Good morning, ladies and gentlemen. My name is Stefan Randstrand, the CEO of Tamra Group. We are here to talk about the Q3 2019. Together with me, I have Espen Gunderson, our CFO and we have Bing Chao, our IR responsible. The quarter was stable, good.
We had growth around 6% on a group level, partly helped by currencies, but generally good. No big events in the quarter. We had stable gross margins around 45%, slightly improved there. Operating expenses indicating that we are investing, so they are increasing. We are investing both in collection with ramp ups and also in the areas of recycling where we have quite a lot of activities, and I will talk partly about it today.
We ended up with an earnings EBITDA of SEK 414,000,000, an all time high in order intake in sorting solutions, predominantly driven by strong order intake in food. We have talked about the market before, and I will go through quickly to for you the big events. So if you look into collection solutions, we are operating since inception of the group in the traditional markets. Here, we see a stable environment, both in Europe and in North America. We do have invested quite recently in buildup in Australia, and that is driving the growth in this part of the business, and it's going quite well.
In the sorting solutions, we have experienced and we are experiencing good momentum in the recycling sector. Started, I can say, a couple of years back with the China National Sword, where China said we will no longer accept waste to be imported into China and countries rather please take care of your own waste. And we recognize that there was a big underinvestment that has happened in the years when it comes to recycling. And even today, I tell you, recycling, it's to a large degree not even worth the word of recycling. It's talk about recycling that very much is not recycled.
It's being burned. It's being shipped. It's being landfilled. So there's a long way to go. So we experienced good momentum in this sector.
We will see quarters going up and down, but in essence, it's a strong and robust sector for us. The more troublesome sector, as we discussed earlier, was our situation in food. And again, a outside event jumping into our business or impacting our business is maybe the right word, and that was the trade war between China and the U. S. So I would talk a little bit about that, but I'm glad to report to you that we had a positive development in the quarter.
So if I go into Collection Solutions, we have slight growth in Europe, nothing eventful. It is replacements going up and down in markets. But as you know, the markets are fairly penetrated. We have gone beyond the replacement cycle in Germany, and we are in a stable but not negative environment as you can see. So a slight increase in revenues of about 2%.
North America, again, very stable market. We've been operating there for many, many years. It's a high penetration degree. We are well positioned. Our systems are working, and we experience a stable situation, which in itself is a good thing.
So the drive is really coming from Australia. We invested in 2017. End of 'seventeen, December 1, we went live in New South Wales. That And we see continuous and we see continuous improvement in the collected volumes. So this is really positive development for us.
And of course, now as we are established with an organization with infrastructure, additional volume on top of what we have is a good contributor to the system as such. So we are experiencing this growth, and I think we can expect growth for some time more in the state of New South Wales. Queensland, rather small investment. We have about 10 stations there. The system was introduced pretty much 1 year back.
It's been also a good development for us, but it's by size quite much smaller than that of New South Wales. But again, a good system. So we are pleased with our investments we have done under. It's far away. It took a lot to do it, but I'm pleased to see that our operations, our strategy to build our position there is working well and it's paying off.
European Union, June this year, announced their single use plastic directive. The law was announced. Of course, that is one of the biggest events ever in the collection solutions where it says that by 2025, all European member states have to collect 77% of all the PT bottles they sell. They say also that by 2029, 90% of all plastic bottles being sold in the European Union have to be collected, and every new bottle being produced needs to contain a minimum of 30% recycled content. That's a strong message.
It do not only point at you have to collect objects, it also points that you have to recycle. So the circular economy element is part of this. I would start in another corner of the world, but Western Australia is something we have announced earlier. So Australia seems to be on a path to, so to say, also become deposit friendly. We have seen New South Wales.
We have seen Queensland. There is a system in Southern Australia. There is a system in Northern Australia. And now Western Australia is embarking on introducing a system as well. They have gone through the traditional process and are now at a phase in which they are appointing they have appointed the operator and are starting to prepare for the operational phase by appointing the collectors.
We are evaluating this and we are working on it. So of course, it's close to us, but it's nothing more to say for me on that point right now. We do expect, however, a start mid next year. Scotland has gone through the phase. They have been very clear on that they will introduce a deposit system.
Drafts regulation was submitted to the Parliament after the consultation period in September this year. And they are, as we understand, working on final details of the final legislation and the framework. So there we expect estimated start up in 2021. We have been very close to that market. We have been running some pilots.
So you're well aware of the system, and we are curious to see what comes out after the final decision making process here. Portugal, in December 2018, decided to publish a law, so quite early here. They have been working on a decree for system. They will run some pilots in the country. They will be implemented here.
It's announced to be due in 2019, so we are curious to see about that. And we and ourselves have run some pilots already to test out the ground, and then we expect a start up early 2022. England, again, major market here, have also announced their commitment. They have gone through a consultation process. They have further now launched the Circular Economy Bill, which again will phrase the framework within the deposit legislation will fit.
So it's moving on in the right way. So this happened in October. So it's I would say no g railing there, but yet we are still waiting for the findings after the consultation process, which has ended and which they are now evaluating. And then we have the last country which we can report around here some progress. It's France.
Here, the Minister of Environment went out in June and stated that they consider a deposit return scheme. Here I understand there's quite a lot of internal evaluation debates going on. So at this point in time, there's really not much more for us to say around that. We really need to observe. And of course, if needed, continue to support them with facts and experiences, which we are have collected over all these years.
So that's the status of the deposit market development. But again, a positive situation for us in the collection business. Sorting Solutions. If you recall, after the Q1, we flagged an uncertainty in the food market. We could note that many of our customers in the North American market, in particular, were somewhat concerned about the market conditions.
The reason was obvious. There is a trade dispute going on between United States and China. U. S. Has been exporting vast amounts of food to China.
It's a well established business. In 2017, one report said that about $20,000,000,000 of food was exported to China from the United States. That went down in 2018 to $16,000,000,000 So it's a decline from $20,000,000 to $16,000,000 in 1 year. And the forecast for 2019 is, I think, SEK 11,000,000,000. So it's a decline from SEK 20,000,000,000 down to SEK 11,000,000,000, a decline by $9,000,000,000 of exports in a short period of time.
Obviously, that leads to an uncertainty. There is a capacity to process. There is a need to sell what has been processed and a big market is disappearing or a significant market at least $9,000,000,000 is disappearing in a short period of time. We noticed that, that led to delays from our American customers when it comes to investing in new processing capacity. However, having said that, we knew also that there will not be a stop because if you have planted trees for nuts or fruits or if you have planted bushes for berry, you need to process it when it grows up.
And we see that coming. So actually we have seen a positive development in the U. S. That's nice. In addition to that, we have also seen what we did anticipate that China will not stop eating food because just because the U.
S. Is not able to provide them with that, so they would need to look for other sources. One source is to accelerate the food or agribusiness in China, which we are cautiously or closely following. That's very important for our long term perspective. Another area is to source from other regions.
And here we have seen, in particular, Latin America and Australia being able to step in and supply parts of what was exported by U. S. To China before. So we have seen in this period now an improved situation in North America where our customers have come to a point, well, I can't delay my investments anymore. I still see the uncertainty in the market, but I can't delay.
I have to invest in order to take care of the food that's now coming new on board since new plantations. And we have seen a strong development, in fact, in other markets where they are stepping in and delivering China with food products. Having said what I just now said, I think we should still see that there is an uncertainty around the sector. The new equilibrium, whatever that will be, needs to be found, needs to be developed, but we are ready and maybe it's even an advantage for us. We have a global footprint.
When the U. S. Customers do not invest as they used to, when other markets have to step in, well, the advantage for us, we are there. Some of our competitors might not be everywhere in the same setup. So that's the market we have here.
We do not see a downturn in this market, but I just want to say that we need to observe the development because this trade situation is looming over the industry as such. In the recycling sector, we are experiencing continuously good situation. There are ups and downs. In this quarter, we had somewhat slower order intake in recycling, but that's just how the products are coming in. Overall, we are positive about the sector, and we continue to invest, expanded our sales force quite dramatically, and we embark on many projects under the umbrella of circular economy.
And one of them is our decision to join the Alliance to End Plastic Waste. Plastic waste is one of the biggest challenges we are facing on this planet. This week here in Oslo, there would be an oceans conference. And the plastic is a major part of the ocean challenge we have next to overfishing and warming waters, etcetera. But the plastic is definitely a big, big portion of that.
TOMRA, we do not see ourselves as significantly contributing to the problem. We rather see ourselves as one of the solutions to the problem. By collecting, so like we do now, north of 40,000,000,000 objects, bottles and cans every year, we are preventing plastic from flowing into the oceans. So that's one example for how we see that we contribute. By demonstrating how collected material either through our reverse vending machines or through a waste management process, can be recycled and reused, we are also showing the industry that there is a possibility to build what we call a closed loop.
And that is the concept we are following in the so called circular economy. Therefore, by being part of this alliance to end plastic waste, which is the biggest initiative in the world when it comes from the industrial side to end plastic waste in environment, we are seeing this is a great opportunity, end plastic waste. We have seen regulatory drives like European Union. That's definitely one driver why they introduced that, at least to end plastic waste, the single use plastic directive. We have a number of thought leaders, if I may call Ellen MacArthur Foundation a thought leader in the the context, they are, of course, educating us, showing us facts, using science to demonstrate what's wrong and what can be done and driving commitments for, for instance, sustainable packaging.
We have NGOs, global or local, active in many dimensions. So there are many stakeholders in there, but there's no big industrial initiatives anywhere that can match up and compare to that of the Alliance to End Plastic Waste. The Alliance, you can see quite a lot of members being listed here, and TOMRA is being one of them. We are on the Executive Committee, which is the formal body where we are part of identifying the strategy for how the alliance will work and also defining on which initiatives, which projects should the alliance work towards. And we are clearly very active here.
As part of our vision statement to lead the research revolution, we tell ourselves, if we can help these companies, if we can transform these companies to start reusing plastic and finding an alternative way away from this linear economy into a circular economy, we are definitely revolutionary and going actually beyond our own capabilities, transforming other companies and mines into doing this. So I'm really very proud of that, that we have this prominent role. And the Alliance to End Plastic Waste will invest, is committed to invest $1,500,000,000 in finding solutions to end this problem. It is, of course, important also to show it's possible because plastic is a fantastic material. What is not functioning is the systems, and that's what we want to build here.
So with that, I just want to highlight this is an important part of our strategy. So we are continuing to invest in the recycling sector, both in operational matters like expanding our sales in R and D, but also stepping up and beyond the traditional TOMRA landscape in order to build what we call the circle economy and collaborate with others to get there. With that, I feel it's the right time to hand over to Espen, and he will talk about the financial situation and the outlook.
Thank you, Stefan. As always, let's start with currency. Also this quarter, positive effect from currencies, both the dollar and the euro has strengthened, which consequently has a positive impact on our P and L, we'll see on the next slides. Please also see that we have slightly adjusted the exposure on the P and L. The other column, meaning not euro, not dollar, is increasing partly as a consequence of more Australian dollar.
Not significant changes, but this quarter, we did an adjustment on that one. As Stefan said, 6% growth or 2% growth currency adjusted in the quarter for the group. It's collection that drives the growth. Sorting is overall rather stable. Gross margin slightly up, increased in both business areas, if you allow us to include decimals, but also increase in operating expenses related to some is currency, but mainly it's about ramp up costs and future oriented costs as such.
Bottom line, €408,000,000 it's an 18% EBITDA margin. Collection Solutions, as I said, representing the growth in the quarter, 5% currency adjusted. Europe or Central Europe is up 2%, which is good. It's been down some quarters now and now it's has turned around. Not big figures, but still it's a slight improvement in Central Europe.
But the significant growth is, of course, in what we call rest of the world, which is mainly Australia. Both Queensland as well as New South Wales has year over year growth in revenues. Slightly improved gross margin if you include the decimals. Operating expenses is up $24,000,000 ramp up and bottom line, dollars 2 $70,000,000 which is actually 22 percent EBITDA margin. The margin in collection is usually highest in 3rd quarter because of the vacation money effect, meaning in Norway and to some extent, Nordic, you don't have the 1 month salary in July.
And consequently, that improves the margin overall. In Sorting Solutions, stable overall, both when you go down to the business streams as well, meaning both food and recycling is stable. As we have talked about, order intake in food in U. S. Has been somewhat slower and then now also start to see it on the revenue side, 10% down currency adjusted on in Americas, but offset by other regions, in particular Europe and Rest of the World, which is Australia and New Zealand.
Gross margin, slightly up, including the decimals, but also an increase in operating expenses. Also in this area, we have a lot of future oriented costs. For instance, what we invest in circular economy and part of those initiatives that Stefan talked about, which is also like we have ramped up in collection, we also have some initiatives in this business area that we hope and believe will generate further revenues in the future. Looking at the order situation, 1st quarter with above SEK1.2 billion in revenues. So it's
Order intake.
Order intake, sorry. In order intake. And revenue is slightly below €1,200,000,000 And consequently, the conversion ratio has been above 1, more intake than revenues. And for that reason, we also see an increase in the order backlog, which ends at SEK1.4 billion by the end of the quarter. The conversion ratio for Q4 is assumed to be between 85% 90%.
As I always said, this is not guiding. It's just about giving you an indication of when we're going to execute upon the order backlog that we currently have in pipeline. We will never send a profit warning if you're outside the range. So that has been said. Balance sheet.
We had a somewhat slow cash flow in Q2. Now in Q3, it's improved again. Okay cash flow in the quarter, aligned with what we have on average in the 3rd quarter, €438,000,000 though influenced €68,000,000 with from IFRS 16. So if you're looking at the curves, please look at the blue one. The red one is doped by IFRS 16.
It's not representing apples and apples compared to previous quarters and years. Looking at the balance sheet, it's slightly about SEK2 1,000,000,000 up compared to same period last year. Half of this exactly, more or less, is stemming from IFRS 16. You see it on tangible noncurrent assets increasing within more SEK1 1,000,000,000 with a corresponding increase in interest bearing liabilities. So that's half on the increase, 25 percent round figures is coming from currencies.
The remaining 25% is from other balance sheet items and mainly working capital. Inventory is the item that increased most, which is 19% up. There is currency elements here. Remember, the balance sheet is calculated on the end of quarter figures or current exchange rates. So the dollar is, for instance, up 11% from end Q3 last year.
But we have done some strategic decisions when it comes to sourcing. There's some long lead components up to 18 months actually, which is inventory. So it's also about introducing new products in new markets and you have to build up spare parts inventories and so on. So that's probably the main important explanation. If you go down to the details, you will see spare parts It's a group that increased more than working in the products and finished goods.
So the working capital is still higher than it was 1 year ago, but it's slightly down compared to end of second quarter if you adjust for currencies and consequently an okay cash flow for the quarter. Bond issue. Today, we have all the bilateral loans with DNB or DNB and SMB combined. Going forward, we assume that TOMRA will be more leveraged. We'll need more financing.
And consequently, we need more than one source, and we want consequently to introduce TOMRA in the bond market. So this is the first time we do that. It's one significant loan is maturing in April next year. So we see in the renewal, we have a rather short maturity on the existing loans. So we will, therefore, during Q4, do a bond together with DNB and SEB up to 1,000,000,000 and up to 7 years.
Exact how much and how long will be depending upon the interest from the investors. It might be a tap on because we are to pay a dividend, of course, in May next year. So we may be not do everything now, do some of this at a later stage. But I think most probably, it will be a combination of 35, maybe also 7 years. But again, dependent upon the interest and the terms that we're being offered here.
In general, we have a low gearing in Tamara. Even though we have done significant investments, both in respect of BBC in 2018, Compaq in 2017, extraordinary dividend this year And also investments in Australia, both New South Wales and Queensland, we still have an interest bearing debt on EBITDA alone 1. And with the cash flow in 4th and first quarter, this will also continue to go down. Okay. Looking forward, collection is or has the last quarter has been very stable.
The base business overall, no significant changes. The growth has stemming from Australia. Going into next quarter, the same situation is assumed to continue, stable in base, some growth from Australia, and they continue to add cost when it comes to ramp up preparation. We said in the beginning of the year that we would guess CHF100 1,000,000 year over year increase, and we have been rather stable around CHF25 1,000,000 every quarter, also this quarter. So let's see where we end up, but around that maybe.
And also going into 2020, one should assume more or less the same situation. Stable in base business, some growth maybe still from Australia. There's no really big new deposit markets opening up next year. I wish there were, but there are more kind of the year after. But okay, Western Australia is out there.
We represent some opportunity, but it's a small state, 2,000,000 citizens. So we will, of course, try to get the footprint in there, but let's see what comes out of that. But I guess 20 20 in that respect will not be very different from 2019 when it comes to overall performance. Sorting, as Stefan said, it's good momentum in Recycling, Somewhat slower order intake this quarter. But overall, we are not concerned about that.
We think the momentum in recycling is good and it's only about timing. Food, still there is a trade war ongoing. There are some uncertainties out there, but you have also turned on the optimism 1 notch, so to say. So we are slightly more positive on the development in food compared to what we were maybe 3 months ago. When it comes to the performance in Q4, I already given you the range indication.
And by that, you should have an idea of the P and L for Q4. I think that completes the presentation, and we open up for Q and A.
Okay. Just let's start with a question from the audience then. Knut Erik from Kepler Cheuvreux.
Thank you. I just wanted to get your opinion about this debate that has been going on in France that goes on sort of the recycling versus reuse. I mean, there are some fractions, I suppose, that promote this reuse concept rather than recycling. And in today's society, with bigger bottling plants, shipping it further and further away from the bottling plants? And is it really economically possible to bring it back to talk about the reuse rather than recycling?
So in general, you can say that the hierarchies, everybody or the strategy we want to follow and the European Union is following is reduce, reuse and recycle. So definitely reducing packaging, reusing material is ideal. But of course, there are limits and systems need to be changed. So if you think of a machine, equipment, if you want to reduce a component, it needs to be reduced in a new design. If you think if you come to a new era, it needs to be designed in a way that it fits that and it's not always possible.
But there are options and we do in TOMRA for instance many components which are used in our machines Instead of scrapping them, we take them in, refurbish them and reuse them. So I think the notion is absolutely correct, but it's not going to it's not new and it's not going to change the landscape at SaaS. And especially if you go into packaging material, consumer post consumer packaging material, you can imagine this concept of reuse is not so easy. And you really need to go to the point where people have their own plastic containers and you go to store and fill in that one and wash it and go refill. But that's quite a long way, I think, from the reality.
So we embrace it. It's part of every hierarchical structure. But how quick and to what extent it can be implemented is nothing I can answer on, but it doesn't take away the core problem that we need to recycle.
Marcela Klein, Handelsbanken. Could you maybe talk a little bit about potential deposit market outside Europe, such as China? Is anything happening there in the coming 5, 10 years in your view or North America? And what is Tomra how is Tomra positioned to take part of this?
So outside of Europe, the opportunity is there. I should maybe have mentioned, by the way, I missed that, that the Alliance to End Plastic Waste is putting most of its effort into Asia. That's where we have the biggest inflow of plastic into the ocean. So the area is very, very important. That goes for many emerging markets like Africa and Latin America too.
China has been our focus in the emerging market strategy since quite a long time. We have built a strong presence there. We have some 300 employees in China serving the different TOMRA businesses, but definitely also the area of container deposit and circular economy is something we focus on in regard of China. Now we also know that the Chinese government with their 5 year planning, that's the framework of how they operate. They lay out 5 year plans.
They talk about environmental friendly. They talk about circular economy. And there's also words about EPR and about contained deposit. But nothing is set in stone, nothing is legalized at this point in time. And I don't believe that it would be 1 national system.
It would rather be local systems, maybe on the province, maybe starting even with the city. So that's a journey we have to evolve on. Our strategy is to be there. We have even we are one of the leaders we are one of the leaders in the recycling sector in China as we speak, so there we are strong. We have a joint venture in the collection business.
So we are designing products. We're having local service and we have local sales capabilities in China. So you can say we are ready and it's important because if it comes, it can become quick and it can become big. So we need to be ready if it comes. And it's part of all the build ups we're doing in operating expenses, positioning ourselves in markets like that.
And I rather see China as the one of the early adopters of something like that because the whole economic system is more advanced. We also see that parts of India have already passed the legislation even on contained deposit. We have evaluated there. We have been there. And we are also quite active in India, for your information.
But we have seen that those systems were not something, as they are drafted today, that we would be investing in. So those are part of yes, we go in and do invest in markets. We do even take throughput leasing markets. But of course, we are very cautious when we do it, and we do disregard those markets where we think that we don't have an investment security. So I do believe personally that an area to observe and for us strategically important is to try to get something up and running in China.
And here, I think if we could establish some pilots, sizable, real pilots, they could be instrumental for the region because as we speak, a lot of delegations are coming from different parts of the world, to beautiful Norway, to Germany, to Sweden to observe and look into the systems we have established here. But then they go back and realize, well, Norway is not Indonesia or Norway is not India. How do I transform that in to these concepts into our local, so to say, market condition and society? Therefore, if we could establish something in, so to say, developing world, that would be so meaningful for us. So that's really our strategy even to try to establish something in that part of the world and I think China is it.
So we are prepared, we're investing, we have gone beyond just only being there. We even do R and D locally and we have sales and service established so we can serve the region. I hope that answers the question.
Maybe on a different topic. The strong order intake in food in the Q3, was there anything temporary, any special projects? Or could we expect a spillover on the coming quarter?
So I think on the food side, we do see good uptick in the markets outside of U. S. And I think we should expect that to continue to fill the gap, so to say, of supply into China what U. S. Did before.
So let's assume that, that market sentiment is positive and remains positive. When it comes to U. S. In itself, I we have observed a better quarter now than the past couple of quarters. We see good activity level in tests and so on.
We do have test centers. And by the way, part of our working capital is also our buildup of test centers so that our customers can come in and test. So if I look at these indicators, it doesn't look bad, but I prefer to stay a little bit cautious because it is an uncertainty. And it's if you imagine that you have $9,000,000,000 of food products, which you need to position somewhere else, it goes into economics, it goes into the investment sentiment. So please accept that we cannot be more precise than that.
I think we continue with a couple of questions from the web. We have Martin here?
Okay.
Yes. Okay.
Thank you for that. First, about the ramp up in infrastructure collection of about €100,000,000 this year versus 2018. I was wondering if you could please comment on what we should expect in terms of continued ramp up in OpEx space in next year?
Yes. I did not answer on that, but I didn't comment on that on the outlook. And that's because we don't know. Internally, we use more and more rolling forecast now because it's a dynamic world. And what we invest in ramp up is a consequence of those opportunities and the timing of those opportunities out there.
So we are currently not prepared to be precise on that. I hope I can be more precise next time we meet because then we are already into that year. And we will continue to invest and it will be over time continue to increase. That's by nature and then get closer to these more significant markets. But how much is unfortunate and not something we are prepared to say now because we actually don't know exactly either.
And then if you could please be able to comment anything about what you expect in terms of financing new solutions? Or let's say, how they could be set up in Europe in terms of return to retail or some kind of a leasing model? Are there any indications of what we should expect in Europe?
That's a broad question because there are so many markets. I'm confident that you will see both traditional sales service markets and you will see throughput markets and you maybe will see a combination of them also. And it's each process is unique. It's the government together with the stakeholders in the market at the end decides how to do this. And Tamara is not someone with large influence in this respect.
We can talk about the pros and cons of the different models, but it's up to the government at the end to decide the models. So I cannot say more than that. I think we'll see both. And let's see where we end up because, again, we don't know really.
And just to follow-up on the question here regarding, let's say, new initiatives or debate in other parts of the world. You talked about Asia, but I'm a bit surprised that we haven't seen more or less, let's say, from the U. S. Because of the, let's say, strong push from consumers and also what's happening in the political agenda here in Europe. Are you seeing any change in the U.
S. In terms of how to cope with the plastic problem?
One thing I can say is that we see good activity in the recycling in the U. S. So that's one sign. It's one thing is to collect, but at least apart from the littering problem is to handle the waste you have collected through curbside or house of waste collection. So that we see.
When it comes to new CDLs, I don't see that there is anything major on the agenda for right now. Of course, we have been there for so many years. We're always observing and monitoring, but there's no major developments there right now.
Evan Haddeng, DNB Markets. Two questions. Just one on the working capital. There has been some concerns in the market, I would say, lately regarding growing inventories, receivables in connection with the situation in the U. S.
I was wondering if you could add some light on that from your perspective because when I do the math, I don't really get it to add up. So it would be interesting to hear your comments on that one. And also secondly, on Australia, it's been 2 years. How does the market look versus your initial business case? Thank you.
If you say you don't manage to make it add up, meaning you don't feel that our explanation is good or the concern from other ones is good?
No, I just wanted to hear your comments on how do you see the inventory situation. It all relates to the U. S. And the receivable situation. Yes.
Okay. Working capital is fluctuating. We have an increase in both receivables and inventory, as you pointed out and also touched upon in the presentation. Inventory is the one that increases most 19%. I mentioned the 2 most important drivers, which was spare parts, long lead times in that respect and also new products in new markets.
Overall, we are not very concerned about the situation. It is very seldom we start to produce a machine without having a customers for it. And if we sometimes do, we have standard modules where we start to produce on. So when you start the production, you know what customer that's going to have this machine. So it's not an exposure in that respect.
So maybe that's some of the concern here. So it's been somewhat higher now than it was 1 year ago, but we have been on these levels historically also. So it's fluctuating. And I'm not prepared to promise it will go significantly down, but I think there are reasons to believe that we'll manage to do better in the future also. On the receivable side, it's again fluctuations around the norm, which is not today very much outside what you have been historically there.
Maybe some regions, some specific order with slightly different payment terms, but overdue in general has not changed. So I think, again, at least from our side, we're not concerned about situation. Sure.
May I just fill in a few words on that? So we have 2 businesses, right? We have the collection business, where we don't have a lot of long term orders, except for if we have a new market like New South Wales, where it's clearly now you get this order and you deliver 1100 machines. So it's very much a sales and service model. So if you think of any market like Germany or so, we are, so to say, waiting for a call off.
We are working with some clients, some retail chains. They might make a frame agreement with us and say, look, for this year, we anticipate to buy so and so many machines. We agree based on that on a pricing. And then it's really up to each and individual stores when they will execute. And that can come with fairly short call off time sometimes.
So we actually do maintain some kind of base inventory level of standard machines, as Espen said. So we are ready to supply. And I tell you, that's even helped us in some cases to gain markets because suddenly the customer have a product, they want to do something, they have not communicated so well in advance, so suddenly they need it quickly and we are ready to deliver and that's an advantage for us. So that's actually part of the model. And there's no big fluctuations here.
It's unless you have a big replacement race like we had in Germany, then we have to think a little bit more advanced into it. Otherwise, it varies a little bit up and down and so. But there's no indication of any different momentum here, and that's how we operate. In the sorting solutions, it's actually different. Here we are not producing as a standard.
So it's not like we have a factory always producing a lot. We are very lean. We have a lot of suppliers. There are some components that are more sensitive. We noticed some electronics and some sensors.
We actually need to buy in advance to be ready because we noticed a capacity shortage in the supply. But again, this is quite small, but then we can even think long term, 6 months, 12 months to make sure we have the components when they are needed. And here we are normally before we even accept an order, we have a down payment on the order. And before we produce, we have a clarity on that this we have the down payment and we have the shipment date. It could be that we have produced and the customer might be delayed, so it can be sitting a couple of months more in our store ready to be produced and that can affect our revenue and of course working capital, but these are natural fluctuations.
But the important thing here is to don't think that we are, so to say, standard producing and putting on storage. And if the working capital goes up, it is a sign that now something is going south here. It is so that we are producing against an order and before we start producing, we even have a down payment. So that's really I think we could explain it that way. I hope it helps.
Yes, it was on Australia. It's been 2 years. I just wanted to ask you how it is versus your business case initially?
It's doing good.
Very clear. Thank you.
Eli Tusa from Anaksu Capital. It seems the strong order intake in food in the U. S. In Q3 was a result of pent up demand or the ketchup bottle effect, if you like. Can you say anything about to what extent was that?
And have you seen this continue into Q4?
I think I can say what I said before and nothing more. What we can see is that we have a continuous high activity level in our test centers. So we see not it was not a single moment. We see that there is a high inquiry level out there. So that's more than that, we can actually not say.
Okay. Just one more question, and then we need to start on the questions from the web.
Sorry for taking up time. I got one question about the T9. And if I remember correctly, you produced and started to market the T9 series well before the German replacement race began, so that you capture that market, increase your market share. Now we're seeing a lot of new markets opening up in Europe. The T9 has, let's say, it was wet then and started to sell, let's say, back in 2013.
And let's say, by the time new markets open up, that will be 7 years old. So my question is then, should we expect you to sell the T9 into new markets in Europe and just gain on back of the fact that you have a well running platform or a product series? Or should we expect you to actually to maybe launch a new one to really have an edge of a new competition maybe seeing large markets opening up?
Yes. So the question was, are we fit for the future with our technology in a way and especially with upcoming European markets. So what we can see going forward is that we will see more demand for smart city solutions. So that's a sector we look into. That was not so much in the past.
So if you take London, for instance, that is a different density of people than you have find in any of the cities in Germany. So that's one element. We have also seen that we are facing different types. So in take New South Wales, it's not identical to sort of the traditional store landscape which we have in Norway or Sweden or Germany for that matter. So we are more having outdoor solutions on parking lots that are more like, yes, bigger actually in the capacity to store.
So there are hybrids coming up. So our strategy is really to work on serving the different sectors. And we have developed a common module of technologies that are applied in the different sectors. What we also see more, maybe you dream of a new T9, maybe you have to think more software also for the future. So we see also that as an element where we add more value, not by hardware, but by more intelligent data usage and the consumer knowledge and so on.
So actually, I think the traditional way of looking at product development is shifting to a broader set of solutions and also to a different type of combination of hardware and software. For us, it's important that we can scale this. So we have focused on delivering modules that can be used in different applications, like you know we have done in sorting solutions all the years that we have a standard set of components that we use in different ways. By that we actually increase our flexibility. You can call it the platform technology, which we haven't embarked on since a couple of years back, giving us flexibility.
Of course, a ring like the core Novum with the T9 was actually the in feed. The ring is continuously being developed and it's but it's still well protected and still state of the art in its functionality.
Okay. Then we start with 2 questions from Thomas Grafjord. So the first one, I think, you touched upon, so we can be short. But still, can you say anything about future introduction of container process systems in Asia?
I think we elaborated on that. So we move on to the next question, please.
Yes. So the next one would be, could you also say something about the recently announced container deposit system decisions in Latvia and Malta?
Would you like to step in, Espen, so we don't get one voice here?
Yes. It's definitely some markets in Europe that works on deposit. Let me rephrase. There's actually no market within EU that doesn't one way or the other is looking into how they should be compliant with the single use plastic directive. And the deposit is, as you know, the best and maybe the only way to reach those targets.
So there are markets, which maybe is not on our slide here, which is working on this. And those markets mentioned are also the markets with processes. Malta is the one that's closest, which maybe will introduce already within 1 year's time or something, but it's a small market. We have a distributor there. We are not present itself.
So it represents some opportunities. But still a chain in the regular market will be bigger than the Maltesean opportunity. But of course, it's a market and it will be there and try to capture but it's small in the big context.
Thank you, Efrain. And then we continue with several questions from Mikael Nijolz, Carnegie. I think this one we also discussed, Al, but I'll read it. Could you elaborate on your procurement activities and the fluctuations of the inventory?
I think I talked about that in the 2 rounds now, yes.
And then elaborate a bit on the OpEx builds currently ongoing. Is it manpower, estate, real equipment or lobbying, representation, marketing that drives the most? Is this all fixed or some variable?
It's a lot about people. And it's a combination of investments in the markets, meaning investment in people, getting feet on the ground in those markets that are closest to materialize and educating them and also get them connected into the processes we are working on. But it's also about people centrally on R and D and sourcing and so on to be prepared for the ramp up and the new opportunities. So we are also have the back office in order. So it's a combination.
And a follow-up. With all this build up and still long until new large deposit markets open, How much can you cut costs to work towards your 18% margin target?
Yes. It's we start to talk about collection and collection are on 18%, it's actually on 22% this quarter. So and it's the 18% group target is at the end of the period in 2022, 2023. It's food that needs to improve the margins to get there. And when it comes to cutting cost in collection, it will be a very short sighted strategy to do that.
And we really need to invest to be prepared for all those opportunities out there. So I don't think that's a very relevant question when it comes to collection really.
Thank you, Efrain. And Dennis, next question on the EU's single use plastic directive. What could prevent all EU member countries to opt for a deposit system before 2025?
Well, the European Union, I think, has been very firm in their legislation. So I think it's not a debate ongoing on that. That was heavily debated before it was launched, the SUPR, the Single Use Plastic Directive. There was a long debate process. And actually, they altered the outcome of it.
So I think today, we have to assume that that's well anchored with the different member states and in different instances in the European Parliament. Therefore, I take that more or less as a given that it will be implemented. So I think what we have to observe now, there will be some early adopters, there will be some later adopters, but I do assume that all of the members that will come out within a period of time of 2 years with some kind of concept of how they will do, implement and reach the targets. And that is to be seen. But we see that there are discussions ongoing in many places.
We only communicate the ones where we feel that we there is a substance and there is a progress in the process where we have got some real formal commitments in order not to create an uncertainty or a hype here, which is beyond what we are able to communicate about. So we are by tradition a bit, I would say, conservative in our communication. But for sure, we have invested also part of the OpEx buildup. We have invested in more people to be out and consult. We don't talk about lobbying, but talk about consulting, sharing our know how, sharing our experiences, demonstrating up and running systems, also guiding on what is the right design of a system and so on because it all looks different for different market conditions.
So we are active in that, but I don't think we can clearly say more than we are at least positive about the future here.
Thank you, Stefan. On sorting solutions, could you pinpoint a bit deeper on what of companies and industries that are driving the growth? Is it public authorities, small and local corporates or bigger and global conglomerates that have raised their activities?
Right. So if I start with recycling, which we are on a longer term growth here really, it was a quarter with low order intake, but I think we were clear on that. We don't see this as a change in momentum. The momentum is good. Here, we are serving we see demand increase in all geographies, and we see demand increase in all the sectors we serve.
So there's nothing pointing out and maybe that gives a rather stable situation in the recycling business momentum. When it comes to the food sector, we are serving everything from smaller packers, smaller growers, all the way up to the big conglomerates, which are the big brands. I don't see here either a shift or difference. We have some areas like in the potato sector. We have experienced in the past that go a little bit in cycles almost.
So they are quite massive investments when you go invest in, say, new French fries facility. It's quite big and onetime. And in fact, we even see it sometimes on the sector. Last year was quite active here. This year is a little bit less active.
It's more decoupled from the market sentiment. It's more actually following the cycles of the producers in that regard. So it coincides to be negative for us when we had the other uncertainty, but that's just how it is. But beyond that, we see good momentum in most sectors. And then of course, the food is a real life sector.
It's not constructed. So if you have a bad year, bad crop, it will affect the business. So but that's that we will always need to know. But of course, it's not global. It's more regional or local fluctuations.
So I think I hope that answers the question.
Yes, indeed, Stefan. And then a question from Dag Triggesetz, also in the new deposit markets. Government bodies in Malta, Slovakia and Latvia have announced upstart of collection systems. Any comment from Tomra? I think we already touched upon Malta and Latvia and then it's
The same for Slovakia.
Yes. Follow on with a question from Pete Moun. How well is Tommer positioned in case of a no deal Brexit? Can a no deal Brexit create additional business opportunities for TOMRA in respect of increased sale of plastic sorting machines in a sense that U. K.
Cannot export plastic to Europe with a profit?
Yes. So when it comes to Brexit, of course, we have evaluated the opportunities and risks with that, more focusing on the risks, obviously. So U. K, number 1, is not a major market for us. So we are actively with recycling.
We are actively with food. Until now, we have no collection business there really. More than that, we are active in preparing for it. So there is the way we can see less downside risk when it comes to our businesses. We have ramped up our inventories a bit to be able to provide spare parts.
If there would be a trade disruption and you cannot import anymore. So that we have done as a precaution. So then of course, when it comes to the further investment sentiment in either the food or the recycling business, they have to pass because we really it's difficult to predict how the situation will evolve or erupt if you have a no deal Brexit.
Very clear, Stefan. And then a final question from Thomas Rafior. Could you comment on the new partnership with Marel?
Are we yes, I don't know where yes, so Marel is the leading supplier of integrated solutions for processing of meat, poultry and fish. It's an admirable company based in Reykjavik, Iceland. Culturally, they are very close to us. Same kind of thinking, same kind of approach, and it's long term. We evaluated together with them the opportunity to cooperate.
Tamra has, since a number of years, served the meat market with our QVision technology to a mixed success or if you say mixed rather not very successful. We have recognized that the sector do not want to be served with a machine. The sector is rather looking for whole integrated and integrated solutions. But we do have the strong technology. We have an edge here.
So a frustration, you have the machine, but you cannot place it. Marel being the number one and highly respected company in this sector has been evaluating how do we what is our core technology, what is our core focus and how do we become leaders also in the sensor side, which is an important part in both sorting and also analyzing the produce. So as a result of our two challenges, we came together and discussed, can we do something better together? And the ambition is that Marel is using TOMRA technology in their processing lines. And we, as TOMRA, do not serve the meat markets directly.
So that's now a transition phase where we step out from direct serving the market and will with the platform of Marel serve it indirectly. So you can like you saw on the old computers, Intel inside on a computer, so our technology inside of their platforms. That will be their, so to say, branding. There will be a labeling of TOMRA on it, but not we are not the primary business partner of all the customers there. I have big hopes on this.
We are very committed to this. It's an excellent way for us to serve a market which we really don't have the know how and the power to serve because we miss so much components and we are not in the, so to say, pole position for doing that. So we do not embark on that. And on the other hand, we are very pleased that our technologies can we can leverage our strong technology base and continue to build on our concept of scaling our R and D investment. So that is really where we want to go and we have big hopes, and we are very committed to this cooperation.
Thank you very much. Do we have any more questions from the audience? Okay. If not, then we conclude this presentation. Thank you all for coming, and thank you for listening into the webcast.