Innofactor Plc — Annual Report 2015

Mar 1, 2016

Innofactor Plc Financial Statement 2015 (IFRS)

Innofactor Plc Financial Statement 2015 (IFRS)

Innofactor Plc Financial Statement Release March 1, 2016, at 8:30 Finnish time

Summary

Quarter 10–12/2015:

-- Growth of net sales was 2.9%, which we estimate to exceed the market
growth.
-- Operating margin (EBITDA) was on a good level, 13.8% of the net sales.
-- Innofactor got several significant orders, which improved the order book.
-- In December 2015, Innofactor signed a deal on acquiring the Swedish company
Cinteros AB (net sales in 2015 approximately EUR 11 million, over 100
employees), which strengthens significantly Innofactor’s Nordic growth
strategy.
-- We think, based on the last quarter, that Innofactor has good prerequisites
for growing its business operations profitably in 2016 in accordance with
its strategy.

Year 1–12/2015:

-- Growth of net sales was 1.4%, which we estimate to only slightly exceed the
market growth.
-- Operating margin (EBITDA) was 8.3% of the net sales, which is slightly less
than last year and did not reach the goal.
-- The figures of 2015 were affected essentially by costs related to
reorganizations, write-offs for periods preceding the financial period and
related to individual customers and projects, and assessment errors found
in September 2015 in connection with terminating the employment of the
Country Manager in Denmark.

                            Oct       Oct  Change      Jan       Jan  Change
                          1–Dec  1–Dec 31            1–Dec  1–Dec 31        
                             31   2014\*\*\*               31   2014\*\*\*        
                           2015                    2015\*\*\*

---

Net sales, EUR thousand 12,590 12,231 2.9% 44,452 43,834 1.4%
Growth of net sales 2.9% 10.3% 1.4% 34.1%
Operating profit before 1,742 1,480 17.7% 3,705 3,794 -2.3%
depreciation and
amortization (EBITDA),
EUR thousand*
percentage of net sales* 13.8% 12.1% 8.3% 8.7%
Operating profit/loss 1,470 1,135 29.5% 2,542 2,407 5.6%
(EBIT), EUR thousand*
percentage of net sales* 11.7% 9.3% 5.7% 5.5%
Earnings before taxes, EUR 1,395 900 55.0% 1,935 1,946 -0.6%
thousand**
percentage of net sales** 11.1% 7.4% 4.4% 4.4%
Earnings, EUR thousand** 1,116 721 54.8% 1,548 1,556 -0.5%
percentage of net sales** 8.9% 5.9% 3.5% 3.5%
Net gearing 34.1% 42.9% 34.1% 42.9%
Equity ratio 56.9% 48.7% 56.9% 48.7%
Personnel on average 434 415 4.6% 427 421 1.4%
during the review period
Earnings per share (EUR) 0.0334 0.0224 49.2% 0.0475 0.0485 -2.0%

*) The third quarter of 2014 included a one-off cost reserve related to the
closing of the St. Petersburg office for approximately EUR 59 thousand. The
second quarter of 2014 included a one-off cancellation of a cost reserve
related to the integration, amounting to approximately EUR 135 thousand.

**) The third quarter of 2014 included a one-off cost reserve related to the
closing of the St. Petersburg office for approximately EUR 59 thousand and a
financing cost reserve related to the Enabling acquisition for approximately
EUR 400 thousand, a total of approximately EUR 459 thousand. The second quarter
of 2014 included a one-off cancellation of a cost reserve related to the
integration, amounting to approximately EUR 135 thousand, and financial income
of EUR 216 thousand from the additional purchase price related to the
acquisition, a total of approximately EUR 351 thousand.

***) During the third quarter, an error in the assessment of projects was
detected in the Group company concerning the period of January 1–June 30, 2015,
in the financial period that has just ended as well as the previous financial
periods. The assessment error was corrected for the above-mentioned periods in
accordance with IAS 8: 41–42. The total effect of the error was a decrease of
approximately EUR 552 thousand in the operating margin (EBITDA). Adjustments
and their effects on the Group figures are described in more detail in the
attachment to the interim report for January 1–September 30, 2015, which was
published on October 20, 2015.

Innofactor’s net sales and operating margin (EBITDA) in 2016 are estimated to
increase significantly from 2015, during which the net sales were EUR 44.5
million and operating margin (EBITDA) was EUR 3.7 million.

The annual figures in this financial statement have been audited.

Reporting

Innofactor operates on a single segment, offering software, systems and related
services.

CEO Sami Ensio's review

In the last quarter of 2015, Innofactor continued profitable growth in
accordance with its strategy. The growth of net sales was 2.9 percent (net
sales EUR 12.6 million) and operating margin (EBITDA) was EUR 1.7 million (13.8
percent of the net sales).

The year 2015 posed some challenges to Innofactor’s business operations. We
could not reach the business operation goals we had set for 2015. For the
entire year 2015, the growth of net sales was 1.4 percent and operating margin
(EBITDA) was 8.3 percent of the net sales. The situation was affected
essentially by costs related to reorganizations, write-offs for periods
preceding the financial period and related to individual customers and
projects, and assessment errors found in September 2015 in connection with
terminating the employment of the Country Manager in Denmark.

Despite these challenges, we could improve our profitability significantly on
the second half of 2015 when the relative operating margin (EBITDA) was almost
double that of the first half of the year (11.4 percent of the net sales).
During the last quarter, Innofactor’s order book grew significantly. For
example, we got a project for delivering a Microsoft Dynamics NAV-based textile
business solution for a Finnish textile manufacturer, valued at approximately
EUR 0.5 million, and the project for delivering an electronic services, case
management and CRM system for the Population Register Centre, valued at
approximately EUR 0.85 million.

Innofactor continued its expansion in the Nordic Countries in December 2015 by
signing an agreement for acquiring the entire share capital of the Swedish
company Cinteros AB from the company’s management. The acquisition was
completed in January 8, 2016. The acquisition gave Innofactor a significant
share in the Swedish IT market, offering based on the leading Microsoft
Dynamics CRM product, strong customer base, and over 100 very skillful
employees in Stockholm, Göteborg and Malmö. Cinteros’ net sales in 2015 were
approximately EUR 11 million (approximately SEK 100 million) and operating
margin (EBITDA) approximately 9%. Soon after the acquisition was published, at
the end of December, Cinteros announced a significant deal with one of the
Sweden’s largest trade unions, valued at approximately EUR 1.6 million. It has
been great to see how cooperation and integration have started. We have already
started the first customer project in Sweden that also utilizes Innofactor
consultants from Finland and Denmark.

After the challenges of 2015, we think that Innofactor has good prerequisites
for growing its business operations profitably in 2016 in accordance with its
strategy.

Innofactor will continue to actively seek for potential new strategic
partnerships in the Nordic Countries. The Group’s goal is to grow both
organically and through acquisitions.

Market outlook and business environment

Main forces affecting the markets are the transfer of software into the cloud,
increased significance of social media, mobile devices and Internet of Things,
data analytics and machine learning, and data security and protection. A clear
change in the purchase habits of customers has been observed as these business
changes are taking place. The customers expect the IT provider to focus more on
business benefits instead of technology benefits. The customers want the
providers to have solutions that are ready for use without a need to make
changes, and they want to be able to buy more continuous services instead of
large one-off projects.

Innofactor estimates that the IT service market in the Nordic Countries grew by
approximately 1–2% in 2015. In Finland, the growth was slower than in the other
Nordic Countries. Innofactor estimates that the IT service market in the Nordic
Countries in 2016 will gain some speed and reach the level of approximately
2–3%. The estimate is based on research institutes’ forecasts and Innofactor’s
own outlook on markets.

As concerns Microsoft-based solutions, competition in the Nordic Countries is
divided between different kinds of parties. The first group is formed by large
companies that operate in all of the Nordic Countries. Typically, these
companies offer a wide range of IT solutions for companies and organizations,
using several competing technologies of which Microsoft technology is one
option. The second group is formed by companies that focus on a narrower
solution area in the Nordic level. These companies also offer IT solutions for
companies and organizations using several competing technologies of which
Microsoft technology is typically just one option. The third group is formed by
companies operating in just one country. These small or medium-sized companies
often focus on one solution area, client and/or field.

Innofactor has made a strategic choice by focusing on solutions implemented
with and utilizing the Microsoft platforms and by selecting as its solution
areas the ones in which Microsoft's growth and offering, and thus its partners'
and ecosystem's growth, has exceeded the general average growth of IT service
and software markets many times over. Innofactor is primarily focused on Nordic
large and medium-sized companies and government organizations, which have high
standards in their IT solution acquisitions. Innofactor develops solutions,
products and services suitable for this group by itself and in cooperation with
its partners. Innofactor's strategy supports well the change in the markets.
Innofactor believes it can gain market share from its competitors and utilize
possible IT market growth in the future.

Microsoft's partner network in the Nordic Countries, and also elsewhere in
Europe, is quite fragmented and mainly consists of a large number of small and
medium-sized local providers. For Innofactor, this provides interesting
potential for consolidation and globalization. Innofactor's good reputation
concerning the Microsoft ecosystem, unique proofs of rapid and profitable
growth and successful acquisitions together with business culture with
entrepreneurial spirit make Innofactor a very attractive partner when making
reorganizations in the field in the Nordic Countries.

Future outlook

Innofactor’s net sales and operating margin (EBITDA) in 2016 are estimated to
increase significantly from 2015, during which the net sales were EUR 44.5
million and operating margin (EBITDA) was EUR 3.7 million.

Board of Directors' proposal on the dividend

Innofactor is a growing company and intends to use its operating profit on
actions promoting growth, for example, on realizing mergers. Innofactor has
defined a dividend distribution policy according to which the aim of the Board
of Directors is to provide an opportunity for the shareholders to distribute,
from the part of the operating margin (EBITDA) that exceeds 10%, the maximum
dividend allowed by the state of the business. For 2015, the operating margin
(EBITDA) was 8.3% of the net sales. 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 period of 2015, the distributable assets of the
Group's parent company were EUR 38,366,416.05.

The Board of Directors proposes that no dividend be distributed for the
financial period of 2015.

Espoo, March 1, 2016

INNOFACTOR PLC

Board of Directors

Additional information:

Janne Martola, CFO and Deputy CEO
Innofactor Plc
Tel: +358 50 359 0844
janne.martola@innofactor.com

Briefings concerning the financial statement of 2015

On March 1, 2016, at 9:00 Finnish time, Innofactor will hold a briefing
concerning the interim report in Finnish for the media, investors and analysts
at the company's premises at Keilaranta 9, Espoo. The report will be presented
by the CFO and Deputy CEO Janne Martola and the Chairman of the Board Ari
Rahkonen. The presentations of the briefing will be available on Innofactor's
web site after the briefing.

We ask you to register for the briefing beforehand either by sending email to
ir@innofactor.com or by phoning to +358 50 575 6120 (Tanja Eskolin).

Innofactor will also hold a conference call in English for analysts, media and
investors on March 1, 2016, at 16:00 Finnish time. Registrations to
ir@innofactor.com before 12:00 Finnish time on March 1, 2016.

Financial releases in 2016

The annual report for 2015 will be published on the company's web site on
Tuesday, March 8, 2016.

The Annual General Meeting will be held on Tuesday, March 29, 2016, at 9:00
Finnish time.

The schedule for financial releases in 2016 is as follows:

April 12–25, 2016: Silent period

April 26, 2016: Interim report January–March

July 5–18, 2016: Silent period

July 19, 2016: Interim report January–June

October 11–24, 2016: Silent period

October 25, 2016: Interim report January–September

Distribution:
NASDAQ OMX Helsinki
Main media
www.innofactor.com

Innofactor

Innofactor is one of the leading Nordic IT solution providers focused on
Microsoft platforms. Innofactor delivers business critical solutions and
maintenance services as a system integrator and develops its own software
products and services. The focus area in Innofactor’s own product development
is Microsoft-based cloud solutions. Innofactor's customers include over 1,000
private and public sector organizations in Finland, Sweden, Denmark and
elsewhere in Europe. The company has over 500 motivated and skilled employees
in a number of locations in Finland, Sweden and Denmark. In 2011-2015, the
annual growth of Innofactor’s net sales has been approximately 35%. Microsoft
named Innofactor Plc as the Finnish Partner of the Year in 2015. Innofactor was
also selected into the Microsoft’s international finals in two categories.

Attachments: