20.07.2023 09:00 CEST/EET (UTC +2)
Innofactor Plc Half-Yearly Report July 20, 2023, at 9:00 Finnish time
In spite of the challenging market situation, Innofactor achieved 18.6% net sales growth and a 28.1% improvement in the operating margin in the second quarter of 2023
April–June 2023 in brief:
- Net sales were approximately EUR 20.1 million (2022: 16.9), representing an increase of 18.6%
- Organic growth, excluding the Invenco business acquired in June 2022, was 11.1%
- The operating margin was approximately EUR 1.8 million (2022: 1.4), which shows an increase of 28.1%
- Operating profit was EUR 1.0 million (2022: 0.7), which shows an increase of 47.4%
- The order backlog at the end of the review period was EUR 77.3 million (2022: 77.2), representing an increase of 0.1%
January–June 2023 in brief:
- Net sales were approximately EUR 40.3 million (2022: 33.9), representing an increase of 18.9%
- Organic growth, excluding the Invenco business acquired in June 2022, was 11.0%
- The operating margin was approximately EUR 4.3 million (2022: 3.4), which shows an increase of 24.4%
- Operating profit was EUR 2.7 million (2022: 2.0), which shows an increase of 35.7%
Key figures of the group, IFRS
| . | Apr 1–Jun 30, 2023 | Apr 1–Jun 30, 2022 | Change | Jan 1–Jun 30, 2023 | Jan 1–Jun 30, 2022 | Change | |
| Net sales, EUR thousand | 20,095 | 16,946 | 18.6% | 40,317 | 33,911 | 18.9% | |
| Growth of net sales | 18.6% | -2.0% | 18.9% | -3.4% | |||
| Operating result before depreciation and amortization (EBITDA), EUR thousand | 1,765 | 1,377 | 28.1% | 4,252 | 3,419 | 24.4% | |
| percentage of net sales | 8.8% | 8.1% | 10.5% | 10.1% | |||
| Operating profit/loss (EBIT), EUR thousand | 984 | 668 | 47.4% | 2,695 | 1,987 | 35.7% | |
| percentage of net sales | 4.9% | 3.9% | 6.7% | 5.9% | |||
| Earnings before taxes, EUR thousand | 813 | 639 | 27.3% | 2,124 | 1,741 | 22.0% | |
| percentage of net sales | 4.0% | 3.8% | 5.3% | 5.1% | |||
| Earnings, EUR thousand | 459 | 547 | -16.1% | 1,496 | 1,393 | 7.3% | |
| percentage of net sales | 2.3% | 3.2% | 3.7% | 4.1% | |||
| Order backlog | 77,250 | 77,193 | 0.1% | 77,250 | 77,193 | 0.1% | |
| Net gearing | 46.6% | 53.3% | 46.6% | 53.3% | |||
| Net gearing without IFRS 16 | 30.5% | 35.6% | 30.5% | 35.6% | |||
| Equity ratio | 46.6% | 41.1% | 46.6% | 41.1% | 13.3% | ||
| Equity ratio without IFRS 16 | 50.4% | 44.4% | 50.4% | 44.4% | |||
| Active personnel on average during the review period* | 584 | 527 | 10.8% | 576 | 513 | 12.3% | |
| Active personnel at the end of the review period* | 588 | 557 | 5.6% | 588 | 557 | 5.6% | |
| Earnings per share (EUR) | 0.0126 | 0.0150 | -16.1% | 0.0409 | 0.0381 | 7.3% |
*) Innofactor Group monitors the number of active personnel. The number of active personnel does not include employees who are on leave for more than three months.
Innofactor’s future outlook for 2023
Innofactor’s net sales and operating margin (EBITDA) in 2023 are estimated to increase from 2022, during which net sales were EUR 71.1 million and operating margin was EUR 7.8 million.
CEO Sami Ensio’s review: We aim to take advantage of the business opportunities presented by generative artificial intelligence and expect the market situation to normalize during the fall
Net sales in the second quarter of 2023 amounted to EUR 20.1 million, representing year-on-year growth of 18.6 percent. Net sales denominated in the local currency increased in Finland, Sweden and Norway, but declined in Denmark. The exchange rates of the Swedish krona and the Norwegian krone relative to the euro were at historically low levels during the review period. The operating margin (EBITDA) increased by 28.1 percent year-on-year to EUR 1.8 million (8.8 percent of net sales), and was positive in Finland.
Net sales in the first half of 2023 amounted to EUR 40.3 million, representing year-on-year growth of 18.9 percent. In the first half of the year, net sales denominated in the local currency increased in Finland, Sweden and Norway, but declined in Denmark. The operating margin (EBITDA) increased by 24.4 percent year-on-year to EUR 4.3 million (10.5 percent of net sales), and was positive in Finland and Denmark. The order backlog at the end of the review period was EUR 77.3 million, representing year-on-year growth of 0.1 percent.
The second quarter of 2023 was a challenging period for the consulting business, as it included Easter and a number of other weekday holidays, around which employees frequently took days of flexi leave, for example. A significant number of new employees joined Innofactor during the quarter. Most of them were recently graduated junior professionals, or “DigiStars”, and the time spent on their induction, training and onboarding in the early stages of the employment relationship meant less time spent on work with customers. Recruiting young and cost-effective DigiStars is very important for our ability to achieve our long-term growth and profitability targets. Due to the aforementioned reasons, our invoicing rates in April–May were below the target level. In June, however, we achieved the highest single-month invoicing rate we have had since going public, corresponding roughly to our target of a five percentage point improvement to the invoicing rate. Our employees deserve a great deal of credit for this. Our aim is to maintain this level after the summer.
During the second quarter, price competition in the market was exceptionally intense. The weighted average prices of new contracts declined, particularly in the case of public sector customers and large tenders, by as much as over 20 percent according to our analysis. Carrying out loss-making business activities is not part of Innofactor’s strategy, and we have refrained from offering our services at prices below our costs. Consequently, we unfortunately did not win any large tenders at the significantly reduced price levels in the second quarter. Nevertheless, our strong existing order backlog, framework agreements, other purchases by existing customers, and smaller new contracts enable Innofactor to operate profitably in the short term.
Generative artificial intelligence (ChatGPT, Microsoft Azure Open AI and Microsoft Copilot) has received significant attention in the market, and this has happened exceptionally quickly. Generative AI presents our customers – and Innofactor – with significant opportunities for improving operational efficiency. Above all, it opens up significant new business opportunities, and we have quickly developed new offerings in response to these opportunities. We have shifted our sales focus more to the private sector, where more commercially sustainable price levels can be found. During the second half of the year, we will focus on improving efficiency in all of our operating countries, and we have drawn up a separate action plan for this.
We expect the average prices of new contracts in the public sector and large tenders to return to a commercially sensible level in the fourth quarter of 2023 at the latest, and for Innofactor to again become a competitive provider in these projects in the fall.
Due to the market situation, many of Innofactor’s competitors have scaled down their recruitment and, in some cases, even reduced the number of personnel. This resulted in a significant improvement in the availability of personnel in the second quarter of 2023, particularly with regard to more experienced professionals, and employee turnover declined. Innofactor expects this situation to continue at least until the end of 2023. Generative AI will also increase the efficiency of Innofactor’s operations in areas such as product development and sales, which reduces the need for additional recruitment to some extent. We aim to increase our market share and take advantage of the improved recruitment situation by engaging in moderate recruitment of chargeable personnel during the second half of the year.
Innofactor’s aim is to be the leading provider of organizations’ digital transformation 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’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: Leading Nordic digital transformation partner in the Microsoft ecosystem
Our strategic choices:
- The most competent Nordic teams
- Productized and specialized offering
- Proactive and agile way of working
- Innovation with top customers
Our values:
- Accountability
- Empowerment
- Innovation
- Customer
Our working principle: Our principle is to put people first in everything we do. We want to provide solutions that make our customers’ everyday work and life run smoothly and bring a smile to their faces.
Employer promise: Be the real you
Our long-term financial goals:
- To achieve annual growth of about 20 percent, the majority of which 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 good financial standing in all situations.
Innofactor’s net sales in the first half of the year amounted to EUR 40.3 million (2022: 33.9), representing year-on-year growth of 18.9 percent. The rate of organic growth was 11.0%. The net sales growth target is supported by Innofactor’s large order backlog of EUR 77.3 million (2022: 77.2). In June, we achieved the highest single-month invoicing rate we have had since going public, corresponding approximately to our target of a five percentage point improvement to the invoicing rate. Our aim is to keep the invoicing rate at roughly the level we have now achieved, which will increase net sales growth in the coming quarters. The improved recruitment market also enables the moderate growth of chargeable personnel within the limits set by the customer market situation.
The operating margin (EBITDA) was 10.5 percent of net sales (2022: 10.1%). EBITDA for the review period increased by 24.4 percent year-on-year. While profitability has improved, continued attention and efforts by the management are still needed in the coming years to reach the long-term target of approximately 20 percent.
Innofactor’s operating cash flow for the review period January 1–June 30, 2023, amounted to EUR 3.9 million (2022: EUR 3.6 million) and the equity ratio at the end of the review period was 46.6 percent (2022: 41.1 percent). Innofactor’s strong operating cash flow supports the company’s strategic goal of profitable growth and securing a solid financial standing in all situations.
The key actions to be taken to achieve growth of approximately 20 percent and EBITDA of approximately 20 percent:
- 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 27 percent. This will be achieved by, for example, developing our offering, such as the new MDRaaS service (CSOC) 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, doubling our recruitment of new university graduates to over 60 employees in 2023, 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 image.
- 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.
Espoo, July 20, 2023
INNOFACTOR PLC
Board of Directors
Additional information:
CEO Sami Ensio, Innofactor Plc
tel. +358 50 584 2029
sami.ensio@innofactor.com
Briefings concerning the Half-Yearly Report for January 1–June 30, 2023
Innofactor will publish the Half-Yearly Report for January–June 2023 on Thursday, July 20, 2023, at approximately 9:00 am Finnish time.
A video conference call for media, investors and analysts will be held in English on the same day beginning at 12:00 Finnish time. The report will be presented by CFO Markku Puolanne.
To participate in the conference, kindly register in advance by sending an e-mail to ir@innofactor.com. The participation link will be sent via e-mail to the registered participants the day before the conference.
The presentation materials will be available on Innofactor’s website after the briefing.
Distribution:
NASDAQ Helsinki
Main media
www.innofactor.fi
Innofactor
Innofactor is the leading driver of the modern digital organization in the Nordic Countries for its over 1,000 customers in commercial and public sector. Innofactor has the widest solution offering and leading know-how in the Microsoft ecosystem in the Nordics. Innofactor has about 600 enthusiastic and motivated top specialists in Finland, Sweden, Denmark and Norway. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ Helsinki Oy. www.innofactor.com #ModernDigitalOrganization #HybridWork #PeopleFirst #CreatingSmiles
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