Talenom Plc, Stock exchange release 23.4.2019 at 13:30
Talenom Plc business review january–march 2019 (unaudited): Operating profit improved by 30% and net sales increased by 16.1% - internationalisation launched with an acquisition in Sweden
January–march 2019 in brief:
o Net sales EUR 14.8 (12.7) million, an increase of 16.1% (18.1%)
o Operating profit (EBIT) EUR 3.4 (2.6) million, 23.3% (20.7%) of net sales *)
o Net profit EUR 2.6 (2.0) million *)
o Earnings per share EUR 0.38 (0.29)
o After the review period, the company announced its expansion into Sweden with an acquisition. At the same time, the company adjusted its guidance for 2019
| Group | 1–3/2019 | 1–3/2018 | Change |
| Net sales, thousands of euro | 14,783 | 12,736 | 2,047 |
| Net sales, increase % | 16.1% | 18.1% | -2.0 percentage points |
| Operating profit, thousands of euro *) | 3,442 | 2,639 | 803 |
| Operating profit, as % of net sales *) | 23.3% | 20.7 % | 2.6 percentage points |
| Return on investment (ROI), % (rolling 12 months) *) | 21.5% | 15.6% | 5.9 percentage points |
| Liquid assets, thousands of euro | 5,330 | 2,914 | 2,416 |
| Earnings per share, euro | 0.38 | 0.29 | 0.09 |
| Net profit, thousands of euro *) | 2,585 | 1,985 | 599 |
*) The Talenom Group adopted the IFRS 16 Leases standard on 1 January 2019, due to which the review periods are not fully comparable. During the period 1-3/2019, the standard had a positive effect on operating profit (+EUR 22,000) and a negative effect on net profit (-EUR 21,000) and return on investment (-2.1 percentage points). The effects of adopting the standard on the Group’s financial information are described in detail under section Financial development of the Group.
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.
Guidance for 2019
After the review period, the company announced its expansion into Sweden with an acquisition. At the same time, the company adjusted its guidance for 2019.
New guidance for 2019 issued in connection with the acquisition on 4 April 2019:
The company’s net sales growth percentage is excepted to increase from 2018 (18.0% in 2018). Operating profit margin (17.5% in 2018) is expected to increase from 2018.
The previous guidance given in the financial statements on 4 February 2019 read as follows:
The company’s net sales is expected to grow at the same rate as in 2018 (18.0%). The operating profit margin (17.5%, 2018) is expected to still improve slightly compared to 2018.
Jussi Paaso, CEO
Talenom had a strong first quarter. We continued to be able to increase our level of profitability, and operating profit for the review period grew by 30%. Operating profit was as high as 23.3% of net sales (EUR 3.4 million). Net sales during the review period increased year-on-year from EUR 12.7 million to 14.8 million (16.1%). Over the full year, we expect the relative growth of net sales to accelerate toward the end of the year, and estimate the growth percentage of net sales to exceed 2018 levels (18.0% in 2018).
Profitable growth was driven by both an increase in the number of customers in accounting services and developments in the accounting production line. The change in the number of customers in accounting services, in turn, continued to be based on organic growth in which our sales, together with franchising entrepreneurs, succeeded in active customer acquisition. In terms of developing our bookkeeping production line, we are currently preparing to introduce the next major instance of automation while finalising the scalability benefits of the previous development phase. Introduction of the next development phase of the production line is expected to result in improved accounting efficiency from next autumn onwards.
After the review period, we finalised the first phase of our internationalisation project and acquired the Stockholm-based accounting firm Wakers Consulting AB. We are very pleased with the acquisition. In our estimation, our outstanding expertise in sales, processes and technology are strong competitive factors also in the Swedish accounting market. We will begin to prepare the launch of active sales work in Sweden. At the same time, we will continuously evaluate the potential utilisation of our bookkeeping production line components also in the Swedish market.
The acquisition affected our financial outlook for the current year, and we adjusted our guidance for 2019 in connection with the expansion. However, it should be noted that the full effects of the acquisition on Talenom’s net sales will not be evident until the second half of the year.
We currently identify many potential new business opportunities. In addition to internationalisation, new business operations, such as Talenom Financing Services, have produced excellent pilot study results. At the same time, we consider our domestic core business operations to have excellent potential. Improved efficiency of bookkeeping production line processes thanks to technological advances, over 90% recurring net sales, the defensive nature of the sector, and strong evidence of profitable growth will all continue to serve as the key factors for outstanding future prospects for the next few years.
Financial development
The Talenom Group adopted the IFRS 16 Leases standard on 1 January 2019. The standard affects the Group’s financial information in cases where leases of premises are recognised in the balance sheet mainly as assets and liabilities. The amount of the asset recognised in the balance sheet on 1 January 2019 and the corresponding interest-bearing debt was EUR 8.2 million.
The standard concerns the Group’s fixed-term lease agreements for business premises and those continuous leases for which the lease has continued for over 12 months. The lease periods of continuous leases are determined based on the estimate given by the Group management. In the interest of comparability, in its key figures and consolidated balance sheet for the review period, the company presents both the effects of the IFRS 16 standard and information adjusted to ignore the effects of the IFRS 16 standard.
Key figures
| Group | 1–3/2019 | Effect of IFRS 16 | Adjusted 1–3/2019 | 1–3/2018 | Adjusted change |
| Net sales, thousands of euro | 14,783 | 0 | 14,783 | 12,736 | 2,047 |
| Net sales, increase % | 16.1% | 0.0 percentage points | 16.1% | 18.1% | -2.0 percentage points |
| Operating profit (EBIT), thousands of euro | 3,442 | +22 | 3,420 | 2,639 | 781 |
| Operating profit (EBIT), as % of net sales | 23.3% | +0.2 percentage points | 23.1% | 20.7 % | 2.4 percentage points |
| Return on investment (ROI), % (rolling 12 months) | 21.5% | -2.1 percentage points | 23.6% | 15.6% | 8.0 percentage points |
| Interest-bearing net liabilities, thousands of euro | 26,629 | +7,839 | 18,791 | 20,531 | -1,740 |
| Net gearing ratio, % | 150% | +44 percentage points | 106% | 145% | -39 percentage points |
| Equity ratio, % | 29.7% | -4.5 percentage points | 34.2% | 30.5% | 3.7 percentage points |
| Working capital, thousands of euro | -3,912 | 0 | -3,912 | -2,908 | -1,004 |
| Net investments, thousands of euro | 10,536 | +8,201 | 2,335 | 3,266 | -931 |
| Liquid assets, thousands of euro | 5,330 | 0 | 5,330 | 2,914 | 2,416 |
| Earnings per share, euro | 0.38 | 0.00 | 0.38 | 0.29 | 0.09 |
| Weighted average number of shares during the period *) | 6,870,302 | 0 | 6,870,302 | 6,845,614 | 24,688 |
| Net profit, thousands of euro | 2,585 | -21 | 2,605 | 1,985 | 620 |
*) 5,100 shares held by the company were subtracted from the figure
Net sales, profitability and financial performance – january-march 2019
During the period from January to March, Talenom’s net sales increased by 16.1% year-on-year. Net sales grew by EUR 2.0 million and amounted to EUR 14.8 (12.7) million. The growth was mainly due to the increase in the number of accounting service customers.
The completion rate of annually billable tasks scheduled during the financial statements period of customer companies was slightly lower on the final date of the review period compared with the previous year. As a result, a part of the year-on-year net sales will be posted only for the second quarter. The amount of these accrued net sales is estimated at around EUR 180,000.
Personnel expenses during the review period were EUR 7.3 (6.9) million, amounting to 49.3% (54.4%) 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 2.2 (2.4) million, being 14.7% (18.7%) of net sales.
In the review period, operating profit (EBIT) was EUR 3,442 thousand (23.3% of net sales), with a net profit of EUR 2,585 thousand. Adoption of the IFRS 16 Leases standard had a positive effect on operating profit (+EUR 22,000) and a negative effect on net profit (-EUR 21,000). Operating profit (EBIT) adjusted to ignore the standard’s effects was EUR 3,420 (2,639) thousand (23.1% (20.7%) of net sales) and net profit EUR 2,605 (1,985) thousand.
The improved profitability was due to the increased efficiency of bookkeeping.
Balance sheet, financing and investments
Consolidated balance sheet
| Thousands of euro | 31 March 2019 | Effect of IFRS 16 | Adjusted 31 March 2019 | 31 March 2018 | 31 December 2018 |
| ASSETS | |||||
| Non-current assets | |||||
| Goodwill | 18,420 | 18,420 | 18,420 | 18,420 | |
| Other intangible assets | 10,944 | 10,944 | 9,379 | 10,493 | |
| Property, plant and equipment | 10,135 | +7,813 | 2,322 | 2,617 | 2,248 |
| Other non-current financial assets | 237 | 237 | 237 | 237 | |
| Deferred tax assets | 77 | +5 | 72 | 123 | 62 |
| Capitalised contract costs | 8,592 | 8,592 | 6,903 | 8,357 | |
| Total non-current assets | 48,405 | +7,818 | 40,587 | 37,679 | 39,817 |
| Current assets | |||||
| Trade and other receivables | 6,138 | 6,138 | 6,056 | 5,473 | |
| Current tax assets | 0 | 0 | 129 | 11 | |
| Cash and cash equivalents | 5,330 | 5,330 | 2,914 | 5,914 | |
| Total current assets | 11,468 | 0 | 11,468 | 9,099 | 11,398 |
| Total assets | 59,873 | +7,818 | 52,055 | 46,778 | 51,215 |
| CAPITAL AND RESERVES | |||||
| Share capital | 80 | 80 | 80 | 80 | |
| Reserve for invested unrestricted equity | 11,025 | 11,025 | 10,850 | 10,850 | |
| Fair value reserve | -81 | -81 | -113 | -93 | |
| Retained earnings | 6,698 | -21 | 6,719 | 3,377 | 7,850 |
| Total equity | 17,723 | -21 | 17,744 | 14,195 | 18,688 |
| LIABILITIES | |||||
| Non-current liabilities | |||||
| Financial liabilities | 23,500 | 23,500 | 21,250 | 23,500 | |
| Trade and other payables | 230 | 230 | 371 | 230 | |
| Other non-current financial liabilities | 6,499 | +6,399 | 101 | 141 | 116 |
| Deferred tax liabilities | 50 | 50 | 44 | 50 | |
| Total non-current liabilities | 30,280 | +6,399 | 23,881 | 21,806 | 23,896 |
| Current liabilities | |||||
| Financial liabilities | 0 | 0 | 1,250 | 0 | |
| Trade and other payables | 9,960 | 9,960 | 9,087 | 7,728 | |
| Other current financial liabilities | 1,440 | +1,440 | 0 | 0 | 0 |
| Current tax liabilities | 470 | 470 | 440 | 903 | |
| Total current liabilities | 11,871 | +1,440 | 10,431 | 10,777 | 8,631 |
| Total liabilities | 42,150 | +7,839 | 34,312 | 32,583 | 32,528 |
| Total equity and liabilities | 59,873 | +7,818 | 52,055 | 46,778 | 51,215 |
On 31 March 2019, the consolidated balance sheet total was EUR 59.9 million. The Group had an equity ratio of 29.7% and a net gearing ratio of 150%.
With the adoption of the IFRS 16 standard, the Group’s equity ratio has decreased by 4.5 percentage points, and its net gearing ratio increased by 44 percentage points. Equity ratio adjusted to ignore the effects of the IFRS 16 standard stood at 34 (30.5) % and net gearing ratio at 106 (145) %.
On 31 March 2019, the Group’s interest-bearing financial loans were EUR 23.5 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 the IFRS 16 Leases standard, 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 6.4 million and current lease liabilities at EUR 1.4 million.
The Group recognises the costs of new customer contracts, such as costs of obtaining and fulfilling a contract, as investments as specified in the IFRS 15 standard. 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 the IAS 38 standard. These costs are presented in the Balance Sheet under ”Other intangible assets”. Investments stemming from new customer contracts amounted to EUR 1.0 (0.8) million in the review period. Investments concerning software and digital services amounted to EUR 1.0 (1.1) million.
The company’s total net investments during the period from 1 January to 31 March 2019 were EUR 10.5 million. Adoption of the IFRS 16 Leases standard significantly affected the Group’s net investments (EUR +8.2 million). Net investments adjusted to ignore the effects of adopting the IFRS 16 standard were EUR 2.3 (3.3) million.
On 31 March 2019, liquid assets stood at EUR 5.3 (2.9) million. In addition, the company’s unused overdraft limits stood at EUR 1.0 million on 31 March 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:
Jussi Paaso
CEO, Talenom Plc
tel. +358 44 066 6622
jussi.paaso@talenom.fi
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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www.talenom.fi
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