Presidents' comment 2007In 2007, we implemented a number of measures to internationalize the company and increase its effi ciency. Continued internationalization is a central part of the IBS strategy for being a leading global supplier of supply chain management solutions. Many of our customers conduct operations in several countries, which places high demands on us as a supplier of total solutions. During the year, we made excellent progress in terms of being able to offer uniform products and services, standardizing procedures for how we sell, install and support business solutions and establishing a uniform IT infrastructure for the operation of customer installations and support for our own operations. These measures have created the necessary conditions for increased customer service and competitiveness in the future. Attractive offering to international customers
Despite a weak start to 2007, the year ended with strong license sales during the fourth quarter, including several major customer contracts. Market conditions were relatively positive throughout the year, despite variations within different geographic areas and industries. In Germany, we signed a number of new contracts with customers within pharmaceutical distribution, which was a strategic breakthrough for IBS in a strong and signifi cant market. We also reported positive trends in the Nordic region, including a major new cooperation agreement with food supplier Servera. At the same time, sales in North America, France and southern Europe were lower than in the preceding year.
We have a highly attractive offering for international customers and many of the measures we are carrying out aim to further strengthen this offering. An example of a customer care activity introduced during the year is our Global Account Management program, which aims to further develop our partnerships with international customers. A team of employees from different countries is responsible for leading and improving cooperation with our major international customers. Within the framework of this program, we signed a key installation agreement in 2007 with international media company Pearson Education concerning the installation of IBS business systems in a number of European countries. New global organization generates many advantages
Net profit for the year was lower than in the preceding year due to a combination of increased expenses and decreased revenues. The measures we implemented in 2007 initially resulted in high costs for such activities as the establishment of new development resources in Portugal and India. We also had a high level of activity in terms of developing new products, which were charged against earnings in 2007. In addition, salary increases for the year were higher than expected, particularly in northern Europe. Slightly lower sales of software and consulting services also contributed to earnings being lower than planned.
In view of this, the IBS Board of Directors and management have decided on further measures to improve the company’s profi tability during the coming years. In early 2008, a new global organization was introduced that will generate major advantages for both our national and international customers. This change will allow us to better apply the right resources from the entire IBS organization. It will also result in standardized procedures for our work in customer projects, from pre-studies to implementation, training and support. At the same time, the new organization will create the necessary conditions for increasing internal efficiency. It will allow us to better allocate resources and measure and follow up on capacity utilization, billing ratios and other key fi gures on an international basis. Use of programming resources in mid- and low-cost countries will also become easier because we will have a better overview at Group level of how we conduct offshoring work in various customer projects. During the year, the amount of development resources increased in mid- and low-cost countries. Further actions for increased efficiency and profitability
Historically, IBS has been decentralized with strong national organizations. This has been advantageous because responsibility and authority remained in close proximity to customers in the local markets. To reduce the cost structure, increase international cooperation and improve coordination of the Group’s operations, we are now implementing a new global organization that will create the necessary conditions to provide an even higher level of customer service, while simultaneously lowering costs in such areas as administration. During the fi rst quarter of 2008, we decided to reduce the number of non-billable employees by slightly more than 100, to lower the Group’s costs. At the same time, we are continuing to develop our consulting organization and further improve our key fi gures for billing ratios.
In 2006, we allocated a restructuring reserve of SEK 120 m to enable us to implement measures to increase profi- tability and competitiveness. During 2007, we used approximately SEK 40 m of the reserve to reduce the number of offices, relocate certain programming to low-cost countries and for other measures to enhance efficiency. At the beginning of 2008, the remaining reserve amounted to SEK 51 m, which will be used for continuing restructuring work during the year. Continued focus on selected industries
IBS derives its key competitive edge from being able to offer industryspecific software combined with a high level of competence and extensive experience within a number of industries. We are represented in more than 40 countries, which is particularly important for customers who require installations in several countries. Our business model of offering complete solutions is unique. Few business systems suppliers are as capable of delivering complete solutions on an international basis. For our customers, this creates an opportunity to have one contact network instead of several, resulting in simpler and faster business cooperation and increased control before, during and after the installation of the business system.
During 2007, our activities within product development were extensive. Prioritized development projects included creating new functionality for a number of industries, such as paper distribution, electronics, machinery rental, pharmaceutical and publishing. In addition, we worked intensely to complete and test the IBS Enterprise business system in a Windows version. The financial part of the business system was deployed by a customer in Sweden in December 2007. The other parts of the system will be tested and installed in one or more client companies during 2008. Being able to offer business systems for different platforms is strategically important since this allows IBS to grow within its areas of specialization. We expect to be able to introduce a complete Windows version of IBS Enterprise during the second half of 2008, which will gradually generate a positive effect on our license sales in the coming years. Valuable complementary operations
We are also continuing to develop complementary operations within IBS. A signifi cant part of IBS comprises local niche operations with cutting-edge solutions in the areas of finance, HR and warehouse management systems, as well as customized software solutions, particularly in the Nordic region, the Benelux countries and southern Europe. These niche operations became part of the IBS Group through acquisitions carried out in the past few decades and will be developed individually to utilize their potential. Hardware sales are also a key aspect of the Group’s operations and a central part of our turnkey offering.
IBS is active in reducing negative climate effects
There are a number of future challenges that IBS, like many companies, must take into consideration, such as continued internationalization, offshoring and climate changes. Supply chains are becoming increasingly longer and more complex. Adjusting to a new reality of increased transport costs and intensifying demand from consumers and authorities will be a major challenge for the business world, particularly distributors. We have a relatively small direct effect on the environment. Through the process solutions we deliver to our customers, we can contribute to minimizing the environmental impact of various client companies and ensuring long-term sustainable solutions and competitiveness.
Positive market, but with increased uncertainty
The market outlook for 2008 remains positive in most geographic areas, with a certain amount of weakening in the US market. However, uncertainty concerning a possible economic downturn has increased due to the weaker investment climate. Today, it is clear that most investment decisions by client companies pertaining to new or upgraded business systems are preceded by careful analysis of the expected repayment. Investments are being made based on multi-year plans to ensure the long-term competiveness of the companies. Opinions concerning the role and significance of business systems in carrying out the overall strategy vary within different countries, industries and companies. However, as long as automating large parts of the supply chain creates distinct business potential, investment inclination will remain strong. With over 30 years of experience in helping companies boost their profitability and competitiveness through powerful and reliable business systems, IBS has established a large customer base and extensive portfolio of solutions. We will continue managing and developing the trust our customers instill in us, which is the basis for creating value for our shareholders.
In conclusion, I would like to thank all of our customers, employees, shareholders and suppliers for your contributions to the continued progress of IBS. Erik Heilborn
President and CEO |
