INTERIM REPORT OBDUCAT AB (PUBL) JANUARY – MARCH 2007
Obducat shifts to volume production
· First quarter sales amounted to SEK 5.2 (11.3) million
· Pre-tax profits were SEK – 14.9 (- 7.5) million, and earnings per share before dilution were SEK -0.05 (-0.03)
· The quarter was marked by and focused on launching the world’s first HVM machine for mass production based on NIL
· Gross margin was 35 % (60 %)
· 85% of the convertible debenture loan was converted and 74% of the warrants were exercised
· Exclusive distribution agreement signed with Canon Marketing Japan
· Equity/assets ratio significantly improved to 77% (34%)
Sales/Market (All amounts below in SEK 000)
Sales in the quarter amounted to 5.160 (11.332). The gross margin was impacted by a product mix during the period that temporarily contained a lower portion of NIL products.
When submitting this report, the backlog was SEK 8.2 million.
Company resources have largely been used in the ongoing industrial customer projects and this explains why sales during the period were lower. Industrial customer projects are in various stages of the decision-making and buying processes, with customers aiming to start industrial mass production of various types of components. Obducat estimates that its market potential and development potential will remain strong.
Obducat’s strategic strategy of creating long-term customer connections has resulted in several ongoing collaborations now entering the next phase. Obducat is involved in development projects together with a number of players in the hard disk industry, and within the scope of these projects, comprehensive evaluations with a view to creating a basis for these players’ choice of partner in the industrialisation process are carried out.
Obducat has already established its leadership as the only provider of NIL technology with a lithography solution applied in commercial production of components found in consumer products on the market today. This, combined with Obducat’s ability to produce stamps based on the Electron Beam Recorder (EBR) technology, creates excellent opportunities for Obducat to maintain its lead in the industrialisation of NIL that has already begun.
During the period Obducat signed an exclusive distribution agreement with Canon Marketing Japan (Canon MJ). Based on this agreement, Canon MJ in a press release on 9 February stated its opinion of what potential exists for Obducat’s products in Japan, and that Canon MJ will initiate sales of Obducat’s nanoimprint lithography equipment, Sindre™, for high volume manufacturing as from 1 March 2007. The signing of the distribution agreement makes Canon MJ responsible for sales and service of all Oducat’s products on the Japanese market. With a market share of more than 60 per cent in UV lithography in Japan, Canon MJ has a well-established service and support function present. This foreshadows a strong penetration of the Japanese market.
Focus in the Obducat Camscan Ltd. subsidiary is largely on development and production of electron beam columns for Obducat’s EBR (Electron Beam Recorder) and SEM (scanning electron microscopes). In 2006 a new electron beam column was launched, strengthening the product platform for both EBR and SEM. During the period Obducat received a further order for the new SEM product, named Apollo, from Victoria Forensic Lab in Australia.
Research and Development
Research and development is a cornerstone of Obducat. This is the reason why Obducat has chosen to collaborate with strategically selected players to increase its competitiveness, and to enable faster parallel development of the required infrastructure needed for the industrialisation of NIL. It is thus possible for Obducat to achieve cost-efficient development while at the same time minimising risks and reducing development time lead-time.
Costs for research and development in the quarter totalled 5.027 (4.417) (excluding depreciation according to plan relating to R&D). Investments in the form of capitalised development costs and patents amounted to 2.668 (3.758).
Patents
Robust patent protection is critical to Obducat’s business. The purpose of patents is to create exclusiveness, forming an important part of providing future sources of income.
When this report was submitted Obducat’s patent portfolio totalled 207 active patent applications pertaining to a total of 46 inventions
Sales and result
Group sales for the quarter amounted to 5.160 (11.332), generating a gross profit of 1.799 (6.777), corresponding to a gross margin of 35 per cent (60%).
Operating loss for the period was –14.431 (–6.327), and was charged with depreciation according to plan of 4.227 (3.657).
The administrative court of appeal’s ruling pertaining to the tax audit in 2002 respecting social security contributions, for which provisions were made in 2004, was finalised and settled at the beginning of 2007 – minimally affecting income.
First quarter income after taxes was – 14.909 (– 7.510).
Cash flow from operating activities amounted to – 15.642 (– 6.817) in the period. Total cash flow for the period was 28.389 (-13.460).
Financing and Liquidity
During the first quarter Obducat’s equity was boosted by SEK 91.9 million resulting from exercising the right convert convertible debentures, and exercising the right to subscribe for shares supported by options. The capital contribution amounted to 324 per cent of the equity prior to the change. However, at the end of the period equity stood at 120.268, compared with 42.977 at the beginning of the year.
Equity/assets ratio on 31 March was 77 per cent compared with 34 per cent at the start of the year. Remaining interest-bearing liabilities, subsequent to final settlement of the convertible debenture loan, consist mainly of property credits.
Liquid assets at the end of the first quarter amounted to 65.913 compared with 37.524 at the beginning of the year. Redemption payment at the subscription of options was SEK 47.1 million, and a surplus of SEK 37.8 million remains from financing activities subsequent to the settlement of the remainder of the liability pertaining to the convertible debenture loan in the amount of SEK 9.3 million.
The final settlement of the convertible debenture loan will result in reduced annual interest costs amounting to SEK 2.8 million, and the payment surplus will result in an expected net financial income for the full year of 2007.
The liquid assets allow Obducat increased scope for investments and other efforts to expand the business further.
Obducat’s Convertible Debenture Loan 2004/2007 and the Options 2004/2007 matured on 31 March 2007. The last day to require conversion of convertibles and exchange of options into new shares was 28 February 2007.
In the first quarter the shares issued in the fourth quarter 2006 as a result of the required conversion of the convertible debenture loan 04/07 were registered as well as the required new subscription of shares supported by options. In this respect a total of 24.414 new series B shares were registered during the period.
During the first quarter 835.006 new series A shares and 42.927.915 new series B shares were issued as a result of the required conversion and new subscription for shares supported by options. These shares were registered subsequent to the close of the quarter.
At the annual general meeting on 21 June 2006 it was unanimously resolved to authorise the Board of Directors to, during the time prior to the AGM 2007, decide to issue a total of 80 million new series B shares.
Investments
The Group’s net investments totalled 2.978 (14.490). Net investments in addition to the acquisition of property amounted to 2.798 (3.828), of which 95 per cent (73 %) refer to investments in intangible assets in the form of capitalised development costs – balanced in accordance with IAS 38 (International Accounting Standards) – and patents.
Organisation
At the close of the period the Group had a total of 48 (45) employees, of which 9 (6) women. Obducat is reinforcing its organisation focusing largely on sales and development.
External Factors
The Company believes that currency and interest fluctuations will continue to have marginal impact on the business in view of order intake. For certain NIL products in the market segment academy/institute the price trend is still down.
Parent Company
No external sales were generated in the Parent Company during the quarter. Income before taxes was – 7.481 (– 5.699). Net investments in the Parent Company totalled 981 (894), comprising mainly patents and development costs carried forward in accordance with IAS 38.
Accounting Principles
Effective 1 January 2005, Obducat reports financial results in compliance with the International Financial Reporting Standards (IFRS) in its consolidated financial statements. The transition to IFRS meant that goodwill write-downs ceased, and this was the only effect of equity.
This report has been prepared in accordance with IAS 34, Segment Accounting. The accounting principles comply with the annual report for 2005. With regard to accounting by segments – which is governed by IAS 14 – the Company has, as previously reported, determined that Obducat’s business is considered to encompass one business segment only, namely systems solutions for the production of advanced micro and nanostructures. Therefore no further reporting according to IAS 14 is submitted, reference is instead made to the income statements and balance sheets for the business segment as the primary segment.
The Obducat share and Ownership Structure
On 31 March 2007 Obducat had 16.833 shareholders. On the same date the total number of shares was 335.925.202, of which 6.205.294 series A shares (each representing ten votes), and the rest series B shares (each representing one vote). On 28 February 2007, as previously foretold, the required but then not registered conversion and new subscription for shares supported by options corresponded to a total of 835.006 new series A shares and 42.927.915 new series B shares, which have been included in the summary below. A total of about 160.3 million series B shares were traded in the quarter, equivalent to an average volume per trading day of a little more than 2.5 million shares.
The most recent ownership structure on 31 March 2005 (including the above-mentioned additional but on the closing day not yet registered A and B shares) was as follows:
(For table, see the attahced file)
Outlook
With its 40 % market share, based on the number commercial NIL machines sold, Obducat has established leadership in NIL. We are furthermore the only player in NIL with a technology employed in mass production. This creates excellent opportunities for maintaining a market-leading position.
The Sindre™ mass production system is based on two key technologies, IPS™ (Intermediate Polymer Stamp) and STU™ (Simultaneous Thermal and UV), featuring a unique reproduction capacity. With the world launch of Sindre™ the basis for accomplishing full-scale industrialisation of Obducat and its technologies has been supplemented.
Based on various market surveys and forecasted volumes for various component types, Obducat estimates that the total market potential for the Company’s products within its focused areas of application is likely to total approximately one billion Euro over the next five years
In view of Canon MJ’s assessment of the market potential for Obducat’s products on the Japanese market, Obducat has focused on industrial customers and projects of late in order to meet the expected commercial progress.
Future reports, etc.
Annual Report May
Annual General Meeting 20 June, at 13.00 hrs
Interim Report 2 (January – June 2007) 3 August
Interim Report 3 (January – September 2007) 26 October
Year-end Report (January – December 2007) 15 February 2008
Malmö, 27 April 2007
The Board of Directors of Obducat AB (publ)
Corporate Identity Number 556378-5632
On behalf of the Board of Directors
Patrik Lundström
Chief Executive Officer
For further information please contact:
Patrik Lundström, CEO, + 46 40 36 21 00 or 703 27 37 38
Henri Bergstrand, Chairman of the Board, + 46 40 36 21 00 or 708 88 72 45
This interim report has not been subject to review by the Obducat’s authorised public accountant
(For the complete report, please see the attached file)