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 1–Dec 31 2015 | Oct 1–Dec 31 2014*** | Change | Jan 1–Dec 31 2015*** | Jan 1–Dec 31 2014*** | Change | |||
| 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 depreciation and amortization (EBITDA), EUR thousand* | 1,742 | 1,480 | 17.7% | 3,705 | 3,794 | -2.3% | ||
| percentage of net sales* | 13.8% | 12.1% | 8.3% | 8.7% | ||||
| Operating profit/loss (EBIT), EUR thousand* | 1,470 | 1,135 | 29.5% | 2,542 | 2,407 | 5.6% | ||
| percentage of net sales* | 11.7% | 9.3% | 5.7% | 5.5% | ||||
| Earnings before taxes, EUR thousand** | 1,395 | 900 | 55.0% | 1,935 | 1,946 | -0.6% | ||
| 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 during the review period | 434 | 415 | 4.6% | 427 | 421 | 1.4% | ||
| 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.
