Talenom Oyj (TNOM) Earnings Call Transcript & Summary

Good afternoon. Welcome to Talenom Q3 report release. First, I will start in Finnish. And after me, our CFO, Antti Aho, will continue in English. But after all, [ Rina Lea ], who is responsible of Talenom digital customers' journey will present some Talenom Online demo, and we'll tell more about that. So keep online. [Foreign Language]

Hello, everybody, and welcome to follow our Q3 report release. This is CFO, Antti Aho, speaking. The content of my presentation is here. First, a couple of words of our strategy, progress and then we look at, of course, the figures. And now today, we take a deeper insight into our country-specific figures. We are looking at Finland and Sweden separately, how they look like. Then also a few words of our investments in the past and then we summarize and take a look at the future shortly. But to get started, I want to remind ourselves from -- of our vision, which is to provide unbeatable accounting and banking services. And as the picture shows, we are strong in the Nordics already and the arrows pointing that the rest of the Europe, we are exploring new markets. We have just entered the market of Spain and other markets are under our research. Looking forward, going further with our internationalization, too. And in these red arrows, we have our competitive advantages. The most important being the easy routines for our customers, if the customers feel that we are an easy accounting office, they will choose Talenom even in future. We have happy customers. Then there is the automation. If we can make accountants smile too, their lives easier, we are very effective and can make this business with high profit margins. And then when the automation of accountant's routines freeze, their time taken used to spend even more time with their customers, with being more proactive in their consultation, and we have these care services as a third competitive advantage. A few highlights from the Q3, what happened with our main battles. We have been growing quite fast actually. 1/3 of the growth was from -- was organic growth and 2/3 came from acquisitions, altogether 3 acquisitions during the last quarter. With internationalization, as mentioned, we expanded into Spain in July, interesting market, a big market there. With automation, we have now started our preparations to bring our own software to Swedish market. We have a team of developers working there for us and people doing the specifications for our software and everything is going well there and looking forward to bring our own software into market next autumn. With the small company segment, our new market opening. We -- actually, we have some 2,000 customers in the small company platform, which is within our expectations. So I think it's about 3x more than last time what we reported here. So we have gotten more and more evidence that we are able to sell digitally our services, which is, of course, a big delight for us. Then the accounts and cards we are offering our customers started in the spring time. Our customers have received those very well, and this has to do with the easy routines part of our strategy when they can open their bank account, especially the new entrepreneurs. They need a bank account when they can open it easily and without any charge. They, of course, like it a lot. And from our perspective, our service offering is, as a whole, stronger and stronger. We also have these financing services and all kinds of pilots going on with these. And during the third quarter, we learned that we can really exploit this real-time accounting data to make better credit decisions. So this gives us confidence to keep on working with our financing products, too. Then about the figures, the first row, our revenue is improving very fast. During the 9-month period, we had 25% growth. And during the last quarter, it was about 30% growth so that's really high. 2/3 of the growth came from acquisitions, 1/3 being organic. Altogether, 14 acquisitions during this 9-month period, which is quite a lot compared to history. The COVID basically had very little impact during this year, maybe in the beginning of the year a little bit on the organic growth but not that much anymore. And in the big picture, we are doing quite well with our sales and acquisitions, too. About the profitability, as we can -- as we just noted, our growth rate has steepened with some -- on the other hand, we can note positively that our operating profit is also going steadily upwards from last year's EUR 10.5 million to EUR 12 million. But as the red line indicates, the relative profitability is going down a little bit because the new acquisition targets are usually -- they usually have lower EBIT level and then the integration during the first about 3 years stresses it even further a little bit. So this is the impact we cannot avoid, but we can handle it. As we have communicated, it's -- based on our Finnish experiences, it's typically 3 years to bring the profitability of the acquired targets to the level of the old existing business. And in Sweden, we expect this to happen within 3 years after adoption of our own software. About the country-specific reporting, we have decided to start reporting our country separately to bring more transparency and also to communicate how we are progressing in these new countries. They are, of course, in very different development phase compared to Finland. Finland, we treat as a mature market, which means that we are very strong, established in Finland. We have our own software, strong company culture. A lot of resources accumulate knowledge in Finland. Still growing, but maybe not as fast as the other countries or at least not relatively as fast as in the new countries. Sweden is in a growth phase or maybe could also say integration phase, which means that we are pushing the capital with the growth, doing acquisitions, working with organic sales and also integrating the acquired businesses into one Talenom way of doing things. And then we have these new openings, basically only Spain at the moment, maybe more to come. And there, we are in a learning phase or early development phase. Yes. And as we can see from this pie chart, 13% of our net sales comes from other countries than Finland, and almost 100% of the EBIT comes from Finland at the moment. Basically, Sweden being slightly positive; Spain, slightly negative but very close to 0 anyway. Maybe the -- for us, maybe the biggest point here is that the Finnish level of profitability sets the target towards which we are working in our new countries and also describes the potential we have in these new markets. So in Finland, during the review period, our net sales grew 15.3%, half of it being organic, half from acquisitions. The operating profit remained almost the same, basically 2 impacts being there. Also in Finland, quite a bit of acquisitions, stressing a little bit. But on the other hand, the existing business improving because of the higher level of automation, but altogether, remaining about stable. In Sweden, very drastic growth, almost 200% during the first 9 months and the operating profit in Sweden from slightly negative to slightly positive. The main reason here being that when we entered Sweden, we started to invest quite a bit in integration and building sales organization and local management group and bringing more administrative costs there to prepare us for the growth. And now when we have acquired more offices, so this administrative burden is covered with the new acquired revenue. So that explains why it has turned positive. Then about the investments. We wanted to open a little bit and point out our investments we have been doing in the past. The growth requires more investments, basically the 2 main areas of investments, of course, the acquisitions, which in the picture below, we can see the blue bar quite high there and more than tripled from the last year. So we have acquired quite a bit. But also the red bar indicating our investments in software, it doubled last year and still increasing a little bit this year. So there is a level -- or a change in the level. And of course, these investments have an impact in our future profitability, especially the software investments, which we start to depreciate after the adoption when we start to use them. And we have made this architecture investments and investments in our Talenom Online, which actually [ Rina ] will soon present a demo of Talenom Online. And now when we are adapting those 2 and also TiliJaska investments, we have an increasing level of depreciation in future reporting periods. Yes. But why we are investing? Of course, because we have a very positive view of the market at the moment and our strength in the market, and now it's about the right time to invest both on the software, our tools and also on the other hand, in the -- on the growth because with -- in this transformation period, it's easier to grow, and we have really something new to the market. So we want to be active now. A little summary and a look to the future. We have guidance for this year unchanged, EUR 80 million to EUR 84 million, net sales; and EUR 14 million to EUR 16 million as operating profit. If you look further, we are looking towards quite strong growth even in future. But still, we believe that we can maintain a very good profitability. The sources of our profitable growth basically come from these sources, these international markets. The more we study the international markets, the more confident we are with the fact that they are all dealing with the same problems, the accountants and the customers, and we have a good track record of solving those problems in Finland, and we believe that we can also help other markets with these problems and make sense to go to new markets. New interesting openings, this small company segment, it's a big market, 40% of the total, roughly, where we haven't been so active in the past. And the first indicator showing that we can sell there, grow digitally, which is a very interesting path to explore, of course. On the other hand, these banking services, the payment cards and company accounts, which we have launched, our customer reactions have been very positive. And I think this is really in the core of Talenom's strategy to make our customers' lives easier. Thank you. I'll now have here my colleague, Rina, to present Talenom Online. The presentation is in Finnish, so feel free to follow it. And after her presentation, there is time for questions.

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