Innofactor as an Investment

CEO's Review

February 28, 2025

I want to thank all of the investors and partners who participated in Innofactor's journey as a listed company

This Financial Statements Bulletin is likely to be Innofactor's last earnings report as a listed company, at least for the time being. At the end of 2024, a consortium formed for the purposes of a voluntary recommended public cash tender offer achieved an ownership of over 90 percent of the company and commenced compulsory redemption proceedings for the remaining shares. It is estimated that the redemption proceedings will take a few months. Our period as a listed company lasted for over 14 great years, more than half of the total journey of Innofactor, which celebrated its 25th anniversary at the beginning of this year. Our years as a listed company included many successes but, naturally, also some challenges.

Between 2012 and 2016, we achieved strong growth in the Nordic countries in line with our strategy, as we used our listed share as a means of payment for acquisitions. In 2013, the financial publication Kauppalehti rated Innofactor as Finland's most successful listed company. The period from 2017 to 2020 was a more challenging time for the company, as we integrated the acquired entities and did not achieve much growth. We then resumed our growth in 2021 and 2022, but were subsequently affected by the challenges of the IT market in 2024.

Delisting the company is not an easy decision for me, personally. However, I am confident that, in the present moment, it is unquestionably the best move with regard to the company's success, customers, employees and investors. I want to take this opportunity to thank all of the investors and partners who have been part of our journey, and I wish you all success in the future.

Innofactor updated its strategy and organizational structure effective from the beginning of 2025. Going forward, our business will be divided into four main business areas: Platforms, Solutions, Code and Dynasty, which have been incorporated into separate companies. The members of the Group Executive Board are as follows:

Sami Ensio, Chief Executive Officer
Anni Wahlroos, Chief People Officer and Deputy CEO
Aki Rahunen, Chief Financial Officer (appointed on February 7, 2025, will take up his post on May 8, 2025 at the latest)
Martin Söderlind, Chief Strategy Implementation Officer
Jørn Ellefsen, Managing Director, Innofactor Platforms
Jyrki Vepsäläinen, Managing Director, Innofactor Solutions
Marko Lybeck, Managing Director, Innofactor Code
Vesa Niinistö, Managing Director, Innofactor Dynasty

In 2024, Innofactor's business was affected by a number of extraordinary factors, including measures and costs related to the public tender offer and unforeseen legal costs related to an individual acquisition, as well as the preparation of the Group's new strategy and the related changes in the organizational and corporate structure. Due to these factors and the challenging market situation in the IT industry, we were not able to achieve the targets we had set for our business for 2024. Net sales for the year 2024 totaled EUR 77.6 million, representing a year-on-year decrease of 3.3 percent. The operating margin (EBITDA) was EUR 6.3 million (8.2 percent of net sales).

Sami Ensio
Innofactor's founder, major owner, and CEO

Business Environment

Market outlook and business environment: We expect that the growth rate of the Nordic IT services market will be positive in 2025 but, due to the geopolitical situation and the general economic downturn, we are not able to provide a more accurate estimate.

The market outlook and business environment are published in their entirety in the financial statement and in the Annual Report.

The price competition that began in the market in 2023 remained intense and, in our assessment, the weighted average prices of new contracts stayed at a low level until the end of the year, particularly in the case of public sector customers, in spite of a slight increase during the year. We estimate that the IT services market in the Nordic countries did not grow in 2024. We expect the average prices of new contracts to continue to increase in 2025. We estimate that the Nordic IT services market will grow slightly in 2025, but because of the uncertain economic and security policy situation, we cannot give a more detailed estimate of the rate of growth. Our estimate is based on research institutes' forecasts and our own outlook on markets.

Generative AI has attracted a great deal of interest in the market. Generative AI presents our customers – and Innofactor – with significant opportunities for improving operational efficiency. Above all, it opens up significant new business opportunities, for which we offer solutions developed by Microsoft as well as our own solutions. However, AI projects in the first phase have, in many cases, remained at the stage of experimentation in organizations. We believe that, during 2025, our customer base will continue to develop AI projects, especially agent-based solutions for certain processes and functions that are significant for each organization. Innofactor sees a significant role for itself in this trend. In 2025, we will also continue to develop the AI capabilities of our own products, especially Dynasty.

Climate change mitigation and the geopolitical situation place new demands on both societies and organizations, creating new business opportunities and accelerating innovation. The abilities of a modern digital organization will be even more important for our customers in the future. It is also likely that some of our customers will transfer some of their operations back to the Nordic countries in order to be closer to their customers. This could have a favorable effect as regards the business model of Innofactor's chosen strategy based on Nordic specialists. Microsoft's position has also strengthened in recent years as a market leader in generative AI, among other things. We believe in our chances of increasing our market share in the Nordic countries.

Purpose, Mission, Vision and Strategy

Innofactor's strategy comprises our purpose, mission, vision, strategic choices, values, working principle, employer promise, and long-term financial goals.

Our purpose

Innovating to make the world work better

Our mission

Driving the modern digital organization

Our vision

The most-wanted Nordic IT and AI partner specializing in Microsoft

Our strategic choices

AI as a part of all activities
Customer orientation - a trusted sparring partner
Clear and distinctive offerings
Leveraging Nordic strengths

Our values

Accountability
Empowerment
Innovation
Customer

Our sustainability strategy

We innovate for good
We put people first
We are fair
We build trust

Employee value proposition

Be the real you

Our long-term financial goals

To achieve annual growth of about 20 percent, of which majority is intended to be achieved by organic growth
To achieve about 20 percent EBITDA in relation to the net sales
To keep the cash flow positive and secure solid financial standing in all situations

Strategy and its realization in the review period

Innofactor's net sales for the period July 1–December 31, 2024, amounted to EUR 36,525 thousand (2023: 39,945), representing a decrease of 8.6 percent.

Innofactor's net sales for the period January 1–December 31, 2024, amounted to EUR 77,576 thousand (2023: 80,263), representing a decrease of 3.3 percent.

Innofactor's 10 largest clients accounted for approximately 34.9 percent of net sales for the review period January 1–December 31, 2024.

Innofactor's operating margin (EBITDA) for July 1–December 31, 2024, was EUR 3,134 thousand (2023: 4,849), representing a decrease of 35.4 percent. EBITDA was 8.6 percent of net sales (2023: 12.1%).

Innofactor's operating margin (EBITDA) for January 1–December 31, 2024, was EUR 6,338 thousand (2023: 9,101), representing a decrease of 30.4 percent. EBITDA was 8.2 percent of net sales (2023: 11.3%).

Innofactor's balance sheet total at the end of the review period was EUR 50,703 thousand (2023: 54,451). The Group's liquid assets totaled EUR 1,502 thousand (2023: 425), consisting entirely of cash funds.

The operating cash flow for the review period January 1–December 31, 2024, was EUR 8,094 thousand (2023: 7,229). Cash flow from investing activities was EUR -386 thousand (2023: -533).

The equity ratio at the end of the review period was 46.8 percent (2023: 48.3%) and net gearing was 30.1 percent (2023: 36.1%).

Key Figures

	2023	2022	2021	2020	2019
Net sales, EUR thousand	80,263	71,130	66,364	66,164	64,198
Operating profit before depreciation and amortization (EBITDA), EUR thousand	9,101	7,808	10,111	7,164	5,089
percentage of net sales	11.3%	11.0%	15.2%	10.8%	7.9%
Operating profit (EBIT), EUR thousand	5,835	4,751	6,519	2,501	795
percentage of net sales	7.3%	6.7%	9.8%	3.8%	1.2%
Earnings before taxes, EUR thousand	5,174	4,178	5,730	2,050	12
percentage of net sales	6.4%	5.9%	8.6%	3.1%	0.0%
Earnings, EUR thousand	3,438	3,320	4,504	1,761	418
percentage of net sales	4.3%	4.7%	6.8%	2.7%	0.7%
Shareholders' equity, EUR thousand	25,483	24,799	25,404	23,444	22,145
Interest bearing liabilities, EUR thousand	6,325	14,349	9,818	15,386	16,853
Cash and cash equivalents, EUR thousand	425	1,956	1,963	3,066	963
Deferred tax assets, EUR thousand	2,415	4,090	4,830	6,413	5,602
Return on equity	13.7%	13.2%	18.4%	7.7%	1.9%
Return on investment	18.0%	14.5%	20.6%	11.1%	2.3%
Net Gearing	36.1%	50.0%	30.9%	52.5%	71.8%
Equity ratio	48.3%	44.8%	51.1 %	42.2%	40.2%
Balance sheet total, EUR thousand	54,451	55,815	51,057	56,607	55,720
Research and development, EUR thousand	5,108	4,153	3,504	3,618	2,795
percentage of net sales	6.4%	5.8%	5.3%	5.5%	4.4%
Personnel on average during the year	578	536	516	544	534
Personnel at the end of the year	581	564	500	541	538
Number of shares at the end of the year	36,343,691	37,388,225	37,388,225	37,388,225	37,388,225
Earnings per share (EUR)	0.09	0.09	0.12	0.05	0.01
Shareholders' equity per share (EUR)	0.70	0.68	0.68	0.63	0.59

Growth and Financial Targets

Innofactor's long term financial goals:

To achieve annual growth of about 20 percent, of which majority is intended to be achieved by organic growth
To achieve about 20 percent EBITDA in relation to the net sales
To keep the cash flow positive and securing solid financial standing in all situations

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

We will improve the efficiency of our operations and increase our invoicing rate by five percentage points. This will be achieved by, for example, improving the management of project and service contracts, enhancing the cross-resourcing of personnel between countries and units, reducing employee turnover and developing our self-directed team models.
We will increase the share of licenses and SaaS services to over 33 percent of net sales from the current level of approximately 31.5 percent. This will be achieved by, for example, developing our offering and by focusing our sales efforts on customers and solution areas with the highest growth potential and that present the best opportunities for scaling our existing offering in each of the Nordic countries.
We will increase the number of employees engaged in invoiced services. This will be achieved by, for example, increasing our recruitment of new university graduates, concentrating the recruitment of senior professionals to our Nordic recruitment team, increasing the competence of our employees through certifications, reducing employee turnover, improving the efficiency of subcontracting and investing in the development of our employer brand.
We will become an even more proactive player in the Nordic M&A field. This will be achieved by, for example, through the internal reorganization of operations, emphasizing the role of country directors in actively seeking new potential acquisition targets in their respective countries.

Personnel

Be The Real You

Innofactor is a workplace where you can Be The Real You, and people are at the heart of everything we do. In line with our mission, we continue to build Innofactor as a modern digital organization. We develop our operating models to support the daily work of our employees within our Nordic organization. Highly competent and motivated employees, good leadership practices, self-organization, effective teamwork and company-wide practices support Innofactor's long-term goals. Our principle is to put People First in everything we do. We want to create an inspiring work environment for our employees where they can enjoy a strong sense of community and team spirit, and also have fun while working.

Number of Personnel

The average number of active personnel during the period January 1–December 31, 2024, was 576 (2023: 578), representing a decrease of 0.3 percent. At the end of the review period, the number of active personnel was 571 (2023: 581), representing a decrease of 1.7 percent.

At the end of the review period, the average age of the personnel was 42.1 years (2023: 42.1). Women accounted for 26 percent (2023: 26%) of the personnel. Men accounted for 74 percent (2023: 74%) of the personnel.

Get to know our people!

Accountability & Empowerment

Our operating models are based on a self-organizing culture, which means that teams are empowered to plan their work. At the same time, we want to support a strong sense of community and team spirit, which is why we encourage teams and units to have common in-office days. At Innofactor, employees work at the office, at the customer's premises and remotely, depending on what is the most appropriate choice in each situation. Teams agree on their ways of working and rules concerning their working methods. We measure job satisfaction by a weekly pulse survey. Innofactor's biggest strength is our team spirit, for which we receive the highest survey scores each week. Having the best colleagues is a competitive advantage that we take great pride in.

Although a lot of work is done remotely, our offices play an important role in our work, team spirit and customer encounters. In 2023, we celebrated the opening of our new Kajaani office, expanded our office in Tampere and began the process of relocating the Turku office to larger and more functional premises. We also built a large gym at our head office in Espoo to encourage people in regular physical activity as a counterbalance to seated work.

In 2023, we recruited over 100 new professionals to work at Innofactor, including a number of returnees. Our recruitment activities were successful, and we managed to increase our number of personnel during the year.

We had a great year in 2023 and had many opportunities to get together and celebrate. We invited all of our Nordic employees to our Espoo Campus for our annual InSpirit event, which included a seminar and an evening party. It was the tenth InSpirit event, and we are very pleased to have built a strong tradition for the event. Social events are a big part of Innofactor's culture to create team spirit. Smiling at work is definitely allowed.

Be The Real You! At Innofactor, we encourage everyone to perform at a high level and create meaning through their work. Our agile and Nordic culture puts people first and enhances collaboration. Flexible working conditions, development opportunities and good leadership are cornerstones in our way of working. At Innofactor, people work together and support each other. We want work to be both meaningful and fun. This is underpinned by good leadership and common working practices, but especially by great colleagues, customers and definitely a fantastic team spirit.

Competence at the Core of Our Business

We invest in competence development, recognizing that people are our organization's most important asset. We adopted a performance indicator in 2022 to actively monitor the certifications of our specialists. We have managed to increase our certification rate from one year to the next. Innofactor's strategic goal is to have the most competent Nordic teams. Certificates are a key aspect of demonstrating our competence. Innofactor employees completed over 200 new certifications in 2023.

We organize diverse training through Innofactor Academy each year. Innofactor Academy brings together Innofactor's training activities at the local level as well as the Nordic level. We organized trainings related to Microsoft technology, basic induction trainings, as well as ITIL, PRINCE2, and Scrum trainings. In supervisory work, our focus in 2023 was on establishing our employer value proposition and our leadership cornerstones.

We want to focus on training new graduates and offering jobs to them. We organized our fifth Innofactor DigiStar Trainee Program, the purpose of which is to provide a diverse induction training period for new professionals, followed by learning on the job. We hired over 40 new graduates in the Nordic countries in 2023. Our DigiStar program is implemented at the Nordic level, and we have increased our intake each year.

Common Ways of Working Support Our Culture and Competitive Advantage

Our goal is to build an efficient organization that operates at the Nordic level. Common practices, processes and culture support Innofactor's strategic targets and co-operation between countries. We want to build a genuinely Nordic culture and operating practices. In 2023, we launched a new Nordic onboarding tool designed to support the consistency of induction training and ways of working. We also launched our Nordic employee value proposition, "Be The Real You", and worked on it both internally and externally. Shared values and operating models are the cornerstones of our strong Nordic organization.

We began the negotiations on a Innofactor collective agreement at the end of 2022 and the agreement was signed in February 2023. The aim of negotiating a company-specific collective agreement was to make it possible to agree on issues that are important to our personnel, and to have a more straightforward and easy-to-understand collective agreement that reflects us as a company and supports our values. Examples of the new benefits provided by the collective agreement include the opportunity to participate in voluntary exercises of the Finnish Defence Forces without any loss of pay, and improved equality with regard to paid parental leave.

Agile Leadership

right to good leadership. The continuous development of leadership is a high priority for us. We changed our employee satisfaction survey practices in 2023 by adopting a new pulse survey that provides us with weekly feedback. Timely and constructive feedback is essential for the development of leadership. Relative to our peers in the IT industry, leadership at Innofactor is at a good level. Examples of the key performance indicators in the area of leadership include giving feedback, setting clear targets, trust, respect, and the presence of supervisors.

In 2023, we worked on establishing leadership cornerstones at Innofactor. They help us strengthen leadership that is aligned with our values. Leadership at Innofactor is based on building trust, coaching, open communication, and enabling and supporting growth. Authenticity is at the heart of Innofactor's leadership culture. We lead by example and put our values into action. This means putting people first in everything we do. We value diversity and inclusion and see them as important factors in building a better work life.

#ModernDigitalOrganization #HybridWork #PeopleFirst #CreatingSmiles

Offering

We help our customers to succeed by modernizing and digitalizing their organizations. We put people first in everything we do. We want to create solutions that make people's everyday work and life run smoothly and bring a smile to their faces.

The pace of technological development is still accelerating, and thus new digital innovations are becoming available more frequently than before. New services continually create opportunities to make organizations' operations more productive and creative. However, many organizations are still in the early stages of taking advantage of the new opportunities. Digitalization and generative AI have brought about a transformation to which every organization needs to adapt. Innofactor's mission is to help our customers operate as modern digital organizations in this changing world, taking full advantage of the opportunities presented by AI, data, and the cloud. Using digital solutions and AI to make it easier for people and organizations to work wonders is the end goal of our operations. It is this passion to make the world work better that enables our talented cloud technology professionals to successfully collaborate with approximately 1,000 private and public sector customers across the Nordic region. To do this, we work on six offerings, which we consider the building blocks of a Modern Digital Organization.

While the technology and solutions we provide might sometimes seem complex, the objective is always the same: a more efficient, more effective organization with happier customers and more motivated employees, empowered by technology that makes daily work and life more meaningful. However, they allow us to create a more efficient and effective organization with satisfied customers and motivating work. Our solutions make work and life even more meaningful. The best way to measure the results of our work is how well we manage to bring a smile to the lips of the people who use our solutions. To ensure we carry on doing this, we never stop enhancing our own skills and expertise. As a result, we have achieved all seven Microsoft Solution Partner Designations and as many as five Microsoft Specializations. Read more about the awards.

Our Modern Delivery Model Ensures Effective Deployment and Adoption to Maximize the Lifetime Value of New Solutions

Our delivery model is based on years of experience in the successful design, adoption, and development of digital solutions and services. It consists of five stages, each of which delivers our customers quick, tangible value in each of the six areas of our offering. The value of our deliveries is based on not only helping our customers to specify their strategy and design and implement a specific solution but also supporting them through close collaboration in the deployment, use and continuous development of the solution.

Acquisitions

20 June, 2022
Innofactor signed a contract to acquire the entire share capital of the Finnish company Invenco Oy.
See Stock Exchange Release for more details.
To clarify the group structure, the merger of Innofactor Invenco Oy's subsidiary Innofactor Invenco Software Oy into Innofactor Invenco Oy was initiated in 2022. The merger process is intended to be completed in spring 2023.

31 December, 2020
During the first quarter of 2020, Innofactor increased its holding in Arc Technology Oy by 26.94 percent to a total of 45.13 percent. Starting from the Q2/2020 interim report, Arc Technology Oy was reported as a subsidiary, because Innofactor has had control over the company since April 2020. Innofactor's holding in the company increased to 100% on December 30, 2020. For 2020, Arc Technology Oy increased Innofactor's net sales by approximately EUR 0.8 million. Arc Technology Oy was renamed as Innofactor HRM Oy in early 2021. See the Press Release (in Finnish).

10 October, 2016
Innofactor signed a contract to acquire the entire share capital of the Lumagate group.
See Stock Exchange Release for more details.

22 December, 2015
Innofactor signed a contract to acquire the entire share capital of the Swedish company Cinteros AB.
See Stock Exchange Release for more details.

22 December, 2015
Finnish Arc Technology, which is focused on HR systems, bought Innofactor Plc's HRM (Human Resources Management) business.
See press release for more details.

31 December, 2013
Innofactor signed a contract to acquire the entire share capital of Enabling Group.
See Stock Exchange Release for more details.

30 September, 2013
Innofactor acquired Dynamic Team (company name Lainetar Oy, based in Tampere, Finland) and its business in order to strengthen its offering in the Microsoft Dynamics AX business area.
See press release for more details.

6 June, 2013
Innofactor signed a contract to acquire the entire share capital of atBusiness Ltd.
See Stock Exchange Release for more details.

30 November, 2012
Innofactor signed a contract to acquire the Microsoft project and project portfolio management solutions business from Tietotalo Infocenter Ltd.

25 June, 2012
Innofactor signed a contract to acquire the entire share capital of Bridgeconsulting A/S.
See Stock Exchange Release for more details.

3 December, 2010
Westend ICT Plc and Innofactor Ltd merged to become the Innofactor Plc Group.
See Stock Exchange Release for more details.

3 June, 2010
Visual Management Ltd became part of Innofactor Software Ltd.

12 October, 2009
Innofactor Software Ltd acquired Software Innovation Finland Ltd.

1 April, 2007
Innofactor purchased the Enfo Ltd business unit responsible for electronic business solutions.

15 December, 2004
Innofactor Software Ltd acquired TietoEnator Plc's parish-software business.

Sustainability

Innofactor considers sustainability as one of the cornerstones of its long-term success. Sustainability is not only a condition for the continuation of operations. It also represents a way of responding to stakeholder expectations. Technology companies play a significant role in the mitigation of – and adaptation to – climate change. The IT sector also makes it possible for other organizations to reduce their carbon footprint.

Innofactor's operations are guided by our Code of Conduct and environmental policy, in addition to which we comply with the leading international sustainability standards, such as the ILO Declaration on Fundamental Principles and Rights at Work, the UN Universal Declaration of Human Rights, the UN Sustainable Development Goals, and the principles of the ICC Business Charter for Sustainable Development.

Innofactor's internal operations are managed through predefined core processes and standards. The key processes related to sustainability include the company's processes relating to legal affairs, risk management and human resources, which govern many of the main aspects of corporate responsibility. The framework for Innofactor's operations is provided by the ISO 9001, ISO 27001, ISO 13485 and AQAP-2110 standards, which the company's various processes adhere to.

Innofactor is committed to supporting the achievement of the UN Sustainable Development Goals (SDGs) by 2030. Accordingly, we have mapped the main objectives from the perspective of our business operations.

In autumn 2021, Innofactor signed the Microsoft Partner Pledge to commit to the development of digital skills, diversity, ethical AI and environmental responsibility.

In 2022, Innofactor established a new sustainability task group that aims to develop Innofactor's sustainability at the strategic and tactical levels. The group consists of approximately 15 Innofactor employees based in the Nordic region. The group reports to the Chairman of Innofactor's Board of Directors, Anna Lindén.

Future Outlook

Innofactor’s future outlook for 2025

Innofactor's business is expected to continue as normal in 2025. Innofactor is in redemption proceedings concerning all shares in the company. The redemption proceedings are expected to be completed during the financial year, and the company will not issue more detailed financial guidance for the financial year 2025.