Talenom Oyj

Hello everyone there in online. You are welcome to Talenum Business Review of Q3 and updated strategy. I'm Otto-Pekka Huhtulainen, CEO of Talenum and here's my colleagues. Christian Dierhoff, Country Director of Sweden. Hello.

Hello everybody. My name is Matti Elonen. I'm CFO of Talenum.

I will start from the updated strategy. It's the hot topic today. And after that, Kristian is telling more about our software project in Sweden. And after that, Matti will explain more about our latest financial figures. So thank you. Let's go. Target state is the good starting point and I would reply that our ambition is the growth. We want to grow faster, more scalable and focus our core competencies. This is the basement for the whole updated strategy. some drivers which are boosting our accounting business industry the worst one is the legislation regularity things which are boosting towards digitalizations it means that because of the For example, e-invoicing will be as a mandatory way in Southern Europe near future. This means that small and medium-sized companies have to also adapt for their own businesses some software to receive and send electrical invoices. The other one is customer behavior is changing towards digital platforms. And the digitalization is happening just now because of the regular things. And also, entrepreneurs are seeing so much benefits for their own businesses. And of course, platforms are ready for the transformation. Some words of the European accounting markets and the evolutions the whole site is around. 100 billion euros. And we are now in Finland, Sweden, Spain and in Italy. And this is roughly over 20 percent of the whole market size. And the digitalization is accelerated by many structural changes. For example, Labor shortage together with increasing regulations forces us to seek more effective practices. So it is not possible to work in this industry. We are old. You have to adapt new technology. because we don't have people to do same things with the old practice. As I said of e-invoicing, it will be mandatory, for example, in Spain where we are during next year. The transformation accelerated by digitalization offers a pioneering opportunity to grow, and Talenum has decided to exploit this growth potential. And now we go do our strategy. There is like three pieces. And the first, A1, is that the core remains unchanged. and it's like 85% of our businesses which pays it for that. We have a long time developed our processes and product and software for easy interfaces for customers, automation for accountant and that means that we have more time for care our clients. And this is like about 85% of our revenue is this accounting business. And there's like B1, B2. The first change is that we separate the software business into its own company. and begin offering our software to other accounting firms and their customers. And this is roughly 15% of our net sales. And the second change is that we focus on our core expertise by transferring all non-accounting services and products like debt collection, banking and financial service to our partners. And we have good experience of that way of working. And this is the very... small part of our businesses, which has been, and also with negative EBITDA. So, and now I will go through all phases. So, our foundation is to consider the entire value chains. We understand the needs of both entrepreneurs and accountants. So, we are in accounting office. So we know well what we really need and we have developed our softwares more than 20 years so we really know what the enterprise really needs. So this is the end-to-end process what we really understand and our whole core competitive is based for that, that we really understand the both side needs. And we focus on our core expertise, easy. We make our customer life easier. And automation, we use the latest automation technology and AI tools and so on. And we make our accountant life easier. And this means that we have more time with our clients for care premium services. We have made like about 50 acquisitions in the previous five years. And we have reflected which has gone well and which has gone not. And we have created one Talenom concept that how to run accounting businesses well. And we have written down that in this kind of concept book. And it's basic for the systems and automations. It's the one part. And the other part is the leadership and process. And together with that, we can achieve the high profit margin and offer also premium services. This gives framework to our team leaders, unit leaders, that they can mirror their own job against the best practices. Because those things that are in our concept are tested and we have evidence and this works in our business. And if you get the high points of all areas, we know that those teams and units will succeed. And this is like way how do we run the service business and achieve high results there. And this will give the best practice, will give the best benefits for our customer staff and owners, of course. And good to know that also that previous five years in Finland we have got new clients because of the good service and it's basic for the good concept not for the software because in Finland this is the most like developed accounting business where we are in those countries and the technical software has been available many many years And there's a little bit different, differentiate against the other software from the, if you like, put a list of the features from the customer point of view. So how do we win the new clients? We win because of the good services. And this is good to know. 10 years before we won new clients because of the software, but today because of the service. Okay. Separating the software business will accelerate scalable growth. And we have a unique market approach. As I told, the strengths of Talendo software is based on understanding the entire value chain from both the end user and the providers. And this is what the other software businesses have not. And The software has been developed on the top of efficient processes. This journey, how we have developed our software, has started in 2002 from the customer interfaces. The first 10 years we focused on that. And after that, during this period, we also developed our processes with digital tools, with customer digital tools and after that we also started to develop our own bookkeeping systems and it's developed above good processes and end of that we see very good results. Of course, this will strengthen management of this, like from support units to business units. It will give more transparency and helps them to lead software company and also it can focus easier and better for those main clients' priorities. And our target group is from 0 to 10 million euros companies and Now we don't need to like focus for the bigger ones. We can keep those kind of clients in our focus. And this means that we can use some other software also for the biggest ones in service side. Okay, the second change is non-accounting services and products are offered to clients through a partner ecosystem. We are developing our partner ecosystems and this means that we only develop core services and software. We don't combine with our partners. We want to be most recommended partner for financial management and services such as banking collection and financing are delivered through partner ecosystems. So we believe that when we focus our own and we recommend our partners so we have good experience that they are recommending also us. When we compete with them so they are not so ready to recommend us and so We believe that that way we are getting more business to our core services. And some of our partner services like banking services is good and important for us that we can win the new clients. But after that, it doesn't matter so much who is going to producing it. And some words of Talemon's software unit. To be separated into its own company, so it gives transparency for the market and for the other accounting firms, that how we are charging the clients, so they can also see that we are going to charge only the end users, not the producer. So this is like fair play and open for everyone. We are estimating that the net sales will be between 15 to 20 in Finland. And the updated strategy will result in a lower cost base. The system architecture renewal has progressed and it can be utilized by external accountants. In addition, the renewal makes it easier to bring the software to new markets. And we have heavily invested in previous five years and now we are ready to go new markets and we can decrease a little bit of our investment level and And this is also important part that the software unit will focus on future developing and strengthening the core capabilities of ease of use and automation, not the other features or needs what our partners can offer. The company reorganization is estimated to lead to 2-3 million annual cost savings. And the next steps are that we are going to reporting this company as own company starting from Q1 next year. The software company will charge the end user directly for the software and the number of customers is accepted to grow rapidly as the software is rolled out to existing customer, especially in Sweden and Spain and sold to external user will start. We are going to hire internal software business expert to lead the company. And this process has also started. Okay. Updated strategy is focused to the core expertise. Some of you have followed Talenom for a very long time and you can see that there's these three things which have been placed in many many years. Easy routines for our clients, automation for our accountant and this means that have more time for care services and expertise services. Our vision will be most preferred financial management partner. And our mission, we help entrepreneurs succeed. And in nutshell, Talenum will focus on strengthening its core expertise and grow its accounting services and software businesses. We continue to develop our excellent accounting services as before. We're going to continue to grow. We are organic and we are acquisitions. And launching software sales to strengthen growth opportunities. This is the big new step for us. And seeking growth through partner ecosystems. We really believe that focusing on our own, we can recommend our partner and we are getting leads from them sides also. Some words of the future. We are going to focus our current markets where we are. And with updated strategy, we will remove the previous medium term targets for 2023 and 2025. And our long term target is annual net sales growth of more than 20% in the software business and more than 10% in the service business. We will provide guidance for 2025 later on. In 2025, we will focus on future improving profitability in Sweden and in Spain. You will hear more about Sweden situation soon, and we really believe that we are getting financial benefits next year. and building sales channels for the software businesses. Shortly, we aim stronger and more profitable growth through two pillars to conceptualize one Talenum service business model and the more scalable software business. This is in shortly. My presentation and now is stage is yours, Kristian. Here we go. Thank you.

Thank you very much. OK, so my name is Christian Deroff and I'm a country director of Talnom Sweden. I've been with the business for about a year now and I'm happy to be here today to present the software rollout project in Sweden. To start with, and the reason why we're doing this is we have seen so strong historical evidence of making the shift from a traditional accounting firm to a digital and automated accounting firm in Tandem's history. Before 2015, between the years of 2000 and 2015, we started in Tallinn to invest in the digitalization, moving from traditional into modern and digital. And in 2015, customer interfaces were in place and rolled out. And also in 2015, we launched the first version of our own proprietary accounting software. And as you can see from the figures, the blue line representing the comparable EBIT, the impact was really good. We moved from a quite low EBIT level. It took a dip during 2015 where we invested a lot of resources into the proprietary software. And then you can see the impact in the positive EBIT effect where it almost tripled from the year of 2015 into 2020. And this is what we are now duplicating in Sweden. So the Talnom software actually consists of two separate interfaces. We have Talnom Online, which is created for the customer, for the business owner or for the entrepreneur. This is designed with user friendliness in mind. It has a really compelling user interface and it's including both a web and a mobile application so that you can manage your business on the go with invoicing, making payments or following up on reports. Talnum Accounting, on the other hand, is developed for the accountant and with the accountant in mind. It emphasizes rule and AI-based automated accounting, automated controls and checklists, and is built to avoid context switching. So having two separate user interfaces for each of the different target groups really is a key competitive advantage for us in the accounting software market. Unlike other solutions that are out there where the consultant and the customer usually work within the same system, a system that isn't really tailored for either, we have created different user interfaces that meet the separate requirements for each of these two user groups. So let's have a closer look at the benefits of the software in each of these user interfaces. To start with, Talnom Online, and as mentioned before, this is created with the customer in mind and with focus on simplicity and easiness. It has a very user-friendly interface and appealing, and customers can manage their business on the go. For instance, pay invoices while you're in the taxi in between meetings, or you can even send invoices while you're waiting to pick up your kid from hockey practice. So, easiness and mobility. Also, customers can manage their entire company or even multiple companies using one single application and login with all information stored in one place. You can upload receipts by taking a photo or simply drag and drop PDFs or images in the web application. And in the application, you can also find contact information to your accounting team or to the customer support team if you have any technical inquiries. As it's built on a high level of automation, Talnom Online enables real-time accounting, which really supports informed decision making. Some key features that stands out on the Swedish accounting software market are the one-click payments functionality, which means that you can approve an invoice and pay it at the same time without having to log in separately for a second approval in your online bank. The automated accounts receivables, which is possible through bank integrations. The dynamic reporting views, which not only presents a dashboard where you can get a good overview of how your business is doing, but you can also do drill downs on each separate account for more details. The easy document import process with mobile photo functionality or drag and drop functionality within the application. And the secure upload of documents and storage in the application where you can save for instance annual reports, audit reports or board meeting minutes. Moving into Talenom Accounting, the production system where the bookkeeping is handled. This system is created for the accountant and it's created by accountants looking after the accountant's needs. The delivery of material into the software is simple. It's electronic and it's often in real time. And the daily processing of payments together with the rule and AI-based accounting really increases the automation level. The software also includes automated checks and documentations for month-end closings, which is both an efficiency booster, but it also lowers the risks of human errors. The lean principle-based workflow is really easy to manage, which frees up time for the accountant to instead spend on proactive consulting and customer engagements. And since the majority of the work in the software is handled automatically, it really helps the accountant to plan and manage their work and workload, while you have an internal customer support team that helps you to focus on customer matters. Some words about the current status of the software rollout project and the next steps in Sweden. So the rollout of the OWN platform is progressing very well with 40% of the customer base already migrated and with a target to reach 50% in 2024. Talnom Online is now part of our new customer acquisition strategy and is the default software that we integrate in the service packages that we offer to the market. Customers are generally pleased and providing us with positive feedback regarding software features. And they are specifically highlighting the drill down capabilities in reports, the simplified payment process with one click pay, and also the easy to use interface with dashboards that includes everything in one place, which really saves time in their daily routines. Accountants are also highly positive and are recognizing the significant time savings that can be made through the rule-based automated accounting and the system that is also designed to avoid context switching. I am very happy to say that in some customer cases we have already seen up to a 75% reduction in time spent on routine tasks. And as with any change, it takes some time for the users to adapt. So currently our accountants and also our customers are adapting to the new software. And we expect to see the first financial benefits of the new software and the related processes in our P&L by H2 2025. Now we'll hand over to Matti for a summary of the review period.

Hello again. Welcome also from my behalf to follow this Q2 Q3 review. First I will start with the few important topics briefly and then we will continue to the group figures and country specific figures more deeply. Our growth was 5.5% and it slowed down from the historical level. The most came from the economic slowdown in Sweden and in Finland, and that has slowed down our growth. Also, we made fewer acquisitions overall, so that's why the growth has been significantly lower pace than earlier. On the other hand, our profitability jumped up, measured by EBITDA, we were 15.5% upwards and that was because the profitability improvement plan in Finland and also we were able to increase the volumes in Spain and that increased our profitability. Also, we renewed our strategy in the beginning of October and Otto already opened it up and I won't repeat it here again. Our expansion to the other countries is going according to the plans. We are now present in Finland, Sweden, Spain and Italy. Italy is really a small portion of the whole thing, but we are present there also. The revenue is divided between countries, so that 68% is in Finland right now, 20% in Sweden and 12% in Spain. And then the three topics about our strategy progress during the whole period. We started this year in our minds that we need to improve the profitability, and that's what we got, especially in Finland when we launched this measurement of efficiency improvement and the profitability improvement. And that has significantly helped us building up the profitability. Also the business volumes are bigger now in Spain, so that the supporting functions and the fixed costs are taking the smaller portion of the whole cost structure. In Sweden, we are a little bit in a different phase. We have completed a significant amount of integration projects right now there, and we are really focusing on implementing our own software in Sweden. And that has also brought down our profitability. But we are certain that this will improve our efficiency in the longer term, and it will help our profitability gain there. And also it will be good for our organic growth. We also strengthened out our organic growth, and we have developed our digital purchases path in Finland. We have got some new good results on that side, and we are also importing that to the other countries as well. Okay, let's move to figures then. So the growth was 5.5%, ending up to 97 million altogether. The growth slowed down on the last quarter a bit. It was 3%. The majority of the growth came from Spain through the acquisitions, and the economic downturn in Finland and in Sweden has significantly slowed our organic growth. We were seeking for the profitability improvement, and that's what we got. Measured by EBITDA, we ended up to 30% for the full period and also in the last quarter. The EBITDA ended up to 29 million. The operating profit was 11.4 million, and also the relative profitability improved a bit. The majority came from Finland, as told earlier, and also from Spain when we were raising up the volumes there. And on the other hand, Sweden software implementation and the numerous integration project had brought down the profitability there. Then let's move to country-specific figures. All in all, in Finland, the revenue was declining a bit. It was 1.5% declining for the whole period, and pretty much on the same level on the last period. The economic slowdown has affected on our customers. Their volumes at the moment are much lower level in certain fields and that has significantly has an impact on our revenue as well. So that the revenue per customer is a bit lower through the volumes and also price adjustments. There has been also an increase in the business closures and bankruptcies, and that has also affected on our revenue level. At the same time, our sales getting the new customers is performing well, and that has compensated the revenue slowdown. We just recently had the customer satisfaction review in Finland and that has been on an excellent level that it has ever been. We also, during this period, have prioritized the customer retention so that we are in a good position when the economics start to be better in the future. We estimate that the economics downturn will ease up when the interest rates are coming down, and that's what they have done. and it will continue but the effect will come with the slight delay to us as the economic downturn came to us with the six months delay so will be the economic upside also The EBITDA development in Finland was rock solid. It was 40% on the full period and the record, we made a record, it was 41.4 on the seasonably weak period of Q3. This is a solid proof that what you can achieve when you have highly highly automated and very well led processes with our own software support. Then let's move to Sweden. Sweden also had that declining on the revenue for the full period, about 2% and almost 10% on the last quarter. The same kind of phenomena as in Finland has affected on our revenue, the same kind of volume things is happening in Sweden, so I won't repeat those reasons, but it's really the same kind of environment. And on top of that, or in addition to that, we have made significant changes in Sweden. We have made many integration projects, we have implemented our own software there, and that has led to the situation that the staff retention is much on a higher level and that has also led to the customer churn. But in future, we believe that when we implement our own software, our own way of doing, it will be beneficial for us in the future. The EBITDA level in Sweden was pretty much zero on the full period and negative half a million on the last quarter. And this is because the economic downturn combined it with the resourcing of their own software implementation. And here is a little bit why we are doing this own software implementation. We have about 40% of the EBITDA in Finland and this is a solid proof what kind of profitability we can gain through the highly automated and highly efficient processes.

I can continue shortly the financial figures and here's the figure how the EBITDA margin has developed in Finland and compared to Sweden and this is what we are seeking from Sweden that we could raise our EBITDA margin as same level as we have in Finland with our software and good processes. How the net sales develop in other countries? Mostly these figures come from Spain. Italy part of the figures is very small. And as you see, net sales increased more than 100% and we achieved about 12 million revenues in cumulative this year. And quarter two revenue increased 56%. And most of the net sales growth came from the acquisitions, but still our organic growth is rolling well there and our offices are selling well our services and they are growing organically. But because of the big volume of the acquisition, so that's why it's not so big part of the growth. But some of our offices, they are growing organically from 5% to 15% annual. And EBITDA development in countries improved well from minus half million to positive half million. So the development is like one million and it comes from the because of the volume of the business has increased so well. So now it's like scaling when the volume scale up. So the profitable margin is also increasing. And the reasons behind that is that when we started in Spain, we invested for support functions. And now when the volume is increasing, we don't need any more support functions to increase and the profitable margin will increase. Shortly, outline and guidance. We updated our guidance beginning of October and we are waiting that the net sales is around 126 to 129 million and EBITDA 34 to 37 million euros and operating profit between 11 to 14 million. And Matti explained it before the reasons of recessions and so on. And this is shortly our presentations and now will be time for the questions. So me and Christian are here to ready for answer. Thank you.

Can you elaborate and explain what are the competitive advantages of your software if we compare it to let's say Fortnox and Accountor software?

From end user point of view we can say that it's easier to use but if you like Look only the feature, how many features there is. We have not so many features, but those features what we have are easier to use. And we know that some clients which have lived from Talenom, so they want to continue to use our software because it's so easy. It's made for the people, for the human, not only for engineers or expertise. And for accounting business point of view, we can make more profitable business. It's a selling point, surely.

Do you have to make new investments to sales now when software and services are separated? And how does the sales process of services and software differ?

Yes, I will start from the current status. So we continue our sales as today. When we are winning new clients, they're separated like accounting business in offer and separated part of the software what we are going to charge. So this will continue and we are like selling the whole package as today. Also for future. But for the new existing, only the software clients, so we have to hire some people to communicate with and sell to accounting offices. And we are going to sell also directly, we are digitally to end users. So we have like more or less three channels for that.

And lastly, software implementation in Sweden has caused some churn. Was the situation the same in Finland about a decade ago?

Yes, I can say. But in Finland that time we had in place very high performing sales force. And our churn rate was like over 15% that time, but still we grow. and because of the so good sales organization and the environment was so kind of that sales was easier than today because we only demonstrated our platform and everybody was so oh this is so nice and I want to also it but today selling process is much more difficult because we are winning with better services and customers are seeking the references and so on and it's the more tough market today than that time when we had high customer churn and we still grew because of the easier way of selling. Thank you, no further questions. Okay, thank you very much all of you and see you next year. Bye bye. Thank you, bye bye.