Talenom Oyj (TNOM) Earnings Call Transcript & Summary

Hello, everybody. Welcome to follow Talenom Half Year Report 2022. My name is Matti Eilonen, and I'm CFO of Talenom. This presentation will conduct some of the highlights from the first half and then some strategic progress during the review period. And then of course, group financial development following with the country-specific financial development. And then finally, about -- a few words about outlook and guidance. First half was strong in financial figures. We had really strong growth, 25% of growth in net sales. EBIT margin was also excellent, 19%, and the guidance will be unchanged for the rest of the -- for the 2022. We are expecting to have a revenue between EUR 100 million and EUR 110 million. And operating profit is expected to be between EUR 15 million and EUR 18 million. Our strategy is to have unbeatable accounting and banking services for SMEs. As you can see, we are pretty strong in Nordics, especially in Finland, and we have this 3 competitive advantages, which is, first is automatization, which we have automatized our accounting processes pretty well, and that, of course, helps our efficiency and profitability a lot. And then we have easy routines for the customers so that they can use software and everything else, what they need, that this is smooth and really easy. And then we have care services from our accountants and consultants towards the customers that we take care of their daily routines and taxation and budgeting and forecasting and these kind of things. With these 3 arrows, we are pointing to rest of the Europe also. We have already entered to Spain, and we are also seeking possibilities in the rest of Europe. Then our strategy progress during the review period. Growth is, of course, really important for us, and we try to maintain it as high as possible, and growth was -- 1/3 of growth was organic and 2/3 was from the acquisitions. The organic growth was driven by the increased customer numbers and also in value-added services sales in Finland. Also new customer acquisition worked really well in Sweden. Altogether, we made 9 acquisitions, mostly in Sweden, but also in Finland. Then we developed our business in Spain. We've been in Spain for approximately one year now and we were studying and analyzing this market there, and we decided to buy Nomo platform business. And with this acquisition, we are promoting small customer concept strategy will be progressed in Spain. Also, we made one traditional accounting business acquisition called ACompany, which is a little bit smaller but will strengthen our businesses there. Then we also explored new market areas. We believe that the digital transformation is expected to be happening in Europe in the upcoming years. And we, of course, want to take our position stronger in the rest of the Europe, and we believe that we have something to offer for this digitalization. And we also scale up our small customer concept. We started to have digital marketing activities for this segment. And then finally, our software implementation in Sweden. This is really important for us to bring the efficiency and profitability improvement to Sweden as well. This investment and this own software development has gone according to the plan. And we are aiming that we will have this implementation starting in the autumn of 2022. Our internationalization is going as planned as you can see from the charts here that we have almost 20% already in Sweden and the other countries are growing also. Then financial development. The net sales growth continued also and the revenue ended up to a little bit over EUR 52 million and the growth rate was 25% on the first half and the second quarter was 26%. As I mentioned, 1/3 was organic growth and 2/3 was from the acquisitions. We made altogether 9 acquisitions in Sweden and in Finland. On the second quarter, the organic growth was a little bit stronger, a little bit less than half was organic and a little bit over half was from the acquisition. And the organic growth was driven by the good development in getting new customers and also value-added services. COVID pandemic or the war in Ukraine didn't have that -- didn't have any significant impact on the revenue. Profitability was also excellent. Operating profit increased about 17% and it ended up to EUR 10 million on the first half. And the relative profitability was about 19% on the first half and the second quarter. Relative profitability is pressed down a little bit because of the acquisitions. The acquisitions have a little bit less profitability than the other units of Talenom. Also, the integration cost of these acquisitions pressed down the relative profitability a little bit. And then a little bit higher depreciation caused by higher investment rate and also the acquisition investments. We have to remember that this stronger acquisition period has been going on 1.5 year, which has pressed down our relative profitability a little bit and this will continue as long as we make these acquisitions. In Finland, we have discovered that it takes about 3 years to increase the profitability on the same level as the existing units in Finland. Then the country-specific development. In Finland, the business development and the financial figures was really strong. The net sales growth about 16%, and it was 2/3 from the organic and 1/3 from the acquisition. And the organic growth was driven by the increased customer numbers and the sales in value-added services. We measure profitability through EBITDA, our profitability, because the EBIT depreciations are pointing to different countries differently. For example, in Sweden, we have a lot of acquisitions and the depreciation of those acquisitions are pointed to Sweden. And in Finland, we do most of our technology investments in Finland, and those depreciations are pointed to Finland. So that's why the EBITDA is more relevant when we are measuring this profitability of different countries. EBITDA development in Finland was really strong. It was EUR 17 million and 40% relative profitability. And the development of automatization had a positive impact on this and acquisition had a little bit negative impact on the profitability. Then business development in Sweden. We have this strong growth phase still going on in Sweden and the growth rate was 75%, 77% and it came mainly from the acquisitions. New customer sales development also better than we expected and we are continuing our efforts to accelerate it. We have done it earlier, and we will continue that and increase it a little bit in the future. We have to remember that -- even that the net customer sales have developed good. We have, at the same time, really strong growth from the acquisitions. And so that's why the development in the organic growth, it's not that well shown on the figures as this acquisition growth is really strong. The EBITDA development pointed to a right direction. It was 14% on the first half and about 16% on the second quarter. In Sweden, we continued our preparation for this large-scale implementation of our own software, which is planned to go -- taking place in autumn and that also pressed down a little bit this profitability. And the profitability has also partly been depressed down by our investment in sales and building up support functions and development management structures. All in all, at the EBITDA level, it's about average on the accounting field. Then a little bit of business development in Spain. We entered into the Spain market last autumn. And we've been studying that and analyzing this Spanish market, and we discovered this Nomo platform business there and we decided to buy that so that we can increase our -- so that we can go faster to this market. And what is the most significant thing about this Nomo acquisition is that it opens the door for about 6 million micro SMEs and self-employed people in Spanish market. And we believe that Nomo has good capability to grow scalably in Spain with this really good platform, what they have. And I already mentioned about this ACompany acquisition also that we strength our accounting businesses in Spain and especially in Barcelona region. And then finally, about the outlook and the guidance. We had really strong financial development on the first half but on the second half, we are putting our efforts to the growth and developing our businesses, especially international businesses in Sweden and in Spain also. So the guidance is remaining unchanged for 2022, and the net sales is expected to be between EUR 100 million and EUR 110 million, and the operating profit is between EUR 15 million and EUR 18 million. That's about it. Thank you very much.