Innofactor Oyj - Interim report (Q1 and Q3)

Innofactor Plc's Interim Report for January 1–September 30, 2017 (IFRS)

Innofactor Plc Interim Report October 31, 2017, at 9:00 Finnish time

Weak third quarter – we expect the operating margin of the fourth quarter to be approximately on the same level as in 2016

July–September 2017 in brief:

• The net sales were approximately EUR 13.9 million (2016: 11.8), which shows an increase of 18%.
• The operating margin was approximately EUR -0.9 million (2016: 0.9), which shows a decrease of 202.1%. The weaker than expected profitability was contributed to by the lower than expected net sales and the fact that the results from the Danish business operations were significantly less than expected.
• The operating loss was EUR 1.5 million (2016: operating profit 0.3), decreasing by 707.9%. The operating loss was affected by increased write-offs related to acquisitions, in accordance with IFRS 3, resulting in a decrease of EUR 507 thousand (2016: 455) in the operating profit.
• The weaker than expected profitability was affected by the weaker than expected net sales, which was due to, for example, delays in starting many customer projects after the summer, due to reasons related to customers, especially in Finland. Also, in Denmark and Sweden we were forced to register some losses on customer projects.

January–September 2017 in brief:

• The net sales were approximately EUR 48.9 million (2016: 41.6), which shows an increase of 17.5%.
• The operating margin was approximately EUR 1.2 million (2016: 2.8), which shows a decrease of 59.3%.
• The operating loss was approximately EUR 0.9 million (2016: operating profit 1.0), decreasing by 185.2% due to increased write-offs related to acquisitions, in accordance with IFRS 3, resulting in a decrease of EUR 1,522 thousand (2016: 1,365).
• Innofactor received several significant orders during the first half of the year. For example, the Unemployment Insurance Fund (TVR) for approximately EUR 1.0 million, the Hospital District of Helsinki and Uusimaa (HUS) for approximately EUR 1.8 million, IF Metall (in Sweden) for approximately EUR 0.6-4 million, a Finnish service company for approximately EUR 0.5 million, and the Finnish Red Cross for approximately EUR 0.6 million.

                                                                                                                   

		Jul 1–Sep 30, 2017	Jul 1–Sep 30, 2016*	Change		Jan 1–Sep 30, 2017	Jan 1–Sep 30, 2016*	Change		Jan 1–Dec 31, 2016*
Net sales, EUR thousand		13,930	11,803	18.0%		48,899	41,624	17.5%		59,616
Operating margin (EBITDA), EUR thousand		-877	859	-202.1%		1,156	2,841	-59.3%		4,831
percentage of net sales		-6.3%	7.3%			2.4%	6.8%			8.1%
Operating profit/loss (EBIT), EUR thousand*		-1,544	254	-707.9%		-857	1,006	-185.2%		2,332
percentage of net sales*		-11.1%	2.2%			-1.8%	2.4%			3.9%
Earnings before taxes, EUR thousand*		-1,617	157	-1,129.9%		-1,199	724	-265.6%		1,920
percentage of net sales*		-11.6%	1.3%			-2.5%	1.7%			3.2%
Earnings, EUR thousand*		-1,293	125	-1,134.4%		-959	579	-265.6%		1,516
percentage of net sales*		-9.3%	1.1%			-2.0%	1.4%			2.5%
Net gearing		56.1%	55.5%			56.1%	55.5%			70.2%
Equity ratio		43.7%	41.6%			43.7%	41.6%			35.8%
Active personnel on average during the review period**		623	511	21.9%		609	505	20.6%		532
Earnings per share (EUR)		-0.0357	0.0038	-1,040.3%		-0.0274	0.0176	-255.4%		0.0467

 

 

*) In accordance with IFRS 3, the operating result for July 1–September 30, 2017, includes EUR 507 thousand (2016: 455) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets. Adjusted for the said depreciations, Innofactor’s operative business loss for the review period of July 1–September 30, 2017, would have been EUR 1,037 thousand (2016: operating profit 709), the operative business result before taxes EUR 1,110 thousand (2016: 612), the operative business result EUR -888 thousand (2016: 490), and the operative business result per share EUR -0.0245 (2016: 0.0149). In accordance with IFRS 3, the operating result for January 1–September 30, 2017, includes EUR 1,522 thousand (2016: 1,365) in depreciations related to acquisitions, consisting of 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, 2017, would have been EUR 665 thousand (2016: 2,371), the operative business result before taxes EUR 323 thousand (2016: 2,089), the operative business result EUR 258 thousand (2016: 1,671), and the operative business result per share EUR 0.0074 (2016: 0.0508).

**) 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 2017 (updated on October 13, 2017)

Innofactor’s net sales in 2017 are estimated to increase from 2016, during which the net sales were EUR 59.6 million. Innofactor’s operating margin (EBITDA) is expected to remain lower than in 2016, when the operating margin was EUR 4.8 million.

CEO Sami Ensio's review: Realizing common Nordic operating models and systems is slower than expected – concrete benefits will be delayed

The net sales grew by 18.0 percent in the second quarter (net sales EUR 13.9 million).  Innofactor has estimated that the Nordic IT market will grow faster in 2017 than in the previous years, and this estimate remains the same. The market growth is believed to also increase Innofactor’s growth possibilities.

In the third quarter of 2017, the operating margin (EBITDA) was EUR -0.9 million (-6.3 percent of the net sales) and decreased by 202.1 percent from the previous year. The weaker than expected profitability was affected by the weaker than expected net sales, which was due to, for example, delays in starting many customer projects after the summer, due to reasons not attributable to Innofactor, especially in Finland. Also, in Denmark and Sweden we were forced to register some losses on customer projects. In Innofactor’s history, the end of the year has typically been better in terms of operating margin than the beginning of the year, but special attention needs to be paid to improving the profitability. We expect the operating margin of the fourth quarter to be approximately on the same level as in 2016, when it was approximately EUR 2 million.

Realizing common Nordic operating models and systems is slower than expected. The transition phase was seen in the third quarter of 2017 in the form of an unexpected negative operating margin. We still believe that 20 percent growth, of which majority is intended to be achieved by organic growth, as well as 20 percent operating margin in the long term shall be achieved. However, at this point, we do not expect this to happen by 2020.

Despite the weak operating margin level, the cash flow from business activities in the first three quarters remained strong and was approximately EUR 3.1 million (2016: EUR 2.5 million).

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 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:

• By achieving annual growth of about 20 percent, of which majority is intended to be achieved by organic growth
• By achieving approximately 20 percent operating margin (EBITDA) in relation to the net sales
• By keeping cash flow positive and securing a solid financial standing in all situations

Innofactor's net sales in the review period of January 1–September 30, 2017, grew by 17.5% and the main part of this was based on inorganic growth resulting from the Lumagate acquisition.

Innofactor's operating margin (EBITDA) in relation to net sales was 2.4 percent in the review period. 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, 2017, was EUR 3.1 million positive (2016: EUR 2.5 million). Innofactor’s financial stability is good. Net gearing at the end of the review period was 56.1 percent (2016: 55.5 percent).

 

Espoo, October 31, 2017

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, 2017

On October 31, 2017, at 10:00 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 CEO Sami Ensio.

Innofactor will also hold a corresponding conference call in English on October 31, 2017, at 16:00 Finnish time.

We ask you to register for the briefings beforehand by sending email to ir@innofactor.com.

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

Distribution:
NASDAQ Helsinki
Main media
www.innofactor.com

Attachments:

Innofactor Plcs Interim Report for January 1-September 30 2017 IFRS.pdf