Talenom Oyj

Interim / Quarterly Report • Apr 18, 2024

Business Review Q1 2024

EBITDA improved by 13.4% and strategy implementation progressed

1 Jan to 31 March 2024 (unaudited)

Business Review Q1 2024:

EBITDA improved by 13.4% and strategy implementation progressed

January–March 2024 in brief

• Net sales EUR 34.1 million (31.3), growth 8.8% (24.2)
• EBITDA EUR 9.5 million (8.4), 27.9% (26.7) of net sales
• Operating profit (EBIT) EUR 3.9 million (3.5), 11.3% (11.0) of net sales
• Net profit EUR 2.0 million (2.1)
• Earnings per share EUR 0.04 (0.05)

Key figures

Group	1–3/2024	1–3/2023	Change, %
Net sales, EUR 1,000	34,053	31,311	8.8%
Net sales, increase %	8.8%	24.2%
EBITDA, EUR 1,000	9,486	8,365	13.4%
EBITDA of net sales, %	27.9%	26.7%
Operating profit (EBIT), EUR 1,000	3,855	3,458	11.5%
Operating profit (EBIT), as % of net sales	11.3%	11.0%
Return on investment (ROI), % (rolling 12 months)	6.0%	11.7%
Interest-bearing net liabilities, EUR 1,000	84,697	68,060	24.4%
Net gearing ratio, %	171.5%	130.2%
Equity ratio, %	26.9%	31.4%
Net investments, EUR 1,000	8,359	12,641	-33.9%
Liquid assets, EUR 1,000	12,314	13,255	-7.1%
Earnings per share, EUR	0.04	0.05	-2.3%
Weighted average number of shares during the period	45,434,562	44,893,388	1.2%
Net profit, EUR 1,000	2,034	2,057	-1.1%

Guidance for 2024 unchanged

Talenom estimates that 2024 net sales will be about EUR 130–140 million, EBITDA EUR 34–40 million and operating profit EUR 14–17 million.

CEO Otto-Pekka Huhtala

The first quarter of the year got off to a strong start. Improving operational efficiency, launching our platform in Sweden and accelerating organic growth are our strategic priorities for the current year. The profitability turnaround has progressed and is beginning to be reflected in higher EBITDA. In Sweden, we were able to migrate customers to our own platform in line with our targets. Our goal is to migrate at least 50% of our regular reporting customers to our own systems during 2024. Based on the experience in Finland, the introduction of Talenom's processes and platform enables reducing routine work time by up to 75%. To strengthen organic growth, we continued to develop the digital purchase path and made key hires to support growth.

Net sales grew by 8.8% (24.2) to EUR 34.1 (31.3) million in the first quarter of 2024. The economic downturn has had a negative impact on the business volumes of our customers in Finland and Sweden. This has resulted in a reduction in transaction volumes for Talenom, which has led to a decrease in customer invoicing. Business closures and bankruptcies have also increased. The impact of the economic downturn and customer churn was offset by new customer acquisition. Profitability improved: EBITDA rose by 13.4% to EUR 9.5 (8.4) million, while operating profit increased to EUR 3.9 (3.5) million. Profitability in Finland was significantly improved by efficiency measures launched in 2023, while in Sweden the introduction of own software burdened profitability. In Spain, the growth in business volume has enabled profitability to develop well.

Despite the challenging short-term economic environment, we are positive about the future. Talenom's unique approach combines accounting and banking services with a proprietary software platform. Over 90% of net sales are recurring, providing a solid foundation for the company's long-term development.

Group financial development January–March 2024

Net sales development, EUR million

EBIT development, EUR million

Net sales increased by 8.8% to EUR 34.1 million (31.3). The net sales growth was mainly due to acquisitions in Spain. The economic downturn in Finland and Sweden has significantly slowed organic growth.

Personnel costs amounted to EUR 20.0 million (18.1) representing 58.8% (57.8) of net sales. Other operating expenses, including materials and services, totalled EUR 5.0 million (5.1) or 14.8% (16.1) of net sales.

40

EBITDA increased by 13.4% to EUR 9.5 million (8.4) or 27.9% (26.7) of net sales. Profitability was improved by the efficiency measures implemented in Finland. In Sweden, the introduction of own software had a negative impact on profitability. Operating profit increased by 11.5% to EUR 3.9 million (3.5) or 11.3% (11.0) of net sales. Net profit decreased by -1.1% to EUR 2.0 million (2.1). Net financial expenses increased to EUR 1.0 million (0.7).

Country-specific financial development

Finland

	1–3/2024	1–3/2023	Change, %
Net sales, EUR 1,000	23,409	23,377	0.1%
Net sales growth, %	0.1%	11.5%
EBITDA, EUR 1000	9,297	8,174	13.7%
EBITDA of net sales, %	39.7%	35.0%
Depreciation and amortisations, EUR 1,000	-4,425	-4,155	6.5%
Operating profit, EUR 1,000	4,872	4,019	21.2%
Operating profit of net sales, %	20.8%	17.2%

January-March 2024

Net sales were at the level of the comparison period. Overall economic development was negatively reflected in growth. The downturn has had a negative impact on the business volumes of Talenom's customers. This has resulted in a reduction in transaction volumes, which has led to a decrease in revenue per customer through both volumes and price adjustments. There has also been an increase in business closures and bankruptcies. The impact of the economic downturn and customer churn was offset by new customer acquisition.

Relative profitability significantly improved thanks to the efficiency measures introduced in 2023. In Finland, we are able to achieve very high profitability through our own platform automation and efficient business processes. Without the downturn, even higher profitability growth would have been possible.

We expect the economic downturn to ease as interest rates fall. This is expected to positively impact Talenom's growth possibilities with a lag of around six months.

Sweden

	1–3/2024	1–3/2023	Change, %
Net sales, EUR 1,000	6,956	6,727	3.4%
Net sales growth, %	3.4%	68.6%
EBITDA, EUR 1000	-22	847	-102.6%
EBITDA of net sales, %	-0.3%	12.6%
Depreciation and amortisations, EUR 1,000	-716	-585	22.2%
Operating profit, EUR 1,000	-737	262	-381.9%
Operating profit of net sales, %	-10.6%	3.9%

January-March 2024

Net sales increased by 3.4% to EUR 7.0 million (6.7). Net sales growth came mainly from acquisitions.

Relative EBITDA was -0.3% (12.6) and operating profit -10.6% (3.9) of net sales. Growth and profitability in Sweden were affected by the spill-over effects of the general economic downturn. Profitability remains under pressure from the planned integration work, and particularly the introduction of own platform, which requires resources to ensure the progress of the project. After a period of strong growth, Talenom has for the time being slowed down the pace of acquisitions in Sweden and is focusing on implementing its own software and processes, which in the longer term will improve efficiency, profitability and organic growth opportunities. In the short term, the resources required for the project combined with the economic downturn will put a significant strain on profitability. However, this will enable the relative profitability level of Finland to be achieved in the longer term.

We expect the economic downturn to ease as interest rates fall. This is expected to positively impact Talenom's growth possibilities with a lag of around six months.

Other countries

	1–3/2024	1–3/2023	Change, %
Net sales, EUR 1,000	3,687	1,207	205.6%
Net sales growth, %	205.6%	371.3%
EBITDA, EUR 1000	-58	-378	84.6%
EBITDA of net sales, %	-1.6%	-31.4%
Depreciation and amortisations, EUR 1,000	-491	-167	-193.2%
Operating profit, EUR 1,000	-549	-546	-0.6%
Operating profit of net sales, %	-14.9%	-45.2%

January-March 2024

Net sales increased by 205.6% to EUR 3.7 million (1.2). Net sales growth came mainly from acquisitions in Spain. There was also good evidence of Talenom's ability to grow organically, although low volumes meant that organic growth accounted for only a small proportion of total growth.

With the growth in business volume in Spain, profitability has developed very well. The Spanish accounting business is profitable measured by EBITDA, but profitability is burdened by the build-up of organic growth and the relatively high share of support activities.

Talenom acquired a bridgehead from Italy in early 2023. In line with the strategy of expanding into new countries, the Italian market for accounting firms has been studied and the business model continued to be designed. As a result of this research work, Talenom hired a Country Director for Italy. Talenom's priority is to grow organically in Italy.

Unallocated items

Unallocated items include revenue and cost recognition of additional purchase prices related to acquisitions.

	1–3/2024	1–3/2023	Change, %
Net sales, EUR 1,000
Net sales growth, %
EBITDA, EUR 1000	268	-278	-196.6%
EBITDA of net sales, %
Depreciation and amortisations, EUR 1,000
Operating profit, EUR 1,000	268	-278	-196.6%
Operating profit of net sales, %

Country-specific comparison figures for 2023

Comparison figures have been adjusted for inter-segment items. Inter-segment items were eliminated in the Business Reviews and Half-Year Financial Report for 2023.

Key figures, Finland	Q1 2023	Q2 2023	Q3 2023	Q4 2023
Net sales, EUR 1,000	23,377	23,332	20,262	20,788
EBITDA, EUR 1000	8,174	8,210	7,718	7,594
Depreciation and amortisations, EUR 1,000	-4,155	-4,374	-7,429	-4,349
Operating profit, EUR 1,000	4,019	3,836	290	3,245
Comparable operating profit, EUR 1,000	4,019	3,836	3,448	3,245
Key figures, Sweden	Q1 2023	Q2 2023	Q3 2023	Q4 2023

Net sales, EUR 1,000	6,727	7,299	5,519	5,924
EBITDA, EUR 1000	847	596	-26	-1,025
Depreciation and amortisations, EUR 1,000	-585	-603	-685	-725
Operating profit, EUR 1,000	262	-7	-711	-1,750

Key figures, Other countries	Q1 2023	Q2 2023	Q3 2023	Q4 2023
Net sales, EUR 1,000	1,207	1,778	2,511	3,004
EBITDA, EUR 1000	-378	-191	-65	-256
Depreciation and amortisations, EUR 1,000	-168	-221	-285	-358
Operating profit, EUR 1,000	-546	-411	-350	-613

Unallocated items	Q1 2023	Q2 2023	Q3 2023	Q4 2023
Net sales, EUR 1,000
EBITDA, EUR 1000	-278	248	0	716
Depreciation and amortisations, EUR 1,000
Operating profit, EUR 1,000	-278	248	0	716

*) Country-specific net sales include external sales. Inter-segment sales and purchases are included in EBITDA and operating profit on a net basis. The Q4/2023 country-specific net sales reported in the 2023 Financial Statement Release also included internal sales.

Investments and acquisitions during the review period

The total net investments during the review period were EUR 8.4 million (12.6).

Investments	Q1 2024	Q1 2023
New customer agreements, EUR 1,000	909	778
Software and digital services, EUR 1,000	4,220	3,769
Acquisitions in Finland, EUR 1,000	0	0
Acquisitions abroad, EUR 1,000 *)	2,713	7,198
Other investments	517	896
Total net investments, EUR 1,000	8,359	12,641

*) includes an estimated EUR 0 (EUR 1,570 thousand) in recorded additional deal prices

Share transactions in January-March:

• Bujan Y Asociados S.l., Spain
• Assessoria del Bages, 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	3,196	0
Maximum contingent consideration	0	0
Net sales, previous 12 months at time of purchase, total	2,318	0
Operating profit, previous 12 months at time of purchase, total	591	0

In acquisitions, part of the purchase price was paid with new Talenom Plc shares subscribed for in directed issues. A total of 10,577 shares were subscribed for in directed share issues related to acquisitions during the review period.

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 first nine months of the year. The Business Reviews contain key information regarding the financial position and development of the Talenom Group. The operating segments have been formed based on geographical areas. Segment reporting is based on the operating countries of the Group companies. Countries in the early development phase are reported as one item.

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, comparable operating profit, comparable operating profit as % of net sales, EBITDA, EBITDA 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	1–3/2024	1–3/2023	2023
Net sales	34,053	31,311	121,728
Other operating income	493	197	1,225
Materials and services	-918	-933	-3,884
Employee benefit expenses	-20,017	-18,088	-71,897
Depreciation and amortisations	-5,631	-4,908	-23,935
Other operating expenses	-4,124	-4,122	-15,287
Operating profit	3,855	3,458	7,948
Financial income	95	58	433
Financial expenses	-1,125	-766	-4,122
Net financial expenses	-1,030	-708	-3,689
Profit (loss) before taxes	2,825	2,750	4,260
Income taxes	-790	-692	-899
Profit (loss) for the financial period	2,034	2,057	3,361
Other items of comprehensive income
Items that may be reclassified subsequently to profit or loss
Translation differences	-17	99	-16
Total comprehensive income for the financial period	2,018	2,157	3,345

Consolidated balance sheet

EUR 1,000		31/03/2024	31/03/2023	31/12/2023
ASSETS
	Non-current assets
	Goodwill	68,643	59,778	66,648
	Other intangible assets	54,335	49,264	52,681
	Right-of-use assets	10,428	10,709	9,401
	Property, plant and equipment	4,687	3,359	4,685
	Other non-current financial assets	203	259	184
	Deferred tax assets	1,520	472	1,487
	Capitalised contract costs	11,437	11,572	11,347
	Total non-current assets	151,253	135,413	146,434
	Current assets
	Trade and other receivables	19,023	17,543	16,742
	Current tax assets	1,199	545	2,247
	Cash and cash equivalents	12,314	13,255	10,255
	Total current assets	32,536	31,343	29,243
Total assets		183,789	166,756	175,677
CAPITAL AND RESERVES	Share capital	80	80	80
	Reserve for invested unrestricted equity	30,935	28,909	30,875
	Retained earnings	18,366	23,300	24,859
Total equity		49,380	52,289	55,814
LIABILITIES
	Non-current liabilities
	Financial liabilities	70,730	60,258	70,818
	Trade and other payables	2,015	3,530	636
	Lease liabilities	6,388	6,798	5,592
	Deferred tax liabilities	4,604	3,601	4,326
	Total non-current liabilities	83,737	74,187	81,372
	Current liabilities
	Financial liabilities	15,044	10,000	5,101
	Trade and other payables	30,017	26,315	28,463
	Lease liabilities	4,093	3,919	3,944
	Current tax liabilities	1,518	46	983
	Total current liabilities	50,672	40,280	38,491
Total liabilities		134,409	114,467	119,863
Total equity and liabilities		183,789	166,756	175,677

FORMULAS

		net sales - net sales of the preceding year
Net sales, increase %	=	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
Working capital	=	inventories + non-interest-bearing current receivables - non-interestbearing current liabilities
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 + depreciation + amortisation
EBITDA, %	=	EBITDA Net sales	x 100
Comparable operating profit	=	operating profit - software-related write-downs

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 is able to generate profit for capital invested in the company

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

Net gearing ratio 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 financial 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.

Working capital measures the amount of financing committed in Talenom's business operations and describes the efficiency of capital use.

Net investments measure the amount of investments minus the sale of fixed assets. The metric offers 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.

Comparable operating profit is operating profit excluding software-related write-downs.

TALENOM PLC Board of Directors

FURTHER INFORMATION: Otto-Pekka Huhtala CEO, Talenom Plc

+358 40 703 8554 otto-pekka.huhtala@talenom.fi