Talenom Oyj

Quarterly Report • Oct 25, 2022

TALENOM PLC BUSINESS REVIEW JANUARY–SEPTEMBER 2022 (UNAUDITED): GROWTH CONTINUED AS STRONG AND STRATEGY IMPLEMENTATION WAS PROMOTED WITH DETERMINATION

1 Jan to 30 Sept 2022

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, account and payment traffic services. Our vision is to provide superior accounting, account and payment traffic services for SMEs.

Talenom's growth history has been strong – average annual net sales growth was 16.2% in 2005- 2021. In 2021, Talenom had an average of 1,012 employees in Finland, Sweden and Spain at a total of 52 locations. Talenom's share is quoted on the Main Market of Nasdaq Helsinki.

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TALENOM PLC BUSINESS REVIEW JANUARY–SEPTEMBER 2022 (UNAUDITED): GROWTH CONTINUED AS STRONG AND STRATEGY IMPLEMENTATION WAS PROMOTED WITH DETERMINATION

JANUARY-SEPTEMBER 2022 IN BRIEF:

• Net sales EUR 75.8 million (61.1), growth 24.1% (25.4)
• EBITDA EUR 25.4 million (21.1), 33.6% (34.5) of net sales
• Operating profit (EBIT) EUR 13.1 million (12.0), 17.2% (19.6) of net sales
• Net profit EUR 10.0 million (8.9)
• Earnings per share EUR 0.23 (0.21)

JULY-SEPTEMBER 2022 IN BRIEF:

• Net sales EUR 23.6 million (19.4), growth 21.7% (30.4)
• EBITDA EUR 7.3 million (6.7), 30.8% (34.5) of net sales
• Operating profit (EBIT) EUR 3.1 million (3.4), 13.0% (17.8) of net sales
• Net profit EUR 2.2 million (2.5)
• Earnings per share EUR 0.05 (0.06)

KEY FIGURES

Group	1–9/2022	1–9/2021	Change, %	7–9/2022	7–9/2021	Change, %
Net sales, EUR 1,000	75,763	61,052	24.1%	23,575	19,364	21.7%
Net sales, increase %	24.1%	25.4%		21.7%	30.4%
EBITDA, EUR 1,000	25,427	21,077	20.6%	7,272	6,679	8.9%
EBITDA of net sales, %	33.6%	34.5%		30.8%	34.5%
Operating profit (EBIT), EUR 1,000	13,067	11,996	8.9%	3,074	3,445	-10.8%
Operating profit (EBIT), as % of net sales	17.2%	19.6%		13.0%	17.8%
Return on investment (ROI), % (rolling 12 months)	14.8%	17.8%		14.8%	17.8%
Interest-bearing net liabilities, EUR 1,000	51,225	39,987	28.1%	51,225	39,987	28.1%
Net gearing ratio, %	96.0%	94.0%		96.0%	94.0%
Equity ratio, %	35.9%	38.1%		35.9%	38.1%
Net investments, EUR 1,000	31,919	31,846	0.2%	16,481	8,392	96.4%
Liquid assets, EUR 1,000	17,755	8,625	105.8%	17,755	8,625	105.8%
Earnings per share, EUR	0.23	0.21	9.3%	0.05	0.06	-15.7%
Weighted average number of shares during the period	44,242,888	43,403,560	1.9%	44,242,888	43,403,560	1.9%
Net profit, EUR 1,000	9,964	8,941	11.4%	2,165	2,530	-14.4%

GUIDANCE FOR 2022 UNCHANGED (PUBLISHED 16 DECEMBER 2021)

Talenom expects 2022 net sales to be EUR 100-110 million and operating profit to be EUR 15-18 million.

CEO OTTO-PEKKA HUHTALA: BUSINESS REVIEW JANUARY-SEPTEMBER 2022

Strategy implementation progressed rapidly during the review period. We purchased an own software platform from Spain and started the implementation of own software in Sweden. In addition, we expanded our partnership with Fellow Bank for distributing bank accounts and cards to our customers and made progress in developing the digital distribution channel for small customers. We also continued making acquisitions, investments in organic growth and researching new markets.

In January-September, net sales grew by 24.1% (25.4) to EUR 75.8 million (61.1). The EBITDA margin was 33.6% (34.5) and the EBIT margin 17.2% (19.6). Net sales grew by 21.7% (30.4) in Q3. The EBITDA margin was 30.8% (34.5) and the EBIT margin 13.0% (17.8). Due to strong growth in line with our strategy our relative profitability deteriorated because integration work increased, acquired companies typically have lower profitability and depreciation on acquisitions and software increased. This has been a conscious choice.

In January-September, Finnish net sales grew by 15.1% (15.3) to EUR 61.2 million (53.1). The EBITDA margin was 39.2% (38.0) and the EBIT margin 21.2% (22.4). The strong performance of the Finnish business is based on the high degree of automation of own software, excellent customer retention and good inflation resilience. The strong cash flow from Finnish operations enables implementation of the growth strategy.

Growth still continued as very strong in Sweden. Net sales grew by 75.5% (196.5) in January-September to EUR 13.6 (7.8) million and EBITDA at 10.9% (11.6) was a typical level for the accounting industry. The Swedish business is in a rapid growth and development phase, where implementation of own automation increasing software has commenced as planned while other integration work continues. Implementation of the software will have a negative effect on profitability in the short term but will turn positive in the longer-term as has been witnessed in Finland. The implementation progresses in stages, one office at the time, and for offices where the implementation has been completed the Finnish profitability level is aimed for within three years.

In our Spanish operations, we have achieved an excellent platform for growth more quickly than anticipated. We have our own digital distribution channel and software to facilitate the daily lives of customers, our own service production and a strong expert unit. All preconditions for strong acceleration of both organic and acquisition-driven growth are in place. In the short term, our investments in Spain weaken the Group's EBIT, but at the same time open a good growth opportunity in our largest country of operation.

We maintain our 2022 guidance unchanged and expect 2022 net sales to be EUR 100-110 million and the EBIT to be EUR 15-18 million.

STRONGER FOCUS ON ACCELERATING GROWTH – NEW MEDIUM-TERM FINANCIAL TARGETS

The digital transformation in the European accounting and banking sector is happening now, and we want to be part of it. The development is supported by legislation, market trends and changes in consumer behaviour. SMEs are now making financial management platform choices at an accelerating pace and, in our experience, the threshold to change the chosen platform is quite high.

Talenom's business is in excellent condition, which provides a good basis for accelerating growth in the growing accounting services market. We have a proven strategy and a strong track-record of our performance. In 2000-2015, we built a strong position in Finland, where we managed to combine accounting and software expertise in a unique way. In 2016-2020, the benefits of the digital transformation were visible as a significant improvement in profitability. In the future, we will try to grow ever faster in Europe and replicate the Finnish concept in our operating countries. We believe that our industry is digitalising quickly in Europe. With the introduction of our own software, our goal is to replicate Finland's profitability trend in Sweden and Spain and in future target countries.

Today, we announced medium-term financial targets, which are:

• annual net sales growth of over 30%,
• annual EBITDA growth of over 15%,
• growing EBIT in euros and
• increasing dividend per share.

We have chosen a path of strong growth based on further development of active sales, digital sales and acquisitions. Due to our choices, our relative profitability will decrease, but absolute profitability will improve. We believe that in the long-term strong growth is in the interest of customers, employees and shareholders alike.

GROUP'S FINANCIAL PERFORMANCE IN JANUARY–SEPTEMBER 2022

Operating profit development, MEUR

Finland Sweden Other countries

13% 0%

Net sales by country 1–9/2021

87%

Net sales increased by 24.1% to EUR 75.8 million (61.1). Some two-thirds of the increase in net sales came from acquisitions and one-third organically through growth in customer numbers and sales of value-added services mainly in Finland.

Personnel costs amounted to EUR 39.8 million (32.4) representing 52.6% (53.1) of net sales. Other operating expenses, including materials and services, totalled EUR 11.1 million (8.1) or 14.6% (13.3) of net sales.

EBITDA increased by 21.6% to EUR 25.4 million (21.1) or 33.6% (34.5) of net sales. Operating profit increased by 8.9% to EUR 13.1 million (12.0) or 17.2% (19.6) of net sales. Relative profitability was depressed by lower profitability of the acquired businesses compared to other units, integration costs of acquisitions and higher depreciation. Net profit grew by 11.4% to EUR 10.0 million (8.9).

GROUP'S FINANCIAL PERFORMANCE IN JULY–SEPTEMBER 2022

Net sales increased by 21.7% to EUR 23.6 million (19.4). Some two-thirds of the increase in net sales came from acquisitions and one-third organically through growth in customer numbers and sales of value-added services mainly in Finland.

EBITDA increased by 8.9% to EUR 7.3 million (6.7) or 30.8% (34.5) of net sales. Operating profit decreased by 10.8% to EUR 3.1 million (3.4) or 13.0% (17.8) of net sales. Relative profitability was depressed by lower profitability of the acquired businesses compared to other units, integration and other costs of acquisitions, investments in growth-supporting structures, and higher

depreciation due to increased software and acquisition investment levels. Net profit decreased by 14.4% to EUR 2.2 million (2.5).

COUNTRY-SPECIFIC FINANCIAL DEVELOPMENT

FINLAND

	1–9/2022	1–9/2021	Change, %	7–9/2022	7–9/2021	Change, %
Net sales, EUR 1,000	61,189	53,148	15.1%	18,821	16,759	12.3%
Net sales growth, %	15.1%	15.3%		12.3%	21.2%
EBITDA, EUR 1000	24,017	20,205	18.9%	7,013	6,380	9.9%
EBITDA of net sales, %	39.2%	38.0%		37.3%	38.1%
Depreciation and amortisations, EUR 1,000	-11,042	-8,306	32.9%	-3,734	-2,927	27.6%
Operating profit, EUR 1,000	12,975	11,899	9.0%	3,279	3,453	-5,0%
Operating profit of net sales, %	21.2%	22.4%		17.4%	20.6%

JANUARY-SEPTEMBER 2022

Net sales increased by 15.1% to EUR 61.2 million (53.1). Two-thirds of net sales growth was organic and one-third came from acquisitions. Organic growth was driven by increased customer numbers and sales of value-added services.

EBITDA was at an excellent level. Automation development had a positive and acquisitions a negative effect on relative profitability.

JULY-SEPTEMBER 2022

Net sales increased by 12.3% to EUR 18.8 million (16.8). Around 80% of the growth was organic and 20% came from acquisitions. Organic growth was driven by increased customer numbers and sales of value-added services.

Automation development had a positive and acquisitions and increased depreciation levels a negative effect on relative profitability.

SWEDEN

	1–9/2022	1–9/2021	Change, %	7–9/2022	7–9/2021	Change, %
Net sales, EUR 1,000	13,605	7,754	75.5%	4,307	2,455	75.4%
Net sales growth, %	75.5%	196.5%		75.4%	141.8%
EBITDA, EUR 1000	1,481	899	64.8%	218	327	-33.2%
EBITDA of net sales, %	10.9%	11.6%		5.1%	13.3%
Depreciation and amortisations, EUR 1,000	-1,239	-768	61.5%	-434	-300	44.7%
Operating profit, EUR 1,000	242	131	84.3%	-216	27	-902.3%
Operating profit of net sales, %	1.8%	1.7%		-5.0%	1.1%

JANUARY-SEPTEMBER 2022

Net sales increased by 75.5% to EUR 13.6 million (7.8). Net sales growth came mainly from acquisitions.

EBITDA increased from the comparison period. Relative profitability has been depressed by our sales investments, setting up support functions, developing management structures and implementation of own software.

JULY-SEPTEMBER 2022

Net sales increased by 75.4% to EUR 4.3 million (2.5). Net sales growth came mainly from acquisitions.

EBITDA declined from the comparison period. Relative profitability has been depressed by our investments in sales, building support functions and developing management structures. Implementation of own software was particularly visible in July-September.

OTHER COUNTRIES

	1–9/2022	1–9/2021	Change, %	7–9/2022	7–9/2021	Change, %
Net sales, EUR 1,000	969	150	546.2%	447	150	198.0%
Net sales growth, %	546.2%			198.0%
EBITDA, EUR 1000	-71	-27	161.4%	41	-27	-249.5%
EBITDA of net sales, %	-7.3%	-18.1%		9.1%	-18.1%
Depreciation and amortisations, EUR 1,000	-79	-8	902.9%	-30	-8	279.3%
Operating profit, EUR 1,000	-150	-35	-328.1%	11	-35	130.6%
Operating profit of net sales, %	-15.4%	-23.3%		2.4%	-23.3%

JANUARY-SEPTEMBER 2022

Talenom expanded to the Spanish accounting business market through an acquisition in July 2021 and started operating there on 1 August 2021. After the deal, we have analysed Spanish accounting processes in more detail. We launched market research on how to utilise our scalable product on the Spanish market and started developing a digital sales channel. We carried out the Nomo platform deal that became part of Talenom as of 1 October 2022. We also made two acquisitions to strengthen our accounting business. In addition to the agreed transactions, we continuously research the market to strengthen our accounting business through acquisitions. We increase our investments in digital sales in all our business areas.

INVESTMENTS AND BUSINESS ACQUISITIONS

Net investments during the review period totalled EUR 31.9 (31.8) million.

Investments	1 Jan–30 Sep 2022	1 Jan–30 Sep 2021	Change
New customer agreements, EUR 1,000	2,422	2,799	-377
Software and digital services, EUR 1,000	8,434	8,200	234
Acquisitions in Finland, EUR 1,000 *)	857	8,077	-7,220
Acquisitions abroad, EUR 1,000 **)	19,623	11,719	7,904
Other investments	583	1,051	-468
Total net investments, EUR 1,000	31,919	31,846	73

*) includes an estimated EUR 116,000 (770,000) in recorded additional deal prices

**) includes an estimated EUR 5,184,000 (3,858,000) in recorded additional deal prices

Business acquisitions during the review period:

• Accodome Oy, Finland
• Tilitoimisto Kuopion Tili-Consults Oy, Finland
• Saarijärven Tilipalvelu Oy, Finland
• PJ Yrityspalvelu Oy, Finland
• ACompany Asesoraria Y Gestion de Empresas SL, Spain
• Tilipalvelu Elisa Ruinu Oy, Finland

Share transactions during the review period:

• MH Konsult Väst AB, Sweden
• Kjell Wengbrand Redovisnings AB, Sweden
• Lindgren & Lindgren Ekonomi AB, Sweden
• Confido Redovisning AB, Sweden
• Redovisningsbyrån Öckerö AB, Sweden
• Mazars Redovisning AB, Sweden
• Gestoria Teruel SL, Spain

Purchase prices, net sales and operating profit of the acquisition targets during the review period:

EUR 1,000	Share transactions	Business acquisitions
Total purchase prices	13,531	1,463
Maximum contingent consideration	9,625	116
Net sales, previous 12 months at time of purchase, total	11,981	2,597
Operating profit, previous 12 months at time of purchase, total	1,595	364

In acquisitions, part of the purchase price was paid with new Talenom Plc shares subscribed for in directed issues. A total of 221,486 shares were subscribed for in directed share issues related to acquisitions during the review period

Business acquisitions after the review period:

• Nomo, Spain

Share transactions after the review period:

• Baran Redovisning AB, Sweden

Purchase prices, net sales and operating profit of the acquisition targets acquired after the review period:

EUR 1,000	Share transactions	Business acquisitions
Total purchase prices	718	2,550
Maximum contingent consideration	194	0
Net sales, previous 12 months at time of purchase, total	714	500
Operating profit, previous 12 months at time of purchase, total	241	-800

EVENTS AFTER THE REVIEW PERIOD

Talenom's Board of Directors has decided on the company's medium-term financial targets, which emphasize net sales growth. Growth is expected to come primarily from the international markets and is based on active sales development, digital sales and acquisitions. Due to depreciation of significant software development investments and lower profitability of acquisition targets, the relative profitability of the next few years is expected to decline. The profitability of an acquisition target will rise to the level of Talenom's core business in an estimated three years when new systems have been implemented at the target.

Talenom's medium-term (2023–2025) financial targets are as follows:

• annual net sales growth of over 30%,
• annual EBITDA growth of over 15%,
• growing EBIT in euros and
• increasing dividend per share.

BASIS OF PREPARATION

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.

The figures of the Business Review are unaudited.

The Company reports commonly applied alternative performance measures to reflect the underlying business performance and enhance comparability between financial periods. Alternative performance measures not based on IFRS standards provide notable additional information to company management, investors and other interested parties. Alternative performance measures should not be considered as a substitute for key figures in accordance with IFRS. Alternative performance measures used by the company include operating profit (EBIT), operating profit (EBIT) as % of net sales, return on investment (ROI) %, interest-bearing net liabilities, net gearing ratio %, equity ratio %, working capital and net investments. The formulas are presented below in the section "Formulas".

TABLES

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

EUR 1,000	1–9/2022	1–9/2021	1–12/2021
Net sales	75,763	61,052	82,808
Other operating income	536	553	729
Materials and services	-3,105	-2,174	-3,052
Employee benefit expenses	-39,822	-32,422	-44,618
Depreciation and amortisations	-12,360	-9,082	-12,899
Other operating expenses	-7,946	-5,932	-8,204
Operating profit	13,067	11,996	14,763
Financial income	276	90	109
Financial expenses	-770	-706	-880
Net financial expenses	-494	-616	-771
Profit (loss) before taxes	12,573	11,379	13,991
Income taxes	-2,609	-2,439	-3,198
Profit (loss) for the financial period	9,964	8,941	10,794
Other items of comprehensive income Items that may be reclassified subsequently to profit or loss Translation differences	35	7	3
Total comprehensive income for the financial period	9,999	8,947	10,796

CONSOLIDATED BALANCE SHEET

EUR 1,000		30 Sep. 2022	30 Sep. 2021	31 Dec. 2021
ASSETS
	Non-current assets
	Goodwill	50,592	36,313	37,284
	Other intangible assets	45,138	34,350	36,323
	Right-of-use assets	8,273	7,672	8,626
	Property, plant and equipment	2,647	2,907	2,784
	Other non-current financial assets	854	850	852
	Deferred tax assets	119	90	90
	Capitalised contract costs	11,811	11,613	11,805
	Total non-current assets	119,435	93,796	97,765
	Current assets
	Trade and other receivables	11,900	9,293	9,832
	Current tax assets	13	0	1
	Cash and cash equivalents	17,861	8,625	10,121
	Total current assets	29,774	17,919	19,954
Total assets		149,208	111,714	117,718
CAPITAL AND RESERVES
	Share capital	80	80	80
	Reserve for invested unrestricted equity	26,336	21,587	21,587
	Retained earnings	26,964	20,748	23,051
Total equity		53,381	42,415	44,718
LIABILITIES
	Non-current liabilities
	Financial liabilities	50,240	40,206	40,203
	Trade and other payables	4,206	4,070	2,211
	Lease liabilities	5,235	5,324	5,985
	Deferred tax liabilities	2,753	2,044	2,030
	Total non-current liabilities	62,433	51,643	50,429
	Current liabilities
	Financial liabilities	10,096	89	0
	Trade and other payables	19,758	13,372	17,911
	Lease liabilities	3,114	2,548	2,850
	Current tax liabilities	427	1,648	1,810
	Total current liabilities	33,394	17,656	22,571
Total liabilities		95,827	69,299	73,000
Total equity and liabilities		149,208	111,714	117,718

FORMULAS

Net sales, increase %	=	net sales - net sales of the preceding year
		net sales of the preceding year	x 100
Operating profit	=	net sales + other operating income - materials and services - personnel expenses - depreciations and amortisations - other operating expenses
Operating profit (EBIT), %	=	operating profit (EBIT) net sales	x 100
Return on investment (ROI), % (rolling 12 months)	=	operating profit (EBIT) before taxes + interest and other financial expenses total equity and liabilities - non-interest-bearing liabilities (average of the accounting period)	x 100
Interest-bearing net liabilities	=	interest-bearing liabilities - cash in hand and in banks
Net gearing ratio, %	=	interest-bearing liabilities - cash in hand and in banks capital and reserves	x 100
Equity ratio, %	=	capital and reserves balance sheet total - advances received	x 100
Net investments	=	investments in tangible and intangible assets - sales of assets
Earnings per share	=	net profit of the review period Weighted average number of shares outstanding during the review x 100 period	x 100
Compound annual growth rate (CAGR)	=	1 net sales at the end of the period number of years -1 ( net sales in the beginning of the period )
EBITDA	=	Operating profit (EBIT) + depreciation and amortisations
EBITDA, %	=	EBITDA net sales	x 100

Operating profit (EBIT) measures Talenom's ability to generate a profit in its business operations. Operating profit is a key metric of the company's profitability and financial performance, and indicates the profit generated from business operations.

Operating profit margin refers to operating profit as a percentage of net sales and is used to proportion operating profit in relation to net sales and improve comparability of operating profit over reporting periods.

Return on investment, meanwhile, measures operating result in relation to invested equity. It describes Talenom's relative profitability, in other words how effectively the company can generate profit for capital invested in the company.

Interest-bearing net liabilities is the net sum of Talenom's debt financing. The key figure provides information on the company's indebtedness and capital structure

Net gearing is the ratio between Talenom's equity and interest-bearing liabilities It describes the level of risk associated with the company's financing and is a useful metric for tracking the company's debt to equity ratio.

Equity ratio is a financing structure metric that shows what proportion of the company's balance sheet is financed by its own equity. Equity ratio provides information on the level of risk associated with financing and the level of equity used in business operations and describes the company's solvency and tolerance against loss in the long term.

Net investments measure the amount of investments minus the sale of fixed assets. The key figure provides additional information on the cash flow needs of business operations.

EBITDA is an important key figure that measures Talenom's ability to generate profit in business before depreciation, impairment and financial items.

EBITDA margin refers to EBITDA as a percentage of net sales and is used to proportion EBITDA in relation to net sales and improve comparability of EBITDA over reporting periods.

TALENOM PLC Board of Directors

ADDITIONAL INFORMATION:

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