Innofactor Plc Half-Yearly Report July 24, 2018, at 9:00 Finnish time


In the second quarter, the net sales have returned almost to the same level as in the comparison period; corrective actions to improve profitability have been made and are expected to have a positive effect in the third quarter

January–June 2018 in brief:

  • The net sales were approximately EUR 33.5 million (2017: 34.4), which shows a decrease of 2.7%.
  • The operating margin was approximately EUR 0.4 million (2017: 1.5), which shows a decrease of 74.3%.
  • The operating loss was EUR 994 thousand (2017: operating profit 119), which shows a decrease of 935.3%.
  • The weaker than expected profitability was contributed to by the lower than expected net sales.
  • Innofactor got several significant orders in the first half of the year, for example, HAIPA for the Legal Register Centre, approximately EUR 2.0 million; Swedish adult educational association Folksuniversitet, approximately EUR 0.5 million; the Swedish Teachers’ Union Lärarförbundet, approximately EUR 5.2 million; and the trade union Kommunal, EUR 2,8 million at the minimum and EUR 5.2 million at the maximum.

April–June 2018 in brief:

  • The net sales were approximately EUR 17.0 million (2017: 17.1), which shows a decrease of 0.8%.
  • The operating margin was approximately EUR 36 thousand (2017: 567), which shows a decrease of 93.7%.
  • The weaker than expected profitability was contributed to by the lower than expected net sales.
  • The operating loss was EUR 630 thousand (2017: -103), which shows a decrease of 511.7%.

    Apr 1–Jun 30, 2018 Apr 1–Jun 30, 2017 Change   Jan 1–Jun 30, 2018 Jan 1–Jun 30, 2017 Change   Jan 1–Dec 31, 2017
Net sales, EUR thousand   17,010 17,149 -0.8%   33,480 34,401 -2.7%   65,666
Growth of net sales   -0.8% 12.6%     -2.7% 15.4%     10.1%
Operating profit before depreciation and amortization (EBITDA), EUR thousand*   36 567 -93.7%   376 1,465 -74.3%   1,308
percentage of net sales*   0.2% 3.3%     1.1% 4.3%     2.0%
Operating profit/loss (EBIT), EUR thousand*   -630 -103 -511.7%   -994 119 -935.3%   -1,461
percentage of net sales*   -3.7% -0.6%     -3.0% 0.3%     -2.2%
Earnings before taxes, EUR thousand*   -782 -231 -238.5%   -1,259 -150 -739.3%   -1,579
percentage of net sales*   -4.6% -1.3%     -3.8% -0.4%     -2.4%
Earnings, EUR thousand*   -768 -185 -315.1%   -1,467 -435 -237.2%   -2,007
percentage of net sales*   -4.5% -1.1%     -4.4% -1.3%     -3.1%
Net gearing   58.0% 49.4%     58.0% 49.4%     53.8%
Equity ratio   42.6% 43.3%     42.6% 43.3%     43.4%
Active personnel on average during the review period**   597 609 -2.0%   597 602 -0.8%   610
Earnings per share (EUR)   -0.0278 -0.0035 -699.6%   -0.0278 -0.0035 -699.6%   -0.0357


*) In accordance with IFRS 3, the operating result for April 1–June 30, 2018, includes EUR 507 thousand (2017: 507) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets. In accordance with IFRS 3, the operating result for January 1–June 30, 2018, includes EUR 1,015 thousand (2017: 1,015) 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: We estimate that a turn in the business took place during the second quarter, and this should manifest itself as improved profitability in the third quarter

The net sales in the first half of 2018 were EUR 33.5 million, which shows a decrease of 2.7 percent from the last year. The operating margin (EBITDA) was EUR 0.4 million (1.1 percent of the net sales), which shows a decrease of 74.3 percent from the last year. The result was significantly lower than the goals we had set.

Especially in the second quarter, we made plenty of corrective actions, and we estimate that they will significantly improve our profitability in the second half of the year. For example, at the end of the review period, Innofactor had 29 employees (4.7%) less than a year before, which is estimated to have a significant positive effect in the profitability of the third quarter. In Innofactor’s history, the end of the year has typically been better in terms of operating margin than the beginning of the year also in other respects. However, raising the profitability to the target level still requires special attention.

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. We implemented the common ERP system in Sweden at the beginning of July 2018. Now the system is in use in all countries. During second quarter remaining Lumagate companies in Sweden and Norway have been rebranded under Innofactor brand and all Group brands have been now unified.

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 approximately 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–June 30, 2018, Innofactor's net sales decreased by 2.7 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 1.1 percent in the review period of January 1–June 30, 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 being 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–June 30, 2018, was EUR 0.5 million positive (2017: EUR 3.9 million). Net gearing at the end of the review period was 58 percent (2017: 49.4%). Innofactor's financial stability estimated on the basis of net gearing is good.


Espoo, July 24, 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 Half-Yearly Report January 1–June 30, 2018

A briefing in Finnish concerning the half-yearly report will be held for media, investors and analysts on July 24, 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:
NASDAQ Helsinki
Main media
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 approximately 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

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