Talenom Oyj

OMXH:TNOM

Earnings Call Transcript 2023-Q1

[Matti Eilonen, executive]

Hello, everybody. Welcome to follow the business review for Q1 2023 of Talenom. My name is Matti Eilonen and I'm the CFO of Talenom.

First, a little bit about the context of this presentation. First, some topics from the review period, following by the strategy progress and the financial development, and then finally, the outlook and the guidance.

Talenom has really nice growth according to the selected strategy. We went from EUR 25 million to EUR 31 million, bringing us 24% of growth. So really nice strong growth during the period. EBITDA was declining slightly 6% from EUR 8.9 million to EUR 8.4 million, and EBIT was declining a little bit more, 29% from EUR 4.9 million to EUR 3.5 million.

This is according to strategy that we are preferring the strong growth even that it presses down our relative profitability. And why? So we can see that the strong structural changes are going on the market, especially in the southern and middle Europe, which will -- only happens once in a lifetime. This transformation accelerated by the digital wave, and it will give us a good opportunity with right kind of tools, right kind of strategy, we can grow there organically and inorganically.

So this is basically why we are preferring the growth at the moment, even that it's pressing down our profitability. During the review period, we experienced some extra costs also. We had some nonrecurring costs related to the acquisitions, which was amounted to minus EUR 0.5 million. And also the Spanish business, which was also EUR 0.5 million loss in Spain.

And we are moving to profitable customer segment in this platform business, and we are also implementing changes on our processes and improve the profitability in Sweden. Our plan is to drive the Spain profitability, so that we are not doing loss at the end of the year anymore. We also are expecting the profitability of Finland to recover on the current -- to the phase of earlier quarters. We experienced some cost increase in Finland. And at the end of the period, we were moving those cost increases to the customer prices.

Then some key developments in the operating environment. The digitalization in the European financial management market for SMEs is accelerating by many structural changes. As we have discovered that in -- especially in Southern and middle Europe, the SMEs are not using any kind of a software for doing the financial routines such as purchase invoices and sales invoices. And the e-invoicing directive is coming as a mandatory thing within EU and forces all the companies, no matter what kind of size you are, especially the SMEs, that they should or they have to have some kind of software, which enables sending and receiving an e-invoice.

We think that this is a great opportunity for us, because we have the right kind of tools and right kind of experience, right kind of know how to do this. And a little bit minor, but significant for us is this PSD2 directive, which gives a real-time view and real-time access to the bank accounts, and this has a significant impact on our efficiency and that we can also distribute our own banking services to the customers.

Also, Anti-Money Laundering Act and know your customer processes and this kind of a regulation is strengthening in Europe at the moment, which will accelerate the consolidation also.

And about the strategy progress, our vision is really simple. Our vision is to have unbeatable accounting and banking services for SMEs. And it all starts from the customer. They have to have easy and simple way of doing their routines such as purchase invoices and sales invoices. And it has to happen in some kind of a platform in order that it's digitalized material from the very beginning.

This will open us the opportunity to automate our internal processes. And as we have seen in Finland, this is the key to a higher profitability and also good customer satisfaction when we have more time to care about the customer and bring them value-added services.

Here is our medium-term financial targets. We are seeking for rapid growth. We are -- our target is to have growth more than 30%. EBITDA growth 15% and also growing EBIT in euros. And the final target is to increase dividend per share each year.

Here is a little bit track record of our performance, quite far from the history. We have divided in 3 phases. First, there was between 2000 and 2015, we were building up our digital capabilities and platform in Finland. And we tried many kind of different ways there. And finally, in 2015, we succeeded with it. And as you can see, the profitability dropped down in 2015, but after that, we started to have our own software and all the benefits from that and the profitability raised up significantly during 2016 and 2020.

And you can see the impact of the digitalization breakthrough and the high automatization level in performance and what we can do to the profitability. Unfortunately, Finland is quite small market, and we see our growing possibilities here a little bit limited. Of course, there is growing possibility, but not that much as we wanted to have. So that's why we decided to go abroad. We went to Sweden in 2019 and to Spain in 2021. And with this strategy of us and through own software and the high automated and highly efficient processes, we believe that we can replicate this kind of performance what we have in Finland.

Our international part is all the time growing from our business. It's 25% now, 21% from Sweden, 4% from other countries and 75% from Finland.

Then for most important strategy progress points from Q1. First, we will accelerate in digital sales. We launched our new website and unified our brand in all operating countries, which was a big project. And we simplified our purchasing path, so that it's more clear and simple for a customer to choose and it will create more successful sales. Also old TiliJaska products and TiliJaska brand was replaced by Talenom and Talenom One product, so that we can have all the brands under 1 brand.

Second was distributing of banking services. We are now in the phase that we are -- we have the first test customers in using Talenom Accounts. And soon we will start to distribute our accounts and cards more expanded.

Third 1 is probably the most significant and important thing is the software implementation in Sweden. Our experience from Finland, as I have told that with the high automatization level, with our efficient processes, we can reduce the routine work down to one quarter of that time what we are using it right now. Needless to say that this is very significant and very good thing for the profitability if we can take advantage of this development.

And then the fourth is the quick improvement of the profitability of the acquisition targets. We standardized the effective integration model to take over acquisition targets.

And the financial development. Group net sales ended up to EUR 31 million, growing 24%. And the growth was based on several acquisitions in Sweden and in Spain, and strong organic growth in Finland. 40% was organic growth and 60% was through the acquisitions. Net sales was slightly below our targeted level due to the fact that the volume-based and consultative invoicing was a little bit moderate growing than the other businesses. And also the exchange rate of Swedish krona was effecting growth percent as it was a lot weaker than the year before.

And the group profitability. EBITDA was 8.4%, and last year, it was 8.9%. The relative EBITDA was still on the excellent level. EBIT was 3.5% and last year was 4.9% and EBIT -- relatively EBIT ended up to 11%.

Our profitability is depressed by planned investment in growth, wage inflation as well the integration and other costs arising from the acquisitions. And also, as I told before, we experienced some nonrecurring costs from the acquisitions, which was EUR 0.5 million, and then also we invested to the platform business in Sweden, which is nonprofitable at that moment and it was EUR 0.5 million compared to last year minus.

So if we take this not into the account, we would improve our EBITDA level by EUR 0.5 million if -- without this platform business and these noncurrent items.

Business development in Finland quite steady and strong. We grew 11.5%, and it was generated from the successful customer -- getting new customers and also supported by the sales of monthly billed service packages. In Finland, the net sales growth was slowed down a little bit because of the volume base and consultative invoicing.

The EBITDA level was an excellent level. In Finland, it ended up to EUR 8.3 million, and it was 35% relative EBITDA. And in Finland, we experienced increased cost level at the beginning of the year, and we were able to transfer those increased costs to our customer level only at the end of the review period. So this was the reason that why the relative profitability weakened in Finland. We believe that in Finland, the relative profitability will come to the same phase as earlier.

And business development in Sweden. The Sweden growth was 70%, and it came mainly from the acquisitions. To the growth percent, it has a little bit of effect on a weak Swedish krona compared to last year. EBITDA was EUR 800 million (sic) EUR 800,000. Last year, it was EUR 500 million (sic) EUR 500,000. And the relative EBITDA is around 12%. Sweden profitability is still pressured down by the strengthening the organization and accelerating integration and as well the implementation of our own software.

At the moment, we are not expecting any big changes in relative profitability in Sweden. Instead of that, we are putting our efforts to get our own software up and running there, so that we can bring the profitability up later on.

This picture will show you the differences of the EBITDA level in Sweden and in Finland. And with the automatization, the Sweden EBITDA can be risen to the Finnish level. Our strong software experience has enabled highly efficient and automated accounting processes in Finland. And we believe that this is the main reason for the profitability differences in Finland and in Sweden.

In Sweden, it has been around 10% past years. And in Finland, it has been almost 40%. So there's a big opportunity if we succeeded on our own software and the processes development in accounting routines in Sweden. Based on Finland experience, we can drop down the usage time to the routines to 1 quarter. This will have a significant impact on the profitability and also gives us the opportunity to offer value-added services customers also in Sweden.

And then last, the outlook and the guidance for 2023, it remains unchanged. We are expecting to have net sales between EUR 120 million to EUR 130 million. And we are also expecting to have a growing EBITDA in euros and growing operating profit in euros.

Thank you very much.