INTERIM REPORT OBDUCAT AB (PUBL) JANUARY – SEPTEMBER 2004
· Sales were SEK 16,9 million (24,5) – forecast for the twelve months of 2004 is reduced to SEK 28 million
· Pre-tax profit was SEK –30,4 million (–24,4) and earnings per share before deferred dilution was SEK –0,15 (–0,14)
· 5 new patents were granted during the report period
· New Chairman of the Board
Sales (All amounts below in SEK 000 unless otherwise stated)
Third quarter sales totalled 16,864 (24,470), reflecting continued weak order intake in comparison to the prior year quarter. The proportion of quotations for larger systems has increased compared with the previous year. Concurrently with customers’ evaluation processes having, in consequence of this, become more time-consuming, their decision-making processes have also been prolonged.
Opening backlog for the year was approximately SEK 0,6 million, amounting at the end of the report period to SEK 5,3 million. When submitting this report, the backlog of orders has increased to SEK 7.6 million.
Gross margin for the period was 51 % compared with 48 % for the corresponding period in 2003 and 48 % for the full year of 2003.
Current customer projects are carried out with world-leading players active in several trades. As reported under “Outlook” below, there is a possibility of receiving industrial orders arising from customer projects in a number of application areas. Stampers are sold to an accelerating number of customers, a clear indication of the increased interest demonstrated by existing and potential NIL customers.
Work on several customer and applications based projects, aimed at resulting in orders for industrial mass production are progressing according to plan. The customers’ evaluation processes have consistently taken longer than anticipated, based on information communicated to the Company. In view of this it cannot be guaranteed that the initial order will not be delayed until early 2005.
*) ”NIL” = Nano imprint lithography; ”Stampers” = Lithography originals type consumer goods; ”EBR” = Electron beam lithography on rotating discs.
Research and Development
Efforts in research and development have continued and seen an increase during the year. For the most part this work is deliberately carried out in close cooperation with existing and potential customers. In this respect, the NIL segment is still being prioritised. These research and development achievements are considered to have reinforced and strengthened Obducat’s standing, bringing the Company to its perceived technological forefront position. A major result of this year’s efforts is the fact that Obducat can offer both thermal and UV based imprint as well as combinations thereof, which creates new possibilities for continued process development. This enables enhanced flexibility, increased customer benefits and broadened market.
The research and development form the basis of continuous evaluation from a patent point of view, and when commercial grounds are considered feasible, patent applications are submitted. At the end of the report period the Company held 28 granted patents covering inventions, and a further 9 patent applications for inventions had been filed. Five patents for new inventions were granted during the year, four regarding NIL and one regarding EBR.
Obducat has during the period become a partner of the EU project NaPa with a budget of Euro 16 million in total. Obducat’s contribution comprises specific development regarding enhanced functionality in high-resolution alignment for NIL, with possibilities of further improving competition.
Third quarter research and development expenses incurred totalled 12,601 (10,905), in addition to which 4,031 (4,216) were activated as capitalised development expenditure and patents. Thus the total amount of R&D investments increased by 10 % compared with the corresponding period the previous year.
Sales and Result
Consolidated sales for the Obducat group in the first nine months of the year were 16,864 (24,470), generating a gross profit of 8,625 (11,714), corresponding to a gross margin of 51 % (48).
Operating loss in the period amounted to –27,465 (–22,623), and was charged with depreciation according to plan amounting to 9,517 (9,236).
Loss for the period after taxes was –30,356 (–24,403).
Financing and Liquidity
Shareholders’ equity at the end of the period was 39,488 compared with 50,219 at the beginning of the year. In the early part of the year a directed new share issue was implemented, yielding 12,803 after issue expenses. The issue was subscribed by Nanostart AG / Hauck & Aufhäuser. In January a total amount of 16,270 series B shares were issued based on the required conversion of outstanding convertible debentures 2001/2004. The last day to convert the debenture loan was January 1, 2004.
Based on the resolution at an extraordinary general meeting in February, a share issue of subordinated debentures with detachable warrants was implemented in the second half of March.
A total amount of about 62 million convertible debentures each with a nominal value of SEK 1,0 were issued, of which cash subscriptions yielded the company approximately SEK 50 million. The convertible debenture and the detachable warrant are traded at NGM.
At the beginning of the quarter the required conversion of approximately SEK 2,3 of the new convertible debenture loan was executed, resulting in the issuance of 1,080,346 new series B shares. Simultaneously 18,482 new series B shares were issued based on the subscription for new shares supported by the detachable warrants of the debenture loan.
Liquid assets at the end of the report period were 39,264 compared with 6,807 at the beginning of the year.
Equity/assets ratio on September 30 was 34 % compared with 59 % early in the year.
Cash flow from operating activities in the period was –17,307 (–18,787). Total cash flow for the period was 32,457 (13,145), which, in addition to the above-mentioned outcome and the implemented issue of shares and convertibles, largely mirrors investments primarily in intangible fixed assets.
Net investments in the period amounted to 5,774 (5,745), of which 70 % (85 %) pertains to intangible assets in the form of development expenses – carried forward in compliance with RR15 – and patents. Moreover, relatively large additional investments were made in EBR equipment for the production of stampers.
At the end of the report period the Group had a total of 41 employees (of which 4 women), with a total time commitment corresponding to approximately 39 full time positions.
The Company considers the impact of currency and interest rate fluctuations to be of little consequence by comparison. However, a limited currency risk may arise in connection with business deals based on public procurement in US dollars. In the event of a weak dollar the possibility to compensate for currency exposure by increasing prices is limited.
In the Company’s opinion the competition changed during the period due to an increasing number of players having emerged on the market. During the period the price of certain NIL related products have indicated a downward trend.
No sales were generated in the Parent Company in the period. Pre-tax loss before taxes amounted to –16,820 (–16,322). The Parent Company’s net investments amounted to 2,855 (1,877), largely comprising patents and development expenses carried forward in compliance with med RR15.
Third Quarter (July – September)
The continued weak order intake in third quarter resulted in sales amounting to 6,603 (4,445). Gross margin for this quarter was 46 % (44). Operating loss was –9,015 (–9,164). Loss after taxes amounted to –10,124 (–9,573) and was impacted by interest expenses pertaining to the convertible debenture loan issued during the second quarter. The third quarter result was charged with depreciation according to plan of 3,190 (3,056).
Cash flow from operating activities in the third quarter was –8,198 (–5,570).
Net investments during the quarter amounted to 2,852 (1,904), essentially apportioned equally among intangible and tangible fixed assets.
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 remain unchanged compared with the previous interim report and the Annual Report 2003. With regard to accounting by segments – governed by RR25, the Company has, as previously reported, determined that Obducat’s business is considered to comprise one business segment only, namely that of system solutions for the production of advance micro and nano structures. For this reason the Company will give no further information in this report relating to RR25, referring instead to the profit and loss statement and balance sheet for the primary segment.
Other significant events
Following the announcement of the new share issue directed at Nanostart AG / Hauck & Aufhäuser early in the year, considerable interest in Obducat has been shown by continental players. As a consequence of this, inter alia, the foreign shareholding in Obducat during the period increased from 10 % till just over 35 %.
Pursuant to the resolution passed at the annual shareholders’ meeting in June, a special examination began during the third quarter, which up to September has incurred expenses in the amount of SEK 250 thousand for external examination expenses. Furthermore, this process has been and will continue to be a task making quite heavy demands on the organisation and board of directors. It is expected that the review process be finalised by the end of the year and it is presumed that the review report may be presented at the extraordinary general meeting of shareholders in the early part of 2005.
The Obducat share and Ownership Structure
Obducat had 16,694 shareholders on September 30, 2004. On the same date the total number of shares amounted to 202,752,714, of which 6,500,000 series A shares (entitling to ten votes), and the remainder series B shares (each entitling to one vote). On September 30, the required but not yet registered conversion of new subscriptions supported by options comprised a total of 2,316,922 additional series B shares. During the period a total of approximately 121 million series B shares were traded, equivalent to an average amount of approximately 0,64 million shares per trading day at an average price of SEK 3:12. The ownership structure on September 30, 2004 (including the above-mentioned additional but not yet registered B shares on the closing day) was as follows:
(For table sheet see attached file)
Significant events after the report period
Events at the annual general meeting 2004 and following it, the examination process and the suspended extraordinary meeting of shareholders and, as a consequence, the decision regarding new share issue that did not materialise has been time-consuming for the board and management, and has in addition resulted in a media focus on issues that primarily have nothing to do with the true work at Obducat. In relation to these events and on that account, the current chairman, Peter Jonsson, has announced that he no longer wish to remain as Chairman of the Board. The main reason for leaving the Chair position is that he feels he will not be able to combine the necessary increase in tasks and activities with his regular work.
Today, October 27th 2004, the board has unanimously decided to appoint Henri Bergstrand as new Chairman. The board will now assume the task of actively supporting the company’s management in order for the primary plans to be pursued, however with undesired delays due to the ongoing examination process.
With Henri Bergstrand in the chair the board and management will immediately focus on principally on the following areas:
· Industrial breakthrough for EBR and NIL
· Financing the planned expansion
· Strategic alliances and partners
· Strategic measures regarding CamScan
As far as predicting the future outcome of the projects that are conducted with a number of players in several application areas, the Company’s opinion of the present situation is as follows.
At present the Company is involved in several projects within a number of application areas, including magnetic storage, bio applications, semiconductors, opto components and OLED displays, that can potentially lead to industrial orders based on different time schedules. The latter refers to equipment with a capacity higher than that offered by existing standard products, and that the customer intends to use the system in continuous product applications.
Based on the schedules that Obducat’s customers have chosen to communicate, the Company still believes that mass production based on NIL may gradually begin, starting late in 2005. Should these plans change, they will naturally have an impact on Obducat’s order schedule.
The technology progress in Obducat’s EBR business has been positive. The estimated market potential is big, not least thanks to the Company’s comparative technology status. It is believed that EBR may start to generate income in 2004/2005.
As stated above, the customers’ evaluation processes have – according to their own statements – taken longer than the Company expected. It is therefore necessary to make it clear that an initial industrial order may be delayed until early 2005.
Given the continued weak customer order activity during the year, the forecasted sales for the full year will be lower than expected. At present the board and management expect sales to be able to reach approximately SEK 28 million in 2004. The relatively strong quarter forming part of this forecast is, for example, enabled by the considerably streamlined production of NIL systems, equivalent to 30-50% reduction in lead times compared with status a year ago. At the same time the Company wishes to emphasise that the reduced order intake for the year is largely due to the prolonged decision processes by customers described above. This is largely a phenomenon at the present point in time, and in spite of reduced sales, the Company does not consider having lost market share.
The present situation makes it difficult to make a quantified estimate of sales in 2005, but in view of what has been stated above, it cannot be ruled out that sales will be lower than previously forecasted.
Future financial reports, etc
Interim Report 4 2004 / Year-end Report February 17, 2005
Malmö, October 28, 2004
The Board of Directors of Obducat AB (publ)
Corporate Identification Number 556378-5632
On behalf of the Board of Directors
This interim report has not been subject to review by the Company’s authorised public accountant.
(For complete interim report see attached file)