Earnings call transcript: TCM Group reports strong Q4 2024 performance

TCM Group, a leader in the ceramics and kitchen design industry, reported a robust performance for the fourth quarter of 2024. The company posted a revenue increase to DKK 301 million despite a slight organic revenue decline of 2%. The full-year revenue rose to DKK 1.2 billion, up from DKK 1.1 billion in 2023. According to InvestingPro data, the company’s stock currently trades at $3.50, which appears undervalued based on their proprietary Fair Value model. The company maintains a steady revenue growth rate of 2.31% over the last twelve months. The company’s adjusted EBIT for the quarter improved significantly to DKK 30 million, reflecting a stronger EBIT margin of 9.9% compared to 5.8% in the previous year.

Key Takeaways

• TCM Group’s Q4 2024 revenue reached DKK 301 million.
• The company’s EBIT margin improved to 9.9% from 5.8% in Q4 2023.
• Full-year revenue increased by DKK 100 million compared to 2023.
• The company launched innovative products, including ARK1 and Note Bronze.
• TCM Group plans to acquire the remaining stake in Celebot by mid-2025.

Company Performance

TCM Group showed resilience in Q4 2024, with revenue reaching DKK 301 million despite a 2% organic decline. The company’s full-year revenue grew to DKK 1.2 billion, marking a DKK 100 million increase from 2023. This growth was driven by strong performance in the Danish market, which accounts for 81% of the company’s revenue. The company’s EBITDA stands at $892.48M, with an EV/EBITDA multiple of 12.17x. InvestingPro subscribers can access over 30 additional financial metrics and exclusive ProTips about TCM Group’s valuation and growth prospects. TCM’s adjusted EBIT rose sharply to DKK 30 million, improving the EBIT margin to 9.9% from 5.8% in the previous year.

Financial Highlights

• Revenue: DKK 301 million in Q4 2024, up from DKK 1.1 billion for the full year 2023.
• Adjusted EBIT: DKK 30 million, compared to DKK 18 million in Q4 2023.
• EBIT Margin: 9.9%, up from 5.8% in Q4 2023.
• Net Debt: Reduced to DKK 316 million from DKK 349 million.
• Leverage Ratio: Improved to 2.5 from 4.08.

Outlook & Guidance

TCM Group is cautiously optimistic about 2025, with revenue forecasts ranging from DKK 1.25 billion to DKK 1.4 billion. The company anticipates an adjusted EBIT of DKK 90-120 million. With a current dividend yield of 3.58% and a weak overall Financial Health Score of 1.7 as reported by InvestingPro, investors should note both the income potential and underlying risks. Get access to TCM Group’s comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 stocks, for detailed analysis and actionable insights. TCM plans to optimize its lacquering capacity by mid-Q2 2025 and expects a recovery in both B2C and B2B markets.

Executive Commentary

CEO Torben Polin expressed cautious optimism about the market outlook, stating, "We remain cautiously optimistic about the market outlook." He also highlighted the challenges in the B2B sector, noting, "Visibility [for B2B projects] is somewhere between very, very low and non-existing." CFO Thomas Janung reiterated confidence in the company’s strategic investments, saying, "We still believe in the potential of Cilibrut."

Risks and Challenges

• Supply Chain Issues: Continued challenges expected in Q1 2025.
• Market Conditions: A 10.7% decline in the Norwegian market poses concerns.
• Acquisition Risks: The planned full acquisition of Celebot could present integration challenges.
• Economic Uncertainty: Broader economic conditions could impact consumer spending.

Q&A

During the earnings call, analysts inquired about the timeline for the Celebot acquisition, expected by mid-2025. They also questioned the company’s strategies to overcome supply chain issues and the potential recovery of the B2B project market. The management highlighted ongoing investments in production capacity and the positive growth trajectory of Celebot, which reported 2024 revenue of approximately DKK 150 million.

Full transcript - Telecom Italia (BIT:TLIT) Media (TCM) Q4 2024:

: Good

Conference Operator: day, and thank you for standing by. Welcome to the TCM Group Interim Q4 twenty twenty four Report Conference Call and Webcast. At this time, all participants will be in listen only mode. After the speakers’ presentation, there will be a question and answer session. You.

Please note that today’s conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Torben Polin. Please go ahead, sir.

Torben Polin, CEO, TCM Group: 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 Janung and myself, CEO, Torben Polin. We will comment on the business and the financial results, after which we will hand over to the operator for the Q and 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 two percent compared to Q4 twenty twenty three, 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 impacts from the improved sales mix was offset by increased production costs, mainly related to bottlenecks within our lacquering capacity. On the product side, Ceramic Equipment launched ARK1 and Note Bronze in December 2024.

ARK1 redefines the application of ceramic materials in kitchen design and confirms Zwendijkirkner’s ability to challenge the ordinary. Please turn to Page three. Some financial headlines for the quarter. Reported revenue was DKK $3.00 1,000,000 corresponding to an organic revenue decline of minus 2%. Adjusted EBIT was DKK 30,000,000 compared to DKK 18,000,000 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. Net working capital ratio was minus 1.2%, same as last year. Cash conversion was 84.3%. I will now hand over to Thomas to go through the financial highlights.

Thomas Janung, CFO, TCM Group: Thank you, Thorben. Please turn to Page four. As mentioned by Thorben, 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 $1,200,000,000 compared to $1,100,000,000 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 twenty twenty four. The underlying improvement was due to the changed sales mix, where B2C sales generally attracts 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, leckered products due to high demand. Adjusted EBIT for the quarter was DKK 30,000,000 compared to DKK 18,000,000 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 application related to the acquisition of Aalbo of DTK 9 point 5 million dollars compared to DTK 1 million dollars in Q4 last year. Full year adjusted EBIT was DTK $90,000,000 compared to DTK $56,000,000 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. Net working capital end of Q4 was minus SEK 14,000,000 compared to minus SEK 13,000,000 last year, equal to minus 1.2% of revenue and in line with last year. Inventories as a percentage of sales decreased year on year from 33% to 30% as a result of better inventory management. Net debt was DKK $316,000,000 end of Q4 twenty twenty four compared to DKK 349,000,000 at the end of last year. And 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 15,000,000 compared to DKK 16,000,000 in Q4 last year. It should be noted that Q4 last year benefited from a high working capital reduction following the acquisition of our 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 lacquering line. Cash conversion ratio measures over twelve months was 84%. Please turn to Page eight. As we have successfully delivered the balance sheet with a net interest bearing debt of 2.5 times EBITDA, there is room for distribution of dividends. Our policy is to distribute between 4060% of net profits and the Board of Directors will propose to distribute a dividend of DKK 3 per share equal to DKK 31,000,000 or 54% of net profits for 2024.

I will now hand over to Torben to discuss the potential discussion of Celebot and the financial outlook for 2025. Please turn to Page nine.

Torben Polin, CEO, TCM Group: Thank you, Thomas. We expect to take full control of Celebot by acquiring the remaining 55% stake in the company during the second half of twenty twenty five. Celebot 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, CelebA generated revenues of around DKK 150,000,000 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 80,000,000 BKK. Please turn to Page 10. 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 Aovo. On the other hand, we expect continued input cost inflation and increases in rate years 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 1,250,000,000.00 billion to SEK 1,400,000,000.0 with earnings, which is adjusted EBIT, in the range of SEK 90,000,000 to SEK 120,000,000. The outlook assumes that CELEBRAD will be consolidated into TCM Group during the second half of the year.

Please turn to Page 11 for the Q and A session.

Conference Operator: Thank you. Thank you. We are now going to proceed with our first question. The questions come from the line of Christian Toner from SEB. Please ask your question.

Your line is open.

Christian Toner, Analyst, SEB: Yes. Thank you and good morning. So first question is regarding Seleibut. Maybe firstly, just to understand the deal. So from what I can see in those three, the majority owner has a put option.

So can you just elaborate on the dialogue with the potential seller and how certain you ask for this deal to go through? And secondly, on Silever, can you elaborate on potential certainty? So what can you do by owning this company 100%?

Torben Polin, CEO, TCM Group: Yes. When it comes to the deal, the first question, we acquired the 45% stake back in 2021. And at that time, we agreed that you should have the good option the option to sell during 2025. And reversally, 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.

So we are quite confident that, that is what is going to happen. And 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. And by having it 100 integrated in GCM, there will be synergies maybe to a further extent on assortment, but also on management and administration.

And down the line, maybe also some marketing synergies in the way that we buy from the media.

Christian Toner, Analyst, SEB: Okay. That’s quite clear. Thank you. Then the other topic I’d like to discuss is the P2P outlook. So in your guidance, you assume the potential for B2B growth in the second half of the year.

So my question is more on your visibility and on the lead time. So 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?

Torben Polin, CEO, TCM Group: On the visibility, it is somewhere between very, very low and non existing. So when we base our guidance also on this, it is because we can see from the statistics that permission for newbuild is increasing and have 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. So the two big questions is what will our hit rate be on those projects? And secondly, how soon are they going to materialize?

But as we are saying, we expect some of this to happen already in the end of this year. But visibility wise, it is really low.

Christian Toner, Analyst, SEB: That’s quite clear. And then 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?

Torben Polin, CEO, TCM Group: 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. So it’s primarily a volume growth that we are looking into.

Christian Toner, Analyst, SEB: Very clear. Thank you so much. That was helpful.

Thomas Janung, CFO, TCM Group: Thank you.

Conference Operator: Thank you. We are now going to proceed with our next question. The next question is come from the line of Sindri Sobei from Arctic Asset Management. Please ask your question.

: Yes. Hello. Good morning

Sindri Sobei, Analyst, Arctic Asset Management: and 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 are look very high in relation to the ASR. Is it something special there? And I’m also very interested in how that looks in the future.

Thomas Janung, CFO, TCM Group: They are you’re right. In this quarter also compared especially compared to last year Q4, the admin expenses are relatively high. They had sort of a number of factors. First of all, last year 2023, Q4 benefited from us being able to move certain provisions because of a relatively low result. And 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 and that gives us the impact to go both ways in the two quarters, right? And 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.

Sindri Sobei, Analyst, Arctic Asset Management: Okay. So in line with this there, measured as percentile sales or in nominal numbers?

Thomas Janung, CFO, TCM Group: Nominal numbers.

Sindri Sobei, Analyst, Arctic Asset Management: Okay, okay. Thanks.

Thomas Janung, CFO, TCM Group: On a like for like basis, of course, with sorry, Sindel, of course, on a like for like basis, when we include CELEBRAP EPS from second half of the year, of course, they will also contribute to an absolute growth.

Sindri Sobei, Analyst, Arctic Asset Management: Okay. And that also brings me to Celebrities. You say in your guidance that you expect or that revenues and operating profits will be included in the second half. And you also said that you expect the deal to happen at midair. So does that mean that we should assume that six months of celebrity is included in the guidance?

Thomas Janung, CFO, TCM Group: I mean, the exact timing of when we actually 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 will be able to consolidate.

Sindri Sobei, Analyst, Arctic Asset Management: Okay. Yes. And I think in your annual report, you say that the revenues were $150,000,000 in Celebbert and the net profit was actually quite strong at million and probably EBITDA is a few million higher than. Do you expect growth in Celebort for 2025?

Thomas Janung, CFO, TCM Group: Yes, we believe that Cirevert will still be able to continue its growth rates, maybe not to the same extent as we’ve seen in the past years. But of course, we believe that there’s still significant potential in this channel. And that’s why also that we are we’ve made the agreement, right, to acquire back in time. We still believe in the potential of Cilibrut. Of course, you should be aware if you make analysis on it that when we acquire the remaining part of Siliput, 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.

So the current EBIT margin of 11% is probably not what we’re going to see in our books in the short term, right?

Sindri Sobei, Analyst, Arctic Asset Management: Okay. Okay.

: It will

Thomas Janung, CFO, TCM Group: be some of the amortizations.

Sindri Sobei, Analyst, Arctic Asset Management: Yes, fine. Thanks. And my final question is regarding what you say about supply chain issues. So you say short term in the report. Can you allude to whether this expected to continue into the first quarter and 2025?

Or is it behind us?

Torben Polin, CEO, TCM Group: No, it is 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. But at a certain level, we didn’t have sufficient capacity to meet this demand. Therefore, we decided to invest in a new lacquering equipment and that was delivered around Christmas time and we saw it running for the first time yesterday. So we still expect it to have an installation and to run-in time during Q1.

So from beginning of Q2, mid Q2, we will be up running with it and then it will be behind us.

Sindri Sobei, Analyst, Arctic Asset Management: Okay. That’s good. Okay. Thanks. That’s all from my side.

Torben Polin, CEO, TCM Group: Thank you.

Conference Operator: Thank you. Thank you. We are now going to proceed with our next question. The questions come from the line of Paul Yacen from Danske Bank (CSE:DANSKE). Please ask your question.

: Yes. Thank you. I have two questions. If we start by, can you tell how much they were growing in 2024?

Torben Polin, CEO, TCM Group: Sorry, how much they

: Real revenue in 2024?

Torben Polin, CEO, TCM Group: The revenue in 2024 was around SEK 150,000,000.

Thomas Janung, CFO, TCM Group: How much? The growth, we would say high double digit digit growth last year.

: High double digit, that’s 90%?

Thomas Janung, CFO, TCM Group: That is very high, right? Probably

Torben Polin, CEO, TCM Group: not that high.

: So it’s in the teens?

Thomas Janung, CFO, TCM Group: It’s somewhere between 2550%.

: Okay. That’s quite a lot. But the B2C is also coming back. It is mainly B2C, is it not our only

Torben Polin, CEO, TCM Group: It is. And the other explanation for the growth is that they also launched new products. So it’s 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. And when you say that you have been delivering the majority of the product for Gauss Van der, one of the successful products that we had in the past was Snooker Kitchens. Can you deliver those or are they subcontract?

Torben Polin, CEO, TCM Group: That is a subcontractor.

: Yes. So 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 have done already? Just to turn that I don’t make mistakes.

Thomas Janung, CFO, TCM Group: Yes. Obviously, when we consolidate start consolidate from 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

Thomas Janung, CFO, TCM Group: yes, 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.

: Yes. So on an annualized base, then it’s about $75,000,000 that you add on?

Thomas Janung, CFO, TCM Group: Maybe slightly less. Maybe slightly less.

: Okay. And that means you’re down at about 35% for this year? Yes. Okay. And then you report that they have a 11% EBITDA margin.

So how should we look that into your numbers then?

Thomas Janung, CFO, TCM Group: Well, first, I mean, the EBIT margin is 11% currently roughly. We feel of course we expect to be able to continue the same on a stand alone basis, right? But of course we will have some more stages to do on the intangibles that we acquire. And I do not have a detailed estimate for that yet, that impact, right? But there will be some amortizations.

It’s hard for me sort of to quantify it yet as we haven’t done the purchase price allocation just yet, right? That was the reason

: I asked about EBITDA as before amortization.

Christian Toner, Analyst, SEB: Okay.

Thomas Janung, CFO, TCM Group: Higher. I don’t have the number to mind right now, Paul, sorry. And the rest of

: the eliminations we have to do is we have to take out the associated income and then we have to add a finance cost of €80,000,000

Thomas Janung, CFO, TCM Group: Yes.

: 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?

Torben Polin, CEO, TCM Group: It is a so called good question. We don’t see any improvements on the market neither for the B2C or B2B yet. But again, like we hear from Danish stores that they have more to work with and to calculate on, there’s also at least in some regions of Norway projects coming up to calculate. So maybe in the end of the year that 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.

But we need to see that happen further. Positive

: to ’25? No.

Torben Polin, CEO, TCM Group: Okay. Not a lot of these

Thomas Janung, CFO, TCM Group: I think in that, we expect a relatively flat development compared to 2024 realized numbers for Norway.

: Okay. And then I understand that you have acquired two stores or taking over from trucking franchisees. How much revenue is that? It’s only the market on the retail level, but is that material or is it something we should take into account?

Torben Polin, CEO, TCM Group: It depends. We are right now in the stores. And 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. So it is it’s too early to say exactly what is going to happen.

: But if we look at the guidance you’re giving on the growth rate from 24% to 25, are we talking about percentage ratio of revenue contribution, which we then in 26% have to take out again?

Torben Polin, CEO, TCM Group: Yes, it is probably or hopefully, I would say, it’s going to happen like this. But there is also it’s also a realistic scenario that we are part owner of both in 2025 and 2026.

Thomas Janung, CFO, TCM Group: But you could say, sort of in absolute what we’ve been doing in our guidance, Paul, there’s the full year revenue that would be eliminated past year, 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 23% of our total revenue.

: The net impact? Yes.

Torben Polin, CEO, TCM Group: Okay.

: But you will be majority for now?

Thomas Janung, CFO, TCM Group: Yes. For time being, we are, yes.

: Okay. Then Novia 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 actually had a very solid performance and then also other competitors?

Torben Polin, CEO, TCM Group: Yes. We saw the same and as we don’t have real numbers to compare, it is difficult to say whether we took market share. But we can see when we look into the, for example, online KPIs on brand search, etcetera, I’m quite confident that we are performing well in the market.

: Okay. And the final one for me. When you talk about bottlenecks impacting the gross margin negative, is that the lagering which we have to do externally in the period?

Torben Polin, CEO, TCM Group: Yes, both a lot of overtime and weekend work and also external suppliers. So it’s all the challenges to get more out of it than what is possible to meet demand.

Christian Toner, Analyst, SEB: If you have had

: sufficient capacity and if you had had your lingering internal, what are we talking about? Two percentage points on the gross margin

Thomas Janung, CFO, TCM Group: or? 2%, that is maybe a little bit ambitious. It’s only a part of the revenue. That would equal to $25,000,000 right? And we previously disclosed that we’re going to invest somewhere between $10,000,000 and $15,000,000 so that would be a payback of less than a year.

I guess that’s not that’s maybe a little bit ambitious. I think

: So you’re including the overtime and so on.

Thomas Janung, CFO, TCM Group: Sure, sure. But still, it’s not that magnitude that we have discussed.

: To get an indication on what we are talking about on the headwind on the gross margin. So it’s less than 1%?

Thomas Janung, CFO, TCM Group: Yes, somewhere between 0.51%.

: Okay, perfect. That’s all for me. Thank you.

Torben Polin, CEO, TCM Group: Thank you.

Thomas Janung, CFO, TCM Group: Thank

Conference Operator: you. We have no further questions at this time. I will now hand back to you for any closing remarks.

Thomas Janung, CFO, TCM Group: Okay. Thank you for listening in. Thank you for your questions.

Torben Polin, CEO, TCM Group: Have a nice day. Bye bye.

Conference Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect your lines. Thank you.

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