Resume
cBrain has gotten off to a good start in 2021, both in Denmark and internationally.
The management accounts for the first quarter of 2021 show a revenue growth of 30% compared to the same period last year. This is based on the continued growth in sales of software subscriptions as well as a significant increase in exports.
In the Danish market, cBrain has announced a number of new customers during the first quarter of 2021. Moreover, activities with existing customers continue to increase. In continuation of the previous statement, cBrain is pleased to note that we managed to deliver a number of new solutions to the Environmental Protection Agency which supports climate action.
Internationally, cBrain is pleased that the UAE Ministry of Finance has nominated one of cBrain’s solutions for the United Nations’ WSIS prize. Furthermore, cBrain has been selected as the supplier of a new IT system for a large authority in Berlin. The IT system will support the authority’s administrative work in relation to auditing employee pensions and social benefits for more than 3 million German companies.
Management views this Q1 as the best to date, and it is believed to be a milestone in the company’s history. Additionally, it is a result which looks to the future and supports the company’s long-term growth plan.
As a result of the positive development in Q1, expectations for revenue growth in the financial year 2021 are raised to 17-23%.
Moreover, cBrain has opportunity to further raise revenue growth throughout the year. This will be affected by factors such as product composition, particularly the split between the sales of software licenses and the sales of consulting services in relation to installation and commissioning of software, as well as the speed at which cBrain manages to deliver.
Revenue growth of 30% in Q1 raises year-end expectations
cBrain can note a particularly satisfactory development in Q1 where the quarterly accounts show revenue growth of 30% compared to Q1 in 2020.
At the start of the year, cBrain announced expected revenue growth of 15-20% for the financial year 2021. However, as cBrain also stated, these expectations are subjected to considerable uncertainty. One example being that cBrain has export opportunities which can lead to higher growth rates in both the short and long term.
Q1 shows good growth in the Danish market, including continued growth in the sales of subscriptions, both as a result of the continued influx of new customers and also through the sales of add-on modules and existing customers adding more users.
At the same time, cBrain can note a significant increase in exports, which raises the total revenue growth to 30%. Thus, exports account for more than 20% of the total revenue in Q1, which is a significant increase compared to the previous year where exports accounted for 14% of the total revenue.
On the basis of these positive results, cBrain raises expectations for the financial year 2021 from revenue growth of 15-20% to revenue growth of 17-23%.
These expectations are based on the assumption that expectations for the remaining 3 quarters will stay unchanged.
Further growth depends on delivery speed and product composition
When a new customer implements F2, the solution must be set up and configured to support the customer’s specific workflows. Furthermore, cBrain only begins to invoice software subscriptions when the customer begins using F2. Therefore, there will be a period of time between entering an agreement and an agreement producing revenue in the form of software subscriptions. Additionally, revenue from software subscriptions will also depend on the number of users, and how quickly the users are introduced to F2.
Accordingly, growth in sales of software subscriptions will depend on the speed at which cBrain manages to complete its implementation projects, and additionally the split between the sales of software subscriptions and the sales of consulting services in relation to installation and commissioning of software.
In the financial year 2020, software subscriptions accounted for 53% of the total revenue. This number has risen to 54% in the first quarter of 2021, and thus makes up a large part of total business.
Software subscriptions increasing to 54% can partly be explained due to faster deliveries. Additionally, there are increased sales in the form of more users and more add-on modules for existing users.
cBrain’s estimates for the financial year 2021 are based on experience from previous years in relation to delivery speed and product composition. Currently, cBrain does not have evidence which supports raising expectations for the remaining 3 quarters. Therefore, estimates for the remaining 3 quarters stay unchanged.
Increased earnings will be used to invest further in growth
By far the largest percentage of cBrain’s costs are fixed, and the increased revenue will thus lead to increased earnings.
However, rather than raising expectations for earnings, cBrain has decided to use the increased earnings to invest further in recruitment and capacity-building. This applies to both sales and delivery, and furthermore across all countries where cBrain operates.
Specifically, cBrain expects to strengthen our efforts and position as a provider of climate software to public authorities in 2021.
On the basis of the aforementioned, the original expectations for earnings before tax (EBT) of 10-15% for the financial year 2021 are maintained.
Market and position
Public digitization is one of the world’s largest markets.
In Denmark, authorities spend more than DKK 20 billion on IT annually, which covers everything from hardware to software and services. cBrain estimates that authorities across the world invest a similar amount relative to the gross national product. Furthermore, cBrain estimates that the company’s products and services target 20-30% of the total market for public digitization.
Therefore, cBrain has a large market potential. Additionally, public digitization is often characterized by long-term, unmanageable, and expensive IT projects. This is due to an outdated approach and technology where most suppliers continue to build tailored solutions, typically based on software components and modules that are customized and integrated.
The concept of visualizing software as building blocks, which can be put together to solve different solutions, sounds very enticing. However, the reality is instead big projects which are difficult to manage, regular delays, and unforeseen budget increases.
cBrain challenges the classic approach of tailor-made solutions by offering a much more efficient approach.
cBrain’s approach is based on standard software F2, a new technology, and a unique implementation method, which focuses on each authority’s specific processes, organization, and data.
With F2, cBrain has proven what few thought possible. In close collaboration with Danish authorities, cBrain has designed and developed a fully integrated platform that contains all the functions that the authority needs in the administration. Ready for operation, without the need for a lot of consulting work to adapt the solution or to write special code.
At the same time, F2 offers a built-in workflow engine which can be configured to support and automate processes. This is true for all areas of complexity, both big and small. End-to-end and automated, covering all steps from self-service to case processing, archiving and management reporting.
It reduces work hours which would otherwise be spent on system development, special programming, and implementation, which is why cBrain can deliver solutions much faster, with minimal risks, and within an agreed timescale and budget.
Thus, F2 is groundbreaking and shows a new approach for public digitization.
Continued growth in Denmark
cBrain continues to see great potential for further sales in Denmark.
Although cBrain has achieved a very solid position in the Danish Market, digital transformation and most IT deliveries in Denmark are still based on the traditional approach with tailored solutions, integration of software components, and large long-term IT projects.
However, cBrain is experiencing that more and more Danish authorities consider switching to standard software, not least because cBrain can document successful deliveries with other authorities.
cBrain’s continued success with the Environmental Protection Agency is a good example. Additionally, delivering software to the Environmental Protection Agency supports cBrain’s position as a supplier of climate software for authorities.
F2 demonstrates its strength through fast deliveries to the Environmental Protection Agency
The Environmental Protection Agency has implemented F2 and is currently digitization more than 200 processes, including grant management, supervisions, and decisions.
A project of this scale would be almost impossible for those agencies who base themselves on tailored solutions. It would consist of a large number of individual IT projects, typically a single project for each of the many processes.
In contrast, digitizing the Environmental Protection Agency is based on a portfolio model, where each of the many processes is designed and configured in the F2 standard system. This creates both faster and far more efficient deliveries.
Moreover, it gives opportunity for a high level of reuse as processes are described in F2 using a unique F2 technology, which cBrain calls process templates.
A process template describes a process end-to-end, from self-service to case processing and archiving. For example, it could describe a specific grant management. Furthermore, a process template is open source, which means that a process template easily can be copied and adapted to fit a new process. It can likewise be shared between authorities.
For the Environmental Protection Agency, this means that digitization is accelerating as the authority gains knowledge on processes and can reuse process templates. This makes it possible to accomplish the level and extent of digitization which the agency aims to achieve, whilst also supporting the agency in implementing the many new climate actions coming from the government.
One example is the new grant management scheme related “climate lowland”, which aims to reduce agricultural greenhouse gas emissions as much as possible.
At the beginning of the new year, shortly before the new initiative was adopted by the government, the Environmental Protection Agency could commission a grant management system based on F2, which could support the new grant management scheme end-to-end. Using the process templates, the scheme is adapted to support individual requirements and information, which includes an advanced self-service and a fully developed case process, which supports both prioritizing applications, financial management, and a high level of security.
Another example with the Environmental Protection Agency is the new grant management scheme for “watercourse replacement”, which went live last week. The solution for watercourse replacement supports, as seen with climate lowland, the scheme’s individual characteristics. However, by copying and adapting process templates, it has been possible to do all configuration, testing, and even come into operation within a few weeks.
These deliveries with the Environmental Protection Agency demonstrate how F2 enables fast-track digital transformation, which is much quicker than the traditional approach to IT in the public sector.
Exporting climate software
For example, by supporting fast digitization of the Environmental Protection Agency’s many processes, cBrain can contribute to climate efforts. This includes both reducing greenhouse gas emissions and nature restoration, from grant management, including “Natura 2000”, climate lowland, and watercourse replacement, to management of permits/decisions, for example CITES, which regulates import/export of endangered specifies of fauna and flora.
Denmark is a leader internationally, both in relation to digitization and climate. Over the past 4 years, Denmark has ranked number 1 on the United Nations’ global E-government list, as well as Denmark being at the forefront in relation to climate efforts.
In relation to cBrain’s CSR report for 2020, which is titled “Building Software for a more Sustainable World”, cBrain spoke about the company’s increasing focus on climate software and the UN’s 13th Sustainable Development Goal, which is called “Climate Action”.
Thus, it is a key element in cBrain’s export efforts to market and reuse the experiences from Denmark, both in relation to effective public digitization and quickly supporting authorities’ processes in relation to climate efforts.
Over the last few years, cBrain has begun work in this field and for example announce our first project in South America this past fall, where authorities wish to reuse cBrain’s experiences from Denmark.
cBrain has as of late decided to increase its investments further, directly targeting the export of climate software for government use, and expects to announce new initiative in this area during 2021.
Further investments in exports
It is especially rewarding as cBrain’s export efforts have helped to lift the quarterly accounts to a growth of 30%. This shows that the exports efforts remain robust and solid, despite the fact that travel restrictions have complicated exports.
At the same time, it also supports the fact that cBrain has developed a business model where is it possible to both sell and deliver solutions completely virtually. This is most recently shown through announcements in the first quarter of 2021 involving the United Arab Emirates and Germany.
Based on these learnings and our business model, cBrain will now invest further in exports, for example through further collaboration with the Ministry of Foreign Affairs of Denmark and The Trade Council.
The UAE Ministry of Finance has nominated an F2 solution for a global prize
Whereas a number of companies and authorities have announced that IT projects have been negatively affected by the COVID-19 lockdowns, cBrain can note that the company’s productivity and deliveries have continued unchanged.
For example, cBrain have managed, completely virtually, to both enter into an agreement and complete the entire delivery of the new ESR solution (Economic Substance Regulations) for the UAE Ministry of Finance.
In fall 2020, cBrain entered into an agreement with the UAE Ministry of Finance to deliver a new IT system, based on F2, with the goal of supporting Economic Substance Regulations (ESR).
ESR is part of the OECD’s framework project BEPS (Base Erosion Profit Shifting), which aims to prevent tax evasion, such as multinational companies moving their earnings across national borders to avoid high-tax jurisdictions. More than 100 countries, included the United Arab Emirates, have joined the OECD’s framework project.
The new F2 solution supports the process in relation to the annual company reporting. From a self-service portal with company notifications, which includes the companies’ completion of the ESR report, case processing, audit, analysis, and even electronic reporting to the OECD.
Through this solution, cBrain demonstrates, as with the Environmental Protection Agency’s processes, that is it possible to support a complex solution very quickly. In this instance, the solution has even been configured, delivered, and gone into operation fully digitally, whilst also including many external users and a significant number of internal employees who are spread across both geography and different authorities.
Already in December 2020, a few months after the project begun, the Ministry of Finance’s portal went live for submission of company notifications.
Thus, cBrain has managed to implement the solution in a short time frame and with external success. The solution is used by 300 employees across more than 30 authorities in the UAE, and during the first month, approximately 35.000 companies submitted their notification.
The F2 solution related to ESR is complex. It supports all processes in relation to annual company reports. From a self-service portal with company notifications, which includes the companies’ completion of the ESR report, case processing, audit, analysis, and even electronic reporting to the OECD.
Continued progress in Germany
In the first quarter of 2021, cBrain could announce a new order in Germany, which opens a new field for cBrain.
Previously, cBrain has announced that we have won a number of orders with one of Germany’s largest authorities. The authority has its headquarters in Berlin and has departments in all German states. The authority’s tasks include administrative work in relation to pensions and social benefits.
During the fall of 2020, the authority has gone through a number of feasibility studies to decide upon a supplier for a new IT system. The new IT system will support the authority in auditing private companies’ payments of employee pensions and social benefits.
The new IT system will support the audit of more than 3 million German companies, and it is expected that the solution when fully developed will be used by a large number of employees across Germany’s federal states. As such, this is a large and complex system which is planned to be implemented over a number of phases and over a period of a few years.
On the basis of the feasibility studies and a public tender, the authority has selected cBrain as the supplier, which they will continue working with.
To begin with, the authority has procured around 100 F2 licenses to begin the initial work, and cBrain must now document through a number of projects that F2 can be a viable solution.
This is an important order for cBrain. Provided that cBrain successfully delivers the initial projects, cBrain will become the supplier to a large department in the authority with opportunity for further sales of software as the IT system begins to be implemented and spreads across the organization.
Further cooperation with The Trade Council
As part of cBrain’s export efforts, cBrain will invest in further collaboration with The Trade Council.
This is based on the experience which cBrain has built up over a number of years and across a number of countries. The project in South America, which cBrain announced in the fall of 2020, is one example of a project where cBrain’s Danish organization, which includes Spanish-speaking employees, has worked together with The Trade Council.
As part of this work, cBrain expects to announce a number of new initiative and efforts during 2021.
Further expansion of the organization in order to support deliveries
Delivery of F2, in the shape of configuration and training, is increasingly supported by methods and tools with one example being e-learning.
However, when cBrain delivers F2, it is often a matter of delivering complex solutions which gives rise to both a “digital transformation” and development of the internal organization.
In order for the customer to achieve the full potential of F2 and reap the benefits of the new system, there must be a full implementation, which includes design and reorganization of workflows, setup and configuration of F2, and furthermore training and support of new users.
Therefore, fast and efficient delivery requires a high competence level, and there are accordingly high demands for the specialists who deliver F2. Delivery requires both knowledge of the customer’s business, including understanding of public administration rules, workflows, and organization, a functional understanding of the F2 solution itself, and additionally knowledge of the methods and tools which are used to set up and configure the software.
To a certain extent, cBrain’s growth is thereby bound by the speed at which it is possible to attract and not least train employees. cBrain has therefore begun a number of initiatives at the beginning of the year to expand and strengthen this part of the organization.
However, as cBrain continues to grow, it is expected that more and more delivery tasks will be supported by and even taken over by partners, who will build up the necessary skills.
Technology development which can support delivery and partners
In order to support further growth, especially to simplify the process for both customers and partners to set up and configure complex solutions in F2, cBrain’s development department is working on a number of new tools.
Through built-in knowledge of best practices in public administration and automated configuration, the new tools will enable users with limited technical knowledge to set up and configure many processes by themselves.
On the basis of these tools, it will be a much simpler and more efficient to train both customers and partners so that they can configure processes in F2.
cBrain believes this to be an important step towards supporting even faster delivery and implementation of F2. At the same time, cBrain views this as an important step towards establishing partners.
cBrain expects to be able to announce these new tools over the next few months.