Innofactor Plc's Interim Report for January 1–September 30, 2016 (IFRS)

Innofactor Plc Interim Report October 25, 2016, at 8:30 Finnish time

Innofactor acquired Lumagate – A significant step in Innofactor’s Nordic expansion

July–September 2016 in brief:

• The net sales were approximately EUR 11.8 million, which shows an increase of 26.6%.
• The operating margin was approximately EUR 0.9 million (7.3% of the net sales), which shows an increase of 13.8%.
• The operating profit was EUR 254 thousand (2015: 562), decreasing by 54.8% (the net sales were affected by increased write-offs related to acquisitions, in accordance with IFRS 3, resulting in a decrease of EUR 455 thousand (2015: 120) in the net sales).

January–September 2016 in brief:

• The net sales were approximately EUR 41.6 million, which shows an increase of 30.6%.
• The operating margin was approximately EUR 2.8 million (6.8% of the net sales), which shows an increase of 44.7%.
• The operating profit was approximately EUR 1.0 million (2015: approximately EUR 1.1 million), decreasing by 6.2% (the net sales were affected by increased write-offs related to acquisitions, in accordance with IFRS 3, resulting in a decrease of EUR 1,365 thousand (2015: 360) in the net sales).
• Innofactor’s operating cash flow in the review period remained strong and was approximately EUR 2.5 million.

Events after the review period in brief:

• Innofactor acquired the Lumagate group, which is one of the leading Nordic IT companies, which operates in the Microsoft ecosystem and focuses on offering cloud-based solutions. It has over 70 employees in Sweden, Norway and Denmark, and its estimated net sales for 2016 are EUR 11 million.
• Innofactor considers that, after the acquisition, it has reached the position of the number one Microsoft-based solution provider in the Nordic Countries, as defined in its strategy.
• Innofactor's vision from now on is to be the leading implementer of cloud solutions and digitalization in each of the Nordic Countries (Finland, Sweden, Denmark and Norway).

*) During the third quarter, an error in the assessment of projects was detected in the Group company concerning the period of January 1–June 30, 2015, for the year 2015 as well as previous financial periods. The assessment error was corrected for the above-mentioned periods in accordance with IAS 8: 41–42. The total effect of the error was a decrease of approximately EUR 552 thousand in the operating margin. Of this, approximately EUR 238 thousand was for the period of January 1–September 30, 2015, and the entire year 2015. Adjustments and their effects on the Group figures are described in more detail in the attachment to the interim report for January 1–September 30, 2015, which was published on October 20, 2015.

**) In accordance with IFRS 3, the operating profit for July 1–September 30, 2016, includes EUR 455 thousand (2015: 120) in depreciations related to acquisitions, concerning the allocations of the purchase price to intangible assets. Adjusted for the said depreciations, Innofactor’s operative business profit for the review period of July 1–September 30, 2016, would have been EUR 709 thousand (2015: 682), the operative business result before taxes EUR 612 thousand (2015: 605), the operative business result EUR 490 thousand (2015: 484), and the operative business result per share EUR 0.0149 (2015: 0.0150). The business result of the review period January 1–September 30, 2016, includes EUR 1,365 thousand (2015: 360) in depreciations related to acquisitions, concerning the allocations of the purchase price to intangible assets. Adjusted for the said depreciations, Innofactor’s operative business profit for the review period of January 1–September 30, 2016, would have been EUR 2,371 thousand (2015: 1,432), the operative business result before taxes EUR 2,089 thousand (2015: 900), the operative business result EUR 1,671 thousand (2015: 720), and the operative business result per share EUR 0.0508 (2015: 0.0223).

***) 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 2016 remains the same

Innofactor’s net sales and operating margin (EBITDA) in 2016 are estimated to increase significantly from 2015, during which the net sales were EUR 44.5 million and operating margin was EUR 3.7 million.

CEO Sami Ensio's review: The number one Microsoft-based solution provider in the Nordic Countries

In the third quarter of 2016, Innofactor continued profitable growth in accordance with its strategy. The net sales grew by 26.6 percent (net sales EUR 11.8 million). Innofactor has estimated that the Nordic IT market will grow slightly faster in 2016 than in the previous year, and this estimate remains the same. The market growth is believed to also increase Innofactor’s growth possibilities.

In the third quarter of 2016, the operating margin (EBITDA) was EUR 0.9 million (7.3 percent of the net sales) and grew by 13.8 percent from the previous year. In Innofactor’s history, the fourth quarter has typically been better in terms of operating margin than the beginning of the year.

In the first three quarters of 2016, Innofactor’s net sales grew by 30.6 percent (net sales approximately EUR 41.6 million). The operating margin (EBITDA) was approximately EUR 2.8 million, which shows an increase of 44.7 percent since last year. The cash flow from business activities in the first three quarters remained strong and was approximately EUR 2.5 million.

On October 9, 2016, Innofactor reached an agreement on acquiring the entire share capital of the Lumagate group from the company’s key persons. Lumagate is one of the leading Nordic IT companies, which operates in the Microsoft ecosystem and focuses on offering cloud-based solutions. The company has over 70 employees in three different countries: Sweden, Norway and Denmark. Its estimated net sales in 2016 are EUR 11 million. Due to the acquisition, Innofactor will expand into Norway and will strengthen its position significantly in Sweden and Denmark. Innofactor considers that, after the acquisition, it has reached the position of the number one Microsoft-based solution provider in the Nordic Countries, as defined in its strategy. Innofactor's vision from now on is to be the leading implementer of cloud solutions and digitalization in each of the Nordic Countries.

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 January–September 2016

Innofactor is a leading implementer 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 2017–2020, Innofactor will primarily strive to unify its offering in the Nordic Countries in its selected areas. This may happen 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 organic growth of approximately 20 percent in 2020 at the latest.
• To achieve approximately 20 percent operating margin (EBITDA) in relation to the net sales in 2020 at the latest
• To keep the cash flow positive and to secure solid financial standing in all situations

Innofactor's net sales on the review period of January 1–September 30, 2016, grew by 30.6% and a significant part of this was based on inorganic growth resulting from acquisitions.

Innofactor's operating margin (EBITDA) in relation to net sales was 6.8 percent in the review period of January 1–September 30, 2016. Typically, Innofactor’s profitability has improved towards the end of the year.

Innofactor’s operating cash flow in the review period of January 1–September 30, 2016, was EUR 2.5 million positive (2015: EUR 2.5 million). Innofactor’s financial stability is good. Net gearing at the end of the review period was 55.5 percent (2015: 38.3 percent). During the review period, Innofactor redeemed the EUR 3.2 million hybrid bond, which decreased the equity ratio and increased the net gearing. For the acquisition of Cinteros AB, the company took loans for approximately EUR 4.1 million during the review period, which increased the amount of interest bearing liabilities.

Previously, Innofactor's vision was to be the number one Microsoft-based solution provider in the Nordic Countries. To realize this vision, Innofactor has made several strategic business arrangements and acquired significant amounts of external financing for these. Due to the Lumagate acquisition signed on October 9, 2016, Innofactor will expand into Norway and will strengthen its position significantly in Sweden and Denmark. Innofactor considers that after this, it has reached the position of the number one Microsoft-based solution provider in the Nordic Countries, as was its vision. For this reason, the vision has been updated as described above.

Espoo, October 25, 2016

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–September 30, 2016

On October 25, 2016, at 9:00 Finnish time, Innofactor will hold a briefing concerning the interim report in Finnish for the media, investors and analysts at the company's premises at Keilaranta 9, Espoo. The report will be presented by the CFO Patrik Pehrsson. The presentations of the briefing will be available on Innofactor's web site after the briefing.

We ask you to register for the briefing beforehand by sending email to tanja.eskolin@innofactor.com.

If required, Innofactor will also hold a conference call in English for analysts, media and investors on October 25, 2016, at 16:00 Finnish time. Registrations to tanja.eskolin@innofactor.com before 12:00 Finnish time on Monday, October 24, 2016.

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