Innofactor Plc's Interim Report for January 1–March 31, 2018 (IFRS)

08.05.2018 09:00 EEST (UTC +3)

Innofactor Plc's Interim Report May 8, 2018, at 9:00 Finnish time

A challenging first quarter despite several significant orders

January–March 2018 in brief:

• The net sales were approximately EUR 16.5 million (2017: 17.3), which shows a decrease of 4.5%.
• The operating margin was approximately EUR 0.3 million (2017: 0.9), which shows a decrease of 62.1%.
• The operating loss was EUR 364 thousand (2017: operating profit 222), which shows a decrease of 264.0%.
• The weaker than expected profitability was contributed to by the lower than expected net sales.
• Innofactor got several significant orders on the first quarter, for example, HAIPA for the Legal Register Centre, approximately EUR 2.0 million; Swedish adult educational association Folksuniversitet, approximately EUR 0.5 million; and the Swedish Teachers' Union Lärarförbundet, approximately EUR 0.5 million.

		Jan 1–Mar 31, 2018*	Jan 1–Mar 31, 2017*	Change		Jan 1–Dec 31, 2017*
Net sales, EUR thousand		16,470	17,252	-4.5%		65,666
Growth of net sales		-4.5%	18.2%			10.1%
Operating profit before depreciation and amortization (EBITDA), EUR thousand		340	898	-62.1%		1,308
percentage of net sales		2.1%	5.2%			2.0%
Operating profit/loss (EBIT), EUR thousand*		-364	222	-264.0%		-1,461
percentage of net sales*		-2.2%	1.3%			-2.2%
Earnings before taxes, EUR thousand*		-477	81	-688.9%		-1,579
percentage of net sales*		-2.9%	0.5%			-2.4%
Earnings, EUR thousand*		-699	-134	-421.6%		-2,007
percentage of net sales*		-4.2%	-0.8%			-3,1%
Net gearing		53.2%	53.3%			53.8%
Equity ratio		44.0%	43.0%			43.4%
Active personnel on average during the review period**		605	596	1.5%		610
Earnings per share (EUR)		-0.0106	0.0020	-631.9%		-0.0357

 

*) In accordance with IFRS 3, the operating result for January 1–March 31, 2018, includes EUR 507 thousand (2017: 507) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets.

**) The Innofactor Group monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months.

Innofactor's future outlook for 2018

Innofactor's net sales and operating margin (EBITDA) in 2018 is estimated to increase from 2017, during which the net sales were EUR 65.7* million and operating margin was EUR 1.3* million. Innofactor monitors the result development actively.

*) The net sales and operating margin for 2017 have been adjusted in accordance with the IFRS 15 standard. A separate release on this was published on May 7, 2018.

CEO Sami Ensio's review: The year started with challenges, but a turn is expected within the second quarter

The net sales decreased by 4.5 percent in the first quarter of 2018 (net sales EUR 16.5 million). The operating margin (EBITDA) was EUR 0.3 million (2.1 percent of the net sales) and decreased by 62.1 percent from the previous year. The weaker than expected profitability was primarily contributed to by the lower than expected net sales. In Innofactor's history, the end of the year has typically been better in terms of operating margin than the beginning of the year, but special attention still needs to be paid to improving the profitability and raising it to the goal level.

We have made remarkable progress in implementing Nordic operating models and systems, and this has had a positive effect in controlling the company's operation. Our goal is to start using the common ERP system in Sweden at the beginning of July 2018, after which the system will be in use in all countries. We believe that a positive turn in Innofactor's profitability will take place during the second half of 2018.

A new deal significant for our business, valued at approximately EUR 2.0 million, was published on March 16, 2018, as the Legal Register Centre selected us in a public procurement competition to deliver a service package that includes an ERP and case management information system in which data will be handled in an electronic format throughout the entire administrative court process. The background for this is the government HAIPA project, which aims at renewing the work methods of the administrative courts and enabling electronic collaboration with other authorities, private law organizations, and citizens. The system delivery is planned to be implemented during 2018 and 2019. The system to be delivered by Innofactor will be base on the latest version of the Innofactor's Dynasty product into which we have made significant product development investments in 2016 and 2017. We consider the product to have significant business potential.

Innofactor's vision is to be the leading implementer of cloud solutions and digitalization in each of the Nordic Countries. We believe in our chosen Nordic strategy and in reaching our long term goals. This requires perseverance and determination from the company's management and employees as well as investors. Innofactor is still actively looking for new strategic partnerships in the Nordic Countries. The Group's goal is to grow both organically and through acquisitions.

Strategy and its realization in the review period

Innofactor is the one of the leading implementers of cloud solutions and digitalization in the Nordic Countries. Innofactor has the widest solution offering and leading know-how in the Microsoft ecosystem in the Nordic Countries. Innofactor has over 600 enthusiastic and motivated top specialists in Finland, Sweden, Denmark and Norway. Innofactor's customers include over 1,500 companies and public administration and third sector organizations. During the years 2018–2020, Innofactor will primarily strive to unify its operating model and offering in the Nordic Countries in its selected areas. Unifying the offering may take place either through organic growth or selected acquisitions.

Innofactor's mission: We empower organizations and people to make a difference in the digital world.

Innofactor's vision: We are the leading implementer of cloud solutions and digitalization in each of the Nordic Countries (Finland, Sweden, Denmark and Norway).

Innofactor's strategy for achieving this vision includes:

• The best Nordic professionals in the Microsoft ecosystem
• The leading offering in cloud solutions and digitalization
• A proactive, value-adding and flexible delivery model
• Spearhead customers in selected fields in the Nordic Countries

Innofactor's long term financial goal is to grow profitably:

• To achieve annual growth of approximately 20 percent, most of which should be organic
• To achieve approximately 20 percent operating margin (EBITDA) in relation to the net sales
• To keep the cash flow positive and to secure solid financial standing in all situations

In the review period of January 1–March 31, 2018, Innofactor's net sales decreased by 4.5 percent. The company did not reach the goal it had set for organic growth.

Innofactor's operating margin (EBITDA) in relation to net sales was 2.1 percent in the review period of January 1–March 31, 2018. This is low and very far away from the set target level of 20 percent.

The main actions for reaching the approximately 20 percent growth and 20 percent operating margin:

• In the Nordic Countries, we will focus on those fields and customer segments, which have great growth potential, such as social services and health services.
• We will improve sales of our products and services to existing customers in order to get a greater share of the budget the customers are using for digitalization.
• We will invest in using modern digital marketing methods to improve our sales.
• We will concentrate on management of know-how, recruiting, and resource optimization in the Nordic level.
• We will move the focus in our offering and net sales more and more to products and productized services.
• We will continuously improve our specialists' skills, so customers will be willing to pay a higher than the average price on the field for them and our leading offering.
• We will develop our flexible delivery model, which enables fast added value, in such a way that the amount of unnecessary work is minimized and our billing rate and customer satisfaction improve.
• We will invest in operative efficiency by developing the Financial Quarterly Accountability (FQA), internal information systems and predictability.

Innofactor's operating cash flow in the review period of January 1–March 31, 2018, was EUR 0.6 million positive (2017: EUR 2.3 million). Innofactor's financial stability is good. Net gearing at the end of the review period was 53.2 percent (2017: 53.3%).

 

Espoo, May 8, 2018

INNOFACTOR PLC

Board of Directors

Additional information:
CEO Sami Ensio, Innofactor Plc
Tel. +358 50 584 2029
sami.ensio@innofactor.com

Briefings concerning the Interim Report January 1–March 31, 2018

A briefing in Finnish concerning the interim report will be held for media, investors and analysts on May 8, 2018, at 10:00 Finnish time, at the company's premises at Keilaranta 9, Espoo. The report will be presented by CEO Sami Ensio and CFO Marko Lehtonen. The corresponding conference call in English will be held at 12:00 Finnish time, and the presenter will be CFO Marko Lehtonen.

Please register for the briefings beforehand by sending email to ir@innofactor.com.

The presentations will be available on Innofactor's web site after the briefing.


Distribution:
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www.innofactor.com

Innofactor
Innofactor is a leading Nordic provider of digitalization and cloud solutions. Innofactor has Microsoft Ecosystem's leading expertise and the most comprehensive offering in the Nordics. Innofactor has over 600 eager and motivated top professionals in Finland, Sweden, Denmark and Norway. Innofactor serves over 1,500 commercial, public, and third sector organizations. In 2013 to 2017, the annual growth of Innofactor's net sales has been approximately over 20%. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ Helsinki Ltd. www.innofactor.com

Attachment: Innofactor Plc's Interim Report for January 1–March 31, 2018 (IFRS).pdf