Good day, and thank you for standing by. Welcome to the TCM Group Interim Q4 2024 report conference call and webcast. At this time, all participants will be on listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to slowly press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please slowly press star one and one again. Please note that today's conference is being recorded. I will now lecture the conference over to your speaker, Mr. Torben Paulin. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen, and welcome to the presentation of the fourth quarter results for TCM Group. Presenters today are our CFO, Thomas Hjørring, and myself, CEO, Torben Paulin. 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 two for the business update. Sales in the fourth quarter developed as expected, with declining B2B project sales and a solid uplift in B2C sales. Due to the decline in the B2B project sales, our sales declined by only 2% compared to Q4 2023, and we are pleased to report that B2C sales increased by more than 5% in the quarter. Despite the downturn in B2B, our order intake developed positively in the quarter, again supported by a double-digit growth in B2C orders.
The gross margin improved slightly in the quarter, as the positive impact from the improved sales mix was offset by increased production costs, mainly related to bottlenecks within our lecture capacity. On the product side, launched Svane Køkkenet and NOTES Bronze in December 2024. ARC1 redefines the application of ceramic materials in kitchen design and confirms Svanekækken's ability to challenge the ordinary. Please turn to page three. Some financial headlines for the quarter. Reported revenue was DKK 301 million, corresponding to an organic revenue decline of -2%. Adjusted EBIT was DKK 30 million compared to DKK 18 million in Q4 last year. Adjusted EBIT margin was 9.9% compared to 5.8% in Q4 last year. Thomas will elaborate on the underlying drivers of this development. Networking capital ratio was -1.2%, same as last year. Cash conversion was 84.3%.
I will now hand over to Thomas to go through the financial highlights.
Thank you, Torben. Please turn to page four. As mentioned by Torben, revenue in Q4 decreased organically by 1.6% in the quarter. Revenue in Denmark, our main market, accounting for 81% of the group's revenue, increased 1.1% year-on-year, supported by a strong growth in B2C revenue. Revenue in Norway in Q4 decreased by 10.7% due to very difficult trading conditions, both in the private and the business segment. Like we've seen in recent quarters, the share of third-party sales is increasing, driven by the lift in B2C sales, where consumers often also buy white goods. Our full-year revenue ended at DKK 1.2 billion compared to DKK 1.1 billion last year, and thereby at the top end of our financial guidance for the year. Please turn to page six. Five, I guess. Gross margin increased from 22.3% in Q4 last year to 22.5% in Q4 2024.
The underlying improvement was due to the changed sales mix, where B2C sales generally attract higher margins. However, this was partly diluted by an increased share of lower-margin third-party revenue and increased costs related to production of, for example, lecture products due to high demand. Adjusted EBIT for the quarter was DKK 30 million compared to DKK 18 million in Q4 last year, with an EBIT margin of 9.9%. EBIT in the quarter benefited from the previously announced adjustment of the contingent payment obligation related to the acquisition of AUBO of DKK 9.5 million compared to DKK 1 million in Q4 last year. Full-year adjusted EBIT was DKK 90 million compared to DKK 56 million last year, with a margin of 7.5%. EBIT was thus also at the high end of our financial guidance. Please turn to page six.
Networking capital end of Q4 was DKK -14 million compared to DKK -13 million last year, equal to -1.2% of revenue, in line with last year. Inventories as percentage of sales decreased year-on-year from 33%- 30% as a result of better inventory management. Net debt was DKK 316 million end of Q4 2024 compared to DKK 349 million at the end of last year. As a result, the leverage ratio decreased from 4.08 last year to 2.5 end of Q4. Thus, the group remains fully compliant with the covenants agreed in our financing agreements. Please turn to page seven. The free cash flow in Q4 was DKK 15 million compared to DKK 60 million in Q4 last year. It should be noted that Q4 last year benefited from a high working capital reduction following the acquisition of AUBO production.
CapEx spending was reduced with a CapEx ratio of 4% compared to 2.8% in Q4 last year. The increase in investments relates to the previously announced investment into a new lecture line. Cash conversion ratio measured over 12 months was 84%. Please turn to page eight. As we have successfully delevered the balance sheet with a net interest-bearing debt of 2.5x EBITDA, there is room for distribution of dividends. Our policy is to distribute between 40% and 60% of net profits, and the board of directors will propose to distribute a dividend of DKK 3 per share, equal to DKK 31 million, or 54% of net profits for 2024. I will now hand over to Torben to discuss the potential discussion of Celrbert and the financial outlook for 2025. Please turn to page nine.
Thank you, Thomas. We expect to take full control of Celrbert by acquiring the remaining 55% stake in the company during the second half of 2025. Celrbert has delivered impressive revenue and earnings growth in the online market in recent years. By acquiring the remaining stake, we will gain full control of this important sales channel, enabling further sales and cost synergies. In 2024, Celrbert generated revenues of around DKK 150 million, with an EBIT margin of around 11%. As disclosed in note three in the TCM Group annual report, we estimate the acquisition value to be around DKK 80 million. Please turn to page ten. We remain cautiously optimistic about the market outlook in general.
While some inflationary pressures are easing and the central banks have begun to lower short-term interest rates, the full impact of interest rate adjustments on consumer confidence and the level of activity in the housing market remains uncertain. Our financial outlook for 2025 reflects this cautious optimism, with anticipated revenue growth across our core markets in Denmark and Norway, driven by continued B2C recovery, combined with a potential recovery in the B2B project market in the second half of the year. We expect to be able to convert the growth in sales into increased profitability through ongoing efficiency improvements and further integration synergies in AUBO. On the other hand, we expect continued input cost inflation and increases in radius and logistic costs, which will put pressure on margins to the extent that we cannot pass on these increases through our sales prices in the short term.
Based on these assumptions, the financial outlook for 2025 for the TCM Group contains fairly wide ranges, both with respect to sales and earnings, in line with last year. Our financial outlook for full-year revenue for 2025 is in the range of DKK 1.25 billion-DKK 1.4 billion, with earnings, which is adjusted EBIT, in the range of DKK 90 million-DKK 120 million. The outlook assumes that Celrbert will be consolidated into TCM Group during the second half of the year. Please turn to page 11 for the Q&A session.
Thank you. As a reminder to ask a question, please slowly press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please slowly press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question. The questions come from the line of Kristian Tornøe from SEB. Please ask a question. Your line is opened.
Yes, thank you. Good morning. First question is regarding Celrbert. Maybe first, just to understand the deal. From what I can see in those three, it says the majority owner has a put option. Can you just elaborate on the dialogue with the potential seller and how certain you are for this deal to go through? Secondly, on Celrbert, can you elaborate on potential synergies? What can you do by owning this company 100%?
Yes. When it comes to the deal, the first question, we acquired the 45% stake back in 2021. At that time, we agreed that he should have the put option, the option to sell during 2025. Reversely, we also have the option to buy. He has already now verbally confirmed that his intention is to sell his 55% stake, which is going to happen in the middle of the year. We are quite confident that that is what is going to happen. The second question, what can we do? We have, of course, already cooperated so far. We are also the main supplier of his assortment, not the full supplier, but the main supplier of assortment. By having it 100% integrated in TCM Group, there will be synergies, maybe to a further extent on assortment, but also on management and administration.
Down the line, maybe also some marketing synergies in the way that we buy from the medias.
Okay. That's quite clear. Thank you. The other topic I'd like to discuss is the B2B outlook. In your guidance, you assume the potential for B2B growth in the second half of the year. My question is more on your visibility and on the lead time. When do you usually see orders come in, and how much visibility for the second half of the year do you have now for the B2B segment?
On the visibility, it is somewhere between very, very low and non-existing. When we base our guidance also on this, it is because we can see from the statistics that permission for new build is increasing and has been during 2024. We also hear from our stores that are handling the B2B projects that they have a lot more to calculate and to offer to work with today than they had a year ago. The two big questions are: what will our hit rate be on those projects? Secondly, how soon are they going to materialize? As we are saying, we expect some of this to happen already in the end of this year. Visibility-wise, it is really low.
That's quite clear. The last question from me. B2B sales and demand in general seems quite strong. Are you able to leverage from this in terms of improving prices and hence margins, or is this predominantly volume growth you're seeing right now?
As we are coming from a period with very low demand, I will say the market, even that there are more projects to work with, the market is still under pressure. It is primarily a volume growth that we are looking into.
Very clear. Thank you so much. That was all for me.
Thank you.
Thank you.
Thank you. We are now going to proceed with our next question. The next questions come from the line of Sindre Sørbye from Arctic Asset Management. Please ask a question.
Yes. Hello. Good morning. Congratulations with good results. Just a couple of questions here. It looks like if you look at the cost side, it looks like administrative expenses look very high in relation to sales. Is it something special there? I am also very interested in how does that look for the future?
You're right. In this quarter, also compared, especially compared to last year, Q4, the admin expenses are relatively high. There are sort of a number of factors. First of all, last year, 2023, Q4 benefited from us being able to reach certain provisions because of a relatively low result. This year, we have the opposite effect. There are, of course, certain costs that are related to our performance, for example, bonus provisions for employees. That gives us the impact. They go both ways in the two quarters, right? Secondly, there are some amortizations on some IT development that started in Q4 this year. Going forward, I believe we'll see a level that is sort of in line, slightly higher in what we have experienced overall for this year. I mean, I don't expect significant increases in the full-year picture.
Okay. In line with this there, measured as percent of sales or in nominal numbers?
Nominal numbers.
Okay. Okay. Thanks.
On a like-for-like basis, of course. Sorry. Of course, on a like-for-like basis, when we include Celrbert ApS from the second half of the year, of course, they will also contribute to an absolute growth, right?
Okay. Thanks. That also brings me to Celrbert. You say in your guidance that you expect that revenues and operating profit will be included in the second half. You also said that you expect the deal to happen at midyear. Does that mean that we should assume that six months of Celrbert is included in the guidance?
I mean, the exact timing of when we actually do closing is still open. There are certain mechanisms, of course, that we have to go through, but it would be a fair assumption to assume somewhere between five and six months that we would be able to consolidate.
Okay. Yeah. I think in your annual report, you say that the revenues were DKK 150 million in Celrbert, and the net profit was actually quite strong at DKK 14 million, and probably EBIT is a few millions higher then. Do you expect growth in Celrbert for 2025?
Yes. We believe that Celrbert will still be able to continue its growth rates, maybe not to the same extent as we've seen in the past years. Of course, we believe that there's still significant potential in this channel. That is why also that we made the agreement to acquire back in time. We still believe in the potential of Celrbert. Of course, you should be aware, if you make analysis on it, that when we acquire the remaining part of Celrbert, there will be some intangibles that we would have to start to amortize, of goodwill or brand value or whatever it's going to be. The current EBIT margin of 11% is probably not what we're going to see in our books in the short term, right?
Okay. Okay.
There will be some amortizations.
Yeah. Fine. Thanks. My final question is regarding what you say about supply chain issues. You say short term in the report. Can you allude to whether this is expected to continue into the first quarter and 2025, or is it behind us?
No, it will still impact us in Q1. The explanation to it is that we have, in the past, launched more and more products in painted colors, in lacquered colors, which is super popular, has been a great success commercially. At a certain level, we did not have sufficient capacity to meet this demand. Therefore, we decided to invest in new lacquering equipment, and that was delivered around Christmas time. We saw it running for the first time yesterday. We still expect to have an installation and to run in time during Q1. From the beginning of Q2, mid-Q2, we will be up running with it, and then it will be behind us.
Okay. That's good. Okay. Thanks. That's all from my side.
Thank you.
Thank you. As a reminder to ask a question, you will need to slowly press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please slowly press star one and one again. Thank you. We are now going to proceed with our next question. The questions come from the line of Paul Yassen from Danske Bank. Please ask your question.
Yes. Thank you. I have two questions. If we start by Celrbert, can you tell how much they were growing in 2024?
Sorry. How much they?
Gross revenue in 2024?
The revenue in 2024 was around DKK 150 million.
Yeah. You asked me the growth. We see a high double-digit growth last year.
High double-digit. That's 90%?
That is very high, right?
Probably not that high.
No.
It's in the teens?
Somewhere between 25% and 50%.
Okay. That's quite a lot. P2C is also coming back. It is mainly P2C, isn't it? Or only P2C?
It is. The other explanation for the growth is that they also launched new products. It is a combination of the market demand and how well they have been able to meet that, but also this assortment development that they have been doing.
Okay. When you say that you have been delivering the majority of their product portfolios, I was wondering, one of the successful products they've had in the past was Smeg Kitchens. Can you deliver those, or are they subcontracted?
That is a subcontractor.
Yeah. Coming to financials, Thomas, how should we take it? Should we just add the revenue and then the EBIT contribution, or how do you make eliminations for the supplies you've done already just to be certain that I don't make mistakes in the consolidation?
Yeah. Obviously, when we start consolidating as soon after we have closed and taken control of the company, let's say somewhere in the middle of the year, we will have to eliminate for our supplies to them, right? Which is, yeah, so the impact would be maybe to our top line would maybe be somewhere around half of the effect, right? Because we will eliminate our current sales to them.
Yeah. On an annualized base, then it's about DKK 75 million that you add on?
Maybe slightly less.
Annual.
Yeah. Maybe slightly less. Maybe slightly less.
Okay. That means you're down at about 35 for this year.
Yeah.
Okay. You report that they have an 11% EBIT margin. How should we look at that into your numbers then?
The EBIT margin is 11% currently, roughly. Of course, we expect to be able to continue the same on a standalone basis, right? Of course, we will have some amortizations to do on the intangibles that we acquire. I do not have a detailed estimate for that yet, that impact, right? There will be some amortizations. It is hard for me sort of to quantify it yet as we have not done the purchase price allocation just yet, right?
Okay. What I was going to ask about EBITDA, that's before the amortization.
Okay. Yeah. That's higher, but I don't have the number to mind right now, Paul. Sorry.
The rest of the eliminations we have to do is we have to take out your associated income, and then we have to add a finance cost of DKK 80 million.
Yeah.
Okay. What about Denmark and Norway when we look into 2025? Do you expect Norway to start growing again in 2025, or is that continuing to be a tough market?
It is a so-called good question. We do not see any improvements on the market, neither for the B2C or B2B yet. Again, like we hear from Danish stores that they have more to work with and to calculate on, there is also, at least in some regions of Norway, projects coming up to calculate. Maybe in the end of the year the B2B can pick up. On the B2C side, it will probably very much depend on whether Norway will also start reducing interest rates, which I think the expectations now is that that could happen from March. We need to see that happen first.
Is it going to be a positive to 2025? Within the markets?
No.
Okay.
Not a lot of these.
I think in general, we expect a relatively fast development compared to 2024 realized numbers for Norway.
Yeah. Okay. I understand that you have acquired two stores or taking over from trusting franchisees. How much revenue is that? It's only the margin on the retail level, but is that material, or is it something we should take into account?
It depends. We are right now in the negotiation also with a potential new franchisee to take over the stores. That can happen maybe soon and at one time, and maybe it will take a while where we will be the part owner of the stores. It is too early to say exactly what is going to happen.
If we look at the guidance you're giving on the growth rate from 2024 to 2025, are we talking about percentage here of the revenue contribution, which we then in 2026 have to take out again?
Yeah. It is probably, or hopefully, I would say it's going to happen like this. It is also a realistic scenario that we are part owner both in 2025 and 2026.
You can say sort of in absolute number, but we've included our guidance, Paul. You can say there's a three-year revenue that would be eliminated partially, of course, because we are the main supplier to it, but that would be a net impact of less than 5% of our total revenue. Somewhere between 2%-3% of our total revenue.
The net impact.
Yeah.
Okay. You will be majority owner for now?
Yes. For the time being, we are. Yeah.
Okay. Then Nobia also reported a very strong Danish performance in their report. How do you see the Danish market in Q4? Did you take market shares, or Nobia actually had a very solid performance and then also other competitors?
Yeah. We saw the same. As we do not have real numbers to compare, it is difficult to say whether we took market share. We can see when we look into, for example, online KPIs on brand search, etc., I am quite confident that we are performing well in the market.
Okay. The final one for me, when you talk about bottlenecks impacting the gross margin negative, is that the lacquering which you have to do externally in the period?
Both a lot of overtime and weekend work and also external suppliers. It is all the challenges to get more out of it than what is possible to meet demand.
If you have had sufficient capacity and if you had had your lacquering internal, what are we talking about? 2 percentage points on the gross margin, or?
2%, that is maybe a little bit ambitious.
It's only a part of the revenue, right?
That would equal to DKK 25 million, right? We previously disclosed that we're going to invest somewhere between DKK 10 million and DKK 15 million. That would be a payback of less than a year. I guess that's maybe a little bit too ambitious. I think.
No, it's also including the overtime and so on.
Yeah. Sure. Sure. It is not that magnitude that we anticipated.
Just to get an indication on what we are talking about. They had went on the gross margin. So it's less than one.
Yeah. Yeah. Somewhere between half and 1%.
Okay. Perfect. That's all for me. Thank you.
Thank you.
Thank you. As a final reminder to ask a question, please slowly press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We have no further questions at this time. I will now hand back to you for any closing remarks.
Closing remark.
Okay. Thank you for listening in. Thank you for your questions. Have a nice day. Bye-bye.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.