Tomra Systems ASA
OSE:TOM
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
97.08
179.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Tomra Systems ASA
Earnings Call Analysis
Q3-2023 Analysis
Tomra Systems ASA
The company faced a cyberattack that significantly disrupted their systems. Despite the significant challenges, they managed to maintain sales and services, and delivered a strong quarter with revenues undeterred by the cyber events. Their rapid response and adaptability following the cyberattack shielded the financial results from bearing the brunt of the incident. A cost reduction program was announced to streamline operations, aiming to fortify the company against future risks.
Both the Collection and Recycling divisions marked impressive growth, with revenues climbing by 11% and 14%, respectively. Collection's success was driven by expansion into new markets, while Recycling benefited from high activity across various regions, particularly Asia and Oceania. Despite a challenging environment, these segments maintained healthy gross margins and achieved robust top-line growth.
Contrasting with Collection and Recycling, the Food division struggled, with revenues dropping by 18%. The company is actively addressing this through an improvement agenda and announced a cost reduction program targeting savings of NOK 30 million; this move is expected to boost profitability back to 10-11% by the end of 2024. The long-term outlook for the Food division is positive, with expectations of a 6-7% annual growth within core categories.
With an eye on the future, the company is pushing forward a strategic plan aimed to double the business by 2027 and raise EBITA margins to 18%. Steps are being taken to strengthen operational effectiveness and accelerate the integration of previous acquisitions. A regional organizational structure will be introduced to streamline decision-making, enhance customer intimacy, and leverage technological leadership for competitive advantage.
Although M&A opportunities continue to arise, currently, the priority is integration rather than expansion through acquisition. The company remains open to technology add-ons and is monitoring the market for potential strategic opportunities, with organic growth being the core strategy for the Collection and Recycling divisions.
The company has reaffirmed its confidence in the Food business, seeing it as a sector with real potential for profitability and growth. Efforts to streamline operations are expected to have a positive impact on sustainability, with anticipated improvements in both environmental footprint and market positioning.
A diversified portfolio in Recycling means the business is well-shielded against market volatility. Despite a notable decline in order intake, the company's presence across various markets and segments cushions against negative impacts. Current activities focus on maintaining progress with feedstock plans, while remaining receptive to market interest and advancements.
The company has maintained a steady course through uncertain times, exemplified by plans to sustain existing revenues with good margins and manage operational expenses effectively. They have overcome the cyberattack with minimal damage to their business operations and are undertaking significant steps to improve margins and continue delivering value to stakeholders.
You don't have any saved screeners yet
Good morning from Asker, ladies and gentlemen, and welcome to TOMRA's Third Quarter Results Presentation 2023. My name is Daniel Sundahl, and I'm Head of Investor Relations. It's been an eventful quarter. And, of course, our CEO, Tove Andersen; and CFO, Eva Sagemo will tell you all about it. But today, we also have our Executive Vice President of Food, Harald Henriksen, with us to give you an update on the improvement agenda going on there. At the end of the presentation, we will take questions from the audience, and you have an embedded Q&A tool, which you can use to post questions. Please keep in mind that it can be a 2 minutes delay in the webcast.But without further ado, I give the word to Tove Andersen.
Thank you, Daniel, and welcome from me as well to the Q3 presentation of the financial results. This quarter has been a special quarter for us in TOMRA. July 16, we were hit by an extensive cyberattack. As a response to contain the attack, we proactively disconnected most of our systems, and we are still not up and running with all applications as of today. With that backdrop, I think we have done extraordinary well to present the financial results today for the quarter, where if you exclude the direct costs for handling the attack and cash flow, we present the financial result, which has not been impacted by the cyberattack. Through manual workarounds, we were able to continue to deliver value to our customers while also delivering good growth and improved margins in both Collection and Recycling through this challenging short term, but we have seen this coming, and we have been able to progress our improvement agenda in the quarter. Given that we hardly had any systems running the first weeks after the attack and only a limited number of people with access to ERP and key systems until mid-September, this is a great achievement. It shows the strength of the TOMRA culture, the strength of our people, we care about our company, and there are no problem we can't solve together. And I want to extend a big thank you to all our TOMRA people who have supported us through this challenging quarter.Then let's dive into the figures. This quarter, we report a total revenue of NOK 3.5 billion. That is 3% up currency adjusted, with good growth both in Collection and Recycling, 11% and 14%, respectively. Food were down 18% in the quarter. And we're pleased to see the improvements in gross margin, which has been a continued improvement now for several quarters. And we ended then on 43%, which is the highest since 2021, and we have an improvement in all divisions versus the same quarter last year.Our operating expenses ended on NOK 1,092 million. If you then exclude the direct cost linked to the cyberattack, which were NOK 120 million in the quarter. Adjusted for currency and regular inflation, we have now had a flat run rate of our OpEx for the last 4 quarters. As part of it, we are continuing to invest in our business in business expansion and in our strategy and the run rate for ramp-up costs in Collection for new markets and Horizon is at the same level this quarter as the previous quarter. We announced last week a cost reduction program in Food that will reduce the OpEx cost and also the COGS cost in Food over the coming quarters for the next 12 to 15 months.This then gave us an EBITA of NOK 434 million if we exclude the cyberattack cost. This is down from the same quarter last year due to slower sales in Food.We had a negative cash flow in the quarter of NOK 280 million. This is due to the cyberattack as we have not had access to systems for a while. This has been delaying invoicing to the customers, and we have increased our accounts receivables with approximately NOK 1 billion. This we expect to normalize during this quarter Q4.If you then look at order intake, Recycling order intake were down 12% in the quarter, down to then NOK 611 million. We have talked for some quarter that we are expecting a normalization of the growth in Recycling, and this is what we're seeing, but we still have a strong and healthy order backlog of NOK 1.2 billion. Food order intake were down 28% to NOK 651 million.I will then next say a few words about the cyberattack before we go into the business updates. As I said in my introduction, July 16, we discovered a cyberattack against our company that impacted our TOMRA domain and most of our key IT systems. However, swift actions from our information security teams and our IT teams has limited its impact. And what we did is that, we proactively disconnected our systems to contain the attack. We have then fortunately have had no evidence of sensitive data that has been lost, and we have also not received any ransom demands, but we believe this is a failed ransom attack.Also, as part of our proactive measures, we disconnected many of the customer machines, but most of them were able to then remain operational in off-line mode. And weeks and months after the attack, we have then put these customer machines back online again. I've been really impressed by the organization and how they've been able to keep our operations running through this attack. They through manual workarounds to make sure that we have continued to produce. We have continued to install equipment to do service, to take orders and do sales. I think that has been really a tremendous effort from the whole organization. So the main impact of the attack is on our cash flow and, of course, the direct cost linked to the attack. And also, we have had some innovation efforts that have been delayed that we are now focusing on regaining the speed on.After the attack, what we have needed to do is to get our systems back up and running. We had to validate them and restore them or some of them also we had to rebuild to ensure that we could take them back online in a safe and secure way. At the same time, we have used this opportunity to strengthen our security measures, implemented new procedures, but also new tools and zero trust architecture. This will ensure that we are coming out of this cyberattack stronger and as a more secure company.Let's then go into the business update. In TOMRA, we have an ambitious strategy. We want to double our business within 2027, and we want to lift our EBITA margin to 18%. And we will do that by accelerating the growth in our core, our 3 existing divisions, but also developing adjacent opportunities. While we walk to talk on sustainability by becoming a fully circular business ourselves and a safe, fair and inclusive place to work. And even though we have short-term challenges in Food, the overall fundamentals of our business remain the same as when we launched these targets last year at our Capital Markets Day, and we stay firm on these ambitions.In this quarterly presentation, we will focus on the core, the 3 divisions with a special focus on our Food division. However, first, I will start off with an update on Collection. Collection had a very strong quarter this quarter, delivering a growth of 11% and a revenue then of NOK 1.9 billion. The main drivers for the increased sales is sales into new deposit markets. We had good sales into Hungary, which will go live with the deposit system early next year. We continue to have sales into Romania that will go live late next month, and also good sales into Netherlands that expanded their deposit system in April to include cans and by that doubling -- more or less doubling the volume of containers in their deposit systems. I'm also very pleased that we see the continuation of improving margins in Collection as we have planned and also communicated, and we ended up then with a gross margin this quarter of 40.4%, which is 2 percentage points up versus same quarter last year.A highlight in the quarter was Poland, who passed a deposit return system law with the potential then becoming the second biggest market in Europe to date with a population of 38 million people. We were disappointed by the news from France, where France then have decided to not implement the deposit regulation as of now and rather focusing on other measures to increase the Collection rates. We find it difficult to see that they will be able to meet the target set in single-use plastic directly by doing that. So we do believe that this can potentially be reopened later. However, France still represents a significant potential for us on reuse or refillable bottles. France has a focus on phasing out single-use plastic. They have a target of facing a single -- all single-use packaging by 2040, and they have a focus on the reuse and refillable containers and beverage containers. And if you do have that, you will need to have a deposit system to ensure that these are collected so that they can be reused and refilled.On the right-hand side here, you will see the update, the list of countries or states that have a firm decision to go live with the deposit system. I'm not going to go through them in detail as I already have mentioned the key changes from last quarter.Then Recycling. Recycling had another good quarter. They had a growth of 14% currency adjusted up to NOK 822 million. We have seen in the quarter high activity level in most regions and market segments, particularly it was strong in Asia and Oceania this quarter and within the waste sorting segment. We are now seeing that the growth is normalizing after the last couple of years, which we have had really extraordinary growth in this segment, and we see that in the order intake that is now 12% down currency adjusted.If you look at the market sentiment within Recycling or Recycling sorting, it's a mixed picture. If you look at the PET recyclers, especially in Europe, they are struggling currently and have a difficult financial situation currently linked to the drop in PET prices, both then on virgin PET, but also then on the recycled PET. However, if you look at the metal market, that's quite good, and especially the aluminum market is strong currently. And we see the same in the waste sorting segment where there is a very good market sentiment. So we are now benefiting from the diverse portfolio that we have developed in the last years where we are less exposed to one segment or one region. We are also less exposed to commodity prices than previously as legislation and company's sustainability commitment are important drivers of demand in certain segments, for example, the waste management segment.Then to Food. Food had a weak quarter this quarter. The revenue were down 18%. But if you look inside Food, it is a mixed picture. Our processed food segment is doing well, mainly then driven by the category of potato, the potato category segment. While in the fresh food segment, the market sentiment is weak. Customers are delaying investments due to challenging macroeconomic environment, high interest rates and weak harvests. We communicated around this in last quarter and also communicated then and in stock released last week that we have now introduced an acceleration of our improvement agenda. And I have then invited Harald Henriksen to join this call today. Harald took over as EVP, Food last quarter. And before that, he was heading the Collection division. And he will give you an update on our agenda in the Food division.Then over to you, Harald.
Thank you, Tove. Yes. So I'll talk about 3 things. First of all, the fundamental drivers in the food sorting business, then an opportunity for improvements and then also what we want to do to improve our financials going forward.So we -- since the summer, we have run quite a comprehensive diagnostic of the food sorting business. And it's clear that this is really a market which is attractive to be. I also wanted to see this myself. So I've, of course, been traveling around to all our main locations. Met all -- many of -- most of the employees really competent and really passionate employees, but also I met a lot of customers on all continents. I met the biggest almond producer in California who had our equipment. I've also met -- I actually had breakfast with a farmer in California, which is delivering citrus products to Sunkist. And he don't have our equipment, but he really wanted to buy it, but then he wanted also to know whether it was possible to do onions on the same equipment, which, of course, is possible. So he's really considering that. And it's really good to be so close to the customers that we can have these discussions. Also in China, I met the biggest citrus producer in the Nanning district, which have our equipment, also other customers sorting dry fish.But when I talk to an apple producer in Europe, it was very clear why they really focus on the sorting equipment because they are so proud of their own product. They really want to have the best possible quality. So the product really wanted to shine. But at the same time, they want to have the best possible yield at the lowest cost. And that really brings me to the drivers of the business because we see -- well, of course, population growth and growth of the middle class where we will have an impact due to the need of food, but also the need for reduced loss and waste of food is important in order, not only to address sustainability issues, but also the operational necessity for many of our customers to increase the value of their product and also the processes. Tighter food safety regulations with an increasing need and demand to actually track and trace how food moves through the value chain will be important. And maybe the 2 biggest drivers, the way I see it is the rising cost of manual labor to sort and process food, which is really driving automation in many geographies. And then it's back to what I said about the quality and the yield and so forth, new technological developments on the sensor side, on artificial intelligence and software is really enabling better accuracy and better quality of the product, which is being sorted and also better at times.So the food market really shows a robust growth going forward, growing at a rate of 6% to 7% annually, within what we define as our core addressable market. And TOMRA Food holds the market leadership position and is the recognized brand in both fresh and processed segments. We have a technology edge, empowering us to innovate and also stay ahead of our industry. So we have a strong market position, as I said, both in fresh and processed and with a robust market share where we have the opportunity to grow in both areas.On the other hand, we have not delivered on our revenue targets or profit targets over the last few years. Now OpEx has increased to support quite an complex organizational setup because as you see and as you know, we are based on 4 acquisitions over the last years, which has never really been fully integrated. So we have 5 R&D sites. We have 4 production sites. And there is an opportunity to take out synergies by fully merging these companies into one food organization. And the timing is quite good now, both because I'm coming in as a new leader, but also, of course, because we have a slower period within the fresh segment due to lower customer demand. This poor financial performance shows the urgency and the need to really reverse this trend and ensure financial health of the Food division.So what we want to do is to take advantage of the unrealized synergies, as I said, to increase profitability and customer satisfaction. So we want to simplify our organization and our processes for faster decision-making and improved customer satisfaction. So what we will do is to create a regional structure consisting of EMEA, Americas and APAC. And within these regions, we will merge our fresh and processed sales and service organizations to be consolidated into one team. And then we will have a solution hub where we merge the operations and the R&D units into one team and one leadership for increased operational efficiency and also speed to market. And including in this also optimizing the manufacturing footprint. So we believe this regional structure will address the speed to market, as well as simplify decision-making and remove the applications of responsibility. With a closer commercial organization and also a central technology backbone, we have the foundation to capture the market growth in the profitable segments. And we have a target to take out NOK 30 million in cost by realizing the synergies related to this change. And this will bring the EBITA back to 10% to 11% at the end of 2024.Since our product is so central to our customers, it's really important that we double down on customer satisfaction. So the organizational setup brings us a lot closer to the customer, ensuring that we have the right people at the right place in the right time zone. And it really improves clarity of accountability and also the ability to adapt to the market needs. Today, with many R&D sites and also under different leadership because we have the fresh and processed organizations, we have been lacking the focus on what is actually most important projects to run to improve competitiveness for TOMRA Food. So we will now focus our R&D resources on technology that will have the biggest profitability potential and competitive edge. And we have started this change process and will be done during 2024. As I said in the beginning, the automated food sorting company is a very attractive place to be. So we will now work through this change process, which will be very demanding for all our employees, but we need to do it. And then my ambition is for us to make TOMRA Food undisputed leader and the most admired company in the food sorting industry, not only on market share, but also on profitability, customer satisfaction and with the proudest employees. And after this change, I believe we will come out stronger with a more scalable operating model prepared for future growth.Then I'll leave the word to Eva to talk about financials and outlook.
Thank you, Harald. As mentioned in the beginning of this presentation, it has been a special quarter for TOMRA. But still, we are able to deliver good growth on strong comparables from last year. Collection and Recycling performing with good top line growth and improved profitability, whilst the Food came in short. The total revenue for the quarter ended at NOK 3,515 million, a 3% growth currency adjusted from last year and improved gross margins ending at 43%, which is then up 2 percentage points from last year. OpEx has been in line with our expectations, adjusted for currency, inflation and costs related to cyberattack of approximately NOK 120 million this quarter. Our run rate for Horizon remains at NOK 80 million for the year and run rate for ramp-up in Collection at NOK 250 million, and we have not accounted for any one-off costs in Food this quarter. EBITA ends at NOK 434 million, a 12% EBITA margin, but when including the cyberattack cost, we end EBITA at 9% for the quarter.Collection has delivered a strong quarter with NOK 1,896 million, a top line growth of 11% currency adjusted, where we have had continued good sales in the Netherlands, Romania, but also Hungary, accounting for approximately NOK 250 million this quarter. As expected, we have had an improvement in the gross margin ending at 40.4%, which is then up 2.4 percentage points from same quarter last year. There has been a positive business mix this quarter on top of price increases, which are now coming into effect. OpEx is in line with expectations, adjusted for currency, including the ramp-up run rate for new markets still being at NOK 250 million for the quarter. EBITA ends at NOK 322 million and EBITA margin of 17%. So all in all, Collection has delivered a strong quarter.Looking at Recycling. Recycling has also delivered a strong quarter, ending revenues at NOK 822 million, a top line growth of 14% currency adjusted on strong comparables. As in Q2, we have seen good volumes in all segments and all markets. And North America is steady on good volumes as we have seen over the last 3 quarters. And in South America, we have had an uptick coming from plastic upgrade projects this quarter. And growth in Oceania is linked to our mining projects in that region. Gross margins are back on track, ending at 53.7%. OpEx is up from last year due to business expansion, but in line with expectations also here adjusted for currency. EBITA ends at NOK 205 million with an EBITA percent (sic) [ margin ] of 25%.And as we have said in the previous quarter, the market and Recycling has normalized after extraordinary growth over the last 2 years. The order intake is 12% down currency adjusted this quarter, ending at NOK 611 million. And year-to-date, we are up 8% currency adjusted on a strong last year. Order backlog ends at NOK 1,210 million, which is then 13% up currency adjusted. Our order backlog in Recycling is still strong, and we estimate a conversion ratio of 70% of our order backlog as revenue in the fourth quarter.Then looking into Food. Top line in Food is down 18% currency adjusted from same period last year, ending at NOK 797 million. Whilst processed food is delivering healthy growth. The setback comes from fresh, where customers have postponed project deliveries this quarter. With the decline in volume, our resources, especially then in fresh, are underutilized, resulting in a gross margin of 40%.Looking into OpEx. OpEx is up from last year as we have built the organization for higher growth, which is not anticipated in short term. And as both Tove and Harald mentioned, we are taking actions with our improvement agenda and cost reduction program. But for this quarter, our OpEx in Food is in line with the estimated run rate for the year adjusted for currency. The quarter ended with an EBITA of minus NOK 34 million.And then looking into the order intake. We see a decline of 28% currency adjusted for the same period last year. The decline is mainly in fresh, but we also see some softer dynamics due to increased interest rates, and also weak harvest in processed food. And this quarter, we have a decline in order backlog of 31% currency adjusted as a result then of the weaker market sentiment that we see. Of the ending order backlog of NOK 982 million, we estimate a conversion ratio of 85% of our order backlog as revenue in the fourth quarter.And then looking at the balance sheet. We have had some movements this quarter, which I will run through. We have now started our investments in feedstock and has a total of NOK 140 million in investment year-to-date, which has then mainly taken place this quarter. We have also increased our receivables significantly due to the cyberattack being delayed on our customer invoicing, not having access to ERP systems. We are now more or less up-to-date on the invoicing and expect the current outstanding amounts to decrease towards normalized levels than in Q4. We have increased our leasing liabilities as we have set up new Collection centers in Australia and enter into new leasing agreements for office locations in Sweden, Canada and also New Zealand. We are also in good progress on installing equipment in Victoria, Australia, which is our new [ throughput ] market, which has both increased our tangible assets and inventory with approximately NOK 100 million in total this quarter. And as a result of the increased receivables, we have had to utilize more of our credit facilities this quarter, which is then explaining the interest-bearing liabilities, which have increased this quarter.And then looking at the cash flow. We have had a negative cash flow of NOK 280 million, explained mainly by the effects from the cyberattack. Equity is still healthy at 44%, and we see an increase in our gearing as a result from the movements in the balance sheet, which I just explained.Our maturity debt level is at 2.3 years. And as a result of the increased debt levels, we have, at the end of Q3, unused credit facilities of close to NOK 270 million.And then looking into currency. Currency is an important factor for TOMRA as we report in NOK, but have limited transactions in NOK. As the table in the bottom of the page shows our exposure is mainly against euro and U.S. dollar. The movement in those 2 currencies this quarter compared to same quarter last year, having a strengthening of euro of 13% and a strengthening of U.S. dollar of 5%, which you can see in the graph illustration. Compared to Q2, we have seen a depreciation of 2% of both currencies. And as a result, our revenue of the quarter has had a positive effect of 8% from currencies compared to same quarter last year and a 0.5 percentage points on our EBITA percentage. And the impact from currency on our balance sheet compared to end of last year is positive, approximately 5%.And then over to the outlook, and we start with Collection. We expect to see continued high activity related to new markets, and our run rate for ramp-up cost is expected to stay at NOK 250 million for the year. And looking into the next quarter, we expect continued high activity in Hungary. We are currently -- we have currently installed close to 50% of our contract obligations for this market that goes live 1st of January next year. Romania, which is also a new market goes live next month, and we expect also here to have a volume close to NOK 50 million. And in Romania, we have also signed throughput list this quarter, which will then materialize over time. Ireland goes live in February next year, and we also expect the volume in this market increase the coming quarter. So we expect existing markets to continue at good levels throughout this year, as we have seen, but that new sales in the Netherlands will slow down from the strong volumes that we have seen over the last 3 quarters.And then looking into 2024, we expect the volumes coming from new markets to be softer for the first half, whilst the second half hold strong and high activity levels as 4 new markets aimed to go live in December '24 or January '25, being then Uruguay, Austria, Poland and Singapore. Our gross margins, which has been a pressure point in Collection, especially we expect to stay at current levels for the next quarter with the potential for incremental improvement in 2024. And this is based on continued price increases in combination with business mix. OpEx levels are expected to stay at current run rates in the coming quarter.And then over to Recycling. Our operation in Recycling is diversified, looking at product and customer portfolio, including then materials, regions and customer size. And the demand for recycled materials continues to drive the need for high-quality sorting and the underlying fundamentals of both commercial but also regulatory-driven for our Recycling business. We will now put behind us 2 extraordinary strong years in Recycling, currency adjusted year-over-year, given the estimated conversion ratio of the coming quarter. And again, this is estimation and not a revenue guiding. We expect gross margins to stay healthy, in line with normal variation given product and project mix as previous years. And also for OpEx level that is expected to stay at current run rate for the coming quarter.And then over to Food. Challenging macroeconomic environment, and weak harvests have delayed customer investments and then especially in our fresh food business. We expect 2023 not to deliver growth. And with the current estimated run rate for the next quarter, we expect the top line to decline approximately 9% compared to last year, currency adjusted. Looking into next year, we do not expect top line growth, given the current market dynamics. External factors are difficult to impact. But for the internal factors, we are taking clear actions. As previously presented by Harald, we have initiated a cost reduction program to take out approximately NOK 350 million from current run rates. That means 1/3 in COGS and 2/3 in OpEx, which is expected to get us back to a profitability of 10% to 11% in the end of 2024. So we take prompt actions now, and we believe that the drivers in the food market is sound with growth potential of approximately 67% on a yearly basis. And we have taken clear actions on pricing and cost control to mitigate inflation. And we do not expect any negative impact going forward as this is well managed in TOMRA. In addition, the risk related to sourcing and logistical bottlenecks remain low.And as a final note, we will continue to be exposed to currency risk as we are reporting in NOK.And with that, that's what I had for the outlook. And I think we are ready for the Q&A, Daniel.
We'll now move over to the Q&A, and we have quite a few questions coming in already. And there's a couple of questions on the cyberattack. So I just will start with that. It's partly been answered, I believe, what impact had the cyberattack on your sales organization and your revenues?And secondly, a question from [ Christian Devich ], how much of the exceptional NOK 120 million cyberattack costs are redeemable by insurance policies?
Yes. So maybe I can take that question. So as we have presented today, we are delivering a quarter with good and strong revenues. And we have not been impacted in the business as such by the cyberattack being able to deliver sales and producing and doing service.When it comes to the cyberattack cost that we currently have and we'll also have more to come in Q4 is really limited on what we can claim back from insurance of cyber.
And then we have quite a few questions coming in now on Food. So I'll start with a question from Gaurav Jain in Barclays. At the current order run rate in Food and current gross margins, it's unlikely that Food breaks even at the current OpEx cuts plan, shouldn't you be stepping up cost cuts in Food?
Yes, I'll answer that one. So the way we see it, we target NOK 30 million, and we believe that is sufficient to reach, as we said, 10% to 11% at the end of 2024. We expect the rest of '23 to be quite slow and also a major part of 2024, but we have also said that it is a good place to be in the food sorting market because the long-term growth rate is 6% to 7% within the core categories where we are going forward. So we believe NOK 30 million is too sufficient to deliver on the targets we have going forward.
And we have a question from Markus Heiberg. How much of the cost reduction in Food will come from OpEx and how much will come from cost of sales?
Yes. So it's -- of course, it's early in the process, and we are working on it now, but we estimate that 1/3 will be related to OpEx and 2/3 approximately will be related to OpEx. Did I say COGS? So 1/3 on COGS and 2/3 on OpEx. That's the current estimate.
And also from Markus Heiberg at SEB. At your Capital Markets Day, you highlighted potential M&A in Food. Is this still the case? Could we see M&A in -- and then there's a question here, parallel to Food, could we see an M&A in Collection, Recycling as well or in any adjacent opportunities? But let's start with Food.
Yes. So on the Food side, of course, there are always some M&A opportunities coming up. We -- with the current situation when we -- we now are integrating for a company. It's not the right priority for us to drive M&A. But we will not stop looking into it. It depends on the opportunity that comes. But as I said, for the next at least 15 months, that will not be on top of our priority list.
And then I can comment a bit more in general. If you then also look at Recycling and Collection and the strategies that we have there is mainly based on organic growth. We don't believe that there are large M&A opportunities there, but there might be smaller add-ons linked to, for example, technology.Of course, as part of our adjacent opportunities on our Horizon portfolio, we are continuously also screening the market to see if there are interesting opportunities, and we'll come back if there is something that comes up.
And to continue on Food, a question from [ Peter Jorgensen ]. How can it be that you only know when problems arise, start to consider the synergies from years old acquisitions in Food? And this is a bit hard to understand for an investor.
I can take it because Harald has only been in charge for a few months and not in part of that history. These 4 acquisitions, as you've seen, happened over the last 12 years. There has been partly integration happening. So from going from 4 acquisitions, we merged it into 2 units, processed food and fresh food. Then we have had a strategy, which also has been explained previously, where we wanted to balance, managing growth and operational excellence. And that has then determined also at what kind of speed the synergies were to be taken out. Now we want to utilize a weaker market sentiment to really accelerate this and focus and double down now really on profitability and customer satisfaction.
And a technical question from Daniel Haugland. When will we see the EUR 20 million costs, the one-off costs in Food hit the P&L? Will it come this year or in 2024?
Yes. Maybe I can take that question, Daniel. When it comes to the phasing of the cost, it's too early to give clear indications on when the costs will come. So we have a clear understanding of how this will -- how much this approximately will be, but we will come back to more details in the coming quarters.
And then a question from Andreas Nygard. Have you applied any Recycling technology in Food that would make a divestment, a risk to the competitive position of Recycling, if we were to divest Food?
I can take that one because, first of all, we have no plans of divesting Food. We like the Food business. I think the work that has been done now over this summer, where we have really [ feed ] into this segment, again, has really reconfirmed that this is a good segment to be in. There is real potentials here to improve the profitability and to really create value from further growth. So there is no plans about selling Food. However, the way we are structured as a company, and that's actually for all 3 divisions, we are structured in a way that they are managed fairly independently. We do share some best practices, competence, et cetera, for example, on the technology, but they are fairly independent units the way we operate it.
Good. And then one sustainability related question on this cost program of Food from [indiscernible]. Will the NOK 30 million cost reduction program have any negative impact on TOMRA Food and TOMRA sustainability targets and progress towards net 0?
No. The way we see it, as everyone has said here, is still early in the process, but the sustainability impact from the savings without knowing the details yet, will improve. I talked about optimizing the manufacturing footprint. That is one thing. We need to look at distance. We're sending equipment. It's about the number of sites. So I would believe that the sustainability impact will be positive out of the changes we are planning to do.
And then moving over to Recycling. Can you please elaborate more on the negative 16% order intake in Recycling? What portion is from metal and mining compared with plastics?Secondly, do you expect lower plastic and waste prices to profitability of your -- to affect profitability of your feedstock investments? And what is the status on offtake agreements there?
Yes. So maybe I can answer that question. When it comes to the order intake decline in Recycling, we need to remember that last year was also quite strong. And we have had a -- it's not like one segment in the Recycling business that has declined more than the others. It's really the variation across the segments. It is important to remember, even if we see a negative decline in order intake this quarter, we are a very diversified business in Recycling, operating in many markets and many different segments. So even if you would see a softer market, for example, in Europe currently on plastics, you won't necessarily see the same in other markets where they also are operating with plastic recycling.And then if the question was also on feedstock and the prices, it's too early to say. We have said that we will be operational with the 2 feedstock plans that we have committed to in early 2025. So now we are in the end of 2023. So it's still some time to go before we are up and running, and that will also take some time to be fully operational in those plans. Of course, when it comes to the agreement, this is still a work in progress, and we have high activity and high interest on the feedstock. And we will come back to more information when those can be announced. But not necessarily any big concerns related to feedstock given the current market.
And then moving over to Collection. We have a few questions on that division, starting with Scotland. A question from Adela Dashian in Jefferies. Could you please provide any update on the exit plans in Scotland?
Yes. So maybe should I take that one as well? So we have -- as we said in Q2, we have done downscaled the organization in Scotland because of the postponement of that market into 2025 and then the risk of further delays. We have then downsized the organization. We still have some people working in Scotland, but then providing services for other markets such as, for example, Ireland. We have taken most of the cost related to redundancy already in Q3.
And new markets, Singapore is one coming up, a question from Elliott Jones. Do you expect similar market shares here as we have in Europe?
We don't indicate market share per country. In all new markets, we are positioning ourselves to make sure that we can take a significant share of the market. And so far, also in the markets that are -- have gone live and the markets that are due to go live now over the next months, we have been happy and satisfied with the market shares that we have attained.
And then a question on digital deposit return schemes, question from [ Esther Rosenbaum ]. Would TOMRA be able and interested in doing a digital deposit return scheme?
There is quite some bust around what is called digital DRS. I'm not sure if all of our listeners are aware of what that is because all kind of deposit schemes are digital, but this is about can you have a deposit system where you don't use a regular RBM technology and rather, you have used collection systems at home with scanning, for example, the bottles with your mobile phone?First of all, I want to highlight that our division is called Collection. It's not called reverse vending machines. So our focus is actually collection of beverage containers. And one of the key targets we have in Collection is the number of containers that we are collecting. So, of course, we are constantly looking at alternative collection models, if we think they would be more efficient. Currently, in Europe and given the current maturity of these kind of systems, it's hard to see that they will play a role there short term. But this is something that we are looking into. And I'm very committed that if somebody is going to disrupt our business, that is going to be us.
And moving more specifically over to France, a question from Markus Heiberg as well. How do you see TOMRA's position -- how is TOMRA positioned to France and other markets moving forward with these digital solutions based on [ cure ] codes and the water -- digital watermarks made this cause a shift in your growth ambitions from Collection and towards Recycling?
Yes. I mean, we believe that we have good growth opportunities in Collection and in Recycling and also in Food also, we have come through this downturn. We believe that we are well positioned in France, both to take advantage of a reuse, refillable market that we think will appear. Also now because what is France doing when they're not implementing deposit return scheme is that, they want to utilize more than normal collection route in municipalities, which also will increase then the need for sorting at the waste management facilities because they are going to take out then, for example, the beverage containers there. We also see it's going to give an opportunity in our sorting business. So I don't see this decision that has been made in France now really altering our future outlook for Collection. We believe that there are significant growth opportunities going forward there, both in Europe and then also outside.
And how does France is positioned not to implement DRS system impact your view that 1/3 of EU will implement DRS systems within the next 5 years that we said at the Capital Markets Day? A question from Niclas Gehin in DNB.
So we know that these decisions about implementing a deposit return scheme is not a straightforward decision. We know that it's a lot of different stakeholders that take part in those decisions, and there are many different use that are being weighed through it. So we are not surprised that there are some bumps in the road versus our targets, and we have never assumed that everything will go straightforward. We do see good momentum in any country. So we should not kind of forget that. Yes, of course, it was disappointing to get France announcement this quarter, but it was very positive to get Poland announcing the going ahead. We have now over the next months, we have Romania, we have Hungary. We have Victoria. We have Tasmania coming next year. So you still see there is movement in many countries. So this is not something that surprised us. It's disappointing. And when we get a decision like that, we'll look at, "Okay, how can we then still make a profitable and good business in France?"And also based on our experience, we -- it's difficult to see how France is going to meet the target set in the Single-Use Plastic Directive through the measures that they are now putting in place. So we don't see this as a final decision. Based on the only proven method to be able to deliver on the targets in the Single-Use Plastic Directive, the only proven method is through a deposit scheme. No other countries have shown that you're able to do that without it. So no, this doesn't alter our view on the opportunities going forward and nor the targets that we have set up.
And if -- a question from Gaurav on the ramp-up costs. If Collection revenues are lower next year and new markets and less new markets going live, will the new market development cost of NOK 250 million go away?
Yes. So when it comes to the ramp-up costs, as we have said before, we are having a flexible organization, really running new markets, and we are ramping up when it's needed to do that for preparation of new markets. So the ramp-up costs will vary between the different quarters or between the different years based on the activity levels in the Collection.
And then moving over and talk a little bit more about the whole group. We have a question coming in from [indiscernible]. I understand all 3 business divisions have huge growth potential. What is the current TOMRA global market share in each of the 3? And where do you want to be at the end of this decade?
I like that. First of all, we have ambitious targets. We want to be the global technology enabler for circular economy and resource optimization. On actual targets, we have not communicated end of the decade. We have communicated 2027 where we want to be twice as big as we were last year. And, of course, we want to also, in 5 years, have positioned ourselves to further growth in the years to come.On market share, we are not giving out specific market shares, but we have leading positions in all the segments that we are operating in. And we are significantly larger than #2 in all the segments that we are operating in, which really then position ourselves very different than our competitors and also can enable us to then afford more innovation and technology developments that will be key to read it and achieve the targets of the asset.
And [ Stephen Walker ] noted your recent trip to Asia, Tove. What opportunities are there in Asia over the next 3 to 5 years?
Yes. So I spent a couple of weeks in Asia in August, focusing on China, Vietnam and India. I think Asia is, of course, an interesting opportunity for us. We're still -- we already have good sales, both within food sorting and the Recycling into Asia, much more limited than on Collection.If you look at China, it's an interesting market for both food and recycling sorting. On the Collection side, we are now implementing a couple of pilots linked to deposit schemes. We participate in a pilot in Hong Kong and also a small pilot in Xiamen where we have our operation. I think short-term, it's not going to be a significant development on deposits in China, but the medium- to long-term, I think definitely is an interesting opportunity.Also, what we then see in the rest of Asia is that, we see an increased implementation of EPR, Extended Producer Responsibility. And that is typically the first legislation you need to have in place if you're really going to drive increased Collection and Recycling rates. So both, for example, Vietnam and India, they do have an EPR now in place for packaging. So that creates interesting opportunities for us. I think we need to think different in these markets. I don't think we can copy directly our setup in Europe or the kind of solutions we have in Europe, but the principles will be quite the same.So I think if you look short-term, short- to medium-term, the main growth in TOMRA will still come from Europe and North America. But medium- to long-term, I think there are really interesting opportunities in Asia. And what we are doing now is that, we have small teams there, we are very keen to do some pilot tests to see that we can then really find the right solutions because we can't expect these countries to go from where they are today with almost no waste management infrastructure into the really advanced setup that we have in Europe and North America. So it was very interesting, very inspiring, and we have some concrete kind of opportunities there short-term to really then pilot and test new solutions in those interesting markets to come.
We're soon running out of time. We have a few more questions, but I just want to take one technical one on the cyberattack costs. Will there be -- or what will the Q4 cyberattack cost fee that we have guided on that will come? And will this be the end of additional cyberattack costs?
Yes. So when it comes to the cyberattack cost, we have had NOK 120 million this quarter. And then we anticipate based on how we are running the rebuild structure today and what we need to get up and back into operation again when it comes to the internal systems to be at a run rate at year-end at approximately NOK 200 million. But then we need to come back to with more details when we are reporting Q4.
And with that, we'll have to conclude this presentation. I know there's a few more questions that have come in, but please feel free to forward them to myself from Investor Relations, and we will make -- do our best to answer those questions.The next time we will be here is on the 15th of February when we present our fourth quarter results presentation. In the meantime, have a nice day. Thank you for tuning in.