3rd Quarter 1999
HIGHLIGHTS 3rd QUARTER
- Revenues of 661 MNOK (up 33%)
- Profit before tax of 121 MNOK (up 46%)
- Test of Recycling Centers in California
- New organizational entity formed, TOMRA Global Business Development
- ISO 14001 Certification of production units
Revenues in the third quarter 1999 amounted to 661 MNOK, up 33% from 498 MNOK in 1998. The operating profit showed an increase of 29% to 113 MNOK with an operating margin of 17.1%. Profit before tax increased from 83 MNOK to 121 MNOK. Net financial items of
1.0 MNOK include a reversal of 12 MNOK in gains recorded in 2nd quarter related to the sale of 22% ownership interest in Tomra New York Recycling and currency gains of 14 MNOK (see under Reporting Adjustments).
Sales for the first nine months was 1 850 MNOK against 1 241 MNOK in 1998 (up 49%), while the pretax profit increased from 202 MNOK to 325 MNOK (up 61%).
Earnings per share for the first nine months increased by 55% to NOK 5.03. Total assets have increased by 21% since the beginning of the year to 2 212 MNOK. The liquidity remains good and the equity ratio stands at 68%.
EUROPE
Revenues in Europe amounted to 719 MNOK for the first nine months of 1999 against 426 MNOK in the same period in 1998 - an increase of 69%. The sales growth in the third quarter was 36%.
Sales by market
Figures in NOK million 9m99 9m98
Norway 211 24
Sweden 79 74
Finland 68 37
Denmark 45 39
Netherlands 91 68
Germany 149 113
Austria 47 43
Others 29 28
Total Europe 719 426
Sales by activity
Figures in NOK million 9m99 9m98
Sales, Lease 538 289
Service 169 125
Adm. & Promotion 12 12
Total Europe 719 426
Norway
The May 1999 introduction of deposit on cans in Norway continues to drive strong sales numbers. A total of 1650 machines have been installed during the first nine months, with a market share above 90%.
The reported beverage sales indicate a market share for cans in the range of 35-40% for beer products. The reported recycling rate after only few months of operations is 70%, which is higher than expected compared to similar introductions in other markets.
Germany
Germany developed in line with expectations with growth of 28% in the quarter and 32% for the first nine months. With a strengthened product portfolio and focused key account management the German market is expected to continue developing positively.
Legislation and industry initiatives
The EU Commission adopted the Packaging Directive EU 94/62 in 1994 setting recovery and recycling targets for packaging waste to be reached before mid 2001. The Commission has recently presented a Working Document on the revision of the Directive for the following 5 years to be agreed before December 31, 2000. The most important elements of the Working Document are:
- Recycling targets by material will be increased from 15% to 45%.
- Specific reuse targets for certain materials.
- Producers will be responsible for cost of return, collection, reuse and recycling systems.
- Incineration not accepted as a recovery process
In parallel to this process, several political and industrial initiatives have further focused recycling in the European market over the past year. TOMRA will continuously monitor all activities closely in order to be well positioned towards new business opportunities.
AMERICA
Revenues in North America for the first nine months amounted to 1 130 MNOK - an increase of 39% over the 815 MNOK reported in the same period 1998. The sales growth in the third quarter was 31%, mainly generated from Consumer Collection services in California and Materials Handling services in Michigan.
Sales by market
Figures in NOK million 9m99 9m98
New York 376 379
Connecticut 102 101
Massachusetts 81 80
Michigan 129 75
California 329 100
Non deposit states 97 61
Others 16 19
Total America 1 130 815
Sales by activity
Figures in NOK million 9m99 9m98
Sales, lease 148 139
Service 89 84
Consumer Collection 426 161
Materials handling 395 364
Adm. & Promotion 72 67
Total America 1 130 815
California - RePlanet
On September 15, 1999 TOMRA officially launched a new recycling center concept. The launch consisted of 10 pilot centers, which have been in operation since mid-August. The automated recycling center is a critical element in TOMRA's strategy to attract consumers and drive container volumes in California. Success with the new concept is also key for future expansion into non-deposit markets.
The concept incorporates use of RVM technology to expand hours of operations from 30 to 120 hours a week, improving consumer convenience. The centers have been redesigned into attractive retail quality space. A comprehensive marketing program that included radio, newspaper, in-store promotion and direct mail was launched to increase consumer awareness.
After four weeks of testing, the retailer commitment and consumer response is encouraging. The number of transactions has increased substantially, but it is still too early to conclude any long-term effects on volume. Given continued positive test results, TOMRA will cancel the planned San Diego test and move directly to a full-scale market launch commencing first quarter 2000.
California - Legislation
The new California container legislation passed as law on October 11, 1999 and will take effect January 1, 2000. The legislation provides for a 25% increase of handling fees to convenience centers, expansion of container types representing 18% volume increase, and elimination of the sunset provision.
A WORLD OF OPPORTUNITIES
TOMRA's mission statement is Helping the World Recycle. In the Annual Report of 1998 we mapped the world market for beverage containers and concluded that TOMRA is handling about 2% of the global container volume. A market share above 90% for Reverse Vending Machines (RVM) is in itself a strong position, but does not provide any meaningful measure of TOMRA's position in relation to global beverage volumes.
TOMRA is so far the only company in this market niche that has expressed a commitment to deal with the entire recycling challenge. In order to develop TOMRA, we believe it is necessary to look at all parts of the value chain.
The global community will - as demonstrated in the previously discussed EU Working Document - be increasingly concerned with and willing to invest in the recycling value chain. In response to the public concern and as the dominant player in the market, TOMRA will need to make significant investments to establish market presence in advance of business opportunities. These investments will be primarily focused in logistics and recycling infrastructures. TOMRA's market presence is critical if we want to effectively participate in industry driven solutions.
Packaging Trends
Strong market trends towards convenience packages, like the PET bottle, are influencing the recycling programs worldwide. In the US market the growth of the PET containers has led to a reduction of average recycling rates, as PET containers mainly replace aluminum cans, which have the highest recycling rates. The PET packaging trend is the basis for TOMRA's PET recycling and the "Bottle to Bottle" strategy.
In TOMRA's current European market, the majority of beverage containers are refillable bottles. Based on several Life Cycle Assessments it has been concluded that refillable bottles have a superior environmental performance in markets with limited transportation distances. In a refillable container market, the most efficient way of collecting containers is through a reverse logistics chain. Each beverage producer uses its own distribution chain to bring containers back to the bottling plant.
For longer distance distribution, like in the current US market, but also in Europe after elimination of trade borders, non-refillable containers can prove equal or better environmental performance. The most efficient way of handling non-refillable containers is through one operator that operates on behalf of the entire industry.
TOMRA Approach
Future challenges in Europe based on the EU Packaging Directive make it necessary for TOMRA to participate in projects and build competence within the parts of the value chain not efficiently served by the established industries.
Over the past years, TOMRA has been operating major parts of this value chain in the US market. We have learned that integration of the various activities is the best way to maximize efficiency. TOMRA will add value through the unique container collection technology combined with the expertise of value chain integration.
TOMRA's value proposition is further strengthened through our role as a third party operator for both retailers and beverage producers. This independent role mitigates some of the challenges of tough competitors operating in a political environment. The Michigan Materials Handling program is a good example. It has taken TOMRA several years since the RVM introduction to develop the program into a full scale collection and processing program.
The overall impact of the increased global activities influencing TOMRAs future market position provide an opportunity for TOMRA to maintain an aggressive growth strategy.
All market activities and acquisitions will have the target to establish fully integrated collection, processing and recycling systems with outsourcing of all parts which are more efficiently served by the existing industry. An increased focus on the entire value chain globally may accelerate growth and impact margins due to the need to establish market positions in advance of business re-engineering and integration opportunities.
Global Business Development
In order to respond to the industry challenges, realize the market opportunities and achieve our growth objectives, TOMRA has established a new organizational entity during third quarter. Global Business Development (GBD), will be responsible for conceiving, nurturing and developing those business opportunities that can be defined as strategic in size or nature. In markets where these criteria are met, GBD will be responsible for defining and executing the entry strategy in cooperation with the established business units.
Based on current industrial and political activities within the EU market, GBD will concentrate its resources towards key markets of Germany, Netherlands and the UK. The earlier mentioned Working Document on the renewed EU Packaging Directive indicates that industry will be responsible for the cost of collection and recycling. We see that this already is influencing the activity level, and believe this will increase the importance of bringing fully integrated recycling models to the market.
At the same time there are also an increased number of initiatives in other parts of the world to be followed. The initial focus areas for GBD outside Europe will be non-deposit states in the USA, together with Brazil and Japan.
Totally, TOMRA will make investments in Global Business Development and the launch of RePlanet in California, amounting to 60 MNOK which will be expensed next year.
ISO 14001
As stated in the Environmental Report for 1998, TOMRA planned to implement the ISO 14001 standard for environmental management this year. Effective October 8, 1999 TOMRA obtained ISO 14001 certification. TOMRA's environmental management system is developed around the product lifecycle in order to ensure a holistic environmental approach focusing on continuous improvement in the areas with greatest potential.
REPORTING ADJUSTMENTS
By the end of 2nd quarter, TOMRA sold a 22% ownership interest in the subsidiary Tomra New York Recycling to beverage distributors in Upstate New York with a recorded gain of 12.1 MNOK. During third quarter an additional 5% ownership interest has been sold to the local Coca-Cola distributor on equal terms with a gain of 4.0 MNOK.
This gain was correctly recorded under net financial income according to US GAAP, but not in accordance with Norwegian GAAP. We have reversed the 2nd quarter gain from the Profit & Loss statement in this quarterly report and recorded it directly against minority interest and other short-term liabilities together with the gain from the present quarter.
In order to properly reflect minority interest in the Profit & Loss statement according to Norwegian GAAP, the minority interest line has been moved below the net profit line. The minority interest is reflected net of taxes. Figures for previous periods have been adjusted accordingly.
SHAREHOLDERS
The largest shareholders of the company at the end of September 1999 were: State Street Bank (US) 9.5%, Chase Manhattan Bank (UK) 5.8%, KLP (N) 3.9%, Folketrygdfondet (N) 3.6% and Caisse des Depots et Consignations (F) 3.4%. The distribution by country of TOMRA shareholders shows: Norway 35.8%, United States 21.6%, United Kingdom 11.3%, France 5.8% and Luxembourg 5.4%.
TOMRA's share price decreased from 296 NOK to 292 NOK during the third quarter 1999. The number of shares traded in the first nine months were 53 million, equal the trading volume the same period last year.
Asker, 19 October 1999 <br> <br>The Board of Directors <br>TOMRA SYSTEMS ASA <br><pre> <br>Jan Chr. Opsahl Erik Thorsen <br>Chairman President & CEO</pre>