TCM Group A/S (TCM.CO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the TCM Group Interim Q2 2025 Report Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Torben Paulin, CEO. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen, and welcome to the presentation of the second quarter results for TCM Group. Presenters today are our CFO, Thomas Hjannung; and myself, CEO, Torben Paulin. And we will comment on the business and the financial results, after which, we will hand over to the operator for the Q&A session. Let us start the presentation and turn to Page 2 for the business update. Sales in the second quarter of 2025 developed generally in line with our expectations, with growth in both B2C and B2B on the backdrop of the strong order intake in the first quarter of '25. Total revenue increased by 5% to DKK 349 million, with an organic growth of more than 3%. The positive development in Norway in Q1 continued in the second quarter with an organic sales growth of more than 5%. Order intake developed positively in B2C, even if at a slower pace than in Q1, whereas the B2B segment experienced headwinds in the quarter. Project orders continued to decrease as expected. On a positive note, we saw an increase in orders from housebuilders in line with increased activity in residential new builds. The gross margin improved in the quarter, gaining more than 2 margin points on Q2 last year, driven by higher average sales prices and stable input costs in the quarter. Please turn to Page 3. Some financial headlines for the quarter. Reported revenue was DKK 349 million, corresponding to a revenue growth of 5%. Adjusted EBIT was DKK 34 million compared to DKK 28 million in Q2 last year, equal to an increase of 20%. Adjusted EBIT margin was 9.6% compared to 8.4% in Q2 last year. Thomas will elaborate on the underlying drivers of this development. Net working capital ratio was minus 0.7% compared to minus 1.1% last year. Cash conversion was 78.6%. I will now hand over to Thomas to go through the financial highlights.

Thank you, Torben. Please turn to Page 4. As mentioned by Torben, revenue in Q2 increased organically by 3.3%, but with a year-on-year increase of 5.1% due to the acquisition of the 2 Svane equipment stores in Aalborg and Hjørring in January 2025. Revenue in Denmark, our main market, accounting for 81% of the group's revenue, increased by 5.2% year-on-year with an organic growth of 3%, supported by a solid growth in B2C revenues. Revenue in Norway in Q2 '25 increased by 5.2% due to the improvement in the trading conditions after a long period of very difficult trading. The share of third-party sales in the group was the same as Q2 last year, 24%. Please turn to Page 5. Our gross margin increased from 21.5% in Q2 last year to 23.7% in Q2 2025. Improvement was primarily due to higher average selling prices as a result of the uplift in B2C sales and also stable input costs in the quarter. SG&A costs increased by DKK 5 million as a result of the addition of the 2 Svane equipment stores in the first quarter, whereas our underlying SG&A cost increased by only 3% in the quarter. As a result of the top line growth and our improved gross margin, we delivered an uplift an operating EBIT of 20% from DKK 28 million in Q2 last year to DKK 34 million this year. This translates to an EBIT margin of 9.6% compared to 8.4% in Q2 last year. Please turn to Page 6. Net working capital end of Q2 was minus DKK 9 million compared to DKK 13 million last year, equal to 0.7% of revenue, minus 0.7%, and minus 1.1% last year. Net working capital was negatively impacted by increase in inventories as a result of the acquisition of the 2 Svane equipment stores in Q1, but also as a result of an increase in inventories of certain external resource components. Net debt was DKK 343 million end of Q2 2025 compared to DKK 326 million end of Q2 last year, following the distribution of ordinary dividend of DKK 31 million in the quarter. The leverage ratio decreased from 3.2x LTM EBITDA last year to 2.5x EBITDA end of Q2. Please turn to Page 7. Free cash flow in Q2 was DKK 32 million compared to DKK 26 million in Q2 last year. CapEx spending was on par with Q2 last year with a CapEx ratio of 1.2% compared to 1.3% in Q2 last year. Investments related primarily to digitalization in the shape of our new ERP platform and investments in the new lacquering facility. Compared to last year, free cash flow was also positively impacted by timing of payment of the corporate income taxes of DKK 6 million last year which this year was paid in the first quarter. Cash flow conversion ratio measured over 12 months was 79%. I will now hand back to Torben for an update on the Celebert acquisition and a review of the financial outlook for 2025. Please turn to Page 8.

Thank you, Thomas. In 2021, we merged TCM Group's online activities in kitchn.dk with Celebert and acquired a 45% stake in the joint business. Now the majority shareholder has chosen to exercise his put-option, so TCM Group will acquire the remaining 55%. Celebert has been a pioneer in online retailing of kitchens, bathroom, interiors, wardrobe solutions and white goods, operating kitchn.dk, billigskabe.dk, justwood.dk. The company has grown strongly since 2021, with revenues reaching around DKK 150 million in 2024. The purchase price is estimated at DKK 60 million to DKK 85 million with closing expected in the end of 2025 pending approval. The acquisition give us full ownership, strengthen our digital position and supports our multichannel growth strategy. Please turn to Page 9. Considering the results from the first 6 months of the year and the development in order intake during Q2, we are narrowing our guidance for 2025. TCM Group now expects full year revenue in the range of DKK 1.25 billion to DKK 1.3 billion, previously DKK 1.25 billion to DKK 1.325 billion and adjusted EBIT of DKK 90 million to DKK 110 million, previously DKK 90 million to DKK 115 million. As previously communicated, this guidance assumes full ownership of Celebert towards the very end of the year. This concludes our presentation, and we will now hand over to the operator for the Q&A session.

[Operator Instructions] We are now going to proceed with our first question, and the questions come from the line of Anders Christian Preetzmann from Danske Bank.

You mentioned in the report a muted consumer during the second half of Q2 compared to the first half. I was wondering if you were able to quantify this a bit. I mean, did you see a drop in meetings or general traffic at the stores? And how much lower was it than expected?

Yes, it's correct that after a very, very strong order intake in the Q1 in the second half of Q2, traffic and signing of orders in the stores was at a lower level for the B2C consumers. Whether this has to do with a nice spring weather or people traveling even more than ever, we don't know. And now we are following closely how it picks up after the summer holiday, people -- some people are back from holidays, school start, et cetera. So we have our first design weekend now coming up first weekend of September. And there we will follow how -- very closely how people are acting now. But with this knowledge from second quarter and especially the second half of it, we have decided to narrowing our guidance. And it's difficult to quantify more precisely because we have also said several times in spring that we have satisfying traffic, but we also experienced consumers to hesitate to sign up for the final order. So traffic is better than the actual order intake. And yes, it's interesting to see how that will develop.

Torben, that was very clear. The muted performance, is it something that you see across all of Denmark? Or do you see certain pockets of areas where activity has remained good or maybe worse than expected as well?

Good question. We have early on said that we have seen a different development from the bigger cities to the country side and the other way around, but this development has been all over Denmark, no specific geographical differences. And we have also said earlier on that we have seen a more -- a better development in our higher-end positioned brands and less in the lower end, but today, it's also equal in both the lower end and the high end. So it's across all brands.

Okay. A question on the guidance for the full year, which you take the top down a little bit. But looking at your ranges, your guidance still implies growth between 2% to 11% for H2. Can you please reiterate what would need to happen for you to end up in either of these ranges for H2, please?

To end up in the high end, it takes that the B2B segment develops as we also described in housebuilders are picking up, and we are still hoping that we start also seeing some of the project sales coming slowly back towards the end of the year. And then the main driver is that the private consumer, the B2C market is coming strongly back and also relatively soon so that we can deliver this year.

Okay. And if we assume that the Celebert acquisition is further delayed until 2026, how much would your growth expectations then be changed for H2?

It's so little included in the guidance now that I don't think it will have any significant changes. The message from the lawyer that is handling it for says that it's 4 to 5 months' time. So we are calculating that it will happen during December. 1st of December or 15th of December or it will be with effect from 1st of January, somewhere around December.

Okay. Torben, a final question for me then. You stated that your lacquering facility has now been completed in this quarter, and it's expected to ramp up during Q3. Can you just remind us again what impact on the gross margin you expect from this ramp-up in H2?

I don't think we have been sort of very specific on the exact impact on the direct margin, right? I think we previously communicated sort of less than 1 percentage point. So it's not the one that's going to change the picture dramatically. But of course, it's a positive lever, one of many levers that we have, right? So it's not -- I'm not saying that you would be able to see directly into our numbers.