Talenom Oyj

OMXH:TNOM

Earnings Call Transcript

[Otto-Pekka Huhtala, executive]

Hello, there. You are welcome to know about Talenom financial statement release from 2024. My name is Otto-Pekka Huhtala, and I'm as a CEO. And here is my colleague.

[Matti Eilonen, executive]

Matti Eilonen, CFO. Good afternoon.

[Otto-Pekka Huhtala, executive]

I will start from the review period and the strategic progress. And after that...

[Matti Eilonen, executive]

I will give the financial figures of the group, followed by the country-specific figures, and finally, the outlook and the guidance.

[Otto-Pekka Huhtala, executive]

Yes, this is our content today. And let's go. Thank you. A short recap of last year, moderate net sales growth, improving EBITDA. And this was our main target for last year. Our net sales increased closely 4% and EBITDA increased 9%. Also, software business separation marked the year '24. And I will recap shortly later on this, what does this really mean, what we did for our strategy.

Internationalization has progressed as planned. And here, you can see 3 latest years' net sales distribution. And today, under 70% of whole net sales comes from the Finland, and the other parts from Sweden and other countries. And as we told -- when we updated our strategy, we told that we will focus on our current target markets, Finland, Sweden, Spain and Italy.

Strategic progress from last year, the first point is improving efficiency. As I told, we improved the absolute EBITDA by close to EUR 3 million, so it increased 9%, and relative EBITDA by 1.3%. But we missed our target mainly due to economic cycle in Nordic, in Finland and in Sweden.

Second point is platform rollout in Sweden. We achieved our target to transfer 50% of our -- a number of our clients to our systems. And now, we really work with the clients in our systems. And we will work systematically and implementing our operation, best operations models, and processes and One Talenom best practices. So this will mean that we will get financial benefits in second half of this year.

And third point is organic growth. Overall, we succeed in acquiring new customers and generating additional sales to existing customers as targeted. But because of the recession in Nordic, we didn't achieve as good net sales as we estimated.

And other point is also that, to develop our long-term scalable growth capability, we began incorporating our own software and offering it to customers outside Talenom's accounting firm client. And I will open more about that software businesses later on.

Okay, what does this updated strategy means and where it comes from? Our ambition is the growth. We are not happy current level how do we grow today and we want to focus on our core competencies and promote scalable growth. And now, this software will be more scalable way of growth compared to service businesses.

Key market trends which are accelerating growth, the first is the legislation and market trends which boost digitalization like PSD2 or e-invoicing, which will be as a mandatory way sending and receiving e-invoices in future.

And we also see the customers' behavior is changing towards digital platform. Our clients are all the more and more ready to buy services also via digital channels. And the third one is, digitalization is happening now, especially in Spain and in Italy.

The European accounting market and its evolution, it's closely EUR 100 million. And now, our market will represent over 20% of the whole potential. And the digitalization is accelerated by many structural changes, as I told earlier. And we want to be in this digitalization wave and move and we have a good track record from that from Finland, and we want to use this momentum, what we are facing now.

What does this updated strategy really mean? The first, A, the core remains unchanged. Our competitive advantage is based on a comprehensive approach considering the entire value chain through own software and services. Easy services, easy software for end users, automation for accountant and care will continue to be the foundation of our business in the future.

And we are going to use this competitive advantage also in future when we are selling, for example, B1, our software to other accounting firms. And B2 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 de-invest last -- latest quarter our debt collection services to Svea, for example.

Updated strategy is focused on the core expertise, as I said. The competitive advantages are easy, automation and care. And our mission is we help entrepreneurs succeed. It means, of course, end users, but also in our software businesses, those platform accountants who are using our software that they will succeed as well.

And our vision is most preferred financial management partner. And this means that we will focus more to our own. And we know that our clients need also some other services and software. So we need software partners and they need also us because they can't also resolve the whole problems what our clients have. So these partner ecosystems mean that we all need to each other. And we really believe that, by that way, when we are most preferred financial management partner, we are getting more leads to our core businesses.

Shortly -- a long history in -- we are -- a short recap of that is that this is shared to 4 phases. And the first one is, from millennium to '15 is building digital capabilities and platform in Finland. And after that, we see that we got digital transformation's impact on performance in Finland. And we went to Sweden in '19. And after that, started the third phases, and it's like strong investments in internationalization and software. We have heavily invested. We doubled our software investment level that we could use our software in other countries. And at the same time, we also made many, many acquisitions. For example, previous 3 years, we have made 41 acquisitions, mostly in Sweden and Spain.

So we have been absolutely in highest speed to get new revenue in this latest period and we have invested a lot to -- making like our management system and management board in new countries. But we have not get any fruits of these investments.

And now, we also -- the latest phase is that we are going to replicate our proven strategy and concept on internationalization markets. And when we are focusing more our own, we see that we have better capabilities for profitable growth creation in Sweden, also well positioned in Spain to benefit from the e-invoice reform. And when we focus our core, it means that we have more energy to focus our core businesses and we don't need to so much think about the other opportunities and so on. And the fourth one is that we have the new pillar and it's the software businesses. And we really believe that in long term, it will have the big value for the whole company.

Our long-term financial target is that in software business that annual net sales growth will be over 20% and in service business over 10%. This year focus areas are -- the first one is improving profitability in Sweden. And how do we do that is the systematic implementation of the software processes and the One Talenom operation model. One Talenom operation model means that we have like the framework and we have -- there is like the metrics and we have the activities. If we do these activities, it will have this kind of impact for this metric. And we have like written down all those activities, which will have a good impact for our businesses from the personnel or customer or financial or process or growth side.

And the second one is leveraging the entry into force of the Spanish e-Invoicing Directive. Today, most of our clients, they don't use any software in their businesses, like sending, receiving e-invoices. They are like making the payments via banking online or they are going to visit in bank office to make payments and so on.

And when Spanish government really demand that you have to start sending e-invoices, it means that most of Spanish small and medium businesses have to choose some software to use sending e-invoices. And we really see that this is the huge opportunity for Talenom. And third one is this building sales channels and developing software-as-a-service capabilities in the software business.

This is shortly my presentation. And now, it's your time, Matti. Go ahead, please.

[Matti Eilonen, executive]

Thank you, Otto. Welcome to follow-up business review of 2024 from my behalf also. Revenue for 2024 was EUR 126 million, growing by 4%, and it came mainly from the acquisitions in Spain. At the same time, we made records in getting new customers, but the economic slowdown significantly impacted on the revenue gain.

Last quarter, the revenue declined by 2%, and that's mainly because of the downturn in Finland and Sweden in the economic landscape. And that has significantly slowed down the organic growth there. Also, the placement of the public holidays in December created more vacation than usual, and that has also a bit impact on the revenue because there was less working days during that month. Then we had some integration challenges, which reflected on the personnel turnover, which led to the customer churn in Sweden.

The EBITDA went up by EUR 3 million and it came mainly from Finland and Spain. And then the development in Sweden with the turnover and that fact that we have the higher cost level because of the implementation of our software there has dragged down the profitability. Also, the onetime cost of re-formation of the software business dragged down the profitability for the full year.

Operating profit was increasing a bit. On the last quarter, the profitability went down by EUR 900,000. And the main reason behind that was the change negotiation, which had onetime cost by EUR 0.5 million. Also that, public holidays around December dragged down the revenue, which has also, of course, a reflection to the EBITDA. And overall, the profitability development was dragged down by the net sales development, especially in Sweden. Operating profit went down even a bit more because we had a increase in software investment depreciation level.

Net sales in Finland declined by 1.2%, ending up to EUR 87 million. Even that we made the record in getting new customers, the economic slowdown has significantly impacted on the net sales. The average revenue per client is lower than it was before. Also, some business closures and bankruptcies, we saw that much more than earlier, and that has a reflection on the revenue gain as well.

On the last quarter, the revenue declined only little. It was almost the same level as year before. We saw that -- on that quarter, we saw that the purchase and the sales invoice volumes per client, it's not going downwards anymore. It's stabilizing on the certain level right now, which is a good thing. We don't see much growth on those volumes, but at least it's a stable situation right now. We are estimating that it's going to grow a little on half 1 and then possibly increasing on half 2. And that, of course, gives us good growing possibilities for 2025.

In Finland, EBITDA went up by EUR 2 million, and that's because we launched the profitability measurements 2026. And we can still see some room on improving the profitability little by little in Finland. The profitability went down a bit on the last quarter, and that's mainly because of the onetime cost related to change negotiations. And of course, the revenue level also impacted on that because of the public holidays in December.

The salary costs are pretty much on the same level as year before, so nothing really big changes. And we believe that we have a good possibility in Finland to make profitability gain.

Then net sales in Sweden. It went down by 5% for the full year and 14% to 15% on the last quarter. We have had some integration challenges, which has had caused more churn in the first acquisitions we have made. Actually, 5 of those acquisition targets have suffered from the higher churn than normally we have.

And of course, the same reasons as in Finland, the economic slowdown has an impact on the revenue and also this placement of the public holidays around the Christmas. Right now, we are -- in customer retentions, we are under pressure on the short term. We need to work on that, of course. But in the longer term, we believe that our own software operating methods and processes will create longer term benefits and possibilities to grow in Sweden.

The EBITDA level in Sweden, it's on a low level. It's EUR 1.1 million negative at the moment. And of course, that's because of the revenue gain lately and also that we need to keep the cost level a bit more higher because we are implementing our own software.

Later on -- on last year, we adjusted our personnel cost against the revenue level. And we can see that development on the Q4, that it's on the same level as year before. The Q4 is the weakest quarter of the year. But the good thing is that it is not going deeper and it's on the same level. We believe that we have good possibilities to improve the profitability in Sweden also the next year.

Then the other countries, which is Spain mainly. In these figures, we grew by 80% last year and a little bit over 16% on the last quarter. It came mainly from the acquisitions in Spain. But there is a good evidence of organic growth as well. If we take those clients -- the amount of clients what we got and those clients that we lose, the difference is clearly positive. And if we convert it to euros, it was almost EUR 1 million during 2024. So it's been positive all the time and it was accelerating towards the end of the year.

And if we add e-Invoicing Directive on top of that, which is going to be the mandatory thing for all the companies between 2025 and '27 in Spain -- and we have a good product for that, where the software and service is combined into one package. I think we have a pretty good setup for the business growth in Spain because of those 2 things.

The EBITDA went up in Spain more than EUR 1 million, and that's, of course, because the volume is on a higher level, but some efficiency gain as well. On the last quarter, it declined a bit. It's the weakest -- clearly, the weakest quarter of the year. So it went down a bit. But nothing really -- serious things going on there. A little bit variation between quarters and also these public holidays around the Christmas has an effect on that. So despite of this slightly weaker quarter, we believe that we have a good possibility to grow and improve the profitability in Spain.

Then a little bit about investments and depreciation. We were investing in getting new customers. It went up a bit, ending up to EUR 3.7 million. Our software investments are EUR 15 million. So increasing a little bit from last -- or the previous year. And much less acquisitions in 2024. It was less than EUR 3 million and it was a little bit less than EUR 19 million in the previous year.

We just finalized at the end of the year our change negotiations, and that means that our investment level to the software is going to be EUR 2.3 million lower than it was before. So around EUR 12.5 million for the next year is going to be our software investments. That's, of course, good for the cash flow and also good for the depreciation level in the future. We are right now in -- overall in our systems in a really good shape. And it was possible to bring it down to this level this whole investment permanently.

The Board's dividend proposal is maximum EUR 0.20. And EUR 0.10 of that, it is proposed to pay after AGM. And later on, according to Board's decision, maximum EUR 0.10. The Annual General Meeting is going to be held 19th of March.

Then finally, the outlook and the guidance. We announced our guidance in mid-December. And we estimate the net sales to be between EUR 130 million and EUR 140 million and EBITDA around EUR 36 million to EUR 42 million. This also includes some strategical acquisitions in Spain amounting to 2 to 4 units, which means in euros around EUR 2 million to EUR 4 million. Thank you very much.

[Otto-Pekka Huhtala, executive]

Okay. Thank you. And now, it's time for questions.

[Unknown Executive]

Thank you for the presentation. Let's have a look at the questions in the chat. First one comes from Martin [ Hummerstrem ]. In Sweden, integration challenges have caused more customer churn than normal. Is it the rollout of the Talenom platforms that makes you lose customers? And if so, is it consultants or the end users that are reluctant to move to the platform?

[Otto-Pekka Huhtala, executive]

Yes. Good questions. And I can say that the rollout of our systems in Sweden is not the main reason. And the reason is the integrations when we have made the acquisition. So the -- I can say the first 5 acquisitions, what we made, we didn't have enough like resources compared to activities or projects what we rolled out. And that had the impact for the personnel churn, and after that, the customer churn. And this started 5 years ago.

And now we see that in those 5 offices we have been un-normal customer churn. And we see that the software rollout, it will have also a positive impact for our customers, because for customers where we have rollout are the most -- the smallest ones and they are not -- used anymore any software. So like that way.

[Unknown Executive]

The next one comes from Sven. Could you describe more about the new customer acquisition in Sweden and the competitive situation in the market? How is the overall new customer acquisition process going now?

[Otto-Pekka Huhtala, executive]

Yes. We have 2 channels to get new clients, and one is our own sales force. And so we have the team who is like conducting new potential clients and getting the teams and meetings, and after that, trying to close the deals.

And the other way is that our office managers, they will get a recommendation from the customer bases and focus energy for those potential clients and making the deals. And most of the new deals come from the office managers.

And what was the other question?

[Unknown Executive]

So how is the new customer acquisition in Sweden in the competitive situation in the market? And how is the overall new customer acquisition process going?

[Otto-Pekka Huhtala, executive]

Yes. So Sweden market is also like more maturated compared to Spain, for example, but Finnish market is most maturated. And after that, comes from Sweden. And there is good potential software also. And why do we win the clients? We can like resolve the whole problem, software and services. And we have the proactive service models also. Yes.

[Unknown Executive]

A couple of questions from a Talenom shareholder. Talenom seems to want to transform itself into a software house, a product house. Have you considered how big a change this is for the staff and how big a change of a mindset this is for management decisions? Are you making a cost-effective software product that can be delivered in a short time without months of customization to each customer?

[Otto-Pekka Huhtala, executive]

Yes. Answer for the latest is that, yes, we don't need to configure it anymore if we get the new clients or new accountants. And the first one was this -- how to lead the whole company. So we have like -- we have reflected very much of that and we have divided like the -- in top level also that who will focus for service businesses and who will focus for software businesses.

And we understand that we have to be like -- in this software business, we have to be like own organization, and in service business also. And that there's like a little bit wall between those. And that way, that -- the people who are in the service business, they have the focus 100% for that and they try to win the clients with better services and with -- trying to resolve the growth problem we are -- from those service organization strength point of view.

And also in this software business, also, that we try to grow there also based on our strength in software businesses. But it starts from the top level also.

[Unknown Executive]

Last question. Talenom shareholder continues, how good a level of cultural competence do you see for a foreign business in comparison to -- how many times companies that have been successful at home have made the mistake of thinking that the culture abroad is the same as in Finland, and as a result of this mistake, they have gone down the wrong path?

[Otto-Pekka Huhtala, executive]

Yes. This is a right question. And we did many, many activities and we have learned also very much. And in previous 2 years, we have like created our One Talenom concept together with country directors. And this has been like the big education journey to the whole management team that how to get all countries working together with the same method, the same processes, the same best practices and so on.

And when we went to Sweden, we didn't have like concept how to like implement best practices and we learned by doing things. But after some years, we understood that we have so many things and people can't like put the things to right level or right places and they didn't understand that which activities will have impact to which metrics and so on. And now, we have like good metrics, which we have the evidence, that, if you do these activities, it will have this kind of impact to this metric. And now, we like start implementing this One Talenom and country directors have been also creating this One Talenom framework. So good questions and very important.

And I hope that we have learned a lot. And now, we also invited country directors as group management team members. So we have now better communication possibilities also. And they are also in our Accounting Business Management Board. So they can share the issues between the countries, yes.

[Unknown Executive]

All right. Thank you. And this is all the questions we have at this time.

[Otto-Pekka Huhtala, executive]

Okay. Thank you very much and have a nice day.

[Matti Eilonen, executive]

Thank you. Bye.