TCM A/S : Kvartalsrapport Q4 2022

TCM Group Management's review

Interim report Q4 2022 (October 1 - December 31)

(All figures in brackets refer to the corresponding period in 2021)

Q4: Expectations met. Topline flat and earnings reduced in Q4 due to sales mix.

CEO Torben Paulin:

"As previously communicated the development, we experienced during Q3 with lower B2C demand, continued into Q4, where B2C sales declined. Our strong position and pipeline in B2B ensured that overall sales remained solid in spite of the slowdown in B2C sales. Revenue in our core business was up 1% on Q4 last year, DKK 275 million compared to DKK 274 million in Q4 last year.

The change in sales mix with a lower share of high margin B2C sales offset by a higher share of lower margin B2B project sales had a negative impact on gross margin and earnings. Furthermore, gross margin was negatively impacted by significant higher cost prices on raw materials and components. The higher input costs were passed on to our customers through multiple sales price increases during the year. However, the mitigating impact on gross margin from the implemented sales prices increases came with some delay. From January 2023, the sales price increases implemented during the year will have full mitigating impact.

Adjusted EBIT in Q4 ended at DKK 18 million compared to DKK 29 million Q4 last year, and Adjusted EBIT for the full year ended at DKK 103 million.

During Q3 and Q4 we have already undertaken a number of actions to address the situation and protect the profitability of TCM Group going forward. From mid September the third shift (night shift) was shut down and the organisation was restructured with a reduction in the administrative staff of 20 FTEs in two steps during Q3 and Q4. The restructuring was implemented to mitigate the slowdown in demand and the third shift was discontinued as increased efficiency at the production sites has raised the overall production capacity in the two remaining shifts. In view of the development, concrete actions to further improve efficiency and reduce costs have been initiated and we continue to monitor the development in the market closely. Production capacity is being adjusted as needed.

Furthermore, we have renegotiated the leverage covenant in our bank credit facility (NIBD compared to Adjusted EBITDA) from 3.0 to 4.0. With this proactive approach we have ensured that we have additional and sufficient headroom in our DKK 300 million bank credit facility.

The development in 2023 is characterised by a high degree of uncertainty with regards to the macro economic development and the derived effect on the demand for kitchens. Macro economic headwind during 2022 with high inflation a.o. following the war in Ukraine, higher energy costs, higher interest rates etc. has led to a slowdown of the Danish housing market with a significant drop in number of houses sold and order intake from house builders. This has impacted the kitchen market with lower demand especially within B2C. As a consequence of the above, we expect lower activity in 2023 in general and we believe B2C sales will continue to be low going into 2023.

TCM Group A/S, Skautrupvej 16, DK-7500 Holstebro, Company reg. (CVR) no: 37291269

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Based on the above, we have widened our range for the financial outlook for 2023 compared to previous years. Our financial outlook for full year revenue for 2023 is in the range of DKK 950-1,050 million and adjusted EBIT in the range of DKK 70-100 million.

As a consequence of the higher degree of uncertainty, the Board of Directors has decided not to propose a distribution of an ordinary dividend, and instead propose to the upcoming Annual General Meeting, that a mandate is provided to the Board of Directors with the option to distribute a dividend during the second half of 2023 of up to DKK 30 million."

Financial highlights Q4

• Revenue DKK 274.9 million (DKK 274.2 million) corresponding to a revenue growth of 0.3%. Organic like-for-like growth was 1% excluding revenue from third party products (core business).
• Adjusted EBITDA DKK 22.2 million (DKK 33.5 million). Adjusted EBITDA margin was 8.1% (12.2%).
• Adjusted EBIT DKK 17.7 million (DKK 29.0 million). Adjusted EBIT margin was 6.5% (10.6%).
• Non-recurringitems had a total negative impact in Q4 LY of DKK 8.5 million, whereas Q4 2022 included no non-recurring items. Non-recurring items LY included costs related to supply chain disruptions and costs related to the Celebert/kitchn.dk transaction.
• EBIT DKK 17.7 million (DKK 20.5 million), corresponding to an EBIT margin of 6.5% (7.5%).
• Net profit DKK 11.9 million (DKK 16.1 million).
• Free cash flow was DKK 52.2 million (DKK 28.6 million).
• Cash conversion ratio was 61.0% (58.3%).

Financial highlights 12 months 2022

• Revenue DKK 1,146.1 million (DKK 1,108.3 million) corresponding to a revenue growth of 3.4%. Or- ganic like-for-like growth was 6%.
• Adjusted EBITDA DKK 121.3 million (DKK 154.7 million). Adjusted EBITDA margin was 10.6% (14.0%).
• Adjusted EBIT down DKK 34.4 million to DKK 103.4 million (DKK 137.8 million). Adjusted EBIT margin was 9.0% (12.4%).
• Non-recurringitems had a negative impact of DKK 6.5 million (positive impact of DKK 0.7 million).
• EBIT DKK 96.9 million (DKK 138.4 million), corresponding to an EBIT margin of 8.5% (12.5%).
• Net profit DKK 70.5 million (DKK 110.7 million).
• Free cash flow was DKK 39.4 million (DKK 44.5 million).
• Full-yearguidance for the financial year 2023 is revenue in the range DKK 950-1,050 million, and ad- justed EBIT in the range DKK 70-100 million.

Contact

For further information, please contact:

CEO Torben Paulin [phone]

CFO Mogens Elbrønd Pedersen [phone]

IR Contact - [e-mail]

TCM Group A/S, Skautrupvej 16, DK-7500 Holstebro, Company reg. (CVR) no: 37291269

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Key figures and ratios

DKK million	Q4 2022	Q4 2021	FY 2022	FY 2021
Income statement
Revenue	274.9		274.2	1,146.1	1,108.3
Gross profit	55.1		57.7	234.0	254.6
Earnings before interest, tax, depreciation and amortisa-
tion (EBITDA)	22.2		25.0	114.9	155.4
Adjusted EBITDA	22.2		33.5	121.3	154.7
Earnings before interest, tax and amortisation (EBITA)	17.7		20.5	96.9	139.7
Adjusted EBIT	17.7		29.0	103.4	137.8
Operating profit (EBIT)	17.7		20.5	96.9	138.4
Financial items	(2.0)		(0.7)	(8.8)	(3.3)
Profit before tax	16.0		20.0	89.4	135.7
Net profit for the period	11.9		16.1	70.5	110.7
Balance sheet
Total assets	970.2		907.3	970.2	907.3
Net working capital (NWC)	(57.1)		(81.6)	(57.1)	(81.6)
Net interest-bearing debt (NIBD)	288.1		199.5	288.1	199.5
Equity	420.6		419.7	420.6	419.7
Cash Flow
Free cash flow excl. acquisitions of operations		52.2		28.6	39.5	44.5
Cash conversion, %		61.0%		58.3%	61.0%	58.3%
Growth ratios
Revenue growth, %		0.3%		4.3%	3.4%	8.2%
Gross profit growth, %		(4.5%)		(17.9%)	(8.1%)	(6.7%)
Adjusted EBIT growth, %		(38.9%)		(20.2%)	(24.9%)	(1.4%)
EBIT growth, %		(13.7%)		(38.5%)	(30.0%)	2.8%
Net profit growth, %		(25.9%)		(36.1%)	(36.3%)	8.3%
Margins
Gross margin, %		20.1%		21.1%	20.4%	23.0%
Adjusted EBITDA margin, %	8.1%		12.2%	10.6%	14.0%
Adjusted EBIT margin, %	6.5%		10.6%	9.0%	12.4%
EBIT margin, %		6.5%		7.5%	8.5%	12.5%
Other ratios
Solvency ratio, %	43.4%		46.3%	43.4%	46.3%
Leverage ratio	2.35		1.33	2.35	1.33
NWC ratio, %	(5.0%)		(7.4%)	(5.0%)	(7.4%)
Capex ratio excl. acquisitions, %	3.9%		2.6%	2.0%	2.6%
Share information
Number of outstanding shares	9,067,294		9,174,073	9,067,294	9,174,073
Weighted average number of outstanding shares	9,074,847		9,224,2249	9,074,847	9,584,933
Number of treasury shares	75,000		825,927	75,000	825,927
Earnings per share before dilution, DKK	1.31		1.74	7.77	11.55
Earnings per share after dilution, DKK	1.31		1.74	7.75	11.54

Reference is made to the consolidated financial statements for 2022 prepared in accordance with IFRS for definitions of key figures and ratios.

TCM Group A/S, Skautrupvej 16, DK-7500 Holstebro, Company reg. (CVR) no: 37291269

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Business review

In Q4 2022 revenue increased by 0.3% to DKK 274.9 million (DKK 274.2 million). The organic like-for-like growth excluding third party revenue (core business) was 1% in the quarter.

TCM Group's primary market is Denmark which contributed with 91% of Group revenue in Q4 2022. For TCM Group, revenue in Denmark was up 0.3% (organic like-for-like growth excluding third party revenue (core busi- ness) was up 1%). The revenue in the fourth quarter was as expected influenced by a change in sales mix with lower B2C sales offset by growth within B2B sales, which led to lower average prices and thereby a negative impact on revenue and margin.

Revenue outside Denmark was DKK 25.3 million and on par with Q4 LY. Growth in revenue to the branded Svane Køkkenet stores in Norway was offset by a decline within the DIY segment.

In Q4 high margin B2C sales declined compared to Q4 LY. The revenue shortfall was offset by growth within B2B sales, driven by growth in sales from lower margin B2B project sales. As a result, this led to an unfavourable change in sales mix with a significant negative impact on gross margin, which decreased from 21.1% in Q4 2021 to 20.1% in Q4 2022. The mitigating effect on gross margin from the implemented sales price increases has a faster phase-in within B2C sales compared to B2B project sales. From January 2023, the sales price increases implemented in Q2 2022 will have full mitigating impact.

At the end of Q4 2022, the total number of branded stores was 94 (93). In Q4 2022, a new unique Svane Køkkenet flagship store opened in Glostrup, in the Greater Copenhagen area. Furthermore, a new Svane Køkkenet store opened in Q4 in Arendal, Norway. During Q4 a new Nettoline store opened in Ringsted, while a Tvis køkken store in Randers was closed. During Q1 2023 a new Tvis køkken store will open in Lyngby in Greater Copenhagen area.

In Q4 Svane Køkkenet launched the new kitchen design INFINITY. The new kitchen design is based on circular design principles and renewable materials. Hence the name INFINITY. The primary material in INFINITY is chipboard which consists of more than 90% recycled timber. To ensure durability of the edges, a new developed edge band has been developed together with our supplier, being the first edge band with minimum 50% certified recycled content.

During Q4 TCM Group took yet another important step towards our goal of ensuring that all our kitchen designs are third party validated and certified regarding their impact on the indoor climate in our customers' homes, as we renewed all our existing certifications and expanded it to include all kitchen designs that we have in our assortment. Furthermore, we have extended our scope to include also laminated table tops.

Total number of employees at the end of Q4 2022 was 482 (502). The number of employees at the end of Q4 includes 10 FTEs affected by the restructuring of the organisation implemented in November.

TCM Group A/S, Skautrupvej 16, DK-7500 Holstebro, Company reg. (CVR) no: 37291269

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Events after the reporting period

No events of importance to the consolidated interim financial statements have occurred after the reporting period.

Financial outlook

The development in 2023 is characterised by a high degree of uncertainty with regards to the macro economic development and the derived effect on the demand for kitchens. Macro economic headwind during 2022 with high inflation a.o. following the war in Ukraine, higher energy costs, higher interest rates etc. has led to a slowdown of the Danish housing market with a significant drop in number of houses sold and order intake from house builders. This has impacted the kitchen market with lower demand especially within B2C. As a consequence of the above, we expect lower activity in 2023 in general and we believe B2C sales will continue to be low going into 2023.

Based on the above, we have widened our range for the financial outlook for 2023 compared to previous years. Our financial outlook for full year revenue for 2023 is in the range of DKK 950-1,050 million and adjusted EBIT in the range of DKK 70-100 million.

Forward looking statements

This interim report contains statements relating to the future, including statements regarding TCM Group's future operating results, financial position, cash flows, business strategy and plans for the future. The statements are based on management's reasonable expectations and forecasts at the time of the disclosure of the report. Any such statements are subject to risks and uncertainties, and a number of different factors, many of which are beyond TCM Group's control, could mean that actual performance and actual results will differ significantly from the expectations expressed in this interim report. Without being exhaustive, such factors include general economic and commercial factors, including market and competitive matters, supplier issues and financial issues.

Significant risks in the Group

TCM Group is exposed to strategic, operating and financial risks, which are described in the management review and note 2 of the 2022 Annual Report prepared in accordance with IFRS. The Russian invasion of Ukraine has impacted the overall supply of raw materials in the European market. For TCM Group the impact has primarily been felt through the further pressure on raw material prices and higher energy and transportation costs. There is a possible risk, that the current high inflation and increasing interest levels among other macro economic indicators could impact the housing market and demand for kitchens, which can impact TCM Group's financial results neg- atively.

TCM Group A/S, Skautrupvej 16, DK-7500 Holstebro, Company reg. (CVR) no: 37291269

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