TOMRA built a business that has benefitted its shareholders and the environment. The Asker, Norway-based company sells “reverse vending machines” that collect used soda cans and other recyclables as well as advanced sorting systems, such as those used in recycling plants to sift through waste and find reusable material. It was founded in 1972 and its growth has benefitted from and mirrored the environmental movement that began in the 1970s. In the half century since, TOMRA has expanded into more than 100 markets around the world, making money for its shareholders while helping clean up the planet.
TOMRA has a dominant business position. The company’s scale, brand, and service network are difficult to match for smaller competitors or new entrants. It has a 70% global market share in reverse vending machines, and roughly 50% of the market for sorting machines. A third division focuses on adapting its sorting technology for production and processing in the food industry.
Given the strength of its main businesses, and the increasing interest among companies, consumers, and regulators for more recycled material in products, TOMRA seemed primed for profitable growth as the go-to equipment supplier in this “circular economy.” From 2017 through 2021, the company compounded its earnings at a 13% rate. At a capital markets day in 2022 it promised more of the same—to boost revenues 15% per year while expanding margins.
But since that capital markets day, which coincided with turnover in the executive team, the company’s execution has faltered. Earnings this year are expected to be lower than they were three years ago. TOMRA was hurt by inflation, as existing contracts prevented the company from increasing prices to offset rising costs. The company was also the victim of a severe cyberattack, which cost US$20 million to remediate. In the food division, the company had to undergo a drastic restructuring after a series of acquisitions led to a disjointed operation.
World-class industrial businesses often have an ethos that focuses their work force and strategy on what’s most important—think Danaher’s famous Danaher Business System, Parker Hannifin’s Win Strategy, or Honeywell’s Accelerator program. The companies attribute their historical success to these systems because they focus decision makers on organic growth, profitability, and return on invested capital. We’d like to see TOMRA’s management take a similar approach and pay more attention to concrete financial metrics as opposed to buzzwords like “circular economy” or “food security.” Talking about cash-flow return on investment and other hard numbers with investors often encourages a more dedicated focus on them.
In the first quarter of this year, two of TOMRA’s three divisions lost money, yet on its earnings call with investors, the management team hardly referenced the dismal results. In fact, in the opening 30 minutes of the one-hour call, the CEO made scant reference to TOMRA’s lackluster financial results. The second-quarter results showed some promise; revenue for its reverse-vending machines rose 15%, an encouraging sign. Earnings, however, for the first six months fell from 2023’s levels.
While TOMRA has endured a challenging period, it still has a dominant position in a growing market, and some mid- to long-term drivers of growth are still intact. Jurisdictions from Quebec to Tasmania are planning to launch deposit programs this year and next, albeit others are rethinking plans; France for instance cancelled a planned bottle-recycling program. But Austria, Poland, Hungary, and Romania have also emerged as new markets. Additionally, the technology the company has developed for sorting recyclables can be leveraged for other uses; the company expanded into metal recycling in 2006 and mining in 2008 as well as food sorting.
The company says its machines collect more than 46 billion used beverage containers every year, and that collection rates in markets with deposit programs are higher than those with curbside-collection plans. TOMRA has managed to boost revenues steadily over the past decade, which points to a degree of stability. The new management’s missteps combined with the changing interest-rate environment and countries altering recycling plans have sown doubt. There is still a business and environmental case to be made for TOMRA. What we’re looking for are signs that the new management team is balancing those two things more effectively. ∎