Innofactor Plc

Annual Report (ESEF) • Mar 6, 2024

Innofactor Group Group Innofactor Explanation of change in name of reporting entity or other means of identification from end of preceding reporting period No Domicile of entity Espoo Legal form of entity PLC Country of incorporation Finland Address Keilaranta 9 Espoo Principal place of business Espoo Description of nature of entitys operations and principal activities Computer programming activities Parent Innofactor Plc Name of parent entity Innofactor Plc Innofactor Plc Financial Statements and Annual Report financial year January 1 to December 31, 2023 Report of the Board of Directors 2023 IFRS FINANCIAL STATEMENTS Comprehensive Consolidated Profit and Loss Statement Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Change in Shareholders’ Equity Financial Statements Parent Company Financial Statement (FAS) Signatures Auditor’s Report Innofactor Plc Annual Report January 1 to December 31, 2023 Report of Innofactor Plc’s Board of Directors for 2023 Innofactor Group Innofactor is one of the leading software providers focused on Microsoft solutions in the Nordic countries. Innofactor delivers to its customers IT projects as a system integrator and develops its own software products and services. The focus of Innofactor’s product development is on cloud solutions for Microsoft and its ecosystem. Innofactor’s customers include approximately 1,000 private and public sector organizations in the Nordic Countries. In its operations, Innofactor strives for long-term customer relationships. Innofactor has approximately 600 motivated and skilled employees in approximately 16 locations in Finland, Sweden, Denmark and Norway. The structure of the Innofactor Group at the end of the financial period 2023 is presented below. At the end of the financial period, the Innofactor Group included the following companies: Innofactor Plc, Finland (parent company) Innofactor Software Oy, Finland, 100% Innofactor Invenco Oy, Finland, 100% Innofactor Holding AB, Sweden, 100% Innofactor AB, Sweden, 100% Innofactor Holding ApS, Denmark, 100% Innofactor A/S, Denmark, 100% Innofactor Holding AS, Norway, 100% Innofactor AS, Norway, 100% Financial performance and position 2023 2022 2021 2020 2019 Net Sales, EUR thousand 80 263 71 130 66 364 66 164 64 198 Operating profit before depreciation and amortization (EBITDA), EUR thousand 9 101 7 808 10 111 7 164 5 089 percentage of net sales 11,3 % 11,0 % 15,2 % 10,8 % 7,9 % Operating profit (EBIT), EUR thousand 5 835 4 751 6 519 2 501 795 percentage of net sales 7,3 % 6,7 % 9,8 % 3,8 % 1,2 % Earnings before taxes, EUR thousand 5 174 4 178 5 730 2 050 12 percentage of net sales 6,4 % 5,9 % 8,6 % 3,1 % 0,0 % Earnings, EUR thousand 3 438 3 320 4 504 1 761 418 percentage of net sales 4,3 % 4,7 % 6,8 % 2,7 % 0,7 % Shareholders’ equity, EUR thousand 25 483 24 799 25 404 23 444 22 145 Interest-bearing liabilities, EUR thousand 9 616 14 349 9 818 15 386 16 853 Cash and cash equivalents, EUR thousand 425 1 956 1 963 3 066 963 Deferred tax assets, EUR thousand 2 415 4 090 4 830 6 413 5 602 Return on equity 13,7 % 13,2 % 18,4 % 7,7 % 1,9 % Return on investment 18,0 % 14,5 % 20,6 % 11,1 % 2,3 % Net gearing 36,1 % 50,0 % 30,9 % 52,5 % 71,8 % Equity ratio 48,3 % 44,8 % 51,1 % 42,2 % 40,2 % Balance sheet total, EUR thousand 54 451 55 815 51 057 56 607 55 720 Research and development, EUR thousand 5 108 4 153 3 504 3 618 2 795 percentage of net sales 6,4 % 5,8 % 5,3 % 5,5 % 4,4 % Personnel on average during the year 578 536 516 544 534 Personnel at the end of the year 581 564 500 541 538 Number of shares at the end of the yeara 36 343 691 36 588 225 37 388 225 37 388 225 37 388 225 Earnings per share (EUR) 0,09 0,09 0,12 10,05 0,01 Shareholders’ equity per share (EUR) 0,70 0,68 0,68 0,56 0,59 Liikevaihto Innofactor’s net sales in 2023 were EUR 80,263 thousand (2022: 71,130), representing growth of 12.8 percent. Organic net sales growth was approximately 9.1 percent. Net sales per active employee amounted to approximately EUR 138.9 thousand (2022: 132.7), representing an increase of 4.6 percent. Financial Performance Innofactor’s operating margin (EBITDA) in 2023 was EUR 9,101 thousand (2022: 7,808), which shows an increase of 16.6 percent. EBITDA represented 11.3 percent of net sales (2022: 11.0%). Innofactor’s operating profit in 2023 was EUR 5,835 thousand (2022: 4,751), representing an increase of 22.8 percent. Operating profit was 7.3 percent of net sales (2022: 6.7%). Financial Position, Liquidity and Investments Innofactor’s balance sheet total at the end of 2023 was EUR 54,451 thousand (2022: 55,815). The Group’s liquid assets totaled EUR 425 thousand (2022: 1,956), consisting entirely of cash funds. Operating cash flow in 2023 was EUR 7,229 thousand (2022: 6,704). Cash flow from investing activities was EUR -533 thousand (2022: -3,593). The equity ratio at the end of 2023 was 48.3 percent (2022: 44.8%) and net gearing was 36.1 percent (2022: 50.0%). At the end of 2023, the company had EUR 4,555 thousand in current interest-bearing liabilities to financial institutions (2022: 4,886) and EUR 1,770 thousand in non-current interest-bearing liabilities to financial institutions (2022: 4,517). The company had IFRS 16 lease liabilities (leases for the duration of fixed-term leases) of EUR 3,291 thousand (2022: 4,947) of which EUR 1,996 thousand in current leases (2022: 2,115) and EUR 1,295 thousand in non-current leases (2022: 2,832). The total amount of interest-bearing liabilities was EUR 9,616 thousand (2022: 14,349). The return on investment in 2023 deincreased slightly year-on-year and was 18.0 percent (2022: 14.5%). The return on equity in 2023 deincreased year-on-year and was 13.7 percent (2022: 13.2%). The non-current assets on Innofactor's balance sheet at the end of 2023 were EUR 35,578 thousand in total and consisted of the following items: Tangible assets and right-of-use assets totaling EUR 4,257 thousand Goodwill EUR 26,835 thousand Other intangible assets EUR 1,929 thousand Shares and holdings EUR 98 thousand Receivables EUR 44 thousand Deferred tax assets EUR 2,415 thousand Innofactor’s gross investments in tangible and intangible assets in 2023 were EUR 714 thousand (2022: 872), consisting of normal additional and replacement investments required by growth. Write-offs on intangible assets amounted to EUR 512 thousand (2022: 568). * Goodwill and intangible assets arising from acquiring foreign companies are considered as assets of the foreign unit, and they are converted at the closing date’s rate. The resulting exchange differences are recognized in comprehensive income. Mergers, Acquisitions and Changes in Group Structure During the review period, Innofactor simplified its group structure by dissolving Innofactor HRM Oy (the entire business operations of Innofactor HRM Oy had previously been transferred to Innofactor Software Oy by means of a business transfer, and there was no longer any need for the company) and merging Innofactor Invenco Software Ltd with Innofactor Invenco Ltd. During the review period, Innofactor increased its holding in LATO Leadership Automation Tools Ltd. At the end of 2023, Innofactor held 38.4 percent of the company’s shares. The company’s net sales amount to approximately EUR 0.6 million, and it provides strategic planning, implementation and monitoring software for organizations on a SaaS basis. 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 in 2023 was 578 (2022: 536), representing an increase of 7.8 percent. At the end of 2023, the number of active personnel was 581 (2022: 564), representing an increase of 3.0 percent. At the end of 2023, the average age of the personnel was 42.1 (2022: 42.7). Women accounted for 26 percent (2022: 26%) of the personnel. Men accounted for 74 percent (2022: 74%) of the personnel. Strategy and its realization in 2023 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 The most competent Nordic teams Productized and specialized offering Proactiveand agile way of working Innovation with top customers Our values: Accountability Empowerment Innovation Customer Our working principle: Our principle is to put people first in everything we do. We want to provide solutions that make our customers’ everyday work and life run smoothly and bring a smile to their faces. Employer promise: Be The Real You Employer promise: Be the real you Our long-term financial goals: To achieve annual growth of about 20 percent, the majority of which 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 good financial standing in all situations Innofactor’s net sales in 2023 totaled EUR 80.3 million (2022: 71.1), representing year-on-year growth of 12.8 percent. Of the growth, approximately 9.1 percent was organic, excluding net sales derived from the Invenco acquisition of June 30, 2022. We are lagging behind our strategic growth target. We aim to further improve our operational performance to drive growth. Our goal is to increase the number of chargeable personnel, taking the order backlog into consideration. During the review period, the number of personnel at Innofactor increased by 7.8 percent year-on-year. We look for acquisition targets to enable inorganic growth. The operating margin (EBITDA) for the full year 2023 increased from EUR 7.8 million in the previous year to EUR 9.1 million (11.3 percent of net sales). 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. We aim to further enhance our operational performance to improve profitability. We will pay particular attention to improving profitability in our operating countries outside Finland. Innofactor’s operating cash flow in 2023 was EUR 7.2 million (2022: EUR 6.7 million) and the equity ratio at the end of 2023 was 48.3 percent (2022: 44.8%). 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. This will be achieved by, for example, enhancing sales, improving the management of project and service contracts, enhancing the allocation of human resources, and developing our self-organized team models. 2. We will increase the share of SaaS services and licenses to over 33 percent of net sales from the current level of approximately 32 percent. This will be achieved by, for example, developing our offering and 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, maintaining a high annual level of recruitment of new university graduates, concentrating the recruitment of senior professionals to our Nordic recruitment team, increasing the competence of our employees through certifications, keeping employee turnover low, 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. Business Operations Innofactor focuses on the Microsoft ecosystem in its business operations. Innofactor both operates as a system integrator and develops its own software products and services, which offers Innofactor significant competitive edge and synergy benefits. System integrator operation increases Innofactor's understanding of the customers' product and service needs and also acts as a delivery channel for its own products and services. Focusing on the Microsoft ecosystem creates insurmountable know-how for Innofactor and also makes it the most desirable partner in the Nordic Countries for Microsoft, which helps Innofactor to get the best deals. Innofactor’s offering is divided into the following areas: Our comprehensive solutions, which are integrated into each other, are based on real customer needs and on utilizing the latest technology. We achieve high-quality deliveries and provide our customers with fast benefits due to our experience and understanding of our customers combined with our knowledge of the latest cloud services. We have been cooperating with Microsoft and the leading operators within its ecosystem for more than 20 years. This enables us to provide our customers with the best possible support. Innofactor provides its solutions through the Microsoft Cloud or installed in the Innofactor Service Center or on the customer’s own servers. SaaS services that are typically paid for annually or monthly (including cloud services, hosting services and software maintenance) play a significant role in Innofactor’s business operations. SaaS services substantially reduce cyclicality in business. Innofactor’s business operations were focused on Finland, Sweden, Denmark and Norway. In 2023, approximately 73 percent of the Group’s net sales came from Finland, approximately 12 percent from Sweden, approximately 11 percent from Norway, and approximately 4 percent from Denmark. Net sales denominated in the local currency increased in Finland and Norway, but decreased in Sweden and Denmark. In 2023, approximately 52 percent of the net sales came from commercial clients (including third-sector clients) and approximately 48 percent came from public sector clients. Net sales of licenses and SaaS grew throughout the year, from 27 percent in the first quarter to 32 percent in the fourth quarter, which improved profitability. Simultaneously, the share of projects decreased throughout the year, from 35 percent in the first quarter to 33 percent in the fourth quarter, which also had a positive effect on profitability. Innofactor’s net sales in 2023 came from the following sources: Licenses: 5 percent, including all non-recurring fees received for software SaaS: 27 percent, including recurring income from SaaS, cloud and hosting services and from software maintenance Services: 35 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 from IT system delivery projects and consulting Innofactor’s 10 largest clients accounted for about 30.7 percent of the net sales in 2023. Major Events in the Financial Period On February 13, 2023, Innofactor issued a stock exchange release to announce that Innofactor and Metso Outotec Plc have signed a contract to continue the digitalization of the company’s quotation process. Innofactor will continue the development work started in 2020 to design and implement, using agile methods, a cloud-based solution for managing the quotation process and handling and storing related information and documents. The solution is implemented using Microsoft Azure PaaS cloud services. The value of the agreement (excluding VAT) is at most EUR 0.70 million and the services were to be delivered during the year 2023. On February 16, 2023, Innofactor announced in a stock exchange release that Senate Properties has selected Innofactor with a procurement decision to continue the development and maintenance of an HR system. The system is based on the Innofactor Kide HR solution. Innofactor estimates the total value of the procurement at approximately EUR 0.8 million. On February 17, 2023, Innofactor announced in a stock exchange release that the Board of Directors of Innofactor Plc has decided, based on the authorization granted to it by the Annual General Meeting, on a share-based incentive plan for all of Innofactor Group’s personnel in order to commit the personnel to the company and its goals (“Personnel Share Issue”). In the Personnel Share Issue, a maximum total of 400,000 shares (“Personnel Shares”) of the company will be issued to the Innofactor Group’s personnel, deviating from the shareholders’ pre-emptive subscription rights. At the time of making the decision Innofactor Plc had 37,388,225 shares. Innofactor Plc’s shares which are in the company’s possession will be used for the Personnel Share Issue. The subscription price for the Personnel Shares will be EUR 1.01 per share. The share subscription price is based on the trade volume weighted average price of the company’s share on Nasdaq Helsinki Ltd for the previous month and on a discount of 10 percent thereof. On March 1, 2023, Innofactor issued a stock exchange release to announce that Innofactor Plc has completed its share buy-back program. The repurchases of the shares began on September 29, 2022, and ended on February 28, 2023. During that period, Innofactor repurchased 800,000 of its own shares for an average price per share EUR 1.0550. The shares were acquired at the current market price in the public trading arranged by Nasdaq Helsinki. The purpose of the acquisition of the company’s own shares is to develop the company’s capital structure. Following the repurchases, Innofactor holds a total of 1,491,410 of its own shares. On March 20, 2023, Innofactor issued a stock exchange release to announce that Innofactor Plc’s directed personnel share issue was fully subscribed. Subscriptions were made by a total of 211 of the Group’s employees. Subscriptions were made in all of Innofactor’s operating countries: Finland, Sweden, Denmark and Norway. The shares subscribed for in the personnel issue are subject to a transfer restriction until March 31, 2024. The subscribed shares will be transferred to the subscribers by the end of March 2023, after which the company will hold 1,091,410 shares. The subscription price of EUR 404,000 for the personnel shares will be recognized in total in Innofactor Plc’s unrestricted equity. On May 10, 2023, Innofactor issued a stock exchange release announcing that the Board of Directors of Innofactor Plc had decided to cancel a total of 1,044,534 Innofactor shares owned by the company. The treasury shares to be cancelled were acquired within the company’s acquisition of own shares announced by the company on October 5, 2021, and September 28, 2022. Prior to the cancellation of the own shares, the total number of registered Innofactor shares was 37,388,225. After the cancellation was registered in the trade register, the total number of Innofactor shares would be 36,343,691 and the total number of votes carried by the shares would be 36,343,691. The cancellation of the shares would have no effect on the share capital of Innofactor Plc. On June 8, 2023, Innofactor issued a stock exchange release announcing that Innofactor Plc’s CFO Markku Puolanne had decided to assume responsibilities with another employer and resigned from his position on June 7, 2023. His notice period is four months, and his last working day with Innofactor will be October 7, 2023. On June 12, 2023, Innofactor issued a stock exchange release confirming that the cancellation of shares announced on May 10, 2023, has been registered in the trade register maintained by the Finnish Patent and Registration Office on June 12, 2023. After the register entry, Innofactor Plc has a total of 36,343,691 shares and the total number of votes carried by the shares is 36,343,691. After the cancellation, Innofactor Plc does not hold any shares in the company. On July 20, 2023, Innofactor issued a stock exchange release announcing that, at its meeting on July 19, 2023, the Board of Directors of Innofactor Plc had decided to commence the acquisition of the company’s own shares for the purpose of developing the company’s capital structure. The company will acquire a maximum of 600,000 shares, which corresponds to approximately 1.7% of the total number of shares. The maximum amount to be used for the acquisition of shares is EUR 1,000,000. The decision was made on the basis of the authorization given by Innofactor Plc’s Annual General Meeting on March 31, 2023, to acquire a maximum of 3,600,000 shares. The repurchase of shares would commence on July 24, 2023, at the earliest and would end at the latest on March 22, 2024, or at an earlier Annual General Meeting. Innofactor Plc has a total of 36,343,691 shares. The company held no treasury shares on the date of the stock exchange release, July 20, 2023. The company’s own shares will be acquired at the current market price in public trading arranged by NASDAQ Helsinki Ltd using the company’s unrestricted equity. On August 28, 2023, Innofactor issued a stock exchange release announcing that the Board of Directors had appointed Antti Rokala as Innofactor Group’s Chief Financial Officer (CFO) and that he will take up his post on January 2, 2024. At present, Rokala is working as Group CFO at the educational company YrkesAkademin in Stockholm. Rokala has previously worked in several financial management and leadership positions for the elevator company Schindler, such as Nordic CFO. As CFO, will become a member of Innofactor’s Executive Board and report to CEO Sami Ensio. On September 11, 2023, Innofactor issued a stock exchange release after Protector Forsikring ASA informed Innofactor Plc that its holdings of Innofactor’s shares and voting rights exceeded the 5% disclosure limit on September 8, 2023. On October 31, 2023, Innofactor issued a stock exchange release to announce that Innofactor will provide a comprehensive system delivery to Tampereen Infra Oy. The system will be based on Microsoft's D365 Business Central ERP solution, complemented by the Power PPM project vertical extension, and the Kiho equipment management and work scheduling solution. Innofactor acts as the responsible supplier of the solution under the dynamic procurement system framework tendered by Kuntien Tiera Oy. The agreement period is four years. Innofactor’s estimate of the total value of the procurement is approximately EUR 1.6 million. On December 13, 2023, Innofactor issued a stock exchange release to announce that the Swedish labor union Industriarbetarförbundet Metall (IF Metall) has selected Innofactor to continue the development, maintenance and support of a membership management system. The system has been provided earlier by Innofactor, and it is based on Microsoft’s Dynamics CRM and Innofactor’s own IPs. The contract period is 2.5 years. Innofactor’s estimate of the total value of the procurement is approximately EUR 1.6 million. On December 15, 2023, Innofactor issued a stock exchange release to announce that Innofactor Plc has completed its share buy-back program. The repurchases of the shares began on July 24, 2023, and ended on December 15, 2023. During that period, Innofactor repurchased 600,000 of its own shares for an average price per share EUR 1.12. The shares were acquired to the current market price in public trading arranged by NASDAQ Helsinki Ltd. Major Events After the Financial Period Innofactor has had no other significant events after 2023. Future Outlook 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. Major Risks and Uncertainties Innofactor’s operations and finances involve risks that may be significant for the company and its share value. These risks are assessed by Innofactor Plc's Board of Directors four times a year as part of the strategy and business planning process. The risks are published in their entirety in the financial statement and in the Annual Report of the Board of Directors. The interim reports only present the changes in short-term risks. Risks Related to Operations The risks related to the operation of the Innofactor Group are primarily business risks related to the group companies that carry on its business operations. Skilled personnel and its availability: The development of Innofactor's operations and deliveries depends greatly on the Group having skilled personnel and being able to replace persons, who are leaving, with properly skilled persons. In Innofactor's field of business, there is a lack of and competition for certain personnel resources, which may lead to short employment relationships and high personnel turnover. If Innofactor fails at motivating its personnel, keeping the personnel's skills on a high level and keeping the personnel in its service, that could cause problems for the Group's business operations. The success of the Group depends heavily on the employed personnel and their success in their work. Innofactor invests in the continuous development of its personnel and in high personnel satisfaction, a good employer image, efficient recruitment and, if necessary, the use of subcontracting. Increase in personnel costs: A majority of Innofactor’s costs consists of salaries and other personnel costs (in 2023, about 68% of all costs, including depreciation). Currently, all of Innofactor's own employees work in the Nordic countries, whereas some competitors rely heavily on workforce in countries with cheap labor. If the personnel costs continue rising in the Nordic countries at the same rate as before, it will create a risk for Innofactor, if the prices paid for IT services will not rise correspondingly. Innofactor is monitoring the situation constantly and strives to affect the moderate development of personnel costs via interest groups. It also aims at increasing the share of work done by subcontractors and abroad, when it makes sense from the point of view of business operations, for example, in large product development projects. Profitability of projects: A significant part of Innofactor's net sales is still derived from the project business. The profitable implementation of Innofactor’s delivery projects requires that project calculation and planning before submitting a tender are done successfully as regards the amount of work and the delivery schedule, and also that the deliveries can be made in a cost-effective manner. It is possible that Innofactor fails at correctly estimating the profitability of a project and, thus, the delivery could cause losses to the company. Correspondingly, it is possible that projects may have to be sold cheaper because of competition, which leads to lower profit margins. Innofactor pays special attention to the profitability of project business and has included it as a central part of the monitored key performance indicators. The relative share of the project business has decreased and the company aims to decrease it further, which reduces the risks associated to project business. Competition: Innofactor’s main competitors are companies offering traditional information technology services and software in the Nordic countries. Some competitors have larger financial resources, wider product selection, cheaper workforce and larger existing customer base than Innofactor does and also notable legal resources, and they can use these when competing with Innofactor for the same deliveries. Additionally, new startup companies increase competition in certain deliveries. The price competition in the field is expected to remain intense. If the competition becomes tougher, it may have an adverse effect on Innofactor's business, operating result and financial position. Innofactor continuously strives to improve its competitiveness. Research and product development: In Innofactor's operation, research and product development play a central role. In 2023, approximately 6.4 percent of net sales was used on research and product development. Each research and product development project carries the risk that the end results are not as successful financially as planned and that the investment in the project does not pay itself back. By constantly updating its offering and organizing its operations, Innofactor aims at minimizing the risks inherent in research and product development. Changes in the technology and field of business: Fast development is characteristic for Innofactor's field of business. There can be quick changes in the customers’ requirements and choices concerning software technology. The most significant ongoing change is the transition to making extensive use of artificial intelligence. If Innofactor cannot react to these changes, it may have an adverse effect on Innofactor's business, operating result and financial position. Innofactor strives to actively invest in new technologies and central areas of know-how and agree on customer deliveries in new areas. We have paid special attention to developing our offering related to artificial intelligence. Information security and data protection: From the point of view of Innofactor's business, it is important to ensure adequate data security and data protection for customers. The realization of the risks relating to data security and data protection may lead to losses in net sales or, in the worst case, penalties imposed by a supervisory authority. Innofactor has acknowledged the risks related to data security and data protection, on the basis of which the company has implemented standard-based data security and data protection management processes. Innofactor has a data security policy approved by the management, defining Innofactor's key data security objectives and means of implementation, as well as the organization of data security and related responsibilities. The data security policy is written in accordance with the ISO 27001 data security standard and legislation. Compliance: It is important for Innofactor to comply with the laws and regulations applicable to Innofactor’s business activities, and to conduct business ethically. Violations of laws and regulations may lead to administrative fines, penalties, criminal proceedings and liability, and claims for damages. The materialization of this risk may also have an adverse impact on Innofactor’s reputation and lead to the loss of business opportunities. Innofactor has internal procedures and processes to ensure compliance in day-to-day business operations. Innofactor’s Code of Conduct lays out ethical guidelines and standards for Innofactor and its subcontractors. Innofactor has an internal whistleblowing channel. Risk of a pandemic: An epidemic spreading into a global pandemic may hinder Innofactor's business operations. If there is no significant pandemic in Innofactor's operating area in the Nordic countries, the detriment will be limited mostly to a decrease in the availability of tools, especially computers, which are needed in Innofactor's business operations. If there is a significant pandemic also in Innofactor's operating area in the Nordic countries, it could mean introducing remote work, either for a part of or the entire personnel, a temporary decrease in customers' purchases, and delays in some customer deliveries, increasing absence rates connected directly to the disease caused by the pandemic, quarantine or mental symptoms caused indirectly by isolation and increased personnel turnover due to remote work. Reaching the growth targets: Realizing the desired growth requires a growth rate that is clearly faster than the growth in the IT market in general. This has the risk that it cannot be realized in the future, although it has been done often in the past. Also, it is possible that the IT market in Innofactor’s market area will not grow or may even shrink. Ensuring growth has a central part in planning Innofactor's operations and setting its goals. Innofactor strives to lessen this operational risk by focusing on the growing Microsoft solution areas, which grow faster than the IT market in general, and by focusing on sales to keep the order backlog on a sufficient level as regards the business operations. Globalization: In accordance with its strategy, Innofactor seeks growth also in the global markets, outside of Finland, especially in the Nordic countries. Global operations typically always involve higher risks than operation at home. Innofactor strives to make sure that the investments in becoming a global player will not be so great that it would jeopardize the Group's ability to make profit and to grow. Additionally, the company strives to create a management model, common processes and systems that will decrease the risks in global operations. Uncertainties and risks related to acquisitions: Innofactor’s growth has been partially driven by acquisitions, and this may also be the case in the future. With acquisitions, there are uncertainties about finding suitable companies to acquire and in making the acquisitions at the desired price level and schedule. If acquisitions cannot be made as planned, the growth goal may be jeopardized. In acquisitions, Innofactor focuses on high-level know-how and good processes. Each acquisition, after it has been made, also carries some risks, which include the success of the integration, the stability of the key personnel, formation of the business value, and possible related needs for depreciations. Innofactor's strategy is primarily based on integrating the acquired companies in a fast schedule as part of the whole in the country in question. Innofactor invests in the integration process. Success of the organizational changes: Rapid growth may occasionally require making significant changes in the organization. Starting a new organization typically includes challenges before the desired improvement in operation can be achieved. Typically, the operation can be at least restored to the previous level of efficiency within a few months from starting the new organization. If the improvement in operation for some parts does not take place within the planned schedule, there is a risk that it will not happen at all or that the delay may lead to extra costs or loss of net sales. The reasons for this include, for example, incorrect planning in placing units and personnel. Innofactor strives to pay attention to controlling organization changes and to prepare for them also financially. Financial Risks General financial uncertainty and changes in the customers' financial situations affect customers' investment decisions and purchasing policies. It is possible that changes in the general financial situation will be reflected in Innofactor's customers' software purchases by delaying the decision-making or timing of purchases. Financing risks: In its normal business operations, the Innofactor Group is susceptible to normal financing risks. At the end of 2023, Innofactor had a total of approximately EUR 4.5 million in loans from financial institutions and a credit limit of approximately EUR 5.0 million, of which approximately EUR 1.8 million was in use. Innofactor has committed to the following covenants: Equity ratio calculated every 6 months is at least of 40%, and interest bearing liabilities calculated every 6 months divided by the 12-month operating margin (EBITDA) is a maximum of 2.5, and certain other normal conditions for loans. The goal of managing the financing risks is to minimize the negative effects of the changes in the financial markets on the result of the Group. Financing risk management has been centralized to the CFO, who is responsible for the Group's financing and regularly reports to the company's Executive Board, CEO, and Board of Directors. It is possible that, in the future, the Group will not get the financing it needs and this would have a negative effect on the Group's business and its development, especially on making acquisitions. Interest risk: An interest risk in mainly due to the Group’s short-term and long-term loans and the derivatives used for protecting them. Loans with fluctuating rates pose an interest risk to the Group’s cash flow. This risk is decreased, for example, by using interest rate swap agreements. Interest rate hedging has been applied to more than half of the Group’s loans. Exchange rate risk: The Innofactor Group operates globally and is susceptible to risks related to the currencies of the countries in which it operates. Changes in exchange rates, especially the rates of Swedish krona and Norwegian krone, affect the Group’s net sales and profitability as Innofactor has significant operations based on Swedish krona and Norwegian krone. The exchange rate risk is mainly due to the assets and liabilities registered in the balance sheet and the net investments made in the subsidiaries abroad. Also, the business contracts made by subsidiaries pose an exchange rate risk, although these contracts are mainly made in the currency the business unit uses in its operation. The management of exchange rate risks in the Group aims at minimizing the uncertainty that changes in exchange rates cause in the result through cash flows and assessment of receivables and liabilities. Risks related to the cash position: The Innofactor Group handles management of liquid assets with the help of centralized payments and cash management. The Group strives for continuous monitoring and assessment of the needed business financing in order to ensure that the Group has enough liquid assets in its use. Additionally, the Group has overdraft facilities to cover any seasonal variations in liquid assets. Excess cash balance is placed on savings accounts or funds with capital guarantee. Risks related to receivables from projects: A large part of Innofactor's net sales comes from project business. A significant part of projects consists of long-term projects in which scheduled payments and their terms may be agreed on with the customer beforehand. When Innofactor performs work in customer projects, which is scheduled to be invoiced afterwards, project receivables are accrued. Especially in public administration projects, scheduled payments often take place nearer to the end of the project, which means increased project receivables and related risks. In customer negotiations, Innofactor pays special attention to scheduling the payments and the size of payments, and in customer projects, to project management and steering in accordance with the scheduled payments. Project receivables are monitored regularly, on a monthly basis. Credit risk: Credit decisions related to sales receivables are monitored centrally by the Group's management. Large part of Innofactor's cash flow comes through established customer relationships as payments from the public sector and financially sound companies, which have not presented essential credit risks in the past, and the Group has not suffered any significant credit losses. Should credit risks realize, it would weaken the Group's financial standing and liquidity. Sales receivables are monitored regularly. Risks related to deferred tax assets: Innofactor's balance sheet includes deferred tax assets that are based on previous financial periods. Should the company’s profitability decrease significantly in the long run, it is possible that the Group would not be able to utilize in full the receivables currently activated in the balance sheet. Corporate Governance Report Innofactor Plc complies with the recommendations of the Corporate Governance Code 2020 for Finnish listed companies, published by the Securities Market Association. The Annual General Meeting of March 31, 2023, decided that the Board of Directors shall have four members. Mr. Sami Ensio, Ms. Anna Lindén, Mr. Risto Linturi, and Mr. Heikki Nikku were re-elected as members to the Board of Directors. At the organizing meeting held immediately after the General Meeting, the Board of Directors elected Anna Lindén as the Chairman of the Board. The General Meeting approved the proposal to appoint Ernst & Young Oy, an auditing firm authorized by the Central Chamber of Commerce, as the auditor for the company, with Juha Hilmola as the main responsible auditor. Innofactor has drawn up a separate Corporate Governance Statement for the financial period 2023. Innofactor Plc’s corporate governance principles and statements are available in their entirety on the company's website at: www.innofactor.com/invest-in-us/corporate-governance/. Research and Product Development In product development in 2023, the focus was on the renewal of existing products and services and continuous further development to support the growth of product-based business. Most of the product development was focused on the Innofactor Dynasty product. Innofactor’s research and development costs recognized in profit or loss for 2023 were approximately EUR 5,108 thousand (2022: 4,153), representing 6.4 percent of net sales (2021: 5.8%). Reporting Non-financial Information This statement describes Innofactor’s corporate responsibility in accordance with the Chapter 3a, Sections 1–6 of the Finnish Accounting Act. Business Model Innofactor's business model is based on offering aimed at the IT service market and on Innofactor's strong partnership with Microsoft, with the focus on solutions developed on Microsoft platforms and solutions that use them. In accordance with its strategy, Innofactor is increasingly focusing on implementing cloud solutions and digitalization as well as AI-driven solutions. Innofactor is a system integrator and software development company. Thus, the core of the business model and enabler of company growth and development is the competent personnel with the ability to advance. The digital solutions delivered by Innofactor help the customers to reach their sustainability related goals and reduce their environmental impacts. Innofactor can impact the environmental effects of its own operation by developing even more environmentally friendly work environment. Principles Guiding Sustainability 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, UN Universal Declaration of Human Rights, 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. Innofactor’s quality system describes the company's business model and it is divided into eight documented business processes and eight support service processes. These processes are monitored by means of process indicators and audits, for example. The company’s support service processes relating to risk management and legal issues, and business processes related to the personnel and resource allocation, define the main issues with regard to corporate responsibility. Each process has its own Process Performance Indicators that are monitored within the company and set annually for the process owner. The framework for Innofactor’s operations is provided by the ISO 9001, ISO 27001, ISO 13485 and AQAP2110 standards, which the company’s various processes adhere to. In the external audits conducted in 2023, one deviation was observed that concerned all of the standards. The deviation has been corrected. Innofactor is committed to supporting the achievement of the UN Sustainable Development Goals (SDGs) by 2030. Accordingly, we have assessed the main objectives from the perspective of our business operations. Decent Work and Economic Growth We contribute to economic growth through innovation and new technologies. The measures we have taken to employ young people support this goal to a significant degree. During the COVID-19 pandemic, we focused even more on the remote work opportunities of our employees and sought to offer new jobs in spite of the difficult circumstances. In the Nordic region, we recruited 31 new graduates or students nearing their graduation for the DigiStar Trainee Program in 2023. Gender Equality Our personnel’s diversity is in key position at Innofactor, and we see diversity as an important factor in creating innovation and supporting the organization's operating and renewal capacity. We want to provide an equal workplace culture where everyone is respected and has equal opportunities regardless of gender, age, sexual or gender orientation, or other factors. In our recruitment activities, we welcome all qualified candidates and they have an equal opportunity to be selected. We are pleased to receive applications from people of different genders and ages for our vacancies, and we do not ask about gender or age during our recruitment processes. We provide both genders with equal opportunities for competence development and training. Parental leave is also a key part of equality. Under Innofactor’s company-specific collective agreement, the first 36 days of the parental leave period after pregnancy leave are compensated equally for the non-birthing parent. Good Health and Well-being In the fall of 2023, we organized a well-being day for our employees at our Espoo Campus in co-operation with Mehiläinen. At the well-being day event, employees were offered the opportunity to measure their body composition, blood pressure, and hand grip strength. We also had an occupational health physiotherapist visit the Espoo Campus to help with workstation ergonomics by making individual adjustments to interested employees’ workstations. Healthy snacks were also served. Innofactor takes care of its personnel’s well-being by providing diverse health services and offering regular occupational physiotherapy services to improve ergonomics, for example. We also offer influenza vaccinations to our employees through our occupational health care partner. Environmental Responsibility As an organization operating in the IT sector, Innofactor has a unique opportunity to be part of the solution in reducing environmental impacts. The digital solutions we deliver to our customer organizations play an important role in mitigating and adapting to climate change. The digitalization of manual processes and digital healthcare are examples of solutions by which Innofactor promotes its customers’ – and thereby the entire society’s – sustainable development. Our environmental policy guides the actions we take to reduce our adverse environmental impacts and respond to the challenges caused by climate change. Our environmental policy defines the principles we always follow in our own operations and in the deliveries to our customers. The principles of Innofactor’s environmental policy include continuous development, improvement of preventative actions, and reacting to the changing operating environment. Innofactor complies with all applicable laws and regulations and expects the same from its partners and suppliers. The environmental policy concerns the entire Innofactor Group and is available on Innofactor's website. Innofactor has a policy aimed at extending the lifecycle of computers. Factors considered in the renewal of computer hardware include the user’s needs and the possibility of updating existing devices. We recycle all recyclable materials such as cardboard, organic waste, metal, plastic and glass. Our electronic waste is recycled by Kuusakoski Recycling. Remote work is an essential part of the operations of a modern digital organization. We provide our employees with good opportunities for location-independent work. Using Microsoft Teams as a meeting tool brings added value to the operations of both Innofactor and its customers. We conducted an extensive stakeholder survey regarding our sustainability efforts in 2023. In connection with the survey, we made a donation to the John Nurminen Foundation to save a piece of the Baltic Sea off the Espoo Campus. In 2023, the Innofactor Group’s total carbon footprint was 387.4 tCO2e. The calculation included the emissions arising from the electricity and heating consumption of our operating locations (Scope 2), the emissions generated by our leased vehicles (Scope 1) and our most significant Scope 3 emissions. Scope 3 included business travel by car, flights, nights spent at hotels, computer and telephone purchases and the water consumption of our offices. The calculation did not include emissions arising from commuting by employees. A separate estimate has been prepared on commuting emissions. In 2023, the Innofactor Group’s total carbon footprint was 387.4 tCO2e. The calculation included the emissions arising from the electricity and heating consumption of our operating locations (Scope 2), the emissions generated by our leased vehicles (Scope 1) and our most significant Scope 3 emissions. Scope 3 included business travel by car, flights, nights spent at hotels, computer and telephone purchases and the water consumption of our offices. The calculation did not include emissions arising from commuting by employees. A separate estimate has been prepared on commuting emissions. The total carbon footprint for 2023 increased by approximately one percent from the previous year. This was mainly due to an increase in business travel and flights. At the same time, there was a decrease in the number of computers and mobile phones purchased. The year 2021 differs significantly from 2022 and 2023 due to the very low level of business travel caused by COVID-19 restrictions. We actively seek ways to reduce our carbon footprint. According to our calculations, the heating of business premises is our largest source of emissions. In 2023, the heating of Innofactor’s Espoo Campus accounted for 62 percent of our Scope 2 emissions. With this in mind, the district heating of our Espoo location has been produced from fully renewable energy sources starting from December 2023. This will significantly reduce our Scope 2 emissions from 2024 onwards. We compensate our total calculated emissions through certified international projects, which has made Innofactor a carbon-neutral company since 2021. Social Responsibility In accordance with our #PeopleFirst theme, we put people first in everything we do. This applies to our customers — who are the focus of our operations — and our employees and investing in their well-being and development. The theme #BeTheRealYou promotes authenticity, courage and diversity at work. We revised our employee satisfaction survey considerably in 2023 to support good leadership and the development of our operations. The new survey is a pulse-style questionnaire in which the employees answer six rotating questions each week. Examples of the key themes in the survey include leadership, meaningful work, satisfaction with one’s job, development opportunities, team spirit and commitment. Innofactor’s employee satisfaction is at a good level. The new employee satisfaction survey also enables anonymous communication between the respondent and their supervisor or the HR function. In 2023, we received 1,360 comments and questions from our employees, which reflects our open and participatory culture. The voice of our employees is an important part of the development of our operations. Innofactor has zero tolerance for bullying and harassment. Our employee satisfaction survey includes questions on harassment and bullying, and we outperform our IT industry peer group in these areas by a clear margin. We want to do our part to promote equality and diversity in the IT industry. In 2023, Innofactor continued the recruitment and training of students nearing their graduation by recruiting new specialists in the early stages of their careers for the Innofactor DigiStar Trainee Program in the Nordic countries. In 2023, Innofactor recruited and trained a total of 40 students nearing their graduation. We do not ask candidates about their age or gender in our recruitment process. We also encourage our employees to “be the real you”, and we enable flexible work arrangements in all life circumstances. We focus on the quality of supervisory work in various ways. We have focused on building a Nordic manager community to establish a consistent leadership culture and practices. We want to provide our managers with the best possible tools for supporting and coaching our specialists. This was supported in 2023 by our new employee satisfaction survey. The IT industry is constantly evolving, and an innovative operating environment plays a key role in the success of organizations. At Innofactor, we are increasingly focused on harnessing the potential and strategic capabilities of our employees and giving them the freedom to apply their skills in the workplace. Self-organization is a strategic choice that empowers our teams. This gives them the opportunity to change the world and innovate with our customers. Our employees chose UNICEF as the recipient of our Christmas donation in 2023. The donation supported children in Ukraine. We also give our teams the opportunity to use working hours for volunteering. In addition to volunteer work, some of our employees used the opportunity to donate blood. Data Security and Data Protection Innofactor's customers require appropriate information security in their services and that the services enable operation in accordance with the EU General Data Protection Regulation (GDPR). Innofactor's management has identified several critical cyber risk scenarios against which a company needs to protect itself. The company is committed to protecting its customers' and partners' information and systems and naturally, Innofactor as a company itself. In order to ensure the level of information security corresponding to the risks, Innofactor maintains a certified information security management system in accordance with the ISO 27001 standard. In its operations, Innofactor is committed to maintaining a high level of data protection and respects the privacy and rights of its personnel, customers and users. Through regular internal audits and the continuous development of information security, we aim to continuously develop data protection and information security in our operations and processes. Information security and data protection are mandatory parts of induction training in addition to continuous training on information security and data protection. Innofactor’s information security group meets regularly to guide the development and implementation of information security and data protection at Innofactor. The company has a designated information security manager and a data protection officer. Additionally, the company’s main personal data registers have been assigned to the persons responsible for them. Anti-Corruption and Anti-Bribery Innofactor’s Code of Conduct sets out the general principles and guidelines that the company’s employees and partners adhere to. We arrange training activities concerning the Code of Conduct at regular intervals. Innofactor’s Code of Conduct prohibits all types of corruption and bribery. In the Nordic countries, Innofactor operates in a very regulated environment, and in 2023, all subcontracting took place within the EEA or USA. This operating environment and in Finland, for example, the strict compliance to the Act on Contractor’s Obligations and Liability, training the employees, continuous dialog within the company's management, and monitoring subcontractors are important factors related to preventing the risk of corruption and bribery. Transparent business in accordance with the highest ethical standards is the basis of our company’s operations. We use our anonymous whistleblowing channel for reporting suspected infringements that are against our Code of Conduct. All reports received via the channel are processed in strict confidence. Risks Related to Corporate Responsibility Innofactor’s main risks related to corporate responsibility can be divided into the following categories: personnel turnover, risks to reputation regarding data protection and information security, risks to reputation due to corruption and bribery, and risk of being cut off from public procurement competitions. Innofactor’s operations do not include actual significant environmental risks, even though the energy consumption is being monitored and there is a continuous effort to decrease it. The risks related to personnel turnover, data protection and data security are described earlier in this Report of the Board of Directors under the heading Major Risks and Uncertainties. Theme Operating model Goal Performance indicator 2023 Environmental responsibility Innofactor is committed to decreasing the environmental impact of its operations and to react to the challenges set by climate change. Ympäristövastuun edistäminen ja kehittäminen Innofactorin toiminnassa. Promoting and developing environmental responsibility in Innofactor's operations. 2 Social responsibility Innofactor’s personnel plays a key role, and we consider them to be in a central role with regards to the organization’s ability to operate and renew itself and creation of new innovations. To be an inspiring and sought-after employer. Hired students and recent graduates 41 Data Protection and Information Security Innofactor is committed to protecting its customers’ and partners’ information and systems as well as its own information and information systems. Reliable operator that takes information security and data protection into consideration. Number of administrative sanctions 0 Anti-Corruption and Anti-Bribery Innofactor’s Code of Conduct defines the general principles and guidelines that the company’s employees and partners adhere to. Transparent business operations in accordance with the highest ethical standards. No violations No violations EU taxonomy disclosures The EU Taxonomy Regulation aims to steer investments towards environmentally sustainable investments and to contribute to the achievement of the EU’s environmental objectives. The disclosure requirement for 2023 concerns climate change mitigation and adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. Innofactor has reviewed its economic activities against the criteria set by the EU. Innofactor has not identified activities aligned with the environmental objectives of the taxonomy. Therefore, Innofactor’s taxonomy-eligible activities account for 0 percent of the company’s net sales and capital expenditure. KPI EUR thousand Taxonomy-eligible, % Non-taxonomy-eligible, % Turnover Capital expenditure Operating expenditure 80 263 714 7 011 0,0 0,0 0,0 100,0 100,0 100,0 The Group’s reported gross capital expenditure including related advance payments Share and shareholders At the end of 2023, Innofactor Plc’s share capital was EUR 2,100,000.00 and the total number of shares was 36,343,691. Innofactor Plc has one series of shares. Each share confers one vote. In 2023, the highest price of the company share was EUR 1.34 (2022: 1.54), the lowest price was EUR 1.03 (2022: 0.83), and the average price EUR 1.18 (2022: 1.17). The closing price for 2023 on December 31, 2023, was EUR 1.23 (2022: 1.05). In public trading in 2023, a total of 6,841,002 shares were traded (2022: 14,193,868), which corresponds to 18.6 percent (2022: 38.0%) of the average number of shares in the said period. In 2023, there were 36,810,154 shares on the average (2022: 37,388,225). The share trading volume decreased by 51.8 percent compared to the corresponding period in 2022. The market value of the share capital at the closing price of EUR 1.23 on December 31, 2023, was EUR 45,092,439 (2022: 39,332,413), which shows an increase of 14.6 percent. On December 31, 2023, the company had a total of 11,663 shareholders (2022: 11,798), including nominee-registered shares. On December 31, 2023, the company held 600,000 treasury shares. The Board of Directors has been given the following authorizations: Until June 30, 2024, to decide on a share issue and granting of special rights entitling to shares, concerning a maximum of 3,600,000 new shares (decided by the Annual General Meeting of March 31, 2023); the authorization has not been used. Until June 30, 2024, to decide on the acquisition of a maximum of 3,600,000 treasury shares (decided by the General Meeting of March 31, 2023); the Board of Directors decided on July 19, 2023, to commence the repurchase of the company’s shares. The company will repurchase a maximum of 600,000 shares. A total of 600,000 shares were acquired under the authorization in 2023. At the end of 2023, the company held a total of 600,000 treasury shares. Until the start of the next Annual General Meeting, to distribute assets to shareholders as repayment of capital totaling a maximum of EUR 2,459,293, which allows the distribution of assets up to a maximum of EUR 0.06 per share; the authorization has not been used. Own shares The General Meeting of March 31, 2023, authorized the Board of Directors to decide on acquiring a maximum of 3,600,000 of the company’s own shares in one or several parts with the company’s unrestricted equity. The authorization entitles the Board to deviate from the shareholders’ proportional shareholdings (directed acquisition). Own shares may be acquired at the purchase price formed for them in public trading on the day of purchase or at another market price. The number of treasury shares at a time may be, at the maximum, one tenth of the total number of shares in the company. Shares may be purchased to be used in company acquisitions or implementing other arrangements relating to the company's business operations, improving the company's capital or financing structure, as a part of the company's incentive system, or otherwise to be handed over or voided. In connection with the share repurchase, ordinary derivative, stock lending and other agreements may be made in the market in accordance with the laws and regulations. The authorization includes the right of the Board of Directors to decide on all other matters related to the acquisition of shares. The authorization will be valid until June 30, 2024. This authorization replaces the Board’s earlier authorizations concerning share repurchase. On March 1, 2023, Innofactor completed the share repurchase program that was initiated in 2022 according to the authorization granted to the Board of Directors by the Annual General Meeting. Repurchases of treasury shares began on September 29, 2022, and ended on February 28, 2023. During this period, Innofactor acquired 800,000 treasury shares, of which 311,289 were acquired in January and March 2023. The treasury shares were acquired at an average price of EUR 1.055. The shares were acquired at the current market price in public trading arranged by Nasdaq Helsinki Ltd. Following the repurchase program, Innofactor held a total of 1,491,410 own shares of which 400,000 were transferred to the personnel as part the personnel share issue, and 46,876 were transferred to the members of the Board of Directors as part of their compensation. The remaining 1,044,534 shares were cancelled in June 2023. After the cancellation, Innofactor Plc did not hold any shares in the company. On July 19, 2023, the Board of Directors decided to commence the repurchasing of the company’s own shares. The share repurchase program began on July 24, 2023, and ended on December 15, 2023. During the repurchase program, Innofactor repurchased 600,000 shares that are now held by the company. The average purchase price of the shares was EUR 1.12. The shares were acquired to the current market price in public trading arranged by NASDAQ Helsinki Ltd. At the end of 2023, the company held 600,000 treasury shares (1.65 percent of all shares). Shareholdings of the Management Shareholdings of the Board of Directors on December 31, 2023: Under control of Sami Ensio, 7,925,397 shares, 21.81% Sami Ensio, 5 751 637 shares, 15.83% under control, 724,588 shares, 1.99% minor under guardianship, 724,586 shares, 1.99% minor under guardianship, 724,586 shares, 1.99% Anna Lindén, 121 851 shares, 0.34% Under control of Risto Linturi, 1,256,411 shares, 3.46% Heikki Nikku, 41,488 shares, 0.11% Shareholdings of the CEO on December 31, 2023: Under control of Sami Ensio, 7,925,397 shares, 21.81% Sami Ensio, 5,751,637 shares, 15.83% under control, 724,588 shares, 1.99% minor under guardianship, 724,586 shares, 1.99% minor under guardianship, 724,586 shares, 1.99% Shareholdings of the other members of the Executive Board on December 31, 2023: Jørn Ellefsen, 93,999 shares, 0.26% Janne Heikkinen, 136,543 shares, 0.38% Anni Pokkinen, 32,296 shares, 0.09% Markku Puolanne (member of the Executive Board until October 7, 2023), 30,000 shares, 0.08% Vesa Syrjäkari, 0 shares, 0.0% Martin Söderlind, 10,000 shares, 0.03% Antti Rokala (joined the Executive Board on January 2, 2024), 10,000 shares, 0.03% Suurimmat osakkeenomistajat Euroclear Finland Oy:n pitämän osakerekisterin mukaan vuoden lopussa 31.12.2022 Innofactor Oyj:n 20 suurimman osakkeenomistajan omistus on seuraava. Name Number of share % of share capital 1.Ensio Sami 7 925 397 21,81 % Sami Ensio 5 751 637 15,83 % Minor under guardianship 724 588 1,99 % Iiris Ensio 724 586 1,99 % Minor under guardianship 724 586 1,99 % 2.Ilmarinen Mutual Pension Insurance Company 1 800 000 4,95 % 3.Linturi Kaija and Risto 1 256 411 3,46 % R. Linturi Oyj 489 107 1,35 % Linturi Kaija Anneli 430 000 1,18 % Linturi Risto Erkki Olavi 337 304 0,93 % 4.Mäki Antti-Jussi 490 000 1,35 % 5.Hellen Stefan Andreas 486 000 1,34 % 6.Ingman Finance Oy Ab 450 000 1,24 % 7.Laiho Rami Tapani 425 113 1,17 % 8.Muukkonen Teemu Heikki 410 357 1,13 % 9.Tilman Tuomo Tapani 345 538 0,95 % 10.Mandatum Life Insurance Company Limited 253 366 0,70 % 11.Kannisto Jaakko Mikael 226 533 0,62 % 12.Kukkonen Heikki-Harri 213 606 0,59 % 13.Järvenpää Janne-Olli 213 079 0,59 % 14.Varsio Jussi Ilari 190 000 0,52 % 15.Mäkinen Antti Vilho Juhani 168 000 0,46 % 16.Ärje Matias Juhanpoika 155 800 0,43 % 17.Saarnio Mikko Markus 138 000 0,38 % 18.Heikkinen Janne Mikael 136 543 0,38 % 19.Pesonen Tuomo Sakari 130 737 0,36 % 20.Muurinen Hannu Olavi 125 750 0,35 % Yhteensä 15 540 230 42,76 % Board of Directors and the Company’s Management Board of Directors In 2023, the members of Innofactor Plc’s Board of Directors were: Sami Ensio Anna Lindén (Chairman of the Board of Directors) Risto Linturi Heikki Nikku The Chairman of the boards of directors of Innofactor’s Finnish group companies was Group CEO Sami Ensio, and the ordinary member of their boards of directors was Chief People Officer Anni Pokkinen (until May 29, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari) with General Counsel Eija Theis as the deputy member (until May 29, 2023 General Counsel Michaela Skrabb). The Board of Directors of Innofactor Plc’s Swedish holding company consisted of Group CEO Sami Ensio (Chairman), with Chief People Officer Anni Pokkinen as an ordinary member (until June 29, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari) and General Counsel Eija Theis as a deputy member (until June 29, 2023 General Counsel Michaela Skrabb). The Board of Directors of Innofactor Plc’s Norwegian holding company consisted of Group CEO Sami Ensio (Chairman) and Chief People Officer Anni Pokkinen (until March 28, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari). The Board of Directors of Innofactor Plc’s Danish holding company consisted of Group CEO Sami Ensio (Chairman), with Chief People Officer Anni Pokkinen and General Counsel Eija Theis (until June 28, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari) as members. The Board of Directors of Innofactor Plc’s Swedish operative country company consisted of Group CEO Sami Ensio (Chairman), with Martin Söderlind, Country Manager, Sweden, and Chief People Officer Anni Pokkinen (until June 29, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari) as ordinary members and General Counsel Eija Theis as a deputy member (until June 29, 2023 General Counsel Michaela Skrabb). The Board of Directors of Innofactor Plc’s Norwegian operative country company consisted of Group CEO Sami Ensio (Chairman), with Jørn Ellefsen, Country Manager, Norway, and Chief People Officer Anni Pokkinen as ordinary members (until March 28, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari as an ordinary member and General Counsel Michaela Skrabb as a deputy member). The Board of Directors of Innofactor Plc’s Danish operative country company consisted of Group CEO Sami Ensio (Chairman), with Chief People Officer Anni Pokkinen and General Counsel Eija Theis (until June 28, 2023 Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari) as ordinary members. CEO Innofactor Plc's CEO is Sami Ensio. Mr. Ensio also acts as the CEO of the Innofactor Plc's Finnish group companies. In Sweden, Denmark, and Norway, the local Country Managers act as the CEOs of the operative companies. Executive Board In 2023, Innofactor Group’s Executive Board consisted of: Sami Ensio, CEO, Country Manager Finland, Chairman of the Executive Board and CFO for the period October 8, 2023–December 31, 2023. Anni Pokkinen, Chief People Officer Markku Puolanne, CFO (until October 7, 2023) Jørn Ellefsen, Country Manager, Norway and Denmark Martin Söderlind, Country Manager, Sweden Janne Heikkinen, Executive Vice President, Products and Services Vesa Syrjäkari, Executive Vice President, Business Development and Operational Excellence Loans of Related Parties The company’s managers considered to be related parties have EUR 21 thousand in liabilities from the company’s personnel issues to the company. The loan period is five years, and the loan is repaid in fixed monthly installments. The interest rate is the 12-month Euribor 360 interest rate. However, the interest rate is always a minimum of 0%. The accrued interest is paid to the company monthly. Innofactor Plc’s total loan receivables from subsidiaries amount to EUR 17.9 million. The company does not have any other major related party transactions. Auditor The auditor of Innofactor Plc was Ernst & Young Oy Authorized Public Accounting Firm, with Juha Hilmola (APA) as the auditor with principal responsibility. Board of Directors’ Proposal on the Distribution of Profits Innofactor is a growing company and intends to use its operating profit on actions promoting growth, for example, on realizing mergers. According to the dividend policy, Innofactor aims to pay a dividend regularly each year. The target is to pay about half of the result for the financial period in dividends, taking into account the company’s financial position, possible corporate reorganizations, and other development needs. For 2023, the Group’s result for the financial period was EUR 3,437,985.22. In making the proposal on the dividend, the Board of Directors takes into account the company's financial situation, profitability and near-term outlook. At the end of the financial year 2023, the distributable assets of the Group's parent company amounted to EUR 21,277,171.60 The Board of Directors proposes that Innofactor Plc distribute EUR 0.07 per share as a repayment of capital. The Board of Directors further proposes that the Annual General Meeting authorize the Board to decide on a repayment of capital amounting to a maximum of EUR 2,544,058 (EUR 0.07 per share, taking into account the share issue authorization proposed to the Board of Directors). IFRS FINANCIAL STATEMENTS Comprehensive Consolidated Profit and Loss Statement, IFRS EUR thousand 1.1.2023-31.12.2023 1.1.2022-31.12.2022 Net sales 80 263 71 130 Other operating income 141 290 Materials and services -13 508 -10 762 Employee benefits/expenses -50 784 -45 644 Depreciation -3 266 -3 057 Other operating expenses -7 011 -7 205 Operating profit 5 835 4 751 Financial income 116 46 Financial expenses -777 -619 Profit before taxes 5 174 4 178 Income taxes -1 736 -858 Profit/loss for the period 3 438 3 320 Other comprehensive income Items that may be later recognized in profit or loss: Exchange differences -49 -551 Total comprehensive income 3 389 2 769 Distribution of the profit and comprehensive income To shareholders of the parent company 3 389 2 769 Earnings per share calculated from the profit attributable to equity holders of the parent: basic earnings per share (EUR) 0,09 0,09 diluted earnings per share (EUR) 0,09 0,09 Consolidated Balance Sheet, IFRS ASSETS EUR thousand 31.12.2023 31.12.2022 Non-current assets Tangible assets 1 080 1 076 Right-of-use assets 3 177 4 843 Goodwill 26 835 26 831 Other intangible assets 1 929 2 398 Shares and holdings 98 5 Non-current assets 44 77 Deferred tax assets 2 415 4 090 Total non-current assets 35 578 39 319 Current assets Trade and other receivables 18 449 14 540 Cash and cash equivalents 425 1 956 Total current assets 18 873 16 495 Total assets 54 451 55 815 SHAREHOLDERS’ EQUITY AND LIABILITIES EUR thousand 31.12.2023 31.12.2022 Equity attributable to the shareholders of the parent company Share capital 2 100 2 100 Share premium reserve 72 72 Reserve fund 59 59 Fund for invested unrestricted equity 15 069 17 247 Retained earnings 10 660 7 669 Own shares -527 -447 Translation differences -1 950 -1 901 Total shareholders’ equity 25 483 24 799 Non-current liabilities Loans from financial institutions 1 770 4 517 Lease liabilities 1 295 2 832 Deferred tax liabilities 1 779 1 851 Total Non-current liabilities 4 844 9 200 Current liabilities Loans from financial institutions 4 555 4 886 Lease liabilities 1 996 2 115 Trade and other payables 17 573 14 815 Total current liabilities 24 124 21 816 Total liabilities 28 968 31 016 Total shareholders’ equity and liabilities 54 451 55 815 Consolidated Statement of Change in Shareholders’ Equity, IFRS EUR thousand Share capital Share premium reserve Reserve fund Fund for invested unrestricted equity Own shares Retained earnings Exchange differences Total shareholders’ equity Shareholders’ equity Jan 1, 2023 2 100 72 59 17 247 -1 593 8 815 -1 901 24 799 Comprehensive income Result for the financial period 3 438 3 438 Other comprehensive income: Translation differences -49 -49 684,8 Total comprehensive income 3 438 -49 3 389 Repayment of capital -2 177 -2 177 Purchase of own shares -527 -527 Shareholders’ equity Dec 31, 2023 2 100 72 59 15 069 -2 120 12 253 -1 950 25 483 EUR thousand Share capital Share premium reserve Reserve fund Fund for invested unrestricted equity Own shares Retained earnings Exchange differences Total shareholders’ equity Shareholders' equity Jan 1, 2022 2 100 72 59 20 174 -1 146 5 495 -1 351 25 404 Comprehensive income Result for the financial period 3 320 3 320 Other comprehensive income: Translation differences -551 -551 Total comprehensive income 3 320 -551 2 769 Repayment of capital -2 927 -2 927 Purchase of own shares -447 -447 Shareholders' equity Dec 31, 2022 2 100 72 59 17 247 -1 593 8 815 -1 901 24 799 Consolidated cash flow statement, IFRS EUR thousand 1.1.– 31.12.2023 1.1.– 31.12.2022 Cash flow from operating activities Profit before taxes 5 174 4 178 Adjustments: Depreciation 3 266 3 057 Other transactions with no related cash flow: 143 42 Changes in working capital: Change in non-interest-bearing current receivables -3 951 -102 Change in non-interest-bearing current liabilities 2 758 -630 Interest paid -206 -40 Interest received 46 198 Taxes paid 0 0 Net cash flow from operating activities 7 229 6 704 Investment cash flow Acquisition of subsidiaries 200 -2 825 Purchase of shares in associated companies -93 0 Investments in intangible and tangible assets -714 -872 Change in loan receivables 74 103 Net cash flow from investments -533 -3 593 Cash flow from financing Loans withdrawn 0 4 679 Loans paid -3 077 -2 236 Lease liability payments -2 282 -2 187 Payment of dividend and capital repayment -2 177 -2 927 Oman pääoman ehtoisen lainan maksu 0 0 Purchase of own shares -1 027 -447 Transfer of own shares 336 0 Net cash flow from financing -8 227 -3 118 Change in cash and cash equivalents -1 531 -7 Cash and cash equivalents, opening balance 1 956 1 963 Cash and cash equivalents, closing balance 425 1 956 Notes to the Consolidated Financial Statements (IFRS) 1. Basic Information on the Group Innofactor Plc is a Finnish public company established in accordance with Finnish legislation. The domicile of the parent company is Espoo and its registered address is Keilaranta 9, 02150 Espoo. Innofactor Group is one of the leading software providers focused on Microsoft solutions in the Nordic countries. Innofactor delivers to its customers IT projects as a system integrator and develops its own software products and services. A copy of the consolidated financial statements is available at the company’s Internet address www.innofactor.com or at the head office at Keilaranta 9, 02150 Espoo, Finland. Innofactor Plc’s Board of Directors has approved these financial statements for publication in its meeting on March 5, 2024. According to the Finnish Companies Act, shareholders may approve or reject the financial statements at a General Meeting held after their publication. The Meeting may also decide to amend the financial statements. 2.Accounting Policies Accounting Policies Innofactor Plc’s consolidated financial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS), observing the IAS and IFRS standards as well as SIC and IFRIC interpretations valid on December 31, 2023. In the Finnish Accounting Act and provisions issued thereunder, International Financial Reporting Standards refer to standards and related interpretations approved for adoption within the EU in accordance with the procedure laid down in regulation (EC) No. 1606/2002. The notes to the consolidated financial statements also comply with the provisions of Finnish accounting and corporate legislation that supplement the IFRS provisions. The consolidated financial statements have been prepared on a historical cost basis, unless otherwise stated in the accounting policies. The consolidated financial statements are presented in thousands of euros unless otherwise stated. As the figures are presented in thousands of euros, rounding may cause differences. Uuden ja uudistetun IFRS-normiston soveltaminen Innofactor Group has applied the amendments and annual improvements to the IFRS standards that entered into force on January 1, 2023. The amendments and annual improvements to the standards have not had a material effect on the financial statements. The Group applies new and amended standards from the date of their entry into force. Future IFRS standards or IFRIC interpretations that were known at the time of drawing up the financial statements are not expected to have a material effect on the consolidated financial statements. Segment Structure Innofactor Group provides comprehensive solutions in a Microsoft-based environment. The Group has one reportable segment. The operations are reviewed as a whole to estimate the profitability and to manage the resources. Subsidiaries Subsidiaries are companies over which the Group exercises control. This control arises from the Group holding more than half of the voting rights or otherwise being in a position to exercise control. The existence of potential control has also been taken into account in assessing the conditions under which control arises when instruments entitling to potential control are currently exercisable. Control refers to the right to stipulate the principles of the company’s finances and business operations to gain from the operations. Mutual holdings in the Group are eliminated using the acquisition cost method. The consideration transferred and the acquired company’s identifiable assets and assumed liabilities are measured at fair value at the acquisition date. The acquisition costs, excluding the costs to issue debt or equity securities, have been recognized as a cost. The consideration transferred does not include transactions treated separately from the acquisition. The impact of these is recognized in profit or loss in connection with the acquisition. Possible contingent additional consideration has been measured at fair value at the acquisition date and has been classified as liability or equity. Contingent additional consideration classified as debt is measured at fair value at the closing date, and the gain or loss arising is recognized in profit or loss. Contingent additional consideration classified as equity is not remeasured. The subsidiaries acquired are consolidated from the date when control commences, and the subsidiaries disposed of are included in the consolidated financial statements until control ceases. All internal transactions, receivables, liabilities and unrealized profits, as well as internal profit distribution are eliminated in the consolidated financial statements. In a phased acquisition, the previously held equity interest is measured at fair value, and the resulting gain or loss is recognized in profit or loss. If the Group no longer has a controlling stake in a subsidiary, the remaining asset is measured at fair value at the date the control is lost, and the resulting gain or loss is recognized in profit or loss. Tangible Assets Tangible assets have been measured at acquisition value less accumulated depreciation and impairment losses. If an item of tangible assets consists of several parts with economic lives of different lengths, the parts are treated as separate assets. When a part is renewed, the costs are capitalized and the possible remaining carrying amount is written off. In other cases, subsequent costs are included in the carrying amount of the item of tangible assets only when it is probable that the future economic benefits that are attributable to it will flow to the Group and the acquisition cost of the item can be determined reliably. Other repair and maintenance costs are recognized in profit or loss as incurred. Depreciation of assets is calculated using the straight-line method over the estimated useful lives. The estimated useful lives are as follows: Machinery and equipment 2–10 years The residual values and useful lives of assets are reviewed at the end of each financial period and, if necessary, adjusted to reflect the changes in the expected economic benefits. The sales gains or losses from the sale or disposition of items of tangible assets are recognized in profit or loss under other operating income or expenses. The sales profit is defined as the difference between the sales price and the remaining purchase price. Government Grants Government grants received for realized costs are recognized in profit or loss as income for the period that the grant becomes receivable. These grants are recognized in other income. Intangible Assets Goodwill Goodwill arising in business combinations is recognized at the amount exceeding the Group's share of the fair value of the net assets of the acquired company at the time of acquisition. Goodwill is not subject to depreciation, but it is tested annually for impairment. Goodwill is measured at original acquisition cost less impairment losses. Research and Development Costs Research and development costs are recognized as costs in profit or loss. The development costs incurred by the design of new or advanced products are capitalized in the balance sheet as intangible assets from the date on which the product is regarded as technically feasible, commercially utilizable and able to generate future economic benefits. Capitalized development costs include the material, work and testing expenses that result directly from completing an asset for the intended purpose. The development costs recognized as expenses are not capitalized later. Depreciation is recognized from the date the asset is ready for use. An asset which is not ready for use is tested annually for impairment. After initial recognition, capitalized development costs are measured at cost less accumulated depreciation and impairment losses. The useful life of capitalized development costs is 3–5 years, during which time capitalized costs are amortized on a straight-line basis. In 2023 and 2022, no development costs were capitalized as the requirements were not met. Other Intangible Assets An intangible asset is recognized in the balance sheet at acquisition cost, if the cost can be reliably determined and it is likely that the expected economic benefit from the asset will flow to the Group. Intangible assets with a limited useful life are recognized in profit or loss and amortized on a straight-line basis over their known or estimated useful lives. The major part of other intangible assets has been formed in relation to business acquisitions and consists of customer relationships and technology. The amortization period is defined separately for each acquisition and is 5-9 years. The amortization period for software is 3–5 years. Leases Group as a Lessee Lease agreements, which fulfill the requirements of the IFRS 16 standard, are recognized in the balance sheet as right-of-use assets and corresponding lease liabilities. Initially, lease liabilities are measured at the commencement date at the present value of the lease payments, discounted using the interest rate implicit in the lease, if it can be readily determined. If the rate can’t be readily determined, such as in real estate leases, the incremental borrowing rate is used. The incremental borrowing rate reflects the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The lease term covers the non-cancellable period during which the Group has the right to use the underlying asset. For leases that are valid indefinitely, the probable minimum lease term is estimated. Subsequently, lease liabilities are measured at amortized cost by increasing or reducing the carrying amount to reflect interest on the lease liability or the lease payments made. Lease liabilities are remeasured for lease reassessments, amendments to lease agreements or to reflect revised in-substance fixed lease payments. Interest expenses are recognized in profit or loss. Right-of-use assets are amortized over the shorter of the lease term or economic useful life of the asset. Impairment Impairment of Tangible Assets and Intangible Assets The Group assesses at the closing date of each reporting period whether there is any indication of impairment of an asset. If there are such indications, the asset’s recoverable amount is estimated. In addition, the recoverable amount is estimated annually for the following assets regardless of whether there are any indications of impairment: goodwill and intangible assets with an infinite useful life. The recoverable amount is the asset's fair value less costs to sell or its value in use, whichever is higher. Value in use refers to the estimated future net cash flows, discounted to their present value, expected to be derived from the said asset or cash-generating unit. The discount rate used is the interest rate before tax that represents the market's view of the time value of money and special risks associated with the asset. An impairment loss is recognized, if the carrying amount of the asset is higher than its recoverable amount. The impairment loss is recognized immediately in profit or loss. An impairment loss of a cash-generating unit is first allocated to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amounts of the other assets of the unit pro rata. The useful life of the depreciated asset is re-evaluated in connection with the recognition of an impairment loss. An impairment loss recognized for an asset other than goodwill is reversed, if a change has taken place in the estimates used to determine the recoverable amount of the asset. However, the maximum reversal of an impairment loss amounts to the carrying amount of the asset had no impairment loss been recognized. An impairment loss recognized for goodwill is not reversed in any situation. No impairment losses were recognized in 2023 and 2022. Employee Benefits Pension Obligations Pension arrangements are classified as benefit pension plans or contribution plans. In the contribution plans, the Group makes fixed payments to an external unit. The Group does not have a legal or constructive obligation to make additional payments, if the recipient is not able to pay the pension benefits concerned. All such arrangements that do not meet these conditions are benefit pension plans The Group's pension arrangements have been implemented through a pension insurance company, and they are based on contribution plans. In the contribution plan arrangement, payments are recognized in the profit and loss statement during the period to which the payment applies. Taxes Based on Taxable Income and Deferred Taxes for the Financial Period The tax expense comprises taxes on taxable income and deferred taxes for the financial period. Taxes are recognized in profit or loss, except when they are directly connected with items recognized in shareholders' equity or other items of the comprehensive income. In this case, also the tax is recognized in the items concerned. The tax based on taxable income for the financial period is calculated on taxable income according to the tax rate in the country concerned. Deferred taxes are calculated on temporary differences between the carrying amount and the taxable value. However, deferred tax liabilities are not recognized for taxable temporary differences when the deferred tax liability arises from the initial recognition of goodwill, or if the liabilities arise from the initial recognition of an asset or liability in a transaction which is other than a business combination and which affects neither accounting nor taxable profit (or loss recognized in taxation) at the time of the transaction. The largest temporary differences arise from the depreciation of tangible assets, previously unrecognized tax losses, and adjustments based on fair value measurement on business combinations. Deferred taxes are calculated by using the tax rates enacted or approved in practice by the closing date of the reporting period. Deferred tax assets are recognized to the extent that it is probable that such future taxable profit will be available against which the temporary difference can be utilized. An estimate is made at the closing date of the reporting period on whether the conditions for recognizing deferred tax assets are met. Revenue Recognition Principles Revenue from the sale of products and services is presented as net sales measured at fair value and adjusted for indirect taxes, discounts and currency translation differences from sales in foreign currencies. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes consideration collected on behalf of third parties. The Group recognizes revenue when it transfers control of a good or service to a customer. Services Sold Revenue from services is recognized when the service has been provided and the economic benefit from the service is probable. Man-hour work is recognized monthly as it progresses. Projects Projects include planning, implementation, project management and commissioning services related to software and solutions to be implemented for the customer. Fixed-price projects are recognized using the percentage of completion method when the outcome of the project can be estimated reliably. For contracts comprising fixed-price projects, revenue is recognized based on the actual service provided by the reporting date as a proportion of the total services to be provided. This is determined based on the cost of actual labor hours spent relative to the total expected cost of labor hours, as it best reflects the transfer of control to the customer. Estimates of revenues, costs or progress towards completion are revised if circumstances change and any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by the management. Invoicing and customer payments in fixed-price projects follow the payment schedule defined in the customer contract. If the services rendered by the Group exceed the payment, a contract asset is recognized. I the payments exceed the services rendered, a contract liability is recognized. If the estimate of the outcome of the project changes, the recognized sales are adjusted in the financial period during which the change is discovered and can be estimated. An expected loss on a project is recognized in profit or loss immediately when it is identified. The Group does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. Consequently, the Group does not adjust any of the transaction prices for the time value of money. The management exercises judgment in estimating the recognition of revenue from fixed-price projects and the amount of retrospective discounts. SaaS Maintenance fees are recognized over the contract period. Licenses License revenue is recognized at a point in time when the license is delivered, the legal title has passed, the customer has accepted the license, and has access to the licensed software. Distinct licenses that provide a right to access the software are recognized over the contract period. Contract assets or liabilities do not typically arise in the businesses described above. Financial Assets Innofactor's financial assets have been categorized according to IFRS 9 into the following categories: financial assets at allocated acquisition cost and financial assets at fair value through profit or loss. The financial assets are categorized as they are first registered, and the categorization is based on the business model applied by the company as regards financial assets and nature of contract-based cash flows. Valuing an instrument, which belongs to financial assets, at allocated acquisition cost requires that the contract-based cash flows consist entirely of an interest and capital reimbursement (the so called SPPI criteria). The fulfilling of the SPPI criteria is assessed separately for each financial instrument. If the SSPI criteria are not fulfilled, the financial assets are valued at fair value through profit or loss. Financial assets are presented as current assets, if their maturity is under 12 months, or if the investment is planned to be relinquished within 12 months. In other cases, the asset is presented as a non-current asset. Transaction costs are included in the original carrying amounts of the financial assets, when the asset has been valued at allocated acquisition cost. The purchases and sales of financial instruments are registered at the clearance date. The fair values of financial instruments have been defined through discounted cash flows. Cash and Cash Equivalents Cash and cash equivalents comprise bank deposits. Bank overdrafts are included in the current liabilities in the balance sheet. Impairment of Financial Assets In estimating the losses for write-offs of sales receivables, a customer classification is used in which the reservation for credit loss is calculated based on experience, that is, based on expected credit losses from different customer groups. The Group’s realized credit losses have historically been very small due to the large share of net sales coming from public administration, third sector and large companies. Sales receivables and assets based on contracts are written off the profit or loss as final credit losses, when it is not reasonable to expect a payment to be received for them. If the amount of the impairment loss decreases during a future financial period and the deduction can be objectively considered to be related to a transaction taking place after the impairment entry, the recognized loss will be reversed as incurred in profit or loss. Financial Liabilities Initially, financial liabilities are measured at fair value. Transaction costs are included in the original carrying amount of financial liabilities measured at amortized cost. Financial liabilities are classified as current liabilities when they are due to be paid within 12 months from the end of the reporting period. The lending costs that are directly attributable to the acquisition, construction or production of a qualifying asset are recognized as part of the cost of that asset, if it is probable that future economic benefits that are attributable to the asset will flow to the Group and the costs can be determined reliably. Other lending costs are recognized as expenses in the period in which they have incurred. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. When the draw-down occurs, the fees paid on the establishment of loan facilities are recognized as part of transaction costs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Derivative Agreements Initially, derivative agreements are recognized at fair value on the date when the Group becomes a party of the agreement, and later they will continue to be valued at fair value. Profit and loss for valuing at fair value are treated in the accounting in a way defined by the purpose of use of the derivative agreement. Initially, derivative agreements are recognized at fair value on the date when the Group becomes a party of the agreement, and later they will be valued at fair value at the time of reporting. Changes in fair value are recognized in financial income or expenses in the profit and loss statement. Shareholders’ Equity Ordinary shares are presented as share capital. Costs relating to the issue or acquisition of equity instruments are presented as a deduction in shareholders' equity. If Innofactor repurchases its own equity instruments, the purchase price of such instruments is deducted from the shareholder's equity. Operating Profit The IAS 1 Presentation of Financial Statements standard does not define the concept of operating profit. The Group has defined the concept as follows: Operating profit is the net total which is formed when other operating income is added to the net sales and the following items are deducted: materials and services, cost of employee benefits, depreciation and possible impairment losses, and other operating expenses. All other items of the profit and loss statement are presented below the operating profit. Currency translation differences are included in operating profit if they arise from business related items; otherwise they are recognized in financial items. Translation differences In the consolidated financial statements, exchange rate differences arising from the equity of foreign subsidiaries and loans comparable with foreign net investments are recognized in translation differences through the Group’s other comprehensive income items. In the second quarter of the financial year 2022, the Group’s management classified certain intra-group loans as loans comparable with net investments and the exchange rate differences arising from these loans are recognized in translation differences. Critical Accounting Judgments and Key Sources of Estimation Uncertainty The preparation of financial statements requires estimates and assumptions concerning the future. The end results may deviate from these estimates and assumptions. The application of the accounting policies also requires judgment. The estimates made in the preparation of the financial statements are based on the best view of the management at the closing date of the reporting period. The estimates are based on the previous experiences and on assumptions concerning the future that are considered the most probable at the closing date. They may be related to the expected development of the Group’s financial operating environment in terms of sales and cost level. The Group regularly monitors the realization of the estimates and assumptions and the factors behind them by using several both internal and external sources of information. Possible changes in the estimates and assumptions are recognized in the financial period during which the estimate or assumption is adjusted and in the subsequent financial periods. The key assumptions concerning the future and those key sources of estimation uncertainty at the closing date of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are presented later in this report. The Group management considers these sections of the financial statements the most essential, because the accounting policies concerning them are the most complicated and their application requires the use of the most significant estimates and assumptions concerning, for example, the measurement of financial assets. In addition, the impact of possible changes in the assumptions and estimates used in these sections of the financial statements is estimated as the most significant. Determination of the Fair Value of Assets Acquired in Business Combinations The estimation of the fair value of intangible assets is based on an estimate of the cash flows related to the assets as there is no information available in the market concerning the purchase of similar assets. The Group management believes that the used estimates and assumptions are sufficiently exact for determining fair value. Additionally, the Group examines at every closing date of a reporting period or, if necessary, more frequently, if there are any indications of impairment in tangible and intangible assets. Determination of the Measurement of Goodwill The management makes significant estimates and judgment-based decisions when assessing the development of the Group’s net sales and expense, the applicable tax rates and the effects of changes in market conditions on the Group’s profit performance. Cash flow projections are based on the Group’s actual result and the management’s best estimates of future financial performance. Cash flow forecasts include the budgeted amount for the next financial year and the forecasted amounts for the three subsequent years. The growth rates are based on the management’s estimate of growth in the coming years. Partial recognition of revenue Revenue and expenses from projects recognized over time are recognized using the percentage of completion method when the outcome of the project can be estimated reliably. Recognition is based on estimates of the expected revenue and expenses from the project, as well as the reliable measurement and assessment of the progress of the project. If the estimate of the outcome of a project changes, the recognized project revenue and profit/margin are correspondingly changed in the period in which the change is discovered and can be estimated reliably. Loss-making contracts are recognized as expenses without delay. Notes to the Consolidated Financial Statements 3. Net sales EUR thousand 2023 2022 Projects 26 803 25 654 Services 28 088 26 069 Saas 21 272 16 807 Licenses 4 100 2 599 Total 80 263 71 130 Projects in 2023 include EUR 5.4 million (2022: EUR 2.5 million) in revenue recognized from projects based on the percentage of completion. From projects in progress on the closing date, a total of EUR 5.2 million (2022: EUR 2.1 million) in revenues had been recognized. The items that were included in the contract liability in the previous financial statements were recognized in full as revenue in the reporting period. During the period January 1–December 31, 2023, approximately 73% of the net sales came from Finland, approximately 12% from Sweden, approximately 4% from Denmark, and approximately 11% from Norway. The warranty period for system deliveries is 6–12 months and work under warranty is, as a rule, carried out during maintenance. Unfulfilled Long-Term Customer Contracts EUR thousand 2023 2022 Total transaction price for partially or entirely unfulfilled long-term customer contracts 71 555 75 831 Estimated time of recognition Estimated recognition within the next year 42 207 42 451 Estimated recognition later 29 348 33 380 Total 71 555 75 831 For continuing service contracts, the value of long-term customer contracts is calculated as the value of the net sales in one year. On December 31, 2023, this was EUR 23,034 thousand and on December 31, 2022, it was EUR 19,200 thousand. In 2023 part of the order backlog was transferred to the framework agreement backlog, which had a value of EUR 29,783 (EUR 18,852 in 2022) Net Sales by Customer Location EUR thousand 2023 2022 Finland 58 021 46 942 Rest of Europe 22 241 24 188 Rest of the world 0 0 Total net sales 80 263 71 130 Other operating income 2023 2022 Compensation for damages awarded on the basis of legal proceedings 0 231 Government Grants 0 0 Rent 75 43 Other 66 15 Total other operating income 141 290 Key figures for the solution areas are presented in note 12. 4. Other Operating Expenses EUR thousand 2023 2022 The following table shows four of the most significant items included in other operating expenses: Voluntary indirect employee costs 1 521 1 276 ICT expenses 1 010 987 Marketing expenses 438 744 Expenses for business premises 852 583 Total 3 821 3 590 Other unspecified operating expenses 3 190 3 615 Other operating expenses, total 7 011 7 205 Remuneration of the Auditors EUR thousand 2023 2022 Auditing 140 130 Other services 18 3 Total 158 134 5. Depreciation, Amortization and Impairment EUR thousand 2023 2022 Depreciation by asset group Intangible Assets 512 568 Total 512 568 Tangible assets Real estate 2 129 2 044 Machinery and equipment 624 446 Total 2 754 2 489 Total depreciation 3 266 3 057 6. Employee benefits/expenses EUR thousand 2023 2022 Wages and salaries 41 113 37 003 Pension expenses – defined contribution plans 6 336 5 517 Other indirect employee costs 3 334 3 123 Total 50 784 45 644 Group personnel 2023 2022 Average in the financial period 578 536 At the end of the financial period 581 564 Information on management benefits is presented in Note 24. Related party transactions. 7. Research and Development Costs In 2023, the research and development costs recognized as expenses totaled EUR 5,108 thousand (EUR 4,153 thousand in 2022). The Group did not capitalize any research and development costs during the financial period 2023. 8. Financial Income tuhatta euroa 2023 2022 Interest income 0 1 Other financial income * 116 45 Financial income, total 116 46 In the second quarter of the financial year 2022, the Group’s management classified certain intra-group loans as loans comparable with net investments and the exchange rate differences arising from these loans are recognized in translation differences. 9. Financial Expenses Items recognized in profit or loss EUR thousand 2023 2022 Interest and other financial expenses * 615 464 Interest expenses for right-of-use assets 162 154 Financial expenses, total 777 619 * In the second quarter of the financial year 2022, the Group’s management classified certain intra-group loans as loans comparable with net investments and the exchange rate differences arising from these loans are recognized in translation differences. 10. Income Taxes EUR thousand 2023 2022 Tax based on the taxable income of the financial period 0 0 Other taxes -3 -3 Deferred tax related to the creation or cancellation of temporary differences -1 582 -855 Total -1 585 -858 Reconciliation between the income tax expense and the taxes calculated at the 20.0% tax rate valid in the Group's home country: EUR thousand 2023 2022 Earnings before taxes 5 174 4 178 Taxes calculated at the domestic tax rate -1035 -836 Non-deductible expenses -12 -16 Tax-free income 15 42 Verokannan muutos 0 0 Difference in foreign tax rate 0 0 Change in deferred taxes Group transfers recognized in profit or loss for which no deferred tax assets or liabilities have been recognized -543 -19 Other -162 5 Taxes in the profit and loss statement -1736 -858 11. Earnings per Share Basic earnings per share are calculated by dividing the profit attributable to the shareholders of the company by the weighted average number of outstanding shares during the financial period. 2023 2022 Profit for the year attributable to shareholders of the parent company (EUR) 3 437 985 3 319 797 Weighted average of the number of shares during the financial period 36 810 154 36 546 578 Basic earnings per share (EUR/share) 0,09 0,09 There is no dilution effect in the Group. 12. Other notes to the profit and loss statement Starting from the financial statements for 2023, the Group reports key figures separately for its four solution areas. The reportable solution areas are as follows: 1) Digital Services, 2) Business Solutions, 3) Information and Case Management, and 4) Cloud, Data, Modern Work and Data Security. Key figures for the solution areas Jan 1–Dec 31, 2023 Digitaaliset palvelut Liiketoimintaratkaisut Tiedon- ja asianhallinta Pilvi, data, moderni työ ja tietoturva Yhteensä EUR thousand SaaS net sales 168 423 2 305 1 204 21 272 License net sales 168 423 2 305 1 204 4 100 Project net sales 7 433 6 166 4 281 8 923 26 803 Service net sales 9 584 6 024 3 425 9 055 28 088 Total net sales 17 353 13 036 12 316 20 386 80 263 EBITDA 3 159 -364 4 733 1 572 9 101 % of net sales 16,6 % -2,0 % 24,2 % 6,6 % 11,3 % Unfulfilled Long-Term Customer Contracts 15 938 14 373 23 147 18 097 71 555 % of net sales 92 % 110 % 188 % 89 % 89 % Research and Development Costs 0 502 4 043 564 5 108 % of net sales 0,0 % 2,8 % 20,7 % 2,4 % 6,4 % Jan 1–Dec 31, 2022 Digitaaliset palvelut Liiketoimintaratkaisut Tiedon- ja asianhallinta Pilvi, data, moderni työ ja tietoturva Yhteensä EUR thousand SaaS net sales 2 260 3 392 7 877 3 277 16 806 License net sales 179 610 913 897 2 599 Project net sales 6 425 5 496 3 992 9 741 25 654 Service net sales 7 269 8 321 2 492 7 987 26 069 Total net sales 16 132 17 819 15 275 21 902 71 130 EBITDA 2 448 -107 3 337 2 129 7 808 % of net sales 15,2 % -0,6 % 21,8 % 9,7 % 11,0 % Unfulfilled Long-Term Customer Contracts 26 035 11 957 16 727 21 111 75 831 % of net sales 161 % 67 % 110 % 96 % 107 % Research and Development Costs 0 500 3 252 401 4 153 % of net sales 0,0 % 2,8 % 21,3 % 1,8 % 5,8 % 13. Tangible Assets EUR thousand Machinery and equipment Buildings and structures Total Acquisition cost, Jan 1, 2023 6 255 11 914 18 169 Additions in 2023 658 469 1 128 Deductions in 2023 0 0 Acquisition costs, Dec 31, 2023 6 913 12 384 19 297 Accumulated depreciation, amortization and impairment, Jan 1, 2023 -5 186 -7 089 -12 274 Depreciation related to deductions/exchange differences of tangible assets -23 11 -12 Depreciation in 2023 -624 -2 129 -2 754 Carrying amount, Jan 1, 2023 1 076 4 843 5 919 Carrying amount, Dec 31, 2023 1 080 3 177 4 257 Acquisition cost, Jan 1, 2022 5 277 8 194 13 471 Additions in 2022 978 3 720 4 698 Deductions in 2022 0 0 Acquisition costs, Dec 31, 2022 6 255 11 914 18 169 Accumulated depreciation, amortization and impairment, Jan 1, 2022 -4 740 -5 045 -9 785 Depreciation related to deductions/exchange differences of tangible assets 7 17 24 Depreciation in 2022 -446 -2 044 -2 489 Carrying amount, Jan 1, 2022 537 3 164 3 701 Carrying amount, Dec 31, 2022 1 076 4 843 5 919 1.1.2023 31.12.2023 Tangible assets 1 076 1 080 Right-of-use assets 4 843 3 177 Total 5 919 4 257 1.1.2022 31.12.2022 Tangible assets 535 1 076 Right-of-use assets 3 166 4 843 Total 3 701 5 919 Right-of-use assets EUR thousand Koneet ja kalusto Rakennukset ja rakennelmat Yhteensä Acquisition cost, Jan 1, 2023 0 4 843 4 843 Additions in 2023 0 469 469 Depreciation in 2023 0 -2 134 -2 134 Carrying amount, Dec 31, 2023 0 3 177 3 177 EUR thousand Koneet ja kalusto Rakennukset ja rakennelmat Yhteensä Acquisition cost, Jan 1, 2022 1 3 164 3 166 Additions in 2022 0 3 720 3 720 Depreciation in 2022 -1 -2 043 -2 044 Carrying amount, Dec 31, 2022 0 4 843 4 843 Lease liabilities are described in Note 20. Note 14. Intangible assets EUR thousand Liikearvo Muut aineettomat hyödykkeet Yhteensä Acquisition cost, Jan 1, 2023 28 047 18 779 46 826 Additions in 2023 0 0 0 Change in value from exchange rate changes 4 43 47 Acquisition cost, Dec 31, 2023 28 051 18 822 46 873 Accumulated depreciation, amortization and impairment, Jan 1, 2023 -1 216 -16 381 -17 597 Depreciation in 2023 0 -512 -512 Accumulated depreciation, amortization and impairment, Dec 31, 2023 -1 216 -16 894 -18 110 Carrying amount, Jan 1, 2023 26 831 2 398 29 229 Carrying amount, Dec 31, 2023 26 835 1 929 28 764 EUR thousand Liikearvo Muut aineettomat hyödykkeet Yhteensä Acquisition cost, Jan 1, 2022 27 609 16 446 44 055 Additions in 2022 951 2 339 3 290 Change in value from exchange rate changes -512 -7 -519 Acquisition cost, Dec 31, 2022 28 047 18 779 46 826 Accumulated depreciation, amortization and impairment, Jan 1, 2022 -1 216 -15 813 -17 029 Depreciation in 2022 0 -568 -568 Accumulated depreciation, amortization and impairment, Dec 31, 2022 -1 216 -16 381 -17 597 Carrying amount, Jan 1, 2022 26 393 633 27 026 Carrying amount, Dec 31, 2022 26 831 2 398 29 229 Impairment Testing The Group has one cash-generating unit (CGU), software business, to which all the goodwill created in business acquisitions is allocated. In impairment testing, all the Group’s recoverable amounts are determined on the basis of value in use. The cash flow forecasts are based on the forecasts approved by the management and they cover a period of three years. The cash flows after the forecast period approved by the management have been extrapolated by using a growth factor of 1.0%. The essential variables in the calculation of value in use are the following: 1.Budgeted operating margin – The value of the variable is based on the budget approved by the Board of Directors and the management's estimate on the development of the operating margin during the next three years. During the forecast period, no essential changes are expected in the operating margin. 2.Change in working capital – The value of the variable is based on the average working capital in relation to the net sales and the management's estimate on changes in the working capital during the next three years. During the forecast period, no essential changes are expected in the change in the working capital. 3.Discounting rate – Determined by using Weighted Average Cost of Capital (WACC), which defines the overall cost of equity and debt, taking the special risks concerning the items into consideration. The discount rate has been determined before taxes. The discount rate used in the calculations is 11.39% (14.0% in 2022). The discount rate after taxes is 9.24% (11.4% in 2022). 4.Growth rate in the forecast period – the company considers the used net sales to be conservative, considering the realized long-term growth of the field and of Innofactor's business. According to the impairment testing, the recoverable amounts exceed the corresponding balance sheet values by approximately EUR 54 million. No impairment losses were recognized in 2023 and 2022. According to the sensitivity analysis that the Group carried out on goodwill, a decrease of 25% in the net sales compared to the estimated net sales of 2023–2025 or a decrease of 28% in profitability compared with the estimate for 2023–2025 would indicate a need for impairment. On the basis of the sensitivity analysis, an 15.4% increase in the discount rate would cause a need for impairment. Recognition of Goodwill EUR thousand 2023 2023 2022 IT service business 28 835 26 831 Goodwill 28 835 26 831 Note 15. Deferred Tax Assets and Liabilities Changes in deferred taxes in 2023: EUR thousand 31.12.2022 Kirjattu tulosvaikutteisesti Muuntoerot Laskennallisten verosaamisten ja verovelkojen lisäys ** 31.12.2023 Deferred tax assets From Group combinations * 4 090 -1 654 -21 0 2 415 Total 4 090 -1 654 -21 0 2 415 Deferred tax liabilities Measurement of intangible assets and tangible assets at market value in business combinations 1 852 -72 0 0 1 780 Total 1 852 -72 0 0 1 780 * Of the deferred tax assets, approximately EUR 2,134 thousand consist of historical, confirmed losses. At the end of 2023, the amount of losses, which have not been used in the Group's taxation and which have not been recognized as deferred taxes in accordance with the prudence concept, is EUR 1.6 million. These losses are from the other Nordic countries outside Finland. The losses in other Nordic countries will not expire, but strong evidence of their utilization in the next few years is required. The figures do not include the losses to be used in the taxation for 2023, which have not yet been confirmed. To assess whether the convincing evidence threshold per IAS 12 is met, the company has prepared profit and tax forecasts for future periods that take into consideration the tax regulations in effect at the time of calculation. The management has recognized a deferred tax asset from the Group’s operations in Denmark based on the forecast of taxable income in these calculations. Note 16. Trade and Other Receivables EUR thousand 2023 2022 Trade and other receivables Trade receivables 12 309 10 708 Receivables from customers for long-term projects 4 809 1 971 Loan receivables 37 79 Accrued income 1 284 1 768 Other receivables 10 14 Total 18 449 14 540 EUR thousand 2023 2023 2022 After credit loss entry Credit loss provision for receivables Before credit loss entry Breakdown of trade receivables by age Not past due 10 220 11 10 232 9 462 Past due Past due 1–90 days 1 710 4 1 714 1 073 Past due over 90 days 378 26 404 173 Total 12 309 41 12 350 10 708 Trade receivables have been adjusted by a credit loss provision in accordance with IFRS 9. The balance sheet values correspond best to the maximum amount of the credit risk, excluding the fair value of collateral, in cases where the other parties to the agreement are unable to fulfill their obligations related to financial instruments. The Group's operating practices do not include the acquisition of collateral for trade and other receivables. The principles for managing credit risks are described in Note 18. Assets Based on Customer Contracts EUR thousand 2023 2022 Receivables based on project contracts 4 809 1 971 Total 4 809 1 971 EUR thousand 2023 2022 Liabilities based on project contracts 1 703 504 Total 1 703 504 Liabilities and receivables based on project contracts are stated in the accrued income and liabilities in the balance sheet. Innofactor does not expect to enter into contracts in which the time between the handover of projects or services to the customer and the payment made by the customer would be longer than one year. For this reason, the transaction prices are not adjusted to take the time value of money into account. Note 17. Cash and Cash Equivalents EUR thousand 2023 2022 Bank accounts 425 1 956 Total 425 1 956 Current deposits have a maturity of three months at most. Cash and cash equivalents are presented at nominal value, which corresponds to their fair value. Note 18. Notes Concerning Shareholders’ Equity Number of Shares in 2023 2023 2022 Outstanding shares, Jan 1 36 208 104 36 626 225 Own shares held by the company 600 000 1 180 121 Outstanding shares, Dec 31 35 743 691 36 208 104 Innofactor Plc has one class of shares. The share has no nominal value. All the issued shares have been paid in full. The equity funds are described below: Share premium reserve In the cases in which option rights have been decided upon while the old Companies Act (29.9.1978/734) was in force, the cash payments received for subscriptions have been recognized in the share capital and share premium reserve in accordance with the conditions of the arrangement, with the transaction costs deducted. Reserve fund The reserve fund is a fund for unrestricted equity formed on the basis of the decision of the General Meeting. Fund for Invested Unrestricted Equity The fund for invested unrestricted equity contains other equity type investments and the subscription price of shares to the extent that they are not, based on a specific decision, recognized in the share capital. For the option programs that have been decided on after the new Companies Act (21.7.2006/624) entered into force (September 1, 2006), the fees for subscriptions are recognized in full in the fund for invested unrestricted equity. Dividends and Capital Repayment In 2023, a capital repayment of EUR 0.06 per share was distributed. The Board of Directors has proposed that Innofactor Plc distribute a capital repayment of EUR 0.07 per share for the financial period 2023. The Board of Directors further proposes that the Annual General Meeting authorize the Board to decide on a repayment of capital amounting to a maximum of EUR 2,544,058 (EUR 0.07 per share). Own Shares The General Meeting of March 31, 2023, authorized the Board of Directors to decide on acquiring a maximum of 3,600,000 of company's own shares in one or several parts with the company’s unrestricted equity. The authorization entitles the Board to deviate from the shareholders’ proportional shareholdings (directed acquisition). Own shares may be acquired at the purchase price formed for them in public trading on the day of purchase or at another market price. The number of treasury shares at a time may be, at the maximum, one tenth of the total number of shares in the company. Shares may be purchased to be used in company acquisitions or implementing other arrangements relating to the company's business operations, improving the company's capital or financing structure, as a part of the company's incentive system, or otherwise to be handed over or voided. In connection with the share repurchase, ordinary derivative, stock lending and other agreements may be made in the market in accordance with the laws and regulations. The authorization includes the right of the Board of Directors to decide on all other matters related to the acquisition of shares. The authorization will be valid until June 30, 2024. This authorization replaces the Board’s earlier authorizations concerning share repurchase. At the end of the review period, the company held 600,000 treasury shares. Note 19. Financial Risk Management In its normal business operations, the Group is susceptible to several financial risks. The goal of the Group’s risk management is to minimize the negative effects of the changes in the financial markets on the result of the Group. The main financial risks are credit risks, exchange rate risks, and interest risks. The general principles of the Group’s risk management are approved by the Board of Directors and the practical implementation of financial risk management is the responsibility of the Group’s financial department. Interest Risk At the closing date, the company had fluctuating rate bank loans totaling EUR 6.3 million (EUR 9.4 million on December 31, 2022). The company has been subjected to the cash flow interest risk through the loan portfolio. The goal of the company’s risk management as concerns the interest risk is to minimize the negative impacts of interest rate changes on the company’s result. The average interest rate of the loans was 2.8 percent (3.2% in 2022). Interest rate hedging has been applied to more than half of the Group’s loans. The realized average balances of the fluctuating rate loans during the financial period have been used in the sensitivity analysis. At the closing date, the effect of the fluctuating rate interest-bearing loans on the result before taxes would have been EUR +/- 33 thousand (2022: EUR +/- 30 thousand) had the interest rate been increased or decreased by 1 percentage point. Exchange Rate Risk Innofactor Group operates globally and is exposed to risks related to the currencies of the countries in which it operates. Changes in exchange rates, especially the rates of Swedish krona and Norwegian krone, affect the Group’s net sales and profitability. Innofactor has significant business operations based on Swedish krona and Norwegian krone. The exchange rate risk is mainly due to the assets and liabilities registered in the balance sheet and the net investments made in the subsidiaries abroad. Also, the business contracts made by subsidiaries pose an exchange rate risk, although these contracts are mainly made in the currency the unit uses in its operation. The management of exchange rate risks in the Group aims at minimizing the uncertainty that changes in exchange rates cause in the result through cash flows and assessment of receivables and liabilities. The sensitivity analysis of exchange rate risk shows the effect on the profit and loss statement if the exchange rate against the euro were to change by 10 percent. According to a sensitivity analysis of exchange rate risk calculated in accordance with IFRS 7, the effect on profit before taxes would have been EUR -0.3 million to EUR +0.3 million on the closing date. Credit Risk Credit decisions related to sales receivables are monitored centrally by the Group's management. Large part of Innofactor's cash flow comes through established customer relationships as payments from the public sector and financially sound companies, which have not presented essential credit risks in the past, and the Group has not suffered any significant credit losses. Should credit risks realize, it would weaken the Group's financial standing and liquidity. Sales receivables are monitored regularly. The aging analysis of the trade receivables is presented in Note 16. Trade and Other Receivables Risks Related to Receivables from Projects A large part of Innofactor's net sales comes from project business. A part of projects consists of long term projects in which scheduled payments and their terms are typically agreed on with the customer beforehand. When Innofactor performs work in customer projects, which is scheduled to be invoiced afterwards, project receivables are accrued. Especially in public administration projects, scheduled payments often take place nearer to the end of the project, which means increased project receivables and related risks. In customer negotiations, Innofactor pays special attention to scheduling the payments and the size of payments, and in customer projects, to project management and steering in accordance with the scheduled payments. Project receivables are monitored regularly. Risks Related to the Cash Position The Group continually estimates and monitors the amount of financing required for the business operations, for example, by analyzing cash flow forecasts monthly to ensure that the Group has sufficient liquid funds to finance its operations. The Group analyzes the liquidity forecasts regularly and assesses the effect of possible acquisitions on the cash position. The Group has not identified significant liquidity risk concentrations in the financial assets. EUR thousand Dec 31, 2023 tasearvo 0-6 kk 6 kk-1 vuosi yli 1 vuosi 2-4 vuotta Maturity distribution of financial liabilities Loans from financial institutions 6 325 1 770 3 201 1 354 0 Trade and other payables 2 074 2 074 0 0 0 tuhatta euroa Dec 31, 2023 tasearvo 0-6 kk 6 kk-1 vuosi yli 1 vuosi 2-4 vuotta Maturity distribution of financial liabilities 9 402 1 770 3 116 2 707 1 809 Loans from financial institutions Trade and other payables 1 715 1 715 0 0 0 Lease liabilities are described in Note 21. Capital Structure Management The shareholders’ equity in the consolidated balance sheet is managed as capital assets. The goal of capital structure management is to ensure operational preconditions of the Group and increase shareholder value in the long term. The capital structure can be managed through decisions concerning, for example, dividend distribution, acquisition and transfer of treasury shares, and share issues. The shareholders’ equity in the consolidated balance sheet is managed as capital assets. No external capital requirements are applied to the Group. The development of the capital structure of the Group is monitored continually by means of Net Gearing. EUR thousand 2023 2022 Interest-bearing loans from financial institutions 6 325 9 402 Lease liabilities 3 291 4 947 Cash and cash equivalents 425 1 956 Total shareholders’ equity 25 483 24 799 Net Gearing 36,10 % 50,00 % In its normal business operations, Innofactor Group is exposed to normal financing risks. In total at the end of the review period, Innofactor had approximately EUR 6.3 million in interest bearing debts to financial institutions, which have been taken out to finance acquisitions and working capital. Of the debts, approximately EUR 1.8 million is non-current and approximately EUR 4.5 million is current liabilities. Additionally, the company had lease liabilities in accordance with the IFRS 16 standard (leases for the duration of fixed-term leases) for EUR 3.3 million, of which EUR 2.0 million was current and EUR 1.3 million non-current. The total of interest-bearing liabilities was EUR 9.6 million. Innofactor has committed to the following covenants: Equity ratio calculated every six months is at least of 40%, and interest bearing liabilities calculated every six months divided by the 12-month operating margin (EBITDA) is a maximum of 2.5, and certain other normal conditions for loans. The goal of managing the financing risks is to minimize the negative effects of the changes in the financial markets on the result of the Group. Financing risk management has been centralized to the CFO, who is responsible for the Group's financing and regularly reports to the company's Executive Board, CEO, and Board of Directors. It is possible that, in the future, the Group will not get the financing it needs and this would have a negative effect on the Group's business and its development, especially on making acquisitions. Note 20. Fair Values of Financial Assets and Liabilities The table below shows the fair value and carrying amount of each item in financial assets and liabilities. These values correspond with the consolidated balance sheet values. EUR thousand 31.12.2023 31.12.2022 Liitetieto Trade and other receivables 15 18 449 14 540 Cash and cash equivalents 16 425 1 956 Total 18 873 16 495 Loans from financial institutions 6 325 9 402 Lease liabilities 3 291 4 947 Total 9 616 14 349 Trade and other payables: Trade payables 2 074 1 715 Other liabilities 5 139 4 951 Interest rate swap agreements, not in hedge accounting * 0 0 Total 7 213 6 665 * fair value hierarchy level 2 Trade and other receivables The original carrying amount of the receivables corresponds to their fair values, as the effect of discounting is not essential considering the maturity of the receivables. Loans from financial institutions The carrying amount of loans corresponds with their fair value. Trade and Other Payables The original carrying amount of the trade and other payables corresponds to their fair values, as the effect of discounting is not essential considering the maturity of the payables. Derivatives Fair value of derivative agreements has been defined based on available market information. Note 21. Lease liabilities Maturity EUR thousand Total Less than 1 year 1–5 years Over 5 years 31.12.2023 Lease liabilities (IFRS 16) 3 291 1 996 1 295 0 Other lease liabilities 114 48 66 0 Interests for right-of-use asset liabilities 105 91 14 0 Total 3 510 2 134 1 375 0 Balance Sheet 2023 2022 EUR thousand Non-current lease liabilities 1 295 2 832 Current lease liabilities 1 996 2 115 Total 3 291 4 947 Comprehensive Consolidated Profit and Loss Statement, IFRS 2023 2022 EUR thousand Deduction of other expenses (lease liabilities) 2 282 2 187 Addition of right-of-use asset deductions -2 129 -2 044 Addition of operating profit 152 143 Addition of financial expenses -162 -152 Result for the financial period -10 -9 2023 2022 Current lease liabilities have been recognized 159 168 Low value lease liabilities have been recognized 26 26 The cash flow effect of the company's lease agreements was EUR -2,187 thousand in 2022 (EUR -2,155 thousand in 2021). Interest on lease liabilities is shown in Note 9. Financial Expenses. Right-of-use assets are presented in Note 13. Tangible assets Note 22. Contingent Liabilities and Assets and Acquisition Commitments Vakuudet EUR thousand 2023 2022 Collateral given for own commitments Lease collateral 167 125 Mortgages on company assets 16 650 17 750 Mortgages on company assets have been given as collateral for the credit limit and a loan. Bank guarantees 312 327 Bank guarantees have been given as collateral for lease agreements. Note 23. Statement of Changes in Interest Bearing Debts EUR thousand Non-current Current Total Liabilities Jan 1, 2023 7 349 7 000 14 349 Loans withdrawn 0 0 0 Loans paid -3 077 -3 077 Changes with no related cash flow: Changes between non-current and current -2 747 2 747 0 Change in lease liabilities * -1 537 -119 -1 656 Liabilities Dec 31, 2023 3 065 6 550 9 616 * IFRS 16 lease liabilities (Note 21) EUR thousand Non-current Current Total Liabilities Jan 1, 2022 6 342 3 476 9 818 Loans withdrawn 2 500 2 219 4 719 Loans paid -1 874 -1 874 Changes with no related cash flow: Changes between non-current and current -2 667 2 667 0 Change in lease liabilities * 1 173 512 1 686 Liabilities Dec 31, 2022 7 349 7 000 14 349 * IFRS 16 lease liabilities (Note 20) Note 24. Related Party Disclosures Innofactor’s related parties consist of subsidiaries, the management (Board of Directors, CEO and the Executive Board), their close family members and companies, associated companies and joint ventures controlled by them or their close family members. The company’s financial administration maintains a list of the company’s related parties. The company’s financial administration defines Innofactor’s related parties, when the status as a related party is not due to the IAS related party definition concerning persons. The company sends an annual query to the company’s key management persons, as defined in IAS 24, about the natural and legal persons which are their related parties. Persons discharging managerial duties in the company, who are considered related parties, owe EUR 21 thousand to the company (EUR 70 thousand in 2022) as a result of personnel share issues. As a rule, the loan period is five years, and the loan is repaid in fixed monthly installments. There are also two-year loans that are repaid in four equal instalments every six months. The interest rate on the loans is the 12-month Euribor 360. However, the interest rate is always a minimum of 0%. The accrued interest is paid monthly to the company. The company does not have any other major related party transactions. Management's Employment Benefits EUR thousand 2023 2022 Salaries and fees paid to the CEO and Group management during the financial period, including benefits in kind, as follows: CEO (including Board fees) 375 338 Other Group management 1 274 1 463 Total 1 649 1 801 Management's Employment Benefits 2023 2022 Short-term employee benefits 1 649 1 801 Post-employment benefits 0 0 Other long-term benefits 0 0 Benefits paid upon termination 0 0 Share-based payments 0 0 Total 1 649 1 801 2023 2021 Board members and deputy members Lindén Anna Chairman of the Board of Directors 59 48 Ensio Sami Hallituksen jäsen 29 24 Linturi Risto Hallituksen jäsen 29 24 Heikki Nikku Hallituksen jäsen 29 24 Total 146 120 The CEO's retirement age and the basis for calculating the pension comply with the effective Employee Pensions Act. The mutual term of notice of the CEO is 6 months. If the company terminates the CEO’s contract, the CEO will be paid the salary for the period of notice and also, as a compensation for the termination, a one-time payment equaling to the CEO’s 12 months’ salary. Note 25. Group Companies At the end of the financial period, the Innofactor Group included the following companies: Innofactor Plc, Finland (parent company) Innofactor Software Oy, Finland, 100% Innofactor Invenco Oy, Finland, 100% Innofactor Holding AB, Sweden, 100% Innofactor AB, Sweden, 100% Innofactor Holding ApS, Denmark, 100% Innofactor A/S, Denmark, 100% Innofactor Holding AS, Norway, 100% Innofactor AS, Norway, 100% Note 26. Events After the Closing Date Events after the review period Innofactor had no other significant events after the end of the review period. Innofactor Plc Parent Company Financial Statement, FAS EUR PARENT COMPANY PROFIT AND LOSS STATEMENT Note Jan 1–Dec 31, 2023 Jan 1–Dec 31, 2022 12 months 12 months NET SALES 1 13 388 169 10 933 459 Other operating income 2 83 860 274 316 Materials and services Purchases during the financial period 3 -6 212 819 -4 785 967 Personnel expenses 4 -3 314 204 -2 874 652 Depreciation Planned depreciation -81 516 -133 143 Other operating expenses 6 -3 804 616 -3 375 867 OPERATING RESULT 58 876 38 146 Financial income and expenses 7 Dividend income 0 0 Interest and financial income 1 509 089 602 749 Interest and other financial expenses -426 945 -348 897 Total financial income and expenses 1 082 144 253 852 RESULT BEFORE APPROPRIATIONS AND TAXES 1 141 020 291 997 Group contribution -677 279 -320 587 EARNINGS BEFORE TAXES 463 741 -28 590 RESULT FOR THE FINANCIAL PERIOD 463 741 -28 590 Innofactor Plc Balance Sheet, FAS EUR ASSETS Note NON-CURRENT ASSETS 31.12.2022 31.12.2022 Intangible assets Intangible rights 8 28 152 64 425 Tangible assets Machinery and equipment 8 147 503 32 776 Investments Shares in Group companies 9 37 490 528 36 496 610 TOTAL NON-CURRENT ASSETS 37 666 183 36 593 811 CURRENT ASSETS Receivables 10 Non-current Loan receivables 44 363 52 571 Other receivables 24 177 056 24 568 285 Current Trade receivables 23 067 430 12 113 012 Loan receivables 38 712 76 327 Accrued income 11 517 322 987 039 Cash and bank receivables 230 257,88 0 TOTAL CURRENT ASSETS 48 075 140 37 797 233 ASSETS 85 741 323 74 391 044 LIABILITIES SHAREHOLDERS’ EQUITY 12 Share capital 2 100 000 2 100 000 Revaluation fund 2 000 000 2 000 000 Fund for invested unrestricted equity 23 163 166 25 340 516 Profit from previous financial periods -2 349 736 -1 697 310 Profit/loss for the financial period 463 741 -28 590 Total shareholders’ equity 25 377 172 27 714 616 LIABILITIES 13 Non-current Loans from financial institutions 1 770 000 4 476 667 Non-current total 1 770 000 4 476 667 Current Loans from financial institutions 4 554 770 5 073 683 Trade payables 556 763 1 029 753 Other liabilities 51 659 732 34 988 834 Accrued expenses 14 1 822 886 1 107 492 Current total 58 594 151 42 199 761 Total liabilities 60 364 151 46 676 428 LIABILITIES 85 741 323 74 391 044 Innofactor Plc Parent Company Cash Flow Statement EUR Jan 1–Dec 31, 2023 Jan 1–Dec 31, 2022 Liiketoiminnan rahavirta Operating profit/loss 58 876 38 146 Adjustments: Depreciation 81 516 133 143 Transactions with no related cash flow: 34 467 -367 827 Change in working capital Change in trade and other receivables -7 548 198 -1 576 417 Change in trade and other payables 16 236 024 1 750 731 Paid interest and other financial expenses -356 695 -345 290 Total operating activities cash flow 8 505 989 -367 514 Investment cash flow Investments in subsidiary shares -2 424 801 -2 424 801 Investments in fixed assets -193 944 -33 975 Loan receivables repaid 45 822 72 797 Loans paid 0 0 Loans granted 391 229 1 734 098 Total investment cash flow -2 181 694 -651 880 Cash flow before financing 6 324 295 -1 019 394 Financing cash flow Loans withdrawn 0 2 500 000 Loans paid -3 077 359 -1 875 000 Group account debt withdrawn 39 843 2 180 619 Payments received from share issue 335 661 0 Purchase of own shares -1 026 769 -446 715 Dividends paid -2 177 349 -2 927 058 Total financing cash flow -5 905 973 -568 154 Change in cash and cash equivalents as per cash flow statement 418 322 -1 587 548 Change in cash and cash equivalents 230 258 -1 587 548 Cash and cash equivalents, opening balance 0 1 587 548 Cash and cash equivalents, closing balance 230 258 0 NOTES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS Accounting Principles Used in the Parent Company's Financial Statements The financial statements of Innofactor Plc for the financial period of 2023 have been prepared in accordance with the Finnish accounting regulations. Intangible and tangible assets The intangible and tangible assets have been recognized at historical cost less planned depreciation. Planned depreciation has been calculated on the basis of the assets’ economic lives as follows: - intangible rights 3–5 years - goodwill 5 years - tangible assets 3–5 years Acquisition costs for non-current asset items, which have a probable economic life of under three years, and small purchases (under EUR 850) have been recognized as cost in their entirety in the financial period in which they were purchased. Securities Included in Financial Assets Securities included in financial assets have been measured at the acquisition price or the market price, whichever is lower. Items in Foreign Currency Items in foreign currency have been converted using the weighted average rate quoted by the European Central Bank at the closing date. Derivatives Derivatives are measured at acquisition cost in accordance with Section 5.2 of the Accounting Act, or at fair value if the probable market price on the financial statements data is lower than the acquisition cost. Notes to the Financial Statements (EUR) 1. Net sales (EUR) by market area 2023 2022 Finland 11 987 647 9 997 361 Rest of Europe 1 400 522 936 097 Total net sales 13 388 169 10 933 459 2. Other operating income 2023 2022 Lease revenue 74 515 42 959 Other operating income 9 345 231 357 Total other operating income 83 860 274 316 3. Materials and services 2023 2022 Purchases during the financial period 6 212 819 4 785 967 Total 6 212 819 4 785 967 4. Personnel expenses 2023 2022 Salaries and fees 2 778 552 2 426 382 Pension expenses 470 800 403 676 Other indirect employee costs 64 852 44 595 Total personnel expenses 3 314 204 2 874 652 Management salaries and fees CEO and Board Member Sami Ensio 375 000 338 000 Board members and deputy members 113 000 95 000 Total 488 000 433 000 The CEO's retirement age and the basis for calculating the pension comply with the effective Employee Pensions Act. The mutual term of notice of the CEO is 6 months. If the company terminates the CEO’s contract, the CEO will be paid the salary for the period of notice and also, as a compensation for the termination, a one-time payment equaling the CEO’s 12 months' salary. Average number of personnel 37 31 5. Planned depreciation 2023 2022 On intangible rights 57 680 126 971 On goodwill 0 0 On machinery and equipment 23 836 6 172 Total 81 516 133 143 6. Other operating expenses 2023 2022 Leases and other expenses for premises 1 139 191 999 785 IT hardware, licenses and communications 848 982 1 283 717 Travel expenses 93 494 46 729 Training expenses 49 652 90 802 Entertainment expenses 16 366 24 450 Other operating expenses 1 656 930 930 385 3 804 616 3 375 867 Other operating expenses, total 0 0 3 804 616 3 375 867 Remuneration of the Auditors 2023 2022 Auditing 68 950 62 250 Other services 17 600 5 500 Total 86 550 67 750 Fees in total 86 550 67 750 7. Financial income and expenses 2023 2022 Total interest and other financial income From Group companies 1 042 162 600 514 From others 466 928 2 234 Total interest and other financial income 1 509 089 602 749 Interest and other financial expenses To Group companies -21 830 -4 464 Interest expenses to others -405 115 -344 433 Total interest and other financial expenses -426 945 -348 897 In 2023, other interest and financial expenses included EUR 48 thousand in exchange rate losses (2022: EUR 97 thousand). Total financial income and expenses 1 082 144 253 852 Group contributions received/granted -677 279 -320 587 Balance Sheet Notes (EUR) 8. Intangible and tangible assets Aineelliset Aineettomat Liikearvo hyödykkeet Yhteensä Acquisition cost, Jan 1, 2023 1 058 947 603 840 160 302 1 823 089 Additions 21 406 0 138 563 159 969 Acquisition cost, Dec 31, 2023 1 080 353 603 840 298 866 1 983 058 Accumulated depreciation, amortization and impairment, Jan 1, 2023 994 521 603 840 127 526 1 725 887 Depreciation for the financial period 57 680 0 23 836 81 516 Accumulated depreciation, Dec 31, 2023 1 052 201 603 840 151 362 1 807 403 Carrying amount, Dec 31, 2023 28 152 0 147 503 175 656 Aineelliset Aineettomat Liikearvo hyödykkeet Yhteensä Acquisition cost, Jan 1, 2022 1 047 111 603 840 138 163 1 789 114 Additions 11 836 0 22 139 33 975 Acquisition cost, Dec 31, 2022 1 058 947 603 840 160 302 1 823 089 Accumulated depreciation, amortization and impairment, Jan 1, 2022 867 551 603 840 121 354 1 592 744 Depreciation for the financial period 126 971 0 6 172 133 143 Accumulated depreciation, Dec 31, 2022 994 521 603 840 127 526 1 725 887 Carrying amount, Dec 31, 2022 64 426 0 32 776 97 202 9. Investments Acquisition cost, Jan 1, 2023 36 496 610 Acquisition cost, Dec 31, 2023 37 490 528 Carrying amount, Dec 31, 2023 37 490 528 Acquisition cost, Jan 1, 2022 32 198 940 Acquisition cost, Dec 31, 2022 36 496 610 Carrying amount, Dec 31, 2022 36 496 610 10. Receivables 2023 2022 Non-current assets Loan receivables 44 363 52 571 Receivables from associated companies 0 0 Other receivables from Group companies 24 177 056 24 568 285 Non-current receivables total 24 221 419 24 620 855 Current receivables Trade receivables 6 641 2 994 Loan receivables 38 712 76 327 Trade receivables from Group companies 23 060 789 12 110 017 Current receivables total 23 106 142 12 189 338 Total receivables from Group companies 47 237 845 36 678 302 11. Accrued income 2023 2022 Pre-paid licenses 465 624 472 012 Receivables related to legal proceedings 470 393 Periodical personnel expenses 37 215 2 544 Other 14 483 42 089 Accrued income in total 517 322 987 039 12. Shareholders’ equity 2023 2022 Shareholders’ equity, opening balance 2 100 000 2 100 000 Shareholders’ equity, closing balance 2 100 000 2 100 000 Revaluation fund, opening balance 2 000 000 2 000 000 Revaluation fund, closing balance 2 000 000 2 000 000 Unrestricted shareholders’ equity Fund for invested unrestricted equity opening balance 25 340 515 28 267 517 Repayment of capital -2 177 349 -2 927 002 Fund for invested unrestricted equity closing balance 23 163 165 25 340 515 Profit from previous financial periods, opening balance -1 697 309 -1 250 595 Dividend payment 0 0 Purchase of own shares -652 427 -446 714 Profit from previous financial periods, closing balance -2 349 736 -1 697 309 Result for the financial period 463 741 -28 590 Total unrestricted shareholders’ equity 21 277 171 23 614 616 Total shareholders’ equity 25 377 171 27 714 616 Calculation of distributable funds 2023 2022 Result from previous financial periods -2 349 736 -1 697 309 Result for the financial period 463 741 -28 590 Fund for invested unrestricted equity 23 163 165 25 340 515 Total 21 277 171 23 614 616 13. Liabilities 2023 2022 Non-current liabilities Loans from financial institutions 1 770 000 4 476 667 Total non-current liabilities 1 770 000 4 476 667 Current liabilities Loans from financial institutions 4 554 770 5 073 683 Trade payables 556 763 1 029 753 Trade payables to Group companies 0 0 Trade payables in total 556 763 1 029 753 Other liabilities 2 731 708 1 973 466 Other payables to Group companies 48 928 024 33 015 368 Other liabilities in total 51 659 732 34 988 834 Accrued expenses 1 822 886 1 107 492 Liabilities to Group companies 48 928 024 33 015 368 Total current liabilities 58 594 151 42 199 761 Total liabilities 60 364 151 46 676 428 14. Accrued expenses 2023 2022 Periodical personnel expenses 538 937 508 223 Rent 106 526 106 526 Other 1 177 423 492 742 Accrued expenses in total 1 822 886 1 107 492 15. Commitments and contingent liabilities 2023 2022 Bank guarantees A bank guarantee has been given as collateral for 273 975 273 975 a lease agreement. Lease liabilities To be paid in the next financial period 0 0 To be paid later 0 0 Total 0 0 Lease liabilities To be paid in the next financial period 1 273 826 1 142 724 To be paid later 674 812 1 142 724 Total 1 948 638 2 285 449 Mortgages on company assets as collateral for loan Mortgages on company assets as collateral for loan 4 000 000 4 000 000 Board of Directors’ proposal on the distribution of profits At the end of the financial period of 2023, the distributable assets of Innofactor Plc are EUR 21,277,172. The Board of Directors proposes that Innofactor Plc distributes EUR 0.07 per share as a repayment of capital. The Board of Directors further proposes that the Annual General Meeting authorize the Board to decide on an additional dividend or repayment of capital amounting to a maximum of EUR 2,544,058 (EUR 0.07 per share). Company Shares Innofactor Plc has one series of shares. The number of shares is 36,343,691. The share has no nominal value. One share entitles the holder to one vote at the General Meeting. All shares entitle their holders to dividends of equal value. Innofactor Plc’s share capital, paid in full and entered in the Trade Register, is EUR 2,100,000.00. On December 31, 2023, the company held 600,000 treasury shares. Location of Accounting Records Innofactor Plc, Keilaranta 9, 02150 Espoo SIGNATURES TO THE FINANCIAL STATEMENTS AND ANNUAL REPORT Espoo, March 5, 2024 Sami Ensio Anna Lindén CEO, Board Member Chairman of the Board of Directors Heikki Nikku Risto Linturi Board Member Board Member AUDITOR’S NOTE A report on the audit has been issued today. Helsinki, March 5, 2023 Ernst & Young Oy Authorized Public Accountants Juha Hilmola Authorized Public Accountant AUDITOR’S REPORT (Translation of the Finnish original) To the Annual General Meeting of Innofactor Plc Report on the Audit of Financial Statements Opinion We have audited the financial statements of Innofactor Corporation (business identity code 0686163-7) for the year ended 31 December, 2023. The financial statements comprise the consolidated balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including material accounting policy information, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes. In our opinion - the consolidated financial statements give a true and fair view of the group’s financial position, financial performance and cash flows in accordance with IFRS Accounting Standards as adopted by the EU. - the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Board of Directors. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 4 to the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. Key Audit Matter Revenue Recognition of Fixed-Price Projects Refer to note summary of significant accounting policies and note 3. The company provides its customer with services based on fixed price contracts. Revenue is recognized over time which involves the use of management judgement when determining the percentage of completion of the projects. The group focuses on revenue as a key performance measure which could create an incentive for revenue to be recognized before the control has been transferred. Revenue recognition of fixed price projects was determined to be a key audit matter and a significant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2) due to the management’s judgement used when determining the percentage of completion of the projects. How our audit addressed the Key Audit Matter Our audit procedures to address the significant risk of material misstatement related to revenue recognized over time, included amongst other: - assessing the Group’s accounting policies over revenue recognition of fixed-price projects. - gaining an understanding of the Percentage of Completion (PoC) revenue recognition process. - examination of the fixed-price project documentation and testing the PoC calculations and inputs of estimates in the calculations and comparing the estimates to actuals. - analytical procedures - assessing the progress and overall situation of the fixed price projects and key ratios by performing inquiries to persons on different levels in the organization. - analyzing key elements of the estimates, for instance, estimated revenue and estimated hours to complete. - Assessing the Group’s disclosures in respect of revenue recognition. Key Audit Matter Valuation of Goodwill Refer to note summary of significant accounting policies and note 14. At the balance sheet date 31 December 2023, the value of goodwill amounted to 26.8 M€ representing 49 % of the total assets and 105 % of the total equity. Valuation of goodwill was a key audit matter because: - goodwill represents a significant proportion of the balance sheet - annually performed impairment testing estimation process is complex and is judgmental - it is based on assumptions relating to market and economic conditions. Valuation of goodwill is tested annually through goodwill impairment test. Innofactor has allocated goodwill to one cash generating unit (CGU) which is the level for goodwill impairment test. The recoverable amount of the cash generating unit is based on value in use calculations, and the outcome could vary significantly if different assumptions were applied. There are a number of assumptions used to determine the value in use of the cash generating units, including revenue growth, EBITDA, working capital and the discount rate applied. Changes in the above-mentioned assumptions may result in an impairment of goodwill. How our audit addressed the Key Audit Matter In our audit procedures related to valuation of goodwill we involved our internal valuation specialist to assist us in evaluating the assumptions and methodologies used by the management. Procedures included comparison of management assumptions with external market data and peer group average calculated by us focusing particularly on - forecasted revenue growth - change in working capital - EBITDA percentage and - weighted average cost of capital used in discounting cash flows. We reviewed the goodwill impairment test performed by the management and compared the discounted cash flows to the company’s market value. We also assessed the historical accuracy of managements’ estimates. In addition, we assessed the Group’s disclosures in the financial statements regarding the impairment test. Key Audit Matter Valuation of Deferred Tax Assets Refer to note summary of significant accounting policies and note 15. As of balance sheet date 31 December 2023, the group had deferred tax assets arising from the unused tax losses carry forward amounting to 2.1 M€ and from the consolidation entries 0.3 M€. The amount of deferred tax asset is material to financial statements. Management assessment related to the recognition of deferred tax assets and the likelihood of future income is judgmental and based on assumptions affected by future market and economic developments. Due to above mentioned judgmental factors, valuation of deferred tax assets was determined to be a key audit matter. How our audit addressed the Key Audit Matter When auditing deferred tax assets we evaluated company’s evidence that there will be future taxable income available to utilize the deferred tax assets. As part of our audit procedures we -assessed the key assumptions in the calculations prepared by the management focusing on forecasted future economic development and the company’s ability to generate taxable income. - tested deferred tax assets including the assessment of recognizing judgmental tax positions. - assessed disclosures related to deferred taxes. Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. - Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. - Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Reporting Requirements Information on our audit engagement We were first appointed as auditors by the Annual General Meeting on 2 April 2019 and our appointment represents a total period of uninterrupted engagement of five years. Other Information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. 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