Configit A/S

Ledelsesberetning

*The Group* During 2023, the annual recurring revenue grew even stronger compared to 2022 and the demand for Configit’s Cloud services far exceeded expectations.Furthermore, various industry analysts confirmed that Configuration Lifecycle Management (CLM) is being more and more accepted by the market and that it will become mainstream in the near future. The Gartner Hype Cycle report positions CLM as a trending sector of software inside the manufacturing market.Configit extended the market leadership in CLM through a Cloud offering which became the strongest selling offering in 2023 and was a key factor in winning several key strategic new accounts. In combination with the continued strong subscription sales, the transformation from perpetual and on- prem sales to subscription and Cloud is now completed.This strategy has resulted in our annual recurring revenue from subscription and SaaS licenses growing with a factor higher than four times over the last four years, with compounded annual growth of total annual recurring revenue (subscription, SaaS & maintenance) of close to 30%. We expect the growth rate to continue at this level over the coming years fueled by more customers adopting CLM in the Cloud, both new customers and existing customers.Configit has also successfully retained their ISO 27001 certification and obtained an ISO 27017 certification. With the new ISO 27017 certification, Configit provides assurance to their customers that the information processed in the cloud is secure. The audit and certification processes were performed by Intertek Certification Ltd. and conforms with international standards.The International Organization for Standardization (ISO) is an independent, non-governmental, international body that develops standards to ensure the quality, safety, and efficiency of products, services, and systems. Issued and maintained by the ISO, the ISO 27000 standards are some of the most widely recognized and internationally accepted information security standards, with ISO 27001:2013 considered the highest standard of information security as it relates to customer data and ISO 27017:2022 as it relates to keeping their cloud customers safer.Our corporate strategy was updated to reflect our leadership of CLM. The strategy highlights our ambition to extend the successes Configit has enjoyed in North America and it makes sure that Configit executes to its full potential through having both a strong direct sales team as well by building a first-class partner network.In 2023, we further experienced keen interest from partners, including some of the world's leading System Integrators, more specialized partners, as well as several leading software vendors wanting to partner with Configit to enhance their offering based on the Configit technology.The CLM Summit held in May 2023 was a huge success and attracted more than 300 leading individuals within the CLM universe. It was especially encouraging to experience the increased interest of analysts from Gartner, IDC and others, taking part both as delegates and guest speakers. Like at previous CLM Summits, many customers shared insightful and informative stories on how they have implemented CLM in their organizations, their realized business gains, and the many improvements they have enjoyed as a result.Revenues for 2023 were up compared to 2022. The transformation of moving from perpetual licensing to subscription is now, as earlier mentioned, completed and this will be reflected in the increased revenue growth expected from 2024 and beyond.A further sign of the important role that Configit plays in our customers’ digital transformation is the high net revenue retention rate (NRR). During 2023 Configit had +110% NRR which is strong evidence of the loyalty and strong relationships Configit builds with our customers.Overall, the Annual Recurring Revenue (ARR) grew +25% during 2023, giving Configit a strong foundation for future success.At the end of 2022, Configit released our SaaS-enabled Cloud offering of CLM with the product name Ace. Overall, in 2023, the vast majority of new Ace customers chose Configit’s “Ace in the Cloud” offering, and it is expected that this trend will continue in the coming years. During 2023, Configit also experienced a growing interest from existing customers to move from historical on-prem solutions to Cloud. This is further evidence that the efforts and strategy to be a ‘Cloud First Company’ have proven right.Being cloud-based allows for quicker deployment and more effective adaptation of technology, and for some customers, this is a pre-requisite before entering into a long-term vendor relationship.With the improved macro economy, the technical debt of many customers, our growing partner landscape, and our expanding Cloud offering, Configit looks forward to 2024 with further improved offerings and to support the growing number of customers in need of complex configuration solutions. *The Group and parent company*The main activities of the Configit Group continue to be the development and sale of business software for configuration of products and services.During 2023, the Group increased its research and development efforts in software that enables the implementation of true CLM solutions where the core of the software comprises the Virtual Tabulation® Technology patented by Configit. The Group further improved the Ace product in the Cloud (SaaS) offering which will strengthen Configit’s market position going forward.Configuration Lifecycle Management continues to be the center of all marketing and sales activities in Configit and is expected to experience significant growth over the coming years. While CPQ, with its mature market, is still an important element in many CLM solutions, including being a lead generator for Configit, it only fulfills part of the needs of customers. Configit’s full CLM solution covers not only the sales side (CPQ), but also the engineering, production, and services side. This “full- circle” CLM offering is unique to Configit. Key activities *The Group and parent company*The main activities of the Configit Group remain development and sale of business software for configuration of products and services. Development in the year *The Group*The loss before tax for 2023 shows a result of DKK -35,773,419/ EUR -4,799,933 and an EBITDA of DKK-5,077,995/ EUR -681,354. The Group balance sheet as of 31 December 2023 shows an equity of DKK 23,933,826/ EUR 3,211,344 and an aggregate asset of DKK 105,078,314/ EUR 14,098,983. (The exchange rate used for DKK versus EUR is based on the official exchange rate from the Danish National Bank as published on 31st of December 2023.)Management considers the financial result to be as originally expected at the start of the year, although EBITDA came in (9m DKK) below the expected result due to lower than expected revenues and cost in connection with the SaaS offering. Configit has increased its recurring revenue by 17% during 2023 and managed the cost to deliver as expected net result.*Parent company*The parent company’s loss before tax for 2023 shows a result of DKK -35.775.001 / EUR -4,800,145 and an EBITDA of DKK 18,046,105/ EUR 2,421,353. The parent balance sheet as of 31 December 2023 shows an equity of DKK 23,933,826/ EUR 3,211,344 and an aggregate balance sum of DKK 84,606,334/ EUR 11,352,136. (The exchange rate used for DKK versus EUR is based on the official exchange rate from the Danish National Bank as published on 31st of December 2023.) Outlook *The Group*Management expects the investments and initiatives already executed to result in a positive trend in revenue and activity growth as Configit is transitioning to a subscription-based license model.The Group also expects the CLM market to expand and grow, both in terms of market recognition and sales opportunities. The Configit Group will continue to prioritize maintaining its leadership within the CLM space and further advance Configit’s position as the preferred supplier of complex configuration solutions to the world’s most demanding configuration challenges.Configit Group will further invest in the North American and European markets.Configit continues to balance costs with the current revenue levels and the performance outlook and expect a positive EBITDA result for 2024. As 2024 is expected to see significant improvement on the annual result, the annual result is expected to be positive. The result in 2024 is expected to be between 1 mDKK to 5 mDKK.Parent company:Management expects a positive trend in the activity growth in 2024, both in the parent company as well as in its international subsidiaries. Operating risks *The Group and parent company*The growth of Configit’s business is based on a number of success criteria. Management believes the Group performs well in respect to these criteria. However, certain factors can impact the success of the Group and therefore represent a potential risk. Configit’s management and board of directors consider the potential effects of the war in Ukraine and other international conflicts to be the most important.The customers of Configit operate within the complex manufacturing space and in many different regions and countries across the globe. Therefore, there is a potential risk to our business in the situation where the war in Ukraine continues and other international conflicts escalate. The risk consists mainly of three different scenarios:1)A slowdown in demand whereby the revenue for our customers decreases.2)Continued challenges with high energy prices in Europe.3)Delays in supplies of goods from areas affected by the conflicts or transportation through areas affected by the conflictsThe solution that Configit delivers is mission critical and will normally be prioritized, even during challenging periods, which has been proven during the last few years. While these conflicts have an effect on the business for Configit, it is hard to estimate the specific details of such an impact. Market risks 1)The risk that the market for CLM and CPQ software is impacted by general market conditions, limiting the opportunities for growth for the Group.2)The risk of competitors anticipating trends in the markets earlier than Configit, affecting a more structured expansion of their international distribution networks.Through detailed market research and cooperation with analysts, Configit aims to be on the forefront of the development in the market in which Configit operates. Corporate culture and know-how 1)The risk of failure to continue to attract, retain, and develop the best employees and failure to identify and incentivize the best management talent.2)The risk of failure, in connection with acquisitions and expansion of new business areas, to integrate new employees into the organization and to maintain, protect, and continue Configit’s strong corporate values as a fundamental element of business development.Configit works to constantly be an attractive place to work with a clear value set and strategic direction. Products 1)The risk that competitors’ product innovation is better able to meet market requirements.2)The risk of inadequate quality control and testing of the Group’s products prior to the release of new software versions.Through a clear product direction that is aligned with the market through customer forums and input from market analysts, Configit maintains a roadmap which is attractive to existing and potential customers alike. Contract risks The risk that the Group’s customer contracts, or other agreements, impose abnormal obligations on Configit. This is the risk of failure to draft customer contracts and other agreements in a balanced way, taking into account local business practices, customers’ legitimate requirements, as well as protection of the Group’s material business interests. IT environment The risk of breakdown or temporary interruption of IT systems not adequately backed up by technical infrastructure that restores critical business IT services immediately. Financial risk The risk comprises currency risk, liquidity risk, and credit risk. The Group manages financial risk by ensuring sufficient procedures and controls are in place to ensure that potential losses from these risks are identified as early as possible.Management continuously monitors the development of the identified risk factors and reports on these to the Board of Directors. This enables the Board to support management with their tasks and make the required decisions to handle the identified risks. Research and development *The Group:*The Group has capitalized DKK 21,114,890 relating to the Group's research and development activities within the Company's normal product range. This corresponds to c. 24.8% of the Groups’ gross profit. These activities are depreciated from the time of completion in a period corresponding to the expected time in which the activities will contribute positively to the Group’s growth and earnings.As the Group continues to invest in improvements of the Group’s product portfolio, the depreciation period is estimated to be 5 years on average.The value of the capitalized research and development activities is evaluated continuously. It is the Management’s view that the value that is stated in the Annual report for 2023 is fair.The Group expects these activities to contribute to the Group's continued growth and earnings. Intellectual capital resources *The Group and parent company*The most significant knowledge resources are primarily the employees of the Group. The employees are generally highly educated specialists within software development, project management, and IT implementation, specifically focusing on configuration. The employees continue to contribute significantly to the Groups results in the coming years. Statement of corporate social responsibility *Our Business*At Configit, our core mission is to empower our customers with cutting-edge software-as-a-service solutions that drive efficiency and innovation throughout their production processes. As manufacturing landscapes evolve, we recognize the increasing importance of configurable products and demand for customization options across various industries, from automobiles to industrial machinery.Our flagship technology product Configit Ace - Configuration Lifecycle Management (CLM) - stands at the forefront of this trend, offering not only enhanced operational efficiency but also a pathway towards sustainable manufacturing practices. Through the concept of "green configuration" we empower our clients to enable their customers to make informed choices that prioritize environmental sustainability. By visualizing the ecological impact of configuration decisions, our technology aids businesses in aligning with their sustainability objectives, paving the way for a greener future.Over the past year, we have redoubled our efforts to raise awareness of green configuration through a multifaceted approach, including insightful articles and blogs. Our dedication to promoting sustainable transformation in manufacturing underscores our belief in the pivotal role technology plays in fostering responsible production practices.Transparency lies at the heart of what we do, as we strive to connect the benefits in our products to the environmental benefits and how they catalyze businesses on their journey towards sustainability.Collaborating closely with a diverse network of partners, Configit extends its reach across the globe, with headquarters in Denmark and subsidiaries in key regions such as the United Kingdom, Germany, and the United States.As we embark on the next phase of our sustainability journey, Configit remains focused in our commitment to driving positive change within the manufacturing landscape.At Configit, we also take responsibility for the way we operate our own business through focus on: *Our Responsibility* As the leader in Configuration Lifecycle Management, Configit is committed to providing global manufacturers transformative, business-critical solutions for the configuration of complex products in a sustainable, responsible way.Our commitment is based on a fundamental respect for internationally recognized principles for sustainable development, human rights (including labor rights), the environment (including climate change), and economic sustainability (including anti-corruption).We believe that Configit is among the first companies in our industry that implements the internationally agreed standard for responsible business conduct: The UN Guiding Principles for Business and Human Rights (UNGPs), covering social sustainability, and the OECD Guidelines for Multinational Enterprises (OECD), covering environmental and economic sustainability.As part of our sustainability due diligence, we conduct annual impact assessments covering all our operations to identify our risks against the key elements of social, environmental, and economic sustainability, to outline our actions to prevent or mitigate identified risks, and to develop indicators to track the effectiveness of our actions.Our responsibility for sustainable development is embedded in our “Commitment” that fulfills the requirements from UNGPs/OECD and the expectations of the Annual Accounts Act for a policy on human rights, that, per definition, covers labor rights and ‘social issues’, a policy for the environment, also covering climate change, and a policy for economic sustainability, including anti-corruption.Similarly, our Commitment and sustainability due diligence processes cover “data ethics”, defined as risks of adverse impacts on basic rights stemming from handling and processing data.In addition to implementing the international standard for responsible business conduct, Configit expects the same from our business relationships. As we, per definition, are responsible for the adverse impacts of our business relationships, the most effective way to seek to prevent or mitigate such impacts, will be that our business relationships also meet the standard. And that they raise a similar demand to their business relationships.For this purpose, we have adopted and published our Code of Conduct for Business Relationships. Social Sustainability - Respect for Human Rights Configit’s Corporate Commitment to sustainability is aligned with the UNGPs. As part of our efforts to demonstrate human rights due diligence, we prepared an update of our human rights impact assessment covering our Headquarters in Copenhagen and our Danish activities.In our draft impact assessment, we identified 21 risks of impacts on 14 of the 48 human rights in the International Bill of Human Rights. Not surprisingly, our risks of severe impact were identified in relation to three human rights: right to privacy, intellectual property rights, and freedom of information.We continuously work to prevent or mitigate our impacts in these essential areas. In addition, we are preventing or mitigating our risks in the other identified areas to ensure that such risks do not evolve into severe impacts.We welcome persons, that may be at risk of experiencing impacts, or business relationships, that would have an interest in looking into our actions and how we measure effectiveness of our actions, to contact us.In addition, we found that our products hold the capacity to contribute considerably to the human right of ’freedom of information.’ We intend, in 2024, to better explore, how our products contribute to the fulfillment of freedom of information. We will approach this task by considering our contribution to three of the key elements defining human rights, namely: Availability, Accessibility and Quality. Social and Staff Matters Configit’s employees are the backbone of the company, and their well-being, health, and safety in the workplace are crucial to our success as a business. All these areas are covered by our human rights impact assessments and thus covered by our Commitment and annual sustainability due diligence process.Dignity and respect are core concepts in Configit. For all our employees, the Global Staff Manual is an essential part of the employment contract. It includes all our policies, which are reviewed annually as a minimum. The Staff Manual also includes our values and is available on our intranet.All new employees are introduced to our Commitment, and to the Global Staff Manual, during onboarding training. This is also checked as part of our external ISO Audit. Furthermore, Configit carries out an engagement survey annually for all employees to maintain and further develop a safe and healthy working environment. Statutory Report on the Gender Composition of Management We are committed to respecting human rights. This implies that we shall ensure equal opportunities for promotion for our employees at all levels of our business. We are aware that women are underrepresented on the Board of Directors and in the Executive Management Team. As of 31 December 2023, we have no women and five men on the Board of Directors. With our owners’ focus on women in management, Configit has the target to have at least one representative of the underrepresented gender on the Board of Directors before the end of 2024.Our focus has enabled that the representation of women in the top management has grown since 2019. Thus, Configit currently has two women and five men in the Executive Management Team. To mitigate underrepresentation, we strive to find suitable female candidates when recruiting for open positions at Configit. While qualification is the highest priority, we ensure that candidates of all genders are equally considered during the hiring process through dialogue between management, HR, and the hiring manager. At the end of 2023, 26% of the total staff were women, a decrease of 1% since 2023. In 2023, we added 2 female managers to the middle manager level – which is an increase from 2022 of 11%. Environmental Sustainability – including the Climate Configit’s commitment to responsible business conduct encompasses due diligence for environmental impacts, including impacts on the climate. Our commitment to implement the OECD Guidelines means that we continuously identify where we are at risk of impacting the environment.We found that we are not at risk of causing or contributing to material impacts, but, as all businesses should, we have a focus on reducing CO2 emissions. We are also proud that our products hold the potential to contribute to reducing CO2 emissions for our customers, e.g., by enabling more efficient communication between sales and production and by eliminating manufacturing errors resulting from faulty configurations. Economic Sustainability – including Anti-corruption Responsible business conduct entails that Configit also commits to due diligence in relation to economic sustainability, hereunder “anti-corruption.” We implement the OECD Guidelines in all areas of our business. In our first impact assessments, and our draft re-assessment, we covered our activities in Denmark and identified few risks related to economic sustainability, hereunder “corruption and bribery.”Like other businesses, we prevent and mitigate risks in relation to, e.g., cronyism and nepotism, as well as risks associated with disproportionately large gifts. During 2020 we implemented appropriate procedures in this area, and we have not met any challenges in this area during our annual impacts assessments. Key Performance Indicators Result of Key Performance Indicators for 2023:1. Conduct impact assessments for one new location as part of our due diligence.- We prepared our updated re-assessments covering 2022 for our Danish operations but decided to postpone the inclusion of all our international operations for the re-assessments to be conducted in 2024 covering both 2023 and 2024.2.Establish reduction targets for GHG emissions.-Achieved3.Establish Key Performance Indicator (KPI) for “Freedom of Information.”-KPI: Prepare brief to top management on how our products contribute to the fulfilment of ‘freedom of information’ in relation to the key parameters: Availability, Accessibility and Quality.4.Carry through annual re-assessments in Denmark as part of our due diligence.-The annual re-assessments in 2023, covering 2022, were prepared in draft form. Key Performance indicators for 2024 1.Conduct impact re-assessments for Denmark for 2023 and 2024 covering our global operations.2.Prepare brief to top management on ‘freedom of information’ as strategic opportunity.3.Prepare plan for communication and involvement of internal stakeholders4.Start preparing for reporting against the EU Corporate Sustainability Reporting Directive Company information The primary owners are Polaris Private Equity who have the majority vote, and who are represented at the Board of Directors.The Board of Directors held 5 ordinary board meetings during the financial year. These have been held both virtually through video conference and in person. Furthermore, a number of meetings have been held during the year covering specific topics including strategy updates, various oversight of projects, and general business updates.The Group Management makes monthly financial reports and follows up on recorded differences to the forecast and budget on a regular basis. Periodic cashflow forecasts are made based on current expectations for receipts and payments in order to manage and follow up on liquidity. This work is reviewed by the Board of Directors.The Board has not established any separate formal committees (e.g., remuneration committee or audit committee) due to the size of the company. The Board regularly assesses whether such committees are required in order to ensure adequate focus on e.g. risk management. Ownership Configit Holding A/S is owned approx. 57% by Polaris Private Equity. The following companies own more than 5% of the share capital:-Andersen Advisory Group A/S, CVR-no. 15 27 37 71-Damgaard Company A/S, CVR- no. 25 53 83 15-HRA ApS, CVR- no. 33 39 05 64Polaris Private Equity is a member of Active Owners Denmark (formerly called the Danish Venture Capital and Private Equity Association (DVCA)) and therefore Configit adheres to the guidelines and recommendations published by Active Owners Denmark and comments if any recommendations are not followed. For further information please refer to www.aktiveejere.dk. Subsequent events No events materially affecting the assessment of the Annual Report have occurred after the balance sheet date.