Innofactor Oyj - Interim report (Q1 and Q3)

Innofactor Plc's Interim Report for January 1–September 30, 2014 (IFRS)

Innofactor Plc Interim Report October 21, 2014, at 8:30 Finnish time



Summary

                             mo.     mo.  Change     mo.     mo.  Change     mo.
                            7-9/    7-9/            1-9/    1-9/           1-12/
                            2014    2013            2014    2013            2013
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net sales, EUR thousand    9,659   8,317  +16.1%  31,603  21,595  +46.3%  32,685
Growth of net sales       +16.1%  +82.1%          +46.3%  +72.5%          +73.7%
Operating profit before      892     714  +24.9%   2,313   1,963  +17.8%   3,284
 depreciation and                                                               
 amortization (EBITDA),                                                         
 EUR thousand*                                                                  
percentage of net sales*    9.2%    8.6%            7.3%    9.1%           10.0%
Operating profit/loss        540     403  +34.0%   1,271   1,269   +0.2%   2,255
 (EBIT), EUR thousand*                                                          
percentage of net sales*    5.6%    4.8%            4.0%    5.9%            6.9%
Earnings before taxes,        19     270  -93.0%   1,044     838  +24.6%   1,863
 EUR thousand**                                                                 
percentage of net           0.2%    3.2%            3.3%    3.9%            5.7%
 sales**                                                                        
Earnings, EUR thousand**      16     204  -92.2%     835     631  +32.3%   1,407
percentage of net           0.2%    2.5%            2.6%    2.9%            4.3%
 sales**                                                                        
Net gearing                55.1%   62.3%           55.1%   62.3%           55.9%
Equity ratio               47.3%   45.7%           47.3%   45.7%           43.1%
Personnel on average         425     384  +10.7%     422     279  +51.3%     307
 during the review                                                              
 period                                                                         
Earnings per share (EUR)  0.0005  0.0059  -91.6%  0.0260  0.0200  +30.2%  0.0432

*) The third quarter of 2014 included a one-off cost reserve related to the
closing of the St. Petersburg office for about EUR 59 thousand. The second
quarter of 2014 included a one-off cancellation of a cost reserve related to
the integration, amounting to about EUR 135 thousand. The second quarter of
2013 included one-off costs related to the atBusiness Oy acquisition for about
EUR 164 thousand, and also cost reserves related to the integration for about
EUR 200 thousand, a total of about EUR 364 thousand. 

**) The third quarter of 2014 included a one-off cost reserve related to the
closing of the St. Petersburg office for about EUR 59 thousand and a financing
cost reserve related to the Enabling acquisition for about EUR 400 thousand, a
total of about EUR 459 thousand. The second quarter of 2014 included a one-off
cancellation of a cost reserve related to the integration, amounting to about
EUR 135 thousand, and financial income of EUR 216 thousand from the additional
purchase price related to the acquisition, a total of about EUR 351 thousand.
The second quarter of 2013 included one-off costs related to the atBusiness Oy
acquisition for about EUR 370 thousand (of which EUR 206 thousand were costs
related to organizing the loans), and also cost reserves related to the
integration for about EUR 200 thousand, a total of about EUR 570 thousand. 



Innofactor's net sales in 2014 are expected to be about EUR 43-48 million
(2013: EUR 32.7 million). The operating margin (EBITDA) in 2014 is expected to
be about EUR 4-6 million (2013: EUR 3.3 million). 

The figures in this interim report have not been audited.

Reporting

Innofactor operates on a single segment, offering software, systems and related
services. 

CEO Sami Ensio's review

In the third quarter of 2014, Innofactor continued profitable growth in
accordance with its strategy. The growth of net sales was 16.1 percent (net
sales EUR 9.7 million) and operating margin (EBITDA) was EUR 0.9 million (9.2
percent of the net sales). 

During the third quarter, Innofactor finished the measures started in June,
aiming at improving its group level operations. These included, for example,
making sales more effective, improving the billing rate, cutting costs, and
cutting personnel costs by means of personnel negotiations and closing the St.
Petersburg office. These measures made the business operations and organization
more streamlined. The measures will have a positive effect on the operating
profit during the fourth quarter. 

Due to the positive development of the order book and improvement measures
during the review period and the earlier acquisitions and centralizing of
operations, we think that Innofactor has good prerequisites to continue growing
its operations profitably in 2014. 

A clear change in the purchase habits of Innofactor's customers has been
observed. The customers expect the IT provider to focus more on business
benefits instead of technology benefits. The customers want the providers to
have solutions that are ready for use without a need to make changes and they
want to be able to buy more continuous services instead of large one-off
projects. Innofactor's strategy supports well the change in the markets and we
believe that we can also benefit from any future growth in the IT market. 

Innofactor is still actively looking for new strategic partnerships in the
Nordic Countries. The group will seek growth, which can be organic or based on
mergers or acquisitions. 

Market outlook and business environment

Due to long-standing uncertainties in the economic situation, it is challenging
to make a reliable estimate on the development of the IT market in the near
future. According to research companies monitoring the IT market, the IT
service markets grew globally about 2-3 percent in 2013 and the growth is
expected to increase to about 4-5 percent in 2014. The growth in business
software market was estimated to be about 5 percent globally in 2013 and it is
estimated to grow about 6-7 percent in 2014. 

The IT market is changing. Five global mega trends can be observed. First,
using information technology and information systems is increasingly
transferring into a cloud. The cloud will connect people, data, services and
hardware into one global whole. The benefits of the cloud are cost-efficiency
and flexibility. It is estimated that 70 percent of companies either already
use cloud solutions or are planning to start using them. In the future,
customers will increasingly want to buy flexible services fitting their needs
at the time, not so much large one-off delivery projects. 

Second, the growth in the importance of social media that started with
consumers is transferring to companies. Information systems are more and more
expected to enable flexible communications between people and different
systems, between employees, customers and partners. Approximately 57 percent of
major companies are planning to invest in social media solutions in 2014. 

Third, mobile devices and convergence of devices change how people behave at
work and in their leisure time. People want their preferred common and personal
services and same usability regardless of time, place and device used. IT is
also consumerizing. Increasingly larger part of IT purchases in companies are
made on the conditions of individuals, that is, consumer markets. It is
estimated that the number of mobile workforce will increase to 1.3 billion by
2015, which is approximately 37 percent of the entire global workforce. 

Fourth, the cloud, social media and mobile devices are estimated to increase
the amount of data saved globally by about 30-50 percent every year. Analyzing
this so-called Big Data will offer plenty of possibilities for developing the
operations of companies and the public sector and also new business models. 

Fifth, the importance of data security and the cyber crimes are growing fast.
Approximately 12 persons every second become victims of cyber crimes, which
means 400 million persons annually. Additionally, it is estimated that one in
five small and medium-sized companies are targeted by cyber criminals. 

Innofactor believes that Microsoft—and thus, companies operating in the
Microsoft environment—will have a strong position on the changing IT market.
Microsoft has the leading position in consumer and business software,
competitive offering and strong proof of very rapid growth in cloud solutions. 

Innofactor believes that this development will create markets with long term
growth for companies like Innofactor that are strongly committed to Microsoft. 

As concerns Microsoft-based solutions, competition in the Nordic Countries is
divided between different kinds of parties. The first group is formed by large
companies that operate in all of the Nordic Countries. Typically, these
companies offer a wide range of IT solutions for companies and organizations,
using several competing technologies of which Microsoft technology is one
option. 

The second group is formed by companies that focus on a narrower solution area
in the Nordic level. These companies also offer IT solutions for companies and
organizations using several competing technologies of which Microsoft
technology is typically one option. 

The third group is formed by companies operating in just one country. These
small or medium-sized companies often focus on one solution area, client and/or
field. For example, in the association and parish sector, there are national
software providers specialized in these fields. There are also specialized
providers for the selected solutions, such as network services, case management
and customer relationship management systems. 

Innofactor has made a strategic choice by focusing on solutions implemented
with and utilizing the Microsoft platforms and by selecting as its solution
areas the ones in which Microsoft's growth, and thus its partners' and
ecosystem's growth, has exceeded the general average growth of IT service and
software markets many times over. Innofactor is primarily focused on large and
medium-sized companies and government organizations, which have high standards
in their IT solution acquisitions. 

Innofactor's competitive edge is based on a strategy, which differs from its
competitors' strategies and which focuses on providing a wide range of
Microsoft-based solutions for companies and organizations and also utilizing
its own software and products. Innofactor has a leading position in and
understanding of the Microsoft ecosystem in the Nordic Countries. Innofactor
has one of the largest solution, product and service offerings based on
Microsoft platforms in Europe. Profound understanding and good reputation in
several customer verticals in the private, public and third sectors makes it
possible to develop business operations so that they will serve the customers
even better. Innofactor considers itself able to provide solutions that are
competitive when compared to its competitors. 

Microsoft's partner network in the Nordic Countries, and also elsewhere in
Europe, is quite fragmented and mainly consists of a large number of small and
medium-sized local providers typically focused on one solution area. For
Innofactor, this provides interesting potential for consolidation and
globalization. Innofactor's good reputation, unique proofs of rapid and
profitable growth and successful acquisitions together with business culture
with entrepreneurial spirit make it a very attractive partner when making
reorganizations in the field in the Nordic Countries. 


Espoo, October 21, 2014

INNOFACTOR PLC

Board of Directors



Additional information:

CEO Sami Ensio, Innofactor Plc
Tel. +358 50 584 2029



Briefings concerning the Interim Report January 1-September 30, 2014

On October 21, 2014, 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 CEO Sami Ensio and CFO Janne Martola. 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 either by sending email to
ir@innofactor.com or by phoning to +358 50 575 6120 (Tuija Österberg). 

Innofactor will also hold a conference call in English for analysts, media and
investors on October 21, 2014, at 16:00 Finnish time. Registrations to
ir@innofactor.com before 12:00 Finnish time on October 21, 2014. 



Financial releases in 2015

The financial statement for 2014 and the interim report for October-December
2014 will be published on Tuesday, February 24, 2015. The annual report for
2014 will be published on the company's web site on Monday, March 2, 2015. The
preliminary plan for the Annual General Meeting is that the meeting will be
held on Tuesday, March 24, 2015, at 9:00 Finnish time. 

The schedule for financial releases in 2015 is as follows:

April 7-April 20, 2015: Silent period

April 21, 2015: Interim report January-March

July 7-July 20, 2015: Silent period

July 21, 2015: Interim report January-June

October 6-October 19, 2015: Silent period

October 20, 2015: Interim report January-September



Distribution:
NASDAQ OMX Helsinki
Main media
www.innofactor.com

Attachments:

Innofactor Plcs interim report for January 1-September 30 2014 IFRS.pdf