Tomra Systems ASA (TMRAY) Navigates Global Challenges with Resilient Q1 2025 Performance

Tomra Systems ASA (TMRAY) delivered a robust Q1 2025 performance, showcasing its resilience in a volatile macroeconomic environment. Despite headwinds like trade tensions and delayed investments, the company’s diversified portfolio and strategic initiatives drove €306 million in revenue, a 5% year-over-year increase, while maintaining an attractive P/E ratio of 7.14x. This analysis explores the drivers of Tomra’s success, risks on the horizon, and its positioning in the global circular economy.

Financial Fortitude Amid Headwinds

Tomra’s Q1 results highlight disciplined execution:
- Gross margin expanded to 43%, a 3-percentage-point jump from 2024, fueled by cost savings in the Food and Collection divisions.
- Operating cash flow surged to €65 million, up from €19 million in Q1 2024, reflecting improved working capital management.
- EBITDA reached €26 million, supported by strong performance in Food and Recycling divisions.

The company’s strong balance sheet—with an equity ratio of 38%, low gearing (1.6x), and €143 million in undrawn credit facilities—provides ample flexibility for strategic investments.

Divisional Performance: Growth and Innovation

1. Collection Division: Expanding Geographically

The Collection division, which accounts for 60% of revenue, faced a 2% YoY dip due to softer new markets. However, standout performances in key regions offset this:
- Romania achieved record Q1 revenue with an 87% deposit return rate, driving demand for infrastructure.
- Poland’s deposit return system (DRS) is set to launch in October 2025, with over 1,000 RVMs installed, positioning it to contribute meaningfully to 2025 revenue.
- Tasmania’s DRS rollout in May 2025 marked Australia’s full coverage, though its impact remains modest.

CEO Tova Andersson emphasized that existing markets will grow 5% in 2025 via replacement sales and innovation, while new markets like Poland and Portugal (launching in early 2026) will drive long-term growth.

2. Recycling Division: Navigating Macroeconomic Uncertainty

The Recycling division’s revenue matched expectations, but order intake fell 16% YoY due to delayed U.S. waste management projects. However, service revenue (21% of 2024 Recycling revenue) is poised for double-digit growth in 2025, buoyed by aftermarket demand.

Tomra’s GAINNEXT AI-driven sorting technology—winner of the “Recycling Machinery Innovation of the Year” award—has already sold 128 units, signaling demand for advanced recycling solutions.

3. Food Division: A Turnaround Milestone

The Food division delivered 16% YoY revenue growth to €70 million, driven by strong performances in Europe (potatoes, berries) and South America (citrus, cherries). Notably, it achieved its first positive Q1 EBITDA (5%), a milestone underpinned by cost-saving programs and volume growth.

With trailing twelve-month order intake up 13%, the division aims to expand EBITDA margins to 10–11% by year-end.

Strategic Initiatives: Horizon and Beyond

Tomra’s Horizon initiatives—focusing on circular innovation—are critical to future growth:
- Fizak (Plastic Circularity): The Norwegian advanced sorting plant began commissioning in Q1 and is on track to achieve positive EBITDA by year-end.
- Tommern Reuse: Piloting reusable packaging solutions in cities and events to capture the €15 billion global reusable packaging market.
- SeaTrace: Digitizing waste management through smart collection systems, addressing $50 billion in annual global waste management spending.

Risks and Mitigation Strategies

Tomra’s growth is not without risks:
1. Trade Tensions: U.S. tariff exposure (6% of revenue) could trim gross margins by up to 1%, but hedging and cost controls will mitigate this.
2. Macroeconomic Delays: U.S. waste management projects are postponed, but European plastic recycling markets have stabilized.
3. Currency Fluctuations: A 10% euro appreciation could reduce EBITDA by ~1%, but hedging strategies are in place.

CFO Eva Hagenbeck noted that geographic and sector diversification—33 years of global operations across 33 countries—buffers against localized risks.

Conclusion: A Compelling Play on Circular Economy Trends

Tomra Systems ASA is well-positioned to capitalize on $1.3 trillion in annual circular economy opportunities by 2030, driven by its:
- Proven execution: 5% revenue growth in existing markets and a 38% equity ratio.
- Innovation leadership: GAINNEXT’s AI capabilities and Horizon’s advanced projects.
- Resilient cash flow: €65 million in operational cash flow and a 3.29% dividend yield.

While near-term risks like U.S. investment delays remain, Tomra’s 19% ROCE (exceeding its 18% target) and low debt provide a solid foundation. Investors should monitor Poland’s commercial progress (H2 2025 revenue materialization) and the Food division’s EBITDA margin expansion to €87 million.

In a world increasingly focused on sustainability, Tomra’s Q1 results affirm its status as a high-quality, undervalued stock in the circular economy space. With a P/E of 7.14x, it offers a compelling entry point for long-term investors.

Risks include trade tensions, delayed DRS rollouts, and currency volatility. Past performance is not indicative of future results.