| Year-end Report Obducat AB (publ) January – December 2003 • Sales improved by 57 per cent to SEK 38,3 million • Gross margin grew to 48 per cent (42) • Profit before tax improved by SEK 6,0 million to SEK –31,9 million, despite increased depreciation and write-down of SEK 9,4 million • Earnings per share before deferred dilution was SEK –0,18 (-0,27) • Sharp increase in number of quotations comprising several new application areas • The semiconductor industry announces delayed evaluation process regarding NIL • A directed new share issue in January 2004 contributed SEK 13,2 million and a SEK 6 million subscription pledge in the forthcoming issue of subordinated debentures Sales (All amounts in SEK 000 unless otherwise stated) Sales for the year amounted to 38,268 (2002: 24,310). Deliberate efforts to streamline production during the year have resulted in gradually reduced lead times. Owing to this, the order backlog at the end of the third quarter could to a high degree be executed before the end of the year, resulting in a closing balance for order backlog 2003 of approx. SEK 0,6 million. At the end of January 2004 the backlog had increased to slightly more than SEK 4,0 million. Throughout the year, the gross margin has continued to remain well above previous year’s level and was 48 per cent (42) for the full year 2003. As the Company disclosed earlier in the year, the number of quotations – which is regarded as a significant indicator of potential future business volumes – continued to increase. This reflects in particular business area NIL in which, in addition to business area EBR*, the key value with respect to quotations lies in larger systems. Ongoing customer projects are pursued with several world-leading players in various trades. All customer projects relating to NIL, Stampers and EBR referred to previously in this connection are continuing, and new ones have been added during the year. These projects are being conducted with customers in areas such as magnetic storage, semiconductors and display technology. During the period Obducat further increased its position as the leading provider of NIL-systems in the market segment universities and research institutes, including several shipments to Asia as well as the US.Research and Development Obducat is pursuing extensive research and development work, mostly in close co-operation with customers. In this respect the NIL segment is prioritised, having during the year been enhanced with several new and valuable system functionalities. The research and development efforts are considered to have reinforced and strengthened the Obducat’s position and the Company maintains that it today has a technological advantage over its competitors in NIL. The result of this work is continuously evaluated from a patent point of view and when commercial grounds are considered feasible, a patent application is filed. A the end of the reporting period 23 patens covering inventions had been approved and patent applications covering a further 12 inventions had been submitted. In this connection NIL is both predominant and intentionally prioritised. Research and development expenses totalling 15,254 (13,430) were charged to the result for the year, in addition to which 6,406 (7,892) was activated as capitalised development expenditure and patents. Sales and result Group sales for the year amounted to 38,268 (24,310), generating a gross profit of 18,229 (10,157) corresponding to a gross margin of 48 per cent (42). Depreciation according to plan of 12,338 (5,103) was charged to the operating loss. The increase is explained by the depreciation plans in respect of all intangible fixed assets adopted as from the end of 2002. Total expenses for Market & Sales, R&D and Administration in 2003 – excluding the depreciation mentioned – were 14 per cent lower than for the corresponding period the previous year, reflecting above all improved cost control. In addition to the above-mentioned depreciation according to plan, a write-down totalling 2,128 in respect of a patent related to a non-prioritised business area was effected in the fourth quarter. Operating loss for the period amounted to –29,640 (–33,196). Loss after taxes amounted to –31,914 (–36,610). The result for the previous year was adjusted in so far as depreciation (–5,103) was redistributed in a more true and fair way to the three operating functions Market & Sales, R&D and Administration. In short this adjustment implies that R&D bears a significantly larger share and Administration a significantly smaller share of the depreciations, mirroring to a greater degree in which functions the fixed assets were utilised. With this adjustment full comparison between the result for 2003 and last year’s result is achieved. Cleared for the effects of the higher depreciation rate in 2003 and the above-mentioned write-down of patent, the result for the period improved by 14,059 compared with last year. Increased sales with better margins, in combination with decreased costs and noticeably reduced interest expenses, have managed to compensate for considerably increased depreciation according to plan.Financing and Liquidity At the end of 2003, shareholders’ equity amounted to 50,219 compared with 14,747 at the beginning of the year. Early in the year a preferential rights issue for cash was implemented, which contributed 39,819 to the Company, after deduction of issue expenses. In addition to this, and subsequent to a resolution at the extraordinary general meeting in March 2003, a temporary offer was directed at the holders of the Company’s convertible debentures 2001/2004, offering the said holders the opportunity, during a period of two weeks at the end of March, to convert the debentures to shares on more favourable terms. The offer resulted in the nominal value of the subordinated debentures being reduced from SEK 46,6 million to SEK 17,8 million when approx. 19,2 million new series B shares were issued. The debenture loan matures in May 2004, bearing a nominal interest at 5 per cent. Equity/assets ratio at the end of the year was 59 per cent, compared to 17 per cent on December 31, 2002. The Annual General Meeting in May 2003 passed a resolution regarding an employee incentive program in the Group’s Swedish company. Employees have been offered to acquire warrants on market conditions. At the close of 2003, 1,155,000 such warrants had been acquired by employees, generating proceeds totalling 354, carried directly to restricted equity. Said warrants mature on June 15, 2006 each of which give entitlement to subscribe for one new series B share during the period commencing June 15, 2004 up to and including June 15, 2006 at a price of SEK 1,57. The maximum number of new shares within the scope of this program is 2,362,500, implying a deferred dilution of capital of approx 1,3 per cent and not more than 1 per cent of the voting rights (based on the existing number of shares at the close of 2003). At the end of the year liquid assets amounted to 6,807 compared with 232 at year-end 2002. Cash flow for the period was 6,575 (-1,475) primarily reflecting – in addition to the reported result and effects of financing activities during the year – increased tied-up capital as well as significant investments mainly in intangible fixed assets. Investments The Group’s investments over the year were 8,652 (8,752), of which approx. 77 per cent is attributable to development expenses (carried forward in accordance with RR15) and patents. The remainder refers mainly to testing and development equipment in business area NIL. Organisation At the end of the reporting period the Group had a total of 37 staff (of which 4 women), with hours of duty equivalent to 35 full time positions. Obducat had an average of 33 full time staff in 2003. Management was during the year reinforced both in respect of Purchasing & Production and Research & Development. External factors The impact of currency and interest rate fluctuations on Obducat’s operations is estimated to be of little consequence, and the product prices may be regarded as stable. There is, however, a limited currency risk in connection with business deals based on public procurement in USdollars. In situations with a weak dollar, there are limited possibilities to compensate for currency exposure by increasing the prices. The Company is not especially dependent upon or limited by circumstances affecting suppliers. Obducat concludes that the competition has changed very little during the period. Tangible results produced by competitors in NIL – such as shipments – have, to the best of the Company’s knowledge, been limited. It should be noted that Obducat has been able to maintain a higher price level than its competitors, which has contributed to the expanded gross margin. Parent Company No sales were generated in the parent company during the year. Pre-tax loss amounted to –30,202 (–26,153). Net investments totalled 2,417 (2,142), comprising mainly patents. Fourth Quarter (October – December) In accordance with forecasts in the previous interim report, Obducat enjoyed a strong fourth quarter in respect of sales. Consolidated income for the period October - December amounted to 13,798 (5,516). Gross margin was 47 per cent (51) in the fourth quarter. The operating loss was –7,017 (–10,399) and includes –2,218 (–) write-down of patent. The loss after taxes amounted to –7,511 (–11,460). Costs excluding depreciations have remained at a significantly lower level than in the corresponding period 2002, amounting to 7,789 (10,747). During the quarter, net investments were 2,907 (3,290), clearly emphasising intangible fixed assets. Accounting Principles 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 2002. With regard to accounting the convertible debenture loan 2001/2004, relevant parts of RR27 have been adopted, replacing the previously adopted RR3. No substantial alterations have been made as a result of this. Regarding accounting by segments – governed by RR25 – which the Company so far by choice has adopted in its reports during 2003, the Company has as from this report defined 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 in this report give no further information relating to RR25, referring instead to the profit and loss statement and balance sheet for the primary segment. Other significant events In view of the new status as official stock exchange achieved by NGM in April, the Board of Directors in May decided to discontinue the then almost completed process aimed at getting the Company’s share listed on the O list of the Stockholm Stock Exchange. Following this decision, Obducat’s series B share continues to be listed on NGM Equity. |
