INTERIM REPORT OBDUCAT AB (PUBL) JANUARY - SEPTEMBER 2003
* Strong order intake reported for the third quarter
* Full-year forecast: Sales of SEK 40 million with improved result and cash flow
* Increased capital base via new share issue and conversion of debenture loan in the first quarter
* Need for capital contribution in 2004 envisaged
* The semiconductor industry announces delayed evaluation process regarding NIL
* Gross margin strength maintained
* Amended Rules of Procedure of the Board of Directors
The total order intake by Obducat for the period January - September was SEK 35 million. A strong order intake over the first three months of the year was followed by a relatively weak second quarter, again followed by a significant increase in the third quarter.
Sales over the period amounted to SEK 24,5 million (corresponding period the previous year: 18,8), of which NIL* and Stampers* account for 56 % and SEM* for the remaining 44 %. Compared with the corresponding period the year before, the result for the year reflects an increase for NIL/Stampers of 88 %, whereas SEM – adjusted for exchange rate effects – increased by 3 %.
The significantly improved gross margin in comparison with 2002 continued, being 48 % (39 %) for the period.
At the end of the reporting period the order backlog reached SEK 13 million, all of which is estimated for delivery during the last quarter.
As reported earlier in the year, the order volume – which is regarded as a significant indicator of forthcoming business volumes – has seen a continuous rise. This mirrors primarily business area NIL in which, together with business area EBR*, the central point of value regarding quotations lies in larger systems.
Ongoing customer projects are run with several leading players worldwide in a number of different trades. All projects related to NIL, Stampers and EBR referred to previously in this connection, are running and new ones have been added during the reporting period. Such projects are run with customers in the areas of semiconductors, magnetic storage and display technology.
In the period Obducat has further strengthened its leadership position as the premier provider of NIL-systems for the market segment universities and research institutes, including a number of shipments both to Asia and US.
Research and Development
Obducat is pursuing extensive research and development work, mostly in close cooperation with customers. In this respect the NIL segment is prioritised, which during the year was enhanced with several new and valuable system functionalities. Obducat estimates that research and development efforts have reinforced and strengthened its position, and the Company is of the opinion that it has a technological advantage over its competitors in NIL.
The result of this work is evaluated continuously from a patent point of view and when commercial grounds are considered feasible, a patent application is filed. At the end of the reporting period there were 23 patents covering inventions approved and a further 9 patent applications regarding inventions submitted. In this matter NIL is both predominant and deliberately prioritised.
Sales and result
Group sales for the first nine months of the year were SEK 24,470 thousand (18,794), generating a gross profit of SEK 11,714 thousand (7,321), equivalent to a 48 (39) % gross margin.
The operating loss was charged with depreciation according to plan amounting to SEK 9,236 thousand, compared with SEK 2,788 thousand for the corresponding period in 2002. The increase is owing to the depreciation plans adopted as from the end of the preceding year in respect of all intangible fixed assets. Total costs for Market & Sales, R & D and Administration were, excluding the depreciations mentioned, 10 % lower that for the corresponding period the previous year.
Operating loss for the period amounted to SEK –22,623 (-22,797) thousand.
Loss for the period after taxes was SEK –24,403 thousand (-26,664). The loss for the corresponding period the year before was adjusted by SEK –1,514 thousand in respect of interest expenses not taken into consideration relating to increased liability pertaining to the convertible debenture loan within the framework of RR3 applicable at the time (as from 2003: RR27). In addition, the figures for the preceding year, both in respect of the entire reporting period and the full year, have been adjusted in so far as depreciations (SEK -2,788 and SEK –5,103 thousand respectively) have been redistributed in a more true and fair way to the three operating functions Market & Sales, R & D and Administration. In short this adjustment means that R & D bears a significantly larger share and Administration a significantly smaller share of the depreciations, reflecting to a greater degree in which functions the fixed assets have been utilised. With this adjustment full comparison between this year’s result and last year’s result is achieved
Cleared for the effects of the higher depreciation rate in 2003, the result for the period improved by almost SEK 9 million compared with 2002. Increased sales with better margins, in combination with reduced costs and noticeably lowered interest expenses, have managed to compensate for considerably increased depreciations according to plan.
Financing and Liquidity
At the end of the reporting period shareholders’ equity amounted to SEK 57,773 thousand compared with SEK 14,747 thousand at the beginning of the year. Early in the year a preferential rights issue for cash was implemented, which yielded SEK 39,864 thousand after issue expenses. In addition, a temporary offer – subsequent to a decision by the extraordinary general meeting in March 2003 – was directed at holders of the Company’s convertible debenture loan 2001/2004, offering the said holders during a period of two weeks at the end of March the possibility to convert the loan to shares on greatly favourable conditions. The offer resulted in the nominal value of the debenture loan being reduced from SEK 46,6 million to SEK 17,8 million, whereby approx. 19,2 million new series B shares were issued. The debenture loan matures in May 2004, bearing a nominal interest at 5 %.
Equity/assets ratio on September 30, 2003 was 63 %, compared with 17 % on December 30, 2002.
The Annual General Meeting in May decided on an employee incentive program in the Group’s Swedish company. Within the scope of this program, such employees are offered to acquire warrants on market conditions. 817,500 warrants have so far been acquired by employees, generating subscription payments totalling SEK 270 thousand, carried directly to restricted equity. An additional offer based on the same program is planned before the end of the year.
Said warrants extend until June 15, 2006-06-15, each of which give entitlement to subscribe for one new series B share during the period June 15, 2004 – June 15, 2006 at a price of SEK 1,57. The maximum amount of shares within the scope of this program is 2,362,500, entailing a deferred maximum dilution of capital of approx. 1,3 % and not more than 1 % of the voting rights.
Liquid assets amounted to SEK 13,377 thousand at the end of the period.
Cash flow for the period was SEK 13,145 thousand (1,521), primarily reflecting – in addition to the reported result and effects of financing activities during the year – an increase in tied-up working capital as well as significant investments mainly in intangible fixed assets.
The Group’s net investments over the period were SEK 5,745 thousand (6,085), of which approx. 80 % represents development expenditure (carried forward in accordance with RR15) and patents. The remainder refers mainly to testing and development equipment in business area NIL.
At the end of the reporting period the Group had a total of 36 employees (of which 3 women), doing services corresponding to a total of 34 full time positions. The average number of employees during the period was 33. In the third quarter management was reinforced both in respect of Purchasing & Production and Research & Development.
Obducat estimates that currency and interest rate fluctuations will have no material effect on the business and that the Company’s product prices may be regarded as stable. There is however a limited currency risk with regard to business deals based on public procurement in US dollars. In situations when the US dollar weakens, there are limited possibilities to compensate for currency exposure by increasing prices, and at the same time it is not appropriate to apply currency hedging. The business is not especially dependent upon or limited by circumstances affecting suppliers.
Obducat believes that its competition by comparison has remained unchanged during the period. Tangible results from competing businesses in NIL – such as shipments – have, to the best of the Company’s knowledge, been very limited. One might point out that Obducat has had the opportunity to maintain a higher price level that its competitors, contributing to the expanded gross margin.
The parent company generated no sales for the period. Pre-tax loss was SEK –16,322 thousand (–17,772). Net investments totalled SEK 1,877 thousand (34), comprising mainly patents.
Third Quarter (July – September)
As estimated in the previous interim report, sales in the third quarter weakened compared with the previous two quarters, generating invoicing of SEK 4,445 thousand (7,508), of which NIL and Stampers accounted for 72 % and SEM the remainder. Gross margin for the period was 44 % (40 %). Operating loss was SEK –9,164 thousand (–6,793) and the loss after taxes amounted to SEK l –9,573 thousand (–8,525).
In comparison with Q2 the order intake increased significantly during the period July-September, resulting in orders totalling about SEK 12 million being signed in Q2.
Costs excluding depreciations have remained notably lower than in the corresponding period 2002, amounting for the quarter to SEK 8,089 (9,672) thousand.
Net investments for the quarter were SEK 1,904 thousand (3,290), with distinct emphasis on intangible fixed assets.
A previously announced internal merger process was completed during the quarter, resulting in the practically dormant subsidiaries Obducat Development AB and Obducat Xicon AB being merged with the parent company. These transactions have not resulted in any effect on earnings.
Accounting principles adopted by Obducat comply with the Annual Accounts Act and the general guidelines, statements and recommendations issued by the Swedish Financial Accounting Standards Council and other standard organisations. The accounting principles are unchanged in comparison with the previous interim report and the annual report for 2002.
With regard to managing the convertible debenture loan 2001/2004 in the accounts, relevant parts of RR27 have been adopted as from the previous interim report, replacing the previously adopted RR3. This has not resulted in any substantial alterations.
Other significant events
In view of the new status as official stock exchange achieved by NGM in April, the Board in May decided to discontinue the then almost completed process of having the Company’s share listed on the O list of the Stockholm Stock Exchange. As a result of this decision, Obducat’s series B share will continue to be noted on NGM Equity.
During the period Obducat received two acclaimed awards confirming the view of the Company’s technical and commercial status: In connection with the international exhibition ”Nano Tech 2003” held in Tokyo last February, the Company was given the ”Super Small Technology Award”. Obducat was the only non-Japanese company to receive an award at this exhibition.
Furthermore, at the international conference ”NanoTrends – Markets and Applications” in Cologne at the end of June, Obducat was awarded the ”Nano Trends Award 2003” for the most innovative novelty in nano technology.
Obducat received a great deal of attention in the September issue of the American newsletter ”Nanotech Report” (Forbes/Wolfe) and was also during September analysed by the Swedish newsletter ”Stockpicker”.
Share Data and Ownership Structure
On September 30, 2003 Obducat had 18,051 shareholders. At the same time the total number of shares amounted to 186,637,616, of which 6,500,000 series A shares and the remainder series B shares.
During the reporting period a total of 43,006,901 series B shares were traded, equivalent to an average amount of 237,607 per trading day at an average price of SEK 1,31. During September slightly more than 12,1 million shares were traded.
(FOR COMPLETE INTERIM REPORT SEE ATTACHED FILE)