Innofactor as an Investment

CEO's Review

April 25, 2023

Investing in the personnel supports the achievement of business objectives

Net sales in the first quarter of 2023 amounted to EUR 20.2 million, representing year-on-year growth of 19.2 percent. The rate of organic growth, excluding the Invenco business acquired in June 2022, was 10.9 percent. The operating margin (EBITDA) increased by 21.8 percent year-on-year and was EUR 2.5 million (12.3 percent of net sales). EBITDA was positive in all of our operating countries. The order backlog at the end of the quarter was EUR 76.3 million, representing year-on-year growth of 6.9 percent.

We were successful in sales in the first quarter. Among other contracts, we won a digitalization project concerning Metso Outotec Plc’s quotation process, valued at approximately EUR 0.7 million, and the continued development and maintenance of Senate Properties’ HR system, valued at approximately EUR 0.8 million. We are grateful to all of our clients for their trust in Innofactor’s services.

In April 2023, Innofactor became the third Finnish company to be awarded Microsoft's highest partner designation Solutions Partner for Microsoft Cloud for its comprehensive expertise in all Microsoft solution areas. Earning the highest designation requires achieving all six Microsoft Solutions Partner designations, and it demonstrates Innofactor's comprehensive technical expertise and capability for delivering modern cloud solutions to customers in all Microsoft solution areas. We would like to thank Microsoft for its appreciation of Innofactor and for our excellent cooperation over the decades. Being rewarded with the Solutions Partner for Microsoft Cloud designation demonstrates our ability to help our customers succeed across all Microsoft solution areas. We are proud of our achievements, expertise, professionals, customers, and partners.

In the first quarter, we managed to further enhance the efficiency of our operations and improve our invoicing rate when compared to the final quarter of 2022. Innofactor’s number of personnel increased by over 13 percent year-on-year. We also increased the use of subcontracting. The increased number of personnel involved in customer work promoted the growth of net sales and the operating margin.

We want to focus on training young people and offering jobs to new graduates. In 2023, we are organizing 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. Our target for 2023 is to increase the number of DigiStar participants to over 60, up from 37 last year. We received a record-breaking number of applications – over one thousand – in the first DigiStar recruitment round this year. A small number of the DigiStar participants already started in the first quarter, with most starting the program in April–May. The DigiStar trainees have a significant impact on the average age of our personnel. In the first quarter, the average age of our personnel did not increase at all, remaining the same as a year earlier.

During the first quarter, we carried out a directed personnel share issue with a record-high number of 211 employees participating. Subscriptions were made in all of Innofactor’s operating countries: Finland, Sweden, Denmark and Norway. I am very pleased about the active participation of our personnel, which speaks to our employees’ strong commitment to the achievement of Innofactor’s long-term objectives.

Innofactor concluded a company-specific collective agreement in Finland. The aim of the company-specific collective agreement is to provide our employees with an even better and easier-to-understand agreement. Under the terms of the collective agreement, our employees are provided with, for example, substantially more equal opportunities for paid family leave, regardless of whether the person is the birthing parent or the non-birthing parent. We wanted the collective agreement to cover key issues for our company, such as flexible working hours and the Worktime Bank. The agreement also incorporates certain wishes expressed by our personnel, including paid participation in voluntary training organized by the Finnish Defence Forces. We believe that the company-specific collective agreement helps us to further improve the job satisfaction of our existing employees and attract new employees. 

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.

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

Business Environment

Market outlook and business environment: We Expect to See Market Growth and Strengthen Our Market Position in 2023

We expect that the growth rate of the Nordic IT services market will be positive in 2023 but, due to the European security policy situation and the general economic downturn, we are not able to provide a more accurate estimate. Our growth target for the next few years is to surpass the market growth rate, and our long-term goal is annual growth of approximately 20 percent.

The key innovation trends and drivers of change in the market include the metaverse, the Internet of Things (IoT), artificial intelligence, robotics, blockchains, Low-code and citizen development, with facilitating roles being played by software moving to the cloud, data analytics, social media, and the use of mobile devices. Microsoft's strong investment in integrating artificial intelligence into its own platform and the growing awareness of the possibilities of artificial intelligence, which is believed to increase customers' need to renew information systems, are considered particularly significant for Innofactor's business. Combating climate change and the changed security policy situation in Europe place new demands on both societies and organizations, creating new business opportunities and accelerating innovation. The purchasing behavior of our customers has evolved as part of this business transformation. Our customers’ expectations for their IT partner are characterized by a greater focus on business benefits rather than technological benefits. Our customers are looking for more out-of-the-box solutions that do not require extensive customer-specific customization. In addition, customers are increasingly seeking continuous services instead of large one-time projects. Our customers also increasingly value reliable suppliers that are located close to them.

We estimate that the IT service market in the Nordic countries grew by a few percent in 2022. We estimate that growth in the Nordic IT services market will continue in 2023, but because of the uncertain economic and security policy situation, we cannot give a more detailed estimate. Our estimate is based on research institutes’ forecasts and our own outlook on markets.

In the long term, we believe that the digital leap of society in response to the COVID-19 pandemic and the changes in the security policy situation in Europe 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 likely 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 also has a favorable effect as regards the business model of Innofactor’s chosen strategy based on Nordic specialists. Microsoft’s position has also strengthened during the crises of the past few years. We believe in our chances of increasing our market share in the Nordic countries.

The competition in Microsoft-based solutions in the Nordic countries is fragmented. The first group of competitors consists of large enterprises that operate in all of the Nordic countries. These competitors provide a wide range of IT solutions that are needed by various organizations and use several competing technologies, one of which is the Microsoft ecosystem. The second group consists of medium-sized companies that focus on a niche solution area at the Nordic level, also using several different technologies. The third group consists of medium-sized companies operating mainly in a single country, typically providing a broad range of solutions based on several competing technologies. The fourth group consists of small companies that only operate in their domestic market focusing on certain clearly defined solution areas, technologies, and industries.

Microsoft’s fragmented Nordic partner network, which consists of small and medium-sized IT companies, continues to offer interesting acquisition opportunities for us. In the future, our acquisition strategy will likely be focused on medium-sized companies that operate in a single country. This will help us expand our offering at the country-specific level as well as potentially acquire additional cloud-based product and service business. Good reputation, fast and profitable growth, successful acquisitions, and entrepreneurial spirit will make us an attractive partner for reorganizations in the field.

Purpose, Mission, Vision and Strategy

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

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.

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 were EUR 20.2 million (2022: 17.0), representing year-on-year growth of 19.2 percent. The net sales growth target is supported by Innofactor’s large order backlog of EUR 76.3 million (2022: 71.3). Innofactor aims to continue to take measures that support the growth of net sales.

The operating margin (EBITDA) was 12.3 percent of net sales (2022: 12.0%). EBITDA for the review period increased by 21.8 percent year-on-year. While profitability has improved, continued attention and efforts by the management are still needed in the coming years to reach the long-term target of approximately 20 percent.

Innofactor’s operating cash flow for the review period January 1–March 31, 2023, was EUR 3.9 million (2022 Q1: EUR 2.7 million) and the equity ratio at the end of the review period was 47.3 percent (2022: 51.7 percent). The equity ratio was reduced by the loan of approximately EUR 2.5 million taken out in June 2022 for the purpose of the Invenco Oy acquisition, as well as increased lease liabilities due to extensions of leases. Innofactor’s strong operating cash flow supports the company’s strategic goal of profitable growth and securing a solid financial standing in all situations.

The key actions to be taken to achieve growth of approximately 20 percent and EBITDA of approximately 20 percent:

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 27 percent. This will be achieved by, for example, developing our offering, such as the new MDRaaS service (CSOC) 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, doubling our recruitment of new university graduates to over 60 employees in 2023, 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 image.
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.  

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 28 percent. This will be achieved by, for example, developing our offering, such as the new MDRaaS service (CSOC) 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, doubling our recruitment of new university graduates to over 60 employees in 2023, 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, 2023, approximately 70 percent of the net sales came from Finland, approximately 14 percent from Sweden, approximately 11 percent from Norway, and approximately 5 percent from Denmark. Compared with the corresponding period in 2022, net sales increased in Finland and Norway, increased in local currency in Sweden, and decreased in Denmark.

During the period January 1–March 31, 2023, approximately 54 percent of the net sales came from commercial clients (including third-sector clients) and approximately 46 percent came from public sector clients.

Distribution of net sales in January 1–March 31, 2023

Innofactor’s net sales for the review period of January 1–March 31, 2023, were derived from the following sources:

• Licenses: 3 percent, including all non-recurring fees received for software
• SaaS: 24 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: 35 percent from IT system delivery projects and consulting

Innofactor’s 10 largest clients accounted for approximately 29 percent of the net sales for the review period January 1–March 31, 2023.

Get to know our customer stories 

Personnel

People First and a Smile on the Face Every Working Day

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 hybrid work environment for our employees 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, 2023, was 567 (2022: 499), representing an increase of 13.6 percent.

At the end of the review period, the number of active personnel was 572 (2022: 502), representing an increase of 13.9 percent.

At the end of the review period, the average age of the personnel was 42.5 years (2022: 42.5). Women accounted for 26 percent (2022: 28%) of the personnel. Men accounted for 74 percent (2022: 72%) of the personnel.

Get to know our people!

 

Responsibility and Freedom

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 operating models and rules concerning their working methods. Choices are guided by customer requirements. Teams are recommended to choose in-office days – for example, one or two days per week – when the team works together in the same physical location, either at the office or at the customer’s premises. We have also made changes to our offices to support hybrid work even more effectively. For example, at our head office in Espoo, we opened several new team rooms that enable productive in-office work for teams. We also completed a new studio at our Espoo office in 2022 to enable high-quality virtual broadcasts and webinars.

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.

In late 2022, we opened a new office in Oulu, moved our Kajaani and Jyväskylä offices to larger premises, and modernized our office in Stockholm. We also began expansion work on our office in Tampere in late 2022. We believe that physical offices play a role as important meeting places and hold the potential for attracting talent from various parts of the Nordic region.

In 2022, we recruited over 100 new professionals to work at Innofactor, many of whom are returnees, and we also welcomed nearly 50 new professionals to Innofactor as part of the Invenco acquisition.

One of the best things about 2022 was being able to get together with co-workers at various events. After a few years of COVID-19 restrictions, we again had the opportunity to invite all of our personnel in the Nordic region to our Espoo Campus for our annual InSpirit event, which included a seminar and an evening party. We also had pre-Christmas parties in all of the cities we operate in, and we were able to organize unit-specific gatherings. A strong sense of community and social events are a big part of Innofactor’s culture and the creation of team spirit.

Microsoft also selected Innofactor as the recipient of the Tech for Good Partner of the Year 2022 in Finland in recognition of our performance in realizing our purpose of innovating to make the world work better.

Talented Employees at the Core of Our Business

Innofactor aims to invest in competence development at the Nordic level. At the beginning of 2022, we adopted a new performance indicator to actively monitor the certifications of our specialists. 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 100 new certifications in 2022.

We organized diverse trainings through Innofactor Academy in 2022. Innofactor Academy brings together Innofactor's training activities at the local level as well as the Nordic level. We organized training related to Microsoft technology, basic induction training, as well as ITIL, PRINCE2, and Scrum training. In our managerial training, coaching-style leadership was one of our key themes in 2022.

We want to focus on training young people and offering jobs to new graduates. We organized our fourth 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 37 new graduates in the Nordic countries in 2022. Our DigiStar program was implemented at the Nordic level for the first time in 2022, with the intake doubling from the previous year. Our target for 2023 is to increase the number of DigiStar participants to over 60.

Our Nordic Approach and Modern Operating Models Support Our Work

Innofactor's goal is to build a company with Nordic integration. Common systems, processes, and culture support Innofactor's strategic targets and cooperation between countries. We want to build a genuinely Nordic culture. In 2022, we added a Nordic onboarding day to our induction training for recruits, allowing new employees to get to know each other and Innofactor's operations. This initiative was received with enthusiasm.

At the end of 2022, we started negotiating a company-specific collective agreement in Finland. With the company-specific collective agreement, we wanted to enable us to agree on issues that are important to our personnel and to have a simpler and more understandable collective agreement that reflects who we are as a company. The new benefits we introduced in the collective agreement include the possibility to participate in voluntary exercises of the Defence Forces without loss of earnings and equal treatment for the paid part of parental leave. Innofactor's company-specific collective agreement was approved and signed at the beginning of 2023.

We Invest in Good Leadership

We believe that every Innofactor employee has the right to good leadership. The continuous development of leadership is a high priority for us. In addition to the quarterly employee satisfaction survey, all managers participated in the annual comprehensive 360° evaluation. According to the results, the quality of leadership at Innofactor is higher than the European benchmark by a clear margin. We want to continue our strong development, build self-organization and a coaching-style leadership culture that supports and develops our specialists while making Innofactor an even better place to work in the future.

Smiling at Work is Allowed

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 a fantastic team spirit.

We organize recreational events for our personnel, both in teams and at the corporate level. In 2022, we focused particularly on in-person meetings between people. Having organized many virtual events during the COVID-19 pandemic, we decided it was time for our employees to get together with their co-workers in person. Our InSpirit summer event was held at the Espoo Campus, with over 400 Innofactor employees coming together to learn, get to know each other, and party. Several local events were also organized at our various operating locations. For example, we celebrated the opening of our Oulu office with employees and customers in attendance.

 

#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. It should come as no surprise, then, to learn that putting a smile on people's faces is the best way to measure our success. To ensure we carry on doing this, we never stop enhancing our own skills and expertise. As a result, we have achieved five additional Microsoft Solution Partner Designations and four highly valued Microsoft Specializations. In addition to these, Innofactor also held 16 company-level Microsoft Gold competencies, the renewal of which Microsoft discontinued in September 2022. 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 modern services. It consists of five stages, each of which delivers our customers quick, tangible value in each of the six solution areas of our offering. The value of our deliveries is based on not only helping our customers to design and implement a specific solution, but also supporting them all way from defining a vision and governance to adoption and continuous development.

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 2023

Innofactor's net sales and operating margin (EBITDA) in 2023 are estimated to increase from 2022, during which net sales were EUR 71.1 million and operating margin was EUR 7.8 million.