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

Good day, and thank you for standing by. Welcome to the TCM Group Interim Q3 2025 Report Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn 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 third quarter results for TCM Group. Today, I, Torben Paulin, the CEO of TCM Group will be presenting and I will comment on the business and the financial results, after which, I will hand over to the operator for the Q&A session. I would like to share that our new CFO, Jan Boendorf Mason started in TCM Group 1st of November. But prior to his assignment, we had made other arrangements [indiscernible] next time. Let us start the presentation and turn to Page 2 for the business update. Sales in the third quarter developed in line with our expectations, with growth in both the B2B segments. Total sales for the quarter increased by 4.1% year-on-year to DKK 289 million [indiscernible] to organic growth of 2.7%, [indiscernible] increased by 7.0% compared to Q3 2024 reaching DKK 51 million, continuing the positive trend from the first 2 quarters of the year. Order intake developed positively in B2C and the B2B segment experienced solid growth in the quarter, mainly driven by increased orders from housebuilder and in line with higher activity in residential newbuilds. The gross margin improved in the quarter, gaining 1 margin point on Q3 last year, driven by higher average selling prices and efficiency gains in the supply chain. Please turn to Page 3. Some financial headlines for the quarter. Reported revenue was DKK 289 million, corresponding to a revenue growth of 4.1%, here of 2.7% organic. Adjusted EBIT was DKK 17 million compared to DKK 17 million in Q3 last year. Adjusted EBIT margin was 5.8% compared to 6.0% in Q3 last year. Net working capital ratio was 0.6% compared to 0% last year. Cash conversion was 75%. I will now go through the financial highlights. Please turn to Page 4. As mentioned, revenue in Q3 increased organically by 2.7%, but with an year-on-year increase of 4.1% due to the acquisition of 2 Svane equipment stores in Aalborg and Hjorring in January of 2025. Revenue in Denmark, our main market accounts for 82% of the group's revenue, it increased by 3.5% year-on-year with an organic growth of 1.8%, supported by modest growth in the B2C segment, while segments within B2B also delivered growth during the quarter. Revenue in Norway in Q3 increased by 7% compared to Q3 2024, continuing the positive trend from the first 2 quarters of the year. The share of third-party sales was the same as in Q3 last year, 26%. Please turn to Page 5. Gross margin rose to 21.4% in Q3 compared to 20.3% in Q3 2024 driven by higher average selling prices and efficiency gains in production and the supply chain. EBIT in Q3 2025 was DKK 17 million, compared to DKK 17 million last year, corresponding to an EBIT margin of 5.8% compared to 6.0% in Q3 last year. The EBIT margin decrease is primarily driven by an increase in SG&A cost due to the increase in employees from the acquisition of retail stores. Depreciation and amortization in Q3 2025 amounted to DKK 9 million, the same as last year. Please turn to Page 6. Net working capital end of Q3 was DKK 8 million compared to DKK 1 million last year. Compared to Q3 2024, net working capital was negatively impacted by an increase in inventories due to the acquisition of the 2 Svane Køkkenet stores and Aalborg store in Esbjerg and Nettoline store in Kolding. Net working capital was also negatively impacted by an increase in inventories of certain externally sourced components. Net interest-bearing debt amounted to DKK 349 million at the end of Q3 2024 compared to DKK 329 million in Q3 last year. The leverage ratio was 2.6x at the end of Q3 compared to 2.8x at the end of Q3 last year. Please turn to Page 7. Free cash flow in Q3 '25 was DKK 4 million compared to DKK 6 million in Q3 last year, negatively impacted by the development in net working capital. Free cash flow was positively impacted by dividend received from Celebert of DKK 7 million in Q3 2025. Cash conversion ratio measured over 12 months was 75%. We will now give an update on the Celebert acquisition. Please turn to Page 8. 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 this 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 and justwood.dk. The purchase price is DKK 80 million, the Danish competition authorities have approved the transaction, and it is closed today, the 25th of November 2025. The acquisition give us full ownership, strengthen our digital position and supports our multichannel growth strategy. Please turn to Page 9 for the financial outlook. Considering the results for the first 9 months of the year and the current trend in order intake during Q3, TCM Group is narrowing its full year 2025 guidance. The company now expects revenue in the range of DKK 1,260 million to DKK 1,280 million, previously DKK 1.25 billion to DKK 1.3 billion and adjusted EBIT in the range of DKK 93 million to DKK 100 million, previously DKK 90 million to DKK 110 million. TCM takes full ownership of Celebert 25th of November, 2025. Celebert will be included in our consolidated figures for December month. It is assessed to have an insignificant effect on the 2025 TCM figures. 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 Kristian Tornøe of SEB.

Yes. I have a couple of questions. So firstly, if we look at revenue, it's up 4% year-on-year, but your selling and administrative expenses are up by 12% year-on-year. And Torben, you briefly touched upon it yourself, but can you just talk us through this sort of negative impact on your leverage and especially how to model the SG&A going forward?

When we took over the 2 Svane stores back in January 2025, they are fairly big stores, especially the one in Aalborg and they come both with revenue, but they also come with rent and salary costs, SG&A. And we have -- since the takeover, we have worked on exercising a turnaround in the 2 stores. The retail margin is then consolidated into our figures. That is also why the gross margin is positively impacted. But also those costs that are coming with the stores that we took over because they were not profitable at that time. And we have to admit that we have been struggling also to do the turnaround during the year. And that is why the total result is higher revenue, higher gross margin but lower profit. When it comes to looking ahead, the stores are now performing a lot better than when we took them over, and we start to see a breakeven not so far away in the operation of the 2 stores. And then we took over one store -- one Aalborg in Esbjerg, 1st of September and one Nettoline store in Kolding, and it's a little bit the same, again, new management in place and then to work on professionalize and optimize the operation of the stores, but both of them are significantly smaller stores than the Svane stores in Aalborg and Hjorring. So you will see a little bit the same picture also in the future, but hopefully, soon that we can get breakeven and get them profitable. And even more, we are working on also to sell the stores to new local owners again. There is a dialogue going on with potential owners in Esbjerg, there is a potential owner in place in Kolding as daily manager, and the same in Aalborg and Hjorring, but as it is stores that are coming out of not being profitable, of course, they need to get some confidence and comfort in that they will be capable of operating them profitable before they want to take over.

Understood. Then in terms of the revenue impact from the Celebert acquisition and I guess also the 2 smaller AUBO and Svane stores. Can you just sort of remind us how much inorganic revenue or how much added revenue does these 3 acquisitions give you in 2026?

The 2 smaller stores will be minor because it's also consolidated into the internal turnover. So it will not be a part of this internal turnover will be eliminated. So that is not a lot. For Celebert, for December month, I guess, can calculate with around DKK 10 million.

And for '26 in Celebert?

We will say more about that when we present our budget for 2026. But I think we have mentioned in relation to the acquisition early on that the yearly turnover is around DKK 150 million.

And that still holds, there's no sort of material change to that estimate?

Then we will have to communicate about it when we present our expectations for 2026.

Fair enough. Then on your order commentary, it seems quite positive for Q3 and virtually as I read your report, you indicated that order momentum has improved during Q3. So I'm obviously just curious whether the positive momentum has continued in October and the beginning of November?

I think the most positive way to phrase it is that it's stable. It's not fantastic, but it's -- yes, it's stable. I would say we -- now we are having a slowdown, but that's probably more seasonalities that when we are getting so close to Christmas, then people, they have other top of mind things to do. So it's not any big changes.

So just to understand, so when you say you have a slowdown, is that relative to what you saw in Q3? Or is that relative to what you saw in sort of October, November last year?

Yes. It's -- I would say it's normal. It's same level as last year.

We are going to proceed with our next question. And the questions come from the line of Anders Christian Preetzmann from Danske Bank.

So just to touch upon the Danish B2C sales again. Is it still the higher end of the product line carrying the touch or what is going on with the lower end of the market? Is that starting to contribute as well?

I think the right way to put it is that the order intake is developing in all areas of the market as well the low end as the high end. And then also the housebuilders, we have seen a good uplift in the beginning of the year, in the first half of the year. Maybe stabilizing a little bit on that level now in the autumn. So -- and that -- and housebuilders are normally above the mid-market. So maybe a little bit more there than in the low end. But all our brands are having increases.

Okay. That's very clear. And your positive results again for Norway here in Q3, do you have similar expectations for the Norwegian business here going forward? Do you still expect good performance in Q4? And what is your visibility on this?

Yes. As Norway is coming from a very, very low level for a long, long period, the increase in the order intake is also expected. We haven't, though not seen the interest decreasing in Norway as expected. And I think also the market is right now a little bit hesitating to see what is happening on that side. There is huge demand in Norway for newbuilds and also renovations. So -- so that would normally mean that the good development should continue. But again, it's coming from a low level and it's still early days to say something very solid on the future.

All right. That's also very clear. Another question on your -- the narrowing of the full year guidance here with just 1 month to go for the full year. The implied Q4 results that shows a top to bottom range of DKK 20 million on revenue and on EBIT. Can you please just share your assumptions behind this updated guidance and again, what would need to happen to reach either end, please?