28.07.2020 09:00 EEST (UTC +3)
Innofactor Plc Half-Yearly Report July 28, 2020, at 9:00 Finnish time
Innofactor's net sales grew on Q2 and H1, and the operating margin reached record highs as regards the comparison periods
April–June 2020 in brief:
- The net sales were approximately EUR 16.8 million (2019: 16.7), which shows an increase of 0.6%
- The operating margin was approximately EUR 2.1 million (2019: 1.1), which shows an increase of 83%
- The operating profit was EUR 0.9 million (2019: 0.2), which shows an increase of 479%
- The order backlog at the end of the review period was EUR 56.9 million (2019: 44.2), which shows an increase of 29%
- Innofactor got several significant orders in the first quarter, for example,
- The framework agreement for The Employment Fund, approximately EUR 3–5 million (not yet in the order backlog at the end of the review period)
- The Microsoft Office 365 and Microsoft SharePoint application management services for VTT, approximately EUR 2.5 million
- Digitalizing the quotation process for a large manufacturing industry company, approximately EUR 1.7 million
- Further development for a Swedish trade union, approximately EUR 1.0 million (not yet in the order backlog at the end of the review period)
January–June 2020 in brief:
- The net sales were approximately EUR 33.9 million (2019: 32.8), which shows an increase of 3.4%
- The operating margin was approximately EUR 4.0 million (2019: 2.0), which shows an increase of 101%
- The operating profit was EUR 1.7 million (2019: EUR 0.1), showing growth of 2,602%.
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Key figures of the group, IFRS |
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Apr 1–Jun 30, 2020 |
Apr 1–Jun 30, 2019 |
Change |
Jan 1–Jun 30, 2020 |
Jan 1–Jun 30, 2019 |
Change |
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Net sales, EUR thousand |
16,755 |
16,651 |
0.6% |
33,907 |
32,799 |
3.4% |
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Growth of net sales |
0.6% |
-2.1% |
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3.4% |
-2.0% |
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Operating result before depreciation and amortization (EBITDA), EUR thousand* |
2,063 |
1,127 |
83.1% |
4,020 |
1,997 |
101.4% |
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percentage of net sales* |
12.3% |
6.8% |
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11.9% |
6.1% |
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Operating profit/loss (EBIT), EUR thousand* |
884 |
153 |
479.1% |
1,700 |
63 |
2,602.3% |
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percentage of net sales* |
5.3% |
0.9% |
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5.0% |
0.2% |
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Earnings before taxes, EUR thousand* |
1,196 |
-104 |
1,247.2% |
1,073 |
-301 |
456.7% |
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percentage of net sales* |
7.1% |
-0.6% |
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3.2% |
-0.9% |
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Earnings, EUR thousand* |
1,274 |
2 |
76,015.7% |
1,478 |
-86 |
1,817.2% |
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percentage of net sales* |
7.6% |
0.0% |
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4.4% |
-0.3% |
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Order backlog |
56,896 |
44,170 |
28.8% |
56,896 |
44,170 |
28.8% |
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Net gearing* |
69.2% |
85.0% |
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69.2% |
85.0% |
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Net gearing without IFRS 16 |
48.7% |
63.3% |
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48.7% |
63.3% |
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Equity ratio |
41.3% |
39.7% |
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41.3% |
39.7% |
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Equity ratio without IFRS 16 |
45.2% |
43.1% |
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45.2% |
43.1% |
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Active personnel on average during the review period**** |
546 |
540 |
1.1% |
549 |
542 |
1.3% |
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Active personnel on average at the end of the review period**** |
548 |
538 |
1.9% |
548 |
538 |
1.9% |
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Earnings per share (EUR) |
0.0341 |
0.0000 |
76,015.7% |
0.0395 |
-0.0023 |
1,817.2% |
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*) The handling of lease liabilities in accordance with IFRS 16 had a positive effect of EUR 504 (2019: 320) thousand in the operating margin (EBITDA) in April 1–June 30, 2020, and an effect of EUR 1,009 (2019: 620) thousand in the operating margin (EBITDA) in January 1–June 30, 2020.
**) In accordance with IFRS 3, the operating result in April 1–June 30, 2020, includes EUR 473 thousand (2019: 507) and in January 1–June 30, 2020, EUR 947 thousand (2019: 1,015) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets
***) Exchange rate changes related to the Group's internal debts (due to the weakened rate of the Swedish krona and Norwegian krone in relation to euro) results in an exchange rate loss of EUR -297 thousand in accordance with IFRS in January 1–June 30, 2020, but this loss does not affect the cash flow, only the result for the financial period, the Group's balance sheet and the equity ratio. In April 1–June 30, 2020, there occurred an exchange rate profit of EUR 562 thousand as these currencies strengthened against euro.
****) The Innofactor Group monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months.
Innofactor’s future outlook for 2020
Innofactor’s net sales and operating margin (EBITDA) in 2020 are estimated to increase from 2019, during which the net sales were EUR 64.2 million and operating margin was EUR 5.1 million.
CEO Sami Ensio's review: Gaining a strong upper hand on the coronavirus on Q2 – the negative effects of the epidemic on business are still estimated to remain small overall
The net sales in the second quarter of 2020 were EUR 16.8 million, which shows an increase of 0.6 percent compared to the previous year. The operating margin (EBITDA) grew by 83 percent from the previous year and was EUR 2.1 million (12.3 percent of the net sales). In the second quarter, the order backlog grew to a record-breaking amount and was EUR 56.9 million at the end of the quarter, which shows an increase of 28.8 percent compared to the corresponding time in the previous year.
The net sales in the first half of 2020 were EUR 33.9 million, which shows an increase of 3.4 percent compared to the previous year. The net sales grew in Finland, remained approximately on last year's level in Norway and Denmark, and decreased in Sweden. The operating margin (EBITDA) grew by 101.4 percent from the previous year and was EUR 4.0 million (11.9 percent of the net sales).
The negative effects of the coronavirus epidemic remained smaller than estimated in the second quarter. The coronavirus situation did not affect Innofactor's ability to produce services for its customer's. On the contrary, the productivity of the employees partly even improved due to fewer sick leaves. All of the Group's employees worked remotely in March 12–June 25, 2020, after which the remote work recommendation has been extended on the country level in Sweden.
The corona epidemic lowered the net sales of the second half in Sweden, Norway and Denmark. However, in these countries, country level adjustments related to the coronavirus were utilized well to lessen the effects on the operating margin. In the Nordic countries in Q2, Innofactor received a total of approximately EUR 0.3 million in support from the states due to the coronavirus.
The goal of increasing the net sales during the rest of the year is supported by the record high order backlog and the potential of increasing the invoicing rate. However, our estimate is that the coronavirus epidemic will have a small effect on the net sales and profitability of the rest of the year on the Group level. We estimate that it is possible that we may not achieve comparable growth and profitability in the third quarter as we did in the first and second quarters. The growth and profitability in the fourth quarter are largely based on whether there will be a second wave of the coronavirus epidemic in Finland, Norway and Denmark, how the coronavirus epidemic can be managed in Sweden, and what kind of effects the epidemic will have on companies' willingness to invest in IT services near the end of 2020.
In short term, the coronavirus epidemic will affect Innofactor mainly, if our customers scale back their purchases or move their acquisitions to a later date. We estimate that the negative effects of the coronavirus epidemic in Innofactor's business remain small for the following reasons:
- A significant part (over 50 percent) of Innofactor's business consists of recurring services, and the customers' purchase behavior does not affect these much.
- We mainly offer business critical systems for our customers, and customers typically continue their development and maintenance even in unusual conditions.
- Approximately half of our customer base consists of public administration and third sector customers, who are affected more slowly by the coronavirus and who also consider it sensible to proceed with their purchases in order to keep the society going.
- Our business customers are mainly from fields, such as industry, which are not so strongly and quickly affected by the coronavirus as certain other fields.
- Our order backlog is very strong, and if needed, we are able to transfer personnel between projects to some degree and make our deliveries faster, which means that a loss of an individual customer will not necessarily affect our business.
- We have been able to quickly develop new services for the coronavirus epidemic situation for our customers, such as the Remote Work Acceleration Pack (www.innofactor.com/remote-work), which we believe will bring some replacement net sales to compensate for any losses.
- The societies in the countries in which we operate are granting many forms of relief, flexibility and support, which also helps Innofactor's profitability and financing.
In the long term, we believe that the digital step the society is taking due to the coronavirus epidemic 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 – also when preparing for the possible second wave of the coronavirus. It is also possible 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 would have a favorable effect as regards the business model of Innofactor's chosen strategy based on Nordic specialists. We also believe that Microsoft's position has strengthened during the coronavirus epidemic. We believe in our chances of increasing our market share in the Nordic countries.
In May, Innofactor made an agreement with the current owners of Arc Technology Oy concerning an arrangement in which Innofactor will increase its ownership in the HRM system provider Arc Technology Oy to 100 percent by the end of 2020. The agreement is binding on all parties. Currently Innofactor owns 45.13 percent of the company and has control over the company. After the signing of the agreement, the operative functions of Arc Technology have been integrated alongside Innofactor's functions in whole during the review period. This provides us synergy benefits, and we can offer even better quality services to Arc Technology due to our larger resources supported by Innofactor's offering, processes and personnel. Arc Technology will increase Innofactor's annual net sales by approximately EUR 1 million.
Innofactor's vision is to be the leading implementer of digitalization in each of the Nordic countries. We believe even stronger in our chosen Nordic strategy and in reaching our long-term goals in the world after the coronavirus epidemic. Innofactor is still actively looking for new strategic partnerships. The Group’s goal is to grow both organically and through acquisitions. The coronavirus epidemic and the time after it may provide new and even surprising opportunities for this, and those may require fast actions. In view of this, we have drafted a separate plan, started to actively monitor the situation and, at the end of April, acquired EUR 3.0 million in additional funding in the form of a senior loan from a major Finnish pension insurance company to support our possible projects for gaining growth.
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.
Innofactor’s net sales in the first half of the year were EUR 33.9 million (2019: 32.8), which shows an increase of 3.4 percent compared to the previous year. The net sales grew in Finland, remained approximately on last year's level in Norway and Denmark, and decreased in Sweden. The growth of the net sales was limited by the coronavirus epidemic, especially outside of Finland. The goal of getting the net sales to grow is also supported by the record-breaking order backlog of EUR 56.9 million (2019: 44.2). Innofactor has plans for actions to achieve the growth of 20 percent in the coming years. The effects of the coronavirus epidemic and Innofactor's strengthened financing position may also provide new possibilities for inorganic growth in the future. For this reason, Innofactor acquired EUR 3.0 million in additional funding in the form of a senior loan from a major Finnish pension insurance company.
In the review period, the operating margin (EBITDA) grew by 101.4 percent from the previous year and was EUR 4.0 million (11.9 percent of the net sales). As regards profitability, Innofactor was able to improve its performance substantially. Innofactor has plans for actions to achieve an operating margin (EBITDA) of 20 percent in the coming years. Possibilities for improving profitability can be found especially outside of Finland, where there have been significant challenges to the profitability especially during the coronavirus epidemic.
Innofactor’s operating cash flow in the review period of January 1–June 30, 2020, was EUR 6.3 million (2019: EUR 2.1 million) and the equity ratio at the end of the review period was 41.3 percent (2019: 39.7 percent). The strong operating cash flow and financial position support Innofactor’s strategic goal of profitable growth and securing solid financial standing in all situations.
Espoo, July 28, 2020
INNOFACTOR PLC
Board of Directors
Additional information:
CEO Sami Ensio, Innofactor Plc
Tel. +358 50 584 2029
sami.ensio@innofactor.com
Briefings concerning the half-yearly report January 1–June 30, 2020
Innofactor will publish the half-yearly report for January–June on Tuesday, July 28, 2020, at around 9:00 Finnish time.
A video conference in Finnish concerning the half-yearly report will be held for media, investors and analysts on the same day at 10:00 Finnish time. The corresponding video conference in English will be held at 12:00 Finnish time. The report will be presented by CEO Sami Ensio and CFO Markku Puolanne.
Please register for the conferences beforehand by sending email to ir@innofactor.com. The link for participating will be sent to the registered persons on the previous day.
The presentations will be available on Innofactor's web site after the conferences.
Distribution:
NASDAQ Helsinki
Main media
www.innofactor.com
Innofactor
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. www.innofactor.com #ModernDigitalOrganization #PeopleFirst #CreatingSmiles
Attachment: Innofactor Plc's Half-Yearly Report January 1–June 30, 2020 (IFRS)