Innofactor Plc's Interim Report for January 1–March 31, 2021 (IFRS)

Innofactor Plc Interim Report April 27, 2021, at 9:00 Finnish time

Innofactor sold the Prime business and reached the best first quarter net sales, operating margin and order backlog in its history – also without the additional operating margin of EUR 2.6 million brought by the transaction

January–March 2021 in brief:

• Innofactor sold its resource management software solution business, Innofactor Prime, in Finland to Total Specific Solutions at the end of March
• The net sales were approximately EUR 17.8 million (2020: 17.2), which shows an increase of 3.8%
• The operating margin was approximately EUR 4.7 million (2020: 2.0), which shows an increase of 138%
  • The operating margin includes a sales gain of approximately EUR 2.6 million from the sale of the Prime business, without which the operating margin would have been approximately EUR 2.1 million (2020: 2.0), which shows an increase of 7.3%
• The operating profit was EUR 3.8 million (2020: 0.8), which shows an increase of 366.8%
  • The operating profit includes a corresponding sales gain as the operating margin, without which the operating profit would have been approximately EUR 1.3 million (2020: 0.8), which shows an increase of 53%
• The order backlog at the end of the review period was EUR 68.9 million (2020: 54.1), which shows an increase of 27.4%
  • The order backlog does not include the order backlog of the divested Prime business
• Innofactor got several significant orders in the first quarter, for example,
  • Finnish Tax Administration’s Azure programming, approximately EUR 15–25 million
  • Finnish Institute of Occupational Health’s enterprise resource planning system, approximately EUR 1.6 million (not yet in the order backlog)
  • Metsähallitus’ case management system, approximately EUR 0.7 million (not yet in the order backlog)
  • Cloud solution for a Norwegian financial services company, approximately EUR 0.5 million
    
    

Key figures of the group, IFRS
.		Jan 1–March 31, 2021	Jan 1–March 31, 2020	Change
Net sales, EUR thousand		17,807	17,152	3.8%
Growth of net sales		3.8%	6.2%
Operating result before depreciation and amortization (EBITDA), EUR thousand*		4,657	1,957	138.0%
percentage of net sales*		26.2%	11.4%
Operating profit/loss (EBIT), EUR thousand**		3,809	816	366.8%
percentage of net sales**		21.4%	4.8%
Earnings before taxes, EUR thousand***		3,357	-123	2,819.3%
percentage of net sales***		18.9%	-0.7%
Earnings, EUR thousand***		2,637	204	1,194.2%
percentage of net sales***		14.8%	1.2%
Order backlog		68,901	54,091	27.4%
Net gearing*		56.9%	60.6%
Net gearing without IFRS 16		43.6%	37.3%
Equity ratio		46.6%	43.5%
Equity ratio without IFRS 16		44.0%	48.5%
Active personnel on average during the review period****		537	541	-0.7%
Active personnel at the end of the review period****		536	542	-1.1%
Earnings per share (EUR)		0.0705	0.0054	1,194.2%

*) The handling of lease liabilities in accordance with IFRS 16 had a positive effect of EUR 479 (2020: 504) thousand in the operating margin (EBITDA) in January 1–March 31, 2020.

**) In accordance with IFRS 3, the operating result for January 1–March 31, 2020, includes EUR 139 thousand (2020: 473) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets.

***) Exchange rate changes related to the Group's internal debts (due to the changed rate of the Swedish krona and Norwegian krone in relation to euro) results in a exchange rate loss of EUR -282 (2020: -859) thousand in accordance with IFRS, but this loss does not affect the cash flow, only the result for the financial period, the Group's balance sheet and the equity ratio.

****) 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 2021

Innofactor’s net sales and operating margin (EBITDA) in 2021 are estimated to increase from 2020, during which the net sales were EUR 66.2 million and operating margin was EUR 7.2 million.

CEO Sami Ensio's review: Despite the Prime divestment, we believe that we will achieve growth in 2021, supported by strong growth of the order backlog early in the year

The net sales in the first quarter of 2021 were EUR 17.8 million, which shows an increase of 3.8 percent compared to the previous year. During the first quarter, Finland accounted for all of the growth, but starting from the second quarter, we expect to also achieve growth outside Finland, where COVID-19 had a negative impact on net sales in 2020. The operating margin (EBITDA) grew 138.0 percent from the previous year and was EUR 4.7 million (26.2 percent of the net sales), and it was positive in all countries except for Sweden, where the first quarter was subject to costs associated with the reorganization of business operations. The operating margin includes a sales gain of approximately EUR 2.6 million from the sale of the Prime business, without which the operating margin would have been approximately EUR 2.1 million (11.8 percent of net sales and growth of 7.3 percent from the previous year). In the first quarter, the order backlog grew to a record-breaking amount and was EUR 68.9 million at the end of the quarter, which shows an increase of 27.4 percent compared to the corresponding time in the previous year.

Innofactor sold its resource management software solution business, Innofactor Prime, in Finland to Total Specific Solutions (TSS). The business operations were transferred as of April 1, 2021. Prime is a flexible and versatile software solution for parishes and public sector organizations. It allows the optimization and efficient management of organizations’ resources and offers a comprehensive suite of diverse off-the-shelf and customized modules, such as invoicing, calendar management, graveyard management, enterprise resource planning system and electronic services. The transaction had a positive net impact of EUR 2.6 million on Innofactor’s operating margin (EBITDA) for the first quarter and an estimated negative impact of EUR 2 million on the net sales for 2021 (Q2–Q4), but net sales on the whole are expected to continue to grow. Innofactor will continue to provide managed services relating to the Prime business to TTS.

We saw remarkable success in our sales during the first quarter. The Finnish Tax Administration selected Innofactor as the primary provider of IT specialist services in the area of Azure programming. The procurement consists of the project manager and ICT specialist resources to support the project management, defining, programming, management and service design of the Tax Administration’s systems, and other technical know-how to support the Tax Administration’s ICT. Based of the volume stated by the customer in connection with the procurement, the total value of the area is approximately EUR 15–25 million. The duration of the framework agreement is 6 years, and assignments started during the framework agreement period may continue 4 years after the expiration of the framework agreement. This is the biggest individual deal in Innofactor’s history. In addition, we secured deliveries of the Finnish Institute of Occupational Health’s enterprise resource planning system, approximately EUR 1.6 million, Metsähallitus’ case management system, approximately EUR 0.7 million, and a Norwegian financial services company’s cloud solution, approximately EUR 0.5 million.

Innofactor appointed Martin Söderlind to the new Chief Innovation and Talent Officer role as of April 1, 2021. Martin is responsible for Innofactor’s operations regarding offering and talent development. Söderlind is a member of the Executive Board, reporting to the CEO, Sami Ensio, and working at Innofactor’s Stockholm office. Martin Söderlind has more than 20 years of experience in leadership positions in the ICT industry and development of international business. Söderlind joins Innofactor from Nordcloud, where he was focusing on growing the businesses in Sweden, Denmark and Norway as COO Scandinavia. Before this, Söderlind held a number of leadership and business development positions within Telia Company. I would like to bid Martin a warm welcome. He will play a key role in the long-term success of Innofactor.

The COVID-19 pandemic is not expected to cause significant harm to Innofactor’s business in 2021. In the long term, we believe that the digital step the society is taking due to the COVID-19 pandemic will increase Innofactor's possibilities to grow its business operations. The abilities of a modern digital organization will be even more important for our customers in the future. It is also possible 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 would have a favorable effect as regards the business model of Innofactor's chosen strategy based on Nordic specialists. We also believe that Microsoft's position has strengthened during the COVID-19 pandemic. We believe in our chances of increasing our market share.

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, 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 create solutions that make people's everyday work and life run smoothly and bring a smile to their faces.

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 good financial standing in all situations.
  
  

Innofactor’s net sales in the first quarter were EUR 17.8 million (2020: 17.2), which shows an increase of 3.8 percent compared to the previous year. During the first quarter, Finland accounted for all of the growth, but starting from the second quarter, we expect to also achieve growth outside Finland, where COVID-19 had a negative impact on net sales in 2020. The strategic goal of getting the net sales to grow is also supported by the record-breaking order backlog of EUR 68.9 million (2020: 54.1). In 2021, Innofactor will pay special attention to management of growth, sales, expertise and resourcing, in connection with which we have revised our organization, among other measures. Martin Söderlind started in the new Chief Innovation and Talent Officer role in April 2021.

The operating margin (EBITDA) grew in the review period by 138.0 percent from the previous year and was EUR 4.7 million (26.2 percent of the net sales). Without the divestment of the Prime business, the operating margin would have grown by 7.3 percent in the review period and would have been EUR 2.1 million (11.8 percent of the net sales). As regards profitability (excluding the Prime divestment), Innofactor was able to improve its performance slightly, but some effort is still needed in order to reach the long-term goal of approximately 20 percent.

Innofactor’s operating cash flow in the review period of January 1–March 31, 2021, was EUR 3.6 million (2020: EUR 3.1 million) and the equity ratio at the end of the review period was 46.6 percent (2020: 43.5 percent). The cash flow does not include the income from the Prime divestment, which will be recognized for the second quarter. The strong operating cash flow supports Innofactor’s strategic goal of profitable growth and securing solid financial standing in all situations.

Espoo, April 27, 2021

INNOFACTOR PLC

Board of Directors

Additional information:
CEO Sami Ensio, Innofactor Plc
tel. [phone]
[e-mail]

Briefings concerning the Interim Report January 1–March 31, 2021

Innofactor will publish the interim report for January–March 2021 on Tuesday, April 27, 2021, at around 9:00 Finnish time.

A video conference in Finnish concerning the interim report will be held for media, investors and analysts on the same day at 10:00 Finnish time. The corresponding video conference in English will be held at noon Finnish time. The report will be presented by CEO Sami Ensio and CFO Markku Puolanne.

Please register for the conferences beforehand by sending email to [e-mail]. The link for participating will be sent to the registered persons on the previous day.

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

Distribution:
NASDAQ Helsinki
Main media
www.innofactor.com

Innofactor
Innofactor is the leading driver of the modern digital organization in the Nordic Countries for its approximately 1,000 customers in commercial, public and third sector. Innofactor has the widest solution offering and leading know-how in the Microsoft ecosystem in the Nordics. Innofactor has over 500 enthusiastic and motivated top specialists in Finland, Sweden, Denmark and Norway. In 2016–2020, the annual growth of Innofactor's net sales has been approximately 8.3%. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ Helsinki Oy. www.innofactor.com #ModernDigitalOrganization #PeopleFirst #CreatingSmiles

Attachment

• Innofactor Plc's Interim Report for January 1–March 31, 2021 (IFRS)