Tomra Systems ASA

OSE:TOM

Earnings Call Analysis

TOMRA Posts Record Revenue in Q4 2023

Despite challenges, TOMRA achieved record revenues in Q4 2023, with the Collection and Recycling divisions seeing rises of 26% and 18% respectively. Overall, the company reported quarterly revenue of NOK 4.1 billion, a 10% group increase, and a currency-adjusted annual growth of 11% totaling NOK 14.8 billion. Although Food division sales declined by 20%, a restructuring program is underway to improve EBITA to 10-11% by year-end. Gross margins climbed to 44%, thanks to pricing strategies. Operating expenses increased, attributed to business expansion, growth, currency, and inflation, leading to an EBITA of NOK 626 million. Special item costs related to a cyberattack and Food division restructuring amounted to NOK 374 million. The firm's cash flow was notably strong at NOK 1.3 billion. The Board suggests an 8% higher dividend of NOK 1.95 per share, matching the company's payout policy. TOMRA maintains ambitious growth and profitability targets, with a strategy focused on sustainability, resource optimization, and circular business practices.

TOMRA's Record High Revenue and the Quarter's Financial Highlights

Despite the myriad of challenges faced in the past year, TOMRA achieved record-breaking revenue and results, particularly in its Collection and Recycling divisions. The company's Q4 revenue reached an all-time high at NOK 4.1 billion, marking a 10% rise for the group. This growth was driven by a staggering 26% and 18% increase in the two successful divisions, Collection and Recycling, respectively. However, the Food division underperformed with a 20% decline. Gross margins also showed a positive trajectory, with an increase to 44% for Q4, primarily due to strategic price hikes over the year. Operating expenses rose due to expansion and inflation, but exceptional results were still achieved with an EBITA of NOK 626 million. Special items, including costs from a cyberattack and the Food division's restructuring, had a significant impact, but TOMRA still managed a robust cash flow of NOK 1.3 billion for the quarter.

TOMRA's Journey in Collection and Expansion into New Markets

2023 has been a rewarding year for TOMRA's Collection division, delivering impressive performance across all regions and markets. The division saw the introduction of new deposit return schemes in Victoria, Romania, Hungary, and Ireland, accompanied by growth from both new and existing markets. Seven markets further modernized their deposit return systems, including Quebec, where TOMRA signed a significant agreement to provide approximately 1,350 machines over three years. Not resting on its laurels, TOMRA continues to innovate, with more than 500 TOMRA R1s, the multi-feed reverse vending machine, installed globally, and its commercial testing of the subsequent model TOMRA R2. With eyes set on the future, several markets have announced upcoming deposit return schemes, indicating a pathway for further growth for TOMRA.

TOMRA's Recycling Division: Sustained Growth and Softening Market

After consecutive years of robust growth in the Recycling division, the end of the last year saw TOMRA's business size increase by 46% compared to two years prior, all through organic growth. Despite a softening market, especially in the plastics sector due to falling PET prices and higher interest rates, the division still realized substantial revenue growth in Europe and Americas during the quarter. To drive further growth, TOMRA is banking on innovation, particularly in AI, where it has taken a 25% stake investment in PolyPerception to optimize its advanced material sorting system. Yet, the company is aware that the explosive growth seen in the past years will likely taper down.

Maersk and TOMRA's AI Innovation in Recycling

TOMRA's investment in recycling innovation is exemplified by its efforts in AI, particularly through its venture with startup PolyPerception. This collaboration aims to enhance secondary plastic sorting by increasing yields and reducing contamination. Deep learning technology, a part of TOMRA's innovations since 2019, is now being used to innovate and penetrate new markets by enabling sorting of entirely new material streams, such as separate food and non-food plastics, critical for regulatory compliance in food-grade recycling.

Reshaping the Food Division with Strategic Restructuring

Notwithstanding the financial struggles in the Food division, TOMRA has been proactive in executing a restructuring program with aims of achieving a 10% to 11% EBITA run rate by the year's end. Struggling with weak market sentiment and lower investment willingness among customers impacted by increased interest rates and poor harvests, the division saw a 20% drop in revenue. However, strong performance in processed food, especially in the potato segment, brought some reprieve. TOMRA has initiated significant changes, including the relocation of production facilities and reduction of operational sites and employees, to realign the division towards profitability.

TOMRA Horizon Ventures: Forging Paths in Circular Economy

In addition to its core activities, TOMRA is venturing into adjacent opportunities through TOMRA Horizon. These initiatives aim to address essential problems in circular economy and resource optimization by utilizing TOMRA's technology and know-how. Ventures include TOMRA Feedstock for high-quality plastic fractions, a venture in textile recycling given its low circularity, and TOMRA Reuse targeting the issue of single-use takeaway packaging. The latter was piloted in Aarhus and involves a full circular system for reusable packaging with the potential to penetrate many other cities upon regulatory support to favor reuse over single-use packaging.

Comprehensive Outlook: Solid Financial Foundation and Future Prospects

TOMRA closed the year with solid financials. Q4 brought in revenue of NOK 4,123 million, showcasing an upward currency-adjusted trend of 10% from the previous year. Collection saw remarkable growth with 26% increased revenue at NOK 2.3 billion and an improved gross margin of 41%. Recycling also delivered strong results, with 18% currency-adjusted growth, generating NOK 877 million in revenue and a 52% gross margin. The Food division registered a 20% decline in revenue at NOK 938 million and a gross margin of 42%. Despite these challenges, the upcoming quarters show promise, with substantial order backlogs across the divisions and an enhanced cash flow from operations soaring to NOK 1.3 billion for Q4.

Earnings Call Transcript 2023-Q4

[Daniel Sundahl, executive]

Good morning from Asker, ladies and gentlemen, and welcome to TOMRA's Fourth Quarter Results Presentation for 2023. My name Daniel Sundahl, and I'm Head of Investor Relations. And today, our CEO, Tove Andersen, will give you the highlights of the quarter and tell you a little bit more about our reuse pilot. And afterwards, CFO, Eva Sagemo, will dive deeper into the numbers. At the end of the presentation, we will open up for Q&A for participants in the Teams webinar. The link to the webinar can be found in this morning's stock exchange release, as well as in last week's invitation.

But without further ado, I give the word to Tove.

[Tove Andersen, executive]

Thank you, Daniel, and welcome to all of you from me as well for our Q4 result of 2023. I'm really proud that despite the challenges we have faced during the year, we are presenting today an all-time high revenue for TOMRA and record results both for Collection and Recycling in the quarter. We have delivered on our -- the growth ambitions for these 2 divisions. We have recuperated the gross margins as promised, and we are delivering a really strong cash flow in the quarter.

However, we are not satisfied with the results in Food. It is not in line with our expectations and what we believe is the potential for this business. But as communicated last quarter, we have taken actions and the restructuring program is progressing according to plan, and we are on track to deliver then a run rate EBITA of 10% to 11% by end of the year.

Let's then dive into the financial highlights. So this quarter, we are delivering a revenue of NOK 4.1 billion. That is 10% up for the Group, very strong growth, both in Collection and Recycling, 26% and 18%, respectively, while we were down then 20% in Food. For the year, we have a growth of 11% currency adjusted, delivering then a total revenue of NOK 14.8 billion.

It's been very pleasing to see the improvements in gross margin during the year, and for the quarter, it ended up on 44%, driven by our focus on price increases during the year. And for the quarter, Collection and Recycling is the main reason for the improvement. While in Food, the gross margin is down, but that is due to the lower volume in the quarter.

Operating expenses for the quarter is NOK 1.179 million, up versus NOK 979 million the same quarter last year. The increase is mainly driven by business expansion, our growth, currency and inflation. We are continuing to invest in our business to continue to position ourselves for the growth that will come. That means that we have done an EBITA adjusted for special items of NOK 626 million, up from NOK 496 million same quarter last year.

The special items in the quarter is linked to the cyberattack and food restructuring. So in total, we had a one-off cost of NOK 374 million, NOK 86 million then on cyber and NOK 288 million for the food restructuring.

Cash flow in the quarter was very strong, as we had a normalization effect after the cyberattack, and we delivered then NOK 1.3 billion in cash flow from operations.

On order intake, Recycling had a healthy order intake in the quarter, NOK 774 million, which is up then 11%, which gives us then an order backlog end of the year, which is 5% higher than the order backlog the previous year. In Food, the order intake was up 15% to NOK 1.1 billion. The positive development was linked to a large order in the potato segment.

On dividend, the Board will then propose a dividend of NOK 1.95 per share. That is an 8% increase versus last year. And it is then, as a ratio of our adjusted EPS, 55%, which is in line with our dividend policy that we should pay out between 40% and 60% of EPS in dividends.

In TOMRA, we have an ambitious strategy. We believe that we are uniquely positioned to take advantage of the global megatrends linked to sustainability, resource optimization and food scarcity. Our strategy is to accelerate growth in our core and develop adjacent opportunities, while we want to become a fully circular business, and a safe, fair and inclusive place to work.

As part of our strategy, we also launched at our Capital Markets Day 1.5 year ago, ambitious targets linked to doubling our revenue from 22% to 27% and to lift our EBITA margin to 18%. We are on track in Collection and Recycling in line with our strategy, but we have had setbacks in Food. Despite that, our targets stay firm. We believe that the mitigating actions we're doing in Food and also with other actions in our business, we will be able to recuperate the losses that we have currently seen or that we are lagging in Food that we already recuperate that going forward.

Now I will give then you an update first on our core and then on the adjacent opportunities. So when we talk about core, we talk about our 3 divisions: Collection, Recycling and Food. Collection have had a very strong year in 2023 and a very strong quarter this quarter. And it's very pleasing to see that we see good performance from all markets and all regions and it's both existing and new markets. It's been a busy quarter. You will see here on the right-hand side or right-hand side, the new markets that have implemented deposit return schemes since our last quarterly presentation. Victoria, Romania, Hungary and Ireland have all gone live with the deposit system, and we have seen a good growth in the quarter linked to these markets.

But also, what we have seen is that there have been significant amount of markets that have expanded or modernize the DRS system. So what does that mean? That typically means that they might change the deposit value, they might increase then the number of containers that are going through or type of containers that are going through the system. And we have actually seen 7 markets that have expanded or modernize their DRS system since Q3, Quebec, Queensland, California, Connecticut, Germany, Austria and Greenland.

And one highlight in the quarter is the agreement that we then signed in Quebec with Quebec Beverage Container Recycling Association, where we will then serve the recycling depots with approximately 1,350 machines over the next 3 years.

Also, as part of our growth strategy in Collection, it is to drive growth in existing markets with innovation. And it's very pleasing to see that we now have more than 500 TOMRA R1s. This is our flagship RVM, the multi-feed version. We now have over 500 of those installed in more than 16 countries. And the new version of that one, which is the R2, which we launched on EuroShop last year is also now being commercialized, and we have installed the first machines into retail stores for testing. So it's very good to see that also through innovation, we are then continuing to drive growth also in existing markets.

So what's coming next? You will see here on the lower right-hand side, the markets that have then announced that they will introduce the deposit market going forward. And then, you'll see, it's Uruguay, Tasmania, Austria, Poland and Singapore, as previously also communicated.

Then over to Recycling. Recycling have had a very strong year as well in 2023, and also, they had a very strong year in 2022. So they've had 2 really strong years. Actually, if you look at our revenue end of last year, it is 46% higher than 2 years ago. So we have grown 46%, and this is currency adjusted. So the business is 46% bigger in 2 years, all organic growth. So it's been an amazing journey. And we also then see in the quarter that we have had continued good revenue growth, both in Europe and Americas, and especially then in the waste sorting segment.

But also, what you will see from the order backlog and the order intake is that the market is softening, and this is we have been communicated for quite some time that we have expected this and that we expect that the growth will slow down that we will not see the same this year, as we've seen in the last couple of years. Why is that? You will also see here on the graph, the PET prices, both the virgin and recycled PET, it has had a decline. Interest rates have gone up. We do see, especially in the plastic segment, that there are less willingness to invest currently.

Then on -- in Recycling, our strategy in Recycling on driving growth is not only about we're growing with the market, but also really innovate and shape new markets through innovation. And as part of our innovation strategy in Recycling, AI play a significant role. In TOMRA, we actually have incorporated the AI in our sensor-based machines for a long time, and that includes those for mixed ways for metal and for good sorting.

And there is really used to complement and enhance our existing machines. We actually launched the first -- the industry's first deep learning technology into the market in 2019. And when you then combine this with the traditional sorting system, what this technology does is that it brings then the final product qualities and yield to the next level with much more granular sort.

As an example, the latest AI technologies can sort opaque PET, and of course, from transparent bottles, which was very difficult for a traditional or a typical optical sorter. For Maersk, yields can be increased, while contamination is then reduced for secondary plastic sorters. But in addition to combining this with our traditional sensors to kind of enhance the sorting, deep learning can also enable sorting of entirely new material streams. And this is, of course, important if you're going to increase circularity of materials.

One example of that, through AI, you can separate then food and non-food plastics. And this is important, as the regulatory landscape evolves on greatest and stringent indices for food grade recycling. So today, we are, as part of our AI efforts in Recycling, we are announcing an investment in PolyPerception that we take a 25% stake in PolyPerception.

PolyPerception is a small startup but a pioneering startup and they are offering then AI-based waste flow monitoring. We began collaborating with them last year. And by expanding now this cooperation, we can combine them their advanced material sorting system with our sorters to then optimize and provide for customers an end-to-end optimization and creating value for the customers that way. So it's a very exciting development that is really a key part of our strategy on driving growth through innovation and creating new markets.

Then over to Food. As I said in my introduction, we are not happy with the financial performance of Food, but we have taken actions to mitigate it. If you look at the market sentiment, I would say, the market sentiment is similar to what we communicated in Q3. It is a weak market sentiment in fresh food, driven by profitability at our customers due to a bad harvest is linked to higher interest rates and then not a willingness to invest in new facilities. Processed food is continuing to perform well, and that's also why we see the order intake in the quarter has improved.

But as we announced in Q3, we have launched a cost reduction program, which is then on track. We have the target to save EUR 30 million of cost, and that should be our run rate savings by end of this year. We have booked then NOK 288 million in one-off costs for this quarter, which will then represent the majority of the restructuring cost.

Just to give you some ideas or some insight into what we are doing. For example, we are relocating production from New Zealand to Slovakia. In New Zealand, we had 2 production facility. In Slovakia, we already have our main production facility, where we produce both food and recycling sorters. So we are relocating production to there. We are, in total, closing 11 sites that have been announced. We have also announced a reduction of 279 employees. And we are then on track on delivering on what we have said we want to deliver by end of this year with a run rate of 10% to 11% EBITA.

But it doesn't stop there. So we are also not happy when we are at this 10% to 11%. We have also many other initiatives not only cost reduction initiatives that will then lift the margin further going forward. So that was an update on the core. And the main part of TOMRA's value creation and capital allocation in the coming year will be through accelerating profitable growth in our 3 core divisions.

However, in parallel, we will develop and scale up adjacent opportunities that complement and broaden our portfolio, and this is what we call TOMRA Horizon. So why do we do that? In TOMRA, we want to lead the resource revolution. We have created a unique position by working within circular economy and resource optimization for 51 years. We have leading technology. We have a unique know-how and competence. So we want to utilize that to solve some of the key problems that exist in the world linked to circular economy and resource optimization, and at the same time, create profitable businesses for TOMRA.

So what we are doing here is that we're looking for problems, where we have a competitive edge, a right to win, but also problems that have the potential to scale to become a new leg of TOMRA, #4, #5 leg of TOMRA. So we have a set of criterias that is opportunities need to meet. So it needs to be scalable. It needs to be ready for ripe for kind of scaling or for harvesting now. So it's not R&D, it's really business building. And it also needs to have the potential to meet our financial ambitions. So we do this to accelerate our growth. We do this to diversify our business to create and increase revenues, and also then to create value both for our customer shareholders and society and generations to come.

What do we have in this portfolio today? We have 3 ventures. We call them ventures, but this is in-house teams working on this dedicated teams. We have the closing the gap in plastic recycling. We call it TOMRA feedstock. Here, we'll leverage our expertise from our Recycling segment and the knowledge that we have built up there for many, many years on how we can turn really household mixed plastic waste dirty into fractions that are high quality and with high purity that can enable then recycling. And here, we have then announced 2 investment plants that will come on stream during next year.

Then we have our venture linked to textile. Again, here, we leverage also our recycling competence. Textile is the least circular material in the world, less than 1%. It's a huge greenhouse gas emitter. Circularity of textiles or recycling a textile will be part of the solution, not the only element, but it will be a part of the solution. So here, we want to create a new circular value chain, where we come in with our sorting expertise.

And then, we have our reusable packaging initiative. We call it TOMRA reuse, where we want to solve the problem with single-use takeaway packaging. And in this quarter, I will give a bit of a deep dive into what that is really about.

We call the system, Rotake. So what is the problem that we are solving here. The problem is that there is a huge number of containers, coffee cups, hamburger trays, sushi trays or single-use packaging used every day, causing litter and causing high greenhouse gas emissions. So what we are developing here is a solution. It's a full circular value chain for then reuse takeaway packaging. It should be an open managed system, so many actors can be part of it. And it's really with an collection technology at the core.

So what does this mean in practice? Or what is the system about? It is, if you are then, for example, in a big city, you want to have a coffee cup, you go into a coffee shop, you buy it, you get it in a reuse cup, you pay a deposit on it. You consume it and there will be collection points then spread out in the city, where you will then be able to deposit it. You will tap your credit card, you will put it into the machine, you will get your deposit back. It will then be collected, transported, sanitized and return to the cafe.

And I was in Aarhus, last month when we then launched the first pilot here. So we then actually launched the first ever Rotake system in Aarhus. So if you go and that's Aarhus in Denmark. So if you travel to Aarhus, you will see there that we have 40 cafes that is part of this, 40 cafes, where you are then offered instead of a single-use coffee cup, you get a reuse one, you pay then DKK 5 more, but that will be refunded when you are returning it to an RVM.

You'll see the picture here of the RM, which is a modified RVM from our Collection division. We are also now developing a new version of this that also could take other kind of takeaway packaging not only coffee, which will then place probably later this year. But today, you will find 29 of these machines spread out in the city, where you then can return it.

20,000 cups at the launch. 50,000 more cups to be delivered in -- now in February. The cafes or the eateries, they pay DKK 1.5 per rotation of the cap. So that is the income that we're getting from it, and that is on par within a single use, what they will pay for a single-use cup.

We -- this is a cooperation between us and the municipality in Aarhus. And as part of this pilot, we are investing NOK 15 million to support it. And it is important for us that this is a more sustainable solution than single use. We have done already some studies on that, and our assumption based on those studies is that if you get 6 rotations of this, the greenhouse gas emissions will be lower. But this is also things that we want to verify with the pilot. So the pilot is about verify the technology, verify that solution, but also verify the assumptions on how to create a system here that is more sustainable than single use, and, of course, also will then reduce litter.

On technology, I talked already about the collection points, which are important, really building on our RVM technology, but also then expanding it to other types of packaging over time. We also have a serialization, as part of the technology here. So all these cups are then serialized, which means that there is a unique code on each cup. Why is that important? Because the deposit is quite high, and you need to be able to activate it. So then the unique code enables then to ensure that we have a good integrity of the system to avoid fraud.

And there is a digital backbone here as well. We have developed a web shop. We have payout services. We have the clearing and invoice and everything, and the whole system has then been designed by us. So very, very exciting.

So then to say a bit about, so what could then be the potential of this venture? If you start then with the problem that we're solving. So if you look at Europe and you look at the consumption of takeaway containers, it's annually approximately 25 billion containers that are consumed every year. That creates 80 million tonnes of waste. And if you go to a city and Aarhus, for example, they have done that study. Approximately half of the waste in their waste bins in the city is linked to this. In addition, of course, this is a big litter problem. If you go in a big city, Saturday morning, Sunday morning, what you see is really litter of takeaway packaging. So that is a problem. So that creates a substantial market opportunity for players like us.

If we assume that this will be implemented in the 15 largest cities in Europe, approximately 30 million to 40 million people living there, on average, studies have shown that on average, the person consumes then 50 containers per year, so -- and then assuming a 50% adoption rate, 98% return rate, we get that the potential then would be 1 billion containers that will be in circulation every year. So it is a significant potential. And this Aarhus part has created quite a lot of interest for many other cities. Also, we want to use it to -- as a window for other cities to engage with them to create and really how we can penetrate this market opportunity.

But there are some key drivers that need to materialize to ensure that we will get the system that is scalable and profitability. We believe there will be a need for regulatory support either through bans or through quotas or incentives for reuse. It also needs to be profitable to use reuse versus then single-use packaging.

And also, we believe that it's extremely important that we'll use that product now that this is designed in a way that it is easy and convenient to use to really get high adoption rates. So that was an update on our ventures and how we are focusing on also then creating additional opportunities through our venture.

And I will then hand over to Eva, who shall go through the financials and outlook.

[Eva Sagemo, executive]

Thank you for that, Tove. Very exciting with this reuse concept in Aarhus, and we're looking forward to see that later this year.

So over to the financials and the outlook. We are very pleased to see that we have delivered a solid quarter now in Q4. We are up 10% currency adjusted compared to same quarter last year. And both Collection and Recycling has delivered very strong quarters. And Food is on track on their restructuring program as well. So we are pleased to see the progress there going forward.

Our revenues ended at NOK 4,123 million in the quarter, so very strong performance. Gross contribution, it's ended at NOK 1.8 billion, which gives us a gross margin of 44% this quarter. And it's satisfying to see that we have been able to lift our margins or improve the margins quarter-over-quarter this year.

Our operating expenses ended at NOK 1,179 million in the quarter, which is up 13% currency adjusted from same quarter last year. And within that operating expenses, we have costs related to our future business building, such as our ramp-up cost in Collection, but also our investments into Horizon.

The EBITA for the quarter ended at NOK 626 million before we adjust for our special items. And our special items is the one-off costs that we have taken related to cyber, but also to our food restructuring program. So cyber ended at NOK 86 million in the quarter, slightly above what we indicated in Q3, but in line. And we have a restructuring cost in Food of NOK 288 million. So our EBITA after adjusted for special items ends at NOK 252 million in the quarter. So overall, a strong performance this quarter.

Then looking at Collection first, and Collection has delivered a very strong quarter. We have seen good momentum in existing markets and new markets. And for new markets, we have approximately NOK 400 million, as revenue coming from Romania, Hungary and Ireland together. So good performance in new markets this quarter. But we have also seen that we have managed to deliver good growth in existing markets also this quarter. So revenues were up 26%, currency adjusted, which gives us a revenue of NOK 2.3 billion in the quarter for Collection.

Our gross margins have improved again this quarter. So it's good to see that we have delivered on what we said starting the year with improvement quarter-over-quarter. So in this quarter, we ended at 41% gross margin.

Our operating expenses was NOK 537 million in the quarter, which then includes the ramp-up costs, but also some one-off costs related to extra efforts into R&D and IP.

Our EBITA ended at NOK 416 million in the quarter, which gives us a strong EBITA percent of 18%. So overall, a very strong quarter for Collection.

Then moving to Recycling, and also Recycling has delivered a very strong quarter this quarter. So up 18% currency adjusted on top line. And we see that we have had a good volume in Europe and in the Americas and then also in our waste sorting segment. And that segment is our largest segment in Recycling.

So revenues ended at NOK 877 million and a gross margin of 52%. So we have seen that we have recuperated our margins in Recycling and delivered a strong margin again this quarter in Recycling.

Operating expenses of NOK 256 million gives us an EBITA of NOK 201 million in the quarter, also here with a strong EBITA margin of 23%.

And then looking at the order intake in Recycling, we are up 11% on the calculated order intake this quarter, ending at NOK 774 million. That gives us an order backlog for the year, which is up 5% compared to end of last year than currency adjusted. So an order backlog of NOK 1.1 billion. And out of that NOK 1.1 billion, we estimate that approximately 50% will go into revenues in the coming quarter, so Q1, 2024. So also here, a very strong performance in Recycling this quarter.

Then moving over to Food. And for Food, this has been a very challenging year. So both related to the market sentiment on higher cost of capital for our customers to take investment decisions, but also that they have utilized the crop, have not been able to utilize the crop due to climate crisis and bad harvest. So our revenues in the quarter was down 20% on high comparables. And this 20% decline is not coming, as a surprise, as we have seen that the order intake over the last year, especially then in fresh food has been weak.

It's good to see that processed food is still healthy, and it's mainly driven by the potato category, which is in a good cycle this year again. So that has been driven the revenue and also the order intake in the quarter. So our revenues in Food ended at NOK 938 million with a gross margin of 42%. Operating expenses ended at NOK 331 million, so a decline compared to same quarter last year, as we can see that the savings -- some savings are already materializing in this quarter. So EBITA ended at NOK 63 million, which is down 7% EBITA before we adjust for the restructuring cost. And when we announced the Q3, we said that we estimated restructuring cost to be approximately EUR 20 million.

When we now have executed on the restructuring program, we have decided to relocate out of one more location than what we foreseen back in Q3. And even if that will not give us correlated savings this year in 2024, the decision was based on future optimization and potential savings in operations going forward. So we have chosen to take that cost in extra this quarter as one. So special items, food restructuring ended at NOK 288 million, which is approximately EUR 25 million in the quarter.

Looking at the order intake, we had a 15% increase, currency adjusted on our order intake and through this quarter, mainly coming from that strong potato or that good potato order in the quarter, which gives us an order intake of NOK 1.1 billion in the quarter.

Our order backlog is down 3% currency adjusted ends at NOK 1.143 billion. Out of that, the NOK 1.1 billion, we estimate that approximately 55% will then be taken, as revenue in Q1 '24.

We ended the year with a solid balance sheet and a very strong cash flow from operations. Then in Q4, we have managed to increase our -- or deliver very strong cash flow of NOK 1.3 billion. That is coming from this release of the bottleneck that we had in the aftermath after cyber, which we saw in the very low cash flow in -- from operations in Q3. So it's -- we're happy to see that we have been able to recuperate that and can deliver a strong cash flow in the quarter.

Our equity ratio ends at 42% for the year with a gearing of 1.6x.

And then as Tove mentioned in the start, the Board will propose a dividend, which is 8% up from last year of NOK 1.95 per share, which then represent the 55% of the EPS adjusted.

Looking at our financial position, ending the year, our weighted average debt maturity of 2.2 years and we have unused credit lines of approximately NOK 570 million.

And then over to the currency, which we always talk about, that is an important factor for TOMRA, as we report in NOK, but we have limited transactions in NOK, as you can see on the table in the bottom of the slide. The movements in our main currency, which is then euro and U.S. dollar has -- the euro has strengthened 12% and the U.S. dollar 5% in the quarter. And as a result of that, we have a positive effect from the currency of 9% on top line and a 0.6 percentage point on our EBITA this quarter. And also, the impact from the currency on our balance sheet is positive with 5% ending the year.

And then over to the outlook. And starting with Collection, we have delivered a very strong year in Collection, almost NOK 8 billion in top line. and a very strong Q4. And we expect that pace -- that good pace that we have seen in Q4 to continue into the new year. So we see that we have good activities in Hungary, in Romania and Ireland, but also in the Netherlands now in Q1.

So we expect Q1 to be strong, then followed by a bit softer Q2, as we anticipated also in Q3. And then that the activity will then pick up again towards the end of the year. So in second half, preparing for new markets that will come along, mentioning Poland and Austria. If we look at the full year, we expect a more flattish top line, but then with an improved profitability overall.

Looking at the ramp-up cost, the run rate for that for the full year, this year, in '23, we have had approximately NOK 250 million run rate for the year. Going into next year with a bit lower activity and new markets being kind of like part of the existing markets now since they have gone live, we anticipate a ramp-up to be around NOK 200 million in a run rate for the year.

And we also expect margins, so gross margins in Collection to stay above 40% and to be healthy going forward as well. And everything relates to the -- that we continue on this price increases in combination with a positive business mix that we foresee for the full year.

Then looking at Recycling. We have put also here behind us a very strong year in Recycling on top of 2 strong years before. But currently, we see a bit softer market sentiment. It is related to, one is commodity prices and the cost of capital. So overall, we expect a more modest growth going forward into 2024, but still a growth in the high single-digit area. But of course, everything depends on the development in the market. So this is given the information that we have currently.

We expect gross margins to stay good and strong in Recycling going forward, which will also be impacted by the variation of what we sell and where. So it's no doubt that looking at the longer horizon mid to long term, that attractive growth opportunities in this segment will give -- will be attractive for TOMRA, so that there come good opportunities for growth in Recycling going forward because we believe that the demand for recycled material will still be highly relevant.

And then over to Food. As I said earlier, this has been a very challenging year for Food. One thing is the external factors with the macroeconomics and the -- but also on the crop side of things. So we have seen that customers have delayed investments, especially then in fresh, a more healthy situation in processed. And then 2024 will be a year, where our main focus will be on profitability. We don't anticipate growth that will not be our focus. We will strive to deliver on the target for delivering an EBITA margin of 10% to 11% end of the year.

And what is good to see is that we are on good track to deliver that. We have taken good actions now with the restructuring program, decided on locations to close down and also employees that need to leave TOMRA. But all in all, we are on track to deliver on this one. So that would be very -- that will be our key focus going forward to turn around Food and to deliver good profitability in the end of the year.

And then when it comes to the restructuring cost, we have taken EUR 25 million now in 2023, and that is a major part of that restructuring cost. We don't expect high numbers to come in, in '24 related to the restructuring costs based on the information that we know now. But in the range of EUR 1 million to EUR 1.5 million is still to be expected in 2024.

And why do we do this? Why do we spend or invest into restructuring Food is because we believe in this market, we see clearly that in the mid- to long horizon that the need for automation and increased quality and safety for food is -- will drive this industry going forward.

And then looking at our Horizon, which is not on this slide. We have had a run rate of NOK 80 million in the year. So in 2023, we expect that to increase to NOK 100 million in 2024, and that we also will continue investing into our 2 facilities for plastic sorting. And we were -- when we report Q1, you will see Horizon split out from the rest of the existing business divisions.

And then one note on the sourcing and logistical risk, this is being monitored. And we have assessed that to not be material based on the current information, but we will need to come back to that if that will be significant.

And then as a final note, we will continue to be exposed to currency risk, as we are reporting in Norwegian kroner.

And with that, we can move over to Q&A. Daniel?

[Daniel Sundahl, executive]

Thank you, Tove and Eva. And I'm glad to see that we already have a few analysts, who have questions prepared. So we will start with Gaurav in Barclays. Please go ahead, Gaurav. You're now unmuted. Please go ahead and ask your question. We have Gaurav with us.

[Tove Andersen, executive]

This is the first time we did a live Q&A.

[Daniel Sundahl, executive]

It's the first time we try live Q&A.

[Gaurav Jain, analyst]

Can you hear me now?

[Daniel Sundahl, executive]

Now, we hear you Gaurav. Thank you very much. Go ahead.

[Gaurav Jain, analyst]

Sure. Thank you so much and apologies for that. I didn't see, I was myself on mute. Good morning to all of you. A few questions from my side. So Eva, just to hear again the growth rates that you're highlighting for FY '24. On Collection, you are saying revenue growth rate will be approximately flattish; on Recycling, it will be high single digits; and on Food, what should we expect? I didn't hear a number for Food, like what should we expect for Food growth rate for next year?

[Eva Sagemo, executive]

Yes. So we don't expect the growth in Food for next year, and we didn't say any figures related to our percentage in Food. But not to expect the growth because the main focus will be profitability.

[Gaurav Jain, analyst]

Sure. And then secondly, on the margin front, if I heard it clearly that on the Collection side, margins will improve because the startup cost will go down by NOK 50 million, and then also that the underlying business, which -- if you could just remind us, what were the new market contribution for this year, that will disappear, underlying business will continue to grow let's say, 10%, which should lead up to scaling up of gross margins, as well as EBIT margins. So should we expect like 100 basis point to 200 basis point margin improvement in Collection for next year?

[Eva Sagemo, executive]

Yes. So I fully understand your question, and we don't guide on the margin. So we give, I guess, kind of like a high-level overview of where we expect to land. So improved profitability is what we have said.

When we look at the new markets in 2023, that has accounted for approximately NOK 1.1 billion of revenues in '23. And then we know that 2024 will be a bit different from last year because we don't have that many new markets coming along in 2024.

And when it comes to the gross margin, we expect to stay at the good level that we are now in average, but everything depends now on the business mix that we have in Collection. So the mix between service and sales of new machines and also throughput. But we don't guide on the exact margins.

[Gaurav Jain, analyst]

Sure. And one last question. You are thankfully now breaking out the contribution from Horizon's. You said NOK 80 million last year, NOK 100 million this year. But I guess, the big ramp-up happens in FY '25 when your plastic cans also come online. So how should we think about the Horizon side into FY '25?

[Eva Sagemo, executive]

Yes. So when it comes to Horizon, we have activities related to now setting up the new facilities and building the organization across the 3 activities that we have in Horizon with reuse textile and the feedstock plastic initiatives. So 2024 will be preparing for that and then we anticipate to go into operations with plants in 2025. But we will need to come back to more information on the feedstock plants in the coming quarters. I'm not sure if you want to add anything on that one, Tove.

[Tove Andersen, executive]

Yes. So our plan is that we'll do updates on the different ventures through the quarterly presentations, but also, we are planning to have a Capital Markets Day in September this year, where also we will give more insight in how we foresee the scaling of the ventures going forward.

[Daniel Sundahl, executive]

Our next question will come from Elliott in Danske. Please go ahead, Elliott.

[Elliott Geoffrey Jones, analyst]

Hey, guys, can you hear me? Yes. Congrats on the numbers. First question on the sorting side. Just on the conversion rates, I think 55% and 50%, respectively. Is there -- could you give some color as to the why that's dropped a bit. Is it just seasonality? Or is there anything else there? Can you just give us some color on that?

[Eva Sagemo, executive]

We're looking at recycling. It is a bit softer than what we have seen previously on Q1. We need to remember that Q1 is always a bit softer when you look at the quarters within the year. But then also looking at our order backlog, we see that the lead time for the orders in that backlog is a bit longer than what we have seen before. And that is something that has developed over time in relation to what kind of projects you have. So we see that we have an increased number of larger projects, and that takes longer time to put into delivery, so compared to the order mix that we have had in the past. So not necessarily any dramatic there. It's just the mix of the orders in the pipeline.

[Elliott Geoffrey Jones, analyst]

Got it. And then on Food, with regards to order intake, I know, you mentioned there was kind of one bigger order there. Could you give an indication of the size of that order? And also, are you seeing any type of improvement to the overall kind of investment demand going forward in Food?

[Tove Andersen, executive]

I can start and then you can add detail. When you look at the overall market sentiment in Food, we will say, it's similar now than it was end of Q3. So it is still a quite challenging market sentiment, especially within fresh food. So we do see, and we expect that to continue throughout the year. And when will it actually pick up again, that will depend on interest rates. It will depend on crop prices. It will depend on harvest. It doesn't take away from that we believe in the medium to long term, this is a market that will grow 5% to 6% underlying. That has -- we have seen in the past and that is confirmed that is really driven by the need for automation and the increased quality requirements for food sorting.

But short term, I would say that the market sentiment is currently similar to what it was, processed food, okay, but that is really in the potato segment that are strong, and this will end within -- well, it's difficult to say exactly, but that will end over the next period. Fresh food being down. So overall, soft market sentiment, but not worsening, but also not improving.

[Elliott Geoffrey Jones, analyst]

Got it. And then sorry, just could you give any color on the size of that order?

[Eva Sagemo, executive]

No, we don't give specific signs of single orders, but it's a good order coming in on the potato, which we have also seen in previous years, as well in the potato segment.

[Elliott Geoffrey Jones, analyst]

Got it. And then one more for me. Just on the adjacent opportunities, that was helpful with the color. Could you just give some -- I don't know like an overview of just in general, I don't know like returns expected for that segment and maybe margins as well and the current states of those Norway and Germany facilities?

[Tove Andersen, executive]

Yes. So as I said, we have criteria that all of these ventures needs to meet for us to kick them off. And one of the criteria is that they should meet our profitability targets. So they should have an opportunity to then be in line with, for example, our 18% EBITA. We will come back with more details on each venture, as part of the Capital Markets Day in the autumn and also the mid -- expected return on investment.

But of course, when we announced, for example, the 2 plastic feed surplus, we have indicated also the return on capital that we expect from this, which is in then the range from 10% to 20%, depending a bit on the different plants. The plants are in progress, and we expect then that they will go into operation during next year. But then, of course, there will be a ramp-up phase before you actually get into full scale.

[Daniel Sundahl, executive]

Thank you, Elliott. We have 2 more analysts in line to ask questions. Next one is Daniel at ABG.

[Daniel Vårdal Haugland, analyst]

I think I'm unmuted now. So congratulations on delivering both on restructuring your Food then, and also a really good quarter otherwise. I think maybe the key question from my part is relating to the Food. Obviously, you answered a bit to Elliott just a minute ago. But I think this is quite important because you said in your remarks, Tove, that Food sentiment is quite similar to Q3. Still, the orders are up 70% quarter-on-quarter. Now it's obviously at a similar level as Q2, and this varies a lot from the quarters, but I don't think we've ever seen the kind of volatility in orders that we are seeing now, at least in Food. So sitting externally, this is a bit confusing. And maybe then to paraphrase Elliott -- some of Elliott's questions a bit -- was it so that Q3 was kind of abnormally weak with the current backdrop? Or would you say more like Q4 was normally good?

[Tove Andersen, executive]

Yes. No, I understand that this creates a bit of challenges. And I think for the Food segment because of being kind of exposed to crop variations, we will need to expect some kind of quarter-by-quarter variations in food. And we see that also in general, for example, in processed food, this is typically large food companies that are our customers here. So the orders are much larger. While in fresh food, they typically will be smaller pack houses, smaller orders. And that's why you can have this significant variations when you get some large deals.

So my recommendation is to look more on 12 months rolling. When you look at order intake and order backlog for Food because then you will get better the trends and not focus so much on the quarterly variations. But overall, I would say the market sentiment is the same. Fresh food. It is soft. It's not that we don't expect the underlying market there to grow at 6% this year. Processed food, it is continuing to be strong. It's been an investment cycles in potato that is continuing, but that is going to end at some time. I'm not sure, Eva, if you have something to add.

[Eva Sagemo, executive]

Nothing to add.

[Daniel Vårdal Haugland, analyst]

Okay. And still on Food here, I just had this one more question. I think you, Eva, mentioned that you don't expect to see growth for the year in Food. By that, are you meaning that you expect it to be flattish? Or are you just expecting it to not be a positive? That's my question.

[Eva Sagemo, executive]

So we don't expect growth. So that's one thing. And I think with Food is very difficult to really say here in the start of the year, how we would foresee the year to end up, given that we have so much given the market sentiment, I would say. So we would be a bit cautious on giving indications of where we would end up, but we are not necessarily planning for growth in Food. So that's what I can say today on the Food situation.

And as you know, in Food, we have a mix of orders. Some orders are large and take a longer time to deliver. But also, we have some orders that are quicker to turn around and to deliver in the market. So we know more when we stand in the mid of the year than in the start of the year. And the reason why I'm so hesitant to say anything on this one is because the market sentiment has not improved compared to what we saw 1 quarter ago.

[Tove Andersen, executive]

At the same time, I want to add that also the market sentiment currently isn't weakening either. So it is stable. And based on what we believe and see today, we believe it will stay stable before it improves.

[Daniel Vårdal Haugland, analyst]

Okay. And maybe just the last one. Would it be possible to say anything about what would a large order in Food constitute? Obviously, I know, you can't or don't want to say what that order was, but what's the kind of ranges of a large order? Is that like in the NOK 150 million to NOK 300 million range? Or is it like below NOK 100 million or... yes. Historically, how would that look?

[Eva Sagemo, executive]

Yes. We don't go into those details, Daniel.

[Daniel Sundahl, executive]

Thank you, Daniel. And we'll have a final question from Adela in Jefferies. Please go ahead, Adela.

[Adela Dashian, analyst]

Just one final one for me because most of my questions have already been asked and answered. But going back to this pilot launch in Aarhus, could you give us some more or maybe share some light on what kind of -- what the time line is for this? And when and if then if it is a successful pilot and you get more traction into other countries, when could we expect a bigger push into other areas of Europe?

[Tove Andersen, executive]

So the pilot in Aarhus is running for 3 years. That is a 3-year pilot. But of course, we are, at the same time, looking for other cities outside Aarhus to also go ahead with them. So that's one of the things that we focus on, and we hope that also we will get other cities interested. I mean, there's been a lot of attention and interest from many large cities on that, which means that hopefully, we could have another city going live. I don't expect it this year, but definitely within that 3-year period.

At the same time, we're also actually developing a festival solution. I didn't mention that when I presented, but we're also developing that, that we want to pilot this year. Festivals is a perfect kind of setting because it's a closed community, also a heavy user of takeaway beer cups, wine cups et cetera. And also, many of the festivals are now really promoting themselves to be green. So on the festival solution, we also plan to pilot it this year. And that is also a solution that I think could quicker be scaled up, while the city solutions will take a bit more time.

[Adela Dashian, analyst]

And I would assume that this is more of an innovative journey rather than you're creating the market, just like you did with the initial RVMs.

[Tove Andersen, executive]

Exactly. So this is creating a totally new market that doesn't exist today. There is a lot of focus on reuse options, especially in Europe currently. And of course, it's also discussed as part of the packaging and packaging waste directed to potentially put reuse targets in there. So we see there is a lot of interest in many cities and countries for then reuse options to go away from single way packaging and then this takeaway segment is really an important segment. So I think it's a very good example on how we can utilize the technology and the know-how we developed in the deposit markets that have been focusing really on beverage containers and use that into another segment.

[Daniel Sundahl, executive]

Thank you, Adela. And I see we have 2 last questions that have come in from this side. And just to follow up on reuse, where Ian is asking, love the Aarhus project, but what is the business model? Tove said shop owners pay DKK 150 per cup to whom? And does this cover the cost of all containers cleaning and distribution, et cetera?

[Tove Andersen, executive]

Yes. So here, we want to be a solution provider. So we want to provide this solution to a city, which means that our revenue stream will come based on number of cups that is rotated. So each time a cup is rotated like in Aarhus, we get DKK 1.5. And then it's about how many cups do you have in the system and how many times that this rotated that you can then estimate the revenue.

In Aarhus, we actually do everything ourselves. So in Aarhus, we are the ones that are delivering the cups. We are the ones that are picking them up. We have a washer ourselves that we wash it. In future cities, my expectation is that we will be the solution provider, but that we will have partners on the logistics, we will have partners on doing the washing, but it's our system, and we are the one that are providing it, and we then get paid per cup going through it, which will give us good recurring revenue.

[Daniel Sundahl, executive]

And we are at the very end. But just a quick one from Andreas in Kepler Cheuvreux, which is most representative for order intake growth in Recycling Q3 or Q4?

[Eva Sagemo, executive]

Yes. So on the order intake, we don't guide on the order intake going forward. So what we have said is the expectations for the year. And then we know that the conversion ratio on the orders is approximately, yes, 4 months to 6 months on the Recycling side and a longer lead time on the mining side of things, and that's what we will comment related to that question.

[Daniel Sundahl, executive]

Good. Thank you, Tove and Eva, and thank you, ladies and gentlemen, for tuning in this morning to our fourth quarter results. The next time we will be here is on the 26th of April with our first quarter results for 2024. Thank you very much. Have a nice day.