A N N U A L R E P O R T 2 0 0 8
R E A D S O F T I N B R I E F
ReadSoft is a leading supplier of software for docu- ment automation to approximately 6,000 customers worldwide. Since its formation in 1991, ReadSoft has grown to become a worldwide corporate Group with operations in 16 countries on fi ve continents:
Europe, North and South America, Asia and Australia.
ReadSoft is headquartered in Helsingborg, Sweden and employs approximately 435 people. ReadSoft is listed on the Nasdaq OMX Nordic Exchange Small Cap list.
WHY DOES READSOFT EXIST?
ReadSoft develops software that makes it possible to simplify the handling of docu- ments by automating business processes.
This means that our customers can devote the time and money they save by using our technology to their own core business. We offer highly advanced solutions for all kinds of document management. Regardless of format or media, information is interpreted and managed so that it can then be integrated into various types of business systems.
WHAT DOES READSOFT OFFER?
Our products enable companies to auto- mate their document management, which generates a number of advantages:
• Lower document management costs
• Increased security since documents cannot be manipulated without being detected
• Improved control and management of document fl ow
• Enhanced effi ciency since information is available to all
Focus on
world-class
product offerings and service
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WHO ARE READSOFT’S CUSTOMERS?
Our customers are located around the world and conduct operations in a variety of industries. Our customers include engineering, tele- communications and insurance companies, banks, authorities, retailers and market research fi rms.
Our offering is particularly attrac- tive to multinational corporations and other customers with large document fl ows.
FIVE CONVINCING REASONS TO CHOOSE READSOFT
1. Leading position in a growing market 2. Complete proprietary solutions for
managing business documents in SAP and ORACLE business systems
3. Global service organization recognized for its excellent ability to understand customer operations and processes 4. Effi cient market coverage through
partners that offer supplemental products and function as resellers in markets where we do not have our own sales force
5. Global presence
WHAT IS READSOFT’S COMPETITIVE SITUATION?
We are the clear market leader in the segment for process and transaction management. This market segment is the largest in the overall market for document automation software as well as the segment expected to grow the most in the coming years.* The overall market is fragmented, with some 25 competitors. The fi ve largest companies represent about 40 percent of the market for process and transaction management.
* Source: Harvey Spencer Associates Inc.
HOW DOES READSOFT MAKE MONEY?
Our sources of revenue are software license sales, service contracts, training and customized development, as well as some hardware.
Once our software is fully developed and license sales can begin, the production cost per license is very small, almost negligible. Thus, sales of our product licenses provide high profi t margins. Our service offering is packaged around our products, and our ongoing service contracts comprise a signifi cant part of our sales.
2008 in brief 1
CEO’s statement 2
Business model, targets
and strategies 4
Company 8
Research and development 10
Market 14 Competitors 16 People, the environment and ethics 18 Risks and risk management 22
Corporate Governance 24
Corporate Governance Report 26
The Share 2008 28
Administration report 2008 30–54 Consolidated income statement 32 Consolidated balance sheet 33 Consolidated cash-fl ow
statement 35
Change in equity, Group 36 Income statement,
Parent Company 37
Balance sheet, Parent Company 38 Cash-fl ow statement,
Parent Company 40
Change in equity,
Parent Company 41
Notes 42
Audit report 55
Board of Directors 56
Corporate management 57
6-year summary 58
Glossery and defi nitions 58
Addresses 60
red from ReadSoft AB, Södra Kyrkogatan 4, SE-252 23 Helsingborg, Sweden, by phone +46 (0)42-490 21 00, e-mail: info@readsoft.com or at
www.readsoft.com.
Financial calendar
Annual General Meeting April 22
Interim Report January–March April 22 Interim Report January–June August 12 Interim Report January–September October 26 Year-end Report January–December February 10, 2010
Notice to attend the Annual General Meeting
The Annual General Meeting will be held at 3:00 p.m. on Wednesday, April 22, 2009, at Marina Plaza in Helsingborg, Sweden. Registration and light refreshments 2:00-3:00 p.m.
Entitlement to participate in the Annual General Meeting Shareholders wishing to participate in the Annual General Meeting must be listed in the share register kept by Euroclear Sweden AB (the Swedish Securities Register Center) not later than April 15, 2009 and must notify the company of their intention to attend not later than 4:00 p.m. on April 15, 2009.
Registration
Register at www.readsoft.com, by mail to ReadSoft AB, Södra Kyrkogatan 4, SE-252 23 Helsingborg, Sweden, by telephone on +46 (0)42-490 21 00 or by fax on +46 (0)42-490 21 20. When registering, please state your name, address, telephone number, personal identity or corporate registration number, the number and type of shares you hold, and indicate any assistants.
Nominee shareholders
To be entitled to participate in the Annual General Meeting, shareholders who have allowed their shares to be registered with a nominee must tem- porarily re-register the shares with Euroclear Sweden AB in their own name. The change of registration must be made not later than April 15, 2009 and should be requested well in advance of that date.
Notice
Notice of the General Meeting will be given not later than four weeks prior to the meeting in Post- och Inrikes Tidningar, (The Offi cial Swedish Gazette), Dagens Industri and on ReadSoft’s website: www.readsoft.com.
ReadSoft is a public company, Corporate Registration Number 556398-1066.
All values are expressed in Swedish kronor. Kronor is abbreviated to SEK, thousands of kronor to SEK 000s and millions of kronor to SEK million. Figures in brackets refer to 2007 unless other- wise stated.
Data regarding markets and competition are ReadSoft’s own assessments, unless a specifi c source is given. These assessments are based on the best and most recently available facts, inclu- ding from published sources in the public sector and IT industries.
This report contains future-oriented information based on the ReadSoft management’s current expectations. Although the management considers expectations expressed in such future- oriented information as reasonable, no guarantee can be given that these expectations will prove correct. Consequently, actual future results can vary considerably compared with what is expressed in the future-oriented information due to such factors as changed conditions in the economy, market and competition, changes in legal requirements and other political measures and fl uctua- tions in exchange rates.
A printed version of the Annual Report is sent to all who have requested a copy and is always available on www.readsoft.com. Printed version can also be ordered from ReadSoft AB.
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R E A D S O F T I N B R I E F
2008 in brief
•
Net sales increased by 11 percent to SEK 584.2 million (525.0)•
EBITDA for 2008 increased by 50 percent to SEK 45.6 million (30.3)•
Net profi t after tax amounted to SEK 6.9 million (17.8)•
Cash fl ow from operating activities increased to SEK 86.6 million (32.4)1:st quarter
• Unilog Management and ReadSoft entered into a global cooperation for the sale of ReadSoft’s solution for invoice management in Oracle’s business system.
• The US company National Semiconductor selected ReadSoft’s invoice processing solution for SAP.
2:nd quarter
• ReadSoft Asia secured its fi rst major order valued at SEK 4 million.
• Länsförsäkringar AB became the fi rst company in Sweden to select ReadSoft’s latest document management solution.
• ReadSoft completed one of its largest transactions to date with a US-based Fortune 500 company in the industrial/service sector. The transaction was valued at approximately SEK 7.4 million and the solution will be installed at the company’s main facilities in Canada, Spain, the US, Asia and Latin America.
3:rd quarter
• ReadSoft launched a new product for statistics and reports concerning invoice fl ows.
• ReadSoft secured several major orders for invoice processing solutions for SAP in the US market.
4:th quarter
• ReadSoft implemented an action program to reduce costs in the company. Measures include focusing operations to three products areas and a reduction of 50–60 employees.
• Total E&P Indonesie selected ReadSoft to provide an electronic invoice processing solution for SAP.
AFA Försäkring chose ReadSoft to automate all of its document management processes.
• ReadSoft signed a global partnership agreement with Hewlett Packard (HP).
• DnB NOR became the fi rst company in Norway to choose ReadSoft’s latest document management solution.
• ReadSoft fi nished 2008 by securing several substantial deals in the US and Australia.
Net sales, rolling 12 months per geographic market, SEK million
Rest of Europe Nordic region US and rest of world
50 100 150 200 250 300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Revenue distribution, SEK million
2006 2007 2008
0 50 100 150 200 250
Hardware, other Professional
services Service contracts Licenses 0
100 200 300 400 500 600 700
Net sales, rolling 12 months, and EBITDA margin, %
Net sales EBITDA
0 2 4 6 8 10 12 14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
License revenues by product, SEK million
2005
2004 2006 2007 2008
Document Capture Automation
Trade Process Automation 0
50 100 150 200
Number of employees by market, 2008
Nordic Region, 43%
Rest of Europe, 37%
US and the rest of the world, 20%
Number of employees, December 31, 2008: 433
Capitalized product development, SEK million
Capitalization
Amortization
2005
2004 2006 2007 2008
0 10 20 30 40 50 60
2
C E O ’ S S TAT E M E N T
The year 2008 was a multifaceted year. While our operations successfully accelerated toward our long- term goal until mid-year, we noticed a shift in the market during the summer that clearly indicated that a recession was looming on the horizon. To cope with this declining market, we decided to focus on our strongest product areas and to adjust our costs by implementing a savings program.
The second half of the year proved to be a journey through a market in fi nancial crisis characterized by a fear of recession in the global economy. Although there is no doubt that ReadSoft’s sales were negatively impacted by this shift, it is also clear that our solutions remain attractive despite the poorer economic climate.
While the third quarter was weak with only marginal growth, we were able to gather more wind in our sails during the fourth quarter and ended the year well.
Although we did not fully achieve our overall targets for the year, we still consider 2008 to be a strong year given the current market trend. The company’s EBITDA improved by 50 percent to SEK 45.6 million. Sales increased by 11 percent to SEK 584.2 million. We reported a positive cash fl ow from operating activities of SEK 86.6 million and cash and cash equivalents strengthened to SEK 73.8 million at year-end.
Our most signifi cant drop was in the banking and fi nance sector, which historically has been one of our largest customer segments. We were only partly successful in our efforts to offset this decline through transactions with other segments during the year.
Market conditions
Although we have been monitoring the market carefully, it is diffi cult to assess our short-term demand given the current situation. Provided that the market conditions do not deteriorate further, ReadSoft should perform well in 2009 and moving forward. We have amassed considerable potential in terms of our business volume, we sell solutions that provide major cost savings for our customers and the weak economic climate is generating an increased focus on the need for savings in companies and organizations.
We believe that the trend of establishing joint service centers for the fi nance functions of major corporate groups will intensify, which is particularly positive since the type of solutions we sell are vital when introducing a service center for such tasks as invoice processing.
The trends reported in our various markets in 2008 were highly varied. Markets with a strong dependency on the banking and fi nance sector, including the UK, and countries whose economies are particularly sensitive to economic fl uctuations, such as Chile and Brazil, experienced a decline.
While our strongest performance was in the US, where we reported growth of nearly 60 percent, we also performed well in most Nordic and European countries. Asia grew quickly from its small volumes in 2007 and positive trends were reported in Australia.
Although its character may change, this variation will probably continue in 2009. We anticipate that the market for the banking and fi nance sector will recover during the year since demand seems to be returning. However, it is also likely that demand will decline in other market segments that have not yet been hit so hard by the recession.
Strategic focus
We are now focusing the company’s operations on three product areas: SAP, Oracle and Capture. We are working to fully implement the strategic focus introduced following our acquisition of development companies for SAP and Oracle solutions in 2006.
Since these acquisitions, we have also expanded our competence in the areas of SAP and Oracle within
Strong year
despite market trends
Did you know…
That Jan Andersson was named “2008 Entrepreneur of the Year” in Helsingborg, Sweden? This distinction is awarded to a person who has made special contri- butions to the business community in Helsingborg Municipality.
“ We sell solutions that provide major cost savings for our customers and
the weak economic climate is generating an increased focus on savings”
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C E O ’ S S TAT E M E N T
our marketing companies to enable us to sell and deliver these solutions effi ciently. This has yielded results.
Sales in the SAP area grew substantially in 2008, with particularly rapid growth reported in the US.
Growth in the Oracle area has not been as fast and the market is less mature. Nonetheless, the number of transactions is on the rise and should now be able to accelerate our sales within this area as well. We are also broadening our offering within the Capture area with new products that can be sold to our large existing customer base. ReadSoft now has an excellent range of supplementary products, which is a key component in our strategy to increase customer value and our own profi tability.
Another key to our success is providing excellent service to our customers. Thanks to our global organi zation, we are able to offer service and support worldwide, which is a requirement for our multi- natio nal customers. We offer operational support to help our customers get started quickly, as well as experts who are familiar with all aspects of our products.
As part of our promise to ensure that customers can use our solutions simply and smoothly, we have developed more standardized solutions. These solutions primarily provide medium-sized companies with a system that contains the best aspects of our various products and are intended for specifi c processes.
The Brand
Based on the brand survey we performed in the autumn of 2008, it is clear that ReadSoft is an esta- blished company that is leading development within document automation. I feel particularly secure knowing that we are perceived as a professional and experienced specialist with cutting-edge technology.
We are also considered a global player with a local presence and are seen as honest, open and attentive.
These are attributes that I feel strongly about and that I believe will be critical for the companies that succeed in the future.
We have analyzed our position in our various markets and established a plan to further strengthen
our brand. The most important channel in this work is the Group’s websites and in 2009 we will launch a new version that offers our customers, partners and other stakeholders fast and quality-assured support.
The Future
With products that simplify and streamline the handling of business documents, ReadSoft plays a key role in the development of global trade. A moderately negative economic trend resulting in declining activity related to growth investments could benefi t sales of products that offer major cost savings and solutions such as ours. Nonetheless, we know that chaos and turbulence are not advantageous for anyone.
ReadSoft has a leading market position, attractive products and solutions, competent employees and an extremely high-quality, expanding international customer base. This provides us with excellent prerequisites to develop a larger and more profi table ReadSoft.
Helsingborg, February 2009 Jan Andersson, President and CEO
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BU S I N E S S M O D E L , TA R G E T S A N D S T R AT E G I E S
ReadSoft’s vision is to free companies from manual handling of documents by offering document automation. Along the way, our long- term fi nancial target is to grow by 20 to 25 percent annually – in other words, more than the underlying anticipated market growth – and to do so profi tably with an EBITDA margin of at least 15 percent.
The foundation of ReadSoft’s offering is our unique proprietary software platform, which forms the core of several products that make it possible to automate essentially all document management, regardless of format and media. Using these products as a base, we are able to offer our customers complete solutions that are flexible and competitive. Thanks to our tech- nology, documents can be managed in an unbroken, integrated workflow, thereby generating major advan- tages for our customers in terms of finances, ratio- nalization and quality.
Solutions for every business system
We have grouped our solutions in two market areas:
Trade Process Automation and Document Capture Automation. Trade Process Automation comprises solutions designed to automate handling of trade documents, including invoice management and order management systems. From an early stage, we have focused on integrating our solutions within Trade Process Automation with the two leading business
systems, SAP and Oracle. In cooperation with our partners, we also offer solutions for essentially all other existing business systems.
Document Capture Automation focuses on solutions that are used for general data capture, indexation and sorting, such solutions designed to automate an insurance company’s claims management process or an energy company’s handling of customer matters. Our solutions are primarily intended for organizations, authorities and companies that handle large quantities of documents.
Parallel revenue fl ows
ReadSoft’s business model is based on four parallel revenue fl ows: licenses, service contracts, consulting services and hardware.
When customers purchase software from us, they pay for a license to use the software. The cost of this
Sales growth, %
2005
2004 2006 2007 2008
0 5 10 15 20 25
EBITDA, %
2005
2004 2006 2007 2008
0 2 4 6 8 10 12
Solutions that
create value
Did you know…
That approximately 10 percent of ReadSoft’s customers in the US are on Forbes’ list of the 500 largest US companies?
Examples include AVON, John Deere, Lockhead Martin and Whirlpool.
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BU S I N E S S M O D E L , TA R G E T S A N D S T R AT E G I E S
license is based on the number of documents the product is expected to handle and is a non-recurring cost. When the number of customer documents increases, an additional fee is paid for the expanded volume. Licenses currently account for approximately 40 percent of ReadSoft’s total revenues.
Customers usually also sign a service contract with ReadSoft that covers upgrades of new versions of software and telephone support. This cost corresponds to about 18 percent of the license price. Service contracts are mandatory for the fi rst year and are then extended automatically if they are not terminated. Normally, more than 95 percent of all service contracts are renewed. Service contracts account for approximately 25 percent of ReadSoft’s revenues.
ReadSoft also offers consulting assistance in connection with the installation, adaptation and integration of its existing systems. The cost of this service is paid through continuous invoicing or at a fi xed price. Consulting services currently account for about 30 percent of ReadSoft’s revenues.
As part of our efforts to provide complete, comprehensive technical solutions, we also offer customers opportunities to purchase hardware, primarily scanners. The advantage for the customers is that they receive equipment that has been certifi ed by us and ensures sound functionality when used in combination with our solutions. Sales of hardware account for approximately 5 percent of ReadSoft’s revenues.
Service a key competitive factor
The foundation of our leading market position is that we offer the best solutions for our customers.
Having a high-quality service organization has also become increasingly important, particularly for major global companies. It is evident that our consulting operations are the fastest-growing source of revenue within ReadSoft.
Accordingly, we are continuing to develop the service offering of our organization. We hope that this will enable us to safeguard our established
Hilti
We believe that the successful introduction of this highly innovative ReadSoft solution at Hilti’s head office will lead to further roll-outs in other Hilti entities.
Günter Brettschneider, Project Manager, ReadSoft Germany.
Background
Hilti is a global manufacturer of drilling and construction machinery, with its head offi ce in Liechtenstein and subsidiaries in Europe and abroad.
Conducting such extensive operations in several countries can be problematic in terms of the Group’s VAT accounting of Hilti’s global purchasing and sales organization. The Group has some 60 national subsidiaries, which places considerable demands on the entire accounting process. Accordingly, Hilti requires a customized VAT-management tool that is able to handle the various VAT regulations in effect in the EU, Liechtenstein and Switzerland.
Challenge
Hilti’s head offi ce assigned ReadSoft the task of developing an invoice processing system that provided each Group unit with a tool for checking that every invoice is complete and complies with all applicable VAT legislation. ReadSoft’s German operations conducted extensive programming work to ensure that the new VAT system met the requirements of Hilti’s tax experts and functioned in accordance with the regulations in effect in the various countries. The test system evaluated in a laboratory environment in 2008 proved to be fully functional and met Hilti’s high expectations in terms of functionality.
Future
Following the implementation of the new VAT module and Hilti’s existing VAT-code system, it will be possible to automatically check and register the majority of incoming invoices that include VAT. ReadSoft’s solution will generate major savings for the user while at the same time identifying incorrect or incomplete invoices, which can be returned to the sender for correction.
We believe that the successful introduction of this highly innovative ReadSoft solution at Hilti’s head offi ce will be followed by other units in the Hilti Group.
6
BU S I N E S S M O D E L , TA R G E T S A N D S T R AT E G I E S
excellent ability to understand customers’ operations and to further hone our project-management skills.
We will also strive to improve our lead in terms of our capacity to handle cultural differences within our customers’ organizations.
Financing solutions that promote business In the Swedish market, we offer customers a complete fi nancing solution in the form of a three- year leasing system. Leasing is conducted through our partners and in cooperation with a major fi nance company. Leasing enables customers to pay a monthly fee that includes a service contract, which means that the cost/investment becomes part of the company’s operating expenses. When three years have passed, the company has the option to retain or extend the contract. This is a good deal for our customers since it only takes an average of about 12 months before our solutions pay for themselves through reduced costs.
Our goal is to be able to offer this type of leasing in more markets. However, the process has been delayed since the fi nancial crisis has made it more diffi cult to fi nd fi nance companies that are willing and able to handle this type of structure in several markets.
Increased global presence
With proprietary representation on fi ve continents, ReadSoft is able to help multinational companies that require global solutions as well as local companies specialized in a particular market or industry.
Our partners often offer supplemental products and function as resellers in markets where we do not have our own sales force or they collaborate with our sales companies.
In the future, we will continue focusing on global expansion in strategically important markets through new proprietary establishments and existing and new partners.
Focus on profi table segments and markets In light of the fi nancial turbulence currently prevailing
throughout the world, we decided during the autumn of 2008 to focus exclusively on the most profi table areas of our operations.
This mean that we are now concentrating on further developing our solutions within Oracle, SAP and Capture. As a result, we postponed the development of our solution for invoice processing, APPROVE, which is primarily intended for small and medium-sized companies. This product was essentially fully developed but had not yet been launched globally.
More effi cient market coverage
Our strategy for growth remains the same: to work with partners on conducting sales and deliveries, particularly to small and medium-sized companies.
This primarily means that we work even more closely with the partners we perceive to be the most competent and effective.
As a part of our long-term goals, we want to increase partner sales from today’s 35 percent to about 50 percent of our total sales. This will enable us to increase the volume of license sales and service contracts without needing to tie up a large amount of human resources.
A stronger brand
In times of market turbulence, having a strong brand becomes increasingly important. During the year, we performed a brand survey that targeted our customers, potential customers and partners in France, Sweden, the UK and the US.
The results of the survey showed that ReadSoft is well-known in all markets and perceived as a brand that inspires confi dence. We hold a very strong position in Sweden and are considered a market leader in the UK and France. Our strongest competitors operate in the US, which is also the market in which we are exposed to the most competition. At present, the US market does not have a clear market leader, but rather four or fi ve suppliers competing for the dominant position, including ReadSoft.
Did you know…
That the energy company E.ON in Sweden increased its volume of invoices by 50 percent despite reducing its personnel from 19 to 12 people when its electronic invoice-management system was introduced?
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BU S I N E S S M O D E L , TA R G E T S A N D S T R AT E G I E S
ReadSoft has a strong brand, which creates favorable conditions for continued growth. Yet we also continue to improve. This is particularly important for us since we offer solutions that are a business-critical component of our customers’ operations.
Increased customer satisfaction
Our goal is to have the most satisfi ed customers in the industry. Naturally, part of our efforts to achieve this goal involves providing customers with even better offerings, service and support. We also strive to give them a faster return on their investments, which generates more business in the long term.
To further strengthen our relationships with our customers, we launched a customer care program during the year. As part of this program, the sales organization was expanded to include a team of key account managers, who will focus on monitoring and planning projects. We also measure customer satisfaction on a regular basis.
We have the strength to grow Financial strength
We have a solid fi nancial position with a strong balance sheet. Our cash fl ow is also favorable. Our balance sheet has a well-balanced management of our development costs. The costs of developing new products are capitalized in accordance with IFRS principles and amortized over their commercial lifetime, which is two to fi ve years.
Strong human resources
The education level at ReadSoft is consistently high and our experience of the industry is extensive.
This means that there is a high level of analytical expertise and experience from research-related and commercially focused operations. Combined with our experiences from earlier acquisitions, this provides us with the expertise to acquire and integrate companies and operations.
Background
The non-life insurance company If in Finland pre- viously used ReadSoft DOCUMENTS for Invoices for invoice management and ReadSoft DOCUMENTS for Forms for claims reports. Since these claims reports included many unstructured documents, the company became interested in CLASSIFY and INDEX.
A preliminary study was performed in autumn 2006 and a test project was launched in autumn 2007. If’s goal was to handle 50 percent more claims reports without being required to expand its staff.
Challenge
When the program was installed in 2007, it was a completely new product, which meant that adjust- ments were necessary. One of the functions of the new program was an ability to automatically recog- nize whether a document was an invoice, a claims report or a doctor’s certificate. This feature required a number of adaptations, which necessitated an increase in the number of functions. Among other features, we developed a self-learning function that enabled the program to learn to recognize different types of documents after analyzing a number of sample documents.
Future
If Finland currently processes 5,000 documents a day.
The next step will be to install the latest version, which will further enhance efficiency. We will then link CLASSIFY and INDEX to ReadSoft
DOCUMENTS for Invoices to allow certain types of claims reports to be converted into electronic copies that can then be treated as invoices.
If Finland is a pilot customer. If the outcome of the evaluation is positive, Norway and Sweden will probably be next.
If
The next step will be to install the latest version of CLASSIFY and INDEX, which will further enhance efficiency.
Björn Pellbäck, Project Manager, ReadSoft AB
8
O P E R AT I O N S
With ReadSoft’s solutions, the customers can capture and extract information from all kinds of documents such as letters, handwritten messages, faxes, e-mails with attachments, data from digital pens, EDI and web forms.
The core of ReadSoft’s solu- tions is its Intelligent Data Recognition (IDR). Through a very advanced system, the cap- tured information can be inter- preted, analyzed and classified with a high degree of reliability to then be sorted into relevant categories.
CAPTURE UNDERSTAND
We make companies more effi cient,
transparent and secure
Did you know…
That one of our approxi- mately 6,000 customers successfully reduced its annual paper consumption by more than 80,000 sheets, which corresponds to four trees? The company also converted its old archive for paper documents into a spa.
Most companies throughout the world have a great deal to gain by simplifying their document management. Our business concept is to de- velop software that makes it possible to fully automate document management and then sell licenses to use this software.
Automation of document management creates major benefi ts for companies, organizations and authorities.
With the help of our technology, they receive a digital center for sorting and distributing incoming docu- ments and correspondence to the right business processes.
This results in more effi cient operations since time no longer needs to be spent manually sorting, reading or entering data from various documents.
Instead, these resources can be put into the com- pany’s core operations.
This also increases the security of the organiza- tion. Since documents become traceable, they cannot be manipulated without being detected and the risk of erroneous data entry is reduced.
Finally, work processes become clearer since document handling can be monitored throughout the organization. Another benefi t of digitizing documents at an early stage is that the information immediately becomes available to everyone who has a use for it.
Using ReadSoft’s software platform, all types of
documents, including invoices, loan applications and claims reports, can be delivered to all types of archive, business, authorization and case-management systems.
ReadSoft’s software platform also allows documents to be exchanged with suppliers and customers.
For global and multinational companies, our solu- tions enable signifi cantly faster, simpler and more effi cient management of complex and worldwide business processes.
Everything needed for a complete fl ow Our cooperative relationships with partners enable us to take advantage of complementary technologies and solutions while providing our partners with access to our unique functionality and expertise.
In addition to broadening our offering, these relation- ships also increase the potential for more rapid expansion, particularly in new markets.
By utilizing our partners’ consultants, we can also offer small companies effi cient and expert implemen- tation of complete solutions.
Using our technical platform as a base, we are thus able to offer all companies a complete solution for automatic document management in cooperation with our selected partners.
Every part of a company’s business has its own specifi c needs. Therefore, we have developed a num- ber of smart and simple solutions to manage nearly all types of documents and work fl ows. In addition to proprietary products, our solutions offer a number of related services, such as start-up, service contracts, support and, in certain cases, hardware.
We have grouped our solutions in two market areas: Trade Process Automation and Document Capture Automation.
Trade Process Automation
One of the most important areas within document automation is the handling of fi nancial information, such as invoices and order confi rmations. This area, which is also the fastest-growing market, offers many clear benefi ts for customers. We are currently the world leader when it comes to products for invoice processing. This is partly due to our in-depth under-
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O P E R AT I O N S
Depending on the kind of business a company conducts, different documents are pro- cessed in different ways, based on their content. ReadSoft’s solutions validate and verify this information and ensure that it ends up at the intended destination.
Only when information comes to use is it converted into a business tool. Therefore, our platform can simply and smoothly be integrated into the leading business systems from SAP, Oracle and Microsoft, to name a few, for automatic invoice entry, validation and coding.
ReadSoft’s solutions also make it easy to quickly exchange docu- ments such as invoices, orders of goods and waybills through secure, encrypted e-mail.
PROCESS INTEGRATE EXCHANGE
This market area consists of three programs:
CLASSIFY, INDEX and FORMS. CLASSIFY interprets the type of information contained in a document, to then be able to send it to the right recipient system.
INDEX automatically extracts key information from all kinds of business documents.
Together, they automate the work of sorting, classifying and distributing incoming documents for the business processes and establish a single point of contact for customers or departments, regardless of whether the documents come in an envelope, by fax or by e-mail.
FORMS is a program that extracts data from all types of predefi ned forms, such as order-management forms, market surveys and population censuses. The information can then be sent to the target system of choice or a database at the customer.
Service contracts and consulting services Thanks to our global organization, we are able to offer our customers service and support worldwide, which is a major benefi t, particularly for multinational corporations.
Software upgrades are also included in our ser- vice contracts. Since our solutions are a business- critical component of our customers’ operations, our service contracts are usually renewed.
We offer customers operational support, includ- ing quickly getting started with effi cient production and specialist support to maintain productivity at a high level. We train our customers when new system solutions are introduced. Training can range from specifi c selective services to taking complete control of the entire training process.
Our consulting organization assists customers through all phases of the process, from analysis to implementation. In many cases, our personnel also offer our customers consulting services when choosing supplementary technology.
Hardware
To be able to offer our customers a complete solution, we also offer third-party products from partners, primarily scanners.
standing of companies’ internal processes, which enables us to develop products that meet market needs for various functions. We also understood at an early stage the importance of integrating our products with the leading business systems.
This market area comprises a number of free- standing products that jointly create a complete solu- tion for invoice processing. The web-based interface gives the user full control over where the invoices are in the process. This means better control over invoices, cash fl ows and received and invoiced goods and services. The INVOICES product can be inte- grated with any business, authorization or archive system, and in addition to being part of our own complete solutions, is also often part of our partners’
solutions for invoice processing.
The COCKPIT SUITE product group provides the customers with a complete link to SAP without any changes in the SAP standard. This completes the document management chain, all the way from scan- ning and interpretation to updates in the business system.
INVOICEIT is a program that is specially designed to manage invoices in the Oracle E-Business Suite.
The program becomes a natural part of Oracle’s business system and authorization workfl ow without requiring any special integration or customization.
In 2008, we launched a new product called REPORTER. REPORTER is a business-intelligence product and a tool that makes it easy to quickly produce reports and statistics on the fl ow of invoices within an organization. REPORTER is a supplemen- tary product to INVOICES and will be integratable with all leading business systems.
Document Capture Automation
In addition to fi nancial information, companies also recieve numerous other business documents, such as claims cases at an insurance company, loan applica- tions at a bank or customer matters at a power com- pany. We offer solutions for these types of documents that make it possible to capture, interpret, sort and classify the information and then send it on to the right person or department.
Did you know…
That the K-Rauta retail chain in Sweden intro- duced invoice manage- ment with purchase matching? The result was that 10 out of 15 persons could be used for tasks that create more value.
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R E S E A R C H A N D D E V E L O P M E N T
Did you know…
That the world is becom- ing increasingly digitized?
Today, more than 90 percent of Sweden’s working-age population uses the Internet.
To further strengthen ReadSoft’s competitive- ness, the company’s development efforts in 2008 focused on three areas in which we hold market-leading positions. Using our ReadSoft DOCUMENTS 6 platform as a starting point, our Solution Labs are further expanding solutions within SAP, Oracle and Capture.
Other new initiatives in 2008 included our invest- ment in an Integration Center, a comprehensive development group responsible for such tasks as developing integration solutions between proprietary and external products. As part of the development of this new Integration Center, we created a knowledge bank to be used for future products. The group performs analyses of our operating
environment and monitors trends on the technology front to identify new business opportunities at an early stage that can later be transformed into tangible input for our three Solution Labs.
The overall strategy for our research and development efforts is to expand our offering and improve our products. Our aim is to upgrade our offering and products at a more rapid rate and thereby shorten our cycles. This will enable us to maintain a faster pace when introducing new products into the market and, in turn, generate additional sales.
Extensive opportunities remain available within automated document management. Our long-term
Focused development
on leading platforms
plan is to steadily expand our offering and gradually automate an increasingly large portion of the company’s processes. We will also focus on creating vertical solutions with a clear niche in terms of specifi c industries and types of documents.
One emerging trend is that applications are becoming increasingly web-based. This trend, known as Cloud Computing, is based on software located on a central server and accessed by computers online. Cloud Computing is also generating opportunities for our products and is one of the lines of development we are targeting.
In the near future, we will continue our efforts to strengthen our leading global position and to expand our technology in new geographic markets. As a result of our new platform, we have an extremely strong foundation that can now be capitalized in the form of additional functions and solutions adapted to specifi c markets.
SAP
PROCESS DIRECTOR, a new platform for products in the SAP business system, will be launched in 2009.
As a result, we can offer a solution that handles many different types of documents. The fi rst reference installation with a customer took place in 2008, and despite the complicated environment, it has performed very well.
Key events during the year, SAP
• We established a platform of the future
• We can now handle many types of documents
• The new platform will make it possible to develop new solutions signifi cantly faster
• We created a packaged solution that we offer to our partners
Since our solutions are built into SAP, it is important that we develop a technology that allows us the fl exibility to follow any path SAP will take in its
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future development. Accordingly, PROCESS DIRECTOR works with all of the core functionality of SAP’s business system, yet is also able to handle and support changes. Building this type of technology requires a high level of competence and considerable patience. The fact that we now have a high-tech platform that will increase the speed of development in the future and give us a very strong position will be a crucial factor to our success.
We already have a broad market to cultivate, with large growth potential in SAP’s existing customer base. Today, SAP has approximately 76,000 customers, only a small portion of whom uses invoice-management solutions. So regardless of what the future may hold, there is already much that we can do today simply by offering our existing and new products to this entire customer group.
In 2008, SAP started selling a solution for invoice management in cooperation with a newly established partner. The fact that SAP is now entering the area of invoice management demonstrates the extensive potential in the market. SAP’s involvement will also
Product development costs, SEK million
2005
2004 2006 2007 2008
0 10 20 30 40 50 60 70 80 90
Background
In 2004, Siemens Singapore automated its invoice processing system in SAP by introducing INVOICES, COCKPIT and WEB CYCLE. Although the original installation only handled English-language invoices, the possibility of capturing and interpreting invoices writ- ten in Asian characters has been a topic of discussion for more than two years.
Based on our new DOCUMENTS 6 platform, we developed one version that handles “Simplified Chinese” and another that handles “Traditional Chinese”. These versions were installed at Siemens China and later at Siemens Taiwan. We will be respon- sible for all adaptations in the SAP integration via COCKPIT and WEB CYCLE, while Siemens’ IT Department will handle INVOICES.
Challenge
The main challenge was to roll out an entirely new platform capable of interpreting Asian characters. This task was technically complex, but also imposed con- siderable demands on our ability to communicate with the customer. Thus, it was crucial that we build a relationship and establish confidence in each other.
Another challenge was ensuring that the system was always updated. We continuously deliver new versions and it is vital that we find opportunities to perform these necessary updates. While it is relatively easy to make changes to INVOICES, updating the components related to SAP is a more complicated task and requires planning and testing since such changes affect business-critical systems.
Future
The next step will be to continue implementing the solution at Siemens’ companies in the region and adapting it to other Asian characters. In addition to Japan, we intend to focus on South Korea in the future.
d
Siemens Asia
The next step will be to continue implementing the solution at Siemens’ companies in the region and adapting it to other Asian characters.
Melker Petersson, Project Manager, ReadSoft AB
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R E S E A R C H A N D D E V E L O P M E N T
encourage reports that this technology exists, which is a major advantage for leading suppliers within document management, such as ReadSoft.
During the year, we also produced a complete packaged solution known as Business Solution Package.
The package includes our invoice-management solutions for SAP and comprises a standardized installation. This product is primarily targeted toward our partners, who will obtain a key competitive advantage since they will be able to offer a ready solution.
Oracle
Previously, our primary area of focus was invoice management. However, in 2008, we established a strategy for developing products for other types of documents and processes. A new solution based on Oracle’s new service-oriented (SOA) platform, Fusion Middleware, will be launched in the summer.
In the past three years, Oracle has purchased 50 companies with a variety of products, including PeopleSoft and JD Edwards. The company has now identifi ed a way to link the functionality of all of
these products in an integrated service-oriented architecture. This new platform, known as Oracle Fusion Middleware, is based on service-oriented technology that is more intuitive, dynamic and easier to integrate with other applications. Oracle is now continuing the development of its next generation of business systems (Fusion Application), which is based on Fusion Middleware. This product will probably not achieve full breakthrough until two years from now.
As early as mid-2009, ReadSoft will launch version 4.2 of our platform for Oracle. In addition to being adapted to SOA technology, which is the basis of Fusion, the new version of the plat form will be able to handle all types of documents. Some features of this expanded functionality are also available in version 4.1 for E-Business Suite 12, which was released at the beginning of 2009.
In parallel, we are also continuing the develop- ment of additional functionality for the new platform.
The scope of this functionality will be determined by what is considered most important by the users. At present, the main focus is invoice management, but we may offer solutions in such areas as personnel administration and travel expenses in the future. Our strategy is to always offer our users added value and create functions that are in high demand.
In 2008, we intensifi ed our efforts to develop and offer packaged solutions, particularly in the US market. Our approach is to offer customers fi nished solutions that we know work and adapt our solutions when necessary.
Capture
In 2008, new versions of CLASSIFY and INDEX were developed. Among other features, the solutions are now able to handle handwritten documents.
We also developed a system that enables products to become self-learning. By entering a number of sample documents, the user automatically receives Key events during the year, Oracle
• New platform for Oracle Fusion Middleware
• Expanded functionality for several types of documents
• New version for Oracle E-Business Suite 12
• Increased focus on packaged solutions Did you know…
That at the Familjebo- städer housing company, one person manages the company’s invoices? Using electronic invoice manage- ment from ReadSoft, the other three persons have moved on to other func- tions within the company.
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Key events during the year, Capture
• Option for interpreting other Asian languages and characters
• Now also able to sort handwritten documents
• Developed new statistics program known as REPORTER
• Broader use for additional business processes a specifi cation for classifi cation. The new versions of CLASSIFY and INDEX were launched at the beginning of 2009.
In addition to strengthening our leading position within invoice management, our main focus within Capture is to continue developing solutions for several types of processes. CLASSIFY and INDEX are products that can be used in all types of business processes and delivering a complete solution requires integration with the customer’s other work fl ows. Our main challenge is to package solutions that fi ll a niche in certain selected segments. Our primary target group is companies with a substantial infl ow of documents in their business processes, such as insurance companies, energy companies and banks.
One of the steps will be to further intensify our focus on Asian languages and characters. Following the introduction of interpretation for the Chinese and Taiwanese market, our focus has now shifted to the Japanese market.
Automatic invoice management is our strongest area and we are working in close cooperation with our partners to develop solutions that are optimal for our customers, based on our market-leading capture product INVOICES.
We also launched a new product called REPORTER. REPORTER is a statistics program that enables monitoring of incoming scanned and electronic invoices and easy identifi cation of high- activity sectors in the management process. We are now taking the development of REPORTER even
Background
Sheridan is an oil and gas production company with its head office in Houston, Texas, and deposits in the U.S. In 2009, Sheridan expects that its invoice volume will double due to additional acquisitions, and the company aims to handle this expansion with only a marginal increase in costs. To accomplish this goal, Sheridan sought to streamline and automate its invoice processing procedures. The company’s response to ReadSoft’s solutions for Oracle’s busi- ness systems was extremely positive.
The ReadSoft system was put into production in December 2008, and Sheridan is already experiencing the benefits of increased transparency and speed of vendor payments with significant reductions in paper invoice flow throughout the company.
Challenge
Through strong team work between local personnel, ReadSoft’s Oracle Solution Lab in Denmark and the Sheridan implementation team, we successfully re- solved the challenges of the project, including a complex scanning solution and some changes to the Oracle configuration.
Future
Production is still in an evaluation phase, ReadSoft is maintaining close contact with Sheridan. But already now we have been asked to participate in a joint presentation of the project at the launch of the P2 Energy Solutions Conference this year.
d
Sheridan
We have been asked to participate in a joint presentation of the project at the P2 Energy Solutions Conference in 2009.
Brian Hrabovsky, Project Manager, ReadSoft North America
further and making it possible for users to retrieve statistics from the entire chain, from the arrival of an invoice to the time it is paid. This version will initially be developed for SAP and Oracle.
14
M A R K E T
ReadSoft is the market leader in the Data Capture for Transaction Processing & Process Management segment. This segment accounts for 39 percent of the overall market for auto- matic document management and is thus the largest subsegment. In 2007, it accounted for the largest growth, 17 percent, a marked in- crease compared with 11 percent in the period 2005–2006.
The market is changing through the need to process information faster following the increase in global e-commerce. The volume of documents is growing at the same time as competition is intensifying. Another trend in this segment is an increase in large individual projects, partly because companies are increasingly focusing on integrating document management into their business processes in a more effi cient manner while in parallel implementing their solutions in several markets. According to the Harvey Spencer Associates Inc. analysis company, this creates advantages for major suppliers with the resources to handle more comprehensive systems, a trend that is favorable for ReadSoft.
Overall market also displaying growth Between 2006 and 2007, the overall market for automatic document management, including products, services and maintenance, increased to approximately USD 1.7 billion. Not including the companies that were not in the market in 2006, this corresponds to growth of slightly more than 15 percent.
This increase is partly due to a growing need to fi nd more effi cient ways of managing companies, a better understanding of the benefi ts that this type of software offers to users and increased sales among small and medium-sized companies.
According to an assessment performed by the Harvey Spencer analysis company, this trend will continue and the company is now forecasting annual growth of approximately 15 percent until 2011, when the global market is expected to have sales of nearly USD 3 billion.
Greater insight into existing need
More than 80 percent of all information a company receives is unstructured and it is estimated that between USD 25 and 30 billion is spent every year on collecting, interpreting and entering business information. Although this work is still largely done through manual entry using computers, a trend toward increasing automation in document management is now evident, primarily due to a continuously growing proportion of digitized information and higher personnel costs. While a large part of manual data entry has been moved to such low-cost countries as China and India, salary costs have gradually begun to increase in these countries as well, as their domestic economies grow.
Accelerating development and intensifying global competition mean that there is an increasing need for companies to improve the interaction of various departments, acquire more and faster information, and continuously cut costs. This has resulted in the growing use of Intelligent Data Recognition (IDR), particularly in invoice and order processing, where solutions connected to SAP and Oracle-based workfl ows provide major cost savings.
Segment distribution 2007
Data Capture for Transaction Processing
& Process Management, 39%
Ad-hoc & Desktop Capture, 35%
Batch & Distributed Batch Capture, 24%
Full Text Capture, 2%
Global market for document automation software in 2007
North America 51%
Europe, The Middle East, Africa 38%
Rest of the world 11%
Source: Harvey Spencer Associates Inc.
Increased focus on
integrated solutions
and security
Did you know…
That Swedish companies issue approximately 1.4 billion invoices annually? Only a fraction of these are sent digitally.
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M A R K E T
This is an area in which ReadSoft has long been on the leading edge of development and in which we are now focusing our resources.
At the same time, there is great potential for other applications, since IDR can be used for the management of all incoming information and integration with various ERP systems.
A general trend driving market growth is for collective IT investments to increasingly be allocated to such areas as coordination, regulatory compliance, business intelligence, computer inte gration and security.
For example, according to International Data Group’s (IDG) Executive Report from January 2008, automatic document management ranks third on the list of important investments in 2008, as selected by IT managers.
Requirements for transparency and being able to monitor business events in real time also increase the need to be able to extract and process information from business documents as early as possible. This benefi ts the suppliers that can offer comprehensive solutions that capture, interpret and classify information and can be easily integrated with the major established business systems.
Five factors driving the market
Broader use of automated document management.
One example is more extensive functionality for legal documents.
Integration with business systems creates added value.
Linking automated document management with business processes enables automatic processing of paper invoices, which generates higher value and lower costs. It is not uncommon for an investment to pay for itself in less than one year.
The majority of IT investments are made in existing sys- tems. This means that automated processes that quickly become profi table and improve existing systems are becoming attractive.
Increased demand from developing countries. From cen- ters for manual computer entry, many companies in these countries, such as India and China, have begun demanding solutions for automatic document management. This is due to an increased standard of living resulting in higher salary costs.
Need to reduce entry costs. The need to understand and extract data from unstructured documents, regardless of the type of media, is growing. This is driving the need for recognition technologies and integration with business processes.
Source: Harvey Spencer Associates Inc.
Source: Harvey Spencer Associates Inc., IDG, SOX
Did you know…
That ReadSoft’s products contribute to 1.4 billion paper copies never being made and that, accor- dingly, carbon emissions are reduced by 2,000 tons?
Global regulatory put demands
The global economy is driving the development of regulations that are not limited by borders and will prevent fi nancial crime and other improprieties.
Consequently, companies with global operations must increasingly install common systems that follow a certain standard, which benefi ts the market for automatic document management.
One example is Basel II, which stipulates that every bank that conducts business in different countries must have risk management systems.
Other examples include the US Patriot Act, which affects all companies that export to the US and all people living in the US who have a bank account abroad. The US corporate code, the Sarbanes-Oxley Act (SOX), affects companies in the US and the rest of the world.
In the EU, directives have been issued that will harmonize various kinds of business operations within the entire union. Regulations similar to SOX are also in effect in Japan. This results in IT systems gradually becoming more similar in all countries, a trend that primarily benefi ts the suppliers that can offer multinational corporations both standardized document management solutions and global support.
16
C O M P E T I TO R S
The Data Capture for Transaction Processing
& Process Management market segment is fragmented, but is being consolidated.
The segment accounts for 39 percent of the Data Capture market, forecast to reach approximately USD 1,400 million in 2011.
According to Harvey Spencer Associates’ “Main Vendor Report” from July 2008, the trend of large companies purchasing small companies to gain access to technology and new markets is continuing.
The market for Data Capture for Transaction Processing & Process Management has been relatively mature with a foundation of well-tested technology. However, as focus has shifted from pure data capture to integration with business processes, which increased substantially in the past year, the market has entered a new phase. This shift is altering the company’s fundamental business models and attracting new players, a change refl ected in the fact that the “Other players” category has increased from 32 to 42 percent in one year.
For a long time, ReadSoft has focused on integration and transactions. This has enabled us to maintain our market-leading position with 13 percent of the market.
The following are some of the trends forecast by the Harvey Spencer analysis company:
• Continued consolidation among major software companies. The market is highly fragmented, with more than 100 companies.
• In the coming years, data capture will become an increasingly large part of the business process.
• More players in vertical markets will reposition themselves in the market for data capture through cooperation. This is considered a way of securing competitive advantages.
• Players in business systems and business intelli- gence will intensify their focus in this market and additional cooperation and acquisitions will occur.
• Major hardware manufacturers will also enter this market since they consider it a competitive advantage. However, they continue to focus on hardware, which means that they will primarily invest in cooperation.
• In the long term, there will be an increase in service-based business models for small volumes of data capture, with small companies leasing service rather than purchasing licenses.
• The need to capture data as early in the production process as possible will result in an increased use of mobile scanners, such as digital cameras and mobile phones.
ReadSoft in the lead
There are approximately 24 competing companies within the segment of Data Capture for Transaction Processing & Process Management, which is the largest segment in the total market for data capture.
ReadSoft has maintained its market-leading position, despite the fact that Kofax, one of our competitors, changed its segmentation and now describes itself as more of a software company than a hardware supplier.
This restructuring contributed to the growth rate of the segment increasing from 15 to 17
Data Capture for Transaction Processing & Process Management 2007
ReadSoft 13%
Kofax 9%
EMC 8%
Autonomy/Cardiff 5%
Banctec 5%
Next five players 18%
Others 42%
Source: Harvey Spencer Associates Inc.
ReadSoft growing
with the market
Did you know…
That 665,000 companies in Sweden process about 1.4 billion invoices per year? A total of 7 percent (98 million) are managed electronically within the organizations.
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