Innofactor as an Investment

CEO's Review

April 23, 2024

We continue to adapt our operations due to the continued challenging market situation

Net sales in the first quarter of 2024 amounted to EUR 21.2 million, representing year-on-year growth of 4.8 percent. The operating margin (EBITDA) increased by 4.6 percent year-on-year to EUR 2.6 million (12.3 percent of net sales), and was positive in Finland and Norway. The order backlog at the end of the quarter amounted to EUR 68.8 million, representing a year-on-year decrease of 9.8 percent.

In accordance with our previous assessment, the market situation remained challenging in the first quarter of 2024. New sales were challenging during the first quarter, but we were successful in our sales activities particularly with regard to the extensions of existing customer accounts. Our invoicing rate fell short of our target due to the challenging demand situation.

We are confident that the market conditions will improve and we want to maintain our competitiveness when demand turns to growth again. In our tendering activities, we have not priced our services below our cost. We are adapting our operations with a conservative approach. We have reduced, and continue to reduce, the use of subcontracting, especially in Finland and Sweden. In the second quarter, we will reduce the number of our personnel by approximately 20 percent in Sweden, where profitability has been weak for an extended period of time and the challenging market situation has further exacerbated the situation.

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.

We work together with our customers, partners, employees, and investors to innovate solutions that help our customers and society as a whole to function even more effectively. We are moving forward with enthusiasm and confidence.

Sami Ensio
Innofactor's founder, major owner, and CEO

Business Environment

Market outlook and business environment: We expect that the growth of the Nordic IT services market will continue in 2024 in spite of the general uncertainties in the business environment

The market outlook and business environment are published in their entirety in the financial statement and in the Annual Report.

The price competition that began in the market in the second quarter of 2023 remained intense and, in our assessment, the weighted average prices of new contracts stayed at a low level until the end of the year, particularly in the case of public sector customers, in spite of a slight increase towards the end of the year.

We estimate that the IT service market in the Nordic countries grew slightly in 2023. We expect the average prices of new contracts in the public sector and large tenders to continue to increase in 2024.

Generative artificial intelligence (ChatGPT, Microsoft Azure Open AI and Microsoft Copilot) has received significant attention in the market, and this has happened exceptionally quickly. Generative AI presents our customers – and Innofactor – with significant opportunities for improving operational efficiency. Above all, it opens up significant new business opportunities, and we have quickly developed new offerings in response to these opportunities. We have also shifted our sales focus more to the private sector, where more commercially sustainable price levels can be found.

We expect that the growth rate of the Nordic IT services market will be positive in 2024 but, due to the geopolitical situation and the general economic downturn, we are not able to provide a more accurate estimate.

Purpose, Mission, Vision and Strategy

Innofactor's strategy comprises our purpose, mission, vision, strategic choices, values, working principle, employer promise, 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

Read more about our values.

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.

Employer promise

Be the real you

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 solid financial standing in all situations

Strategy and its realization in the review period

Innofactor's net sales in the first quarter amounted to EUR 21.2 million (2023: 20.2), which shows an increase of 4.8 percent compared to the previous year. Achieving the net sales growth target is challenging at present due to the prevailing weak market situation. Innofactor aims to continue to take measures to support stronger net sales growth going forward.

The operating margin (EBITDA) was 12.3 percent of net sales (2023: 12.3%). In the period under review, the operating margin increased by 4.6 percent year-on-year. Profitability has remained at the previous level, and attention and efforts by the management are needed to reach the long-term target of approximately 20 percent.

Innofactor's operating cash flow for the review period January 1–March 31, 2024, was EUR 4.4 million (2023 Q1: EUR 3.9 million) and the equity ratio at the end of the review period was 53.9 percent (2023: 47.3 percent). Innofactor's high equity ratio and strong operating cash flow supports the company's strategic goal of profitable growth and securing a solid financial standing in all situations.

Key Figures

Growth and Financial Targets

Innofactor's 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 securing solid financial standing in all situations

The main actions for reaching the approximately 20 percent growth and 20 percent operating margin:

1. We will improve the efficiency of our operations and increase our invoicing rate by five percentage points. This will be achieved by, for example, improving the management of project and service contracts, enhancing the cross-resourcing of personnel between countries and units, reducing employee turnover and developing our self-directed team models.
2. We will increase the share of licenses and SaaS services to over 33 percent of net sales from the current level of approximately 31.5 percent. This will be achieved by, for example, developing our offering and by focusing our sales efforts on customers and solution areas with the highest growth potential and that present the best opportunities for scaling our existing offering in each of the Nordic countries.
3. We will increase the number of employees engaged in invoiced services. This will be achieved by, for example, increasing our recruitment of new university graduates, concentrating the recruitment of senior professionals to our Nordic recruitment team, increasing the competence of our employees through certifications, reducing employee turnover, improving the efficiency of subcontracting and investing in the development of our employer brand.
4. We will become an even more proactive player in the Nordic M&A field. This will be achieved by, for example, through the internal reorganization of operations, emphasizing the role of country directors in actively seeking new potential acquisition targets in their respective countries.

Customers

Innofactor's business operations were focused on Finland, Sweden, Denmark and Norway. During the period January 1–March 31, 2024, approximately 73 percent of the net sales came from Finland, approximately 13 percent from Sweden, approximately 13 percent from Norway, and approximately 1 percent from Denmark. Compared with the corresponding period in 2023, net sales increased in Finland and Norway, but decreased in Sweden and Denmark.

During the period January 1–March 31, 2024, approximately 51 percent of the net sales came from commercial customers (including third-sector customers) and approximately 49 percent came from public sector customers.

Distribution of net sales in January 1–March 31, 2024

Innofactor's net sales for the review period of January 1–March 31, 2024, were derived from the following sources:

• Licenses: 3 percent, including all non-recurring fees received for software
• SaaS: 26 percent, including recurring income from SaaS, cloud and hosting services and from software maintenance
• Services: 38 percent, including specialist work based on recurring service contracts, such as smaller customer-specific changes and the further development of IT systems
• Projects: 33 percent, including IT system delivery projects and consulting

Innofactor's 10 largest customers accounted for approximately 35.4 percent of net sales for the review period January 1–March 31, 2024.

Get to know our customer stories 

Personnel

Be The Real You

Innofactor is a workplace where you can Be The Real You, and people are at the heart of everything we do. In line with our mission, we continue to build Innofactor as a modern digital organization. We develop our operating models to support the daily work of our employees within our Nordic organization. Highly competent and motivated employees, good leadership practices, self-organization, effective teamwork and company-wide practices support Innofactor's long-term goals. Our principle is to put People First in everything we do. We want to create an inspiring work environment for our employees where they can enjoy a strong sense of community and team spirit, and also have fun while working.

Number of Personnel

Innofactor primarily monitors the number of active personnel. The number of active personnel does not include employees who are on leave for more than three months.

The average number of active personnel during the period January 1–March 31, 2024, was 579 (2023: 567), which shows an increase of 2.1 percent.

At the end of the review period, the number of active personnel was 583 (2023: 572), which shows an increase of 1.9 percent.

Get to know our people!

 

Accountability & Empowerment

Our operating models are based on a self-organizing culture, which means that teams are empowered to plan their work. At the same time, we want to support a strong sense of community and team spirit, which is why we encourage teams and units to have common in-office days. At Innofactor, employees work at the office, at the customer's premises and remotely, depending on what is the most appropriate choice in each situation. Teams agree on their ways of working and rules concerning their working methods. We measure job satisfaction by a weekly pulse survey. Innofactor's biggest strength is our team spirit, for which we receive the highest survey scores each week. Having the best colleagues is a competitive advantage that we take great pride in.

Although a lot of work is done remotely, our offices play an important role in our work, team spirit and customer encounters. In 2023, we celebrated the opening of our new Kajaani office, expanded our office in Tampere and began the process of relocating the Turku office to larger and more functional premises. We also built a large gym at our head office in Espoo to encourage people in regular physical activity as a counterbalance to seated work.

In 2023, we recruited over 100 new professionals to work at Innofactor, including a number of returnees. Our recruitment activities were successful, and we managed to increase our number of personnel during the year.

We had a great year in 2023 and had many opportunities to get together and celebrate. We invited all of our Nordic employees to our Espoo Campus for our annual InSpirit event, which included a seminar and an evening party. It was the tenth InSpirit event, and we are very pleased to have built a strong tradition for the event. Social events are a big part of Innofactor's culture to create team spirit. Smiling at work is definitely allowed.

Be The Real You! At Innofactor, we encourage everyone to perform at a high level and create meaning through their work. Our agile and Nordic culture puts people first and enhances collaboration. Flexible working conditions, development opportunities and good leadership are cornerstones in our way of working. At Innofactor, people work together and support each other. We want work to be both meaningful and fun. This is underpinned by good leadership and common working practices, but especially by great colleagues, customers and definitely a fantastic team spirit.

Competence at the Core of Our Business

We invest in competence development, recognizing that people are our organization's most important asset. We adopted a performance indicator in 2022 to actively monitor the certifications of our specialists. We have managed to increase our certification rate from one year to the next. Innofactor's strategic goal is to have the most competent Nordic teams. Certificates are a key aspect of demonstrating our competence. Innofactor employees completed over 200 new certifications in 2023.

We organize diverse training through Innofactor Academy each year. Innofactor Academy brings together Innofactor's training activities at the local level as well as the Nordic level. We organized trainings related to Microsoft technology, basic induction trainings, as well as ITIL, PRINCE2, and Scrum trainings. In supervisory work, our focus in 2023 was on establishing our employer value proposition and our leadership cornerstones.

We want to focus on training new graduates and offering jobs to them. We organized our fifth Innofactor DigiStar Trainee Program, the purpose of which is to provide a diverse induction training period for new professionals, followed by learning on the job. We hired over 40 new graduates in the Nordic countries in 2023. Our DigiStar program is implemented at the Nordic level, and we have increased our intake each year.

Common Ways of Working Support Our Culture and Competitive Advantage

Our goal is to build an efficient organization that operates at the Nordic level. Common practices, processes and culture support Innofactor's strategic targets and co-operation between countries. We want to build a genuinely Nordic culture and operating practices. In 2023, we launched a new Nordic onboarding tool designed to support the consistency of induction training and ways of working. We also launched our Nordic employee value proposition, "Be The Real You", and worked on it both internally and externally. Shared values and operating models are the cornerstones of our strong Nordic organization.

We began the negotiations on a Innofactor collective agreement at the end of 2022 and the agreement was signed in February 2023. The aim of negotiating a company-specific collective agreement was to make it possible to agree on issues that are important to our personnel, and to have a more straightforward and easy-to-understand collective agreement that reflects us as a company and supports our values. Examples of the new benefits provided by the collective agreement include the opportunity to participate in voluntary exercises of the Finnish Defence Forces without any loss of pay, and improved equality with regard to paid parental leave.

Agile Leadership

right to good leadership. The continuous development of leadership is a high priority for us. We changed our employee satisfaction survey practices in 2023 by adopting a new pulse survey that provides us with weekly feedback. Timely and constructive feedback is essential for the development of leadership. Relative to our peers in the IT industry, leadership at Innofactor is at a good level. Examples of the key performance indicators in the area of leadership include giving feedback, setting clear targets, trust, respect, and the presence of supervisors.

In 2023, we worked on establishing leadership cornerstones at Innofactor. They help us strengthen leadership that is aligned with our values. Leadership at Innofactor is based on building trust, coaching, open communication, and enabling and supporting growth. Authenticity is at the heart of Innofactor's leadership culture. We lead by example and put our values into action. This means putting people first in everything we do. We value diversity and inclusion and see them as important factors in building a better work life.

#ModernDigitalOrganization #HybridWork #PeopleFirst #CreatingSmiles

Offering

We help our customers to succeed by modernizing and digitalizing their organizations. We 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.

While the technology and solutions we provide might sometimes seem complex, the objective is always the same: a more efficient, more effective organization with happier customers and more motivated employees, empowered by technology that makes daily work and life more meaningful. However, they allow us to create a more efficient and effective organization with satisfied customers and motivating work. Our solutions make work and life even more meaningful. The best way to measure the results of our work is how well we manage to bring a smile to the lips of the people who use our solutions. To ensure we carry on doing this, we never stop enhancing our own skills and expertise. As a result, we have achieved all seven Microsoft Solution Partner Designations and as many as five Microsoft Specializations. Read more about the awards.

Our Modern Delivery Model Ensures Effective Deployment and Adoption to Maximize the Lifetime Value of New Solutions

Our delivery model is based on years of experience in the successful design, adoption, and development of digital solutions and services. It consists of five stages, each of which delivers our customers quick, tangible value in each of the six areas of our offering. The value of our deliveries is based on not only helping our customers to specify their strategy and design and implement a specific solution but also supporting them through close collaboration in the deployment, use and continuous development of the solution.

read more about our solutions for modern digital organization

Acquisitions

20 June, 2022
Innofactor signed a contract to acquire the entire share capital of the Finnish company Invenco Oy.
See Stock Exchange Release for more details.
To clarify the group structure, the merger of Innofactor Invenco Oy's subsidiary Innofactor Invenco Software Oy into Innofactor Invenco Oy was initiated in 2022. The merger process is intended to be completed in spring 2023.
 

31 December, 2020
During the first quarter of 2020, Innofactor increased its holding in Arc Technology Oy by 26.94 percent to a total of 45.13 percent. Starting from the Q2/2020 interim report, Arc Technology Oy was reported as a subsidiary, because Innofactor has had control over the company since April 2020. Innofactor's holding in the company increased to 100% on December 30, 2020. For 2020, Arc Technology Oy increased Innofactor's net sales by approximately EUR 0.8 million. Arc Technology Oy was renamed as Innofactor HRM Oy in early 2021. See the Press Release (in Finnish).

10 October, 2016
Innofactor signed a contract to acquire the entire share capital of the Lumagate group.
See Stock Exchange Release for more details.

22 December, 2015
Innofactor signed a contract to acquire the entire share capital of the Swedish company Cinteros AB.
See Stock Exchange Release for more details.

22 December, 2015
Finnish Arc Technology, which is focused on HR systems, bought Innofactor Plc's HRM (Human Resources Management) business.
See press release for more details.

31 December, 2013
Innofactor signed a contract to acquire the entire share capital of Enabling Group.
See Stock Exchange Release for more details.

30 September, 2013
Innofactor acquired Dynamic Team (company name Lainetar Oy, based in Tampere, Finland) and its business in order to strengthen its offering in the Microsoft Dynamics AX business area.
See press release for more details.

6 June, 2013
Innofactor signed a contract to acquire the entire share capital of atBusiness Ltd.
See Stock Exchange Release for more details.

30 November, 2012
Innofactor signed a contract to acquire the Microsoft project and project portfolio management solutions business from Tietotalo Infocenter Ltd.

25 June, 2012
Innofactor signed a contract to acquire the entire share capital of Bridgeconsulting A/S.
See Stock Exchange Release for more details.

3 December, 2010
Westend ICT Plc and Innofactor Ltd merged to become the Innofactor Plc Group.
See Stock Exchange Release for more details.

3 June, 2010
Visual Management Ltd became part of Innofactor Software Ltd.

12 October, 2009
Innofactor Software Ltd acquired Software Innovation Finland Ltd.

1 April, 2007
Innofactor purchased the Enfo Ltd business unit responsible for electronic business solutions.

15 December, 2004
Innofactor Software Ltd acquired TietoEnator Plc's parish-software business.

Sustainability

Innofactor considers sustainability as one of the cornerstones of its long-term success. Sustainability is not only a condition for the continuation of operations. It also represents a way of responding to stakeholder expectations. Technology companies play a significant role in the mitigation of – and adaptation to – climate change. The IT sector also makes it possible for other organizations to reduce their carbon footprint.

Innofactor's operations are guided by our Code of Conduct and environmental policy, in addition to which we comply with the leading international sustainability standards, such as the ILO Declaration on Fundamental Principles and Rights at Work, the UN Universal Declaration of Human Rights, the UN Sustainable Development Goals, and the principles of the ICC Business Charter for Sustainable Development.

Innofactor's internal operations are managed through predefined core processes and standards. The key processes related to sustainability include the company's processes relating to legal affairs, risk management and human resources, which govern many of the main aspects of corporate responsibility. The framework for Innofactor's operations is provided by the ISO 9001, ISO 27001, ISO 13485 and AQAP-2110 standards, which the company's various processes adhere to.

Innofactor is committed to supporting the achievement of the UN Sustainable Development Goals (SDGs) by 2030. Accordingly, we have mapped the main objectives from the perspective of our business operations.

In autumn 2021, Innofactor signed the Microsoft Partner Pledge to commit to the development of digital skills, diversity, ethical AI and environmental responsibility.

In 2022, Innofactor established a new sustainability task group that aims to develop Innofactor's sustainability at the strategic and tactical levels. The group consists of approximately 15 Innofactor employees based in the Nordic region. The group reports to the Chairman of Innofactor's Board of Directors, Anna Lindén.

Read more about Innofactor's sustainability

Future Outlook

Innofactor’s future outlook for 2024

Innofactor's net sales and operating margin (EBITDA) in 2024 are estimated to increase from 2023, during which net sales were EUR 80.3 million and the operating margin was EUR 9.1 million.