Innofactor Oyj : PLC ANNUAL REPORT 2023

Annual Report 2023

2 INNOFACTOR PLC ANNUAL REPORT 2023

Innofactor Plc Annual Report January 1 to December 31, 2023

BUSINESS

Innofactor in Brief

Innofactor's purpose is to innovate to make the world work better. We are driven by a mission to help our customers succeed by modernizing and digitalizing their organizations. Our working principle is to put people first in everything we do. We want to create solutions that make people's everyday work and life run smoothly and bring a smile to their faces.

We focus on the Microsoft ecosystem's Business-to-Business solutions, whose markets are growing faster than the IT market on average. We offer our customers planning services for business-critical IT solutions, project deliveries, implementation support and maintenance services, and develop our own software and services.

Our solutions are used by approximately 1,000 organizations in the private and public sectors in the Nordic countries. We are a strong and valued partner. Our long-term customer relationships are evidence of our customers' trust in Innofactor. We utilize a proactive and flexible delivery model that creates added value and helps us establish a superior position in the market.

Innofactor employs approximately 600 enthusiastic and motivated top professionals in Finland, Sweden, Denmark, and Norway. We are united by our desire to work on the front line of innovation and new technology. We take pride in our highly competent professionals and significantly invest in competence development. Our employees maintain and improve their skills by acquiring technological qualifications, such as Microsoft Certified Professional, and by participating in training provided by our own Innofactor Academy. Their high level of expertise is evidenced by Innofactor having achieved all seven Microsoft Solution Partner designations and five Microsoft Advanced Specializations, for example.

Our net sales in 2023 amounted to EUR 80.3 million, which shows an increase of 12.8 percent from the previous year. Our operating margin (EBITDA) was EUR 9.1 million, corresponding to 11.3 percent of net sales. The long-term goals specified in our strategy are to achieve annual growth of about 20 percent, primarily through organic growth, an operating margin (EBITDA) of about 20 percent in relation to net sales, as well as to maintain positive cash flow and ensure a solid financial standing in all situations.

Innofactor Plc's share is listed on the main list of Nasdaq Helsinki Ltd. Innofactor has more than 10,000 shareholders.

Content

4-35	Business Review 2023
	Year 2023 in Brief	4
	CEO's Review	6
	Market, Competition, and Strategy	8
	Offering and Customers	10
	Sustainability	28
	Personnel	32
	Administration	34
36-53	Report of the Board of Directors
54-93	Consolidated Financial Statements
	Comprehensive Consolidated Profit
	and Loss Statement, IFRS	55
	Consolidated Balance Sheet	56
	Consolidated Cash Flow Statement	58
	Consolidated Statement of Change
	in Shareholders' Equity	59
	Financial Statements	60
	Parent Company Financial Statement (FAS)	81
	Signatures	88
	Auditor's Report	89
94-95	Additional Information
	Key Figures per Share	94
	Shareholding	94
	Calculation of Key Figures	95

REVIEW 2023 REPORT OF THE BOARD OF DIRECTORS CONSOLIDATED FINANCIAL STATEMENTS ADDITIONAL

Note: The English version of Innofactor's Annual Report is a translation of the Finnish version and provided for reference only. In the event of any conflict or discrepancy between the Finnish and English versions, the Finnish version shall prevail and be treated as the correct version.

3 3

INFORMATION

THE YEAR 2023 IN BRIEF

Innofactor Grew in 2023 to Reach Net Sales in Excess of EUR 80 Million

In 2023, Innofactor grew by 12.8 percent in spite of the challenging market situation, and net sales reached an all-time high of EUR 80.3 million. Generative artificial intelligence (ChatGPT, Microsoft Azure Open AI and Microsoft Copilot) received growing attention in the market in 2023. Generative AI presents our customers - and Innofactor - with significant opportunities for improving operational efficiency. Above all, it opens up significant new business opportunities for Innofactor, and we have quickly developed new offerings in response to these opportunities. We see Copilot for Microsoft 365 as particularly significant, as we expect it will enable us to grow our business in co-operation with our main partner Microsoft.

The Innofactor Group's net sales in 2023 were EUR 80,263 thousand (EUR 71,130 thousand in 2022), representing growth of 12.8 percent. The operating margin (EBITDA) was EUR 9,101 thousand (EUR 7,808 thousand in 2022), an increase of 16.6 percent. The share of EBITDA of net sales was 11.3 percent (11.0 percent in 2022). The order backlog at the end of the review period was EUR 71,555 thousand (EUR 75,831 thousand in 2022), showing a decrease of 5.6 percent.

The decrease in the order backlog is due to the fact that we have redefined the criteria for entering orders in the order backlog. Recurring agreements that do not include a purchase obligation on the customer's side have been reclassified as framework agreements. On the whole, Innofactor reached record-high net

sales and EBITDA in 2023 (excluding non-recurring income from divestments).

We achieved good business growth in Finland and Norway in 2023, but net sales decreased in Sweden and Denmark. EBITDA in Finland and Denmark was positive, while Sweden and Norway were in deficit. In 2024, we will focus in particular to improve growth and profitability in countries outside of Finland. In 2023, Innofactor reached its highest ever net sales and EBITDA. Innofactor also received a record number of new orders in 2023.

Antti Rokala was appointed as Innofactor's Chief Financial Officer effective from January 1, 2024. Jarno Lähteenmäki, Vice President, Data and Cloud joined Innofactor's Leadership Team for Finland in

March 2023. In August 2023, Klausveikko Oinonen was internally appointed to lead sales in Finland and joined Innofactor's Leadership Team for Finland.

Innofactor's company-specific collective agreement for Finland was signed in early 2023. The aim of the company-specific collective agreement is to make it possible to agree on issues that are important to our personnel, and to have a more straightforward and easy-to-understand collective agreement that reflects us as a company and supports our values. At the end of 2023, we established a personnel bonus fund. Our employees can transfer their performance bonuses to the fund, and bonuses transferred to the fund are subject to increases. In accordance with its rules, the fund invests in Innofactor Plc's shares.

Commercial Customers

52%

Public Sector

Customers

48%

• A strong customer base in the private and public organizations provides stability against economic cycles
• 10 largest customers account for approximately 31% of net sales

Projects

33%

Licenses

5%

SaaS Services

27% 35%

• SaaS, licenses, and recurring service contracts create
  a competitive edge and stability for the business
• Professional services are increasingly moving towards frame agreements and continuous maintenance

Denmark

4%

Norway Finland

11% 73%

Sweden

12%

• Sweden, Denmark, and Norway represent approximately 27% of Innofactor's net sales
• We aim to achieve a strong position in all of the Nordic countries

4 INNOFACTOR PLC ANNUAL REPORT 2023

NET SALES
EUR million		80.3
64.2	66.2	66.4	71.1

2019	2020	2021	2022	2023
EBITDA
EUR million	10.1		9.1
			7.8
	7.2
5.1
2019	2020	2021	2022	2023

ORDER BACKLOG
EUR million	72.8	75.8	71.6
	60.4
49.8
2019	2020	2021	2022	2023

NUMBER OF PERSONNEL average

534	544	516	536	578
2019	2020	2021	2022	2023

	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	6,325	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 year	36,343,691	37,388,225	37,388,225	37,388,225	37,388,225
Earnings per share (EUR)	0.09	0.09	0.12	0.05	0.01
Shareholders' equity per share (EUR)	0.70	0.68	0.68	0.63	0.59

* The operating margin in 2021 included a capital gain of approximately EUR 2.6 million from the sale of the Prime business.

BUSINESS REVIEW 2023

5

CEO'S REVIEW

Artificial Intelligence Will

Create Significant New

Business Opportunities in 2024

The operating environment and price competition were challenging in 2023. According to our analysis, the weighted average prices of new contracts remained at a low level until the end of the year, particularly in the case of public sector customers, in spite of a slight increase towards the end of the year. Our management had to carefully plan our business operations and optimize costs in 2023.

Our sales performance in the latter part of 2023 was excellent and we maintained our order backlog at a high level. We achieved a good result in a challenging market. It was a great year for Innofactor! Our goal in 2024 is to further improve the efficiency of our operations, increase the invoicing rate and increase the share of net sales derived from licenses and SaaS.

I am pleased that, in 2023, we were able to acquire the company's own shares and cancel treasury shares. Above all, I am pleased that we will again be able to pay a good amount of dividends to our shareholders in accordance with our dividend policy.

I want to take this opportunity to thank our customers, partners, employees, and investors for a great 2023!

In 2024, we expect to see increasing demand for AI solutions, which will drive growth in our net sales. We want to continue to deliver good service for our customers, continue our growth, improve our operating margin, and make Innofactor an even better workplace for our employees.

6 INNOFACTOR PLC ANNUAL REPORT 2023

We further deepened our co-operation with customers in 2023. In spite of the challenging market situation, we received several new orders during the year, including the digitalization of Metso Outotec Plc's quotation process, the continued development and maintenance of Senate Properties' HR system, the further development and maintenance of IF Metall's membership management system, a comprehensive system delivery to Tampereen Infra Oy, and several other significant projects in Finland, Sweden, Denmark and Norway. I would like to thank our customers and partners for the trust you have shown in Innofactor.

Our strategy is focused on Microsoft products and platforms. As the markets are changing, Microsoft and its ecosystem are growing much faster than the IT market on average. In particular, Microsoft's investment in OpenAI and subsequent market leadership in generative AI will boost Innofactor's competitive advantage as well. Our partnership with Microsoft is very strong. This is evidenced by Innofactor having achieved all seven Microsoft Solution Partner designations and five Microsoft Advanced Specializations. I would like to thank Microsoft and our other partners in the Microsoft ecosystem for their trust in Innofactor.

Innofactor's strength lies in our highly competent and motivated personnel. In 2023, we strengthened our team, trained our personnel, completed certifications and developed our organization and management style. We want to use all means available to ensure our success in the Nordic markets. I am very proud of our employees' enthusiasm toward driving the organization in the same direction and finding new ways to innovate solutions, improve customer satisfaction continuously, work more

efficiently under the new hybrid model, and increase productivity. For that, I am grateful to all of you.

A successful and growing company needs committed owners. In 2023, the price of Innofactor's share increased by 17 percent. I am pleased that, in 2023, we were able to acquire a significant number of our own shares and cancel previously acquired treasury shares. I am also pleased that, in 2024, we will be able to pay significant dividends to our shareholders for 2023 in accordance with our dividend policy. I would like to thank all of our owners and investors for their long-term trust in Innofactor's strategy and success.

Innofactor's aim is to be the leading digital transformation partner in each of the Nordic countries. We are confident in our chosen Nordic strategy and our ability to achieve our long- term vision. This will require perseverance and determination from the company's management, employees, and investors. In 2024, Innofactor will continue to focus on increasing the company's net sales and improving profitability. We will need to roll up our sleeves and show great perseverance, but with a twist of fun and a smile on our faces.

At Innofactor, we consider sustainability as one of the cornerstones of our long-term success. Our digital solutions play an important role in curbing climate change and promoting sustainable development. We see sustainability not only as a prerequisite for business continuity but also as an opportunity for innovation and building a modern digital organization.

We work together with our customers, partners, employees, and investors to innovate solutions that help our customers and society as a whole to function even more effectively. We are moving forward with enthusiasm and confidence.

"In 2024, our goal is to take full advantage of the opportunities presented by AI. We aim to improve the efficiency of our operations, increase the invoicing rate, further increase the share of net sales derived from licenses and SaaS, and focus particularly on the improving the key figures of our operating countries outside Finland."

Sami Ensio Innofactor's founder, major owner, and CEO

BUSINESS REVIEW 2023

7

MARKET, COMPETITION AND STRATEGY

Long-term Goals of 20% Annual Growth and 20% Profitability

We expect that the growth rate of the Nordic IT services market will be positive in 2024 but, due to the geopolitical situation and the general economic downturn, we are not able to provide a more accurate estimate. Our growth target for the next few years is to surpass the market growth rate, and our long-term goal is annual growth of approximately 20 percent.

We Expect to See Market Growth and Further Strengthen our Market Position in 2024

We expect that the growth rate of the Nordic IT services market will be positive in 2024 but, due to the geopolitical situation and the general economic downturn, we are not able to provide a more accurate estimate. Our growth target for the next few years is to surpass the market growth rate, and our long-term goal is annual growth of approximately 20 percent.

The price competition that began in the market in the second quarter of 2023 remained intense and, in our assessment, the weighted average prices of new contracts stayed at a low level until the end of the year, particularly in the case of public sector customers, in spite of a slight increase towards the end of the year. We estimate that the IT service market in the Nordic countries grew slightly in 2023. We expect the average prices of new contracts in the public sector and large tenders to continue to

Generative artificial intelligence (ChatGPT, Microsoft Azure Open AI and Microsoft Copilot) has received significant attention in the market, and this has happened exceptionally quickly. Generative AI presents our customers - and Innofactor - with significant opportunities for improving operational efficiency. Above all, it opens up significant new business opportunities, and we have quickly developed new offerings in response to these opportunities. We have also shifted our sales focus more to the private sector, where more commercially sustainable price levels can be found. Other innovation trends and drivers of change that we monitor in the market include the metaverse and robotics, as well as low-code and citizen development.

Climate change mitigation and the geopolitical situation place new demands on both societies and organizations, creating new business opportunities and accelerating innovation. The abilities of a modern

digital organization will be even more important for our customers in the future. It is also likely that some of our customers will transfer some of their operations back to the Nordic countries in order to be closer to their customers. This could have a favorable effect as regards the business model of Innofactor's chosen strategy based on Nordic specialists. Microsoft's position has also strengthened in recent years as a market leader in generative AI, among other things. We believe in our chances of increasing our market share in the Nordic countries.

Becoming the Leading Provider

of Digital Transformation in Each

of the Nordic Countries

We have made a strategic choice to focus on solutions implemented with or supported by Microsoft platforms, and we have achieved a leading position in the Nordic countries in this market. Going forward, our aim is to become the leading digital transformation

increase in 2024. We estimate that growth in the Nordic IT services market will continue in 2024, but because of the uncertain economic and security policy situation, we cannot give a more detailed estimate. Our estimate

is based on research institutes' forecasts and our own outlook on markets.

Metaverse

Next Gen

Security

8 INNOFACTOR PLC ANNUAL REPORT 2023

Internet of

Things

Big Data &

Analytics

Cloud

Artificial		partner in each of the Nordic countries.
Intelligence	Key Trends	Our long-term goal is annual growth of
Robotics	20 percent, the majority of which
	Driving
	Innovation	will be achieved organically,
		along with profitability of
		approximately 20 percent.
Innovation		Blockchain
Enablers
Social
Media		Low-code
		and Citizen
	Mobility	Development

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

Our long-term financial goals

Annual growth of about 20 percent, approximately 20 percent EBITDA in relation to net sales, and maintaining positive cash flow and a solid financial standing in all situations.

Our strategic choices

The most competent

Nordic teams

Innovation with top	Productized and
customers	specialized offering

Proactive and agile

way of working

Our values and working principle

Customer	Innovation
	Our principle is to put people
	first in everything we do. We
	want to provide solutions that
	make our customers' lives
Accountability	easier and bring a smile to
their faces.

Empowerment

BUSINESS REVIEW 2023

The Key Actions to Be Taken to Achieve Growth of 20% and EBITDA of 20%:

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.

1. 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.
2. 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.

The competitive landscape for Microsoft-based solutions in the Nordic countries is fragmented. The first group of competitors consists of large enterprises that operate in all of the Nordic countries. These competitors provide a wide range of IT solutions that are needed by various organizations and use several competing technologies, one of which is the Microsoft ecosystem. The second group consists of medium- sized companies that focus on a niche solution area at the Nordic level, also using several different technologies. The third group consists of medium- sized companies operating mainly in a single country, typically providing a broad range of solutions based on several competing technologies. The fourth group consists of small

companies that only operate in their domestic market focusing on certain clearly defined solution areas, technologies, and industries.

Microsoft's fragmented Nordic partner network, which consists of small and medium-sized IT companies, continues to offer interesting acquisition opportunities for us. In the future, our acquisition strategy will likely be focused on medium- sized companies that operate in a single country. This will help us expand our offering at the country-specific level as well as potentially acquire additional cloud-based product and service business. A good reputation, fast and profitable growth, successful acquisitions, and entrepreneurial spirit make us an attractive partner with whom to develop business.

9

OFFERING AND CUSTOMERS

Innovating to

Make the World

Work Better

We help our customers to succeed by modernizing and digitalizing their organizations. We put people first in everything we do. We want to create solutions that make people's everyday work and life run smoothly and bring a smile to their faces.

The pace of technological development is still accelerating, and thus new digital innovations are becoming available more frequently than before. New services continually create opportunities to make organizations' operations more productive and creative. However, many organizations are still in the early stages of taking advantage of the new opportunities. Digitalization and generative AI have brought about a transformation to which every organization needs to adapt. Innofactor's mission is to help our customers operate as modern digital organizations in this changing world, taking full advantage of the opportunities presented by AI, data, and the cloud.

Using digital solutions and AI to make it easier for people and organizations to work wonders is the end goal of our operations. It is this passion to make the world work better that enables our talented cloud technology professionals to successfully collaborate with approximately 1,000 private and public sector customers across the Nordic region.

Digital Services

Software Development and DevOps

App and Data Modernization

Low-code Development

Business Solutions

Sales and Marketing | CRM

Customer Service Enablement

Finance and Operations | ERP

Project and Membership Management

Information and Case

Management

Modern Workplace

Document and Records Management

Case and Decision Management

Contract and Quality Management

Cloud Infrastructure

Managed Services and DevOps

Cloud Transformation

Governance and Automation

Data, Analytics and AI

Data Platform

Advanced Analytics and BI

Enterprise Performance Management

AI, Real-time Analytics and IoT

Cybersecurity

Security Assessments

Cloud Security Consultancy

Identity and Access Management | IAM

Detect and Respond

To do this, we work on six offerings, which we consider the building blocks of a Modern Digital Organization.

#ModernDigitalOrganization

10 INNOFACTOR PLC ANNUAL REPORT 2023