on quarterly calls then?

[Stefan Ranstrand, President & CEO]

I would like to make this -- thank you for the question. Why don't we take that as a headline for our Capital Markets Day?

[Elisabet V. Sandnes]

And with that, we conclude the Q&A from the web, and I'll leave it to you to give some summary remarks.

[Stefan Ranstrand, President & CEO]

Yes. Well, I think, in short, thank you for dialing in or clicking in. It's vacation time. I hope you have a good summer, those of you who having vacation. And we are pleased with the quarter. We had a growth in both areas, and the Collection Solutions recording a 10% growth -- 7% -- yes, 10% growth. Of course, the organic only 3%. The rest come from New South Wales. And the Sorting Solutions, also a good growth, 4% organic, and the rest coming from BBC. Highlight of the quarter, New South Wales is doing well. We are now coming towards the end of the ramp-up. The ramp-up should be completed in Q3, and we are satisfied with the development there. We had BBC entering. This was the first full reported quarter with BBC, and we are only seeing positive signs from that unit. And last but not least, a very good and encouraging order momentum in Sorting Solutions. With that, I think we are done. Thank you so much.We have a short entertainment, please.[Presentation]