Innofactor Plc financial statement 2013 (IFRS) Innofactor

Innofactor Plc Financial Statement Release February 25, 2014, at 8:30 Finnish time

Summary

* The second quarter of 2013 included one-off costs related to the atBusiness Oy acquisition for about EUR 164 thousand, and also cost reserves related to the integration for about EUR 200 thousand, a total of about EUR 364 thousand. The last quarter of 2013 included one-off costs related to acquisitions for about EUR 182 thousand, and also costs and cost reserves related to the integration for about EUR 277 thousand, a total of about EUR 459 thousand. The last quarter of 2013 included a one-off profit of EUR 158 thousand.

** The second quarter of 2013 included one-off costs related to the atBusiness Oy acquisition for about EUR 370 thousand (of which EUR 206 thousand were costs related to organizing the loans), and also cost reserves related to the integration for about EUR 200 thousand, a total of about EUR 570 thousand. The last quarter of 2013 included one-off costs related to acquisitions for about EUR 662 thousand (of which the financial expenses for the additional purchase price related to the acquisition were EUR 480 thousand), and also costs and cost reserves related to the integration for about EUR 277 thousand, a total of about EUR 939 thousand. The last quarter of 2013 included one-off profit of EUR 158 thousand and also financial income of EUR 758 thousand for the additional purchase price related to the acquisition, a total of about EUR 916 thousand.

Innofactor's net sales in 2014 are expected to be about EUR 43–48 million (2013: EUR 32.7 million). The operating margin (EBITDA) in 2014 is expected to be about EUR 4–6 million (2013: EUR 3.3 million).

The annual figures in this financial statement have been audited. The figures include the acquired atBusiness Oy (current Innofactor Business Solutions Oy) as of June 1, 2013, and the acquired Enabling Group in the balance sheet of December 31, 2013. Further details about the acquisitions can be found in this report's section "Acquisitions and changes in the group structure."

Reporting

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

CEO Sami Ensio's review

In the last quarter of 2013, Innofactor continued profitable growth in accordance with its strategy. The growth of net sales was 76.1 percent and operating profit (EBITDA) was 11.9 percent of the net sales. Measured in net sales (EUR 11.0 million) and EBITDA (EUR 1.3 million), this was the best quarter ever in the company's history. This was the sixth successive best quarter compared to the corresponding quarters in previous years. This proves that on the last quarter of 2013, Innofactor has yet again been able to realize its selected growth strategy persistently and successfully.

For the entire year of 2013, the growth in net sales was 73.7 percent and the operating margin (EBITDA) was 10.0 percent of the net sales (without the one-off items, 12.1 percent) During 2013, Innofactor's share price rose 162.5 percent and the trading of the share in the stock exchange increased by 225.2 percent. It can be said that 2013 was a successful year for Innofactor. Also, Kauppalehti and Balancing Consulting selected Innofactor as the most successful company in the stock exchange in 2013, based on the growth in net sales, profitability and good share price development.

In 2013, Innofactor made several important business arrangements. In June 2013, Innofactor acquired the entire share capital of atBusiness Oy. atBusiness was one of Finland's leading providers of Microsoft-based solutions and it had an excellent customer base, good indications of rapid growth and a strategy that was almost identical with Innofactor. The net sales of atBusiness in 2012 were EUR 17.4 million and EBITDA was EUR 2.7 million (15.3 percent of the net sales). The acquisition provides Innofactor with improved conditions for implementing its growth strategy in the Nordic countries and for offering software products and services through its own channel.

In September, Innofactor acquired the Finnish company Dynamic Team and this expanded its offering into Microsoft Dynamics AX ERP systems. In December 2013, Innofactor acquired a Danish provider of SharePoint solutions, Enabling, and this acquisition expanded the company's size in Denmark significantly.

At the end of 2013, Innofactor's new head office gathered all the employees in the metropolitan area together into the new Innofactor Campus in Keilaniemi, Espoo. Designed by Aarne Ervi, the personal and unique 1950's environment with green areas and a seaside sauna will inspire our employees to further improve their performance.

Due to the acquisitions and centralizing of operations, we think that Innofactor has good prerequisites to continue growing its operations profitably in 2014. Innofactor's strategy supports well the change in the markets and we believe that we can also benefit from any future growth in the IT market. 

Innofactor is still actively looking for new strategic partnerships in the Nordic countries. The group will seek growth, which can be organic or based on mergers or acquisitions.

Market outlook and business environment

Due to long-standing uncertainties in the economic situation, it is challenging to make a reliable estimate on the development of the IT market in the near future. According to research companies monitoring the IT market, the IT service markets grew globally about 2–3 percent in 2013 and the growth is expected to increase to about 4–5 percent in 2014. The growth in the business software market was estimated to be about 5 percent globally in 2013 and it is estimated to grow about 6–7 percent in 2014.

The IT market is changing. Four global mega trends can be observed. First, using information technology and information systems is increasingly transferring into the cloud. The cloud will connect people, data, services and hardware into one global whole. The benefits of the cloud are cost-efficiency and flexibility. It is estimated that 70% of companies either already use cloud solutions or are planning to start using them. In the future, customers increasingly want to buy flexible services fitting their needs at the time, not so much large one-off delivery projects.

Second, the growth in the importance of social media that started with consumers is transferring to companies. Information systems are more and more expected to enable flexible communications between people and different systems, between employees, customers and partners. Approximately 57 percent of large companies are planning to invest in social media solutions in 2014.

Third, mobile devices and convergence of devices change how people behave at work and in their leisure time. People want their preferred common and personal services and same usability regardless of time, place and device used. IT is consumerizing. An increasingly larger part of IT purchases in companies are made on the conditions of individuals, that is, consumer markets. It is estimated that the number of mobile workforce will increase to 1.3 billion by 2015, which is approximately 37 percent of the entire global workforce.

Fourth, the cloud, social media and mobile devices are estimated to increase the amount of data saved globally by about 30–50 percent every year. Analyzing this so-called Big Data will offer plenty of possibilities for developing the operations of companies and the public sector and also new business models.

Innofactor believes that Microsoft—and thus, companies operating in the Microsoft ecosystem—will have a strong position on the changing IT market. Microsoft has the leading position in consumer and business software, a competitive offering and strong proof of very rapid growth in cloud services. Additionally, the acquisition of the Nokia mobile device business will give Microsoft a strong position in device markets. To maintain its leading position, Microsoft invests in product development significantly more than its competitors. In calendar year 2013, Microsoft's investments in product development were about USD 11 billion, whereas the corresponding investments by Google were about USD 8 billion, IBM about USD 6 billion, and Apple about USD 5 billion.

Innofactor believes that this development will create markets with long term growth for companies like itself that are strongly committed to Microsoft.

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, such as Tieto, CGI and Accenture (for Microsoft solutions, Accenture's subsidiary Avanade). 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, for example, Affecto and Platon in the Business Intelligence area. These companies also offer IT solutions for companies and organizations using several competing technologies of which Microsoft technology is typically 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, partner and/or field. For example, in the association and parish sector, there are national software providers specialized in these fields. There are also specialized providers for these fields for the selected solutions, such as network services, case management and customer relationship management systems.

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 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 large and medium-sized companies and public sector organizations, which have a high level of requirements for their IT solution acquisitions.

Innofactor's competitive edge is based on a strategy, which differs from its competitors' strategies and which focuses on providing a wide range of Microsoft-based solutions for companies and organizations and also utilizing its own software and products. Innofactor has a leading position in and understanding of the Microsoft ecosystem in the Nordic countries. Innofactor has one of the largest solution, product and service offerings based on Microsoft platforms in Europe. Profound understanding and good reputation in several customer verticals in the private, public and third sectors makes it possible to develop business operations so that they will serve the customers even better. Innofactor considers itself able to provide solutions that are competitive when compared to its competitors.

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 typically focused on one solution area. For Innofactor, this provides interesting potential for consolidation and internationalization. Innofactor's good reputation, unique proofs of rapid and profitable growth and successful acquisitions together with its entrepreneurial business culture make it a very attractive partner when making reorganizations in the field in the Nordic countries.

Future outlook                                                         

Innofactor's net sales in 2014 are expected to be about EUR 43-48 million (2013: EUR 32.7 million). The operating margin (EBITDA) in 2014 is expected to be about EUR 4-6 million (2013: EUR 3.3 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 percent, the maximum dividend allowed by the state of the business. For 2013, EBITDA was 10.0 percent. 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 2013, the distributable assets of the group's parent company were EUR 32,722,231.76.

The Board of Directors proposes that Innofactor Plc should not pay any dividend for the financial period of 2013.

Espoo, February 25, 2014 INNOFACTOR PLC Board of Directors

Additional information: CEO Sami Ensio, Innofactor Plc Tel. +358 50 584 2029 sami.ensio@innofactor.com

Briefings concerning the financial statement of 2013

On February 25, 2013, at 9:00 Finnish time, Innofactor will hold a briefing concerning the financial statement in Finnish for the media, investors and analysts at the company's premises at Keilaranta 9, Espoo. The report will be presented by CEO Sami Ensio and CFO Mikko Karvinen. 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 40 733 6740 (Noora Kirjavainen).

Innofactor will also hold a conference call in English for analysts, media and investors on February 25, 2014, at 16:00 Finnish time. Registrations to ir@innofactor.com at least one hour before the event.

Financial releases in 2014

The annual report for 2013 will be published on the company's web site on February 27, 2014. The Annual General Meeting will be held on March 20, 2014, at 9:00 Finnish time.

The schedule for financial releases in 2014 is as follows:

April 9–April 22, 2014: Silent period

April 23, 2014: Interim report January–March

July 8–July 21, 2014: Silent period

July 22, 2014: Interim report January–June

October 7–October 20, 2014: Silent period

October 21, 2014: Interim report January–September

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

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. Innofactor’s own product development is focused on Microsoft’s Windows Azure based cloud solutions. Innofactor's customers include over 1,000 private and public sector organizations in Finland, Denmark, Sweden and elsewhere in Europe. The company has over 400 motivated and skilled employees in a number of locations in Finland, Denmark, Sweden and Russia. From 2009 to 2013, Innofactor's annual net sales growth has been 43% on average. Leading Finnish business media Kauppalehti selected Innofactor as the most successful company on the Finnish stock exchange in 2013. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ OMX Helsinki Oy.