TOMRA Systems — Earnings Release 2019

Feb 20, 2020

4 th quarter 2019 results announcement

TOMRA Systems ASA 20 February 2020 © TOMRA

HIGHLIGHTS FROM THE YEAR & 4th QUARTER

Highlights from the year

Revenues	• Revenues of 9,346 MNOK (8,596 MNOK in 2018) – up 9% Adjusted for currency and acquisitions, revenues were: - Up 5% for TOMRA Group - Up 5% in TOMRA Collection Solutions - Up 5% in TOMRA Sorting Solutions
Gross margin	• Gross margin 44%, up from 43% in 2018 - Improved margins in both business areas
Operating expenses	• Operating expenses of 2,704 MNOK (2,429 MNOK in 2018) - Higher activity in both business areas - Ramp-up for new markets
EBITA	• EBITA of 1,381 MNOK – up 10% from 2018
Cashflow	• Cash flow from operations of 1,313 MNOK (1,025 MNOK in 2018)
Dividend	• Ordinary dividend of NOK 2.75, up from NOK 2.50 last year

Highlights from the quarter

Revenues	• Revenues of 2,569 MNOK (2,467 MNOK in fourth quarter 2018) – up 4% Adjusted for currency, revenues were: - Down 1% for TOMRA Group - Up 6% in TOMRA Collection Solutions - Down 6% in TOMRA Sorting Solutions
Gross margin	• Gross margin 43.1% (up from 42.5% in fourth quarter 2018) - Improved margins in both business areas
Operating expenses	• Operating expenses of 700 MNOK (653 MNOK in fourth quarter 2018) - Ramp-up in TOMRA Collection Solutions - Currency effects
EBITA	• EBITA of 408 MNOK – up from 396 MNOK in fourth quarter 2018 - Positive impact from IFRS 16 of 8 MNOK
Cash flow	• All time high cash flow from operations of 600 MNOK – up from 346 MNOK in fourth quarter 2018 - Positive effect from IFRS 16 of 72 MNOK
Order intake Tomra Sorting	• All time high order intake of 1,332 MNOK in TOMRA Sorting, up from 1,146 MNOK in fourth quarter 2018 - Increased order intake in all business streams

TOMRA's solutions to close the loop

From waste to value

• Create the market for recyclates
• Collaboration across value chain
• Develop impact leadership
• Minimize littering
• Build more recycling capacity

Highlights Collection Solutions

Business drivers	Public pressure to reduce waste, littering and treatment of single-use plastics, where deposit legislation is the solution
P/L	• Revenues of 1,265 MNOK, up from 1,141 MNOK in fourth quarter 2018 - Revenues up 6% in local currencies due to higher activity in Australia • Gross margin was 40% in the period - Slightly up from fourth quarter 2018 • Operating expenses of 290 MNOK, up from 273 MNOK in fourth quarter 2018 - Ramp-up in new markets - Currency effects • EBITA increased from 179 MNOK to 216 MNOK
Europe	North America	Australia
• Currency adjusted, revenues were up 2% in Europe - Improved activity in Central Europe - Preparations for implementation of the Single Use Plastic directive in EU	• Currency adjusted, revenues were down 1% in North America - Overall stable machine sales and throughput volumes	• New South Wales - Good volume development continues • Queensland - Operational with 10 Collection Refund Points since 1Q19 • Western Australia - Commencement date 2 June 2020 - TOMRA to operate 4 automated depots, each with ~10 RVMs

Latest update on selected new container deposit markets

Western Australia	Scotland	Portugal	England	France
• September 2016, the government announced plans for a deposit return scheme • 60+ entities have been selected by the scheme coordinator, WARRRL, to deliver 170+ refund point locations • Majority of refund points being manual sites operated by social enterprises	• September 2017, First Minister Nicola Sturgeon announced a deposit return scheme • Minister of Environment presented a draft proposal and system design in May 2019 • Draft regulation submitted to Parliament in September 2019 pending final approval	• December 2018, the Government published a law establishing a system for return and deposit of beverage containers • Decree for system design to be worked out during 2019 - 2020 • Pilot projects implemented during 2020	• March 2018, UK Environment Secretary announced plans for a deposit return scheme • Government responses to the first public consultation published August 2019 • Environment Bill presented in October 2019 lays basis for introduction of deposit return scheme	• June 2019, State Secretary of Environment opened for discussions on a deposit return scheme • January 2020, the Circular Economy law was passed, with trajectory to assess the performance of existing collection system • Possibility for DRS introduction if collection targets not met as assessed in 2023
Indicated startup:	Indicated startup:	Indicated startup:	Indicated startup:	Indicated startup:

2 June 2020

Early 2022

2021

2023

to be decided

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Highlights Sorting Solutions

P/L Food

• Revenues equaled 1,304 MNOK in fourth quarter 2019, down 2% yearover-year
  • Adjusted for currency, revenues were down 6%
• Gross margin 46%
  • Up from 45% in fourth quarter 2018
• Operating expenses up from 360 MNOK to 386 MNOK
  • Up 2% adjusted for currencies

• EBITA of 216 MNOK (237 MNOK in fourth quarter 2018)

• Business drivers: growing population and more demanding consumers, need to increase yield, productivity and food safety/quality with industry automation

• Revenues slightly down following a strong 4Q18
• Improved gross margin compared to same period last year
• Improved order intake compared to same quarter last year
• Order backlog up, both compared to end of 3Q19 and end of 4Q18

Recycling & Mining

• Business drivers: Growth in waste volume combined with stronger consumer awareness, legislative push and market pull for better recycling
• Stable revenues and gross margin compared to same period last year
• Improved intake compared to same quarter last year
• Order backlog slightly down compared to order backlog at the end of 4Q19

FINANCIALS AND OUTLOOK

Currency risk and hedging policy

Revenues and expenses per currency:

	EUR*	USD	NOK	OTHER**	TOTAL
Revenues	45 %	35 %	0 %	20 %	100 %
Expenses	40 %	25 %	5 %	30 %	100 %

Assets and liabilities per currency:

	EUR*	USD	NOK	OTHER**	TOTAL
Assets	50 %	15 %	15 %	20 %	100 %
Liabilities	60 %	10 %	20 %	10 %	100 %
* EUR includes DKK		** Most important: AUD, NZD, RMB, CAD, SEK, GBP and JPY			NOTE: Estimated and rounded figures

10% change in NOK towards other currencies will impact:

Positive impact		Revenues	Expenses	EBITA
from	EUR*	4.5%	4.0%	7.0%
stronger USD vs	USD	3.5%	2.5%	8.0%
EUR	OTHER**	2.0%	3.0%	-4.0%
	ALL	10.0%	9.5%	11.0%

HEDGING POLICY

CASHFLOW AND P/L

• TOMRA can hedge up to one year of future predicted cash flows. Gains and losses on these hedges are recorded at the finance line, not influencing EBITA

B/S

*Average rate 4Q19 vs 4Q18

• TOMRA only hedges B/S items where exchange rate fluctuations could have P/L impact. Gains and losses on B/S hedging are recorded in accordance with IAS 21 and will normally not have P/L impact

Financial highlights | P&L statement

	th 4 quarter		Full year
Amounts in NOK million	2019	2018	2018 Adj*	2019	2018	2018 Adj*
Revenues	2,569	2,467	2,583	9,346	8,596	8,928
Collection Solutions	1,265	1,141	1,196	4,633	4,265	4,424
Sorting Solutions	1,304	1,326	1,387	4,713	4,331	4,504
Gross contribution	1,108	1,049	1,100	4,085	3,682	3,833
in %	43%	43%	43%	44%	43%	43%
Operating expenses	700	653	685	2,704	2,429	2,516
EBITA	408	396	415	1,381	1,253	1,317
in %	16%	16%	16%	15%	15%	15%

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Collection Solutions financials

	th 4 quarter		Full year
Amounts in NOK million	2019	2018	2018 Adj*	2019	2018	2018 Adj*
Revenues	1,265	1,141	1,196	4,633	4,265	4,424
Northern Europe	160	154		618	611
Europe (ex Northern)	498	465		1,708	1,710
North America	428	403		1,718	1,605
Rest of the world	179	119		589	339
Gross contribution	506	452	473	1,928	1,751	1,808
in %	40%	40%	40%	42%	41%	41%
Operating expenses	290	273	286	1,120	1,025	1,063
EBITA	216	179	187	808	726	745
in %	17%	16%	16%	17%	17%	17%

Sorting Solutions financials

	4th quarter		Full year
Amounts in NOK million	2019	2018	2018 Adj*	2019	2018	2018 Adj*
Revenues	1,304	1,326	1,387	4,713	4,331	4,504
Europe	423	401		1,767	1,508
America	466	553		1,651	1,719
Asia	185	152		596	491
Rest of the world	230	220		699	613
Gross contribution	602	597	627	2,157	1,931	2,025
in %	46%	45%	45%	46%	45%	45%
Operating expenses	386	360	379	1,488	1,324	1,373
EBITA	216	237	248	669	607	652
in %	17%	18%	18%	14%	14%	14%

Development in order intake and order backlog

Revenues

Order intake Order backlog

• TOMRA Sorting Solutions (TSS):

• Revenues of 1,304 MNOK, down from 1,326 MNOK last year
• All time high order intake of 1,332 MNOK in the quarter, compared to 1,146 MNOK last year
• Order backlog of 1,458 MNOK at the end of 4Q19, up from 1,399 MNOK at the end of 4Q18
• Estimated backlog conversion ratio in 1Q20: 75-80%

Financial highlights | Balance sheet and cash flow

	With IFRS 16	Without IFRS 16
Amounts in NOK million	31 Dec 2019	31 Dec 2019	31 Dec 2018
ASSETS	10,868	9,815	9,595
Intangible non-current assets	3,788	3,788	3,821
Tangible non-current assets	2,330	1,293	1,276
Financial non-current assets	406	406	340
Inventory	1,596	1,596	1,447
Receivables	2,288	2,288	2,314
Cash and cash equivalents	460	460	397
LIABILITIES AND EQUITY	10,868	9,815	9,595
Equity	5,076	5,125	5,077
Minority interest	170	170	159
Interest-bearing liabilities	2,982	1,880	1,524
Non interest-bearing liabilities	2,640	2,640	2,835

Ordinary cashflow from operations

• 600 MNOK in fourth quarter (346 MNOK in fourth quarter 2018)
  • Positive effect from IFRS 16 of 72 MNOK
• 1,313 MNOK full year 2019 (1,025 MNOK full year 2018)
  • Positive effect from IFRS 16 of 272 MNOK

Solidity

• 48% equity (54% ex. IFRS 16)
• NIBD/EBITDA = 0.8x (Rolling 12 months), ex IFRS 16 effects

Successful issuance of unsecured bonds

• 6 November 2019, TOMRA issued a total amount of 1,000 MNOK in senior unsecured bonds.
• The transaction is split in two tranches, both were significantly oversubscribed:
  • − 400 MNOK on 3-years with a coupon of 3m Nibor + 0.50% p.a.
  • − 600 MNOK on 5-years with a coupon of 3m Nibor + 0.75% p.a.
• The net proceeds have mainly been used to refinance existing bank debt.
• The bonds will be applied for listing on the Oslo Stock Exchange.
• Existing bank credit facilities and limits:

Counterparty	Facility type	Credit Limit	Maturity Date
DNB & SEB	RCF	10 MEUR	April 2020
DNB & SEB	RCF	60 MEUR	April 2021
DNB	RCF	70 MEUR	December 2021
DNB	Overdraft	300 MNOK	Annual renewal

Dividend Information

• Target to distribute 40%-60% of EPS as dividend
• Strong cashflow generation from recurring business
• Solid balance sheet
• Easy access to financing

• Board proposal to the Annual General Meeting:
  • Ordinary dividend of NOK 2.75
  • Up from an ordinary dividend of NOK 2.50 last year (in addition to an extraordinary dividend of NOK 2.00)

Outlook

Collection Solutions	• Overall stable business • Increased operating expenses due to ramp-up in new markets
Sorting Solutions	• Good momentum within Recycling • Improved momentum in Food, but with regional differences
Currency	• Reporting in NOK and with some NOK cost base, TOMRA will in general benefit from a weak NOK, particularly measured against EUR • With significant revenues in USD and costs in EUR, TOMRA Sorting Solutions is exposed to USD/EUR

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Copyright

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Disclaimer

This Document (which may be a presentation, video, brochure or other material), hereafter called Document, may include and be based on, inter alia, forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. The content of this Document may be based on current expectations, estimates and projections about global economic conditions, including the economic conditions of the regions and industries that are major markets for TOMRA Systems ASA and its subsidiaries and affiliates. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions, if not part of what could be clearly characterized as a demonstration case. Important factors that could cause actual results to differ materially from those expectations include, among others, changes in economic and market conditions in the geographic areas and industries that are or will be major markets for TOMRA Systems ASA. Although TOMRA Systems ASA believes that its expectations and the Document are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the Document. TOMRA Systems ASA does not guarantee the accuracy, reliability or completeness of the Document, and TOMRA Systems ASA (including its directors, officers and employees) accepts no liability whatsoever for any direct or consequential loss arising from the use of this Document or its contents. TOMRA Systems ASA consists of many legally independent entities, constituting their own separate identities. TOMRA is used as the common brand or trademark for most of these entities. In this Document we may sometimes use "TOMRA", "TOMRA Systems", "we" or "us" when we refer to TOMRA Systems ASA companies in general or where no useful purpose is served by identifying any particular TOMRA Company