Financial risk management

Finance policy
The Board has established a finance policy providing a framework for the Group’s financial risks. The objective of risk management is to identify, quantify, and reduce or, if possible, eliminate risks. Obducat’s finance policy describes how different types of risks shall be managed and defines the risk exposure when conducting business and that it is consistent with overall financial goals. The emphasis is on seeking the lowest possible risk profile.

Financing and liquidity risks
Obducat AB (Parent Company) has overall responsibility for the finance matters of the Group. Centralisation and coordination enable scale advantages with regard to conditions for financial transactions and financing. Currently there is a central account in Sweden only, which is managed by the Parent Company.

Investments must only be made in instruments with a low credit risk and high liquidity, i.e. secure investments which can be converted promptly into liquid assets. In accordance with the finance policy, Obducat shall maintain a satisfactory liquid reserve. It shall consist of liquid assets, national debt bills or other convertible instruments of equal instrument. The Company always runs the risk of not having sufficient funds to continue developing its business.

According to the finance policy, the liquid reserve shall cover the Group’s liquidity requirements for a minimum period of twelve months (going concern). It is incumbent upon the Company to ensure that at all times this liquidity reserve is available, and therefore plan and take the necessary steps to maintain the liquidity reserve.
 

Foreign exchange risks and flow exposure
With regard to Obducat’s NIL income, the invoice value is normally – irrespective of the invoicing currency – related to a previously agreed relation between the invoice value and SEK with the customer. The currency risk is thus significantly reduced. At the present time Obducat’s income is derived from sales of Scanning Electron Microscopes through the UK subsidiary Obducat CamScan Ltd. Such sales are normally invoiced in GBP. Since the company has a local organisation incurring cost in GBP and in view of the fact that Obducat CamScan’s result after tax until now has been modest, these cash flows are not hedged. Increased currency flows as a result of increased sales will be hedged through the traditional facilities, mainly forward exchange agreements, offered by the banking system.
 

Credit risks
Current receivables are reported in the balance sheets after reduction for provisions for feared credit losses. Obducat has during the past few years had virtually no credit losses due to the principal customer base consisting of major companies/institutions with pre-reserved funds to pay for equipment ordered from Obducat. Obducat has no credit insurance contracts, instead demanding clients, if possible, to make payments through confirmed letters of credit in order to secure the payments.

Interest-rate exposure
The risk of interest-rate exposure refers to the risk that the expected cash flows and face value of financial instruments vary through changes in market rates. At the close of 2009 there was a convertible debenture loan 08/11 that constitutes the greater part of the Group’s interest-bearing liabilities. The convertible debenture loan bears a fixed interest rate and there is consequently no currency exposure. 

Operational risk management

Market risks
Obducat’s market is characterised by fast development. Novel products may threaten Obducat’s current products in spite of the fact that today a lot points to a big potential for Obducat’s technologies and products. New technologies, products and players also result in increased competition, which in turn may lead to falling prices in the future. Obducat believes it has every chance of continuing to develop its business, technologically as well as commercially. It can however not be ruled out that Obducat’s development work could meet with problems that would delay the time schedule, or that the products and services might not meet market requirements and/or might not gain general market acceptance.

Competition risks
Some of Obducat’s current competitors are major international players with strong financial resources. There is a risk that these competitors may be quicker than Obducat to react on new demands for technology and new market needs, while at the same time earmarking significantly bigger resources. According to our own analyses, Obducat faces two types of competition: directly competing technologies and competition in Obducat’s technology sphere. Within the technology sphere, there are those working with “full area imprint” and those working with “step and repeat”. “Full area imprint” means that the entire surface is replicated in one process step whereas “step and repeat” means that a small area is replicated in many small steps. In certain application areas Obducat competes with both types and in others with “full area imprint” only. As for other competing technologies, they depend on the application area in question. In the manufacture of semiconductors, proof of the competition is either further development of optical lithography using shortwave UV light, DUV (Deep Ultra Violet) or “X-ray” based technology, EUV (Extreme Ultra Violet). Nanoimprint technology is a cost-effective alternative to EUV or DUV. In certain application areas, Obducat competes with the previous UV lithography technology. In the competition with traditional UV lithography, Obducat is of the opinion that, owing to the nanostructure quality, the Company possesses performance advantages, which is a competition advantage in certain application areas.

Risk of refund claims
The risk of refund claims refers to costs of correcting various defects arising in the products delivered by Obducat. Obducat’s products are normally warranted for 12 months from the day the acceptance certificate is signed. For each piece of equipment sold, provisions are made for warranty. Actual warranty costs have for the last few years been lower than the corresponding provisions.

Risks related to legal disputes
This risk pertains to any costs incurred in connection with pursuing litigations and to costs directly connected with the legal dispute. Neither Obducat nor other Group companies are currently engaged in disputes, legal proceedings or arbitration matters, nor has the Board of Directors knowledge of anything that could give rise to claims for damages or future legal proceedings.

Environmental risks
Obducat’s operations are subject to authorisation by the Swedish Environmental Protection Agency. The classification – probation level C, “plant for chemical or electrolytic surface treatment of metal and plastic” – means that Obducat comes under the supervision of the Borough of Malmö’s Environmental Committee.

Risks related to insurances
The Parent Company carries insurance against property losses, business interruptions, transports, third party and products, and legal protection provided by Zürich. There is liability insurance for the CEO and other Board members provided by Hiscox, and a business travel insurance provided by Europeiska Försäkringar. The subsidiaries carry similar insurance covers. The Board is of the opinion that the Group’s insurance cover is adequate.

Risks related to intellectual property
Obducat’s strategy is to treat intellectual property, such as patent applications and patents, in a way that makes it more difficult for competitors to monitor and thus gain insight into the Company’s research and development activities. With regard to intellectual property rights, the Company aim is, on the one hand to protect its ideas, products and processes through robust patents and insurance cover, and on the other hand create more economic value by license sales for instance.

Risks related to agreements
Obducat judges that no potentially critical deals for the business have been signed neither with sub-contractors supplying components and/or services for the Company’s products, nor in respect of sales and/or distribution rights. Obducat has entered into a number of agreements in connection with pilot tests and development of the Company’s technologies. The Company judges that neither of these agreements – whether they be completed or in any other way terminated – would result in any serious consequences for the Company’s future opportunities.