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Talenom Plc Business Review January–September 2021 (unaudited): Net sales growth accelerated and profitability was excellent

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Talenom Plc, Stock Exchange Release, 1 November 2021 at 13:30 EET

TALENOM PLC BUSINESS REVIEW JANUARY–SEPTEMBER 2021 (UNAUDITED): NET SALES GROWTH ACCELERATED AND PROFITABILITY WAS EXCELLENT

This release is a summary of Talenom Plc’s Business Review for January–September 2021. The complete Business Review is attached to this release as a pdf file. It is also available on the company's website at https://sijoittajat.talenom.fi/en

JANUARY-SEPTEMBER 2021 IN BRIEF:

  • Net sales EUR 61.1 million (48.7), growth 25.4% (13.1%)

  • EBITDA EUR 21.1 million (18,2), 34.5% (37.4%) of net sales

  • Operating profit (EBIT) EUR 12.0 million (10.5), 19.6% (21.5%) of net sales

  • Net profit EUR 8.9 million (7.8)

  • Earnings per share EUR 0.21 (0.18)

  • Talenom’s 2021 guidance remains unchanged: Net sales for 2021 are expected to amount to EUR 80–84 million and operating profit is expected to be EUR 14–16 million.

KEY FIGURES JANUARY-SEPTEMBER 2021

Group

1–9/2021

1–9/2020

Change

Net sales, EUR 1,000

61,052

48,698

12,354

Net sales growth, %

25.4%

13.1%

12.2 percentage points

EBITDA, EUR 1,000

21,077

18,231

2,846

EBITDA of net sales, %

34.5%

37.4%

-2.9 percentage points

Operating profit, EUR 1,000

11,996

10,456

1,540

Operating profit of net sales, %

19.6%

21.5%

-1.8 percentage points

Return on investment (ROI), % (rolling 12 months)

17.8%

18.5%

-0.6 percentage points

Liquid assets, EUR 1,000

8,625

7,681

945

Earnings per share, EUR

0.21

0.18

0.02

Net profit, EUR 1,000

8,941

7,776

1,164

KEY FIGURES JULY-SEPTEMBER 2021

Group

7–9/2021

7–9/2020

Change

Net sales, EUR 1,000

19,364

14,845

4,519

Net sales growth, %

30.4%

10.0%

20.5 percentage points

EBITDA, EUR 1,000

6,679

5,799

880

EBITDA of net sales, %

34.5%

39.1%

-4.6 percentage points

Operating profit, EUR 1,000

3,445

3,144

301

Operating profit of net sales, %

17.8%

21.2%

-3.4 percentage points

Return on investment (ROI), % (rolling 12 months)

17.8%

18.5%

-0.6 percentage points

Liquid assets, EUR 1,000

8,625

7,681

945

Earnings per share, EUR

0.06

0.05

0.00

Net profit, EUR 1,000

2,530

2,320

210

This Business Review is not an Interim Financial Report prepared in accordance with the IAS 34 standard. The Company prepares its interim financial reporting in accordance with the Securities Market Act, in addition to which the Company releases Business Reviews for the first three and nine months of the year. The Business Reviews contain key information regarding the financial position and development of the Group.

GUIDANCE FOR 2021 UNCHANGED

15 April 2021 revised guidance for 2021:
Net sales for 2021 are expected to amount to EUR 80–84 million and operating profit is expected to be EUR 14–16 million.

CEO OTTO-PEKKA HUHTALA

The autumn has kicked off energetically in the internationalising Talenom. The strong development of the domestic business continued. We expanded into the large accounting business market in Spain through an acquisition in July. In Sweden, we have continued integration and are preparing for implementing our own software. We have also continued to explore the European market, looking for opportunities to expand into new countries. At the same time, our TiliJaska concept for the small customer segment has provided clear indications that it works as a new digital sales channel. The company accounts and cards that were launched with TiliJaska have been well received by our customers. The new financial service we piloted revealed the importance of real-time customer data for correctly timed financing. As a digital accounting business, we receive data about each transaction immediately when it occurs compared to the generally used financial statement information.

We have decided to report country-specific key figures for countries whose annual net sales exceeds EUR 10 million and countries that are in earlier development stages that fall short of this target as one group. The key figures to be reported are net sales, EBITDA and operating profit. This division will allow us to better describe the economic performance of countries at different stages. Currently, Finland is in a mature phase, Sweden in a growth and development phase and Spain in an early development stage. The separately presented Finnish figures give an indication of the development potential we aim for on new markets.

Overall, business performed as expected. In January-September, our net sales grew by 25.4% to EUR 61.1 million. EBITDA grew by 15.6% to EUR 21.1 million. Operating profit grew by 14.7% to EUR 12.0 million.

Finland's business continued developing positively. In January-September, Finnish net sales grew by 15.3% (9.5) to EUR 53.1 million (46.1). Around one-half of the growth was organic and one-half came from acquisitions. EBITDA was 38.0% (39.0) of net sales and operating profit was 22.4% (22.7) of net sales. In Finland, the lower profitability of acquisition targets depressed relative profitability. According to our experience, the profitability of acquisition targets can in Finland be raised to the level of our core business within about three years of the acquisition.

Swedish net sales increased by 196.5% (168.6) to EUR 7.8 million (2.6), EBITDA was 11.6% (9.5) of net sales and operating profit was 1.7% (-0.7) of net sales. Growth came mainly from acquisitions. Profitability in Sweden is typical for the industry measured by EBITDA. Our aim is to implement our own software in autumn 2022, after which we expect to achieve Finland's profitability level within three years.

We have accelerated growth in line with our strategy, which requires a higher investment level in software and M&A transactions. The digital transformation of our industry is progressing right now, and with the investments we want to strengthen and expand our market position and ensure continued development of our competitive product. Strong growth in investments will increase the relative share of depreciation in net sales.

The company is progressing nicely. We focus on solving entrepreneurs’ financial management needs in an internationally scalable manner. Our competitiveness on new markets continues to be based on our strategic strengths: ease of entrepreneurship and efficiency brought by automation, which frees our experts’ time for proactive customer consultation.

GROUP FINANCIAL DEVELOPMENT

GROUP KEY FIGURES

Group

1–9/2021

1–9/2020

Change

Net sales, EUR 1,000

61,052

48,698

12,354

Net sales growth, %

25.4%

13.1%

12.2 percentage points

EBITDA, EUR 1,000

21,077

18,231

2,846

EBITDA of net sales, %

34.5%

37.4%

-2.9 percentage points

Operating profit, EUR 1,000

11,996

10,456

1,540

Operating profit of net sales, %

19.6%

21.5%

-1.8 percentage points

Return on investment (ROI), % (rolling 12 months)

17.8%

18.5%

-0.6 percentage points

Interest-bearing net liabilities, EUR 1,000

39,987

31,685

8,302

Net gearing, %

94%

105%

-11 percentage points

Equity ratio, %

38.1%

37.4%

0.7 percentage points

Working capital, EUR 1,000

-5,528

-3,838

-1,689

Net investments, EUR 1,000

31,846

15,544

16,302

Liquid assets, EUR 1,000

8,625

7,681

945

Earnings per share, EUR

0.21

0.18

0.02

Weighted average number of shares during the period

43,403,560

42,517,688

885,872

Net profit, EUR 1,000

8,941

7,776

1,164

GROUP NET SALES, PROFITABILITY AND FINANCIAL PERFORMANCE JANUARY–SEPTEMBER 2021

In January-September, Talenom's net sales grew by 25.4% year-on-year. Net sales increased by EUR 12.4 million to EUR 61.1 million (48.7). In addition to organic growth and increased number of customers in accounting services, growth in net sales came from acquisitions in Finland and Sweden. Around two-thirds of the growth came from acquisitions and one-third organically through own active new customer acquisition. The pandemic had no significant impact on operations during the review period.

Personnel expenses for January-September amounted to EUR 32.4 million (24.6), representing 53.1% (50.5) of net sales. Other operating expenses, including materials and services, totalled EUR 8.1 million (6.0). They accounted for 13.3% (12.3) of net sales

Operating profit in January-September was EUR 12.0 million (10.5), or 19.6% (21.5) of net sales and net profit was EUR 8.9 million (7.8). Operating profit improved by 14.7%. As Talenom's growth was increasingly based on acquisitions, relative profitability was depressed by the lower profitability of the acquired businesses compared to other Talenom units and by the integration costs of the acquisitions. According to our experience, the profitability of acquisition targets can in Finland be raised to the level of our core business within about three years of the acquisition.

In July-September, Talenom's net sales grew by 30.4% year-on-year. Net sales increased by some EUR 4.5 million to EUR 19.4 million (14.8). Two-thirds of net sales growth came from acquisitions and one-third was organic. Operating profit in July-September was EUR 3.4 million (3.1), or 17.8% (21.2) of net sales and net profit was EUR 2.5 million (2.3). In July-September, operating profit improved by 9.6% year-on-year.

COUNTRY-SPECIFIC FINANCIAL DEVELOPMENT

FINLAND’S KEY FIGURES

Finland

1-9/2021

1-9/2020

Change

7-9/2021

7-9/2020

Change

Net sales, EUR 1,000

53,148

46,083

7,065

16,759

13,830

2,929

Net sales growth, %

15.3%

9.5%

5.8 % points

21.2%

6.5%

14.6 % points

EBITDA, EUR 1000

20,205

17,982

2,223

6,380

5,744

636

EBITDA of net sales, %

38.0%

39.0%

-1.0 % points

38.1%

41.5%

-3.5 % points

Depreciation and amortisations, EUR 1,000

-8,306

-7,507

-799

-2,927

-2,538

-389

Operating profit, EUR 1,000

11,899

10,475

1,424

3,453

3,206

247

Operating profit of net sales, %

22.4%

22.7%

-0.3 % points

20.6%

23.2%

-2.6 % points

Half of Finland's net sales growth in January-September was organic and half came from acquisitions. The development of automation had a positive and acquisitions a negative impact on relative profitability.

SWEDEN’S KEY FIGURES

Sweden

1-9/2021

1-9/2020

Change

7-9/2021

7-9/2020

Change

Net sales, EUR 1,000

7,754

2,615

5,139

2,455

1,015

1,440

Net sales growth, %

196.5%

168.6%

27.9 % points

141.8%

96.3%

45.5 % points

EBITDA, EUR 1000

899

249

650

327

56

271

EBITDA of net sales, %

11.6%

9.5%

2.1 % points

13.3%

5.5%

7.8 % points

Depreciation and amortisations, EUR 1,000

-768

-268

-499

-300

-118

-182

Operating profit, EUR 1,000

131

-20

151

27

-62

89

Operating profit of net sales, %

1.7%

-0.7%

2.4 % points

1.1%

-6.1%

7.2 % points

Sweden’s net sales growth in January-September came mainly from acquisitions. Sweden's profitability is typical for the industry before implementation of own software. Profitability has been depressed by our investments in sales, building support functions and developing management structures. However, because of the growth, the relative share of these in net sales has decreased, which explains the positive profitability development compared to the comparison period.

OTHER COUNTRIES’ KEY FIGURES

Other countries

1-9/2021

1-9/2020

Change

7-9/2021

7-9/2020

Change

Net sales, EUR 1,000

150

150

Net sales growth, %

EBITDA, EUR 1,000

-27

-27

EBITDA of net sales, %

-18.1%

-18.1%

Depreciation and amortisations, EUR 1,000

-8

-8

Operating profit, EUR 1,000

-35

-35

Operating profit of net sales, %

-23.3%

-23.3%

Talenom expanded to the Spanish accounting business market through an acquisition in July. Business started there on 1 August 2021.

GROUP BALANCE SHEET, FINANCING AND INVESTMENTS

On 30 September 2021, the consolidated balance sheet total was EUR 111.7 million (81.0). The Group's equity ratio was 38.1% (37.4) and net gearing was 94% (105). On 30 September 2021, interest-bearing financial loans totalled EUR 40.2 million (30.0), excluding instalment debts. Other non-current interest-bearing liabilities (instalment debts) amounted to EUR 0.2 million (0.2) and other current interest-bearing liabilities (instalment debts) were EUR 0.2 million (0.2).

In accordance with IFRS 16, non-current lease liabilities stood at EUR 5.3 million (6.2) and current lease liabilities at EUR 2.5 million (2.8) on 30 September 2021.

The Group recognises the costs of new customer contracts, such as costs of obtaining and fulfilling a contract, as investments as specified in IFRS 15 and records them in the balance sheet as capitalised contract costs. Furthermore, the Group recognises a part of development costs related to software and digital services as investments according to the requirements outlined in IAS 38 and records them under other intangible assets in the balance sheet. Investments stemming from new customer contracts amounted to EUR 2.8 million (3.2) in the review period. Investments in software and digital services totalled EUR 8.1 million (7.1) during the review period.

Net investments totalled EUR 31.8 million (15.5) million between 1 January and 30 September 2021.

During the review period, Talenom acquired 7 business entities as share transactions and 7 as asset purchases in Finland, Sweden and Spain. The purchase prices of the share transactions carried out during the review period totalled EUR 17.0 million, including recognition of contingent consideration, and the purchase prices of asset purchases amounted to EUR 1.6 million, including recognition of contingent consideration. In acquisitions, part of the purchase price was paid with new Talenom Plc shares subscribed for in directed issues. Acquisitions accounted for EUR 19.8 million (4.6) of net investments. Read more about acquisitions under “Acquisitions in the review period”.

Investments

1 Jan to 30 Sept 2021

1 Jan to 30 Sept 2020

Change

New customer agreements, EUR 1,000

2,799

3,219

-420

Software and digital services, EUR 1,000

8,085

7,127

958

Acquisitions in Finland, EUR 1,000

8,077

1,630

6,447

Acquisitions abroad, EUR 1,000

11,719

3,003

8,716

Other investments

1,166

565

601

Total net investments, EUR 1,000

31,846

15,544

16,302

Liquid assets on 30 September 2021 totalled EUR 8.6 million (7.7). In addition, the company had unused overdraft limits of EUR 0.0 million (3.0) on 30 September 2021.

Disclaimer

Certain statements in this release contain forward-looking statements based on the company's and management's views at the time they were made. For this reason, they involve risks and uncertainties. The future development may also change, if significant changes occur in the general economic situation or the company's business environment.

TALENOM PLC
BOARD OF DIRECTORS

Further information:
Otto-Pekka Huhtala
CEO, Talenom Plc
+358 40 703 8554
otto-pekka.huhtala@talenom.fi

Talenom is an agile and progressive accounting firm established in 1972. Our business idea is to make daily life easier for entrepreneurs with the easiest-to-use digital tools on the market and highly automated services. In addition to comprehensive accounting services, we support our customers’ business with a wide range of expert services, as well as financing and banking services. Our vision is to provide superior accounting and banking services for SMEs.

Talenom's growth history has been strong – average annual net sales growth was around 15.5% in 2005-2020. At the end of 2020, Talenom had 912 employees in Finland and Sweden at a total of 47 locations. Talenom’s share is quoted on the Main Market of Nasdaq Helsinki. Read more: sijoittajat.talenom.fi/en/

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