Good day, and thank you for standing by. Welcome to the TCM Group Interim First Quarter 2025 Reports webcast and conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you need to press *11* on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw a question, please press *11* again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Torben Paulin. Please go ahead.
Thank you very much. Good morning, ladies and gentlemen, and welcome to the presentation of the first quarter results for TCM Group. Presenters today are our CFO, Thomas Hjannung, and myself, CEO, Torben Paulin. We will comment on the business and financial results, after which we will hand over to the operator for the Q&A session. Let's start the presentation and turn to page two for the business update. Sales in the first quarter of 2025 developed in line with our expectations, with declining B2B project sales and a robust increase in B2C sales. Due to the increase in B2C sales, revenue increased by 5% in the quarter, with an organic growth of 4%. Our order intake developed positively in the quarter, with growth in both B2C and B2B.
Following a long period of difficult trading conditions in the Norwegian market, financials showed signs of recovery, leading to an 11% revenue growth in the quarter. The gross margin improved slightly in the quarter, driven by the inclusion of two Svane Køkkenet stores in the northern part of Jutland. The underlying gross margin remained stable year-on-year, as the positive impact from the improved sales mix was offset by increased production costs due to ramp-up of production capacity. To mark the 40-year anniversary of Aubo, we launched Troffel as an extension to the popular Sense product line, and in Svane Køkkenet, we launched Notes Bronze, which is a new addition to our veneer assortment, together with the previously announced Arc One product line. Please turn to page three. Some financial headlines for the quarter. Reported revenue was DKK 308 million, corresponding to a revenue growth of 5%.
Adjusted EBIT was DKK 17 million, compared to DKK 16 million in Q1 last year. Adjusted EBIT margin was 5.6%, compared to 5.4% in Q1 last year. Thomas will elaborate on the underlying drivers of this development. Net working capital ratio was -0.3%, compared to -0.8% last year. Cash conversion was 76.8%. 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 Q1 increased organically by 3.6%, but with a year-on-year increase of 5.3% due to the acquisition of the two Svane Køkkenet stores in Aalborg and Hjoerring. Revenue in Denmark, our main market, accounting for 78% of the group's revenue, increased by 4% year-on-year, with an organic growth of 2%, supported by a solid growth in B2C revenue. Revenue in Norway in Q1 increased by 11.2% due to an improvement of the trading conditions after a period with very difficult trading. The share of third-party sales decreased compared to the previous quarter due to lower sales in the B2B segment. Please turn to page five. Gross margin increased from 20.5% in Q1 last year to 21.1% in Q1 2025.
The improvement was primarily due to the acquisition of the two Svane Køkkenet stores in Denmark, as the underlying gross margin was flat year-on-year. The benefits from the changed sales mix, where B2C sales generally attract higher margins, were diluted by higher production and logistics costs. The higher production costs were driven by a decision to increase production capacity ahead of our peak season in Q2, as well as costs related to the ramp-up of the new lettering facility. Our operating costs increased by DKK 4 million as a result of the acquisition of the two Svane Køkkenet stores, thus diluting the positive gross margin effect from the acquisition. EBIT for the quarter was DKK 17 million, compared to DKK 16 million in Q1 last year, with an EBIT margin of 5.6%. Please turn to page six.
Our net working capital end of Q1 was minus DKK 4 million, compared to minus DKK 9 million last year, equal to minus 0.3% of revenue versus 0.8% last year. Our net working capital was negatively impacted by the increase in inventories as a result of the acquisition of the two Svane Køkkenet stores and an increase in inventories at the factories of certain externally sourced components. Our net debt was DKK 332 million end of Q1, compared to DKK 347 million end of Q1 last year. The leverage ratio decreased from 3.7 last year to 2.6 end of Q1. Please turn to page seven. Free cash flow in Q1 was minus DKK 4 million, compared to positive DKK 13 million in Q1 last year. Our CapEx spending increased with a CapEx ratio of 2.2%, compared to 1% in Q1 last year.
The increase in investments primarily related to digitalization, the investment in new lettering facility, and the acquisition of two Svane Køkkenet stores. Compared to last year, free cash flow was also negatively impacted by earlier payment of corporate income taxes of DKK 5.6 million. Our cash conversion ratio measured over 12 months was 77%. I will now hand back to Torben for an update on the financial guidance. Please turn to page eight.
Thank you, Thomas. While we are encouraged by the positive order intake in the quarter, we continue to closely monitor the potential negative impact of the recent geopolitical turmoil on consumer confidence and kitchen demand. In light of this renewed uncertainty, we maintain our current guidance for 2025 with fairly wide ranges. TCM Group expects full-year revenue in the range of DKK 1.25 billion-DKK 1.4 billion and adjusted EBIT of DKK 90 million-DKK 120 million. As previously communicated, this assumes full ownership of Celebat in the latter month of the year. This concludes our presentation, and we now hand over to the operator for the Q&A session.
Thank you, dear participants. As a reminder, if you wish to ask a question, you will need to slowly press *11* on your telephone keypad and wait for your name to be announced. To withdraw a question, please press *11* again. Please stand by while we compile the Q&A roll, so this will take a few moments. Once again, if you wish to ask a question, please press slowly *11*. Now we are going to take our first question, and it comes from the line of Christian Torben Aal from SEB. Your line is open. Please ask your question.
Yes, thank you. A couple of questions from my side. I understand you are cautioning around macroeconomic uncertainty, but maybe you can help us in understanding whether you have actually seen any adverse impact, sort of traffic in stores going down, anything like that, or it is more a general view because, I mean, a lot is going on out in the world, and no one knows exactly what is going to happen.
Yes, thank you, Christian. The answer is yes and no. We still see good traffic to the stores, but the feedback, both from stores and also from some of the house builder clients we have, is that people are hesitating to sign the contract. The interest is there. We do a lot of quotations, etc., but they hesitate to make the final decision.
Okay. That makes sense. In terms of this increase in B2B order intake, can you elaborate a bit more on what it is you are seeing? I mean, what kind of projects is it, and what's the probability of this sort of being the start of a growing trend and not just a blip?
What we can see is that there is significantly more activity in the project sales, which means we have a lot more to work on, or the stores have a lot more to work on and do quotations for. Most of it is a project that is going to be started, which means it will be end of 2025, probably more in 2026. What we are seeing right now is both the house builders, that their sales of family houses is growing slowly but steadily, and some smaller projects. It will be something in between a yes or no, whether it is a blip or it is a trend, but I think it is more than a blip. It starts looking like a trend. Things are really changing so fast these days, so it is probably too soon to be very confident on how strong this trend is.
That's understandable. In terms of your guidance, if I remember correctly, last time you reported, you sort of indicated to reach the higher end of guidance, you needed to see an uptake in your B2B orders. It seems like that is actually happening now, but then it's sort of diluted by additional cautiousness around consumer confidence. Is that the way to understand it?
That is one way to interpret it. I guess we said that we see a significant uptake in the second half of the year, and right now we do not have any or have very limited visibility on the second half of the year, right? It is true that we have had an uplift in B2B in the first quarter, right, and also maybe going into Q2, but we do not have any more visibility on the second half of the year, and that's why it is still true that we will have to see that continue into the second half of the year, right?
At the same time, we will also have to see that the B2C is keeping strong and increasing, which was what we expected for the year. Again, as we're saying right now, there is a little hesitation to sign also from the private consumer. We need both of them to develop strong.
That makes sense. Just lastly from my side now, that we are seeing, excuse me, an improvement in demand. Is there any changing to the pricing environment, or is it still fairly tough up there?
The level in total is still far lower than during COVID-19, and it means most or all brands are having spare capacity, and thereby the competition is quite strong still out there.
Great. That was all for me. Thank you so much.
Thank you.
Thank you.
Now we're going to take our next question. The next question comes to the line of Cindra Torbin from Arctic Asset Management. Your line is open. Please ask your question.
Yes. Good morning. Just a couple of questions. First, about the two acquired stores. Can you elaborate on the reason for acquiring those stores, and is it your intention to keep them fully owned?
Yes, thank you. The reason for acquiring the two Svane Køkkenet stores in North Jutland was that the previous owner has been struggling for a time, and finally, his bank was not willing to support him with sufficient cash for the continued operation. To protect the brand and the revenue in that area, Aalborg is the fourth biggest city in Denmark. We decided to take them over. It is definitely not our intention to keep the stores, and we do have a new potential franchisee in place, but it will take a period for him to be confident and for us to be confident in him and the financial performance of the stores, and then we expect him to take over. It's important to clearly underline that it's not our strategy to own and operate stores. It's only protection of brand.
Okay. Yeah. That makes sense. But I guess some cost or some debt is included in your CapEx for this quarter, and you do not expect any more cash outlays on those stores in the next few quarters?
No, that's correct.
Okay. Excellent. The impact, are those acquisitions affecting your reported organic growth and your reported top line?
Yes, they are. That's why we now, again, have a difference between organic and reported growth. The difference between the 2% organic growth in Denmark and the around 4% reported growth is the impact of these stores, right?
Okay. Okay. Excellent. Thank you. That was all for me.
Thank you. Now we're going to take our next question. The question comes to the line of Anders Christian Preetzmann from Danske Bank. Your line is open. Please ask your question.
Yes. Good morning, Torben and Thomas. Thank you for taking my questions. I also have a few here. If we can start with a question on the product mix in B2C. I was wondering if you are seeing part of the mix here where there is perhaps higher growth than expected. Are you, for instance, seeing that B2C customers are trading down to some of the more affordable kitchen lines, perhaps?
I think we can say both yes and no. In our higher position brands, people are still looking for, you could say, what it will take to fulfill their dreams, and then they are also willing to pay for it. Of course, they afterwards also ask for discounts, like customers do these days. In the better position brands, it is still high-end products. In the lower-end position brands, there is a tendency that they choose from the cheaper part of the assortment. So a little bit different from brand to brand.
All right. Yeah. I guess that's very understandable. Then perhaps a question on, I mean, the higher production cost here in Q1, you say it's driven by a decision to increase the production capacity ahead of the peak season in Q2. I was wondering now that we are more than halfway through Q2, are you happy with the decision to increase capacity in Q1?
Yeah. That's a good question. It's both high season in Q2, and it's also the quarter where we are having all the bank holidays. There is both one effect to cope with those bank holidays, and then also the peak that everybody wants their new kitchen before the summer holiday and also leaving some time for the installers to finalize the installation. Yes, we needed that capacity due to those two reasons, which is also a normal development in this time of the year.
Yeah. Okay. That's loud and clear. Then a question on the gross margin coming in at 21% due to higher mix for B2C and the acquisition of the two stores in Northern Jutland. Can you maybe comment a bit on your expectation for the gross margin going forward? Should it come up for the coming quarters, or will a potential impact from B2B maybe lower it a bit? What's your thoughts there?
I mean, we would see a slight improvement in the next coming quarters, first of all, because we have a higher utilization of our production capacity in Q2, as Torben just indicated. Of course, if we now start to see a high inflow of B2B project sales in the second half, which we do not know yet, right, that would have the opposite diluting effect in the second half of the year. In short, I would not see sort of expect to see a dramatic uplift in the overall margin.
Thank you for that, Thomas. To my final question, it's on the Norwegian market. I mean, you talk about early signs of recovery, the double-digit growth on order intake. Can you please add some additional comments on that dynamics of the Norwegian market currently and what you're seeing there?
Yeah. Most of our business in Norway is made in the Aalborg brand and through their cooperation with Optimea. The activity level in the building industry in Norway is growing. The stores have a lot more to work with, to calculate and do quotes on. It will still take some time until it materializes significantly. It is a clear trend that there is a lot more to work with and work on. We actually see also the same development in the Svanø brand. They do primarily B2C, and the consumers are also back in the stores, which is a significant change, you can see.
I guess also some of our stores, Svanø stores in Norway, they are doing to a higher extent some small projects, but very exclusive projects where the builder or the landlord are looking for a high quality of their kitchen in the project. It is both market in general, but it is also Svanø stores performing better in that segment.
All right. Thank you very much, Torben and Thomas. That was all for me.
Thank you. Dear participants, as a reminder, if you wish to ask a question, you will need to slowly press star 11 on your telephone keypad and wait for a name to be announced. Dear speakers, we'll just give a moment for our participants if they wish to ask questions. Dear speakers, there are no further questions at this time. I would now like to hand the conference over to our speaker, Torben Paulin, for any closing remarks.
Thank you very much for participating. Thank you for your time, and have a nice day.
This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.