Talenom Oyj (TNOM) Earnings Call Transcript & Summary

Hello, everybody. Good afternoon. Welcome to Talenom January to September report release. Today, we will have 3 speakers. I will start from our vision. After me, Miikka Hätälä will continue our new concept for small customer segments. And after that, Antti Aho will open our key figures of the latest reports. First, everybody will speak Finnish. And after that, Antti Aho will tell everything in English. My name is Otto-Pekka Huhtala. You are warmly welcome. [Foreign Language]

[Foreign Language] And then there is another guy. He's from Sweden, from Gothenburg. He is Tobias Ryberg. He sold his business, his company Frivision for us after summer. We were so lucky to have Tobias and his team on board. They have just target knowledge how to push business and grow the business just for this target market of small companies. And Tobias, thank you for joining the team. You bring the knowledge how to push the business wherever just for this market where we have not been before in Talenom. And Tobias, you, Matthew and your skills in R&D and this 50 years old, nearly 50 years old Talenom and its capabilities to combine technological know-how and advanced processes for 1 profitable, effective, scalable bookkeeping production line. Like I said, that these 3 elements are just the know-how placement we need in this project. And if this is not best in the world, it's at least, absolutely world-class team. Thank you all for existing. After me, CFO, Antti Aho, will say this all in presentation in English and I talk back in Finnish. But yes, that's -- that no -- understanding this know-how placement is very, very important. [Foreign Language]

[Foreign Language] Okay. Then we change the language to English, and we'll go through the following highlights from the review period, January to February. First, I want to tell you of our new vision, which we have just updated. Then I tell you more about our small customer concept which we launched today, so this is a great day for us. And let's not forget the figures. I will also tell you how we did on January to September period financially. Before opening our new vision, I want to remind our strategy, which we have been implementing for several years with good success. There are 3 main elements. First is to make our customers' lives easy by automating the routines of small and medium-sized entrepreneurs, their financial routines. So that's the key. We get new customers if we can make their lives easier. Second, we want to make the accountants' lives easy, to be efficient. So we take away to routines of the accountants by automating our accounting processes. And third, now when we have automized and made our lives easy and our customers' lives easy, we can focus on value-added services, of which, I will tell more today as well when we go into new services. Keeping these 3 elements in mind, we can have a look at our updated vision. This picture or the text is saying here that Unbeatable Accounting and Banking Services for SMEs. This is what we are doing next 5, 10 years. When we look at the picture, we can see there's a sun shining. And in the heart of the sun, there is a text saying Joy of Entrepreneurship. That is and has long been our slogan, which inspires all what we are doing, Joy of Entrepreneurship. Then we can see there 3 red arrows pointing to Europe. Within the arrows, we find these 3 elements: automation, easy routines, and value-added care services. So those remain the same. But as we can see, we have there Sweden and Finland as green, saying that there we are already operating. And the arrows tell that we want to go abroad more and more. We can see there a character staying in Finland. I will tell you more about this character soon. It has to do with our small company concept. And then we can see the robot there. So -- and if you think of this direction, maybe I go into this picture and the reasoning behind our vision. In this map, we can see the Nordics, especially dark blue, which says that the penetration of e-Invoicing is very high there. When we have been studying the market, we have realized that in the Nordics, we are leading this digital transformation in accounting business. And that's why the arrows in our vision are pointing from Nordics to South and West. In other countries, we can see the penetration of invoicing, which is a good indicator of the level of digital accounting in those countries. So we can see that with the experiences that we have gotten from Nordic market, we can -- with the help of that experience, we can build and make growth in the other countries. This is how we see it. There have been many changes in legislation, which support our vision. For example, this new e-invoicing directive, which was adopted in the spring this year, says that if a trader wants to have invoice in electric form from a supplier, they can demand it. And many governments have been very active in asking for electric invoices already for some years. So this boosts this digital transformation. On the other hand, this payment services directive, PSD2, it opens the interfaces of the banks, which makes it possible for us to integrate banking services and accounting services. And as I said, we believe that we can provide a winning customer experience when we combine these 2 main services -- financial services together. So the legislation opens us new market, we can say. There's a lot of other regulations like Basel and all regulation covering money laundering and income register, and all this taking place in Finland and abroad, which all makes room for a player like Talenom who is quick to adapt and change the business process when there are changes in the legislation and also on this digital infrastructure. So yes, we want to benefit these changes in our strategy. Another picture behind our new vision and the small company concept, which I soon tell you more about, when we have a look at the market segments in accounting business. So this about EUR 1 billion market in Finland, we have been very active in this companies with revenue from EUR 400,000 to EUR 2 million. That has been our sweet spot for long. And all our organic sales force has been targeting to that segment. And now with our new concept, we can enter the segment from, we can say, from 0 revenue to EUR 400,000 in revenue. And that -- they all together make 40% of the total accounting market. And actually, on top of that, there is some EUR 20 million market in the light entrepreneurs, which is not even included here, but into which we are also entering with our new concept. Yes. So our dream has long been to provide services to all entrepreneurs from the very, very small, we can say, the light entrepreneur to listed company. And now we have tools to do that. Okay. Now I tell you a little bit more of the smaller customer concept, which we are launching today. First, a little bit of reasoning -- well, more reasoning why go into small company segment and why Talenom to enter that segment? First, as we have been telling, we have a strong organic sales force already. Our salesforce -- our salespeople often encounter customers who are -- or who have been a little bit too small to our existing services, and they have not been able to serve them. But now in future, when they are doing their daily sales work and when they encounter the small companies, quite often, actually, an entrepreneur has one main business and some smaller companies aside. So now we can better serve the same entrepreneur also and take also the smaller companies. And we have good effective solutions for those as well. On the other hand, when we now enter to this small company segment, our approach is very different. We don't enter that market with organic sales force, but we have a marketing-based or platform- based approach. And with this marketing-based approach, we believe, also helps our organic sales force when we get more attention to our services. Second, throughout the years when we have been building our production line, we can say that maybe 90% of what we need to enter the small company segment, we already have. Thanks to our previous investments. So what we have to do and rethink is the sales approach and the platform that the small companies are using. Because as I soon tell you more about it, we need different kind of a platform for them than for our, we can say, premium customers. So we are kind of like scaling our past investments when we enter this new market segment. Third, the English-speaking market has shown us that the trend setters usually start from the small companies. And although their revenue base might not be that big and the market size might not be that big, but there is a big number of entrepreneurs and the number counts. When we go into that segment, get a lot of new entrepreneurs as our customers. We believe and we have seen from other countries that they are often the recommenders who recommend services. And that also will boost our growth, we believe. So that's the product family from the light entrepreneur. If you have, maybe one of you listeners, have 1 invoice every now and then you want to send, now we have a solution for you. Then if your activity will grow, and you leave your daily job, become an entrepreneur, you can go to TiliJaska free, as we call it. So TiliJaska or Accounting Alex maybe for English speakers could be a proper translation. That's the character on top of which we are building our concept. So you go to TiliJaska free, which is a free accounting software where you can do a lot yourself, costs nothing. Many startups love this idea, we know. But when your start-up grows and you get busy, you have no more time to do it yourself, then you can go to TiliJaska Pro and buy some service, as much service as you want and so forth, ending up to Talenom current premium bookkeeping solution. So we cover the whole path from the light entrepreneur to our current service. A little bit more of this TiliJaska concept. So it's a freemium concept, which means that the basic system costs you nothing. There, you do everything yourself, but you have a world-class system to use, and the system helps you to do the accounting the right way. Then as you grow, you can go -- there is a seamless transfer to our high-quality accounting services where you end up actually buying quite a bit of service. And with this TiliJaska, we also launched our new banking services, which were mentioned in our vision. So first, we bring to market, to our TiliJaska customers, we bring the banking cards and IBAN accounts. Here, actually, I have one with the TiliJaska figure on the card. There it goes. So this is really a unique product offering even worldwide. In small company business, a leading thought in our mind has been "The Winner Takes It All " thinking. And the winner, to be successful in this market, we believe, has to have 3 things. First, of course, the product has to be unbeatable. Second, the team has to be the best team with the best expertise and the development speed. Here today, we have actually to 2 -- 3 main people in this team, Miikka Hätälä who was presenting the Finnish presentation here, and then we have Matti Saarinen who is leading our -- the coding work of this project, and then Tobias Ryber from Sweden who joined us when we acquired this Frivision in Sweden. And he has been, for 10 years, developing the business model for this, the very small companies. So we have the best team and the best development speed, we think so. And third, we have to have the most visible brand and, of course, the financing required to speed up the growth and we need marketing and all that. So the balance sheet has to be there to support that. So that was about TiliJaska. Now, we will tell more about this within a couple of weeks when we have a Capital Market Day. You get the invitation today. And there, we tell more about this. But here are the figures from January, September. We kept on growing. Our net sales grew by 13%. We are pretty satisfied with that. When we have this corona time pushing our sales down and having some impact on our transaction-based volumes and all that, so okay growth. Profitability improved quite nicely by 17% compared to last year. And especially on the third quarter, it leaped by 34%. So yes, the factors behind growth, we have been growing organically despite corona crisis, doing some acquisitions, about 50/50 division between organic growth and acquisition growth on this period. And we got one new franchise entrepreneur also recently in Espoo region. We have now 22 franchise entrepreneurs in Finland. Behind the profitability improvement, of course, the corona has been stressing a little bit the revenue side. But on the other hand, we have quite successfully adjusted our cost side. On the other hand, our investments on our production line have proven to work, and we have improved our efficiency, of course, as well. So what are the corona impacts? Actually, nothing new to tell here. Sales still getting some negative impact, although the remote sales still doing okay. The number of bankruptcies, no impact there so far. And the transaction-based invoicing, it trapped quite a bit for a few months, but now it seems that it has recovered to a level preceding corona. About the future figures. We keep our guidance unchanged. So we expect to make EUR 64 million, EUR 68 million of asset revenue -- net sales, and our operating profit to be between EUR 12 million and EUR 14 million. In the long term, what are the preconditions for our growth and profitability? There is this TiliJaska, Accounting Alex, small customer concept opening, new market potential. Banking services help us to improve our customer experience, also bring some extra, extra revenue at some stage. And growing international is increasingly important in future. And here in Finland, of course, organic growth keeps going and also some acquisition we look forward making even in future. No changes in the business environment. Still a very fragmented market, although we and some others are growing. The size of the accounting industry, about EUR 1 billion, growing. Yes. So because of the fragmentation, we believe there is still a lot of room for growth for us in the future. Thank you very much.

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Frederik [indiscernible] from Danske Bank Holte. Thanks for a great report. It is hard for investors to understand the potential of the small customer segment. Can you please elaborate on what targets are you setting for this business area in the medium/long term?

Yes. I can say this is probably the same as Otto said in Finnish that it's still too early to say anything about this. And the years 2022 and 2023 are the years where we can see something. And that's basically the time when we are just proving that what they can be and doing the work and execution.

Next question from [indiscernible]. Who or which bank is actually producing the banking services?

Yes. That's something we don't open so far, but it's public. And now let's -- in the near future, but we don't open it so far.

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