Talenom Plc half-year report january–june 2019 (unaudited): Operating profit improves by 26% and net sales grow by 17% – the company continues its excellent profitable growth and started its internationalisation
Talenom Plc, Half year financial report 29 July 2019 at 13:30
Talenom Plc half-year report january–june 2019 (unaudited): Operating profit improves by 26% and net sales grow by 17% – the company continues its excellent profitable growth and started its internationalisation
January–june 2019 in brief:
- Net sales EUR 29.5 (25.3) million, an increase of 16.9% (18.0%)
- Operating profit (EBIT) EUR 6.6 (5.2) million, 22.3% (20.7%) of net sales *)
- Net profit EUR 4.9 (3.9) million *)
- Earnings per share EUR 0.71 (0.58)
- Change of CEO at Talenom. On 29 July 2019, Deputy CEO Otto-Pekka Huhtala assumes the position of CEO, as Jussi Paaso steps down at his own request to attend to tasks in support of the company’s growth
- During the review period, the company started its internationalisation with an acquisition in Sweden and expanded with asset deals into the Vaasa economic area
| Group | 1–6/2019 | 1–6/2018 | Change |
| Net sales, thousands of euro | 29,545 | 25,277 | 4,268 |
| Net sales, increase % | 16.9% | 18.0% | -1.1 percentage points |
| Operating profit, thousands of euro *) | 6,600 | 5,227 | 1,373 |
| Operating profit, as % of net sales *) | 22.3% | 20.7% | 1.7 percentage points |
| Return on investment (ROI), % (rolling 12 months) *) | 20.2% | 18.3% | 1.9 percentage points |
| Liquid assets, thousands of euro | 8,423 | 4,036 | 4,387 |
| Earnings per share, euro | 0.71 | 0.58 | 0.14 |
| Net profit, thousands of euro *) | 4,924 | 3,947 | 976 |
*) The Talenom Group adopted IFRS 16 Leases on 1 January 2019, due to which the review periods are not fully comparable. During the period 1-6/2019, the standard had a positive effect on operating profit (+EUR 47 thousand) and a negative effect on net profit (-EUR 42 thousand) and return on investment (-1.9 percentage points). The effects of adopting the standard on the Group’s financial information are described in detail under the section Basis of Preparation.
| Group | 4–6/2019 | 4–6/2018 | Change |
| Net sales, thousands of euro | 14,762 | 12,541 | 2,221 |
| Net sales, increase % | 17.7% | 17.9% | -0.2 percentage points |
| Operating profit (EBIT), thousands of euro **) | 3,158 | 2,588 | 570 |
| Operating profit (EBIT), as % of net sales **) | 21.4% | 20.6% | 0.8 percentage points |
| Return on investment (ROI), % (rolling 12 months) **) | 20.2% | 18.3% | 1.9 percentage points |
| Liquid assets, thousands of euro | 8,423 | 4,036 | 4,387 |
| Earnings per share, euro | 0.34 | 0.29 | 0.05 |
| Net profit, thousands of euro **) | 2,339 | 1,962 | 377 |
**) The Talenom Group adopted IFRS 16 Leases on 1 January 2019, due to which the review periods are not fully comparable. During the period 4-6/2019, the standard had a positive effect on operating profit (+EUR 25 thousand) and a negative effect on net profit (-EUR 21 thousand) and return on investment (-1.9 percentage points). The effects of adopting the standard on the Group’s financial information are described in detail under the section Basis of Preparation.
Guidance for 2019 remains unchanged
The company’s net sales growth percentage is expected to increase from 2018 (18.0% in 2018). Operating profit margin (17.5% in 2018) is expected to increase from 2018.
CEO Otto-Pekka Huhtala
Our company performed excellently during the half-year period. We continued to improve our level of profitability. Operating profit grew by 26.3% and stood at 22.3% (EUR 6.6 million) of net sales. During the review period, net sales increased year-on-year from EUR 25.3 million to EUR 29.5 million (16.9%). More than 90% of net sales consisted of continuous net sales.
The second quarter was likewise excellent. Relative profitability (operating profit as a percentage of net sales) rose year-on-year from 20.6% to 21.4%, while net sales grew from EUR 12.5 million to EUR 14.8 million (17.7%).
The acquisition in Sweden and the asset deals in Vaasa in the second quarter as well as successful organic sales contribute to our growth outlook for the second half of the year. We expect that full-year relative growth will be higher than in 2018 (net sales growth 18%, 2018). In addition, we expect to see a year-on-year increase in relative profitability (operating profit as a percentage of net sales 17.5%, 2018).
Our profitability trend is driven by systematic investments in the bookkeeping production line and its technological development. We are currently launching a new instance of automation, which will eliminate the final dependencies of the bookkeeping production line to commercial systems made by other software providers. This allows for further development of automation more freely. The deployment of the new instance of automation is ahead of schedule. The profitability benefits of the current phase of development will come into full effect as from next year. The development of the bookkeeping production line will continue after the completion of the current phase, thanks to which the positive profitability trend is also expected to continue.
Net sales growth was generated by the higher number of customers using accounting services. Maintaining relative growth will require us to continuously step up sales – and we have succeeded extremely well in this. Our own sales organisation and franchising entrepreneurs brought in more new customer accounts than ever before.
During the second quarter, we successfully carried out two M&A transactions while maintaining a good financial position. Our investment capacity is supported by extremely strong net cash flows from operating activities.
Thanks to the asset deal in Vaasa, we are expanding into a new market area. We can now provide also Swedish-speaking customers with pioneering, high-quality and extensive financial management services all over Finland. We will start the deployment of the Talenom automated bookkeeping production line in Vaasa this coming autumn. In Sweden, we have already successfully determined the opportunities for technology utilisation. We will start proactive sales efforts in Sweden in Q1 2020.
The costs of preparing these two closely timed M&A transactions burdened Q2 earnings slightly. In our experience, the first post-acquisition month is weak in terms of net sales, as the previous owner invoices all the work performed to date and the integration involves several non-invoiceable working days. The guidance, updated in connection with the Swedish acquisition, has accounted for both these transactions, and the financial guidance for 2019 remains unchanged.
Our major new service area, Talenom Financing Services, moved from the pilot phase to providing a full service offering. The new service area has been very well received from the outset, and in the review period, EUR 31 million was provided in financing. The services are provided by Talenom’s financing partners and currently comprise invoice factoring, instalment payment services and corporate loans. As an accounting firm, Talenom is closely connected to the financial transactions of our customers – and thus it is natural for them to turn to us even for financing services.
Today, I’ve assumed the position of CEO of Talenom, as Jussi Paaso steps down at his own request to attend to tasks in support of the company’s growth. As I accept the baton, the company could not be in better shape. We have positioned ourselves uniquely well in the prevailing market situation. We can scale our business for profitable growth while the technological development of the bookkeeping production line boosts efficiency in service provision. The outlook for the core business is excellent in itself, and at the same time, I see many new business opportunities in both Finland and Sweden.
I have worked at Talenom since 2002, and have long been responsible for the management and development of accounting services. Most recently I served as Talenom’s Deputy CEO. Based on my experience, I can well state that we are in a great position to continue Talenom's growth story for the benefit of our customers, together with our motivated and skilled staff.
Financial development
Key figures
| Group | 1–6/2019 | Effect of IFRS 16 **) | Adjusted 1–6/2019 | 1–6/2018 | Adjusted change |
| Net sales, thousands of euro | 29,545 | 0 | 29,545 | 25,277 | 4,268 |
| Net sales, increase % | 16.9% | 0.0 percentage points | 16.9% | 18.0% | -1.1 percentage points |
| Operating profit (EBIT), thousands of euro | 6,600 | +47 | 6,553 | 5,227 | 1,326 |
| Operating profit (EBIT), as % of net sales | 22.3% | +0.1 percentage points | 22.2% | 20.7% | 1.5 percentage points |
| Return on investment (ROI), % (rolling 12 months) | 20.2% | -1.9 percentage points | 22.1% | 18.3% | 3.8 percentage points |
| Interest-bearing net liabilities, thousands of euro | 29,260 | +8,965 | 20,295 | 19,327 | 968 |
| Net gearing ratio, % | 137% | +42 percentage points | 95% | 119% | -24 percentage points |
| Equity ratio, % | 30.5% | -4.6 percentage points | 35.1% | 34.1% | 1.0 percentage points |
| Working capital, thousands of euro | -4,323 | 0 | -4,323 | -2,885 | -1,438 |
| Net investments, thousands of euro | 9,520 | 0 | 9,520 | 5,492 | 4,028 |
| Liquid assets, thousands of euro | 8,423 | 0 | 8,423 | 4,036 | 4,387 |
| Earnings per share, euro | 0.71 | -0.01 | 0.72 | 0.58 | 0.14 |
| Weighted average number of shares during the period *) | 6,903,523 | 0 | 6,903,523 | 6,861,289 | 42,234 |
| Net profit, thousands of euro | 4,924 | -42 | 4,965 | 3,947 | 1,018 |
*) 5,100 shares held by the company were subtracted from the figure
**) The Talenom Group adopted IFRS 16 Leases on 1 January 2019; its impacts are presented in this column
Net sales, profitability and financial performance, january–june 2019
Talenom’s net sales grew by 16.9% in January-June compared with the same period in the previous year. Net sales increased by about EUR 4.3 million and amounted to EUR 29.5 (25.3) million. Net sales growth was mainly generated by the higher number of customers using accounting services.
Personnel expenses were EUR 15.0 (13.5) million during the review period, accounting for 50.9% (53.5%) of net sales. The ratio of the personnel expenses to net sales decreased year-on-year from 2018.
Other operating expenses, including materials and services, totalled EUR 4.2 million, being 14.4% of net sales. Due to the adoption of IFRS 16 Leases, other operating expenses are not directly comparable in the periods 1–6/2018 and 1–6/2019 (see Tables: Consolidated comprehensive income statement).
Operating profit was EUR 6,600 thousand (22.3% of net sales) during the review period and net profit was EUR 4,924 thousand. The adoption of IFRS 16 had a positive effect on operating profit (+EUR 47 thousand) and a negative effect on net profit (-EUR 42 thousand). Adjusted operating profit excluding the impacts of IFRS 16 was EUR 6,553 (5,227) thousand, 22.2% (20.7%) of net sales, and the net profit was 4,965 (3,947) thousand.
The improved profitability was due to the improvement in the efficiency of bookkeeping.
Balance sheet, financing and investments
On 30 June 2019, the consolidated balance sheet total was EUR 70.0 (47.7) million. The Group had an equity ratio of 30.5% and a net gearing ratio of 137%.
With the adoption of IFRS 16, the Group’s equity ratio has decreased by 4.6 percentage points, and its net gearing ratio increased by 42 percentage points. Equity ratio adjusted to ignore the effects of IFRS 16 stood at 35.1% (34.1%) and net gearing ratio at 95% (119%).
On 30 June 2019, the Group’s interest-bearing financial loans were EUR 28.0 million, excluding instalment debts. Other non-current interest-bearing liabilities (instalment debts) stood at EUR 0.2 million, with other current interest-bearing liabilities (instalment debts) amounting to EUR 0.3 million.
In accordance with IFRS 16 Leases, as of 1 January 2019, the Group recognises leases of business premises in the balance sheet mainly as assets and liabilities. In accordance with IFRS 16, non-current lease liabilities stood at EUR 7.3 million and current lease liabilities at EUR 1.7 million on 30 June 2019.
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. These costs are presented in the Balance Sheet under “Capitalised contract costs”. Furthermore, the Group recognises a part of the development costs related to software and digital services as investments according to the requirements outlined in IAS 38. These costs are presented in the Balance Sheet under “Other intangible assets”. Investments stemming from new customer contracts amounted to EUR 2.3 (1.9) million in the review period. Investments concerning software and digital services amounted to EUR 2.3 (2.1) million.
The company’s total net investments during the period 1 January-30 June 2019 were EUR 9.5 (5.5) million.
During the review period, the company acquired the share capital of Wakers Consulting Ab in Stockholm and the business operations of Oy Wasa tilit Ab and Företagstjänster Ab Oy. These transactions accounted for EUR 4.2 million of net investments and half was paid for with new Talenom Plc shares subscribed for in a directed issue.
Liquid assets amounted to EUR 8.4 (4.0) million on 30 June 2019. In addition, the company’s unused overdraft limits stood at EUR 1.0 million on 30 June 2019.
Disclaimer
Certain statements in this bulletin are forecasts based on the company's and management's views at the time the forecasts were made. For this reason, they involve risks and uncertainties. The forecasts 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
tel. 4
Talenom Plc is an accounting firm established in 1972. Talenom offers a wide range of accounting services as well as other expert and advisory services to support its clients’ business. The company has its own software development and it provides its clients with electronic financing tools.
In 2018, Talenom Group reported net sales of 48.9 million euros, representing an increase of 18.0 % compared to 2017. Talenom possesses a strong history of growth – Talenom reached an average annual net sales growth of 15.5% in the fiscal years 2005 - 2018.
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