Talenom Oyj

Hi there. You are welcome to follow up Talennum Q1 business review. My name is Otto-Pekka Huhtala. I'm a CEO and here is my colleague. Hello, I'm Matti Eilonen, CFO.

Good day to everybody.

Today, our content will be short review of period. And after that, Matti will open more about financial development and outlook and guidance. And after that, I will deeper talk about strategy process and software businesses. Let's go. The separation of the software business was completed. The Finnish business grew while profitable improved future. As you can see, our Net sales increased about 5% and it was 36 million euros. And EBITDA increased 12.5% and we achieved around 11 million euros. And it has boosted with excellent Finland business. And now we will open first time business areas. revenue and here you can see in first quarter our revenue in software side was close to 7 million euros and in accounting business 29 million euros. This is shortly of the whole recap and now Matti will open more about figures.

Welcome to follow this business review of Tallinn on first quarter from my behalf also. Let's start with the revenue. Revenue ended up 36 million, growing by 5%. And the comparable net sales was pretty much on the same level than last year, growing by 0.5%. Net sales in Finland, it increased while the customer churn in Sweden during the 2024 was tracking down the growth to the opposite direction. Net sales in Spain, it remained pretty much on the same level than last year. Having a look on the business areas, the software business was around 7 million and the accounting business was 29 million. We managed to separate the software business from the accounting business and the structure changed a little bit so that the recognition of the revenue was different in the software business and it boosted the first half with 1.5 million higher revenue. So the group comparable net sales was 34.2 million, growing by 0.5%. EBITDA ended up almost 11 million and the EBIT was close to 5 million. And this was pretty much because the profitability in Finland improved significantly, supported by organic growth. And as I said, Sweden slowed down the profitability improvement because the net sales declined there. If we look at the comparable EBITDA, it was better when we compared to last year, 0.3 million. And the comparable operating profit was slightly below the comparison period because of the higher depreciation level. On an investment level, our investment to our own software went down by 800,000. And with the steady pace, it would mean 3 million for the full year. And that, of course, will have the influence on the depreciation level in future. Business in Finland, it grew by 11%, and we saw at the end of last year that our customers' transaction volumes, the decline of that has stopped, and that gave the space to successful sales to create growth. So the comparable net sales increased by about 5%. Profitability also improved in Finland because of this one time 1.5 million improvement in the net sales, but also because the organic growth and the further improved efficiency. So the EBITDA on a comparable level went up by half a million. The business declined in Sweden by 14% and that was mainly because of 2024 we had higher churn in few offices. But recent months we have seen a better trend on getting new customers and also on churn. But what happened in 2024 when the churn was higher, it will have the influence to 25, mostly on H1, but also for the second half, but it should ease up on the second half. Profitability was pretty much on the same level, a little bit declining, and we've been adjusting our personal cost against the new revenue level. But we didn't want to do it that too strongly because we have to maintain the capabilities to create organic growth in the future. In Spain, the revenue was pretty much on the same level as last year. And we have focused on getting recurring customers instead of non-recurring customers. So the recurring customers went up that sales and the non-recurring went down. So that's why the revenue was pretty much on the same level than last year. We expect this positive trend to continue in getting new customers and we expect that it will create growth for this year. Profitability was on the same level measured by EBITDA and we believe that when we can create organic growth, it will also bring good results on the profitability in Spain. And when we look at the business areas, the accounting business has revenue almost 29 million and the comparable software business net sales was 5.5 million. The reported revenue was 7 million and it was increased by this 1.5 one-time net sales. So if we look at the long trend for the rest of the year with the 5.5 million net sales, it should end up more than 20 million. Then looking on the profitability side, the accounting business EBITDA was 5.3 million and the relative profitability was 18.5%. In the recurring software business, the profitability was measured by EBITDA 3.8 million, when this 1.5 million extra sales is also counted on that. So the real EBITDA relative profitability is 70%. So it's really good business and very good profitability. We remain that the guidance unchanged. We expect the net sales to be between 130-140 million and the EBITDA from 36 to 42 million. Thank you very much. This was my part and Otto will then continue with the strategy progress.

Okay, let's go through the Our strategy, everything starts from the target state and our ambition is the growth. We are not happy with the current speed, what we have, what comes to the growth rate. And we want to focus on our core competencies and promote scalable growth. I will open this later on. But first look at the market trends, which will accelerate our businesses. And the first one is the legislation and market trends, which are driving digitalization. For example, e-invoicing will be as a mandatory way to send and receive invoices near future in Spain. Second one is customer behavior is changing towards digital platform. And the third one is digitalization is happening just now, especially in Spain and in Italy. If you look at our market. Our updated strategy in nutshell, our vision is most preferred financial management partner. and our mission and we help entrepreneur succeed. And our competitive advantage is based for these three things, easy, For use, I mean the customer applications and automation for professional, for accountant. And the more we have automated accountants daily routines, the more they have time to care for their clients. And these things we have developed many, many years, over two decades, and now we will scale both. accounting businesses and of course these software businesses. After Q3, end of Q3, we reported of our updated strategy. And the most important thing is that we start selling this huge and great software to our competitors as well. Before that, software were used only internally. Here's the picture of proven strategy and strong historical track record. High investment phase is over and fruits will be collections future. And this first phase, 2015, was time when we created our digital way of working. And we adapted our first version of our Talenom production line. And you can see in second phase digital transformation impact on profitability in Finland. So you can see that EBIT rate increased triple or four times higher compared to time before adapting our own software and processes well and after that in 19 we first went to the new market in Sweden and after that we have like invested for acquisition in For Reagan countries and for our software that we could implement in other countries as well, over 100 million euros. And now we are in the phase when we are replicating our proven strategy and concept in international markets. And the first capabilities for profitable growth created in Sweden, And the second well positioned in Spain to benefit from the e-invoicing reform. I will remind that e-invoicing will be mandatory way sent and receiving and we acquired two years ago local platform. So we are ready for this change. Third one focusing on our core businesses. We de-invested our collection services, for example, in Finland last year. And we also ended our own banking services and we moved this totally for our partners and so on. Fourth one is software business becomes a second pillar alongside service businesses. These three things are our main priorities for this year. First, improving profitability in Sweden. Second, trying to get all benefits from the e-invoicing in Spain. And the third one is building sales channels and developing SaaS capabilities in the software business. In Sweden we systematically implemented one Talenom operation method and process as well as our proprietary software. And the benefits will come when we really get all things in places. We have like technical issues, we have results, but now we have to get all people in places. way of working. We are Talenon Way. One Talenon Way. And we invested in turning net sales on the growth track. We saw the trend turning for the better in new sales and customer churn, as Matti told. And second The issue is this e-invoicing. The transition to e-invoicing driven by legislation is the most significant trend driving future customer demand. And like tax officer is our best sales guy in short term, And we have built the software capabilities to respond to the market change. We also continue to roll out our proprietary software to our customers to facilitate their businesses and prepare them for the e-invoicing transition. And now we will drill down to the software business deeper. What is Talenum software? We have like one software and there is two different user groups, two different interfaces and the first one is this Talenum Online and Talenum App. In our opinion is that this is easiest to use software on the market for small and medium enterprises. And we are also getting the feedback from the partner offices that this is very smooth and easy to sell these customer interfaces to our customers because it's so easy to use. and they like to sell it. And for professionals, we have Talenum Accounting. It's like the bookkeeping software and it's the most efficient software on the market for accounting professionals. If you compare the interfaces, you can see so much more. buttons in professional side compared to customer interfaces. Normally these interfaces are together and it means that it's more difficult to use for entrepreneurs and otherwise there is not so good interface for accountants. And we have compared our unique selling points or benefits. So the most important thing is that we can really duplicate accounting offices profitable because they see that this is so smooth to use and the automation level is so high and so on. And of course, for entrepreneurs, it's most easy to use. How about in figures? We have over 12,000 small and medium enterprises clients. Annual recurring revenue is over 20 million euros. It comes like 99% from Finland. And we have over 60,000 end users. In Finland, we send and receive over 9.5 million transactions like invoices we have 140 people working in this company and we have over 200 000 logins per month and these figures open for you picture of the software it's very well working and it's like it's so well used. If you look at the numbers, it means that our clients have to log in like daily or weekly to our systems. And it's very critical component in their businesses. And we have started to sell our software also in Finland. And now we have over 40 partner offices. And if in Finland we have approximately 4,500 accounting offices. So now you understand if Talenom service business market share is like 6-7% in Finland. So now software is also available for the other 94%. So there's the huge potential if you look at market that we will have a good market fit. And only in Finland, of course, we know that in Spain market is 10 times bigger and in Sweden two times bigger compared to Finland. And here is development of the number of customers. If you look at the pillars, the total numbers, what there is, is the customers, what we totally have in Talenum Group. And this dark blue is the clients who use the software. And we have started the billing separately of them. And the light blue is the Customers who are using our systems, but we are not billing them separately. I mean the software. So we have converted them to use our software, but we have not started to charge anything of software. And this orange is the conversion potential. And it comes especially from Sweden and Spain. And this rollout process, as we have told, it's ongoing just now. And so you can see that we can duplicate our number of clients who can use our software and only 40% of them are charged clients. So there's like 60% of the total volume what we can charge later on. And so we see that in near future, the software business growth comes mostly from the conversion and when we start charging of using software. And it's good to know when you look at the pillars that In Finland, our software business price is like two times higher compared to Sweden, compared to Spain market price. In Finland, we have high prices in software business, if you compare to other markets. This is the figures what we have just now and how you can estimate that what's the potential of the business that how much it will growth in future. And what's the roadmap for launching software business distribution? So we reported in Q3 to start selling our software for our competitors accounting offices. In Q4 software separated into its own company. And we are now invoicing separately for software and services in Finland. There's like two companies who are sending own invoices to end clients. And management and responsibilities of the software and service business reorganized. So from the group level, I'm using like 80% of my energy for software businesses. And Juho Ahuasola is responsible of the service business and reporting for me. And we both have our own management team that we can really focus on for both businesses' own strengths. And in Q1, as you saw, we reported first time our software business is numbered. And we started also recruitment of business leads in Spain and in Sweden. This means that we can find people from inside of the Talenum who can start selling our software to other accounting companies as well. And good to know you are welcome to follow up Talenum Software brand launch on 28th of May this year. And 26, we estimate that the most of growth comes from the conversion potential from Sweden and Spain. After that in 27, more than 50% of the platform business growth came from partner agencies. Of course, we know and believe that service business will continue growth and the big part of the growth comes from there and the conversation. But after 27, we really believe that The most of growth comes from the partner offices. So this is shortly our presentation. Now it's time for the Q&A.

Hi, this is Juha from Inderes. Couple of questions. Let's start with the software business. If I understood correctly, you are indicating that you have about 100% more clients that are not paying currently for the software and the price level is lower. So maybe you are indicating something like 50% growth from 20 to 30 million at some timeline. First question, is this a correct indication that I'm reading and what is the timeline?

Yeah, this is like the right direction. And we don't really know that how much we can really charge. If we look at the numbers in Finland, if we look at the partner offices, clients, how much we are getting revenue per clients of those. It's like the half of the companies what we are getting from the Talenmo service. So it looks like that we have even bigger clients in our service businesses compared to others. And we know that in Sweden and in Spain businesses are smaller. than in Finland. So it's like between 25-50% what's the like the potential. And of course the conversation is ongoing and we will start charging like first phase will happen like the beginning of 26 and later on like step by step.

All right. Well, there will be some clients that are not going to be paying. And that means churn, I suppose. What kind of churn do you expect and what is an acceptable level? And if I continue with another question from that, is that if you fail to capture the client in software, is it likely that you will lose them also in the service business? Or have you been able to kind of draw that out in a way that you can still service them?

Yeah, of course, it is a risk, but we have also experienced in Finland when they have used our software and they are happy and we have started from zero. We have started to charge of software and there was not impact. And of course, the first phase what we can start charging is very low. And also other method because now there is like the fixed price and it includes software. So the other possibility is also like separate as we did in Finland. So we have not like decided it yet. How do we do that? But we will start in any case charging separately.

Yeah, and of course we offer the clients our software, but we don't force them to there. For example, if in Sweden somebody wants to use Fort Knox in the future, it's possible. So we don't force the clients to start using our software.

And I will just continue on that. Do you see that the service business has the competitive advantage to keep them even though they are under Fort Knox or something like that? Yeah.

Yes, we really believe that. And we have like good method. And it's like one talent. concept, how do we run our accounting businesses. And there is many, many things which are not dependent with software, like processes, leadership, customer care and care of employee and so on. So many, many things that we can do without software. And if customers are happy, they are not changing anything. They don't want to change software. They don't want to change account. And if they are happy and we are recommending our software, they can change it. But like with what comes to the cannibalization, we don't see it in Finland, for example. It's only some clients which have moved from service side to the partner offices.

All right. Okay, finally about the software business. Do you see the current investment level, your cost level be somewhat stable or do you see some significant increases coming up in the coming years? So how much is this growth? Let's say five million. Should it be five million or two and a half million in the bottom line?

What comes to the conversation, so it doesn't need any more energy. And later on when the service business is converting clients to using software, so it means that we are getting the clients in and later on when we start charging, so we get revenue. And what comes to the investment level, so we want to keep this 12 million new investment level. And now it looks like that we can close down all systems really in Finland. So it gives us more energy to use, for example, in Spain to boost its software and sales, of course. But not so big or significant increase of our personal expenses. Of course, we have to hire some people to contact accounting offices. And when we really get new clients, we have to be some person compared to some group of clients, like 1000 clients. So we had to be maybe one super people. So when the business really run well and the revenue is increasing, we see that the support functions have to increase, but the investment level, we try to be as well in fixed as possible.

All right. So slight increase is likely, but nothing dramatically.

Yeah. And in this year, it's like In the group, we move people a little bit from the service side to software side. So in the group level, not impact.

All right, understood. Okay, let's move on to the first quarter figures. Comparable sales growth in Finland was 5%, if I understood these figures. Is there something that is boosting that figure or is this going to be the level to go forward also in the coming quarters?

Yes, we believe that now when the transaction volumes, the declining has stopped at the end of the last year and now the organic growth is really coming through. So we are expecting to have similar growth in the future. Maybe possibly even some growing in the age or half too, but we'll see what happens there, but definitely growing.

Excellent. Maybe from all your areas, what kind of levels I think you are measuring the new sales compared to churn? What kind of growth rates of these methods imply in your market areas?

Well, we haven't really announced those figures, but as said in Finland, it will be probably with the current speed. a little bit variation, of course, and now in Sweden we are heading to that situation that the churn and the sales is pretty much on even and possibly growing in the future. But the revenue in Sweden, it will decline on Q2 as well, but possibly it's getting better on second half. in spain uh we talked about last time that that the difference on net sales and churn was about 1 million and it should come through this year as a organic growth all right uh if i understood correctly there's some

adjustments in the recurring sales in in Spain you are moving from non-recurrent to recurrent and that I guess is slowing down your growth right now in the first quarter could you say like how much would it would have been the growth figure without this change

Yep, the recurring revenue is growing maybe 4-5% and the non-recurring is slowing that down so it makes it even, but 4-5% was the current speed.

All right. And then I just, final curiosity, Italy business seems to be losing a lot of money considering that it has very little sales. Is this acceptable for you or you are making some measures, taking some actions there?

Yes, we have ongoing there like actions what comes to the software businesses and we have opened our marketplace here, commercialistar.it. You can find it and we like are piloting there that could be like, Silvia, that way our software this is the like piloting process what we have there ongoing and what comes to the service businesses so as we have notified so we can continue service business here in in long run So because there is this charter accountant who has like the license who can work with tax offices and we can't have as a company this kind of licenses. And tax officer changed this point of view about one year ago. And we have been after that in this phase that, OK, we will move it only to software businesses. So it is in this space just now.

All right.

So no service in Italy. No, not service in later on. But of course, now we are serving those charger accountant. But yeah, that's the situation.

All right. Understood. That's all for me. Thank you very much. Thank you.

All right. Thank you for the presentation. At this time, we don't have any questions in the chat. So from my behalf, we thank you for the presentation.

Okay. Thank you for your audience and thank you in online. See you soon. Bye bye. Thank you. Bye bye.