Good morning and welcome to our first quarter 2022 results presentation. My name is Georgiana Radulescu, and I'm heading Investor Relations here at TOMRA. With me today I have Tove Andersen, CEO and Eva Sagemo, CFO, who will take you through the results. The session is live from our headquarters here in Asker, Norway. You will have the opportunity to pose questions using the Q&A tool which is embedded in the webcast. Because there is a slight delay between the live session and the webcast, we would ask you to pose those questions in good time, and if possible, also during the presentation so that we make sure we receive everything in time. With those being said, I will pass the word to Tove.
Thank you Georgiana and welcome everybody to this quarterly presentation. Quarter to date that we are presenting, Q1 2022, has been a quarter where we have seen continued growth, good delivery performance, and an increased order backlog. This positions us very well for the next period. On the other hand, the margins have been hampered by the challenging supply and logistical situation. If you look at the revenue, the revenue is 10% up versus Q1 last year to NOK 2.501 million. We have seen an increase in revenue from all divisions. Collection is up 3%, Recycling and Mining up 56%, and TOMRA Food up 1% versus a good quarter 2021. Our margins are two percentage points down versus Q1 2021 to 40%.
We see lower margins in all divisions, mainly due to supply chain challenges and inflation. However, product mix has also played a role. We have a good OpEx control in this quarter. Our operating expenses increased with 4% versus last Q1 in 2021, up to NOK 760 million. In that we also have increased our investments in future-oriented activities. This then resulted in an EBITDA in line with last year of NOK 237 million. The cash flow generated in this quarter is NOK 166 million, which is down from NOK 269 million last year. This is mainly due to increased inventory to safeguard deliveries. Also in addition, we had relatively high sales in March.
We had increased our receivables at the end of the quarter. Order intake very strong in the period, up to NOK 1.537 million. This is 16% up, and we see a positive momentum in all segments. We are up 35% in Recycling and Mining, and 4% in TOMRA Food. We end Q2 with a very good momentum in all segments and an all-time high order backlog of NOK 2.177 million, which also is up 16% currency adjusted versus last year. Other things we want to highlight is that our priority in this quarter is really about delivering on the customer expectations, and we have managed that. There has not been any significant delays.
However, this has meant that we have had some increased costs to secure components. In addition, due to contract obligations in certain segments and markets, there is a delay of being able to pass on the increased cost to our customers. However, this has strong focus from the organization. We are continuously increasing prices, we are engineering out expensive components, revising contract terms and so forth, which will give an effect going forward. Let's then go into the different divisions. First, Collection, which then sustained growth in the quarter. Last quarter, I talked about Slovakia and our startup in Slovakia, where we went live with the new deposit return system first of January. This quarter, I wanted to highlight Latvia. Latvia went live in February with a deposit return system.
In this system, TOMRA has been selected as the provider of RVMs. A few key figures on the system. The market is estimated to be around 500 million containers annually. 1,000 automated collection points is what we are installing in the market. The targets or collection targets set by the system operator is very much in line with the EU Single-Use Plastics Directive, so 77% by 2025 and 90% by 2030. They've introduced a EUR 0.10 deposit value which should be seen as a good incentive for the consumer to return the containers. This is then a throughput market, so we have invested NOK 20 million in the equipment being installed in the market, and we will be paid per container that goes through the RVMs.
The revenue impact from the go-live in Latvia is not really significant in Q1 and we will gradually see this come into our revenue as the number of containers will be increasing during the next quarters. It's been a tremendous effort from the organization to get this scheme up and running, and we thought we would share with you a small video from that process. It's been great, you know, to see how the organization has been able to deliver on this system and on Slovakia from scratch, and it gives us, you know, confidence that we have the right setup and organization to be able then to meet the future new markets that will come. A few other comments to the quarter. We saw a good momentum in existing market. We saw growth, continued growth in Northern Europe.
Germany was normalized after a very good quarter last year. Good development in North America, increasing revenues from there, while in Australia, due to the heavy rainfall, the volumes were down, however, compensated by other markets in that region. In addition to that, the increased steel sales into Slovakia and equipment sales into Romania ramping up for the system going live there has generated an additional growth in the quarter. I wanted to give you a short update on some of the new deposit markets that are in the pipeline. We do have a strong pipeline of new markets. What you see on this slide is the markets that have official communication around going live or upgrading their systems. Netherlands will expand their current deposit system to aluminum cans from first of January next year.
This will then be collected through retailers and we expect to have growth coming from that. Romania has communicated that they will go live with a deposit return system, originally with a deadline this year. However, there might be delays, but the good thing we see is that we do see already retailers now buying equipment to be ready for that go live. Quebec will upgrade their existing system, and we expect that to happen during next year. There are processes now to define that. Ireland has communicated that they will introduce a DRS. However, they have not communicated the time yet. As communicated before, Scotland came out with a new timing of the go-live, which is August next year. We see activities in Victoria and Tasmania.
They have now started a tender process for their schemes that will then go live next year. In Connecticut, they will have a phased modernization of the scheme, first expanding containers coming into the scheme, then increasing the deposit value. Austria has communicated that they will go live with deposit in 2025. Of course, there are activities in many other markets, especially then in Europe, where it's currently being evaluated how they're going to meet the targets of the EU Single-Use Plastics Directive. Over to Recycling and Mining. As commented in the introduction, Recycling and Mining had a very good first quarter, both on the revenue side and high order intake. However, it is fair to comment on the revenue side that also Q1 2021 was a low quarter.
However, Q1 2021 was strong on order intake, and we have an increase of 35% on top of that. We see good momentum in all the segments. If I take metal recycling and mining first, we see solid growth. In general, this is driven by high raw material prices. However, we now really see also that emission reduction efforts and increased energy prices is another factor that are driving the growth and really high demand for scrap metal. Also good in quarter is that we have seen an increased interest in mining application. Then if you go to waste sorting and plastic recycling, continued good momentum, especially then in Europe and North America and we see high activities in all market segments. This is driven by, of course, increased focus on getting recycled content, but also higher commodity prices.
The graph here shows the price of PET versus recycled PET. You see both how the level is increasing, and of course, oil is the main raw material for PET. Also interesting to see how the gap between recycled PET and regular or virgin PET is also increasing, highlighting the strong demand that we currently see for recycled plastic. We also included here an example, which is an interesting example of developments that we are seeing in the market, and that is Viridor's Avonmouth plant, which was opened in the quarter. Typically, for high quality plastic recyclers, what we have seen in the past is focus on PET, but we now see projects where they are looking at different types of plastic.
This sorting facility or recycling facility have three sorting lines, PET, HDPE and PP. They have then bought 15 of our AUTOSORT machines and six of our AUTOSORT FLAKE machines. On this picture here, the orange boxes that you see, that is our sorters, and these are the ones that are then enabling them to create qualities on this recycled material on 99%. That means that the quality is so high that actually you can use it in exactly the same way as virgin PET. They say they're going to take 1.6 million bottles, tubs and trays through this facility, and that will give a reduction of 120,000 tons CO2. Another interesting development we've seen in the U.K. this quarter is that the Plastic Packaging Tax now has gone live.
They have gone live with a Plastic Packaging Tax, or tax of GBP 200 per ton. If you are an importer or a manufacturer of plastic in the UK and you have less than 30% recycled content in your plastic, you need to pay a tax of GBP 200 per ton, which will be an additional driver to increase the profitability of the business case to invest in recycling. Over to the food division, where we have seen a positive development in this quarter with an increased order intake of 4%. We do see a positive investment sentiment in all the segments that we are operating in and both in processed food and in fresh food. In processed food, in general, good demand signals from the food service.
Of course, what we're seeing currently with high inflation, also challenges to get labor, and this we particularly see in the U.S., and to keep and retain labor, are increasing and supporting now the investment in automation even more than in the past. Fresh food segment also good momentum, and this quarter we have especially seen growth in citrus and cherry. Last quarter, when we presented Q4, we talked a bit about the importance of exhibitions for order intake in food. Of course, during the COVID, this has then halted, those kind of exhibitions but we are now seeing that they are starting up again. In March, we had the Fruit Logistica in Berlin, which is the largest exhibition for the fresh food segment.
I was there together with our TOMRA team and it was really nice to have the engagement and the physical engagement again with the customers, and also to then get a feel that the overall sentiment is good. Also, what was good at that exhibition was to see how we, as TOMRA, stood out compared to our competitors. We're coming with several innovations, while in general, there were very few innovations coming from our competitors. We showed two innovations on our machines in addition to our digital applications. What we presented at the Fruit Logistica is first of all an upgrade of our machine 5C. That is a machine for frozen vegetables and fruit application.
What we have done here is that we have redesigned the machine so that we have increased actually the throughput of it, so you can have the same quality, high quality sorting, but at a higher throughput, which is of course extremely important for pack houses to have the efficiency. Also another thing we have done here is to design it to make it easy to clean. Food safety is very important for processing and pack houses and then to have machines that are actually very easy to clean and where you can do that very quickly and efficiently is a key selling point. We got really good feedback on this equipment at the exhibition.
The other thing we presented there is for our blueberry solution, where we are providing, you know, more or less an end-to-end solution for the blueberry processing unit, and this is a robot for packing. If you look at pack houses today, where you still have the most labor, it's typically at the end of the line where you are putting it into the packaging because often there is many different varieties and it's difficult to automate. This is an innovative solution which is also very flexible and it's going to be very exciting to see how the development of the sales will continue on that. It's designed for blueberries, but it's also something we can transfer to other segments afterwards. That was the update on the business.
I will then hand over to Eva, who will give you an update on the financials and the outlook.
Thank you, Tove. As always we start with the currency impact for the quarter and as you can see on the movements in the USD and EUR versus NOK, that really makes no significant impact for the quarter for TOMRA. We will also in this presentation show comparable figures from Q1 2021 with this quarter's currency rates for FX purposes. If we look at the P&L for the group, as Tove said, Q1 has been a quarter with continued growth, and the increased order backlog is really positioning us well for the next period to come. However, we see a lower margin in this quarter, which is mainly explained by the supply chain and logistical challenges.
When we look at revenues, it's ended at NOK 2.501 billion, which is up 10% currency adjusted compared to same quarter last year. We are up in all business divisions, so collection up 3%, recycling & mining up 56%, and food 1%. Our gross contribution ended at NOK 996 million, which gives us a gross margin of 40%. As Tove said, that is two percentage points down compared to same quarter last year. The main reason again is the supply chain disruption and also the logistical challenges, but also product mix and project mix. We have maintained good control of our operating expenses, up 5% compared to same quarter last year, ending at NOK 760 million.
We continue to invest in future initiatives, but also in new markets in collection. That gives us an EBITDA of NOK 237 million, which is slightly down compared to same quarter last year and ending with an EBITDA of 9%. If we look at the TOMRA Collection first, as I said, up 3% compared to same quarter last year, ending at 139.3 million NOK. We had a strong quarter, first quarter last year with a very good momentum in Germany, but also the Netherlands introducing small bottles to their existing deposit scheme as of mid-2021. This quarter, we see a really good momentum in the Nordic markets, especially a good impact from the R1 machines.
As Tove said, a good momentum in the North America market with volume but also product mix. In Australia, as we had the heavy rainfall back in the quarter, which has, of course, had an impact on the volumes, but that is now picking up again. In the rest of the world, we have compensated revenue in other countries in that region. Also in new markets, we have a good momentum. Slovakia also delivered good sales in the quarter with the remaining installations in that country. Also in Romania, we see a good momentum that where retailers are preparing for the introduction of the DRS.
Gross contribution ended at NOK 538 million, which is 3 percentage points down from same quarter last year. Again, it's explained by the normalization from a very strong quarter, same quarter last year, but also the product mix and our supply chain disruption and spot price purchases. That gives us a gross margin of 39% for the quarter in collection. Maintain also good cost control on our operating expenses in the quarter. It's up 5% compared to same quarter last year, and it's mainly due to that we continue to invest in new markets. As we communicated in Q4, we have increased the run rate for this year.
Now at NOK 150 million for the year, giving an average NOK 35 million-NOK 40 million a quarter per quarter in the year. Our EBITDA ended at NOK 207 million in collection, which is down compared to same quarter last year, and it gives us an EBITDA of 15%. If we look at the Recycling & Mining, a very good quarter. Revenue's up 56% compared to same quarter last year. As Tove said, first quarter 2021 was a weaker quarter for Recycling and Mining. This quarter, we see a very good momentum in all regions and all segments, and especially the metal segment stands out. We came in at a conversion ratio of 70%, where we estimated a conversion ratio of 60% in Q4.
Our gross contribution ended at NOK 236 million, which is 2 percentage points down compared to same quarter last year. Again, here, supply chain disruption, inflation, freight, project, and product mix is the main reasons for that. Good cost control also in this business division. We have operating expenses of NOK 146 million, which is up 10%, but that is that we continue to invest in future initiatives and within our circular economy division. That gives us an EBITDA of NOK 90 million with a percentage of 18%. If we look at the order intake, it's all-time high. It's up 35% compared to same quarter last year, which also was a good quarter on the order intake.
It's really commodity prices, as Tove mentioned that is a high driver for this, but also the efforts to reduce emissions and carbon footprint that fuels the demand for recycled material. Our order backlog ended at NOK 857 million, which is up 20% and all-time high. Now for the quarter, for the next quarter, we estimate a conversion ratio of 65%. I would like to emphasize that this is of course not guiding, but just an indication for the quarter. If we look at food P&L, we ended the quarter at NOK 618 million, which is up 1% compared to same quarter last year.
We had a conversion ratio of 60% versus the estimated 65%, and that is mainly related to delays on our customers' end and also impacted by their side on the freight challenges. Also, in this segment, we have a seasonality in the first quarter with the winter and the Nordic chemical fairs. Q1 is normally a weak quarter in food business division. Our gross contribution ended at NOK 222 million with a gross margin at 36%. Again we see the same factors in this business division with inflation and also supply chain, but heavy impact on the freight cost challenges in this business division.
Especially for food is that the freight in Asia region has really increased in prices but also delays and constraints on ports. For the food business, 40% of our revenues so our machines are produced in New Zealand and China. That's why this business division is heavily impacted by the freight challenges that we see now. Our EBITDA ended at -NOK 28 million. Order intake ended at NOK 893 million, which is up 4% compared to same quarter last year. We see a really good demand in the business, and that is mainly because of the increased labor cost, which drives the investment for optimization in food.
Order backlog ended at NOK 1.321 million, which is all-time high and up 14% compared to same quarter last year. For the coming quarter, we estimate a 65% conversion rate, which again is not guiding, but it's 65% on a very strong order backlog for ending Q1. If you look at the balance sheet, maybe we can start with the cash flow. We ended the quarter with a cash flow from operations of NOK 166 million compared to NOK 269 million in the first quarter last year which was a strong cash flow that quarter.
The main reason for that is that I will mention as well in the introduction that our working capital is up compared to the same quarter last year, and it's mainly because we have built up our inventories to secure our deliveries going forward, but also that we had higher sales in March, which resulted in an increase in our accounts receivables. We have a solid balance sheet, 53% equity ratio and a net interest-bearing debt over EBITDA at 0.5. We have a very solid financial position, debt maturity of 1.8 years and also available unused credit lines of approximately NOK 131 million.
If we go to the outlook, if we start with the collection, there is high activity related to preparation of new markets. As we have communicated before, the first half year of 2022, we have no new markets introducing DRS, so it's preparing for what's coming. We are optimistic of the pipeline in the new markets towards the end of 2022 and also of course going into 2023 in the markets that were highlighted by Tove Andersen. Our quarterly performance will be dependent upon timing of the new initiatives and, of course, the performance in our existing markets as well. If we go to recycling & mining, we have a very positive momentum and we assume that to continue with the high commodity prices and the demand for recycling materials.
We have estimated a 65% conversion ratio of a very solid backlog in recycling and mining. If we go to food, good demand signals and investment sentiment and our customer activity levels remain at a high level. We are optimistic on the mid- and long-term perspective, both in fresh and processed food segments. We estimate a 65% conversion ratio of our Q1 backlog, which also is at a very solid level. If we look at the supply chain situation, of course, shortages in supply chain and the logistical challenges are expected to continue also going forward.
We can mention lockdowns in China due to COVID-19 and also the situation in Ukraine that might add additional complexity. The component price increases and inflation will continue to impact negatively in the short term. We are positive. We expect positive development going forward, but, of course, some pressure on the margins will continue to be the case. In the longer term, we are confident that margins will be at a satisfactory level in line with previous performance. Of course, the currency. We are exposed to currency as always, and yeah. I think with that Tove, we will go. Georgiana, we will end this session and move to the Q&A session.
Thank you, Eva. We have received a number of questions, so I will start with the first question, which is from Fabian Jørgensen from Carnegie. You mentioned price increases. Do you expect this to fully offset the cost inflation, and when should we see an effect?
Yeah, I can take, or I can start and then you can talk a bit more on the details on different divisions and timeline. First of all, we don't believe that the margin level in 2022 Q1 should be seen as a reference point for the future. We expect a positive development, and as Eva just said, we expect over time that we are going to come back to the levels that we have had in the past. However, depending a bit on division by division, we have different timelines. Perhaps Eva, you can briefly explain that.
Yeah, absolutely. It is a difference in the different business divisions that we have. In collection, we have larger frame contracts, and the adjustments on the prices are really up for renewal of the contracts. Of course, we will try to increase prices wherever we can. The time lag in collection, we will see, will drag more out in time. We will, as Tove said as well, expect the price increases to step up and take off some of the extra costs that we have in this business division. For Recycling Mining, we are doing price increases quite often. Of course, the lag in Recycling Mining will be approximately.
The lead time for our machines are at level of six to nine months. That, of course, we will see an impact going towards the end of the year. Also in food, we have a shorter lead time, talking about four to five months. We will see that the price increases will take off some of the pressure on the margins going forward.
The next question which I believe you answered already, it's from Timothy Becker from Swedbank. Assuming input costs remain constant, how long is the general lag between price hikes to fully offset higher input costs? I think Eva elaborated that part.
Yeah.
Is there anything more to add?
No, I think yeah, we are fine on that one.
Yeah.
The next question is from Fabian Jørgensen from Carnegie: You have made initial sales to Romania. What is the updated timeline, and when do you expect the bulk of RVMs to be rolled out?
Romania has gone out with a decision to introduce DRS. Originally, it should go live in October 2022. We don't believe that they will be ready to fully go live, so we believe that it will be a bit delayed. There is no new official deadline, but as I communicated and said, you know, it's good already in this quarter, we see, you know, the key retailers starting to move. We expect that gradually our sales to Romania will increase over the next quarters.
Thank you. The next question also from Fabian: How do you expect margins to develop throughout this year?
Yeah. It is, of course, a similar question to what we've had before. As Eva explained, our different divisions have different timelines. We're using all the opportunities we have to reprice, and we believe and are confident over time that we will pass on this cost to the customers. We also have had some, you know, the logistical cost that we have had. Some are a bit more on/off, where we are paying to secure components. Those will be one-offs that will keep or disappear. The other thing is, you know, to add the inflationary elements onto the pricing of customers. We're also then changing, for example, incoterms.
We have a lot of production in China and New Zealand for the food segment, and that's why we're seeing additional impact on freight costs there, where we have been responsible for the freight. We are now also making sure that we change incoterms so that that exposure to the freight market will be at the customer and not with us.
Thank you Tove, and I think you also answered the question from Ole Bang-Andreasen from Tower House Partners, regarding what concrete measures are you taking to work your gross margin towards historical levels?
Yeah. Also what I didn't mention now but as I highlighted, we are actually also looking at how we are designing our products, and we are actually engineering out some of those components that we see are very expensive to get cheaper ones. That's also one other activity that we're doing.
Thank you. The next question is from Timothy Becker in Swedbank: For the Recycling Mining segment, can you give an approximate percentage split between waste recycling and metal mining recycling in terms of sales and orders?
Yeah, the rough split is that 70% is waste and plastic, and 30% is metals and mining. Also as Eva commented, in this quarter we have seen then a special positive momentum in the metal segment.
Thank you. The next question is from Pete Monn from Carnegie. Straits Times reported that Singapore is rolling out RVM full scale next year. These markets are not mentioned in your presentation. Do you see the process in collection going faster?
What we put up on the slide is the markets that have communicated that they have a firm decision to implement DRS. There is a lot of activity in many other markets, both in Europe, but also, for example, in Singapore. We actually in this quarter opened our experience center in Singapore, where we have now made a center where you can come and really look at different RVMs, and people can understand and learn from it. We are of course engaging in these markets where there are concrete discussions. Singapore is currently doing a feasibility study on it. When that is finalized, we expect that they will conclude on the decision to go ahead with the DRS scheme and how it's going to be.
Thank you. The next question is from Daniel Haugland from ABG. Could you give some flavor on how much of the year-over-year gross margin decline was explained by product mix versus underlying sourcing costs due to shortages, price inflation, for both collection and the sorting business?
Okay. As Eva commented, we have had both inflation and product mix. In general, the product mix is mainly impacting the collection and the recycling division. The rough figure is probably half to 1 percentage point that is explained by product mix, and the rest is then supply chain issues.
Thank you. The next question is from Ole Bang-Andreasen from Tower House Partners. Can you elaborate more on the strong Recycling & Mining segment? Two very strong quarters. Are these large projects the new normal?
Yeah. It's a very good momentum in the recycling and mining segment, and of course a lot of factors are driving this. As we mentioned, of course, the high commodity prices, but also that we as the consumers required recycled material in our products, but also the responsibilities on the producers. Everything is driving in the right direction in this business, and so it's really a demand of recycled material. I don't know if Do you want to add something to -
No, I think as you say, it's good momentum in all segments. Of course here we have the kind of global trends really aligned with the business opportunities.
Yeah.
Thank you. The next question is from Daniel Haugland. Northern Europe revenues in collection were materially up versus both last year quarters and last year. What explains that?
Yeah. In North America, it was -
North Europe.
Europe sorry, sorry. In Nordic, we see the sales of R1, which is really contributing positive in that market, both in 2021, but also now going into 2022. It's a really good that machine is very well received in the market. That is the main reason for the good momentum in the Nordic market.
Yeah. I think it's interesting because you can see then how innovation and product innovation can drive growth in the mature market. Also now we have done our first sales of R1 to Germany, so it's going to be interesting to see how also we can roll that out to other markets outside Northern Europe, because currently it's really been Northern Europe that has been the front runner on R1. For those that don't know the R1, that's the one where you instead of come and you put one and one bottle in, you can come with a bag of beverage containers and push it, pull the whole bag into the RVM.
Thank you. The next question is from Aurelio Calderon f rom Morgan Stanley. Can you please elaborate on the margin decline in food? How much is down to seasonality, and how much to inflation supply chain? Why are the margins so seasonal in the division?
Yeah. In food, of course we had several headwinds in the food. I want to talk about freight. As we mentioned earlier, we have 40% of our food division production in New Zealand and China. With the food freight challenges that we see in that region is really impacting our margin. We are doing, as Tove said, everything that we can do in all our business divisions to look at Incoterms and how we have treated the freight element in our contracts going forward. In addition, as we communicated in Q4, we had a higher conversion ratio expected for this quarter, so we have also an underutilization in our production. We really was ready to deliver on a higher level.
That is the main factors in food. On top of that, we have also the supply chain disruption also impacting the margins in food. As I explained, we have the lead time on our machines, which is three to four or even more months.
Yeah.
Of course, the seasonality is driven by seasonal products that we are supplying machines to. And that's why Q1 is always a low quarter of Food, because they, of course, want to do investments, et cetera, in line with when the food, the fruit and vegetables are produced and not produced.
Thank you. I think we have one last question, which is sorting both Food and Recycling Mining, coming from Daniel Haugland from ABG, by the way. How should we think about OpEx levels for the next couple of quarters? Recycling & Mining is materially down versus fourth quarter. Was there any one-off there? Food OpEx is flat. When is cost inflation coming here?
With the situation we have, we are focusing on our costs, and we maintain good control of our OpEx, and that is something that is important to do when we have this extraordinary inflation situation all over the world. In the Recycling Mining, we continue to invest in the circular economy segment, and that is of course something that will continue also going forward.
Yes. I think, what we have said is that we have had good OpEx control, but of course we expect significant growth, in the different segments, and that will also impact the OpEx.
Thank you. I think we have no other questions. Before we finish, I would like to remind everyone about our Capital Markets Day on June 23. The registration is open, and we hope to see as many of you as possible, joining us for the Capital Markets Day. With those being said, thank you and goodbye.