Innofactor as an Investment

Innofactor Plc Annual Report 2019 has been published – The Annual Report includes the Financial Statement and the Report of the Board of Directors. Innofactor's Corporate Governance Statement and the Remuneration Statement for the Financial Period 2019 have also been published.


The Leading Driver of the Modern Digital Organization in the Nordic Countries

Innofactor is the leading driver of the modern digital organization in the Nordic Countries for its over 1,500 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 2015–2019, the annual growth of Innofactor's net sales has been approximately 10%. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ Helsinki Oy. #ModernDigitalOrganization #PeopleFirst

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Financial Statement 2019: Innofactor's operating margin and order backlog improved significantly from the previous year – also the net sales started to grow again after the dip in 2018

January–December 2019 in brief:

  • The net sales were approximately EUR 64.2 million (2018: 63.1), which shows an increase of 1.7%.
  • The operating margin was approximately EUR 5.1 million (2018: -1.0), which shows an increase of EUR 6.1 million
  • The operating profit was approximately EUR 0.8 million (2018: -3.9), which shows an increase of EUR 4.7 million
  • The measures for improving profitability, carried out near the end of 2018, had the planned effect in 2019

October–December 2019 in brief:

  • The net sales were approximately EUR 17.4 million (2018: 15.9), which shows an increase of 9.7%
  • The operating margin was approximately EUR 1.6 million (2018: -0.9), which shows an increase of EUR 2.5 million
  • The operating profit was approximately EUR 0.5 million (2018: -1.7), which shows an increase of EUR 2.2 million
  • The order backlog at the end of the review period was EUR 49.8 million (2018: 30.6), which shows an increase of 62.4%
  • Innofactor did not receive any significant individual orders exceeding the limit for requiring a stock exchange release in the fourth quarter as several decisions were delayed until the turn of the year (significant orders received in 2020 can be found in the section "Events after the review period")

Q4 2019 result interviews

Innofactor's CEO Sami Ensio's result interviews by Evli Research's Managing Director Jonas Forslund and Inderes' analyst Joni Grönqvist after Innofactor's Q4 2019 result.

Innofactor Q4 interview with CEO Sami Ensio - Evli

CEO's Review

February 25, 2020

In 2019, we reached our goal of improving the profitability significantly and turning the net sales back to growth

The net sales in 2019 were EUR 64.2 million, which shows an increase of 1.7 percent compared to the previous year. The operating margin (EBITDA) improved by EUR 6.1 million from the previous year and was EUR 5.1 million (7.9 percent of the net sales). The year 2019 offered a significant positive turning point for our business. I am especially happy that we managed to keep the promise about a significant change we gave our shareholders at the beginning of the year. During the year, we succeeded in sales and our order backlog grew fantastically. For example, we got the biggest deal in Innofactor's history, when the Tax administration selected Innofactor as the primary provider of IT specialist services in the area of cloud specialists. The total value of the deal is approximately EUR 10–20 million.

The net sales in the fourth quarter of 2019 were EUR 17.4 million, which shows an increase of 9.7 percent compared to the previous year. The net sales in the local currency grew in all countries compared to the previous year. The low exchange rates of the Swedish krona and Norwegian krone affected the net sales in euros by EUR -0.2 million. The net sales per employee grew 15.6% from the previous year. The operating margin (EBITDA) improved by EUR 2.5 million from the previous year and was EUR 1.6 million (8.9 percent of the net sales), in which the effect of changes in handling lease costs due to the IFRS 16 standard were EUR 0.4 million. The order backlog remained good and was at the end of the review period EUR 49.8 million (2018: 30.6), which shows an increase of 62% compared to the same time in the previous year.

We hired a new Country Manager in Sweden, Marcus Hasselblad, who started in his position on February 5, 2020. I am convinced that he will lead our business in Sweden to strong growth in the coming years. The net sales in Sweden, measured in the local currency, already grew slightly in the last quarter of 2019 and the operating margin was positive.

In January 2020, we appointed the Country Manager in Norway, Jørn Ellefsen, to also be responsible for the business in Denmark as the Country Manager. Jørn Ellefsen has done great work in Norway, and I believe that under his control, also the business in Denmark will undergo significant growth.

I founded Innofactor 20 years ago. The journey from a one man company to a Nordic Microsoft solution provider employing over 500 people has included speed and dangerous turns, but we have been going forward with a plan. 2020 is our anniversary, and I believe that during it, we will achieve significant business results. 

Innofactor's vision 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

Main forces affecting market changes and main trends of innovation are, for example, augmented and virtual reality, Internet of Things (IoT), artificial intelligence, robotics, and blockchains. Factors enabling these include transfer of software into the cloud, data analytics, social media, and mobility. The purchase habits of customers have changed as these business changes are taking place. Our customers expect their IT provider to focus more on business benefits instead of technology benefits. Our customers want to get solutions that are ready for use without a need to make major customer-specific changes. Additionally, customers increasingly wish to purchase continuous services instead of large one-off projects. 

We estimate that the IT service market in the Nordic Countries grew by approximately 3–5% in 2019. We estimate that the growth of the IT service market in the Nordic Countries in 2020 will remain on the same level of approximately 3–5%. Our estimate is based on research institutes’ forecasts and our own outlook on markets. 

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 just one option. The third group is formed by medium-sized companies operating in just one country and typically offering a wide range of IT solutions for companies and organizations, using several competing technologies. The fourth group is formed by small companies operating in one country and often focusing on one solution area, client and/or field. 

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 offering, 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 Nordic large and medium-sized companies and government organizations, which have high standards in their IT solution acquisitions. Innofactor develops solutions, products and services suitable for this group by itself and in cooperation with its partners. Innofactor's strategy supports well the change in the markets. Innofactor believes it can gain market share from its competitors and utilize possible IT market growth in the future.

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. For Innofactor, this provides interesting potential for consolidation and globalization. Innofactor's good reputation concerning the Microsoft ecosystem, proofs of rapid and profitable growth and successful acquisitions together with business culture with entrepreneurial spirit make Innofactor an attractive partner when making reorganizations in the field in the Nordic Countries.

Mission, Vision and Strategy

Becoming the leading provider of digital transformation in each of the Nordic countries

We have made a strategic choice to focus on solutions implemented with or supported by Microsoft platforms, and we have achieved a leading position in the Nordic countries in this market. Going forward, our aim is to become the leading player in the digital transformation in each of the Nordic countries. Our long-term goal is annual growth of 20 percent, the majority of which will be achieved organically, along with profitability of approximately 20 percent.

Innofactor's mission:

Driving the #ModernDigitalOrganization

Innofactor's vision:

The leading provider of organizations' digital transformation in each of the Nordic countries

Innofactor's strategy for achieving this vision includes:

  • The best Nordic professionals in the Microsoft ecosystem
  • Highly productized cloud offering and managed services
  • A proactive, value-adding and flexible delivery model
  • Innovation creation with leading customers in selected industries 

Strategy and its realization in the review period

Innofactor’s vision is to be the leading provider of organizations' digital transformation in each of the Nordic countries (Finland, Sweden, Denmark and Norway). The long-term financial goal is to grow profitably by achieving an annual growth of approximately 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, and by keeping the cash flow positive and by securing solid financial standing in all situations.

The operating margin (EBITDA) grew in the review period of January 1–December 31, 2019, from EUR -1,0 million in the same period in the previous year to EUR 5.1 million (7.9 percent of the net sales), of which EUR 1.7 million was due to the implementation of IFRS 16. As regards profitability, Innofactor was able to improve its performance substantially, but a significant amount of management effort and work are still needed in order to reach the long-term goal of approximately 20 percent. The required actions are clear and known, so we believe that reaching this goal is entirely possible.

Innofactor’s net sales in the review period of January 1–December 31, 2019, were EUR 64.2 million (2018: 63.1), which shows an increase of 1.7 percent compared to the previous year. The net sales grew 9.7% in the last quarter of 2019, and growth was seen in all countries. The strategic goal of getting the net sales to grow is also supported by the well developed order backlog of EUR 49.8 million (2018: 30.6). In 2020, Innofactor will pay special attention to management of growth and sales. As regards this, we have, for example, already renewed our sales model and sales management at the beginning of 2020.

Innofactor’s operating cash flow in the review period of January 1–December 31, 2019, was EUR 6.2 million (2018: -0.6) and the equity ratio at the end of the review period was 40.2 percent (2018: 41.2%). The handling of lease liabilities in a new way in accordance with IFRS 16 had a positive effect of approximately EUR 1.5 million in the operating cash flow and approximately 3.9 percentage point negative effect in the equity ratio. The strong operating cash flow supports Innofactor’s strategic goal of profitable growth and securing solid financial standing in all situations.

Key Figures

2019

2018

2017

2016

2015

Net sales, EUR thousand

64,198

63,144

65,666

59,616

44,452

Operating profit before depreciation
and amortization (EBITDA), EUR thousand

5,089

-1,029

1,308

4,831

3,705

percentage of net sales

7.9%

-1.6%

2.0%

8.1%

8.3%

Operating profit (EBIT), EUR thousand

795

-3,872

-1,461

2,332

2,542

percentage of net sales

1.2%

-6.1%

-2.2%

3.9%

5.7%

Earnings before taxes, EUR thousand

12

-3,811

-1,579

1,920

1,935

percentage of net sales

0.0%

-6.0%

-2.4%

3.2%

4.4%

Earnings, EUR thousand

418

-3,462

-2,007

1,536

1,548

percentage of net sales

0.7%

-5.5%

-3.1%

2.6%

3.5%

Shareholders' equity, EUR thousand

22,145

21,303

24,764

22,501

24,534

Interest bearing liabilities, EUR thousand

12,018

15,418

14,228

16,701

9,219

Cash and cash equivalents, EUR thousand

963

258

910

902

843

Deferred tax assets, EUR thousand

5,602

5,602

5,668

5,760

6,704

Return on equity

1.9%

-13.8%

-5.3%

6.5%

6.6%

Return on investment

2.3%

-7.7%

-2.4%

6.4%

7.6%

Net Gearing

71.8%

71.2%

53.8%

70.2%

34.1%

Equity ratio

40.2%

41.2%

43.4%

35.8%

56.9%

Balance sheet total, EUR thousand

55,720

51,875

58,272

63,587

43,983

Research and development, EUR thousand

2,795

2,860

3,298

3,394

2,495

percentage of net sales

4.4%

4.5%

5.0%

5.7%

5.6%

Personnel on average during the year

534

591

610

532

409

Personnel at the end of the year

538

550

601

591

415

Number of shares at the end of the year

36,806,307

36,188,225

36,188,225

32,901,377

33,453,737

Earnings per share (EUR)

0.0113

-0.0880

-0.0357

0.0467

0.0475

Shareholders' equity per share (EUR)

0.602

 0.589

0.684

0.684

0.733


* Innofactor primarily monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months.

Growth and Financial Targets

Annual net sales growth from 2015 to 2019 has been 10% on average.

 

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 about 20 percent EBITDA in relation to the net sales
  • By keeping 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:

  • Focus on selected industries and solution areas (customer journeys) that provide the highest growth opportunities and allow us to best scale existing offering in the Nordics
  • Focus on current customers and cross sales to get a bigger share of wallet of customers' digital transformation budgets
  • Improving modern digital marketing and sales skills to achieve better and more cost-effective sales results
  • Focus on competence planning, recruiting and resource optimization across Nordics
  • Shifting revenues from projects and professional services toward products, IP-based and continuously managed services that support selected solution areas and industries
  • Strengthening continuously our specialists' professional skills and improving our leading offering in order for our customers to pay hour price above market average
  • Aiming to move to self-organized teams and to reduce organizational layers achieving better communication and faster decision making
  • Continuously improving our flexible value-adding delivery model minimizing number of non-invoiced hours and maximizing customer satisfaction

Customers

Innofactor's business operations were focused on Finland, Sweden, Denmark, and Norway. Of the net sales in January 1–December 31, 2019, approximately 61 percent came from Finland, approximately 22 percent from Sweden, approximately 11 percent from Norway, and approximately 6 percent from Denmark. The net sales grew in Finland and Norway, but decreased in Sweden and Denmark. However, when measured in the local currency, the net sales in the last quarter of 2019 grew in all countries.

Of the net sales in January 1–December 31, 2019, approximately 50 percent came from commercial clients, approximately 34 percent from public sector clients, and approximately 16 percent from third sector clients.

 

Distribution of net sales in January 1–December 31, 2019

distribution of net sales

 

Innofactor's net sales in the review period of January 1–December 31, 2019, came from the following sources:

  • approximately 6 percent from licenses, of which the share of licensing income to third parties was approximately 4 percent of the net sales
  • approximately 22 percent from services based on recurring service contracts, such as SaaS, cloud and hosting services, and from software maintenance
  • approximately 24 percent from specialist work based on recurring service contracts, such as smaller customer-specific changes and further development of IT systems
  • approximately 48 percent from IT system delivery projects and consulting

Innofactor’s 10 largest clients accounted for approximately 24 percent of the net sales during the review period January 1–December 31, 2019.

 

Get to know our customer stories 

Personnel

Towards a modern digital organization in the Nordics

Highly competent employees, good leading practices and Nordic processes support Innofactor's long-term goals. In 2018, Finland went over to self-organized teams, reduced organization levels and improved information flow. Also, the focal points of key duties were moved closer to the customer interface.

Financial Statement 2019: The number of personnel in Innofactor is clearly lower than in the previous year due to the business development actions implemented

 

Primarily, Innofactor monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months.

The average number of active personnel in October 1–December 31, 2019, was 538 persons (2018: 567), which shows a decrease of 5.1 percent. The average number of active personnel in January 1–December 31, 2019, was 534 persons (2018: 591), which shows a decrease of 9.6 percent. At the end of the review period, the number of active personnel was 538 (2018: 550), which shows a decrease of 2.2 percent. The decrease in the number of personnel was especially due to the reorganization implemented in Finland in the last quarter of 2018.

At the end of the review period, the average age among personnel was 41.6 years (2018: 40.8). Women accounted for 26 percent (2018: 27%) of the personnel. Men accounted for 74 percent (2018: 73%) of the personnel.

Get to know our people!

Self-organized teams and lighter organization in Finland

Innofactor renewed its organization in Finland in late 2018. The number of offices and key duties were reassessed, and their focus was changed to serve the current business better. Innofactor decided to adopt self-organized teams in Finland and made a major organizational change to support this. The purpose of the reform is to reduce organizational levels, speed up decision-making and thereby improve employee satisfaction. With the organizational change, we want to strengthen the position of the teams and give superiors a better focus on their management duties.

Towards common Nordic operating models

Innofactor's target is to build a company with Nordic integration that can help its customers to build a modern digital organization. Innofactor continued development projects in 2018 to create a basis for Nordic operating models. Common systems, processes and culture will support Innofactor's strategic targets and co-operation between the countries.

Of the personnel processes, we carried out a performance management process and an employee satisfaction survey in a uniform way in all Nordic countries in 2018. Personnel and superiors were trained in Nordic performance management courses, and development discussions were held using uniform timetables and models. The idea with Nordic superior and personnel training is to ensure systematic communication and a uniform leadership culture throughout the organization. Through performance management, Innofactor will ensure that each employee has clear targets, feedback is received regularly, and personal development is supported systematically. Employee satisfaction was measured with quarterly surveys, selecting areas to develop both in each country and at group level.

The leadership culture supports integration

The leadership training program for team leads, designed to improve leadership culture, was concluded in 2018. The target was to unify leadership culture and improve leadership skills throughout the organization. Approximately 30 team leads from all Nordic countries took part in the programme. The programme focused on networking and superiors' competences in managing experts. According to the feedback, superiors had obtained excellent tools for day-to-day management, coaching, giving feedback and development of their own leadership skills. The target with superior and line managers' training is to ensure good immediate management work quality and leadership coaching throughout the organization.

In addition to leadership training, Innofactor Academy continued to train the rest of the personnel. The focus areas included training based on Microsoft technology, basic induction and tools related to project management (such as ITIL and SCRUM). Through Innofactor Academy personnel were trained both locally and at Nordic level.

Operating models to support modern work better

In 2018, the Microsoft Dynamics 365 Enterprise Resource Planning system (ERP) was expanded to cover all Nordic countries. With the common personnel system, Innofactor renewed its operating model and reporting. Common system increases the level of automation at Innofactor and enables common reporting practices throughout the group.

Integration and modern work methods were supported at Innofactor by renewing both external and internal communication. Communication was developed by
describing, together with the personnel, the principles of communication in the form of an Innofactor Collaboration Playbook. The Playbook defines what tools and communication channels are used for various purposes, and under what principles information is communicated within the company. In addition, Innofactor renewed its intranet pages with the latest SharePoint technology, which supports news mobile use better in the future. In terms of team work, Innofactorilla started actively using Teams in 2018. This enables more fluent and efficient team working and sharing of information regardless of time and place between countries.

In 2018, many of our employees renewed their Microsoft Most Valuable Partner (MVP) awards, and we also received new MVPs. Microsoft MVPs are technology experts who actively share their expertise in communities and want to be among the first to learn about new technologies. MVPs have a deep understanding of Microsoft products and services and an ability to combine a variety of platforms and products to solve problems in the real world.

Offering

We help our customers to build a modern digital organization

Our offering and delivery model are designed to deliver our customers long-term value by leveraging new technology and innovations in ways that take into account their current state and objectives.

Based on years of experience working at the forefront of digitalization with more than 1,500 private, public and third sector customers and the expertise of over 600 leading business and cloud technology professionals, we have developed a vision of a Modern Digital Organization. It's founded on a framework we're successfully using to help our customers take advantage of cloud technology and new innovations across their organization and operations. The approach is simple and effective, delivering quick, tangible results and paving the way for long-term customer relationships. We start with defining the big picture – helping our customers determine their current state, define their objectives and build a digitalization roadmap for their organization. We then continue our joint journey to build a modern digital organization leveraging the five areas of our framework. Innofactor offers leading solutions, services and products in each area, as well as an agile delivery model that helps our customers to successfully design, deploy and continuously develop new solutions.

Our solutions and services for building a modern digital organization

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 delivering both traditional IT projects as well as cloud services. It consists of five stages, each of which delivers our customers quick, tangible value. We offer our customers five productized delivery models, called Journeys, that are founded on our Modern Digital Organization framework. The value of our deliveries is based on not only helping our customers to design and implement a specific solution, but also supporting them in adopting it within their organization and evaluating its impact to their business processes and IT architecture. In our delivery model, we focus on providing managed services and continuous development of our solutions throughout their lifecycle.

read more about our solutions for modern digital organization

Acquisitions

In 2018 Innofactor made no acquisitions, but focused on integrating Cinteros AB, acquired in 2015, and the Lumagate companies, acquired in 2016, into the Innofactor Group. Our past acquisitions are as follows:

 

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 is convinced that the company's long-term success is based on sustainable operations. Our digital solutions are in a key position in curbing climate change and promoting sustainable development. Our operation is steered 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.

In 2018, Innofactor conducted a survey to learn about the employees' views of the most material sustainability themes in the organization. The most relevant sustainability themes for the personnel in Finland were providing solutions which enable sustainable growth for our customer organizations, increasing energy efficiency in our operations, improving recycling in our offices and highlighting sustainability issues in our communications.

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.

Read more about Innofactor's sustainability

Future Outlook

Innofactor’s future outlook for 2020

Innofactor’s net sales and operating margin (EBITDA) in 2020 is estimated to increase from 2019, during which the net sales were EUR 64.2 million and operating margin was EUR 5.1 million.

Do you want to hear more about Innofactor? Contact us!
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