Enfo Group’s interim report April 1 – June 30, 2019 .

Key points of the interim report

· Turnover was EUR 31.3 million in April–June (corresponding period 2018: 32.7). 
· The operating margin (EBITDA) was EUR 1.9 (1.0) million in April–June. EBITDA improved from the first quarter of 2019. 
· Operating profit (EBIT) was EUR 0.0 (0.0) million in April–June. 
· Profit before taxes in April–June amounted to EUR -0.6 (-0.5) million, impacted by exchange rates.
· Earnings per share in April–June were EUR -1.8 (-1.5). 
· Cash flow from operating activities totaled EUR 3.6 (1.4) million in April–June. 
· At the end of June, Enfo employed a total of 910 (875) people. 

Enfo improved efficiency and continued to execute transformation in the second quarter of 2019. Business areas Data platforms and Care continued their profitability with success in sales, while progress was seen in the consulting business. Operating profit was, as in the first quarter, affected by costs related to closing down the business unit Care Transform Karlskrona. 

Enfo’s business

Enfo Oyj is the parent company of Enfo Group. Enfo is a Nordic IT service company enabling data-driven business transformation. Enfo builds and runs data-driven solutions and services with its customers and employs approximately 900 experts in Finland and Sweden.

Outlook for 2019

The Group’s operating margin (EBITDA) is expected to continue to improve in the second half of 2019. The improvement is based on the enhancement of competence management, alignment of Sales and Business Areas, as well as better operational efficiency and business control. Revenue is not expected to grow as Enfo has ended non-profitable business and is focusing on profitability throughout the year, after that focusing on profitable growth. 

Risks and uncertainties

Competition for experts is a major factor in terms of growth, and the main short-term risks are related to the recruiting and efficient onboarding of employees. The internal capability to develop competence management, advance tools for maneuverability, and continue to execute renewed story, offering and structure is essential in the short term. Enfo’s growth in the long term will be impacted by the markets’ moves towards bringing together data assets, as well as the pace of the shift towards cloud.

CEO’s review

Seppo Kuula, Enfo’s CEO, comments on the review period: 
“In the first half of the year we continued our transformation journey. This year our focus is on profitability, after building a sustainable business foundation in 2018. Efficiency and operating margin EBITDA developed positively in the second quarter of the year and was adequately meeting expectations. We have executed efficiency measures and in Q2 managed to keep down general cost. Among our 16 business units a couple still struggle. During Q2 we made rearrangements to ensure efficiency. To enhance profitability further, we are working on developing business control and competence management in the second half of the year.  Attrition has been on the targeted level since the beginning of the year.
We agreed on a new financing package repaying a bond due in June 2019 and supporting our journey over the next years. Our financiers are Finland's leading banks and pension insurers.
Based on our strategy review in June, we are continuing with our current strategy. Our winning aspiration is to be a Nordic leader in data-driven business transformation, supporting enterprise software system transformation to the modern digital age. The strategic issue we tackle is changing business-critical IT environments from on-premise to cross-platform. Moving towards 2020 we are transforming some of the license-based data center solutions with pay-as-you-go cloud solutions, thus the change we are driving brings mandatory uncertainty to future margins.   
In June, we launched our competence management solution, that will enable us to manage our business and competence acquisition based on market demand. We are expecting to see results from this in the second half of the year. We continue to work on developing our financial processes and tools to enhance proactive transparency and expect the improved visibility and quality of data to affect positively on maneuverability and results.
In 2018, we built the Enfo shared story, offering and aligned structure, defined our values and leadership philosophy and built the basis for process and tools development supporting steering. In the spring 2019 we have focused on developing profitability and value creation, reorganized Sales and launched our new visual identity and website, supporting our storyline. Our environmental management system and quality system were audited, and we worked on the Enfo Code of Conduct. With the aim to strengthen our common culture, we continued to develop our onboarding procedures.
We have aligned of our sales and business management both in Finland and Sweden in 2019 and in the summer also took actions to secure better alignment of Marketing with both Business Areas and Sales. Sales in Finland in the first half of the year were strong, while in Sweden we should see improvement with the alignment of sales and business management. Throughout the year, we aim at increasing business operations related to cloud and information management and continuing to develop trusted partnerships with our customers.”

Turnover and profit

Enfo Group’s turnover was EUR 31.3 (32.7) million in April–June. EUR 13.6 million of the turnover was accrued in Finland and EUR 17.7 million came from Sweden. 
The operating margin (EBITDA) increased from the comparable period, being EUR 1.9 (1.0) million in April–June. Changes in IFRS 16 from the beginning of the year affected significantly to this, but also operational efficiency was clearly improving. As the standard does not require companies to implement the IFRS changes retroactively this has not been done. EBITDA also improved from the first quarter of 2019. The operating profit (EBIT) for the period was EUR 0.0 (0.0) million, representing 0.0% (0.0%) of turnover. Profit before taxes was EUR -0.6 (-0.5) million in April–June, impacted by exchange rates. Profit for the review period amounted to EUR -0.8 (-0.5) million. Enfo decided earlier to close down the business unit Care Transform Karlskrona. As a reliable partner Enfo committed to provide customers services from Karlskrona until end of H1/2019 conveying costs. However, customers have withdrawn before the end of June, decreasing revenue and thus affecting Enfo’s profitability. 
The Group’s net financing costs amounted to EUR 0.6 (0.5) million during Q2. Earnings per share in April–June were EUR -1.8 (-1.5).

Financing and investments 

Enfo’s net investments in April–June totaled EUR 1.1 (0.9) million. The company’s equity ratio was 38.5% (45.0%) at the end of the review period. Interest-bearing net liabilities at the end of June amounted to EUR 41.5 (31.1) million and net gearing was 97.4% (63.2%). Net debt increased by EUR 8.7 million at the start of the year due to appliance of IFRS16 standard and the net effect on debt caused by applying IFRS16 standard in 2019 was EUR 0.4 million. 

In May, Enfo signed a new EUR 20 million financing package with the consortium of creditors, including previous lenders Nordea Bank and OP Corporate Bank, as well as Ilmarinen and LähiTapiola as new lenders. The financing package included repayment of the EUR 10 million multi-issuer bond due in June 2019 and re-financing of existing long-term bank financing. As a result, Enfo is no longer in breach of financing covenants and the maturity of the long-term loans was extended to 2022.

Personnel

In April–June, Enfo employed an average of 910 (877) employees. At the end of June, the Group had a total of 910 (875) employees. During the review period, Enfo employed an average of 353 (317) in Finland and 557 (559) in Sweden.

Events since the review period

Mari Orttenvuori has been appointed CFO for Enfo Group and member of the Management Team. She will start in her position on September 23. Orttenvuori joins Enfo from M-Brain Oy, where she has been CFO managing global financial operations. Christian Homén, who has been CFO at Enfo since 2015, has decided to leave the company. He will continue in the Management Team until the end of Q3.

Shares

On June 30, 2019, Enfo Oyj had a total of 679,251 shares. According to the company’s list of owners, the company had a total of 134 shareholders at the end of the review period, including the company itself. However, this figure does not include foreign shareholders whose shares are nominee registered. At the end of June, the company held 13,388 treasury shares (1.97% of all the shares). The company has one series of shares, and the shares are connected to Euroclear Finland Oy’s book-entry system.
At the end of the review period, the company’s ten largest shareholders were Osuuskunta KPY, Ilmarinen Mutual Pension Insurance Company, Rongo Cap Oy, the Gösta Serlachius Fine Arts Foundation, Seppo Kuula, Keskisuomalainen Oyj, Einari Vidgrén Oy, Lululemon Oy, Hannu Isotalo Oy and Kallax Oy. Osuuskunta KPY holds 83.56% of Enfo's shares.

Timetable for financial reporting in 2019

The interim report for Q2/2019 will be published on August 27, and Q3 on October 30, 2019.

Accounting principles

This interim report has been prepared using the same measurement and accrual principles as in the annual financial statements, but this interim report has not been prepared according to the IAS 34 standard. 
Enfo has applied the standard IFRS16 starting January 1, 2019. Assets were valued to an amount corresponding to the lease agreement debt at the time of the implementation of the standard. The exemption of the standard IFRS16, according to which leases of less than 12 months that do not include purchase option are not recognized on the balance sheet, was applied. In addition, the Group did not recognize immaterial contracts on the balance sheet.
The application of the standard IFRS16 increased fixed assets and debt by EUR 8.7 million. Of the debt, EUR 3.6 million was booked as short term and EUR 5.1 million as long term. The effect on EBITDA during 2019 has been EUR 1.6 million. Of leasing costs EUR 1.6 million was booked as depreciation and EUR 0.1 million as finance costs during 2019. Due to standard change from beginning of 2019 net cash flow from operations improved and net cash flow from financing activities weakened comparing to previous period by EUR 1.6 million.  
The figures in the tables have been rounded to the nearest million euros so they may not add up to precise totals. The figures presented in the tables are unaudited.

Please read the complete Interim report with tables on www.enfogroup.com/reports-and-presentations