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Rating action

Scope Ratings GmbH (Scope) has today assigned a first-time issuer rating of A-/Stable to the Norwegian company Tomra Systems ASA. Scope has also assigned first-time ratings of A- to senior unsecured debt issued by Tomra Systems ASA and S-1 to short-term debt.

 Rating rationale 

The company’s business risk profile (assessed at BBB+) reflects positive industry dynamics, strong market positions within all its business segments, stable and growing demand for the company’s products and a large share of recurring revenues. The company is the clear global market leader in reverse vending machines (RVMs) for beverage collection with about 81,000 installed machines in over 60 countries It also holds leading positions within sensor-based sorting equipment for recycling and mining, with market shares of 55%-60%. Lastly, it holds strong positions in the global food sorting market. These strong market positions are reflected in strong and stable EBITDA margins of around 20%-22% historically. Around half of revenues in the collections business comes from service contracts, which adds stability to earnings and cash flow generation. Historical revenue growth has been around 10% yearly, reflecting growing demand for recycling driven by legislation, end-user demand and industry initiatives, trends that are expected to continue (positive ESG factor). Diversification by geographies, customers and end-markets constitutes an additional strength. However, the company’s products being based on the same technology, combined with its absolute size and niche focus, somewhat limits the business risk assessment.

The company’s financial risk profile (assessed at A) reflects its low financial leverage, with Scope-adjusted debt/EBITDA at 0.7x-1.3x over the past five years. The low debt levels can be explained by strong cash flow generation, medium capex, moderate M&A, and a prudent financial policy (dividend payout at 40%-60% of earnings). Scope’s base case assumes that Tomra, as the leading global provider of RVMs, will continue to win tenders, also in new countries, over the medium term. The base case also factors in capex related to the company’s newly announced adjacent businesses (Plastic Recycling, Reusable Packaging, Textiles and Digital). Lastly, Scope has assumed dividends paid will align with their stated earnings per share of 40%-60% annually. Scope believes that the company’s strong operational performance can compensate for most of the increased expenditure in the medium term, even with the decreased profits so far in 2022 caused by supply chain disruptions and inflationary pressure. In sum, Scope-adjusted debt/EBITDA is forecast to increase only slightly to 1.0x in the medium term (0.5x at March 2022), which is still strong, despite FOCF seeing some pressure compared to recent years.

Liquidity is adequate. As at March 2022, the company had NOK 620m in cash and equivalents and ~ NOK 1.6bn in unused committed credit facilities against only NOK 400m in short-term interest bearing liabilities (excluding leases). The company has ample headroom under its financial covenant of a minimum equity ratio of 30% (actual figure of 52.9% as at March 2022).

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

Outlook and rating-change drivers

The Stable Outlook reflects Tomra’s strong market positions within their established segments, which Scope believes will continue to shape the company’s performance in the medium-term. It also reflects our expectations of stable service revenues from an increased installed base. Further, it assumes that Tomra will still keep the leverage at a conservative level, despite higher CAPEX related to the company’s new adjacent businesses. Positive industry dynamics also benefit the company, including EU recycling directives that will trigger new tenders for RVMs, a segment where the company is well positioned.

A rating upgrade may be warranted if Tomra maintained Scope-adjusted debt/EBITDA below 1x while strengthening its business risk profile (i.e. through growth in size whilst maintaining strong market positions and high margins).

A rating downgrade could be warranted if Scope-adjusted debt/EBITDA gravitated towards 2x on a sustained basis, possibly through higher-than-expected capex related to the new adjacent businesses and/or the implementation of new RVMs.

Long-term and short-term debt ratings

Scope has assigned an initial A- rating for the company’s senior unsecured debt. This is in line with the issuer rating, based on the negative pledge and pari-passu conditions.

Scope has also assigned an initial S-1 short-term debt rating. This is based on the supportive internal and external sources of liquidity (~NOK 1.6bn in unused facilities and NOK 620m in cash reserves at March 2022), positive cash flow generation and adequate access to the capital markets.  

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, (Corporate Rating Methodology, 6 July 2021), 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 the 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 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: Michael-Marco Simonsen, Associate Director
Person responsible for approval of the Credit Ratings: Henrik Blymke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 23 June 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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