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Rating action

Scope Ratings GmbH (Scope) has today affirmed TOMRA Systems ASA’s issuer rating of A-/Stable. Scope has also affirmed the A- rating on the company’s senior unsecured debt, as well as the short-term rating of S-1.

The affirmation reflects supportive industry dynamics with the launch of new deposit return system (DRS) markets in 2025-26. It also reflects the expected improvement in TOMRA’s EBITDA margin* towards 20%, bolstered by the successful restructuring of the Food division, as well as operational leverage and ongoing efficiency measures. Scope expects higher revenues and enhanced profitability post-restructuring to improve TOMRA’s leverage, as measured by the EBITDA/debt ratio, towards 1.5x in the period to 2027.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BBB+ (unchanged). TOMRA's business risk profile continues to reflect: i) supportive industry dynamics (ESG factor); ii) its strong market positions, in particular in Collection; and iii) high and relatively stable margins in Collection and Recycling, with reported EBITDA margins of over 20%. However, business risks are amplified by: i) limited diversification due to the relatively focused product offering and the limited diversification of end markets; ii) dilutive effects on overall profitability from Food’s lower profitability; and iii) the competitive and fragmented market in which the Food segment operates.

Collection remains TOMRA’s main revenue driver, generating record revenue again in 2024. This was supported by regulation to achieve higher plastic bottle collection rates by 2029 through the implementation of DRS. Over the next two to three years, DRS will be launched in a number of new European markets: Poland and Greece in 2025, Portugal and Spain in 2026, and the UK in 2027. Given its strong market position, Scope expects Collection to remain a key beneficiary of the new wave of DRS markets. Although it is currently facing some short-term headwinds, similar to Collection, regulation will be a key driver for the plastic recycling business in the coming years. In particular, the EU Packaging and Packaging Waste Regulation, which was adopted in 2024 and is designed to increase recycling rates from 2030, plays a key role. Food has experienced headwinds in the past due to lower fresh food customer willingness to make new investments amid poor harvests and unfavourable macroeconomic conditions. However, the market seems to have stabilised, showing some positive signs, driven by the need for automation in food sorting processes, which are still largely manual.

Diversification, in particular the relatively focused product offering, continues to limit TOMRA's overall business risk profile. There is clear concentration in end-markets, with food retail chains accounting for around 50% of total revenues. However, this is mitigated by the resilience of food retail chains in economic cycles coupled with intact demand from the regulatory push to increasing sustainability. Although replacement by another supplier is possible in principle, the risk is tempered by relatively good customer granularity, as no customer accounts for more than 5% of total revenue. TOMRA's geographical presence is often a consequence of operating in markets where sustainable legislation is in place. As the EU has long been at the forefront of this process, it is natural that the EU is the largest regional market.

Scope continues to view TOMRA's profitability, as measured by the EBITDA margin (including capitalised development costs), as a supportive factor for its business risk profile. Historically, TOMRA’s profitability has been bolstered by the profitability of Collection and Recycling, with reported EBITDA margins well above 20%. In contrast, the relatively low profitability of Food, with a reported EBITDA margin of less than 15%, has had a dilutive effect.

Supported by the restructuring measures, Food’s reported EBITDA margin improved to 9.1% in 2024 from 0.9% in 2023. However, the segment’s profitability remained below pre-2023 levels, with Q1 2024 still impacted by restructuring. Lower personnel expenses and restructuring costs improved TOMRA’s EBITDA margin to around 17.6% in 2024 from 14.3% in 2023. EBITDA increased to EUR 238m in 2024, from EUR 185m in 2023, driven by higher revenue (up 5% YoY to EUR 1.35bn in 2024) thanks to another year of record revenue in Collection, in addition to higher profitability.

TOMRA shared its view on the impact of tariffs on its business, together with the publication of the Q1 2025 results, based on a scenario in which EU tariffs rise to 20% and Chinese tariffs remain at 145%. Collection should be largely unaffected, as the US market is largely a throughput market, with risks of order postponements arising primarily in Recycling and Food due to their revenue exposure. TOMRA sees a maximum direct tariff effect of 100 bps on its gross margin.

In 2025, Scope expects a further improvement in the EBITDA margin to around 18.5%, on the back of the full-year impact of the restructuring measures in Food. In combination with Scope’s revenue forecast (up 6% YoY to around EUR 1.43bn), the rating agency projects EBITDA of around EUR 265m in 2025. In 2026, Scope expects another increase in revenue to EUR 1.56bn in 2026 (up 9% YoY) and a further improvement in the EBITDA margin to around 19.5%. This should be driven by operational leverage and ongoing efficiency measures, raising EBITDA to around EUR 305m.

Financial risk profile: A (unchanged). TOMRA’s financial risk profile reflects Scope’s expectation that leverage will improve towards 1.5x in the medium term. The rating agency believes this will be driven by higher EBITDA on the back of the upcoming DRS pipeline and improved profitability post-restructuring in Food.

Leverage, as measured by debt/EBITDA at 1.8x, remained stable in 2024, despite an increase in debt due to higher EBITDA. Net debt of EUR 424m at year-end 2024 was above EUR 340m at year-end 2023, reflecting cash outflows for M&A of EUR 81m and dividend payments of EUR 50m, while free operating cash flow (FOCF) of EUR 64m had a positive impact. Scope expects debt to increase to around EUR 450m at year-end 2025 and to around EUR 510m at year-end 2026, based on projected growth investments in Feedstock, as well as cash outflows for dividends and the exercise of the share options. Scope expects the assumed higher EBITDA to dampen the increase in debt, resulting in a debt/EBITDA ratio improving towards 1.5x in the period to 2027. Funds from operations/debt has historically been comfortably in high investment grade territory (41% in 2024). Scope expects a strong FFO/debt ratio in 2025-26, with a projected range of 40%-50%.

EBITDA interest cover has historically been very strong. However, it decreased to over 10x in 2023-24 due to structural headwinds in Food, compared to over 30x in the years before 2023. Scope anticipates that the higher expected debt level will cause interest to rise. Nevertheless, the parallel growth in EBITDA should keep interest cover very strong at over 10x in 2025-26.

Unlike funds from operations, FOCF weakened significantly in 2022-23 due to net working capital-related outflows and higher capex, making cash flow cover the weakest credit metric. Supported by the recovery in Food's profitability and lower net working capital, FOCF increased to around EUR 64m in 2024 from about EUR 2m in 2023, translating into an improved cash flow cover of 15% in 2024 from 1% in 2023. Improved profitability in the Food segment will support FOCF after 2024. At the same time, Scope believes that higher net working capital, due to the greater business volume, and growth investments in Feedstock will weigh on FOCF. Scope expects FOCF to be around EUR 55m in 2025 and EUR 15m in 2026, resulting in a moderate to weak cash flow cover of 0%-15% in 2025-26.

Liquidity: adequate (unchanged). Scope views TOMRA's liquidity profile as adequate. Available liquidity sources, in particular cash on the balance sheet, undrawn credit lines and projected FOCF, cover upcoming cash uses over the next 12-18 months by well over 200%.

The company’s revolving credit facility and the credit line provided by Export Finance Norway (Eksfin) are conditional upon an equity covenant of at least 30% of total assets, measured at the end of each quarter. With an equity ratio of 38% at year-end 2024, TOMRA complied with the covenant in 2024. However, the headroom to the covenant has narrowed in recent years, as weakened FOCF in 2022-23 led to higher debt, and due to greater M&A activity in 2024. Scope expects the headroom to gradually increase following the restructuring of the Food segment.

Supplementary rating drivers: credit-neutral (unchanged). The rating does not incorporate any adjustments related to financial policy, peer group considerations, parent support or governance and structure. Scope views TOMRA's financial policy as credit neutral, supported by its commitment to an investment grade credit rating and a strong balance sheet, as reflected in debt/EBITDA of less than 2.0x (1.8x in 2024) on a sustained basis.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects TOMRA’s supportive industry dynamics such as the going-live of the new DRS markets in 2025-26, which should drive revenue. It further reflects the expected improvement in TOMRA’s EBITDA margin towards 20% after the restructuring of the Food segment in 2024 as well as operational leverage and ongoing efficiency measures. While Scope is seeing some pressure on the financial risk profile arising from growth capex, it expects this to be mitigated by higher revenues and enhanced profitability post-restructuring. As a result, Scope expects the leverage ratio, as measured by EBITDA/debt, to improve towards around 1.5x in the period to 2027.

The upside scenario for the ratings and Outlook is:

1. An improved financial risk profile, exemplified by debt/EBITDA sustained below 1.0x

The downside scenarios for the ratings and Outlook are (collectively):

1. Failure to meet Scope's expectations of an improving debt/EBITDA, with debt/EBITDA remaining close to 2.0x on a sustained basis
    
2. FOCF/debt does not recover after the growth period

Debt ratings

The senior unsecured debt rating has been affirmed at A-, in line with the issuer rating.

The S-1 short-term debt rating has been affirmed, reflecting the issuer rating of A-/Stable, the company’s strong short-term debt coverage and continued good access to bank and capital markets.

Environmental, social and governance (ESG) factors

Scope sees no company-specific ESG factors that have a substantial impact on credit risk.

Megatrends like climate change, resource scarcity, a growing population, a growing middle class and increased urbanisation have led to a legislative push towards increased circularity and sustainability, particularly within plastics and packaging waste. In addition, market demand for high-quality recycled material is fuelled by commitments from brand owners to meeting their sustainability goals. As the current market leader with its technology, global reach and the financial flexibility to undertake large-scale implementations when required, TOMRA is well positioned to benefit from this favourable ESG-driven tailwind, particularly in the waste sorting and plastics recycling business.

TOMRA’s activities are governed to a significant degree by legislation, such as deposit legislation or legislation for packaging waste. Scope sees this as an opportunity, as legal measures to reduce waste and reuse resources continue to be implemented and boost demand for TOMRA's products.

All rating actions and rated entities

TOMRA Systems ASA

Issuer rating: A-/Stable, affirmation

Senior unsecured debt rating: A-, affirmation

Short-term debt rating: S-1, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodology used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Gennadij Kremer, Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 23 June 2022. The Credit Ratings/Outlook were last updated on 4 June 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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