Risks and uncertainty factors

Reviewing risks in Gofore’s investor relations

Gofore comments the risks and uncertainty factors of its business on two levels, by discussing both near-term as well as mid to long-term risks and uncertainty factors on different frequencies.

Near-term risks and uncertainty factors are updated quarterly in interim and half-year reports as well as this page mainly by reviewing if anything has changed since the previous report. Interim reports and half-year reports also include a separate section on Gofore’s market outlook. Fast changes can also be highlighted as needed in Gofore’s monthly business reviews.

Gofore’s overall risks and uncertainty factors are updated as needed. Gofore’s overall risks have been updated upon transferring to the Nasdaq Helsinki Main List in 2021.

Near-term risks and uncertainty factors – April 2024

Digital transformation’s outlook is strong in the mid and long term. Many new customer projects were started in Q1, while there was also down scaling and other savings measures. We expect this development to continue and demand to bounce back in the second half of the year.  

Still caution in the market

The overall weak economic situation curbed customer investments significantly in 2023.  The economic uncertainty reflects on 2024 budgets in a shorter than before planning horizon. Our interpretation of the situation is that especially private sector instances want to remain agile in their decision making. Once the economy picks up, there is readiness to invest. Higher than last year economic growth forecasts of 2024 also suggest recovery of investments. 

The interest rate environment and geopolitical uncertainty are the largest factors slowing down investments. We estimate that a clear turn in interests would speed investments up quite fast.

Technology development continues despite the state of the economy. In particular artificial intelligence, but also other digital technology development demand continuous efforts from customer organisations. Due to this we estimate that there would be positive development in the demand for IT services even with weaker economic development.

Growth and price competition in the public sector

A new Finnish government started in the summer of 2023. One of the political spearheads of this government,

public economy adjustment measures stretched many public organisations’ budget, also impacting IT procurement somewhat. As for 2024, some, mostly individual, tightening of IT and development budgets is expected.

The price competition that heated up in 2023 also continues to 2024. According to our estimate, this is, however, an exceptional phenomenon that is a sign of overcapacity in the industry. With healthier demand in other customer groups, the public sector will see a more balanced supply and demand. 

We estimate that public sector digital investments will continue in the new government’s term, based on the government programme. We therefore estimate that the public sector continues moderate growth in 2024.

Private sector waits for lowering interest rates

Caution in investments caused by the uncertain economy is starting to create bottled up needs in the private sector. We estimate that a clear turn in interest rates would quickly revive investments.

In the industrial sector that is of relevance to Gofore, customers are in varying situations. Some customer businesses grow, some have faced more direct impacts of the economic slowdown and geopolitical change. This can be seen in the customers’ ability and willingness to invest.

Active market in the DACH area

Macro economy in the DACH area matches that of Finland’s. Despite the weaker economic cycle, we see a lot of activity in market. We estimate this will be seen as positive development in the region during this year.

Talent market clearly easier – for now

Weaker performance of the IT industry was clearly reflected on the talent market in 2023.  Weakened demand for talent and the warier climate have both affected the industry’s attrition as a whole. This also means that the biggest salary hike pressures are behind us for the time being.

We estimate that talent availability will remain very good throughout 2024. We believe that the potential picking up of the industry will again be quickly seen as a tightening talent competition.  In our view, winning companies in this competition are the ones who have had the ability to take care of their employees also in a more difficult market.

Gofore’s overall risks and uncertainty factors

According to the Main List transfer prospectus 2021

  • The COVID-19 pandemic has had and it is expected to continue to have an adverse effect on the development of the economy in Finland and worldwide, as well as on the operating environment of the company;
  • Negative societal and political developments, along with the uncertainty relating to the economy in Finland and worldwide may have an adverse effect on the company’s business and the demand for its services;
  • Potential changes in the IT development of the Finnish public sector and cuts in the budgets of IT projects may have an adverse effect on the business, operating results and financial standing of the company;
  • Stiffening competition in the company’s business segments may have an adverse effect on the profitability of the company and may entail a decrease in its market share;
  • The company may fail in any changes to be implemented in its organisation and operating culture related to the growth and development of its business;
  • The company may fail in attaining the financial targets set forth in its strategy as well as in internationalisation and execution of corporate acquisitions;
  • The company’s reputation and the perceptions associated with the company comprise valuable competitive advantages in the company’s line of business, and if the company fails in managing its reputation, this may have an adverse effect on the business, operating results and financial standing of the company;
  • The company may not necessarily succeed in recruiting and retaining key personnel and professional staff;
  • An increase in labour-related costs may have a negative effect on the company’s overall costs and profitability;
  • Data security breaches targeted at the IT systems and telecommunications connections of the company and its customers, or other data security breaches, may impair the company’s business; and
  • Risks associated with the terms and conditions of customer agreements, fulfilment of the obligations under the agreements and agreement interpretation may result in compensatory or other liabilities or contesting.

From the 2022 Annual Report:

Impacts of the COVID-19 pandemic

In 2022, the pandemic became endemic, and consequently the direct effects of the pandemic have been minor in Gofore’s business within both the public and private customer sectors. Gofore’s sick leave absences remained at a higher level than before COVID and affected the company’s profitability in spring 2022. However, the number of sick leave absences did not radically increase after the winter. On the markets outside Finland that are relevant for Gofore, the COVID pandemic had a greater direct impact even in the beginning of the year, which manifested itself in Germany as a slight decline in new customer acquisition. The pandemic has contributed to investments in digitalisation being increasingly prioritised. Customers are also investing in enhancing their own competencies.

Impacts of Russia’s invasion of Ukraine

Russia’s invasion of Ukraine or the restrictions on the country continue to have little direct impact on Gofore. Gofore has no operations in Russia, Ukraine or Belarus. The conflict may have indirect impact through customers’ business risks or inflation. These risks had minor impact on Gofore in the reporting period, so Gofore continues to consider this risk low. The uncertainty and its potential market impacts are likely to continue in the near future.

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