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

Good day, and thank you for standing by. Welcome to the TCM Group conference call. [Operator Instructions] Please be advised, today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Torben Paulin. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the teleconference where we will discuss the reasons for the profit warning that we issued yesterday and put a few comments to the preliminary Q3 figures. We will, of course, also host a conference call in connection with the release of the full Q3 report on November 17, 2023. Presenters today are our CFO, Thomas Hjannung; and myself, CEO, Torben Paulin. We will comment on the business and the profit warning, 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 Q3 fell short of our expectations. And overall order intake for Q4 is also weaker than expected despite the fact that we did see a pickup in B2C orders. Our underlying gross margin improved slightly in the quarter, driven by an improved sales mix and the effect of the capacity adjustments. As a result of the weaker trading, we did see more stores with cash flow issues, which is why we have increased our provisions for potential losses on trade receivables in the quarter. Please turn to Page 3 and I will now hand over to Thomas.

Thank you, Torben. As stated in our company announcement yesterday, we have downgraded our outlook for 2023. The downgrade is driven by 4 matters. Firstly, the weaker trading in Q3 and the slower order intake for Q4, as mentioned by Torben before, which then in turn also impacts our view on the risk for potential losses on trade receivables. The third point relates to our estimate on transit fees from our third-party suppliers, where we in Q1 and Q2 have overestimated the amount of income to be received. The full year profit impact of this correction in estimates amounts to approximately DKK 10 million. Lastly, we now include amortization on intangible assets that we recognized through the Aubo production purchase price allocation. This has an accounting impact of DKK 3 million for the financial year. Please turn to Page 4.

Based on the reasons just discussed, we adjust our outlook from our previous outlook for 2023 as follows: Net revenue is expected in the range of DKK 1.40 billion to DKK 1.90 billion and adjusted EBIT is now expected in the range of DKK 40 million to DKK 50 million. We will now hand over to the operator for the Q&A session. Thank you.

[Operator Instructions] We'll now take our first question. This is from the line of Ulrik Bak from SEB.

I have a few here, and I'll take them one by one. Firstly, to your comment about cash flow issues from more of your stores. I realize you made a provision of DKK 5 million during the quarter. How many stores are we talking about here that could financially constrained at the moment?

It's a rather limited number of stores. I mean we are -- there is less than 10 stores that is currently on the observation list.

And do you have any -- do you wish to save these stores, if I can put it that way? Or just what are your strategic thinking about these stores?

As we've stated before, it very much depends on the individual situation. Some of the stores -- of course, we still believe in and we think that they can overcome their challenges even if it might take a while. But at some of the stores, we will -- we had a discussion with about how to end the trading relationship. So it's very individual, like, on how we see this.

Okay. Understood. I also noticed that you have nonrecurring items in the quarter of DKK 1 million. Can you just briefly elaborate on what's that related to? And how it will work if some of these provisions will come into effect, if that will also be booked under nonrecurring items going forward? Or how we should think about that?

The DKK 1 million, which is, I think, DKK 0.7 million in real numbers in special items this month -- this quarter is related to the restructuring that we performed in the first half of the year, where there was some spillover once we did the final settlements with some of the employees. So this relates to the first half of the year restructurings. If we realize some losses on trade receivables, they are reported under operating expenses in the sales expenses, just like we do with the provisions. So they will not be reported as special items.

Understood. Understood. And then to the third-party transit fees, can you perhaps just elaborate a bit on how much they have affected revenue and how it flows through your P&L? And how we should think about that going forward?

The impact on revenue is DKK 10 million, which is the same amount as also has the EBIT impact for the full year, because these fees are fees that we receive from the third-party suppliers for handling the orders. There are, so to say, no direct cost allocated to them. And that's why it has such a significant effect when we do this change of estimates. It spills right through to the bottom line, so to say.

Okay. But this era has now been corrected and we should not expect any further impact from that -- is that correctly?

Correct -- that's correct. Understood.

Okay. And then another one of these adjustments, the amortization in connection with the acquisition of Aubo, you reduce? Or you say it has an impact of DKK 3 million for the second half of the year. Would it be a fair assumption that number should be minus DKK 6 million for 2024 and for how many years will we have this amortization running?

A little bit on the expected lifetime of the usual assets. Firstly, yes, the DKK 6 million would be a good proxy for a full year effect. I would say somewhere between -- we have not finally define the useful life of all the assets, but somewhere between 7 to 10 years, I would expect.