TOMRA refocuses in California and writes down NOK 345 million
During 2001 TOMRA has spent substantial management and financial resources on change processes to obtain profitable operations in California and to close down activities in non-deposit states in the U.S. Lack of progress during 4th quarter 2001 has led to the conclusion that the book value of certain assets no longer can be justified and the Board has taken the decision to write-down investments with a total amount of NOK 345 million.
Estimate for 2001
TOMRA estimates the following financial key figures for 2001:
In NOK million 2001 accum. 4th Quarter
Revenues incl. discontinued operations, approx. 2 900 710
Operating profit, approx. 349 60
Profit before write-downs, approx. 441 115
Write-downs in 4th quarter 345 - 390
The weak operating performance has primarily been caused by the development in California while the positive net finance items primarily relate to currency gains. Profit before write-downs includes a reversal of NOK 15 million related to the bank guarantee reserve regarding Wise Recycling. After the write-downs TOMRA has concluded a full clean-up of all current exposure items. The write-downs have no liquidity effects and the equity is expected to equal 72% at year-end 2001. Cash and bank holdings amounted to approximately NOK 600 million as of January 1, 2002.
2002 outlook
A slow improvement in California and excess operating expenses to stay prepared in Germany is expected to result in weak financial results for the first quarter 2002. The financial year 2002 is expected to be a year without major headlines for TOMRA, with the exception of a decision in Germany. Rather, we expect a year with continuous improvements of financial performance in all main markets.
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The situation in California
TOMRA invested a total of USD 23.2 million (NOK 208 million) in 1998 through acquisitions of four companies operating recycling centers in California. In addition TOMRA has invested USD 15 million (NOK 135 million) in the RePlanet concept and USD 10 million (NOK 90 million) in systems development and infrastructure.
The plan behind these investments was to quickly establish a substantial market position in California and thereafter convert manual operations to the automated RePlanet solution. The concept was expected to create increased recycling volumes based on improved convenience and an attractive brand supported by professional marketing. The model should eventually be developed into a franchise solution.
The RePlanet concept has contributed positively to recycling rates in California and has in many ways also obtained the position TOMRA intended. Despite substantial efforts and resources, the volume growth has not exceeded 60% against an initial target of 100% growth over a two-year period. Manual centers have, during the same period, experienced a volume decline of 20%, which confirms that RePlanet is a future oriented concept. California has, during the same period, experienced a decline in the overall recycling rates from 72% in 1999 to 62% in 2000. This development has proven difficult to change, even for the California Department of Conservation (DoC), which last summer expensed USD 10 million in a major marketing campaign to increase recycling rates without visible results.
TOMRA's revenues in California are strongly linked to the recycled volumes and aluminum prices. Due to lower volumes TOMRA has not been able to secure sufficient revenues to obtain acceptable returns on investments. In addition, the deposit system in California is strongly politically influenced, which has made it difficult and time-consuming to adjust the operating model and expenses to lower volumes.
Status and opportunities
TOMRA concluded during second half-year 2001 a restructuring of the materials handling activities in California and non-deposit states. Expenses tied to sales or closing of these activities amounted to USD 6 million (NOK 54 million) reported in the third quarter 2001. All activities in non-deposit states, with the exception of Hawaii, have been sold or closed by the end of 2001.
Since start-up in California, TOMRA has made several organizational changes to improve the financial performance. During second half-year 2001 we have changed the organizational structure and introduced management tools to improve overall monitoring capabilities. This has, however, not been sufficient to avoid a substantial worsening during fourth quarter 2001.
Immediate measures will be taken to ensure break-even in California during second quarter 2002. RePlanet has been well received both by consumers and authorities and will still be the basis for TOMRA's continued activities in California. The concept will need further refining and improved efficiencies in order to operate as a fully automated and functional solution. Other measures will include further organizational adjustments, closing of loss-making recycling centers and cooperation with the DoC to ensure long-term improvements of the deposit model.
TOMRA's new President for North America, Gregory Knoll, started today. In addition, CFO Helge Nerland will focus his time and attention on California during the first half-year.
For further information please contact President & CEO Erik Thorsen at <br>+47 66 79 91 00 or 66 79 92 00 <br> <br> <br>Asker, January 14, 2002 <br> <br> <br>The Board of Tomra Systems ASA <br>