BEYOND KEYS AND PINS
Annual Report 2013 0 FPC ANNUAL REPORT 2013
FPC IN 30 SECONDS Fingerprint Cards AB (FPC) is a listed high-tech company that develops, produces and markets fingerprint sensors and software that through the analysis and matching of an individual’s unique fingerprint verify the person’s identity. FPC’s technology offers unique image quality, extreme robustness, low power consumption and complete biometric systems. In combination with extremely low manufacturing costs, this allows for the technology to be implemented in volume products such as mobile phones, tablet devices and remote controls, where extremely rigorous demands are placed on such characteristics. The technology has been tested thoroughly in several fields of application.
Contents
The year in brief...... 2 Parent Company income statement...... 37 Taking off...... 4 Parent Company statement Letter from the CEO...... 6 of comprehensive income...... 37 Business concept, objectives Parent Company balance sheet...... 37 and strategies...... 8 Parent Company statement of The ecosystem...... 10 changes in shareholders’ equity, ...... 38 Market...... 14 Parent Company statement of cash flows...38 Business...... 18 Notes to the financial statements...... 39 Business model...... 20 Assurance by the Board...... 56 Organization...... 22 Auditor’s report...... 57 The share...... 24 Ten-year overview...... 58 Administration report...... 27 Corporate governance report...... 60 Consolidated statement of Message from the Chairman...... 65 comprehensive income...... 34 Board of Directors...... 66 Consolidated statement of Executive Management Group...... 67 financial position...... 35 Shareholder information...... 68 Statement of changes in Glossary and definitions...... 69 shareholders’ equity...... 36 Consolidated statement of cash flows...... 36
2 Beyond keys and pins FPC ANNUAL REPORT 2013
FULL-YEAR 2013
Sales SEK 95.4 M (10.3)
Gross profit SEK 39.1 M (loss: 5.7)
Loss after financial items SEK 33.0 M (loss: 38.2)
Gross margin 41% (neg: 55)
Adjusted gross margin* 56% (66)
Loss per share SEK 0.60 (loss: 0.84)
Closing cash and cash equivalents 2013 FPC1020 introduced SEK 211.7 M (60.6) The world’s first touch fingerprint sensor for Android™ and Windows™ Order backlog at period-end SEK 22.8 M (19.7)
*See page 69 for a definition.
Beyond keys and pins 1 FPC ANNUAL REPORT 2013
THE YEAR IN BRIEF
Design Wins Design Wins DDDW for FPC 1080A for tablets from a prominent Chinese house of design. DDDW for four new mobile phones and one tablet from an existing, DDDW for mobile phones in a strategically important second market in Asia. well-known customer in Asia. DDDW in China for mobile phone and tablet accessories. DDSmartphone DW from one of China’s three largest manufacturers. DDFPC1080A selected by the Chinese manufacturer behind a well-known DDFlagship model DW from a global Top 10 manufacturer. European brand. DDDW from a Chinese Tier 2 smartphone brand. DDA world-leading provider of financial information selected FPC for its DDSmartphone DW from a Chinese Top 10 manufacturer. authentication solutions.
Orders Orders 100,000 800,000 SEK 20 M 100,000 275,000 455,000
Smartphone Smartphone and Order for Orders for Smartphone Smartphone sensors, tablet sensors area sensors, Swipe sensor, sensors, sensors, CrucialTec China Japan Japan Asia
DDOffice opened in Japan and Senior Technical Manager DDFPC joined Global Platform. appointed. DDFPC appointed a System and Software Development 1 DDOffice opened in Seoul, South Korea, and Senior Sales 2 Manager. 3 Executive appointed. DDPiper Jaffray appointed financial advisor. DDOperating lines of credit granted by Nordea and EKN. DDFPC appointed a Customer Support Director in the US. DDJonas Andersson appointed Business Development Director in secure mobile transactions. DDExtraordinary General Meeting held and resolution concerning incentive program passed. DDFPC redeemed 430,892 warrants in exchange for new Class B shares and raised SEK 6.8 M. DDInvestment agreement concluded with Carnegie regarding the new issue of Class B shares. DDPrivate placement of Class B shares raises SEK 95 M.
Products launched 2
using FPC’s technology FPC and Microsoft showcased the touch sensor for Windows 8.1 at TechEd 2013.
2 Beyond keys and pins THE YEAR IN BRIEF FPC ANNUAL REPORT 2013
Design Wins Design Wins DDDW from a major Tier 2 OEM in China. DDThree smartphone DWs from a major Asian OEM. DDSmartphone DW from an existing OEM customer in Asia, in DDFlagship model DW with a sales target of ten million devices partnership with a leading US operator. from one of the world’s largest mobile-phone manufacturers. DDDWs for three new smartphones from an existing prominent DDFirst DW for a Tier 1 flagship smartphone with a 1020 touch customer in Asia. sensor. DDDW for smartphones and tablets from an existing Tier 2 customer in Asia.
Orders Orders SEK 24 M 3,000,000 1,000,000 SEK 11 M
Order for Smartphone Smartphone Touch sensor, area sensor, sensors, sensors, China China Asia Asia
DDFPC announced that Mats Svensson was moving on to DDFPC recruited Jonas Spannel as Vice President of new assignments. Sourcing and Supply. 3 DDOffice opened in Malmö. 4 DDOffice opened and operations started in Copenhagen, DDFPC recruited a Customer Support Director for Asia, a Denmark. Country Manager for Japan and Jan Johannesson as DDCision distributed false press release regarding FPC. Vice President of Strategic Planning and Portfolio DDFPC implemented private placement of SEK 120 M. Management. DDFPC’s share moved to the Mid Cap list on NASDAQ OMX. DDPrecise Biometrics’ fingerprint algorithm selected as one of several algorithms in the company’s portfolio. DDAcquisition of some 100 patents from a world-leading patent owner. Notable events after year-end Products launched using FPC’s DDNiklas Strid appointed Vice technology after year-end President of Customer Projects. DDGionee Tier 1 smartphone in DDPrivate placement of 2,500,000 China. Class B shares totaling SEK 138 M. DDVivo smartphone in China. DDChinese bank order of SEK 30 M for area sensor. DDOrder of SEK 4 M for flagship smartphone with touch sensor.
3 4
Smartphone with FingerQ product with Smartphone from Smartphones from Three phablets from Four smartphones Business mobile FPC1080A fingerprint FPC’s 1080A sensor Pantech in South Korea. Pantech. Pantech. and two tablets from phone co-developed by sensor by Konka in from WWTT. Fujitsu. DOCOMO and Fujitsu. China.
Biometric smartcard Biometric contactless Login with a FPC Smartmetric launches with embedded card with FPC touch fingerprint sensor at the “One Card Digital fingerprint sensor sensor from Zwipe. Bloomberg. Wallet,” protected and processor from with biometrics using UINT and Mereal FPC’s swipe sensor. Biometrics.
Beyond keys and pins 3 FPC ANNUAL REPORT 2013 FÖRVALTNINGSBERÄTTELSE Taking off
39 21 Design Wins* Launched *from January 2013-April 2014 products
4 Beyond keys and pins TAKING OFF FPC ANNUAL REPORT 2013
Clear addressable market Major breakthrough for fingerprint biometrics
The fingerprint sensor is established in the mobile market, a market with significant growth and potential
The fingerprint technology ecosystem is founded. Several players are working together to develop an industry standard for identification using fingerprint biometrics Payment services are already here – but authentication 21 techniques are required Launched products Pole position FPC is one of few players with a cutting-edge technology platform and a strong, growing product portfolio
The majority of DWs awarded and products in launched mobile phones
Strong patent portfolio that creates significant barriers to entry
Management and capital Strong financial position with adequate working capital for continued expansion and capacity building
Strong management team with significant operating experience in mass applications for the mobile market
Beyond keys and pins 5 FPC ANNUAL REPORT 2013
THE ACTION IS HAPPENING NOW
2013 was the year that FPC transitioned from a developer to a marketing company, with deployment of fingerprint technology for mobile phones and tablets now sold in the market. The next stage is to move from a marketing company to a mass-marketing company and industrial player.
Notable events major market opening due to Micro- Well-capitalized The expected dramatic market growth soft’s efforts to integrate biometrics A scale-up of our operations will be will be driven by several factors and – and specifically, touch sensors – in critical and capital-intensive. It is highly notable events. The introduction Windows 8.1 and on Windows-based therefore gratifying to note that new of fingerprint sensors in flagship devices devices, both now and in the future. share issues of SEK 258 M (before issue from Apple and Samsung has triggered expenses) indicate continued investor other mobile-phone manufacturers. Several independent parties predict confidence, and mean that the company More parties are joining the fingerprint favorable market conditions is well-capitalized and can continue the technology ecosystem. Most notable are Our market outlook remains highly ongoing expansion to meet demand for PayPal, which is introducing a payment favorable, and analyses by several lead- our products and build the capacity that system based on fingerprint identifica- ing research houses are now in line with is required by a global provider. tion, and Microsoft, which has embedded our own market forecasts. A number of features in Windows 8.1 that support our independent trend and market assess- Strengthened resources technology. ments also indicate the imminent mass We have significantly strengthened our introduction. These include a broad- development organization to acceler- Adapted ecosystem based survey by Ericsson, which claims ate the pace of product development, We are bringing together an entire that biometric smartphones will become strengthened our purchasing and ecosystem for the integrated fingerprint mainstream by 2014, and Gartner, which production organization in order to sensor and playing an active role in says that one-third of all companies and deliver large volumes and strengthened several projects to make this possible. organizations will be using mobile biom- our marketing and sales organization These include the FIDO Alliance (Fast etrics to protect their information. to meet obviously growing interest IDentity Online) with both major market and demand, as well as strengthening leaders and umbrella organizations. This Strong DW merits our internal financial organization and led to a collaboration with Nok Nok Labs We can personally confirm the entrance administration. We have also expanded and the introduction of a broad infra- of the fingerprint sensor in the mobile geographically by opening new offices in structure solution for strong online industry, where we have won most DWs Malmö and Copenhagen, as well as new authentication using integrated fingerprint and, at the time of writing, our sensors offices and new recruitments in Asia sensors on mobile phones and tablets. are now used in 21 of 24 mobile phones and North America, where we know that We have also announced our partner- launched worldwide (including Apple). close relationships are key to success. ship with Microsoft, where we see a
6 Beyond keys and pins LETTER FROM THE CEO FPC ANNUAL REPORT 2013
The touch sensor – a new product family At the end of the year, we introduced a new touch sensor product family, within which the FPC 1020 model was the first prod- uct to be launched. The product received almost immediate confirmation with a flagship model Design Win from one of the five major smartphone manufacturers in the world and an order of SEK 11 M from China, which is clear proof that our latest product offering is off to a flying start. On April 25, we also launched the sequel, FPC 1021, which is about 30% smaller and adapted for integration with a wide range of mobile devices.
A warm welcome to our new shareholders In 2013, the number of sharehold- ers rose from 9,000 to 14,000 with several additional institutional investors and new private inves- tors who believe in our business. I would like to welcome all of our new shareholders, and to thank all of our existing shareholders for your continued confidence.
Taking a firm position We are now working hard to strengthen our position in a market with obvious potential. The conditions will soon be in place – a larger organization, a broader product portfolio and the ability to deliver. Those of us in the FPC team believe firmly in our business and are looking forward to creating added-value for our customers, partners and shareholders.
Johan Carlström, President and CEO
Beyond keys and pins 7 FPC ANNUAL REPORT 2013
BUSINESS CONCEPT, OBJECTIVES AND STRATEGIES
Vision Future prospects Patent strategy FPC will be the leading supplier of In 2014, sales are expected to exceed SEK FPC pursues an active patent strategy components and systems for fingerprint 500 M and the EBITDA margin to exceed by continually registering new patents verification. 20%. Sales are expected to rise sharply and monitoring the market closely to and sequentially throughout the year, and evaluate new opportunities for patents Mission most income is expected to be generated and to identify potential infringements of Beyond keys and PIN codes – FPC makes during the second half of the year. the company’s existing patents. life easier through secure identity verification. Dividend policy Production strategy The company’s cash flow in coming years FPC’s production takes place in close Business concept will be used to finance continued expan- cooperation with selected subsuppliers. FPC develops and sells leading biometric sion. This means that the Board of FPC Production-critical elements of the products and solutions to companies does not intend to propose a dividend for manufacturing process may be conducted that develop systems for security and the coming year. The Board of Directors using tools owned by FPC but operated convenience. will examine the established dividend by the subsupplier. All manufacturing policy annually. is to be conducted in accordance with Business objectives forecasts based on information received FPC is to have a 60% market share by Strategies from customers and distributors. 2014, and a 50% market share by 2015, Product strategy for touch sensors embedded in smart- FPC aims to be a supplier of components Market and sales strategy phones and tablets (excluding Apple). and systems for fingerprint verification. The marketing of fingerprint sensors FPC is to develop and market compo- is to focus on the product developers/ nents in three product categories: touch, system integrators of smartphones and area and swipe sensors. other portable applications such as tablets, USB keys and smartcards. FPC will be the Development strategy Sales to producers are to take place in leading supplier of FPC conducts proprietary development of close collaboration with distributors. FPC is the main components in the fingerprint to be actively involved in the sales process. components and sensor, silicon solution and software for Prior to sensor launches, the company recognition and communication. will actively participate in development systems for fingerprint System customizations, such as projects in partnership with mobile-phone implementation in a smartphone, take manufacturers and subsystem suppliers. verification. place in close collaboration with Geographically, marketing strategies will customers and other system providers. focus on Asia – primarily China, Taiwan, South Korea, Singapore and Japan – as well as the US and Europe.
8 Beyond keys and pins FÖRVALTNINGSBERÄTTELSE FPC ANNUAL REPORT 2013
FPC’s vision for the mobile segment BUSINESS CONCEPT, My phone knows me OBJECTIVES AND The company’s motto “Beyond keys and pins” becomes more convenience- oriented with “My phone knows me.” The combination of strong security and STRATEGIES user-friendliness is making mobile phones even more convenient.
Unlock and personalize Mobile commerce and your car Internet banking
Personalize your home Access to healthcare theater system
Check alarms and other Internet access connected surveillance systems
Unlock your PC Purchase tickets
Beyond keys and pins 9 FPC ANNUAL REPORT 2013
ECOSYSTEM A PREREQUISITE FOR FULL IMPACT A comprehensive view of the entire ecosystem is vital for optimizing the functionality of FPC’s products – fingerprint sensors (for both hardware and software). This is a highly expansive industry, with many stakeholders who are investing in technology and services related to fingerprint technology.
This is a highly expansive industry, with FIDO – for a universal Collaboration between FPC and Nok many stakeholders who are investing industry standard Nok Labs in technology and services related to FPC is a member of the FIDO Alliance Within the framework of the FIDO alliance, fingerprint technology. (Fast IDentity Online), a non-profit organ- FPC and Nok Nok Labs have collaborated Efforts to accelerate the commercial- ization with a mission to develop an open to develop an infrastructure solution for ization of FPC’s products are ongoing, and universal industry standard that strong online authentication for smart- with resources devoted to consulting and reduces the reliance on passwords to phone and tablet suppliers, who thus partnering with various ecosystem play- authenticate users, called the Universal acquire opportunities to rapidly integrate ers. These efforts take various forms – Authentication Framework (UAF) pro- FPC’s swipe and touch-based fingerprint through direct development partnerships tocol. Software that supports UAF and sensors that are also being prepared for with FPC’s customers, through FIDO satisfies FIDO requirements is conferred strong online authentication. and Global Platform networks and in the right to use the FIDO Ready™ mark. direct contact with other players in FPC’s FIDO was founded in 2012 and Board ecosystem. In addition to purely technical members include the Head of Ecosystem partnerships, we also engage in dialog to Security at PayPal, the Product Manage- Global Platform – for more reliable demonstrate the joint business benefits. ment Director of Information Security at information management The success of fingerprint sensors Google, the Director of Software Devel- Global Platform is another non-profit and depends on all parts of the ecosystem opment at Lenovo, the SVP of Customer industry-driven association that defines being integrated. All players are also Protection Strategy Digital Banking at international standards for verification stakeholders who increase their busi- Bank of America, the Technical Direc- devices – such as smartphones, smart ness value through adaption. tor of Identity at BlackBerry, the Senior cards, SIM cards, etc., for secure Business Leader for Enterprise Authenti- transactions. cation Solutions at MasterCard Worldwide FPC has been selected as editor and and representatives from Microsoft. The project manager for the fingerprint sen- President is Michael Barrett from Nok sor’s security standardization. Nok Labs who, until 2013, was the Chief Board members of Global Platform Information Security Officer at PayPal. include well-known representatives from Mastercard, VISA, ARM and Oracle.
10 Beyond keys and pins THE ECOSYSTEM FPC ANNUAL REPORT 2013
BROAD AFFILIATION Examples of players in the fingerprint sensor ecosystem.
OS – operating systems must support, CPU – Software in processors must be and be adapted to, fingerprint sensor adapted and support the use of a technology. fingerprint sensor.
FPC engages in ongoing collaborations FPC has ongoing partnerships. and knowledge-transfers. Windows 8.1 supports FPC’s technology.
OS CPU FIDO client – (Fast IDentity Online) The chip – Microprocessors that members of FIDO are defining an open support, and are adapted to, the industry standard for secure online functionality required for fingerprint transactions. sensor technology. Chipset FIDO client FPC is a member of the FIDO network, FPC engages in ongoing collaborations through which key partnerships and and knowledge-transfers. information exchanges take place. Comp- OEM onent Service Provider
Component – component manufactur- OEM – Hardware producers of ers offer products/subcomponents smartphones and tablets in which developed for the fingerprint sensor FPC’s sensors can potentially be technology. integrated. BLOOMBERG Collaborations take place with a FPC has ongoing customer-specific number of component manufacturers. Service provider – service providers development projects. promote further use of fingerprint sensor functionality.
FPC engages in ongoing collaborations and knowledge-transfers.
“ The success of fingerprint sensors depends on all parts of the ecosystem being integrated. All players are also stakeholders who increase their business value through adaption.”
Beyond keys and pins 11 FPC ANNUAL REPORT 2013 THE ECOSYSTEM
ESTABLISHED FUNCTIONS
Watch the video: www.youtube.com/watch?v=moeXREa9Jbs PayPal Wallet
PayPal has developed an implementation that enables purchasing via mobile phones, where the buyer uses fingerprint authentication to make a payment. The buyer has a PayPal account and the software on their mobile phone communicates between the fingerprint sensor on their device and PayPal’s service in the cloud. Using FIDO Ready™ software, Samsung Galaxy S5 is the first mobile phone in the market that enables users to shop with only their fingerprint. FPC’s touch sensors are also adapted for FIDO Ready™ software.
Windows 8.1 supports fingerprints
The Windows 8.1 operating system includes a fingerprint registration application, thereby removing the need for a hardware manufacturer to provide such a feature. The application is integrated with the account settings. In Window’s presentation of this new feature, it has been demonstrated using FPC’s sensors. In Windows 8.1, fingerprint authentication is used for signing in on the PC, purchasing from the Windows Store and from third parties.
12 Beyond keys and pins THE ECOSYSTEM FPC ANNUAL REPORT 2013
“Your fingerprint is only registered once and the data is stored securely.”
Beyond keys and pins 13 FPC ANNUAL REPORT 2013
MASS MARKET FOR FINGERPRINT IDENTIFI- CATION HAS STARTED FPC considers the introduction of the Apple iPhone 5S and Samsung Galaxy S5 with fingerprint sensors as the definitive start of a mass market for mobile fingerprint sensors. This view is also confirmed in FPC’s ongoing dialog with the majority of mobile industry OEMs, which have shown a strong interest in the technology.
A global mass market Several independent trend reports support this view of a mass market: Mobile biometrics, meaning smart- phones with embedded fingerprint Ericsson: Biometric smartphones will dominate technology, is one of fastest growing According to a consumer market survey at the end of 2013, which attracted 100,000 segments, in terms of sales, in the responses, Ericsson claims that consumers expect biometric smartphones to be consumer market. mainstream by 2014. In the same survey, more than 60% of respondents say they accept FPC’s own assessment is that the mar- fingerprint verification. ket will grow sharply, and for swipe sensors initially. However, based on the company’s 57.6% in Q4, 2013 619 million by 2015 continuous contact with customers and With a share of 57.6%, sales of smartphones According to Goode Intelligence, partners, the touch sensor is expected surpassed traditional mobile phones in the the number of mobile phone-based to account for a major proportion of this fourth quarter of 2013 and this increase is biometrics users is expected to be growth until the end of 2016. The growth expected to continue. 619 million by the end of 2015. is mainly due to the belief that the touch sensor will be the most common type of sensor in the largest by-far volume market 1/3 by 2016 157% of smartphones, but also for tablets. The Gartner estimates that close to TechNavio’s newsletter, Fierce area sensor, which is physically larger, will one-third of all organizations/ IT Security, forecasts a 157% only be applied in separate devices in the companies will use mobile biometrics annual growth rate for mobile future and not in mobile devices such as by 2016. biometrics until 2018. smartphones or tablets.
14 Beyond keys and pins FÖRVALTNINGSBERÄTTELSE FPC ANNUAL REPORT 2013
MAJOR MARKET POTENTIAL
Smartphones with embedded fingerprint technology is one of the fastest growing segments, in terms of sales, in the consumer market. The total market value of FPC’s addressable market for mobile devices is estimated at USD 1.4 billion in 2014 and USD 4.8 billion by 2016.
USD M USD M 5 000 5 000
4 000 4 000
3 000 3 000
2 000 2 000
1 000 1 000
0 0 2013 2014 2015 2016 2013 2014 2015 2016
Area Touch Swipe PC, Banks Tablets Smartphone
Source: FPC’s estimate based on its own contact with customers and partners, and market data.
Beyond keys and pins 15 FPC ANNUAL REPORT 2013 FÖRVALTNINGSBERÄTTELSE “ The acceptance of fingerprint technology is driven by three main trends – mobility, security and convenience.”
Multibillion-dollar market A/S, has attracted venture capital but not product market players. Smartphones The company expects the total market launched any finished products to date. are increasingly replacing everyday value of FPC’s addressable market for FBC firmly believes that the startup items such as keys, watches, calendars, mobile devices to be approximately USD threshold is higher for newcomers than wallets, credit cards, remote controls, 1.4 billion in 2014 and approximately for FPC, which has a strong product and cameras, music players, and so forth. USD 4.8 billion by 2016. For touch sen- IP portfolio. sors, FPC’s primary market focus, the Security estimated market value is approximately Driving forces The growing online presence of users, USD 800 M in 2014 and approximately Market demand and user acceptance of increased use of cloud services and USD 4,000 M by 2016. fingerprint technology is driven by three services that require integrity and security main trends: are driving demand for secure communi- High startup threshold reduces cation. The share of Bring Your Own competition Mobility Device (BYOD) – allowing employees to use FPC’s main rival at present is the US com- Mobile penetration is growing rapidly personally owned mobile devices in the pany Synaptics, which acquired fingerprint worldwide. There were 6.4 billion mobile workplace – is also growing. Payments, sensor producer Validity in 2013. Synaptics phone plans in the first quarter of 2013, transfers, transmission of sensitive is listed on NASDAQ and generated annual and this figure is expected to reach about communication, etc., requires strong sales of USD 664 M in 2013. The company 9 billion by 2018. At the same time, WiFi authentication. offers a range of touchscreen solutions networks are expanding, which is result- and has a dedicated portfolio of swipe sen- ing in increased Internet access and thus Convenience sors which has been successful in the PC online communication and services. This The growing need for strong authenti- market, since laptops allow components is increasingly leading to users having cation with less reliance on passwords with higher power consumption and that more than one mobile device – both a and PIN codes is another driving factor. require more space. smartphone and a tablet, for example. Meanwhile, a single device with an However, a rapidly growing mass In turn, more accessible communica- extended range of features and services market is expected to attract more tion and a multifunctional smartphone is highly convenient – a smartphone in players. One Norwegian company, Idex drive the Internet presence of service and particular, but also game controllers and remote controls, for example.
100% in China 21 of 22 launched products Geographically, FPC had a market In March 2014, FPC’s technology was used share of 100% in China at the time in a total of 21 of 23 launched smartphones this report was written, meaning DWs and tablets with embedded fingerprint and launched products from Chinese technology (see the presentation of smartphone and tablet OEMs. launched products on page 2).
16 Beyond keys and pins FÖRVALTNINGSBERÄTTELSE FPC ANNUAL REPORT 2013
Historic comparison Fingerprint technology is a natural development
The potential of fingerprint technology can be anticipated by seeing it from a wider perspective. History is lined with structural changes in technology that could not be foreseen and could not observed until they had started. The demise of the Swedish company Facit, due to the introduction of Facit Electronic calculator electronic calculators, is a typical example. However, similar shifts are also taking place today. In 2007, the introduction of Apple’s smartphone – the iPhone – was almost unforeseen. Even more recent is the arrival of the first tablet just four years ago, when the app industry was still in the startup stage. Today, smartphones, tablets and apps are a part of everyday life and represent a gigantic market. What will the future look like four years from now? Mobile telephone Smartphone FPC is driven by a vision to be the leading supplier of components and systems for fingerprint verification. The need for mobility, security and convenience makes this vision realizable. It is the company’s belief that in a few years, the everyday use of fingerprint technology will be equally as widespread as the historical examples above. My mobile knows me
Codes, credit cards, ID documents and FPC’s fingerprint technology Internet banking
Beyond keys and pins 17 FPC ANNUAL REPORT 2013
Operations BROADER OFFERING FPC is a dedicated niche player that utilizes in-depth expertise in biometrics and market insight to commercialize the company’s products in a global market.
Focus on the critical parts of the Patents – protection of proprietary Customization processing chain technology A Design Win (DW) decision is preced- FPC focuses on the business-critical FPC’s patents cover several of its key ed by an evaluation and a customized parts of the processing chain – develop- competitive advantages: the sensor – the development process – an application ment, production processes, marketing sensor architecture with its real-time pro- development – based on the customer’s and sales. All product development is gramming, the low-noise pixel architec- specifications. conducted in-house. System customiza- ture, the matching algorithm, the swipe FPC’s Customer Projects Depart- tion/application development is sensor’s method for analyzing frames of ment is responsible for the application conducted in-house, in collaboration with the biometric identity and methodology development, in which finished products customers. for the sensor packaging solution. are adapted to customer specifications. Collaboration takes place with the Devel- High technology in microscale Development – the core of FPC’s opment Department, which also receives FPC’s technological uniqueness is based operations important feedback that contributes to on the design of the silicon chip and its FPC’s uniqueness is based on the new product development. software – the algorithm for fingerprint company’s hardware and software recognition. development. Development activities follow Support offices an R&D policy that stipulates how these In order to meet the extensive interest in Unique silicon activities are to be managed and con- FPC’s products, close-to-market technical On top of the silicon chip, there is a ducted, that they are to be market-driven support is essential. FPC therefore has matrix of pixels with excellent image and comply with established development service offices in Shanghai in China, Taipei capture capabilities. FPC’s silicon chip plans. The policy also states precautionary in Taiwan, Tokyo in Japan, Seoul in South design is highly sophisticated and totally measures and ensures expertise. Should Korea and in the US. unique. The sensor in FPC’s products is FPC need to secure specialists, this will be capacitive, which means that it not only implemented in close collaboration with Out-sourced production adapted for recognizes the surface of the finger, it experts who have extensive know-how in volume deliveries also reads three-dimensional images their field. The day-to-day activities are FPC collaborates with specialized, certified beneath. This hinders and based on a development model that and well-established subsuppliers in the prevents manipulation with a governs the methodology. production of sensors and processors. FPC one-dimensional fingerprint FPC’s development resources were has well-established contact with suppliers image, for example. significantly strengthened in 2013 in order and structured logistics to maintain to accelerate development and conduct delivery readiness for mass production. … and algorithm multiple development projects in parallel, Software in the form of an thereby enabling the launch of a broader Product breadth – fingerprint algorithm for fingerprint recog- product portfolio. Additionally, the scope of sensors for various applications nition and matching is also a uniqueness customer requirements has expanded and FPC has a unique product breadth with that FPC is currently optimizing through the ability to handle several customization three types of sensors for fingerprint dedication of its development resources. projects simultaneously is essential. recognition: touch, line and area sensors. The three-dimensional fingerprint image Development is conducted in The touch sensor quickly reads part of is sent from the silicon chip to a proces- Gothenburg, Malmö and Copenhagen. a fingerprint when touched. It has been sor controlled by a biometric algorithm for The company developed a new category designed for smartphone and tablet matching and verifying the fingerprint. of sensors during the year – the touch applications, such as the home button or sensor – for mobile phone applications. the underside. Two models in the touch
18 Beyond keys and pins BUSINESS FPC ANNUAL REPORT 2013
sensor family have been launched, the FPC 1020, and a smaller model, the FPC 1021. The company’s development of touch sensors will continue. The swipe sensor senses a fingerprint when the sensor area is swiped. The fingerprint is read as image slices. The current version is sold with the model designation FPC 1080A. THE TOUCH SENSOR The area sensor quickly senses a large works according to the same principles as the area sensor but is portion of the fingerprint (compared smaller and designed for mobile phones and tablets. with the touch sensor) when touched. The sensor is mainly applied in separate reading modules that are connected to a computer. The current version is sold AREA SENSOR with the model designation FPC 1011F3. FPC1011F reads an entire fingerprint when Sensors are delivered in various stages of refinement the user touches the sensor area. Wafers, where the silicon chips are uncut, normally for sales of area sensors. LGA – Land Grid Array, this sensor is BIOMETRIC MODULE ready for application in a mobile, for example, packaged with a grid of con- FPC-AM3 consists of the FPC1011F area tacts on the underside for connection to sensor, which is connected to the FPC2020 the unit’s processor, normally for sales biometric processor. to mobile producers. LGA comes in touch or swipe sensor variants. Biometric module, a device consisting of a sensor connected to a proprietary processor, normally used as a separate SWIPE SENSOR device for ease of application. The module FPC1080A reads a fingerprint when the user comes with the area sensor and the pro- swipes the sensor area. prietary FPC-AM3 processor.
Pilot kit for testing A software development and pilot kit with FPC’s components – a DevKit – is sold WAFERS to facilitate customer evaluations and Uncut silicon chips. opportunities for proprietary production of prototypes/pilot series.
Beyond keys and pins 19 FPC ANNUAL REPORT 2013
BUSINESS MODELS
FPC works with two business models – component sales and project sales. Sales are conducted via distributors and direct sales, primarily to OEMs in the mobile phone industry.
FPC has made a strategic decision to times a year, and also conducts joint while component sales are order-driven. focus on the business-critical areas of customer visits. Project sales entail that FPC raises the development, marketing and sales. Globally, the key markets in FPC’s processing level by customizing a sensor mobile market venture are China, South or its core – the wafer – in partnership Marketing Korea, Taiwan, Japan and North America. with the company that orders the compo- Marketing is primarily aimed at the FPC strengthened its marketing nent and/or software features. product developers/system integrators of organization in the Asian and US markets Sales are conducted directly by FPC or in mobile phone/tablet producers. in 2013. Offices were opened in Japan and collaboration with local distributors. Project Marketing is conducted through South Korea, as well as a regional office sales may also result in Design Wins, various channels. The company’s website in Shanghai, and several key individuals in meaning that the sensor has been custom- is a key channel for complete technical technical support and sales were added. ized for a certain mobile phone model. specifications, and for ordering test kits FPC also conducts sales through FPC discloses orders of significant for evaluation and production testing. joint-venture agreements with other sup- value or that are derived from new key Trade fairs, a source for new contacts, pliers, in which the partner company’s customers and/or markets. are another valuable marketing channel. products include FPC’s sensors. Distributors participate at local fairs, for Adapted for mass production which FPC provides personnel and mar- Two revenue streams FPC is in the midst of an intensive phase keting materials. FPC also participates in FPC’s business model is based on two of development and prospective cus- various trade fairs. revenue streams – components and tomers are showing great interest. In project sales. addition to their technical performance, Increase in direct sales Component sales consist largely of FPC’s components are also designed for Direct sales conducted independently by sensors, but may also comprise sales of rational high-volume production. FPC increased significantly during 2013. only wafers (silicon chips for the area or Unlike production costs, costs of sales, FPC also cooperates with distributors to swipe sensor on a wafer) or FPC’s pro- administration and development repre- expand the company’s customer base. prietary processor. Sales are conducted sent fixed costs. FPC maintains continuous contact with directly by FPC or via distributors. Pro- distributors by meeting them several duction is based on projected volumes,
20 Beyond keys and pins FÖRVALTNINGSBERÄTTELSE FPC ANNUAL REPORT 2013
GOTHENBURG, MALMÖ,
COPENHAGEN, SHANGHAI,
TAIPEI, SEOUL, TOKYO,
MANILA, SAN FRANCISCO
Beyond keys and pins 21 FPC ANNUAL REPORT 2013
LARGER ORGANIZATION TO MEET GROWING DEMAND While FPC’s products, features and quality are highly significant, resources in the form of employees and their expertise, skills, interpersonal skills, values, attitudes and conduct are the real key to FPC’s success.
The characterizing feature of 2013 for Strengthened service and customer FPC’s organization is highly FPC was the large-scale relative expan- project organization specialized sion of the organization – the number In addition to proprietary product The company has specialists in biometrics, of employees increased 300% during development, customized applications electronics, materials science, program- the year, including both employees and is becoming a rapidly growing area as ming, production technology, marketing consultants. At the end of the year, the demand increases. FPC has therefore and sales. The level of education is high, company had 80 employees. This figure strengthened its service and customer with a large proportion of engineering rose to 93 at the end of the first quarter project organization in Sweden as well as graduates, of whom nearly 30% employed of 2014 and the company plans to con- close to customers in Asia and the US. in the product development organization tinue this rapid rate of expansion during The service and customer project organi- hold a PhD in Engineering. In addition to 2014 and 2015. In other words, all figures zation employs about 15 people. technical knowledge, the company’s for the number of employees in various employees have considerable experience parts of the organization in the following Larger sales organization from industries such as telecom. text are expected to rise. FPC’s success also depends on an aggressive marketing and sales organiza- Geographic spread An organization undergoing strong tion, which has also been strengthened. The organization was also strengthened growth and change Marketing and Sales employs more than outside Sweden. FPC opened an Asian Significantly strengthened R&D ten people. regional office in Shanghai, where a To stay at the forefront of fingerprint Customer Support Director for Asia was biometrics and manage multiple devel- All links strengthened recruited and two additional employ- opment projects and product launches, To support the expansion of the develop- ees were appointed. Offices were also FPC has significantly strengthened its ment and marketing functions, a stronger opened in Japan and South Korea, and R&D organization. The company currently base for purchasing and production Country Managers were appointed. In the conducts development in three locations functions is being established, as well as US, two Customer Project Directors were – Gothenburg, Malmö and Copenhagen. financial and accounting support. Strategy appointed. In 2013, the number of employees in R&D and production management increased An office was opened in Malmö, where increased nearly 300% to just over 40. from one to four people, while accounting slightly more than 20 people were and administration increased to four.
22 Beyond keys and pins FÖRVALTNINGSBERÄTTELSE FPC ANNUAL REPORT 2013
FPC’s development resources were significantly strengthened in 2013 to accelerate development and conduct multiple development projects in parallel.
employed at the end of the year. Both Introductory program Work environment and health Research and Development and Marketing All new employees undergo a “training Health risks at FPC are negligible. FPC and Sales are conducted in Malmö. week,” comprising both joint training and focuses on preventive health programs An office was also opened in Copenha- special training depending on the employ- for its personnel and throughout 2013, gen at the end of the year when a subsid- ee’s function. This introduction has been sickness absenteeism remained very low iary was formed. The Danish operation is greatly appreciated by employees and at 0.4% (0.5). focused on Research and Development. enables a faster phase-in to full participa- At year-end, the company thus had tion in each function. Personnel data employees in Sweden, Denmark, Japan, At December 31, 2013, FPC had a total South Korea, China, the Philippines, Skills development is crucial of 80 personnel, of whom 48 (21) were Taiwan and the US. Due to many years of R&D work, FPC employees. In addition to permanent and its employees have acquired special- employees, a number of consultants were New abilities ized knowledge in the company’s defined contracted on a full-time or part-time FPC has engaged a number of new core areas – biometrics, electronics and basis at the end of 2013. This was equiva- key individuals including a System production processes. FPC will continue lent to 34 full-time positions. In 2013, the and Software Development Manager to prioritize skills development through average age of the employees was 42 (42). (responsible for software development), participation in international conferences The average period of employment was a Vice President of Sourcing and Supply and meetings, for example, as well as one year (four). (responsible for subcontractors), a supplementary training programs. Vice President of Customer Projects (responsible for customer projects) and a Vice President of Strategic Planning and Portfolio Management (responsible for product programs).
Beyond keys and pins 23 FPC ANNUAL REPORT 2013
THE SHARE
FPC was initially floated on the “New Mar- before deductions for issue expenses. shares were subscribed, which raised share kets” list of the Stockholm Stock Exchange in The private placement was decided on capital by SEK 170,600 and resulted in an 1998. In 2013, FPC’s Class B share had been by the Board with the support of authoriza- inflow of SEK 13 M. listed on the Small Caps list of NASDAQ OMX tion from the 2013 Annual General Meeting. Stockholm since 2000. In January 2014, the This authorization entitled the Board, until Share price performance share was moved up to the Mid Cap list. The the next Annual General Meeting, to make During 2013, the closing price of FPC’s share has ISIN code SE0000422107 and is decisions regarding a new issue of not more Class B share rose 439% to SEK 54.25 part of the IT, Electronic Equipment & Instru- than 10,000,000 shares. (12.35). During the same period, the OMX ments sector. The company is traded under Following the issuance of new shares and Industrial Goods & Services index dropped the ticker FING B. A trading lot is one share. redemption of warrants during the year, the 4%. The highest closing price for FPC’s Share capital at December 31, 2013 amounted number of Class B shares totaled 52,961,135 Class B share during the year was SEK to SEK 10,832,226, distributed between and the number of Class A shares remained 84.50 and the lowest was SEK 12.85. At the 1,200,000 Class A shares and 52,961,135 Class unchanged at 1,200,000 at year-end, bringing end of 2013, FPC’s market capitalization B shares, each with a quotient value of SEK the total number of shares to 54,161,135. The was about SEK 2,873 M (580). 0.20. Class A shares carry ten voting rights total number of shares thus corresponded to each, while Class B shares carry one vote. All 64,961,135 voting rights. Trading volume shares provide equal entitlement to participa- The new share issues will enable FPC to During the year, 442 million (68.3) Class tion in the company and are freely transfer- capitalize on new opportunities by increasing B shares were traded at a value of SEK able. Class A shares represent 18.47% of the the number of personnel, investing in capital 21,002 M (565). On average, 1.762 million voting rights and 2.22% of the capital in FPC. and financing expansion. (0.311) Class B shares were traded at a In addition to private placements, warrants value of SEK 83.7 M (2.2) per trading day. Private placements and redemption under the TO2 program were redeemed on of warrants four occasions in the period between Febru- Shareholders Three private placements were implemented ary and May. Each warrant entitled the holder In terms of percentage shareholdings, in 2013. to subscribe for one Class B share for SEK Swedish legal entities accounted for 25%, The new share issues were directed 15.74 during the period between February Swedish private shareholders for 50% and toward a few Swedish and international 9, 2013 and May 11, 2013. A total of 853,000 non-Swedish owners for 25%. institutional investors. In March 2013, two private placements of Class of The largest shareholders at Dec 30, 2013 share Holdings Capital, % Votes, % 3,000,000 Class B shares were implemented. The new share issues were directed toward Sunfloro AB A 1,200,000 2.22% 18.47% Swedish and international institutional inves- Försäkringsaktiebolaget, Avanza Pension B 5,589,227 10.32% 8.60% tors. In the first issue on March 11, 1,400,000 Goldman Sachs & Co, W9 B 1,942,738 3.59% 2.99% Class B shares were subscribed at an Nordnet Pensionsförsäkring AB B 1,443,207 2.66% 2.22% average price of SEK 28.81 per share. In the State Street Bank & Trust Com., Boston B 1,033,486 1.91% 1.59% second issue on March 14, 1,600,000 Class B Svenska Handelsbanken Copenhagen B 851,660 1.57% 1.31% shares were subscribed at an average price AAGCS NV RE AACB RE TM OMX B 782,814 1.45% 1.21% of SEK 34 per share. Combined, the two new JPMC:ESCROW Swiss Resident Account B 666,685 1.23% 1.03% share issues raised a total of SEK 94.7 M Smart Riches Limited B 586,978 1.08% 0.90% before deductions for issue expenses. Share Hansen, Tommy Egebjerg B 554,000 1.02% 0.85% capital increased SEK 600,000. Försäkrings AB Skandia B 546,665 1.01% 0.84% The private placements were decided on by State Street Bank and Trust Omnibus B 537,924 0.99% 0.83% the Board with the support of authorization Netfonds ASA, NQI B 457,668 0.85% 0.70% from the 2012 Annual General Meeting. This JP Morgan Nominees Ltd Segregated AC B 444,467 0.82% 0.68% authorization, which permitted disapplication of the preferential rights of existing sharehold- Robur Försäkring B 433,529 0.80% 0.67% ers, entitled the Board, during the period until Handelsbanken Liv B 425,793 0.79% 0.66% the next Annual General Meeting, to decide Morgan Stanley and Co LLC, W9 B 414,200 0.76% 0.64% on a new issue of not more than 9,000,000 Principal Account B 392,646 0.72% 0.60% shares with the aim of financing and enabling Danica Pension B 356,574 0.66% 0.55% accelerated expansion and development of the Euroclear Bank S.A/N.V, W8-IMY B 345,606 0.64% 0.53% company, its market and its products. SSB Client Omnibus AC OM07 (15 PCT) B 331,984 0.61% 0.51% During the fourth quarter of 2013, a private Johannsen, Jörn B 320,317 0.59% 0.49% placement of 2.5 million Class B shares was Giant Leap International Ltd B 300,000 0.55% 0.46% implemented. The new share issue was di- Turujlija, Tony B 300,000 0.55% 0.46% rected toward international institutional inves- MSIL IPB Client Account B 278,009 0.51% 0.43% tors. The subscription price for the new share Total 25 largest shareholders 20,536,177 37.92% 48.24% issue was SEK 48 per share. The new share Other 33,624,958 62.08% 51.76% issue raised share capital by SEK 500,000. Total 54,161,135 100.00% 100.00% The new share issue amounted to SEK 120 M
24 Beyond keys and pins THE SHARE FPC ANNUAL REPORT 2013
Major changes in ownership Stockholm AB’s (the Stock Exchange) system be used to finance continued expansion. This The company gained a number of Swedish for liquidity provision. The aim of liquidity means that the Board of FPC does not intend and international institutional investors in provision is to promote liquidity of the share. to propose a dividend for the coming year. The conjunction with the new share issues. Board of Directors will examine the estab- Warrants program lished dividend policy annually. Liquidity provider FPC has implemented a number of warrants FPC has signed an agreement with Carnegie programs. Refer to the table on page 29. Dividend Investment Bank through which Carnegie For the 2013 fiscal year, the Board proposes acts as a liquidity provider for the company’s Dividend policy to the Annual General Meeting that no divi- share within the framework of NASDAQ OMX The company’s cash flow in coming years will dend be paid (SEK 0 in 2012).
Share price performance 2013 SEK Number 85
75 15,000,000
65
55 11,000,000
45
35
25 5,000,000
15
5 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
OMX Stockholm Industrial Goods & Services GI FPC Class B share Total traded
Share price performance 2009-2013
SEK Number
80 15,000,000 70
60
50 10,000,000
40
30 5,000,000 20
10
0 0 2009 2010 2011 2012 2013
OMX Stockholm Industrial Goods & Services GI FPC Class B share Total traded
Warrants program No. No. No. Exercise Dilution % Dilution % Designation Adopted of warrants subscribed remaining price Maturity No. No. of votes TO3 Nov 17, 2011 2,000,000 2,000,000 1,760,000 13.64 Dec 18, 2014 3.15 2.64 TO4 Sep 5, 2012 4,818,000 4,818,000 4,818,000 9.72 Oct 6, 2015 8.17 6.90 TO5 Mar 4, 2013 1,300,000 1,300,000 1,300,000 52.35 Mar 5, 2016 2.34 1.96 TO6 Nov 26, 2013 500,000 500,000 500,000 90.16 Nov 27, 2016 0.90 0.75 Total: 12.70 10.82
Beyond keys and pins 25 FPC ANNUAL REPORT 2013 THE SHARE
Distribution by category of size Holdings No. of shareholders No. of Class A shares No. of Class B shares Holdings (%) 1- 8,342 0 1,485,681 2.74% 501- 2,110 0 1,733,165 3.20% 1 001- 2,543 0 6,129,191 11.32% 5 001- 529 0 3,895,104 7.19% 10 001- 170 0 2,142,023 3.95% 15 001- 92 0 1,616,376 2.98% 20 001- 321 1,200,000 35,959,595 68.61% Dec 30, 2013 14,107 1,200,000 52,961,135 100.00%
Share capital trend Quotient Change in no. Total no. of Increase in Total share Year Event value, SEK of shares shares share capital capital 1997 Split 500:1 0.2 249,500 250,000 0 50,000 1997 Rights issue 0.2 250,000 500,000 50,000 100,000 1997 New share issue 0.2 2,000,000 2,500,000 400,000 500,000 1997 New share issue, redemption of warrants 0.2 370,000 2,870,000 74,000 574,000 1998 New share issue 0.2 2,000,000 4,870,000 400,000 974,000 2000 New share issue 0.2 540,000 5,410,000 108,000 1,082,000 2000 New share issue 0.2 938,258 6,348,258 187,651 1,269,651 2005 New share issue 0.2 3,000,000 9,348,258 600,000 1,869,651 2006 New share issue 0.2 2,804,475 12,152,733 560,895 2,430,546 2009 New share issue 0.2 7,682,060 19,834,793 1,536,412 3,966,958 2009 New share issue 0.2 19,834,793 39,669,586 3,966,959 7,933,916 2011 New share issue 0.2 3,940,000 43,609,586 788,000 8,721,917 2012 New share issue 0.2 4,198,549 47,808,135 839,710 9,561,927 2013 New share issue, redemption of warrants – Q1 0.2 95,485 47,903,620 19,097 9,581,024 2013 New share issue – Q1 0.2 1,400,000 49,303,620 280,000 9,861,024 2013 New share issue – Q1 0.2 1,600,000 50,903,620 320,000 10,180,724 2013 New share issue, redemption of warrants – Q1 0.2 335,407 51,239,027 67,081 10 247,805 2013 New share issue, redemption of warrants – Q2 0.2 263,500 51,502,527 52,700 10,300,505 2013 New share issue, redemption of warrants – Q2 0.2 158,608 51,661,135 31,722 10,332,227 2013 New share issue – Q4 0.2 2,500,000 54,161,135 500,000 10,832,227 2014 New share issue 0.2 2,500,000 56,616,135 500,000 11,332,227
Shareholder by category, Dec 30, 2013 Composition of share capital at Dec 30, 2013 Number Votes (%) Class of No. of No. of Share of Share of share Votes shares votes equity, % votes, % Financial companies 24 14.38 Class A 10 1,200,000 12,000,000 2.22 18.47 Other financial companies 3 0.39 Class B 1 52,961,135 52,961,135 97.78 81.53 Social security funds 2 0.19 Total 54,161,135 64,961,135 100.00 100.00 Interest organizations 18 0.05 Other Swedish legal entities 306 20.79 Non-categorized legal entities 22 1.42 Shareholders residing outside Sweden 1,058 29.08 Swedish private shareholders 12,674 33.7 Total, Dec 30, 2013 14,107 100
26 Beyond keys and pins FPC ANNUAL REPORT 2013
ADMINISTRATION REPORT Group and Parent Company
The Annual Report encompasses the Significant events during the year • FPC received its first Design Win (DW) for fiscal year January 1 – December 31, 2013. In 2013, FPC entered the mobile phone FPC 1080A for tablets from a prominent Fingerprint Cards AB (publ), (Corporate market by supplying fingerprint technology Chinese house of design. Registration Number 556154-2381) (FPC), in components for products available in the • FPC strengthened its Supply Chain Man- comprises the Parent Company of a Group consumer market. The Group’s earnings agement, and appointed Magnus Hansson as Senior Sourcing Director. that includes two subsidiaries: and sales for 2013 turned upwards and 2013 -Fingerprint Security System Databärare became the best year ever, in terms of sales, • A world-leading provider of financial information selected FPC for its authenti- AB. The operations serve as a holding since FPC was founded. Sales rose quarter cation solutions. company for the incentive-program war- by quarter and the third and fourth quarters • FPC received a DW in China for mobile- rants issued by the Parent Company that became the best to date, in terms of sales. phone and tablet accessories and secured are not held by employees of FPC. In 2013, Sales included a growing share of swipe sen- an initial order for 800,000 FPC1080A the subsidiary acquired such warrants in sor products. In 2013, development projects sensors. conjunction with the two incentive programs for touch sensors were conducted. The • FPC appointed Jonas Andersson as Direc- conducted during 2013. company received a number of Design Wins tor of Business Development in secure - Fingerprint Cards Aps in Denmark. The from Asian companies during the year and in mobile transactions. operations consist of technical development in the autumn, mobile phones and tablets using • FPC held an Extraordinary General Meet- close collaboration with the operations of the FPC’s products were launched in the market. ing and resolved on an incentive program. Parent Company. The company was founded The number of personnel increased sharply • FPC redeemed 430,892 warrants in in November 2013 and is the company in in 2013, from 19 at the beginning of the year exchange for new Class B shares, which which Danish personnel are employed. to 48 at year-end. The number of consultants raised SEK 6.8 M. In 2013, all other business activities in sales, marketing and technical develop- • FPC concluded an investment agreement were conducted in the Parent Company, ment also rose significantly, from approxi- with Carnegie regarding the new issue of where all employed personnel except for mately ten at the beginning of the year to 32 Class B shares. the Danish personnel are employed. The full-time equivalents at year-end. • FPC secured a Chinese order for area Parent Company has its registered offices One office was opened in Malmö in Sep- sensors valued at SEK 20 M. in the Municipality of Gothenburg, County of tember and another office was opened in • FPC implemented private placements of Class B shares totaling SEK 95 M. Västra Götaland, Sweden. The company has Copenhagen in November. These offices have been listed on NASDAQ OMX Nordic, Small enabled the recruitment of business-relevant • FPC published a prospectus related to the admission to trading of new shares. Cap, since 1998. expertise in technology, marketing and sales. In 2013, resolutions were adopted at • FPC’s FPC1080A was selected by the Chinese manufacturer behind a well- General information about operations Extraordinary General Meetings concerning known European brand. Fingerprint Cards AB (FPC) develops, pro- two incentive programs. The incentive program • FPC received its first Design Win for duces and markets biometric components was directed toward Group personnel. In mobile phones in a strategically important that through the analysis and matching of spring 2013, a warrants program (TO2) adopt- second market in Asia. an individual’s unique fingerprint verify the ed in 2010 reached its redemption date and person’s identity. resulted in 853,000 shares. In addition, three Second quarter, 2013: The technology consists of biometric sen- new share issues were implemented in 2013, • FPC received Design Wins for four new sors, processors, algorithms and modules raising SEK 214 M for FPC before expenses. mobile phones and one tablet from an that can be used separately or combined. Significant events communicated regu- existing well-known customer in Asia. The competitive advantages offered by FPC’s larly in press releases during 2013: • FPC received a smartphone DW from one technology include unique image quality, of China’s three largest manufacturers. extreme robustness, low power consump- First quarter, 2013: • Fingerprint Cards became a new sponsor tion and complete biometric systems. With • FPC opened an office in Japan and member of the FIDO alliance. these advantages and the ability to achieve appointed a Senior Technical Manager. • FPC secured a flagship model Design Win extremely low manufacturing costs, the • FPC opened an office in Seoul, South from a global Top 10 manufacturer. technology can be implemented in volume Korea, and appointed a Senior Sales • FPC opened an Asian regional office in Executive. products, such as smart cards and mobile Shanghai and appointed three new phones, where extremely rigorous demands • FPC was granted operating lines of credit personnel. by Nordea and EKN. are placed on these characteristics. FPC’s • FPC secured a smartphone DW from a technology can also be used in products for • FPC secured its first mass-production Chinese Top 10 manufacturer. order of 100,000 sensors for mobile IT, Internet security, access control, etc. • FPC joined Global Platform. phones from CrucialTec.
Beyond keys and pins 27 FPC ANNUAL REPORT 2013 ADMINISTRATION REPORT
• FPC secured an initial order for 100,000 Fourth quarter, 2013 Investments, depreciation and units of its swipe sensor technology for • FPC employed Jonas Spannel as Vice amortization the Japanese market. President of Sourcing and Supply. In 2013, investments in intangible fixed • FPC opened an office in Lund and • FPC secured an order for just under one assets rose SEK 35.4 M (10.4) and investments appointed a System and Software million sensors for smartphones in Asia. in tangible fixed assets rose SEK 3.0 M (1.8). Development Manager. • Cision distributed a false press release Depreciation/amortization according to plan for • FPC received a DW from a Chinese Tier 2 regarding FPC. the full-year amounted to SEK 12.6 M (10.7). smartphone brand. • UINT and Mereal Biometrics launched a • FPC appointed the US investment bank biometric smartcard with an embedded Cash flow Piper Jaffray as financial advisor. fingerprint sensor and processor from FPC. In 2013, cash flow from operations, • FPC received a follow-up order of 275,000 • Pantech launched three new phablets with including changes in working capital, was a sensors for the Japanese mobile market. FPC’s fingerprint technology in South Korea. negative SEK 31.1 M (pos: 14.5). Cash flow to • FPC secured a follow-up order of 455,000 • Fujitsu launched four smartphones and investments in 2013 rose to a negative SEK sensors for the Asian mobile market. two tablets with FPC’s embedded finger- 38.3 M (neg: 11.4). Cash flow from financing • FPC appointed a Customer Support print technology in the Japanese market. activities increased in 2013 to SEK 220.8 M Director in the US. • FPC introduced FPC1020, the world’s first (34.5). Combined, the net change in cash • FPC joined Mobile Heights, which touch fingerprint sensor for Android™ and cash equivalents during 2013 amounted promotes the mobile ecosystem in • FPC introduced the touch fingerprint to SEK 151.1 M (37.6). Southern Sweden. sensor FPC1020 for Windows™ • FPC and Microsoft presented the touch • FPC and Nok Nok Labs delivered Shareholders’ equity and financing sensor for Windows 8.1 at TechEd 2013. infrastructure for fingerprint-based authentication. In March 2013, two private placements of three million Class B shares were imple- Third quarter, 2013: • Zwipe launched a contactless biometric mented. The new share issues were directed • On September 23, FPC presented a new card with FPC’s touch sensor for on-card forecast for 2013 as well as forecasts for fingerprint matching. toward Swedish and international institutional 2014 and 2015. • FPC received three new smartphone DWs investors. In the first issue on March 11, • In collaboration with DoCoMo, Fujitsu from a large Asian OEM. 1,400,000 Class B shares were subscribed launched its first mobile phone with FPC’s • Smartmetric launched the “One Card at an average price of SEK 28.81 per share. fingerprint technology. Digital Wallet,” which is protected by In the second issue on March 14, 1,600,000 • Konka launched its first smartphone with FPC’s swipe sensor. Class B shares were subscribed at an aver- the FPC1080A fingerprint sensor in China. • FPC’s fingerprint sensors were selected age price of SEK 34 per share. Combined, the • WWTT launched a FingerQ product with by Bloomberg. two new share issues raised a total of SEK FPC’s 1080A sensor. • Pantech launched new smartphones with 94.7 M before deductions for issue expenses. • Pantech in South Korea launched a new FPC’s fingerprint technology in South Korea. Share capital increased SEK 600,000. mobile phone with FPC’s fingerprint tech- • FPC implemented private placement The private placements were decided on by nology. totaling SEK 120 M. the Board with the support of authorization • FPC received a new DW from a major Tier • DOCOMO and Fujitsu launched a new from the 2012 Annual General Meeting. This 2 OEM in China. business mobile phone with embedded authorization, which permitted disapplication • FPC received a smartphone DW from an fingerprint technology from FPC. of the preferential rights of existing sharehold- existing OEM customer in Asia, in • FPC received flagship model DW with a ers, entitled the Board, during the period until partnership with a leading US operator. sales target of ten million devices from the next Annual General Meeting, to decide one of the world’s largest mobile-phone • FPC received a new major DW for three on a new issue of not more than 9,000,000 manufacturers. new smartphones from an existing shares with the aim of financing and enabling prominent customer in Asia. • FPC’s share was moved to the Mid Cap accelerated expansion and development of the list on NASDAQ OMX. • FPC received new DWs for a smartphone company, its market and its products. and tablet from an existing Tier 2 • FPC received its first DW for a flagship In addition to the private placements, war- customer in Asia. mobile phone with a 1020 touch sensor rants under the TO2 program were redeemed • FPC secured a Chinese order for area from a global Tier 1 manufacturer. on four occasions in the period between sensors valued at SEK 24 M. • FPC secured its first order for the 1020 February and May. Each warrant entitled the • FPC secured an order for more than three touch sensor from China, valued at just holder to subscribe for one Class B share million swipe sensors for Asian over SEK 11 M. smartphones. for SEK 15.74 during the period between February 9, 2013 and May 11, 2013. A total • FPC announced that Mats Svensson Development of the company’s would be moving on to new assignments. operations, earnings and financial of 853,000 shares were subscribed, which • FPC recruited a Customer Support Director position raised share capital by SEK 170,600 and for Asia, a Country Manager in Japan and The Group’s net sales for 2013 increased resulted in an inflow of SEK 13 M. Jan Johannesson as Vice President of Stra- to SEK 95.4 M (10.3). In 2013, gross profit During the fourth quarter of 2013, a private tegic Planning and Portfolio Management. rose to SEK 39.1 M (loss: 5.7) and the gross placement of 2.5 million Class B shares was • FPC selected Precise Biometrics’ margin improved to 41% (neg: 55). Loss implemented. The new share issues were fingerprint algorithm as one of several after financial items for 2013 was SEK 33.0 directed toward international institutional algorithms in our portfolio. M (loss: 38.1). Order backlog at year-end investors. The subscription price for the new • FPC acquired more than 100 patents from amounted to SEK 22.8 M (19.7). share issue was SEK 48 per share. a world-leading patent owner.
28 Beyond keys and pins ADMINISTRATION REPORT FPC ANNUAL REPORT 2013
The new share issue raised share capital by expertise, which vary from project to project. Proportion of Votes at SEK 500,000. The new share issue amounted The development operations grew signifi- shares and year-end to SEK 120 M before deductions for issue cantly in 2013. Several major projects were capital, % Votes % expenses. conducted in addition to a number of smaller Shareholder 2013 2012 2013 2012 The private placement was decided on by projects aimed at further developing the prod- Sunfloro AB 2.22 2.51 18.47 20.47 the Board with the support of authorization uct portfolio and its parts, as well as adapta- Class of No. of from the 2013 Annual General Meeting. This tion to mobile phones, tablets and so forth. share shares No. of votes authorization entitled the Board, until the Development expenditure is capitalized next Annual General Meeting, to make deci- in the consolidated statement of financial A 1,200,000 12,000,000 sions regarding a new issue of not more than position and in the balance sheet for the B 52,961,135 52,961,135 10,000,000 shares. Parent Company as “Capitalized develop- Total 54,161,135 64,961,135 Following the issuance of new shares and ment costs” within intangible fixed assets. Shareholdings of at least one-tenth of the voting redemption of warrants during the year, the Capitalization occurs following assessment rights for all shares at December 31, 2013 number of Class B shares totaled 52,961,135 of the project’s commercial and technical Sunfloro AB 18.47 % and the number of Class A shares remained potential, the future value for the Group, the unchanged at 1,200,000 at year-end, bringing disposal of the product/solution, the ability Incentive programs the total number of shares to 54,161,135. The to complete the development and the exist- At the end of 2013, FPC had four outstand- total number of shares thus corresponded to ence of a market for the product. Amortiza- ing warrants programs that, in combination, 64,961,135 voting rights. tion rates are determined on the basis of amounted to 12.70% of the total number of the technical and commercial lifetime of the shares and 10.82% of the total number of Financial policy product/solution and the existing market. votes in the company. FPC’s financial policy regulates and clarifies This varies from product to product, and TO3: An Extraordinary General Meeting responsibilities and describes the general project to project. The amortization rate is on November 17, 2011 approved the issue rules and guidelines relating to specific areas three to four years for products and four to of 2,000,000 warrants with a term extending in financing, the granting of credit, invest- five years for platform development. Costs to December 18, 2014, of which 1,760,000 ment and currency management in an effort for research are expensed. warrants are held by FPC’s employees. to support the operations and to reduce fi- In 2013, expenses for technological The price per warrant was SEK 0.41 at the nancial risk and its impact on the company’s development increased to SEK 55.2 M (19.3), time of issue. The remaining warrants were financial position, earnings and cash flow. of which SEK 29.3 M (10.4) was capitalized nullified. The exercise price for a Class B The principal net currency flow is from in the consolidated statement of financial share is SEK 13.64. On full subscription with USD to SEK, whereby a key aspect of FPC’s position and in the Parent Company’s balance the support of all warrants in the program, financial work has been to hedge future sheet, respectively, and the remaining SEK 1,760,000 new Class B shares can be issued, contracts for sales in USD and purchasing 25.9 M (8.9) was expensed in the consolidated corresponding to 3.72% of the total number in SEK. Due to the issuance of new shares statement of comprehensive income and in of shares and 3.10% of the total number of in 2013, the company has a healthy supply the Parent Company’s income statement, voting rights, which will also raise the share of SEK and no new forward contracts will be respectively. Capitalized development expendi- capital by SEK 352,000. The program has signed. Purchasing, manufacturing and sales ture and expenses related to technological been designated TO3. are essentially conducted in USD. Otherwise, development as a proportion of total operating TO4: An Extraordinary General Meeting the policy is to hedge up to 90% of net expo- expenses in 2013 amounted to SEK 55.2 M of a on September 5, 2012 approved the issue of sure in USD using forward contracts to offset total SEK 106.6 M, representing 51% (24). 4,818,000 warrants with a term extending to exchange-rate fluctuations. Fluctuations in October 6, 2015. The price per warrant was other exchange rates have a limited impact on Ownership structure SEK 0.15 at the time of issue. All of the war- earnings. During 2013, no major change represent- rants under the program are held by FPC’s ing at least one-tenth of the voting rights employees. The exercise price for a Class B Research and development operations occurred. At the end of 2013, the Sunfloro share is SEK 9.72. On full subscription with Fingerprint increasingly pursues develop- AB consortium continued to hold all Class A the support of all warrants in the program, ment operations in the technology and shares. The change in Sunfloro AB’s owner- 4,818,000 new Class B shares can be issued, products that its operations offer the market. ship between 2012 and 2013 was due to the corresponding to 8.53% of the total number Development activities are focused on further private placements implemented in 2013. of shares and 7.16% of the total number of enhancement of fingerprint sensors and their As a result, Sunfloro AB’s shareholding in voting rights, which will also raise the share technology, chemistry, packaging, industri- terms of both shares and voting rights has capital by SEK 963,600. The program has alization, software, algorithms, processors decreased, since Sunfloro’s holdings were been designated TO4. and production processes. More than half not included in the new share issues. TO5: An Extraordinary General Meet- of the Group’s organization is employed in ing on March 4, 2013 approved an issue of development activities and, combined with 1,300,000 warrants with a term extending the customer support organization, these two until March 5, 2016. The price per warrant departments account for 70% of employ- was SEK 1.79 at the time of issue. All of the ees. These resources consist of employed warrants under the program are held by personnel, internal resources, consultants FPC’s employees. The exercise price for a and external resources in various fields of Class B share is SEK 52.35. On full sub-
Beyond keys and pins 29 FPC ANNUAL REPORT 2013 ADMINISTRATION REPORT
scription with the support of all warrants in consumer electronics will amount to more bution pension schemes. the program, 1,300,000 new Class B shares than 350 million units in 2014, with contin- For 2013, the Board has no proposals for can be issued, corresponding to 2.45% of ued strong growth thereafter. Compared amending the guidelines pertaining to the the total number of shares and 2.04% of the with the previous market forecast, this remuneration of senior executives. total number of voting rights, which will also entails a lower sales volume, but a raise the share capital by SEK 260,000. The significantly higher average sales price. Dividend and financial objectives program has been designated TO5. FPC’s objective to capture 60% of the FPC’s cash flow during the years ahead will TO6: An Extraordinary General Meeting market for touch sensors in smartphones be used to finance the ongoing expansion on November 6, 2013 approved the issue of stands firm. process. This means that FPC’s Board of 500,000 warrants with a term extending to Directors does not intend to propose any November 27, 2016. The price per warrant was Seasonal fluctuations dividend for the next two years. The Board SEK 4.53 at the time of issue. The program To date, sales have not demonstrated any reviews the established dividend policy an- was directed to FPC’s personnel, and clear seasonal fluctuations. nually. The financial objectives encompass employees who work full-time for the com- order bookings, sales growth, gross margin, pany or the Group on a consultancy basis and Guidelines for remuneration of Board earnings and cash flow. where formal employment is with another members company that is not a Group company. The The Chairman and members of the Board Events after the balance-sheet date, exercise price for a Class B share is SEK are remunerated in accordance with AGM January-May 2014 90.16. On full subscription with the support resolutions. No separate remuneration is • Gionee launched a Tier 1 smartphone with embedded fingerprint technology of all warrants in the program, 500,000 new paid for committee work. Remuneration from FPC. Class B shares can be issued, correspond- for 2013 amounted to SEK 200,000 for the • Chinese OEM manufacturer BBK ing to 0.8% of the total number of shares and Chairman of the Board and SEK 120,000 for Electronics released its Vivo smartphone 0.7% of the total voting rights, which will also each Board member, totaling SEK 560,000. with fingerprint technology from FPC. raise the share capital by SEK 100,000. The Board members appointed during the year • FPC employed Niklas Strid as Vice program has been designated TO6. Finger- receive fees in relation to the remaining President Customer Projects. print Cards has three warrants programs period until the next AGM. • FPC implemented a private placement that in combination amount to 14.56% of the totaling SEK 138 M to Swedish and total number of shares and 12.02% of the Guidelines for remuneration of senior international institutional investors. total number of votes in the company. executives • FPC repeated its previous financial In 2013, the TO2 program was redeemed. A Remuneration Committee elected from forecast of sales exceeding SEK 500 M An Extraordinary General Meeting on No- among the Board’s members is to prepare and EBITDA of more than 20%. vember 9, 2010 approved the issue of 958,000 guidelines for salaries and other employ- • Chinese bank order of SEK 30 M for area warrants with a term extending to May 11, ment conditions for the President and other sensors. 2013, whereupon the redemption period senior executives, and present proposals • Order of SEK 4 M for flagship smartphone expired during the second quarter of 2013. In to the Board for decisions on such matters. with touch sensor. 2013, all 853,000 of the program’s remain- The Board determines the salary and other • New touch sensor, the FPC 1021, ing warrants were redeemed. The price per remuneration paid to the President. announced. warrant was SEK 1.09 at the time of issue. The basic remuneration levels are to be The exercise price was SEK 15.74. See above, market-based. Remuneration of the Presi- Sensitivity analysis under the heading “New share issues.” dent and other senior executives comprises FPC is affected by various factors and the basic salary, variable remuneration, other following effects on pretax profit arise Expectations regarding future benefits, pension and financial instruments. in the event of a one-percentage-point performance The variable remuneration is maximized at change in different variables (SEK M): FPC continues to stand by its assessment 40% of total salary. As of the salary review in 2013 2012 that sales in 2014 will exceed SEK 500 M and 2013, most of the revised remuneration will Change in prices +/- 3 % +/- 0 % that the EBITDA margin will exceed 20% for be allocated to the variable component in the full-year. Sales are expected to increase order to increase the proportion of perfor- SEK/USD exchange rate +/- 2 % +/- 1 % sequentially during the year. Most of the mance-based salary to a maximum of 40%. income is expected to be generated The term “other senior executives” refers This analysis has been conducted in a static during the second half of 2014, since volume to the individuals who, in addition to the environment, but in reality, the situation is deliveries of area sensors are scheduled for President, constitute Group management. more complex. Any change in the SEK/USD the end of the second quarter. This entails a If employment is terminated by the com- exchange rate could also affect the retail price, repetition of previous forecasts. pany, severance pay is payable in an amount as well as the fact that there are time-delaying FPC believes that a majority of the 15 corresponding to not more than six monthly effects in any changes. largest smartphone manufacturers will salaries. During the period of notice of no introduce models with fingerprint sensors longer than six months, full salary and Description of the work of the Board of in 2014. Due to the ongoing transition from employment benefits are paid. Decisions Directors during the year swipe sensors to area sensors, market regarding share and share-price-based The Board’s work follows an annual cycle volumes are difficult to assess. FPC believes incentive programs are made by the AGM. that starts with the statutory Board that the market for fingerprint sensors in Pensions are to be based on defined-contri- meeting after the AGM. 2013 was character-
30 Beyond keys and pins ADMINISTRATION REPORT FPC ANNUAL REPORT 2013
ized by a high level of activity that required pany’s shares, which could result in investors sensor technology and its applications. The Board decisions and consultation: two losing all or parts of their invested capital. The projects are conducted in collaboration with Extraordinary General Meetings, approval risks and uncertainties described below are consultants and subcontractors. Since the of two incentive programs, three new share not ranked in any order of significance; nor projects may be extensive and complex, issues and continuous decisions concern- are they claimed to be the only risks or delays in schedules cannot be ruled out. ing comprehensive development projects. uncertainties to which the company is Serious delays, disruptions or unforeseen The Board convened 25 meetings during exposed. Additional risks and uncertainties events in development processes could have 2013. FPC employees participate in Board that the company is currently unaware of or a negative impact on FPC’s future operations. meetings as reporters whenever required. are not judged to be material could also A more detailed description of corporate develop into factors that could in the future A4 Competencies governance in 2013, including regulations, have a material negative impact on the Biometrics is still a relatively new field that General Meetings, the Nomination Commit- company’s operations, earnings, financial shows a high growth rate and requires tee, the composition and work of the Board position or future outlook. The following advanced technical knowledge from employ- and internal governance processes and description does not claim to be complete or ees. FPC has a number of key individuals internal control, is presented in the separate exact, since risks and their degree of impact who are essential for the successful develop- Corporate Governance Report. vary over time: ment of FPC’s operations. The departure of Additional disclosures pursuant to Chapter 6, such key individuals could result in disrup- Section 2a of the Annual Accounts Act. A Company risk tions and increased costs for the recruitment The 2013 AGM passed resolutions to author- of replacements. ize the Board, during the period until the next A1 Funding risk AGM, to make decisions on the issue of up to It cannot be ruled out that further capital may B Market risk 10,000,000 new Class B shares with permit- be needed to finance FPC’s operations, devel- B1 Political risk ted disapplication of the preferential rights of opment and expansion. This need could arise FPC has operations in many markets with existing shareholders, and the issue of up to in an unfavorable market situation and on vastly differing conditions. Changes to laws 10,000,000 new shares without disapplication of terms that are less favorable than the Board and regulations regarding foreign ownership, the shareholders’ preferential rights. considers them to be today. External financ- taxes, government involvement, royalties ing in a more difficult credit and investment and custom duties, for example, coupled Annual General Meeting climate could have a negative impact on FPC’s with other political and economic risks and The Annual General Meeting will be held at operations, while borrowing, if at all possible, uncertainties, such as acts of war or ter- 5:30 p.m. on June 4, 2014 at the Radisson could limit the company’s latitude. There is rorism, could have a negative impact on the Blu Scandinavia Hotel, at Södra Hamngatan no guarantee that capital can be raised when company’s earnings and financial position. needed, or raised on acceptable terms. By 59, Gothenburg, Sweden. gradually achieving success in the market and Proposed treatment of the company’s B2 Currency-exchange risk maintaining a satisfactory margin, a positive accumulated profit. The following amounts cash flow can be created, which will contribute Due to the issuance of new shares in 2013, are at the disposal of the AGM (SEK): to reducing the need for capital contributions. the company has a healthy supply of SEK and no new forward contracts will be signed. Share premium reserve 327,098,697 Purchasing, manufacturing and sales A2 Rights Loss brought forward -57,127,442 are essentially conducted in USD. Other- The operations are heavily dependent on FPC wise, the policy is to hedge up to 90% of net Net loss for the year -33,067,540 protecting its technology through patents and exposure in USD using forward contracts to Total 236,903,715 intellectual property rights. The strategy is to offset exchange-rate fluctuations. Fluctua- protect the most important parts, but there is tions in other exchange rates have a limited The Board proposes that the net loss for the no guarantee that all patent applications will impact on earnings. year, as well as unrestricted funds and the be granted. The assessment is that FPC’s loss brought forward, be treated as follows: technology does not infringe the intellectual B3 Commodity price risk To be carried forward: SEK 236,903,715, property rights of other companies. Despite this, no assurance can be given that the The raw-material cost of products could be of which SEK 327,098,697 to the share company cannot be considered to infringe impacted by price fluctuations, mainly for premium reserve. another party’s patent or intellectual property silicon and gold. The proportion of gold in the For more information regarding the rights. In the event that FPC cannot protect products is marginal and price fluctuations company’s earnings and financial position, its technology with patents or other intel- will only have a limited effect on the price of refer to the following financial statements lectual property rights, or may be considered the end product. Silicon is the main compo- and the accompanying notes. to infringe on those of others, the company’s nent in the products. Historically, the price of operations, earnings and financial position silicon has not fluctuated to any significant Significant risks and uncertainties – could be adversely impacted. degree and supply is favorable. Should sup- Group and Parent Company plies of silicon in the world market decrease, there is a risk of price increases. The price FPC is exposed to risks. Each of the risks A3 Development below, as well as other risks and uncertainties per unit of the company’s purchases from named, could, if they occur, have a material FPC’s success is largely dependent on its external suppliers could thereby increase. ability to drive and adapt to technological negative impact on the company’s operations, There is no guarantee that FPC can sub- developments. FPC conducts development earnings, financial position and future outlook, sequently pass on any higher costs to its projects in the areas of biometrics, and or result in a decline in the value of the com- customers. The inability to pass on higher
Beyond keys and pins 31 FPC ANNUAL REPORT 2013 ADMINISTRATION REPORT
costs to the company’s customers could have tain hazardous substances in electrical and performance of shares that will be admitted to a negative impact on the company’s opera- electronic equipment. Should the products trading in connection with the new share tions, earnings and financial position. not meet requirements for functionality, issue. The company’s share price could quality, stability and environmental aspects, decline, partly due to the increased number of or not comply with the RoHS Directive on shares in the company, but also as a conse- B4 Macroeconomic conditions the restriction of the use of certain hazard- quence of market reactions to factors entirely The global economic trend affects the general ous substances in electrical and elec- beyond FPC’s control. FPC’s share price has investment appetite of FPC’s existing and tronic equipment, this could have a negative been volatile since the company’s share was potential customers. A weak economic trend impact on the company’s earnings and listed on NASDAQ OMX Stockholm. It is not in all, or parts of, the world could result in financial position. possible to foresee the extent to which inves- lower-than-expected growth in the biometrics tor interest in FPC will lead to active trading in market. Accordingly, there is a risk that FPC’s the shares, or how trading in the shares will expected sales could be adversely impacted C3 Sales perform in the future. If active and liquid trad- by a weak economic trend, which could have a FPC is active in a relatively immature mar- ing does not develop, or is not lasting, this may negative effect on the company’s operations, ket. Assessments of an immature industry make it difficult for shareholders to sell their earnings and financial position. At present, and its competitive situation in the midst of shares without negatively affecting the market customers are predominantly based in Asia. rapid development are subject to reserva- price, or at all. FPC’s measure is to maintain The economic turmoil in Europe and Northern tion for several uncertainties. The trend is a good level of communication. Existing and America has not impacted the operations to dependent on the development of both FPC potential investors in FPC should note that an any major degree. However, there is no guar- and its competitors, as well as market investment in FPC is associated with risk and antee that this will not occur in the future or acceptance of biometrics. A not inconse- that there are no guarantees that the share that the turmoil in Europe and North America quential factor is the rate of development price will perform positively. As presented in will not spread to the Asian market. and penetration of services for which biom- the description in this section, the share price etric solutions will be used. This entails performance is dependent on a number of difficulty in predicting the future trend for B5 Tax factors in addition to the company’s opera- the operation. FPC’s performance is FPC is only a tax subject in Sweden at pre- tions, and which the company is unable to dependent on the continued expansion of sent. In the future, however, through possible influence. Even when FPC’s business develops the biometrics market. Delayed penetra- establishments in other countries, or through positively, there is a risk that the company’s tion into more applications and markets will operations in other countries, FPC may be- share may perform negatively. affect sales and earnings. There is a risk come a tax subject with consequent taxation of FPC becoming dependent on a hand- and be required to pay tax in those countries. ful of distributors for its sales. This risk is E2 Shareholders prevented by having more resellers, more An individual shareholder owns a substantial C Operational risks customers, a broader product portfolio share of voting rights of all of the company’s C1 Production and customized solutions rather than shares outstanding. Consequently, the FPC does not conduct any proprietary pro- standard products. An additional measure shareholder is able to exercise a material duction. Manufacturing, sales and delivery is to continuously assess conditions for the influence over all matters requiring share- of FPC’s technology and products depend on establishment of companies and to conduct holder approval, including the appointment fulfillment of contractual requirements with sales independently. FPC is dependent on the and removal of Board members and any respect to, for example, volume, quality and Chinese market, with an established reseller proposed mergers, consolidation or sale of delivery time. Production and delivery prob- and a strong position for FPC’s technology. all, or virtually all, of FPC’s assets, and other lems among suppliers could have a negative Losing the company’s distributor in the company transactions. impact on the company through delays Chinese market or any other significant or quality problems affecting deliveries to distributor or reseller could have a negative E3 Dividend customers. Although production is planned impact on the company’s operations, FPC has not paid any dividends to date. up to six months in advance, binding orders earnings and financial position. Since FPC is expected to be in an expansive from customers are not normally received investment phase over the next few years, that far in advance. Uncertainty in sales D Credit risk any distributable profits will probably be forecasts could lead to stock accumulation D1 Counterparty risk reinvested in the business. As a result, the and have an adverse effect on liquidity. The Credit risk, which is the risk that the coun- Board of FPC deems that cash dividends will concentration of production to a few suppli- terparty will not fulfill its obligations, is en- not be paid to shareholders in the next two ers and the associated possibility of lower tirely attributable to credit risk in accounts years. As a result, the return on an invest- costs must be weighed against the risk receivable. The company’s customers mainly ment in the company’s share in the short posed by concentration. comprise companies that act as resellers or term primarily depends on the share price. distributors of the company’s products. The C2 Environment risk is prevented by credit assessment and FPC does not engage in any proprietary limited credit. manufacturing. Components are sourced from selected suppliers that meet require- E Share risk ments for functionality, quality, stability E1 Share risk and environmental aspects. FPC’s products Investing in shares is inherently associated have been tested and comply with the RoHS with the risk that the value of investments will Directive on the restriction of the use of cer- decline. There is no guarantee regarding the
32 Beyond keys and pins ADMINISTRATION REPORT FPC ANNUAL REPORT 2013
Risks in relation to the consequences for FPC’s operations should they occur, and the probability of their occurrence. The positions in the diagram are not absolutes, but rather are merely estimates.
High
B4
E1
A1
D1 A3 C3 A2 Probability
B1 B3 A4
B2 C1
C2
Low
Low Consequence High
Beyond keys and pins 33 FPC ANNUAL REPORT 2013
Consolidated statement of comprehensive income
January 1 – December 31 SEK 000s Note 2013 2012 Net sales 2, 4 95,405 10,276 Cost of goods sold 3 -56,259 -15,954 Gross profit/loss 39,146 -5,678
Selling costs -29,299 -10,088 Administrative costs -17,680 -12,472 Development costs -25,925 -8,934 Other operating expenses 5 -278 -1,527 Operating loss 6, 7, 8, 24, 25 -34,036 -38,699
Financial income 9 1,535 633 Financial expenses 9 -445 -117 Loss before tax -32,946 -38,183
Tax 10 - - Net loss for the year -32,946 -38,183
Earnings per share 11 before dilution (SEK) -0.60 -0.84 after dilution (SEK) -0.60 -0.84
Other comprehensive income 2013 2012 Net loss for the year -32,946 -38,183 Poster som senare kan komma att omklassificeras till periodens resultat: Translation differences pertaining to foreign operations -17 - Other comprehensive income -17 - Comprehensive income for the year -32,963 -38,183
Attributable to: Parent Company shareholders -32,963 -38,183 -32,963 -38,183
34 Beyond keys and pins FPC ANNUAL REPORT 2013
Consolidated statement of financial position
At December 31 SEK 000s Note 2013 2012 Assets Intangible fixed assets 12 54,331 29,145 Tangible fixed assets 13 5,364 4,802 Financial fixed assets 14 - - Total fixed assets 59,695 33,947
Current assets Inventories 16 19,902 11,440 Accounts receivable 15, 17 31,062 6,167 Other receivables 7,709 2,293 Prepaid expenses and accrued income 15, 18 2,402 832 Cash and cash equivalents 15, 19 211,713 60,596 Total current assets 272,788 81,328 Total assets 332,483 115,275
Shareholders’ equity 20 Share capital 10,832 9,562 Other paid-in capital 556,646 337,125 Translation difference -17 - Retained earnings, including profit/loss for the year -277,717 -244,771 Shareholders’ equity attributable to Parent Company shareholders 289,744 101,915 Total shareholders’ equity 289,744 101,915
Long-term liabilities Other long-term liabilities 423 672 Total long-term liabilities 32 423 672
Current liabilities Accounts payable 15 25,674 4,588 Other current liabilities 21 1,482 574 Accrued expenses and deferred income 15, 22 15,160 7,525 Total current liabilities 42,316 12,687 Total shareholders’ equity and liabilities 332,483 115,275
Assets pledged and contingent liabilities, Group At December 31 SEK 000s Note 2013 2012 Assets pledged None None Contingent liabilities None None
Beyond keys and pins 35 FPC ANNUAL REPORT 2013
Statement of changes in equity
Retained earnings, Total Share Other paid-in Translation incl. profit/loss for shareholders’ SEK 000s capital capital difference the year equity Opening shareholders’ equity, Jan 1, 2012 8,722 304,151 -206,589 106,285 Comprehensive income for the year: Net loss for the year -38,183 -38,183 Other comprehensive income for the year New share issue 840 32,250 33,090 Paid-in warrant premiums 723 723 Closing shareholders’ equity, Dec 31, 2012 9,562 337,125 -244,774 101,915 Opening shareholders’ equity, Jan 1, 2013 9,562 337,125 -244,774 101,915 Comprehensive income for the year: Net loss for the year -32,946 -32,946 Other comprehensive income for the year -17 -17 New share issue 1,271 214,927 216,198 Paid-in warrant premiums 4,592 4,592 Closing shareholders’ equity, Dec 30, 2013 10,832 556,646 -17 -277,717 289,744
Consolidated statement of cash flows SEK 000s Note 2013 2012 Operating activities 27 Loss before tax -32,946 -38,183 Adjustment for non-cash items 12,581 9,630 Cash flow from operating activities before changes in working capital -20,365 -28,553
Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories -8,462 -7,094 Increase (-)/Decrease (+) in operating receivables -31,881 46,799 Increase (+)/Decrease (-) in operating liabilities 29,630 3,335 Cash flow from operating activities -31,078 14,487
Investing activities Acquisition of, and in-house developed, intangible fixed assets 12 -35,800 -10,397 Acquisition of tangible fixed assets 13 -2,549 -1,959 Divestment of financial fixed assets 14 - 947 Acquisition of financial fixed assets 14 - - Cash flow to investing activities -38,347 -11,409
Financing activities Amortization of loans and raised loans -249 672 Warrants, new programs 4,592 723 New share issue through redemption of warrants 13,424 - New share issue 202,773 33,090 Cash flow from financing activities 220,541 34,486
Cash flow for the year 151,117 37,564 Cash and cash equivalents, January 1 60,596 23,032 Cash and cash equivalents, December 31 27 211,713 60,596
36 Beyond keys and pins FPC ANNUAL REPORT 2013
Parent Company income Parent Company balance sheet statement At December 31 SEK 000s Note 2013 2012 January 1 – December 31 Assets SEK 000s Note 2013 2012 Fixed assets Net sales 2, 4 95,405 10,276 Intangible fixed assets 12 54,331 29,145 Cost of goods sold -56,260 -15,959 Tangible fixed assets 13 4,607 3,829 Gross profit/loss 39,145 -5,683 Financial fixed assets 14 8,255 3,568 Total fixed assets 67,193 36,542 Selling costs -29,310 -10,098 Administrative costs -17,681 -12,471 Current assets Development costs -26,090 -8,956 Inventories 16 19,902 11,440 Other operating expenses 5 -278 -1,527 6, 7, 8, Current receivables Operating loss 24, 25 -34,214 -38,735 Receivables from Group companies 2,572 - Accounts receivable 15, 17 31,062 6,167 Profit/loss from financial items: 9 Advance payments to suppliers - 372 Other interest income and similar profit/ loss items 1,495 633 Other receivables 5,387 1,828 Interest expenses and similar profit/loss Prepaid expenses and accrued income 15, 18 2,286 832 items -349 -36 Cash and cash equivalents 15, 19 209,567 59,895 Loss before tax -33,068 -38,138 Total current assets 270,776 80,534 Tax 10 - - Total assets 337,969 117,076 Net loss for the year -33,068 -38,138
Shareholders’ equity 20 Restricted shareholders’ equity Parent Company statement of Share capital (1,200,000 Class A shares, 46,608,135 Class B shares) 10,832 9,562 comprehensive income Statutory reserve 41,450 41,450 January 1 – December 31 Unrestricted shareholders’ equity SEK 000s Note 2013 2012 Share premium reserve 327,099 107,579 Net loss for the year -33,068 -38,138 Loss brought forward -57,127 -18,989 Net loss for the year -33,068 -38,138 Net loss for the year -33,068 -38,138 Total shareholders’ equity 289,186 101,464 Other comprehensive income for the year - - Comprehensive income for the year -33,068 -38,138 Current liabilities Accounts payable 15 25,325 4,588 Liabilities to subsidiaries 7,614 3,212 Other current liabilities 21 888 288 Accrued expenses and deferred income 15, 22 14,956 7,524 Total liabilities and current liabilities 48,783 15,612 Total shareholders’ equity and liabilities 337,969 117,076
Assets pledged and contingent liabilities for the Parent Company At December 31 SEK 000s Note 2013 2012 Assets pledged None None Contingent liabilities None None
Beyond keys and pins 37 FPC ANNUAL REPORT 2013
Parent Company statement of changes in equity
Restricted shareholders’ equity Unrestricted equity Share Statutory Share premium Profit/loss Net profit/loss Total share- SEK 000s capital reserve reserve brought forward for the year holders’ equity Opening shareholders’ equity, Jan 1, 2012 8,722 41,450 74,607 -22,352 3,363 105,788 Comprehensive income for the year: Net loss for the year -38,138 -38,138 Other comprehensive income for the year Appropriation of profits 3,363 -3,363 New share issue 840 32,250 33,090 Paid-in warrant premiums 723 723 Closing shareholders’ equity, Dec 31, 2012 9,562 41,450 107,579 -18,989 -38,138 101,464 Opening shareholders’ equity, Jan 1, 2013 Comprehensive income for the year: Net loss for the year -33,068 -33,068 Other comprehensive income for the year Appropriation of profits -38,138 38,138 New share issue 1,271 214,927 216,198 Paid-in warrant premiums 4,592 4,592 Closing shareholders’ equity, Dec 31, 2013 10,832 41,450 327,099 -57,127 -33,068 289,186 Parent Company statement of cash flows SEK 000s Note 2013 2012 Operating activities 27 Loss before tax -33,068 -38,138 Adjustment for non-cash items 12,384 9,520 Cash flow from operating activities before changes in working capital -20,684 -28,617
Cash flow from changes in working capital Increase (+)/Decrease (-) in inventories -8,462 -7,094 Increase (+)/Decrease (-) in operating receivables -32,108 46,759 Increase (+)/Decrease (-) in operating liabilities 33,171 3,769 Cash flow from operating activities -28,083 14,817
Investing activities Acquisition of, and in-house developed, intangible fixed assets 12 -35,800 -10,397 Acquisition of tangible fixed assets 13 -2,549 -878 Divestment of financial fixed assets 14 - 949 Acquisition of financial fixed assets 14 -4,687 -723 Cash flow to investing activities -43,034 -11,049
Financing activities Warrants, new programs 4,592 723 New share issue through redemption of warrants 13,424 - New share issue 202,773 33,090 Cash flow from financing activities 220,789 33,814
Cash flow for the year 149,672 37,580 Cash and cash equivalents, January 1 59,895 22,314 Cash and cash equivalents, December 31 27 209,567 59,895
38 Beyond keys and pins FPC ANNUAL REPORT 2013
Notes to the financial statements
Note 1 Significant accounting may lead to significant adjustments in the following new or revised standards with future application. policies year’s financial statements are described in greater The standards that may have an impact on the detail in Note 28. Group’s financial statements in the future are All amounts are in SEK 000s unless otherwise presented below, but the effects have not yet been indicated. Significant accounting policies applied analyzed. Except for those polices described in more detail, Compliance with standards and legislation. • IFRS 9 Financial Instruments is expected to the accounting policies presented below were The consolidated financial statements were replace IAS 39 Financial Instruments: applied consistently to all of the periods presented prepared in accordance with International Classification and measurement in IFRS 9 is in the Group’s financial statements. Furthermore, Financial Reporting Standards (IFRS/IAS) issued currently being improved. The effective date is the Group’s accounting policies were applied by the International Accounting Standards Board January 1, 2018. However, the standard consistently by the Group companies. (IASB) and the interpretations issued by the requires EU approval. International Financial Reporting Interpretations Amended accounting policies • IFRS 10 Consolidated Financial Statements. The Committee (IFRIC) as adopted by the EU. The changes mainly pertain to Special Purpose No changes have taken place. Swedish Financial Reporting Board’s recommen- Entities and the consolidation of these. dation RFR 1 (Supplementary Accounting Rules for Groups) was also applied. (i) New and revised IFRSs have not had any material • IFRIC 21 Levies – The interpretation contains The Parent Company applies the same impact on the financial statements rules for outflows imposed on entities by accounting policies as the Group, except in the The amended accounting policies applied by the governments and when they should be cases described below under “Parent Company Group as of January 1, 2013 are described below. recognized as a liability. accounting policies.” The Annual Report and the No other IFRS amendments with effect from 2013 consolidated financial statements were approved have had any material effect on the Group’s Classification etc. for issue by the Board of Directors and President on financial statements. Fixed assets and long-term liabilities essentially May 6, 2014. The consolidated statement of Amended IAS 1 Presentation of Financial comprise amounts that are expected to be comprehensive income and statement of financial Statements. (Presentation of Items of Other recovered or paid twelve months or more after the position and the Parent Company’s income Comprehensive Income). The amendment entails balance-sheet date. Current assets and current statement and balance sheet will be adopted by the that items shown in “Other comprehensive income” liabilities essentially comprise amounts that are Annual General Meeting (AGM) on June 4, 2014. are divided into two categories: items that have expected to be recovered or paid within twelve been or may be reclassified to profit and loss, and months from the balance-sheet date. Measurement basis applied to the those that will not. Items that have been, or may be, preparation of the financial statements reclassified include translation differences. Items Segment reporting Assets and liabilities are recognized at cost, that will not be reclassified are remeasurement of An operating segment is a part of the Group that except for certain financial assets and liabilities defined-benefit pension plans and remeasurement conducts operations from which it can generate measured at fair value through profit or loss. in accordance with the revaluation model for income and incur costs and for which separate Financial assets and liabilities measured at fair intangible and tangible assets. The comparative financial information is available. Furthermore, value comprise derivative instruments. The Group figures have been re-presented. the results of an operating segment can be does not apply hedge accounting. reviewed by the company’s chief operating IFRS 12 Disclosure of Interests in Other Entities Unrealized gains and losses resulting from decision maker to evaluate the outcomes and to IFRS 12 requires a wide range of disclosures fluctuations in the fair value of the hedging allocate resources to the operating segment. about the company’s interests in subsidiaries, joint contracts are continuously recognized in profit or Refer to Note 3 for a more detailed description of arrangements, associates and unconsolidated loss under the segment, Fingerprint Sensors. the division and presentation of the company’s “structured entities.” operating segments. Functional and presentation currency IFRS 13 Fair Value Measurement The parent company’s functional currency is the IFRS 13 aims to provide a single framework for Consolidation principles (i) Subsidiaries Swedish crown which is the reporting currency for measuring fair value and requires disclosures about Subsidiaries are companies that are subject to a the Parent Company and the Group. This means fair value measurement. IFRS 13 does not change controlling influence from Fingerprint Cards AB that the financial statements are presented in the requirements regarding items that are to be (publ). A controlling influence means a direct or an Swedish crowns. All amounts, unless otherwise recognized at, or disclosures about, fair value. This indirect right to formulate a company’s financial and indicated, are rounded to the nearest thousand. standard is applied prospectively and no compara- operational strategies to generate economic tive information need be provided. IFRS 13 requires benefits. An assessment of whether a controlling Judgments and estimates in the consideration of factors specific to the transaction influence exists takes into account shares carrying financial statements and to the asset and liability. Under IFRS 13, the potential voting rights that can be immediately Preparing the financial statements in accordance effect of own credit risk must be considered in the utilized or converted. Subsidiaries are recognized in with IFRS requires that company management make fair value measurement of financial liabilities. The accordance with the purchase method. judgments, estimates and assumptions that affect transaction price will generally correspond to fair In accordance with this method, an acquisition of a the application of the accounting policies and the value. IFRS 13 includes all transactions and subsidiary is considered to be a transaction through carrying amounts of assets, liabilities, income and balances (financial and non-financial) for which IFRS which the Group indirectly acquires the subsidiary’s expenses. The actual outcome may deviate from requires or permits fair value measurement, except assets and assumes its liabilities and contingent these estimates and judgments. for transactions in connection with share-based liabilities. The consolidated cost is determined by These estimates and assumptions are regularly remuneration and lease transactions. This standard performing an acquisition analysis in conjunction reviewed. Changes to estimates are reported in the has not had any material impact. period in which the change is made if the change with the acquisition. The analysis determines the cost for the participations or the operations and the affects only that specific period, or are reported in (iii) New IFRSs that are yet to be applied the period in which the change is made and future fair value of the acquired identifiable assets and the A number of new or revised IFRSs will not take assumed liabilities and contingent liabilities on the periods if the change affects the current and future effect until the next fiscal year and have not been periods. Judgments made by company management acquisition date. The cost of the subsidiaries’ shares applied prospectively in preparing these financial or operations comprises the sum of the fair value of in the application of IFRS that have a material impact statements. There is no plan to prospectively apply on the financial statements and estimates made that the paid assets on the acquisition date, arisen or
Beyond keys and pins 39 FPC ANNUAL REPORT 2013 NOTES
assumed liabilities and for issued equity instruments (ii) Financial leases company management. Derivative instruments paid in exchange for the acquired net assets. Costs The minimum lease fees are distributed between are also classified in this category. Assets and directly attributable to the acquisition are expensed interest expense and amortization of the outstanding liabilities in this category are classified as current on a current account basis. For business combina- liability. The interest expense is distributed over the if they are held for sale or are expected to be sold tion whereby the cost exceeds the fair value of the lease term so that each accounting period is charged within 12 months of the balance-sheet date. acquired assets and assumed liabilities and with an amount corresponding to a fixed interest rate contingent liabilities that are recognized separately, for the liability recognized in each period. Variable 2. Loan receivables and accounts receivable the difference is recognized as goodwill. If the fees are expensed in the periods in which they arise. Financial assets and liabilities that are not difference is negative, it is recognized directly in net classified as derivative instruments and that are profit for the year. Subsidiaries’ financial statements Financial income and expenses subject to fixed payment and are not quoted on an are included in the consolidated financial statements Financial income comprises interest income on active market. Classification as a current asset from the acquisition date until the date on which the invested funds and gains from changes in value of occurs if the due date arises less than 12 months controlling influence ceases. financial assets measured at fair value in profit or after the balance-sheet date, following which loss. Gains/losses from the divestment of a non-current assets is the classification. (ii) Transactions eliminated on consolidation financial instrument are recognized when the risks 3. Investments held to maturity Inter-company receivables and liabilities, income or and benefits associated with ownership of the Financial assets and liabilities that are not expenses and unrealized gains or losses arising instrument are transferred to the purchaser and derivative instruments subject to fixed payment from inter-company transactions between the Group the Group no longer has control of the instrument. and fixed due dates that company management companies are eliminated in their entirety when the Financial expenses comprise interest expense, intends or has the capacity to hold until maturity. consolidated financial statements are prepared. losses on changes in value of financial assets During 2013 and 2012, the Group had no assets in measured at fair value in profit or loss and this category. Following initial recognition, these impairment losses on financial assets. Foreign currency assets and liabilities are measured at accrued Transactions in foreign currency are translated to cost in accordance with the effective interest Taxes the functional currency at the exchange rate method, adjusted for any impairment losses. The Consolidated tax comprises current tax and prevailing on the transaction date. The functional result is recognized in profit or loss when the deferred tax. Current tax assets and liabilities for currency is the currency in the primary economic asset is divested or impaired, and in pace with the current and prior periods are measured at the environments in which the companies conduct their recognition of accrued interest. operations. Monetary assets and liabilities in amount expected to be paid to or by the tax foreign currencies are translated to the functional authorities based on the tax rates and the tax 4. Financial assets held for resale currency at the exchange rate prevailing on the legislation that are adopted or have essentially The category of financial assets with the potential balance-sheet date. Exchange-rate differences been adopted on the balance sheet date. to be sold includes financial assets that are not arising in conjunction with these translations are Current tax is tax pertaining to taxable profit for classified in any other category or financial assets recognized in profit or loss. Non-monetary assets the period. Deferred tax arises due to temporary that the company has chosen to classify in this and liabilities recognized at historic costs are differences between the taxable value and the category. During 2013 and 2012, the Group had no translated according to the exchange rate on the carrying amount of an asset or liability. Current assets in this category. These assets apply to transaction date. Non-monetary assets and tax and deferred tax are recognized in profit or non-current assets unless company management liabilities measured at fair value are translated to loss with the exception of transactions recognized intends to divest the investment within 12 months the functional currency at the exchange rate in other comprehensive income. Tax attributable of the balance-sheet date. Measurement occurs prevailing on the date of fair value measurement. to items recognized in other comprehensive initially at fair value including transaction costs. Currency flows for 2014 have not been hedged. income is also recognized in other comprehensive Changes in value are recognized against other Due to the new share issues implemented in 2013 income. Deferred tax assets are recognized in the comprehensive income. When the asset is sold, and early 2014, access to Swedish kronor for the balance sheet insofar as it is probable that they the accumulated changes in value are reversed to payment of costs in SEK has been secured in 2014. can be utilized to offset future taxable surpluses. profit or loss. Unrealized changes in value are The net surplus from sales in USD and purchasing When calculating the Group’s deferred tax assets recognized in other comprehensive income unless costs of goods sold in USD is not exchanged, but and tax liability, a tax rate of 22% is applied. the value decline is material or has persisted for a retained as working capital in the ongoing expansion. long time. In these fall cases, impairment losses Classification of financial assets are charged against profit or loss. Income Financial instrument recognized in the statement Income for the sale of goods is recognized in profit of financial position include, on the assets side, (ii) Classification and measurement or loss when the material risks and benefits cash and cash equivalents, accounts receivable, A financial asset or financial liability is recognized associated with ownership of the product have financial investments and derivatives. Accounts in the statement of financial position when the been transferred to the purchaser. Income is not payable are included on the liabilities side. Group becomes a contractual party in accordance recognized if it is unlikely that the economic with the terms of the instrument’s contract. A benefits will accrue to the Group. Revenue is not (i) Classification receivable is entered when the company has recognized if substantial uncertainty exists The Group’s financial instruments are classified in performed and the counterparty has a contractual concerning payment, associated costs or the risk the following four categories. The purpose of the obligation to pay, even if the invoice has yet to be of returns or if the seller retains a commitment to acquisition of financial instruments constitutes sent. Accounts receivable are recognized in the the ongoing management that is usually the basis for classification. Classification is made statement of financial position when an invoice is associated with ownership. Income is recognized by company management in connection with the sent. Liabilities are recognized when the at the fair value of the amount received, or first recognition occasion. The classification counterparty has performed and there is a expected to be received, less discounts provided. determines how the financial instrument is to be contractual obligation for the company to make a measured after the first recognition occasion, in payment without an invoice having yet been Leasing the manner show below. received. Accounts payable are recognized when (i) Operating leases the invoice has been received. A financial asset is Expenses pertaining to operating leases are 1. Financial assets measured at the fair value via derecognized from the statement of financial profit or loss recognized in profit loss for the year straight-line position when the contractual rights have been This category comprises two subgroups: financial over the lease term. Benefits received from signing realized, expire or the Group loses control of assets and liabilities held for sale and those that a lease agreement are recognized in profit or loss them. The equivalent applies to a portion of a on the date of acquisition were classified as being as a decrease in leasing fees straight-line over the financial asset. A financial liability is derecognized measured at fair value via profit or loss. A financial term of the lease agreement. Variable fees are from the statement of financial position when a asset or liability is entered in this category if it has expensed in the periods in which they arise. contractual obligation has been received or been acquired with the purpose of being sold in otherwise extinguished. A financial asset and a the short term or has been classified as such by
40 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
financial liability are offset and recognized at net and are initially measured at the lower of the leased date on which they became available for use. The amount in the statement of financial position only item’s fair value and the current value of the estimated useful lives are as follows: when a legal right to offset the amounts exists and minimum leasing fees when the contract is signed. Products 3-4 years it is intended that the items be settled at net The obligation to pay future leasing fees is Platforms 4-5 years amount or simultaneously realize the asset and recognized as a long-term and current liability. The Useful lives are reassessed annually. settle the liability. Acquisitions and divestments of leased assets are depreciation over their respective financial assets are recognized on the trade date useful lives while leasing payments are recognized Inventories which is the date on which the Group undertakes as interest and amortization of liabilities. Assets Inventories are measured at the lowest of cost and to acquire or divest the asset. rented under operating leasing are not usually the net selling price. The cost of the inventories is A financial instrument that is not a derivative is recognized in the statement of financial position. calculated by applying the first-in, first-out method initially recognized at cost corresponding to the fair Operating leases do not give rise to liabilities. (FIFU) and includes expenses arising in conjunction value of the instrument plus transaction costs for with the acquisition of inventory items and the all financial instruments, except for those belonging (iii) Additional costs transportation to their current location and to the category of financial assets measured at fair Additional costs are added to a cost only if it is condition. The cost of manufactured goods and work value in profit or loss, which are measured at fair probable that the future economic benefits in progress includes a reasonable share of indirect value excluding transaction costs. associated with the asset will accrue to the costs based on normal capacity. Derivative instruments are recognized initially at company and the cost can be calculated reliably. The net selling price is the estimated sales price in fair value, whereby transaction costs are charged Other additional costs are recognized as an the operating activities, less estimated expenses for against profit or loss. Changes in the value of expense in the period in which they arise. completion and bringing about a sale. Inventories derivative instruments are recognized in operating An additional cost is added to cost if the expense are measured at accrued cost. profit. Cash and cash equivalents comprise cash pertains to the exchange of identified components funds and immediately available balances with or portions thereof. An expense is also added to Impairment banks and similar institutions, as well as current cost if a new component is created. Any non- The Group’s recognized assets are tested on every liquid investments, which are exposed to only an depreciated carrying amounts for exchanged balance-sheet date to determine whether there insignificant risk of currency fluctuations. components, or portions of components, are are any indications of impairment. IAS 36 is Exchange-rate fluctuations pertaining to operating scrapped and expensed in conjunction with the applied to the impairment of assets that are not receivables and liabilities are recognized in exchange. Repairs are expensed continuously. financial assets recognized in accordance with IAS operating loss, while exchange-rate fluctuations 39, assets for sale and divestment groups (iv) Depreciation principles pertaining to financial receivables and liabilities are recognized in accordance with IFRS 5, inventories recognized in net financial items. Depreciation takes place on a straight-line basis in and deferred tax assets. The carrying amounts of Accounts receivable are financial assets that are relation to the estimated useful life of the asset. the exempted assets stated above are determined not derivatives, that have determined or determina- Leased assets are depreciated over their estimated in accordance with the respective standard. ble payments and which are not listed on an active useful lives or their contractual lease term, if market. These assets are measured at amortized shorter. The estimated useful lives are as follows: (i) Impairment of tangible and intangible assets cost. Amortized cost is determined based on the Plant and machinery 5 years If there is an indication of impairment, the asset’s effective rate that is calculated on the acquisition Equipment, tools, fixtures and fittings 5 years recoverable amount is calculated. The recover- date. Accounts receivable are recognized at the able amount of intangible assets is also calculated amounts at which they are expected to be received, Intangible assets annually. If it is not possible to determined meaning less any doubtful receivables. Loans and (i) Research and development significant independent cash flows to an individual other financial liabilities, such as accounts payable, Development expenditure, aimed at achieving new asset, and its fair value less selling expenses are measured at amortized cost. This does not or improved products or processes, is recognized cannot be used, the assets are grouped when apply to derivative liabilities, which are instead as an asset in the statement of financial position, if tested for impairment at the lowest level from measured at fair value. the product or process is technically and which it is possible to identify significant commercially viable and the company has sufficient independent cash flows, known as a cash- Tangible fixed assets resources to complete the development process generating unit. An impairment loss is recognized (i) Owned assets and subsequently use or sell the intangible asset. when an asset’s carrying amount exceeds its Tangible fixed assets are recognized in the Group at The carrying amount includes directly attributable recoverable amount. An impairment loss is cost less accumulated depreciation and any expenses, such as materials and services used and recognized as an expense in profit or loss. impairment. Cost includes the purchase price and consumed in connection with processing, any expenses that are directly attributable to the registration of legal rights and borrowing costs in (ii) Impairment of financial assets asset to put it in place and in the condition to be accordance with IAS 23. Other development On each reporting occasion, the company tests utilized for the purpose for which it was acquired. expenditure is recognized in profit or loss as an whether there is objective evidence that a financial Accounting policies for impairment are described expense when it arises. Development expenditure asset or group of assets requires impairment. below. The carrying amount of a tangible fixed asset recognized in the statement of financial position is Objective evidence comprises observable is derecognized from the statement of financial recognized at cost less accumulated amortization circumstances that have occurred and that have a position when it is disposed or divested or no more and any impairment losses. negative impact on the possibility of recovering future economic benefits are expected to be derived Research expenses aimed at obtaining new costs and significant or protracted decreases on from the use or disposal/divestment of the asset. scientific or technical knowledge are recognized the fair value of an investment in a financial Gains or losses arising in conjunction with the as an expense when they arise. Since all research investment classified as an available-for-sale divestment or disposal of an asset comprise the originates from products and market demand, no financial asset. Impairment testing of accounts difference between the sales price and carrying research arises. receivable is determined based on historical amount of the asset, less direct selling expenses. experience of customer losses from similar Gains and losses are recognized as other operating (ii) Amortization principles receivables. Accounts receivable that require income/expenses. Amortization is recognized in profit or loss impairment are recognized at the present value of straight-line over the estimated useful lives of the future cash flows. However, receivables with short (ii) Leased assets intangible assets, unless the useful lives are terms are not discounted. Impairment losses on Lease agreements are classified as either financial indeterminable. The useful lives are reassessed at available-for-sale financial assets are recognized or operating leasing. Financial leasing exists when least once a year. Intangible assets with an in profit or loss in net financial items. the economic risks and benefits associated with indeterminable useful life or that are not ready for ownership have been essentially transferred to the use are tested for impairment every year and as (iii) Reversal of impairment lessee. If this is not the case, it is operating leasing. soon as there is an indication suggesting that the Impairment losses on assets encompassed by the Assets hired under financial leases are recognized asset has declined in value. Intangible assets with scope of IAS 36 can be reversed if there is an as fixed assets in the statement of financial position determinable useful lives are amortized from the indication suggesting that impairment no longer
Beyond keys and pins 41 FPC ANNUAL REPORT 2013 NOTES
exists and a change has been made to the (iii) Share-based payments Differences between consolidated and Parent assumptions that formed the basis of the An options program enables employees to acquire Company accounting policies calculation of the recoverable amount. A reversal shares in the company. The expense recognized The differences between the consolidated and only takes place to the extent that the asset’s corresponds to the fair value of an estimate of the Parent Company accounting policies are carrying amount following reversal does not number of warrants that is expected to be earned, presented below. The accounting policies for the exceed the carrying amount that would have been taking into consideration terms of services and Parent Company described below were applied recognized, less depreciation/amortization where performance that are not market conditions. This consistently to all periods presented in the Parent necessary, had the impairment loss not been expense is adjusted in subsequent periods to Company’s financial statements. recognized. Impairment losses on accounts eventually reflect the actual number of warrants receivable recognized at amortized cost are earned. However, no adjustment is made for when (i) Amended accounting policies reversed if the previous reasons for recognizing warrants are forfeited due to only the non-fulfill- No change has taken place. an impairment loss no longer exist and full ment of market conditions and/or conditions that payment can be expected from the customer. are not earnings conditions. Social security (ii) Classification and presentation format contributions attributable to share-based Earnings for the Group are recognized in the Earnings per share instruments issued to employees as remuneration statement of comprehensive income and for the The calculation of earnings per share is based on for services purchased are expensed over the Parent Company in the income statement. In the net profit/loss for the year in the Group period during which the services are performed. addition, the Parent Company uses the terms attributable to the Parent Company’s owners and The provision for social security contributions is “balance sheet” and “cash-flow statement” for the on the weighted average number of shares based on the fair value of the warrants on the statements that the Group refers to as “statement outstanding during the year. In calculating reporting date. The fair value is calculated in of financial position” and “statement of cash earnings per share after dilution, earnings and the accordance with the same measurement model as flows,” respectively. The balance sheet for the average number of shares are adjusted to take applied when the warrants were issued. Parent Company has been presented according to into account the diluting effects of potential the format stipulate din the Annual Accounts Act, common shares, which arise during recognized Provisions while the statement of comprehensive income, the periods from warrants issued to employees. The A provision differs from other types of liabilities statement of changes in shareholders’ equity and dilution of warrants outstanding only affects the since there is uncertainty surrounding the point in the cash-flow statement are based on IAS 1 number of shares in the calculation when the time that payment will be received or the amount of Presentation of Financial Statements and IAS 7 redemption price is lower than the share price. payment to be received to settle the provision. A Statement of Cash Flows. provision is recognized in the statement of financial (iii) Subsidiaries Remuneration of employees position when there is an existing legal or informal Participations in subsidiaries are recognized in The Group has defined-contribution pension plans. obligation as a result of an event that has occurred the Parent Company in accordance with the cost Defined-contribution pension plans are classified and it is probable that an outflow of economic method. as the plans whereby the company’s obligation is resources will be required to settle the obligation and the amount can be reliably estimated. limited to the contributions it has undertaken to (iv) Segment reporting Provisions are established at the amount pay. In such cases, the amount of the employee’s The Parent Company’s distribution of net sales corresponding to the best estimate of the amount pension depends on the contribution that the matches the Group’s segments and the distribu- required to settle the existing obligation on the company pays to the plan or to an insurance tion of revenues from external customers, as balance-sheet date. Since the effect of the point in company and the return on capital generated by the shown in Note 4. contributions. Consequently, the employee bears time at which payment is made is of importance, the actuarial risk and investment risk. The provisions are calculated by discounting the (v) Tangible fixed assets company’s obligation regarding contributions to expected future cash flow at an interest rate before Tangible fixed assets in the Parent Company are defined contribution plans is recognized as an tax that reflect the current market assessment of recognized at cost less accumulated depreciation expense in profit or loss in line with contributions the time value of money and, if applicable, the risks and any impairment in the same manner as for the being earned by the employee performing the associated with the liability. Group, with the additional of any revaluations. services for the company over a period of time. Contingent liabilities (vi) Leased assets (i) Severance pay A contingent liability is recognized when there is a All lease agreements in the Parent Company are An expense for severance pay when employees potential commitment deriving from an event that recognized as operating leasing. leave the company is recognized only if the has occurred and the existence of which is company is demonstrably obligated, without a confirmed by only one or more uncertain future (vii) Group contributions and shareholders’ contribu- realistic possibility of withdrawing, by a formal events or when there is a commitment that is not tions for legal entities detailed plan to terminate employment before the recognized as a liability or a provision since it is Group contributions paid are recognized in the normal point in time. When severance pay is not probable that an outflow of resources will be Parent Company as an increase in the item provided as an offer to encourage voluntary required. “Participations in Group companies” in the balance redundancy, an expense is recognized if it is sheet. A Group contribution received is recognized probable that the offer will be accepted and the Parent Company accounting policies in the Parent Company in the same manner as number of employees who will accept the offer The Parent Company’s Annual Report is prepared in dividends; that is, as financial income. can be reliably estimated. accordance with the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Reporting (ii) Short-term remuneration Board’s recommendation RFR 2 Accounting for Short-term remuneration to employees is Legal Entities. The statements regarding listed calculated without discounting and is recognized companies as issued by the Financial Reporting as an expense when the related services are Board were also applied. Under RFR 2, in its Annual received. A provision is recognized for the Report for the legal entity, the Parent Company is to expected cost of the profit-sharing and bonus apply all IFRS and statements adopted by the EU as payments when the Group becomes subject to a far as possible within the framework of the Annual legal or constructive obligation to make such Accounts Act, the Pension Obligations Vesting Act payments as a result of the services performed by and with respect to the relationship between employees and the obligation can be measured accounting and taxation. The recommendation reliably. stipulates the exemptions and additions to IFRS that are to be made.
42 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Note 2 Distribution of income Note 3 Cost of goods sold Income per Opening costs in Cost of Parent significant type of goods sold Group Company income Group Parent Company SEK 000s 2013 2012 2013 2012 SEK 000s 2013 2012 2013 2012 Materials -41,521 -3,460 -41,521 -3,460 Net sales: 95,405 10,276 95,405 10,276 Depreciation in accordance Sale of goods 95,405 10,276 95,405 10,276 with plan associated with -10,199 -9,472 -10,199 -9,472 balances development Purchasing and production -4,540 -3,022 -4,540 -3,027 expenses Cost of goods sold -56,259 -15,954 -56,260 -15,959 Note 4 Operating segments The Group’s business activities are divided into operating segments based on the parts of the operations reviewed by the company’s chief operating decision maker, which is known as a “management approach.” Since Group management reviews the results of the operations and decides on the allocation of resources based on the products manufactured and sold by the Group, these comprise the Group’s operating segments. Accordingly, the Group’s internal reporting is structured to enable Group management to review the performance and results of all products. The Group’s segments have been identified based on this internal reporting structure. The following operating segments have been identified: • Fingerprint sensors • Other
Total and continuing The Group’s operating segments Fingerprint sensors Other operations SEK 000s 2013 2012 2013 2012 2013 2012 Income from external customers 95,405 10,276 - - 95,405 10,276 Depreciation/amortization -12,599 -10,806 - - -12,599 -10,806 Operating profit -34,036 -38,699 - - -34,036 -38,699 Net financial items 1,090 516 - - 1,090 516 Profit/loss before tax -32,946 -38,183 - - -32,946 -38,183
Total and continuing The Group’s operating segments Fingerprint sensors Other operations SEK 000s 2013 2012 2012 2011 2013 2012 Assets 332,483 115,275 - - 332,483 115,275 Investments in fixed assets* -38,347 -11,409 - - -38,347 -11,409 Liabilities 42,739 13,358 - - 42,739 13,358 Cash flow from operating activities -31,077 14,487 - - -31,077 14,487 Cash flow to investing activities -38,347 -11,409 - - -38,347 -11,409 Cash flow from financing activities 220,541 34,486 - - 220,541 34,486
Total and continuing The Group’s operating segments Fingerprint sensors Other operations SEK 000s 2013 2012 2013 2012 2013 2012 Assets 95,405 10,276 - - 95,405 10,276 Investments in fixed assets* -12,384 -10,806 - - -12,384 -10,806 Liabilities -34,214 -38,735 - - -34,214 -38,735 Cash flow from operating activities 1,146 597 - - 1,146 597 Cash flow to investing activities -33,068 -38,138 - - -33,068 -38,138
Total and continuing The Group’s operating segments Fingerprint sensors Other operations SEK 000s 2013 2012 2012 2011 2013 2012 Assets 337,969 117,076 - - 337,969 117,076 Investments in fixed assets -43,034 -11,049 - - -43,034 -11,409 Liabilities 48,783 15,612 - - 48,783 13,358 Cash flow from operating activities -28,083 -14,817 - - -28,083 14,487 Cash flow to investing activities -43,034 -11,049 - - -43,034 -11,409 Cash flow from financing activities 220,789 33,813 - - 220,789 33,813
*Assets and investments in fixed assets exclude financial instruments.
Beyond keys and pins 43 FPC ANNUAL REPORT 2013 NOTES
Geographical areas Note 6 Employees, personnel costs and Income from remuneration of senior executives Group external customers Fixed assets Expenses for remuneration of employees 2013 2012 2013 2012 Group 2013 2012 Sweden 441 433 57,778 31,191 Salaries and remuneration, etc. 26,367 16,443 Asia 91,966 9,088 1,925 2,756 Share-based payments - - Europe, Middle East Pension expenses, defined- and Africa 1,270 183 - - contribution plans 4,915 3,364 South and North Social-security contributions 8,472 5,369 America 1,728 572 - - 41,243 25,176 Total 95,405 10,276 59 695 33,947 Parent Company 2013 2012 Income from Parent Company external customers Fixed assets Salaries and remuneration, etc. 24,878 16,443 2013 2012 2013 2012 Share-based payments - - Sweden 441 433 65,268 33,786 Pension expenses, defined- contribution plans 4,915 3,364 Asia 91,966 9,088 1,925 2,756 Social-security contributions 8,472 5,369 Europe, Middle East and Africa 1,270 183 - - 38,265 25,176 South and North Share-based payments pertain to warrants programs that in every case America 1,728 572 - - were subscribed for at market prices. No personnel expenses as a result of Total 95,405 10,276 67,193 36,542 these programs were incurred or recognized. Warrants contain no conditions concerning continued employment for a certain period.
*Assets and investments in fixed assets exclude financial instruments. Average number of employees of of Income from external customers was attributed to individual countries whom, whom, according to the country in which the customer is domiciled. Group 2013 men 2012 men Information regarding major customers Sweden 27 93% 19 95% In 2013, the company generated income from one corporate group totaling Group total 19 SEK 54,243,000 (5,129,000), as well as one corporate group totaling SEK 27,888,000 (3,460,000). This income was recognized in the Fingerprint of of sensors operating segment and the geographical area of Asia. whom, whom, Parent company 2013 men 2012 men Parent Company The Parent Company’s division into operating segments is presented above. Sweden 26 93% 19 95% Group total 19 Note 5 Other operating expenses Group and Parent Company Gender distribution in company management SEK 000s 2013 2012 Dec 31, 2013 Dec 31, 2012 Exchange-rate losses on operating Percentage of Percentage of receivables/liabilities -278 -1,527 Group women women -278 -1,527 Board of Directors 0% 20% Other senior executives 0% 0%
Dec 31, 2013 Dec 31, 2012 Percentage of Percentage of Parent Company women women Board of Directors 0% 20% Other senior executives 0% 0%
If the company terminates employment, severance pay is payable in an amount corresponding to not more than six monthly salaries. The period of notice for the President is a maximum of six months.
44 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Salaries and other remuneration specified by senior executives and other employees, and social security contributions SEK 000s 2013 2012 Other Other Group Senior executives (7) employees Total Senior executives (7) employees Total Salaries and other remuneration 14,616 11,751 26,367 9,318 7,125 16,443 Of which President 4,455 - 3,390 3,118 - 2,500 Of which Sweden 14,616 8,552 23,168 9,318 7,125 16,443 Of which beyond Sweden - 3,199 3,199 - 504 504 Total 14,616 11,751 26,367 9,318 7,125 16,443 (of which, bonus, etc.) 3,517 - 3,517 1,815 - - Social security contributions 7,965 5,422 13,387 4,698 2,469 7,168 Of which pension expenses 2,762 2,201 4,963 1,456 961 2,417
SEK 000s 2013 2012 Other Other Parent Company Senior executives (7) employees Total Senior executives (7) employees Total Salaries and other remuneration 14,616 10,262 24,878 9,318 7,125 16,443 Of which President 3,390 - 3,390 2,500 - 2,500 Of which Sweden 14,616 8,552 23,168 9,318 7,125 16,443 Of which beyond Sweden - 1,710 1,710 - 504 504 Total 14,616 9,552 24,878 9,318 7,125 16,443 (of which, bonus, etc.) 3,517 - 3,517 500 - - Social security contributions 7,965 5,422 13,387 4,698 2,469 7,168 Of which pension expenses 2,714 2,201 4,915 1,455 961 2,417
Of pension expenses, SEK 1,017,000 (618,000) pertains to the President. There were no outstanding pension commitments to the President at the end of the year or the preceding year.
Salaries and other remuneration of senior executives Group and Parent Company 2013 2012 Basic salary Bonus variable Basic salary Bonus variable Board fee remuneration Pension Total Board fee remuneration Pension Total Chairman of the Board Urban Fagerstedt, from December, 2013 17 - - 17 - - - - Mats Svensson, until November, 2013 168 - - 168 170 - - 170
Member of the Board Christer Bergman 110 - - 110 100 - - 100 Urban Fagerstedt, until November 2013 100 - - 100 100 - - 100 Alexander Kotsinas, from December, 2013 10 - - 10 - - - - Tord Wingren 60 - - 60 - - - - Johan Carlström ------Sigrun Hjelmqvist 50 - - 50 100 - - 100 Anders Hultqvist 50 - - 50 100 - - 100
President Johan Carlström 2,430 960 1,017 4,455 2,000 500 618 3,118 Other senior executives (6/5 people) 8,669 2,557 1,697 12,923 5,503 1,315 838 7,656 Total from the Parent Company 11,664 3,517 2,714 17,963 8,073 1,815 1,456 11,344
Variable salary pertains to bonus earned, which is paid on pending achievement of performance targets.
At the end of 2013, FPC had four outstanding warrants programs that, in combination, amounted to 12.70% of the total number of shares and 10.82% of the total
Beyond keys and pins 45 FPC ANNUAL REPORT 2013 NOTES
number of votes in the company: Parent TO3: An Extraordinary General Meeting on November 17, 2011 approved the Group Company issue of 2,000,000 warrants with a term extending to December 18, 2014, of which 1,760,000 warrants are held by FPC’s employees. The price per SEK 000s 2013 2012 2013 2012 warrant was SEK 0.41 at the time of issue. The remaining warrants were Cost of materials -41,521 -3,460 -41,521 -3,460 nullified. The exercise price for a Class B share is SEK 13.64. On full Personnel costs -33,757 -21,781 -33,757 -21,781 subscription with the support of all warrants in the program, 1,760,000 new Depreciation/amortization -12,599 -10,806 -12,387 -10,697 Class B shares can be issued, corresponding to 3.72% of the total number of shares and 3.10% of the total number of voting rights, which will also raise the Other operating expenses -41,564 -12,928 -41,954 -13,073 share capital by SEK 352,000. The program has been designated TO3. Operating expenses -129,441 -48,975 -129,619 -49,011 TO4: An Extraordinary General Meeting on September 5, 2012 approved the issue of 4,818,000 warrants with a term extending to October 6, 2015. The price per warrant was SEK 0.15 at the time of issue. All of the warrants under the program are held by FPC’s employees. The exercise price for a Class B Note 9 Net financial items share is SEK 9.72. On full subscription with the support of all warrants in the Parent program, 4,818,000 new Class B shares can be issued, corresponding to Group Company 8.53% of the total number of shares and 7.16% of the total number of voting SEK 000s 2013 2012 2013 2012 rights, which will also raise the share capital by SEK 963,600. The program has been designated TO4. Interest income 1,535 633 1,495 633 TO5: An Extraordinary General Meeting on March 4, 2013 approved an Financial income 1,535 633 1,495 633 issue of 1,300,000 warrants with a term extending until March 5, 2016. The Other interest and financial price per warrant was SEK 1.79 at the time of issue. All of the warrants under expenses -445 -117 -349 -36 the program are held by FPC’s employees. The exercise price for a Class B share is SEK 52.35. On full subscription with the support of all warrants in the Financial expenses -445 -117 -349 -36 program, 1,300,000 new Class B shares can be issued, corresponding to 2.45% of the total number of shares and 2.04% of the total number of voting rights, which will also raise the share capital by SEK 260,000. The program Note 10 Taxes has been designated TO5. Parent TO6: An Extraordinary General Meeting on November 6, 2013 approved the Group Company issue of 500,000 warrants with a term extending to November 27, 2016. The price per warrant was SEK 4.53 at the time of issue. The program was SEK 000s 2013 2012 2013 2012 directed at FPC’s employees, as well as individuals working full time for the Current tax expense company or the Group, on a consulting basis and where formal employment is with another company that is not a Group company. The exercise price for a Tax expense for the period - - - - Class B share is SEK 90.16. On full subscription with the support of all Deferred tax expense warrants in the program, 500,000 new Class B shares can be issued, Deferred tax expense for the corresponding to 0.8% of the total number of shares and 0.7% of the total period - - - - voting rights, which will also raise the share capital by SEK 100,000. The program has been designated TO6.Fingerprint Cards has three warrant Total recognized tax expense - - - - programs that, in combination, amount to 14.56% of the total number of shares and 12.02% of the total number of votes in the company: Reconciliation of effective tax In 2013, the TO2 program was redeemed. Group, SEK 000s % 2013 % 2012 TO2 An Extraordinary General Meeting on November 9, 2010 approved the issue of 958,000 warrants with a term extending to May 11, 2013, whereupon Profit/loss before tax -32 946 -38 183 the redemption period expired during the second quarter of 2013. In 2013, all Tax according to applicable tax 853,000 of the program’s remaining warrants were redeemed. The price per rate for warrant was SEK 1.09 at the time of issue. The exercise price was SEK 15.74. Tax according to applicable tax See above, under the heading New share issues. rate for Parent Company -22,0% 7 248 -26,3% 10 042
Non-deductible expenses -0,4% 130 -0,9% 337 Note 7 Fees and remuneration to auditors Change in loss carryforwards without capitalizing deferred tax -22,4% -7 378 27,2% -10 379 Parent Group Company Recognized effective tax - % - - % - SEK 000s 2013 2012 2013 2012 Parent Company, SEK 000s % 2013 % 2012 Audit 262 295 262 295 Profit/loss before tax -33,068 -38,183 Tax consultation 165 24 165 24 Tax according to applicable tax Other fees 80 84 80 84 rate for Parent Company -22.0% 7,275 -26.3% 10,042 Total fees paid to KPMG 507 403 507 403 Non-deductible expenses -0.4% 130 -0.9% 337 Change in loss carryforwards without capitalizing deferred tax -22.4% -7,405 27.2% -10,379 Note 8 Operating expenses specified by type Recognized effective tax - % - - % -
The tax effect on items recognized in shareholders’ equity was SEK 2,634,000 (793,000). The items pertain to listing costs.
Unrecognized deferred tax assets Deductible temporary differences and loss carry-forwards for which deferred
46 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
tax assets were not recognized in the statement of financial position: SEK 000s 2013 2012 SEK 000s 2013 2012 Net loss for the year attributable to Tax deficit 276,729 232,284 Parent Company’s shareholders -32,946 -38,183
According to applicable tax regulations, deductible temporary differences do Weighted average number of outstanding common shares not expire. Deferred tax assets are not recognized. When there is less before and after dilution uncertainty about the profit or loss in the following year, the company will No. of shares 2013 2012 determine the amount to be capitalized as deferred tax assets. Total of shares, January 1. 47,808,135 43,609,586 New share issue 6,353,000 4,198,549 Note 11 Earnings per share Total of shares, December 31. 54,161,135 47,808,135 SEK Before dilution After dilution Total number of outstanding shares for the year before dilution 50,893,945 45,768,293 2013 2012 2013 2012 Total number of outstanding shares for Loss per share -0.60 -0.84 -0.60 -0.84 the year after dilution 55,288,178 45,768,293
The amounts used in the calculation are presented below. The redemption of New share issue after the balance-sheet date warrants is expected to incur costs, of which the effects have no material In January 2014, a private placement of 2.5 million Class B shares was significance. implemented. The new share issue was directed toward international institutional investors. The exercise price for the new issue amounted to Earnings for the year attributable to Parent Company’s SEK 55.25 per share. Share capital rose SEK 500,000. The new share issue common shareholders before dilution amounted to SEK 138 M before deductions for issue expenses.
Note 12 Intangible fixed assets Capitalized development Group and Parent Company expenditure Patents Intangible fixed assets SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Accumulated cost Opening balance 53,432 43,035 - - 53,432 43,035 Scrapping ------Internally developed assets and acquisitions 29,300 10,397 6,500 - 35,800 10,397 Closing balance 82,731 53,432 6,500 - 89,231 53,432
Accumulated amortization Opening balance -22,326 -12,854 - - -22,326 -12,854 Scrapping ------Depreciation for the year -10,199 -9,472 -415 - -10,614 -9,472 Closing balance -32,525 -22,326 -415 - -32,940 -22,326
Accumulated impairment Opening balance -1,960 -1,960 - - -1,960 -1,960 Scrapping ------Impairment for the year ------Closing balance -1,960 -1,960 - - -1,960 -1,960
Carrying amounts At beginning of year 29,145 28,221 - - 29,145 28,221 At end of year 48,246 29,145 6,085 - 54,331 29,145
Depreciation is included in the following rows of the statement of comprehensive income 2013 2012 2013 2012 2013 2012 Cost of goods sold -10,199 -9,472 - - -10,199 -9,472 Development costs - - -415 - -415 -
Intangible fixed assets pertain to internally generated capitalized expenditure for the development of fingerprint-sensor technology and for acquired patents. The useful life is determinable based on the expected commercial potential and earnings, and the remaining validity of the patents. The amortization period is based on estimated useful life, which is 3–4 years for products and 4–5 years for platforms. Impairment losses are recognized after assessing the commercial potential of each project.
Beyond keys and pins 47 FPC ANNUAL REPORT 2013 NOTES
Note 13 Tangible fixed assets Group Parent Company SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Accumulated cost Machinery and equipment Machinery and equipment Opening balance 7,245 6,701 6,164 6,701 Scrapping - -1,415 - -1,415 Other acquisitions 2,549 1,959 2,549 878 Closing balance 9,794 7,245 8,713 6,164
Accumulated depreciation Opening balance -2,443 -2,524 -2,335 -2,524 Scrapping - 1,415 - 1,415 Depreciation for the year -1,985 -1,334 -1,771 -1,225 Closing balance -4,429 -2,443 -4,106 -2,335
Carrying amounts At beginning of year 4,802 4,177 3,829 4,177 At end of year 5,364 4,802 4,607 3,829
Depreciation is included in the following rows of the statement of comprehensive income 2013 2012 2013 2012 Cost of goods sold -973 -906 -965 -896 Administration -277 -140 -253 -110 Market -142 -68 -71 -50 Technology -593 -220 -482 -169 Total -1,985 -1,334 -1,767 -1,225
Note 14 Financial fixed assets Group Parent Company Group, SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Accumulated cost Non-current receivables Non-current receivables Opening balance - 947 - 947 Scrapping - -947 - -947 Other investments - - - - Closing balance - - - - Accumulated impairment - - - - Closing balance - - - - Carrying amounts - - - - Closing balance At beginning of year - -947 - -947 At the end of the year - - - -
Accumulated cost Shares in subsidiaries Opening balance - - 9,568 8,845 Other investments - - 4,687 723 Closing balance - - 14,255 9,568 Accumulated depreciation Opening balance - - -6,000 -6,000 Closing balance - - -6,000 -6,000 Carrying amounts - - 8,255 3,568 Closing balance At beginning of year - - 3,568 2,845 At end of year - - 8,255 3,568
48 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Group Parent Company Group, SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Accumulated cost Total Total Opening balance - 947 9,568 9,792 Scrapping - -947 - -947 Other investments - - 4,687 723 Closing balance - - 14,255 9,568
Accumulated depreciation Opening balance - - -6,000 -6,000 Closing balance - - -6,000 -6,000 Carrying amounts - - 8,255 3,568
Closing balance At beginning of year - -947 3,568 3,792 At the end of the year - - 8,255 3,568
The Group’s financial fixed assets pertain to investments in endowment insurance to discharge agreed pension agreements. In 2012, pension obligations were converted and thus reallocated to occupational-pension agreements.
Note 15 Financial instruments Market capitalization of financial instruments was conducted using the most reliable market prices available. This means that all instruments that are market listed are valued using current spot prices. Following this, conversion to SEK occurs at spot price. The carrying amount less impairment losses comprises an approximate fair value for accounts receivable and accounts payable.
Fair value hierarchy The Group’s financial assets and liabilities are measured at fair value in accordance with the following fair value hierarchy: Level 1: Listed prices on active markets for identical assets or liabilities Measurement is based on exchange rates on the balance-sheet date. Level 2: Other observed date than listed prices included in level 1, direct or indirect from the price listing. Level 3: Data for the asset or liability that is not fully based on observable market data.
Financial assets and liabilities by level in the value hierarchy 2013 2012 Group and Parent Company Level Level SEK 000s 1 2 3 Total 1 2 3 Total Current financial receivables Financial assets at fair value via profit or loss - - - - 64 - - 64 Cash and cash equivalents Financial assets at fair value via profit or loss 8,448 - - 8,448 7,375 - - 7,375 Total financial assets 8,448 - - 8,448 7,439 - - 7,439 Current financial liabilities Financial liabilities at fair value via profit or loss ------Total financial liabilities ------
Beyond keys and pins 49 FPC ANNUAL REPORT 2013 NOTES
Fair value and carrying amount of financial assets and liabilities by balance sheet item and category Group Parent Company SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Carrying Fair Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value amount value Financial assets Current financial assets Prepaid expenses and accrued income - - 64 64 - - 64 64 Loan receivables and accounts receivable Accounts receivable 31,062 31,062 6,167 6,167 31,062 31,062 6,167 6,167 Cash and cash equivalents 211,713 211,713 60,596 60,596 209,567 209,567 59,895 59,895 Total financial assets 242,775 242,775 66,827 66,827 240,629 240,629 66,126 66,126 Financial liabilities
Current financial liabilities Prepaid expenses and accrued income - - - - Accounts payable 25,674 25,674 4,588 4,588 25,325 25,325 4,588 4,588 Total financial liabilities 25,674 25,674 4,588 4,588 25,325 25,325 4,588 4,588
By category Financial assets at fair value via profit or loss - - 64 64 - - 64 64 Loan receivables and accounts receivable 242,775 242,775 66,763 66,763 240,629 240,629 66,064 66,064 Total financial assets 242,775 242,775 66,827 66,827 240,629 240,629 66,128 66,128 Financial liabilities at fair value via profit or loss - - - - Financial liabilities at amortized cost 25,674 25,674 4,588 4,588 25,325 25,325 4,588 4,588 Total financial liabilities 25,674 25,674 4,588 4,588 25,325 25,325 4,588 4,588
Note 16 Inventories Note 17 Accounts receivable Group and Parent Company Group and Parent Company SEK 000s Dec 31, 2013 Dec 31, 2012 Accounts receivable are recognized in the Group and Parent Company after individual assessments of provision requirements. Products in process 2,906 4,237 SEK 000s Dec 31, 2013 Dec 31, 2012 Finished products 16,996 7,203 Total accounts receivable 31,482 6,942 19,902 11,440 Provision for past due accounts receivable -211 -561 Inventories are measured at accrued cost. Measurement in foreign currency -209 -214 Carrying amount 31,061 6,167 Of which, due > 15 days - 205 Of which, due > 30 days 1,317 -
Note 18 Prepaid expenses and accrued income Group Parent Company SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Premises 1,345 511 1,345 511 Exchange and listing expenses - 52 - 52 Insurance expenses 61 39 61 39 Travel expenses 35 34 35 34 Interest income 723 121 723 121 Forward agreements - 64 - 64 Other 238 11 122 11 2,402 832 2,286 832
50 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Note 19 Cash and cash equivalents share issue amounted to SEK 120 M before deductions for issue expenses. In addition to private placements, warrants under the TO2 program were Group, SEK 000s Dec 31, 2013 Dec 31, 2012 redeemed in the period between February and May. Each warrant entitled The following subcomponents are included in cash and cash equivalents the holder to subscribe for one Class B share for SEK 15.74 during the period between February 9, 2013 and May 11, 2013. A total of 853,000 shares were Cash and bank balances 211,713 60,596 subscribed, which raised share capital by SEK 170,600 and resulted in an Current investments equivalent to cash inflow of SEK 13 M. and cash equivalents - - Total in accordance with the Consoli- Capital management dated statement of financial position 211,713 60,596 Under the Board’s policy, the Group’s financial objective is to achieve a healthy financial position that assists in maintaining the confidence of Total in accordance with the Cash-flows statement 211,713 60,596 investors, creditors and the market and that forms a basis for continuing the development of the business activities. The debt/equity ratio is zero since Parent Company, SEK 000s Dec 31, 2013 Dec 31, 2012 FPC’s financing comprises only contributed capital. Neither the Group nor The following subcomponents are included in cash and cash equivalents the Parent Company has paid any dividends to date. No changes were made to the Group’s capital management during the year. Neither the Parent Cash and bank balances 209,567 59,895 Company nor the subsidiary is exposed to external capital requirements. Current investments equivalent to cash and cash equivalents 2) - - Parent Company’s shareholders’ equity Total in accordance with the Balance The reconciliation of opening and closing balances for the Parent Company’s sheet 209,567 59,895 components of shareholders’ equity is presented above in a separate statement of changes in shareholders’ equity after the Parent Company’s balance sheet. Total in accordance with the Cash-flows statement 209,567 59,895 Description of the type and purpose of reserves under shareholders’ equity: Restricted funds Current investments were classified as cash and cash equivalents based on Restricted funds may not be reduced by profit distribution. the following: • They have an insignificant risk of value fluctuations. Statutory reserve • They can be easily converted to cash funds. The aim of the statutory reserve is to save a portion of any net profit that is not utilized to cover losses brought forward. Amounts that were contributed • They have a term of not more than three months from the acquisition date. to the share premium reserve before January 1, 2006 were transferred to and are included in the statutory reserve. In accordance with the transition rules of the amendments to the Annual Accounts Act, funds contributed to Note 20 Shareholders’ equity the share premium reserve before January 1, 2006 are to be transferred to Group or Parent Company the statutory reserve in the first annual report prepared after January 1, 2006. For the companies whose fiscal year is the calendar year, the share Classes of shares No. of shares premium reserve was transferred to the statutory reserve in the 2005 2013 2012 Annual Report. The statutory reserve continues to comprise restricted shareholders’ equity in the Parent Company. Share premium reserves Issued on January 1 arising after January 1, 2006 are recognized as unrestricted shareholders’ Class A shares at beginning of the year 1,200,000 1,200,000 equity in the Parent Company. New share issue Class A shares - - Unrestricted shareholders’ equity Total Class A shares 1,200,000 1,200,000 The following funds, combined with the net loss for the year, comprise Class B shares at beginning of the year 46,608,135 42,409,586 unrestricted shareholders’ equity, which is also available for dividends. New share issue Class B shares 6,353,000 4,198,549 Share premium reserve When shares are issued at a premium, meaning that a higher amount is to Total Class B shares 52,961,135 46,608,135 be paid for the shares than their quotient value, an amount corresponding to Total shares outstanding 54,161,135 47,808,135 the amount received in addition to the quotient value of the share is Quotient value 0.2 0.2 transferred to the share premium reserve. Amounts added to the share premium reserve from January 1, 2006 are included in unrestricted At December 31, 2013, the company’s registered share capital encompassed shareholders’ equity. 54,161,135 common shares (47,808,135). Retained earnings Holders of common shares are entitled to receive dividends that will be Retained earnings comprise the preceding year’s retained earnings and determined in the future and the shareholding entitles the holder to one vote earnings less profits distributed during the year. per share at General Meetings. Three private placements were implemented in 2013. The new share issues were directed toward a few Swedish and international institutional investors. Note 21 Other current liabilities In March 2013, two private placements of 3 million Class B shares were Group and Parent Company implemented. In the first issue on March 11, 1,400,000 Class B shares were Group Parent Company subscribed at an average price of SEK 28.81 per share. In the second issue on March 14, 1,600,000 Class B shares were subscribed at an average price Dec 31, Dec 31, Dec 31, Dec 31, of SEK 34 per share. Combined, the two new share issues raised a total of 2013 2012 2013 2012 SEK 94.7 M before deductions for issue expenses. Share capital increased Employee withholding SEK 600,000. taxes 1,194 288 888 288 In December 2013, a private placement totaling 2.5 million Class B shares Leasing liabilities, was implemented. The subscription price for the new share issue was SEK 48 current 288 286 - - per share. The new share issue raised share capital by SEK 500,000. The new Total 1,482 574 888 288
Beyond keys and pins 51 FPC ANNUAL REPORT 2013 NOTES
Note 22 Accrued expenses and deferred income Market risks Group and Parent Company Market risk is the risk that the fair value of or future cash flows from a financial instrument will vary due to changes in market prices. IFRS divides Group Parent Company market risks into three types: currency risk, interest-rate risk and other Dec 30, Dec 31, Dec 30, Dec 31, price risks. The market risks that primarily impact the Group comprise SEK 000s 2013 2012 2013 2012 currency risks and commodity price risk, while interest-rate risk has less of an impact since the company has no deposits. Vacation pay 2,231 1,070 1,927 1,070 The Group’s aim is to manage and control market risks within established Social security parameters and simultaneously optimize the results of risk-taking within contributions 3,592 2,679 3,692 2,679 specific parameters. These parameters are established in a bid to ensure Production costs 1,185 - 1,185 - that market risks will have only a margin effect on the Group’s earnings and financial position in the short term (6-12 months). However, protracted Salaries 3,957 1,896 3,957 1,896 changes in exchange rates, interest rates and the price of electricity will Board fees 235 285 235 285 impact consolidated earnings in the longer term. Forward contracts - - - - Currency risk Forward agreements - - - - Currency risk is the term for the risk that the fair value and cash flows of Selling costs 2,198 2,198 financial instruments will fluctuate when the value of foreign currencies changes. The Group is exposed to different types of currency risks. The Audit 250 250 250 250 main exposure derives from the Group’s sales and purchases in foreign Other costs 1,512 1,349 1,512 1,349 currencies. These currency risks comprise the risk of fluctuations in the 15,160 7,525 14,956 7,525 value of financial instruments, accounts receivable and accounts payable, and the currency risk inherent in expected and contractual payment flows. Such risks are designated transaction exposure. According to the financial policy, currency risks are hedged up to 90% if Note 23 Financial risks and risk management they are attributable to monetary assets and liabilities, contractual sales or Group and Parent Company other binding commitments. Up to 90% of the net exposure of highly probable The Group is exposed to various financial risks through its business forecast currency flows are hedged for up to one year in advance. Standard- activities. ized forward contracts and currency options are used for these purposes. Financial risks pertain to fluctuations in the company’s earnings and cash Due to the issuance of new shares in 2013, the company has a healthy flow due to changes in exchange rates and interest rates, as well as supply of SEK and therefore, no new forward contracts had been signed at refinancing and credit risks. The Group’s finance policy for the management year-end. Purchasing, manufacturing and sales are essentially conducted in of financial risks was prepared by the Board and forms framework of USD. Fluctuations in other exchange rates have a limited impact on earnings. guidelines and regulations in the form of risk mandates and limits for the Hedge accounting under IAS 39 is not currently applied in the financial financial operations. Financial transactions and risks are managed by the statements. The actual performance of any hedges is recognized in the Parent Company’s finance function. The objective is to: consolidated statement of comprehensive income/Parent Company income • Manage and control financial risk in business activities statement. Net profit for the year includes exchange-rate differences in a • Minimize negative impact on earnings from changes in market rates for negative amount of SEK 0.3 M (neg: 1.5) in operating profit and no amount in currencies and interest net financial items. • Plan and ensure adequate liquidity for business activities Transaction exposure • Optimize the utilization of capital and cash flows. The Group’s transaction exposure and hedges on the balance-sheet date were in the following currencies. Funding risk SEK M Net flows Level of hedging The funding of working capital and development capital has thus far been performed through the issue of shares. The Group has no borrowings and 2013 the policy is to continue minimizing the borrowing requirement through the USD and Total 53,4 0% utilization of share issues to cover capital requirements. The funding risk 2012 comprises the risk that adverse variables impact the availability of funds and the cost of capital in the form of unfavorable terms. Funding risk can be USD and Total 20,0 80% bridged by developing operations and planning. The objective is for the Group to meet its funding commitments and in parallel maintain readiness Transaction exposure was not hedged using currency derivatives (forward to secure additional funding. contracts). The net fair value of forward contracts used to hedge forecast flows was therefore a negative SEK 0.1 M (negative: 0.1) at December 31, Liquidity risk 2013. Of this amount, SEK 0.1 M (-) was recognized in the consolidated Liquidity risk is the risk that the Group encounters problems meeting its statement of financial position as assets and SEK 0 as liabilities. obligations associated with financial liabilities. The Group has rolling liquidity planning, which is updated every month. The Group’s forecasts cover a The fair value of the currency derivatives, when they arise, is expected to be minimum six-month rolling liquidity planning over the medium-term. Liquidity recognized in profit or loss according to the following table: planning is used to manage liquidity risk and costs for financing the Group. The aim is that the Group will be able to meet its financial commitments and to Within 1 year 3 years well in advance have the necessary preparedness. It should be possible to SEK 000s 1 year - 3 years – 8 years > 8 years Total offset upswings and downturns without incurring significant unforeseeable costs. Available liquidity at year-end amounted to SEK 211.7 M (60.6). Earnings - - - - - In accordance with the finance policy, there should always be sufficient cash Effect - - - - - funds and confirmed credit lines to cover the liquidity requirements of the following period. The company’s financial liabilities, which comprise credit No currency hedging was terminated in 2013. from suppliers, amounted to SEK 25.7 M (4.6) at year-end and have a short maturity structure of one to two months.
52 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Sensitivity analysis of currency risk before hedging with effects of forward can in turn pass on the higher costs to its customers. The inability to pass on contracts higher costs to the company’s customers could have a negative impact on If the SEK were to have strengthened 10% against other currencies on the company’s operations, earnings and financial position. December 31, 2013, this would have entailed a change of SEK 1.7 M in shareholders’ equity and SEK 1.7 M in profit. The sensitivity analysis is based Credit risks in accounts receivable on all other factors (such as interest) remaining unchanged. The risk that the Group’s/company’s customers are unable to fulfill their obligations, meaning that payment is not received from customers, comprises a Commodity price risk customer credit risk. Credit checks are performed on the Group’s customers and The raw-material cost of products could be impacted by price fluctuations, result in an assessment for each transaction. For significant accounts receivable, mainly for silicon and gold. The proportion of gold in the products is marginal the risk of credit losses is reduced by taking out credit insurance, bank and price fluctuations will only have a limited effect on the price of the end guarantees or other collateral on customers with low credit ratings or product. Silicon is the main component in the products. Historically, the insufficient credit history. Based on historical data, the Group has concluded that price of silicon has not fluctuated to any significant degree and supply is no impairment of accounts receivable that have not yet fallen due for payment favorable. Should supplies of silicon in the world market decrease, there is a was necessary on the balance-sheet date. A provision of SEK 0.2 M was posted risk of price increases. The price per unit of the company’s purchases from for past due accounts receivable. external suppliers could thereby increase. There is no guarantee that FPC
Maturity structure of past due, non-impaired accounts receivable Group and Parent Company 2013 2012 Carrying amount, Carrying amount, SEK 000s non-impaired receivables Collateral non-impaired receivables Collateral Not past due accounts receivable 29,745 - 5,962 - Past due accounts receivable 0 – 30 days - - 766 - Past due accounts receivable > 30 days – 90 days 1,317 - - - Past due accounts receivable > 90 days 212 - - - Provision for past due accounts receivable -212 - -561 - Total 31,062 - 6,167 -
During the year, accounts receivable valued at SEK 349,000 were reversed from a previous provision. Group and Parent Company 2013 2012 No. of % of total no. No. of % of total no. Sales per year customers of customers % of value customers of customers % of value ‹ SEK 1 M 11 79 4 6 80 2 SEK 1 – 10 M 1 7 16 2 20 98 › SEK 10 M 2 14 80 - - - Total 14 100 100 8 100 100
Interest-rate risk Interest-rate risk is the risk that the value of financial instruments will vary due to changes in market interest rates. Interest-rate risk could lead to changes in fair value and in cash flows. A significant factor that could impact the interest-rate risk is the fixed-interest periods. On the assets side, liquidity investments are regularly reinvested. Investments take the form of short-term (3-12 months) deposits in banks. Due to the short fixed-interest periods the risks are reduced when interest-rate trends are favorable, while the risk is increased when interest-rate trends are unfavorable.
Note 24 Operating leasing Financial leasing Group and Parent Company Group and Parent Company Lease agreements where the company is the lessee Leases where the Company is the lessee Non-terminable leasing payments amounted to: Non-cancellable lease payments are: SEK 000's 2013 2012 SEK 000s 2013 2012 Within one year 288 288 Within one year 3,456 1,044 Between one and five years 432 721 Between one and five years 6,942 6,182 721 1 009 10,398 7,226 During the year lease expenses paid relating to finance leases: Lease expenses paid during the year for operating leases: SEK 000's 2013 2012 SEK 000s 2013 2012 Minimum fees 350 193 Minimum fees 2,305 1,700 Variable fees - - Variable fees - - Total leasing costs 350 193 Total leasing costs 2,305 1,700
Operating leases consist of leases for premises. The largest contracts ceases 30 June 2016 and 31 January 2018 respectively. Opportunity for renegotiattion and extension exist. The contract is subject to ongoing adjustments to the consumer price index.
Beyond keys and pins 53 FPC ANNUAL REPORT 2013 NOTES
The carrying amount of assets under finance leases Financial leases consist of leases of inventories. The largest contract ends 30 June 2015. The contract runs with ongoing adjustments of interest rate. Cost of acquisition: Assets with leasing contracts relates to inventories. The residual value Inventories 1,081 1,081 amounts to 3%, and there is an opportunity to acquire the assets at the end of Accumulated depreciation: the contract period. Inventories -324 -108 Carrying amount on the balance sheet: Inventories 756 973
Note 25 Related parties Transactions with related parties are priced on Related parties market-based terms. The Parent Company is a related party to its subsidiaries, refer to Note 26. Transactions with key individuals in senior positions are limited to individual, less clearly defined consultancy assignments for which specific expertise is Summary of transactions with related parties required. The following remuneration was received by key individuals in senior Group and Parent Company positions: SEK 000s 2013 2012 SEK 000s 2013 2012 Sale of goods/ Services to related parties - - Short-term remuneration of employees 17,963 11,344 Purchase of goods/ services to related parties 494 226 Remuneration after termination of employment - - Other (for example, interest, dividends) - - Other long-term remuneration - - Receivables from related parties at December 31 - - Share-based payments - - Liabilities to related parties - Severance pay - - The amounts pertain to consulting services purchased from Board members. Information regarding remuneration of key individuals in senior positions is presented in Note 6.
Note 26 Group companies Parent Company’s holdings in subsidiaries Registered office of subsidiary, country Holding 2013 2012 Fingerprint Security System Databärare AB Sweden 100% 100% Fingerprint Cards ApS Denmark 100% - SEK 000s 2013 2012 Accumulated cost At beginning of year 9,568 8,845 Investments 4,687 723 Closing balance December 31 14,255 9,568 Accumulated impairment At beginning of year -6,000 -6,000 Closing balance December 31 -6,000 -6,000 Carrying amount, December 31 8,255 3,568
Specification of Parent Company’s direct holdings of participations in subsidiaries Subsidiary / Corp. Reg. No. / Registered office No. of participations Participation, % Dec 31, 2013 Dec 31, 2012 Fingerprint Security System Databärare AB 556239-5938, Gothenburg, Sweden 1,000 100 8,160 3,568 Fingerprint Cards ApS 800 100 95 - Carrying amount, December 31 8,255 3,568
Note 27 Statement of cash flows Cash and cash equivalents Group Parent Company SEK 000s Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 The following subcomponents are included in cash and cash equivalents: Cash and bank balances 211,713 60,596 209,567 59,895 Total in accordance with the statement of financial position 211,713 60,596 209,567 59,895 Total in accordance with the Cash-flows statement 211,713 60,596 209,567 59,895
54 Beyond keys and pins NOTES FPC ANNUAL REPORT 2013
Current investments were classified as cash and cash Note 30 Events after the balance-sheet date equivalents based on the following: January-May 2014: They have an insignificant risk of value fluctuations • Gionee launches Tier 1 smartphone with embedded fingerprint They can be easily converted to cash funds technology from FPC. They have a term of not more than three months from the acquisition date • Chinese OEM manufacturer BBK Electronics releases its Vivo Interest paid and received. smartphone with fingerprint technology from FPC. • FPC employs Niklas Strid as Vice President Customer Projects. Parent Group Company • FPC implements private placement totaling SEK 138 M to Swedish and international institutional investors, refer to Note 11. SEK 000s 2013 2012 2013 2012 • FPC repeats its previous financial forecast of sales exceeding SEK 500 M Interest received 1,535 633 1,495 633 and EBITDA of more than 20%. Interest paid -445 -117 -349 -36 • Chinese bank order of SEK 30 M for area sensors. • Order of SEK 4 M for flagship smartphone with touch sensor. Adjustments for non-cash items • New touch sensor, the FPC 1021, announced. Parent Group Company SEK 000s 2013 2012 2013 2012 Note 31 Assets pledged Depreciation/ amortization 12,599 10,806 12,384 10,697 Group and Parent Company Dec 31, 2013 Dec 31, 2012 Provisions - -1,177 - -1,177 SEK 000s - - 12,599 9,630 12,384 9,520 Assets pledged for unutilized operating credit: bank balances - - Note 28 Important estimates and judgments Company management has discussed with the Audit Committee the development, choice and disclosures regarding the Group’s most important Note 32 Other long-term liabilities accounting policies and estimates and the application of these policies and Group, SEK 000s Dec 31, 2013 Dec 31, 2012 estimates. Accumulated provision Important judgments in the application of the Group’s Opening balance 672 - accounting policies: New liabilities - 672 In 2013, development expenditure was capitalized. The capitalization is based on the anticipated commercial potential of the products to which the Impairment reversals -249 - expenses pertain. The estimates focused on determining the future duration Closing balance 423 672 in which the products would be able to generate earnings and, by their very Carrying amounts nature, these estimates depend on trends in the market, the performance of competitors and technological developments. At beginning of year 672 672 The Group has SEK 277 M in accumulated loss carryforwards, which At end of year 423 - increased due to the tax losses in 2013. Tax loss carryforwards were not recognized as assets in the consolidated statement of financial position or the balance sheet. The trend will thus be tracked and an assessment Due more than one year after the performed when this asset is recognized in the consolidated statement of balance-sheet date 423 672 financial position and statement of comprehensive income. Due more than five years after the balance-sheet date - - 423 672 Note 29 Information regarding the Parent Company Other long-term liabilities refer to the long-term parts of financing obtained Fingerprint Cards AB is a limited liability company registered in Sweden, through financial leasing, refer to Note 24. with its registered office in Gothenburg, Västra Götaland, Sweden. The Parent Company’s shares are registered on the NASDAQ OMX Nordic Exchange Stockholm. Box 2412, SE-403 16 Gothenburg, Sweden. The 2013 consolidated financial statements comprise the Parent Company and its Note 33 Development expenditure subsidiaries, jointly designated “the Group.” In 2013, expenses for technological development increased to SEK 54.8 M (19.3), of which SEK 29.3 M (10.4) was capitalized in the consolidated statement of financial position and in the Parent Company’s balance sheet, and the remaining SEK 25.9 M (8.9) was expensed in the consolidated statement of comprehensive income and in the Parent Company’s income statement, respectively. Of total operating expenses, and capitalized development expenditure, the portion of expenses related to technological development accounted for SEK 54.8 M of a total SEK 106.6 M, representing 51% (24).
Beyond keys and pins 55 FPC ANNUAL REPORT 2013
Assurance by the Board
The Board of Directors and President ing standards. The Annual Report and the and the companies included in the Group. hereby give their assurance that the Annual consolidated financial statements provide As stated above, the Annual Report and Report has been prepared in accordance a true and fair view of the Parent Com- the consolidated financial statements were with generally accepted accounting poli- pany’s and the Group’s financial position approved for issue by the Board of Directors cies in Sweden and that the consolidated and earnings. The Administration Report on May 6, 2013. The consolidated statement financial statements have been prepared in for the Parent Company and the Group of comprehensive income and statement of accordance with the international account- provides a fair review of the performance financial position and the Parent Company’s ing standards referred to in the Regulation of the Parent Company’s and the Group’s income statement and balance sheet will (EC) no 1606/2002 of the European Parlia- operations, financial position and earn- be adopted by the Annual General Meeting ment and of the Council of July 19, 2002 on ings, and describes the significant risks and (AGM) on June 4, 2014. the application of international account- uncertainties faced by the Parent Company
Gothenburg, May 6, 2014
Urban Fagerstedt Christer Bergman Tord Wingren Elected Board member Board member
Alexander Kotsinas Johan Carlström Board member Board member President
My auditor’s report was submitted on May 7, 2014
Johan Kratz Authorized Public Accountant
56 Beyond keys and pins FPC ANNUAL REPORT 2013
Auditor’s report
To the annual meeting of the shareholders of Fingerprint Cards AB Accounts Act. The consolidated financial statements were prepared (publ), Corporate Registration Number 556154-2381. in accordance with the Annual Accounts Act and provides in all significant regards, a true and fair view of the Group’s financial Report on the annual accounts and consolidated financial position as of 31 December 2013, and of its financial profit or loss statements and cash flow for the year in accordance with International Finan- We have audited the annual accounts and the consolidated financial cial Reporting Standards, as adopted by the EU, and the Annual statements of Fingerprint Cards AB (publ) for the 2013 fiscal year. The Accounts Act. The statutory administration report and corporate company’s annual accounts and consolidated financial statements governance report are consistent with the other parts of the annual are included in the printed version of this document on pages 27-56. accounts and consolidated financial statements. We therefore recommend that the annual meeting of Responsibilities of the Board of Directors and the President for the shareholders adopt the income statement and balance sheet annual accounts and consolidated financial statements for the Parent Company and the Group. The Board of Directors and the President are responsible for the preparation and fair presentation of these annual accounts and Report on other legal and regulatory requirements consolidated financial statements in accordance with International In addition to our audit of the annual accounts and consolidated Financial Reporting Standards, as adopted by the EU, and the Annual financial statements, we have examined the proposed appropria- Accounts Act, and for the internal control deemed necessary by the tions of the company’s profit or loss and the administration of the Board of Directors and the President for the preparation of annual Board of Directors and the President of Fingerprint Cards AB for the accounts and consolidated financial statements that are free from 2013 fiscal year. material misstatement, whether such misstatement is due to fraud or error. Responsibilities of the Board of Directors and the President The Board of Directors is responsible for the proposal concerning Auditor’s responsibility the appropriation of the company’s profit or loss, and the Board Our responsibility is to express an opinion on the annual accounts of Directors and the President are responsible for administration and consolidated financial statements based on our audit. We under the Companies Act. conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Auditor’s responsibility These standards require that we comply with ethical requirements Our responsibility is to express an opinion with reasonable assurance and plan and perform the audit to obtain reasonable assurance that on the proposed appropriations of the company’s profit or loss and on the annual accounts and consolidated financial statements are free the administration based on our audit. We conducted the audit in from material misstatement. An audit involves performing various accordance with generally accepted auditing standards in Sweden. procedures to obtain audit evidence about the amounts and disclo- As a basis for our opinion on the Board of Directors’ proposed sures in the annual accounts and consolidated financial statements. appropriations of the company’s profit or loss, we examined whether The auditor chooses such procedures based on such assessments the proposal complies with the Companies Act. As a basis for our as the risk of material misstatement in the annual accounts and opinion concerning discharge from liability, in addition to our audit consolidated financial statements, whether such misstatement is of the annual accounts and consolidated financial statements, we due to fraud or error. In making these risk assessments, the audi- examined significant decisions, actions taken and circumstances tor considers internal control measures relevant to the company’s of the company in order to determine whether any member of the preparation and fair presentation of the annual accounts and con- Board of Directors or the President is liable to the company. We also solidated financial statements in order to design audit procedures examined whether any member of the Board of Directors or the that are appropriate taking the circumstances into account, but not President has, in any other way, acted in contravention of the Com- for the purpose of expressing an opinion on the effectiveness of the panies Act, the Annual Accounts Act or the Articles of Association. company’s internal control. An audit also includes evaluating the We believe that the audit evidence we have obtained is sufficient appropriateness of accounting policies used and the reasonable- and appropriate to provide a basis for our audit opinion. ness of accounting estimates made by the Board of Directors and the President, as well as evaluating the overall presentation of the Opinions annual accounts and consolidated financial statements. We believe We recommend to the annual meeting of shareholders that the profit that the audit evidence we have obtained is sufficient and appropri- be appropriated in accordance with the proposal in the statutory ate to provide a basis for our audit opinion. administration report and that the members of the Board of Directors and the President be discharged from liability for the fiscal year. Opinions It is our opinion that the annual report was prepared in accordance Gothenburg, May 7, 2014 with the Swedish Annual Accounts Act and provides in all significant KPMG AB regards, a true and fair view of the Parent Company’s financial posi- tion as of 31 December 2013, and of its financial profit or loss and Johan Kratz cash flow for the year in accordance with the Swedish Annual Authorized Public Accountant
Beyond keys and pins 57 FPC ANNUAL REPORT 2013
Ten-year summary
Statement of income 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Net sales, SEK M 95.4 10.3 68.6 60.9 38.5 27.5 20.7 11.1 2.7 2.9 Gross profit, SEK M 39,2 -5.7 -37.0 20.4 3.2 -1.0 -12.5 0.2 0.0 0.6 Gross margin % 41 neg neg 33 8 neg neg neg neg neg Operating profit/loss, SEK M -34.0 -38.7 2.7 1.6 -24.7 -24.1 -35.4 -20.0 -18.1 -23.5 Operating margin, % neg neg 5.0 2.6 neg neg neg neg neg neg Profit/loss for the period, SEK M -32.9 -38.1 3.4 2.0 -24.6 -23.3 -34.2 -19.7 -17.5 -21.6 Profit margin, % neg neg 5.0 3.3 neg neg neg neg neg neg Depreciation and amortization, SEK M -12.6 -10.8 -4.9 -6.4 -4.1 -3.5 -2.8 -2.8 -2.8 -1.2 Impairment, SEK M - - - - -5.9 - - - - - EBITDA, SEK M -21.4 -27.9 8.2 8.3 -14.7 -20.8 -32.7 -17.1 -15.2 -22.3
Financial position – Balance sheet Intangible fixed assets, SEK M 54.3 29.1 28.2 22.9 12.3 20.8 16.4 13.7 14.0 16.6 Tangible fixed assets, SEK M 5.4 4.8 4.2 3.7 0.3 0.3 0.3 0.3 0.4 0.7 Financial fixed assets, SEK M - - 0.9 ------Inventories, SEK M 19,9 11.4 4.3 7.9 9.1 15.4 18.0 16.6 5.6 5.8 Accounts receivable, SEK M 31,1 6.2 53.0 17.2 9.7 8.4 4.0 1.1 0.1 1.6 Other receivables + Prepaid expenses, SEK M 10.1 3.1 3.2 3.8 2.3 1.4 1.6 5.6 1.0 0.7 Cash and cash equivalents + Current investments, SEK M 211.7 60.6 23.0 30.8 50.1 22.7 33.8 71.1 40.0 31.0 Shareholders’ equity, SEK M 289.7 101.9 106.3 78.0 74.3 58.1 67.2 100.9 58.7 53.7 Pension provisions, SEK M - - 1.2 ------Non-current liabilities, SEK M 0.4 0.7 ------Current liabilities, SEK M 42.3 12.7 9.3 8.3 9.5 10.9 6.9 7.5 2.4 2.7 Working capital, SEK M 230.5 68.6 74.2 51.4 61.7 37.0 50.5 86.9 44.3 36.4 Balance-sheet total, SEK M 332.5 115.3 116.8 86.3 83.8 69.0 74.1 108.4 61.1 56.4 Inventory turnover rate, days 94 181 74 103 154 211 188 367 760 814 Average credit period, days 99 1035 184 80 85 81 44 19 113 149 Return on capital employed, % neg neg 3.0 2.6 neg neg neg neg neg neg Return on shareholders’ equity, % neg neg 3.0 2.6 neg neg neg neg neg neg Return on capital employed, % neg neg 3.0 2.3 neg neg neg neg neg neg Equity/asset ratio, % 87 88 91 90 89 84 91 93 96 95
58 Beyond keys and pins TEN-YEAR SUMMARY FPC ANNUAL REPORT 2013
Cash flow 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Cash flow from operating activities, SEK M -28.8 14.5 -22,2 -0.6 -11.3 -17.1 -31.9 -28.5 -13.6 -25.0 Cash flow from investing activities, SEK M -38.3 -11.4 -11,7 -20.4 -1.5 -7.8 -5.5 -2.3 0.0 -4.4 Cash flow from financing activities, SEK M 220.5 34.5 24,9 1.8 40.3 13.7 0.0 62.0 22.5 0.0 Cash flow for the period, SEK M 151.1 37.6 -7,8 -19.3 27.5 -11.2 -37.4 31.2 8.9 -29.4
Share Earnings per share, Kr -0.65 -0.84 0.08 0.05 -1.08 -1.22 -1.79 -1.33 -1.63 -2.17 Earnings per share after full dilution, SEK -0.60 -0.84 0.08 0.05 -1.08 -1.22 -1.79 -1.33 -1.63 -2.17 Cash and cash equivalents + investment at the end of the period/ share, SEK 4.16 0.83 0.54 0.78 1.26 1.86 2.78 6.39 4.28 4.88 Equity per share, Kr 5.31 2.34 2.44 1.97 3.26 3.04 3.52 6.79 5.46 5.38 Equity per share, after full c onversion, SEK 5.20 2.34 2.50 1.97 3.26 3.04 3.52 6.79 5.46 5.38 Cash flow from operations per average number of shares, SEK -0.57 0.71 -0.52 -0.02 -0.50 -0.90 -1.67 -1.92 -1.26 -2.51 Shares at end of period 54,161,135 47,808,135 43,609,586 39,669,586 39,669,586 12,152,733 12,152,733 11,122,434 9,348,258 6,348,258 Average shares during the period 50,893,945 45,768,293 43,102,117 41,865,556 20,934,120 20,149,946 20,149,946 15,687,496 11,354,814 10,525,785 Shares after dilution, average 55,288,178 45,768,293 43,102,117 41,865,556 20,934,120 20,149,946 20,149,946 15,687,496 11,354,814 10,525,785 Dividend per share, SEK 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Share price at period end, SEK 54.25 12.35 9.30 8.95 3.30 2.58 13.20 16.20 12.00 13.30 Market capitalization at period end, SEK M 2,938 559 406 355 131 56 160 180 112 84
Employees at period end 48 19 19 19 13 13 12 11 11 12 Order backlog at period-end, SEK M 23 20 6 11 37 31 25 * * *
Beyond keys and pins 59 FPC ANNUAL REPORT 2013
Corporate Governance Report
The governance of Fingerprint Cards AB (publ.) Major shareholdings The notification is to include information (FPC) is distributed among the various corpo- For information on shareholders whose regarding the manner of and the final date rate bodies according to the laws, rules and holdings directly or indirectly exceed one for notification of attendance, the right to processes to which they are subject. Corporate tenth of the voting rights for all of the participate and vote at the Meeting, a governance defines the decision-making sys- shares in the company, refer to page 29 of numbered agenda showing the matters to be tems and structure through which sharehold- the Administration Report. addressed, information on the appropriation ers directly or indirectly control the company. of earnings, and the main content of other (FPC) is a Swedish public limited-liability Shareholders’ influence and proposals. company listed on NASDAQ OMX Stockholm. Shareholder Meetings Shareholders or their representatives may A Swedish public limited liability company with FPC is a CSD-registered company, which vote for the full number of shares owned or listed securities is obliged to comply with the means that the company’s share register is represented. One Class A share carries 10 rules that affect the company’s governance, of maintained by Euroclear Sweden AB. At votes and one Class B share carries one vote which the most important are: December 30, 2013, FPC had 14,107 share- at the Meeting. Notifying intention to attend the holders. Ultimately, it is FPC’s sharehold- Annual General Meeting is primarily through • The Swedish Companies Act ers who determine corporate governance. e-mail, in accordance with the instructions in • Rule Book for Issuers, NASDAQ OMX Shareholders exercise their voting right at the official notification. For participation as a Stockholm the General Meeting. The General Meeting representative, the shareholder must issue a • The Swedish Corporate Governance Code. is the highest decision-making body. The power of attorney to the representative. If the The Code states the purpose of corpo- Annual General Meeting (AGM) addresses shares are registered with a nominee, they rate governance as being “to ensure that changes in the most important governing must be re-registered in the shareholder’s companies are managed as efficiently as document – the Articles of Association. The name in the share register no later than the possible on behalf of the shareholders.” record date of the Meeting. The record date Swedish limited liability companies with General Meeting approves the financial publicly traded shares are also subject to results and balance sheet, discharges the is stated in the notification of the meeting. legislation governing securities and their Board from liability, elects a new Board, Official notification of an Extraordinary General trading, market and price-sensitive infor- elects auditors, resolves on remuneration of Meeting (EGM), at which the matter of the mation, of which the most important are: the Chairman of the Board, Board members company’s Articles of Association is to be dealt • The Financial Instruments Trading Act and auditors and resolves on guidelines for with, must be issued no earlier than six weeks • The Swedish Act concerning Reporting the remuneration of senior executives and and no later than four weeks prior to the Obligations for Certain Holdings of changes in the number of shares and their Meeting. Notification of any other EGMs must Financial Instruments structure. The official notification of the be issued no earlier than six and no later than • The Market Abuse Penalties Act. AGM is dispatched no earlier than six and no three weeks ahead of the Meeting. later than four weeks prior to the Meeting. Proposals concerning matters to be dealt
SHAREHOLDERS
Proposal NOMINATION COMMITTEE AGM
Election Election Information
BOARD, REMUNERATION AND AUDIT COMMITTEE Information AUDITORS Objectives and strategies Reports and controls Responsible for control of operations in its entirety Reports to Board of Directors and PRESIDENT AND EXECUTIVE MANAGEMENT shareholders. Information
INTERNAL CONTROLS EXTERNAL CONTROLS Business concept and objectives, Articles of Association, Swedish Companies Act, Swedish Annual Accounts Act, Rules of Procedure for the Board of Directors, Instructions other applicable laws, Rule Book for Issuers and Swedish to the President, strategies, policies, Code of Conduct and Corporate Governance Code core values.
60 Beyond keys and pins CORPORATE GOVERNANCE REPORT FPC ANNUAL REPORT 2013
with by the Meeting must be addressed to the • Determination of the remuneration of the Committee is appointed. The Nomination Board and be submitted well in advance of auditors. Committee is to appoint a member, who is the issuance of the notification of the Meeting. • Election of Board members and Chairman not the Chairman of the Board, from among Prior to the Annual General Meeting on June of the Board, to which Tord Wingren was its numbers as Chairman of the Nomination 4, 2014, a request from shareholders to have elected as a new Board member. Committee. Should a member of the Nomina- a matter addressed by the Meeting must be • Resolution concerning the Nomination tion Committee step down from the Commit- received no later than April 18, 2014 to be Committee. tee before the 2014 AGM, the members of the included in the notice convening the Meeting. • Determination of guidelines for senior Nomination Committee are entitled to jointly Most resolutions at the General Meeting executives. appoint another representative of the major are passed by a simple majority. In certain • Authorization of the Board during the shareholders to replace the outgoing member. cases, the Swedish Companies Act states period up until the next AGM to make decisions regarding the issue of up to that resolutions must be passed by a quali- FPC’s Nomination Committee consists of: 10,000,000 Class B shares. Preferential fied majority. This concerns, for example, rights for shareholders may be disapplied • Dimitrij Titov (Nomination Committee’s resolutions regarding amendments of the on issuance. Chairman, independent in relation to the company). Articles of Association, which require the • Authorization of the Board during the support of at least two-thirds of sharehold- period up until the next AGM to make • Tommy Trollborg (Independent in relation ers in terms both of the votes cast and the decisions regarding the issuance of up to the company) shares represented at the Meeting. Minutes to 10,000,000 Class B shares. Issuance • Lars Söderfjell (Representing the share- of the General Meetings were published on is to be conducted subject to preferential holder Sunfloro AB, which holds 18.47% rights for shareholders. of the votes) FPC’s website www.fingerprints.com • Chairman of the Board. • The tasks of the Nomination Committee ahead of the 2014 AGM are to present: 2013 AGM The AGM for the 2012 fiscal year was held in Nomination Committee and the • A proposal regarding the Chairman of the Meeting Gothenburg on June 18, 2013. Notification of nomination process • A proposal regarding the Board of Directors the Meeting was published on May 14, 2013. At the 2012 AGM, the proposals of the Shareholders attending the Meeting repre- Nomination Committee regarding Board • A proposal regarding the Chairman of the Board sented 23.79% of the number of votes and members were presented, and the following 7.85% of the number of shares. nominees were subsequently elected as Board • A proposal regarding remuneration of Board members Resolutions passed by the Meeting included: members: At the 2013 AGM, the proposals of • Approval of the financial results and bal- the Nomination Committee regarding Board • A proposal regarding remuneration of auditors ance sheet for fiscal year 2012. members were presented, and the following • Proposal regarding the composition of the • Approval of the appropriation of profit nominees were subsequently elected as Board Nomination Committee prior to the 2014 where profit was brought forward to the members: Christer Bergman, Urban next financial year. AGM. Fagerstedt, Anders Hultqvist, Sigrun • Shareholders may submit proposals to • Discharge of liability for the Board and Hjelmqvist and Mats Svensson. Mats President for 2012. the Nomination Committee, by sending Svensson was elected Chairman of the Board. them to: [email protected] • Resolution that the number of Board Members of the Nomination Committee members should be four. were determined at the AGM. The period in • Determination of Board fees, SEK 200,000 office of the Nomination Committee extends to Chairman of the Board and SEK until such time as a new Nomination 120,000 per year to Board members.
Independent* in relation to Stepped Major Board meeting Designation Function Elected down Committee work The company shareholders attendance Fees Chairman Nomination Committee Mats of the Remuneration Committee Svensson Board Nov 9, 2010 Nov 26, 2013 Auditing Committee Yes No 19 168,000 Christer Remuneration Committee Bergman Member Aug 8, 2008 - Auditing Committee Yes Yes 19 110,000 Urban Member, June 6, 2009 Remuneration Committee Fagerstedt Chairman Nov 26, 2013 - Auditing Committee Yes No 24 117,000 Sigrun Remuneration Committee Hjelmqvist Member June 17, 2010 June 18, 2013 Auditing Committee Yes Yes 4 50,000 Anders Remuneration Committee Hultqvist Member June 6, 2009 June 18, 2013 Auditing Committee Yes Yes 6 50,000 Tord Remuneration Committee Wingren Member June 18, 2013 - Auditing Committee Yes Yes 16 60,000 Alexander Remuneration Committee Kotsinas Member Nov 26, 2013 - Auditing Committee Yes Yes 5 10,000 Johan Remuneration Committee Carlström Member Nov 26, 2013 - Remuneration Committee No No 6 -
Beyond keys and pins 61 FPC ANNUAL REPORT 2013 CORPORATE GOVERNANCE REPORT
Extraordinary General Meetings 2013 member may remain in office. The Articles of As stated in the work procedures for the In 2013, two Extraordinary General Meetings Association state that the Board must consist Board of Directors and other provisions, the were held: of four to seven members and the Board Chairman of the Board is responsible for Stockholm, March 4, 2013. Notification of currently comprises five members. In 2013, ensuring that the work of the Board is con- the Meeting was published on February 7, Anders Hultqvist and Sigrun Hjelmqvist ducted efficiently and that the Board fulfills 2013 in Post- och Inrikes Tidningar. Share- stepped down from their Board member its obligations. holders attending the Meeting represented assignments at the AGM. Tord Wingren was These include organizing and supervising 18.49% of the number of votes and 2.33% of elected new Board member at the AGM the work of the Board and creating optimal the number of shares. The Meeting passed and at the Extraordinary General Meeting conditions for its work. In addition, the a resolution to approve the Board’s motion on November 26, Alexander Kotsinas and Chairman of the Board ensures that Board regarding the issuance of warrants. Johan Carlström were elected as new Board members are continuously updated and that Stockholm, November 26, 2013. Notifica- members. At the same Extraordinary General they increasingly familiarize themselves tion of the Meeting was published on Febru- Meeting, Mats Svensson stepped down from with the company’s operations, and that new ary 7, 2013 in Post- och Inrikes Tidningar. his assignments as Board member and members receive a suitable introduction. Shareholders attending the Meeting repre- Chairman of the Board. Urban Fagerstedt The Chairman is to be available as an advis- sented 24.58% of the number of votes and was elected new Chairman of the Board. er and discussion partner for the President 8.80% of the number of shares. The Meeting The Board is responsible for FPC’s but also evaluates the latter’s work as well passed resolutions to approve the Board’s organization and manages FPC’s business as presenting the resulting assessment to motions regarding the issuance of warrants, on behalf of the shareholders. The Board the Board. The Chairman is responsible for to increase the number of Board members to continuously assesses FPC’s financial the evaluation of the Board’s performance five, to elect Alexander Kotsinas and Johan situation and ensures that FPC is organ- and informs the Nomination Committee of Carlström as Board members, and to elect ized so that bookkeeping, management of the results of the evaluation. Urban Fagerstedt as the new Chairman since funds and the company’s financial situation Mats Svensson had decided to step down. in general are controlled in a satisfactory Board meetings manner. The Board appoints the President During 2013, the Board held 25 meetings. Board of Directors and makes decisions concerning matters 2013 was characterized by a high level of The Board comprises five members. FPC’s involving the strategic direction of operations activity that required Board decisions and Board has ultimate responsibility for the and the company’s overall organization. The consultation; two Extraordinary General control of operations between AGMs. Board Board sets corporate policy and instructions Meetings, approval of two incentive members are elected annually by the AGM for ongoing operations, which are headed by programs, three new share issues and for the period up until the end of the next the President. In turn, the President ensures continuous decisions concerning compre- AGM. Changes in the composition of the that the Board is kept continuously aware of hensive development projects, business Board between the AGMs may be made events that are of significance for the Group’s activities that developed positively with through a resolution of an EGM, or by a development, financial results, position a number of Design Wins and market member choosing to resign prematurely liquidity or other important matters about launches of products containing FPC’s from his/her assignment. Board members which the Board should be kept informed. components, the two best interim reports have broad and extensive experience from The President may be elected to the Board; to date in terms of sales and several major business and industry and all members however, in line with the Swedish Companies development projects that were initiated or are or have been corporate presidents or Act, the said person may not be elected as continued during the year. senior executives. Most of them have other Chairman of the Board in a public limited FPC’s employees participate in Board assignments as Board members of relevant liability company. At the end of 2013, the meetings when required as presenters of companies from a management, market, Board members were: (The Board members information. technology or international perspective. are presented separately on page 66 of the The annual work cycle of the Board com- The Swedish Corporate Governance Code Annual Report) mences with the statutory meeting after the (the Code) includes provisions to the effect AGM, at which the Board’s working proce- that a majority of the Board members elected Rules of Procedure for the Board of Directors dures and the instruction for the President at the AGM are to be independent in relation Pursuant to the Swedish Companies Act, the are adopted. Recurring items on the agenda to the company and executive management, Board has established working procedures for subsequent meetings during the year and that at least two of the independent and an instruction for the President that include the Group’s executive management members are also to be independent vis-à- state how work is to be allocated between debriefings as regards business conditions, vis shareholders who control 10% or more the Board as a whole, its committees operations, organization, financial results, of the shares or votes in the company. An and between the Board Chairman and position and trends in cash and cash equiva- assessment by the Nomination Commit- President. This is a complement to the lents. The budget and business plan for the tee concluded that all five members are Swedish Companies Act and the Articles of next year are dealt with by the Board in the independent in relation to the company Association. The Board reviews, evaluates autumn and prior to Christmas. and executive management. Three of the and adopts work procedures annually at In conjunction with the end of the quarter, members are independent in relation to statutory meetings after the AGM. In addi- meetings are held to make decisions major shareholders. In line with the Code, tion to the Board’s working procedures and regarding the publication of interim quarterly, the Chairman of the Board is also elected instructions, policies are in place stating the six-month and year-end reports. Ahead at the AGM. There are no rules determining purpose, framework and responsibility for of the AGM, meetings are held to make the maximum period during which a Board individual business activities and functions. decisions regarding the notification, annual
62 Beyond keys and pins CORPORATE GOVERNANCE REPORT FPC ANNUAL REPORT 2013
report, corporate governance documents factorily. The company’s auditor reported other employment terms for the President and other matters for the AGM. In addition, to the Board on one occasion, and to the and senior executives and presents the the Board is required to hold meetings President on one occasion in the 2013 fiscal Board with proposals in respect of these regarding EGMs, new share issues and year. During 2013, the auditor attended the issues. The Board decides on pay and other other decision-making activities. AGM on June 18. remuneration of the President. Remu- neration of the President and other senior Remuneration Committee President executives comprises basic salary, variable The Remuneration Committee evaluates FPC’s President, Johan Carlström, is in remuneration, other benefits, pension and and prepares matters regarding remunera- charge of the company’s business opera- financial instruments. Variable remunera- tion and employment terms for executive tions. The allocation of responsibility between tion may not exceed 40% of basic salary. management, and draws up guidelines the Board and the President is defined in The term “other senior executives” refers for the remuneration of the President and written instructions for the President as to the individuals who, in addition to the senior executives for approval by the AGM. adopted by the Board. The President reports President, constitute Group management. The Remuneration Committee ensures to the Board and regularly presents a report As of the salary review in 2012, most of the that remuneration matches the prevailing on how operations are progressing in terms revised remuneration will be allocated to the market terms for comparable positions in of the goals and strategies established and variable share in an effort to increase the other companies and that the company’s pay decisions made by the Board. performance-based salary to a maximum of offering is thus competitive. The Board sets 40%. The period of notice is a maximum of the President’s remuneration. Internal control six months for either party. If the company Remuneration of other senior executives is FPC is a small but rapidly growing organiza- terminates employment, severance pay decided by the President following consulta- tion. The President has, to a certain extent, is payable in an amount corresponding to tion with the Remuneration Committee. delegated responsibility for internal control to not more than six monthly salaries. Dur- At FPC, the entire Board handles the department managers. Responsibility entails ing the period of notice of no longer than Remuneration Committee’s tasks. that there are appropriate instructions and six months, full salary and employment procedures for operations that are to be benefits are paid. Decisions regarding share Audit Committee regularly monitored and reported. Respon- and share-price-based incentive programs The task of the Audit Committee is to support sibility is limited by defined amounts and are made by the General Meeting. All the work of the Board by ensuring high-quality proximity to the managers’ own positions. pension provisions are to be of the defined- internal control, financial reporting and exter- Responsibility for internal controls, compli- contribution category. nal auditing. Among other responsibilities, this ance with rules and operational risks are For 2014, the Board has no proposals for involves examining interim and year-end thus an integral part of executive responsibil- amending the guidelines pertaining to the reports ahead of publication and dealing with ity. The financial policy, which was updated in remuneration of senior executives. all critical accounting issues and assessments. 2011, includes frameworks for investments, External information is provided via the web- The Board meets the external auditor on at cash management, currency hedging and the site (www.fingerprints.com) and through press least two occasions. At FPC, the entire Board granting of credit in connection with sales. releases. Inquiries regarding information, handles the Audit Committee’s tasks. Credit is granted only if there is good reason investment and the Nomination Committee to assume that the credit recipients will meet may be made to [email protected]. Auditing their obligations; otherwise, sales are con- At the 2010 AGM, KPMG, – with Johan Kratz ducted against advance payment. FPC seeks Internal control as the auditor-in-charge, was elected as to ensure the continuance of its low custom- Pursuant to the Swedish Code of Corporate FPC’s auditor. Johan Kratz has been an er bad-debt losses, thereby contributing to Governance, the Board is to ensure that the authorized public accountant since 1995. profitability and a solid financial position. company maintains adequate internal Johan Kratz is also auditor at companies controls and keep itself continuously including Concordia Maritime AB, Akzo Guidelines for remuneration of the informed of and evaluate how the com- Nobel Pulp & Performance Chemicals AB Board pany’s system for internal control functions. and Nobel Biocare AB. The Chairman and members of the Board Furthermore, the Board submits a report on The auditor examines the administration, are remunerated in accordance with AGM the organization of the internal control of the financial statements, internal procedures and resolutions. No separate remuneration is financial reporting and, if internal control is control systems, interim financial statements paid for committee work. Remuneration for not in place, evaluates the need of such a and interim reports, six-month accounts 2013/14 amounted to SEK 200,000 to the function and motivates its opinion. and six-monthly reports, year-end financial Chairman of the Board and SEK 120,000 statements and Annual Report, and issues a to Board members, totaling SEK 560,000. Control environment statement regarding the Board’s reports in Board members appointed during the year The fundamental platform in the control conjunction with decisions made on mat- receive fees in relation to the remaining environment consists of the guidelines ters such as new share issues and warrant period until the next AGM. and controlling documents including the programs. Each year, the Board meets with Board’s working procedures and instruction the auditor to receive the auditor’s report as Guidelines for remuneration of senior to the President as described earlier in the to whether the company’s organization is executives corporate governance report, as well as the appropriately configured to ensure that The Remuneration Committee, which is allocation of responsibility and authority that accounting, management of funds and appointed from among Board members, is adapted to the business organization. It conditions in general are controlled satis- prepares guidelines in respect of pay and is primarily the President’s responsibility as
Beyond keys and pins 63 FPC ANNUAL REPORT 2013 CORPORATE GOVERNANCE REPORT
part of daily operations to maintain the con- concept, strategies and goals, that is, on awareness of FPC and increase confidence trol environment as designated by the Board. critical issues for operations. A high level in FPC, its management and employees, The President reports regularly to the Board of IT security is a prerequisite for effective while promoting business activities. in line with set procedures. In addition to the internal control over financial reporting. A communication policy is in place that above, reports are submitted by the auditor. External financial reporting with accom- provides guidelines governing internal and panying controls is performed on a quar- external communication. The aim is to Risk terly basis and internal financial reporting is ensure that disclosure requirements are com- Risk assessment is performed on a continu- performed monthly. Controls are performed plied with in a correct and complete manner. ous basis and comprises the identification and based on a business plan which is broken management of any risks that could impact down by annual budget. The budget is revised Follow-up business activities and financial reporting. The during the year and is utilized to produce Compliance with the Board’s working proce- primary risk within the framework of finan- forecasts and forms the basis for the follow dures, instructions, policies and procedures cial reporting is the risk of material errors up of actual results. In reporting, analysis and are followed up by the Board and Group in the financial reporting. Risk management comments are reported on trends vis-à-vis the management. The financial situation and comprises part of the business activities’ pro- set goals. Control of development projects is business outlook are dealt with at Board cedures and various methods are utilized to performed through ongoing project monitor- meetings. The Board reviews financial ensure that risks are managed in compliance ing and reporting of subprojects. Performance reports and decides on publication prior to with regulations, instructions and procedures and costs expended are related to plans and the publication of financial reports. Interim, with the aim of providing correct information. budgets and the anticipated remaining project six-month and annual closing financial state- expenses for project completion are reported. ments, with accompanying financial reports, Control activities Liquidity and cash flow are followed up on an are reviewed by the auditor. Monthly reports Control activities are designed to manage the ongoing basis with the updating of forecasts are submitted to the Board in the form of a risks that the Board and Group management and the resultant liquidity planning. President’s report, which includes sec- assess as essential for the internal control of A high degree of IT security is a prereq- tions for business functions. The Executive the financial reports. Control activities aimed uisite for favorable internal control of the Management Group meets frequently and at preventing, identifying and correcting financial reporting. regularly reviews business developments, errors and deviations are evaluated. Assign- Control activities are integral features financial trends, the company’s position and ment of responsibility and organization com- throughout the financial reporting procedures. influential events. The Board meets with the prise the structure for the control. Follow-up auditor during the year to review the audit is performed in each respective area of Information and communication of internal control and other assignments. responsibility as it is for the entire operations. FPC’s policies and guidelines are of par- Against this background, the Board has made Allocation of attestation rights and authority ticular importance for correct accounting, the assessment that a separate internal audit is part of the structure for control activities as reporting and information. FPC collaborates function is not required. are clear rules for decisions regarding invest- with news agencies and communication ment, sales, procurement and contracts. consultants regarding external communica- Board of Directors Control activities are based on the business tion. The information is intended to increase Gothenburg, May 6, 2014
Auditors’ report on the Corporate Governance Report Based on the Corporate Governance Report has been prepared and its statutory content is To the Annual General Meeting of Fingerprint which we have read and our knowledge of the consistent with the other parts of the annual Cards AB (publ) company and the Group, we believe that there accounts and consolidated financial state- is sufficient basis for our opinion. This means ments. Corp. Reg. No. 556154-2381 that our statutory review of the Corporate Governance Report has a different focus and Gothenburg, May 7, 2014 The Board of Directors is responsible for the is substantially smaller in scope than an audit 2013 Corporate Governance Report, which is conducted in accordance with the International KPMG AB included in the printed version of this docu- Standards on Auditing and other generally ment on pages 60-63, and its preparation in accepted auditing standards in Sweden. In our Johan Kratz accordance with the Annual Accounts Act. opinion, the Corporate Governance Report Authorized Public Accountant
64 Beyond keys and pins FPC ANNUAL REPORT 2013
Letter from the Chairman of the Board FPC UNDERGOING CRUCIAL TRANSFORMATION
The company’s focus on the mobile market is firmly established and we can now see a vast new market opening due to Apple’s launch of fingerprint technology in the iPhone 5S and Samsung’s follow-up with Galaxy S5.
The Board’s main mission is to ensure that point and that we are well-positioned to lenges in a continuously developing and FPC can handle significant organic growth. leverage our extensive knowledge in our maturing company. Fingerprint Cards has The challenge lies in the transformation that addressable market in the mobile segment. the ambition, scope and ability to become the company is undergoing – from a small The Board conducts its work in a the global market-leading biometric sup- organization to an industrial player that can structured manner and follows an annual plier for smartphones and tablets. live up to market demands and expectations agenda, including an extended two-day – as well as ensuring the company’s ability training program during which we discuss to deliver in the face of an expected steep our market and strategy and decide on the growth curve with a short take-off. business plan for the coming year. Organic growth can be supplemented by During 2013, the company established additional acquisitions, primarily of necessary a strong position in many respects. Our competencies, which the Board evaluates on working capital is sufficient to cope with a regular basis. In the longer term, the Board an expansion of the organization and rapid will also evaluate an expanded offering. stock accumulation and we have the ability The Board, President, Executive Manage- to provide our partner suppliers with quality ment Group and other market players all assured deliveries. As we entered 2014, agree that the market potential is signifi- we began to see signs that the market was cant. In other words, FPC does not need to gaining momentum, with large OEMs in the create its market. The question is rather smartphone and tablet segment selecting what market position and market share can suppliers and initiating integration projects. be achieved? Our assessment is that the After four years on the Board of Directors world-leading performance of our products – and in my new capacity as Chairman – I Urban Fagerstedt, has given us a unique, favorable starting see only exciting opportunities and chal- Chairman of the Board
Beyond keys and pins 65 FPC ANNUAL REPORT 2013
Board of Directors
Urban Fagerstedt Tord Wingren Board member since 2009. Board member since 2013. Born: 1959. Born: 1961. Employment: Vice President R&D, Employment: Vice President and Site Manager, Huawei Technologies Sweden AB. Huawei, Lund, Sweden. Education: MSc Electronics Engineer- Education: MSc Electronics Engineering, Lund ing, Lund Institute of Engineering. Institute of Engineering. Various management Other assignments: Owner and courses, including Columbia University – Chairman of the Board of Fagerstedt Columbia Business School. Dynamics AB. Other assignments: Board member of Mobill Previous assignments in the past five AB Watersprint AB and Quixter AB; Chairman of years: Vice President and General Acconeer AB and Wimplantat AB. Manager of Ericsson AB’s Radio Net- Previous assignments in the past five years: works design unit; Chairman of the Board Co-founder, CEO and Senior Advisor at in Fagerstedt Dynamics Radio AB; Board Nanoradio AB; Managing Director of Samsung member of Netcom Consultants AB. Telecom Europe; CEO and initiator of Ericsson Shareholdings in FPC: 1,200,000 Class Mobile Platforms; Chairman of the Advisory A shares via Sunfloro AB*. Board of TAT AB (acquired by Blackberry); Dependent as major shareholder. Chairman of the Board of Kisel Microelectron- ics AB (acquired by Imagination Techn.); Board member of Dialog Semiconductors (1998-2003). Shareholdings in FPC: 75,000 Class B shares*. Independent in relation to major shareholders and executive management.
Christer Bergman Alexander Kotsinas Board member since 2008. Board member since 2013. Born: 1955. Born: 1967. Employment: President and CEO of Employment: Partner in the private equity Novexus LLC. company Nexttobe AB. Education: Master of Science in Civil Education: Master of Science in Engineer- Engineering, Lund Institute of Technol- ing, Royal Institute of Technology, Stockholm. ogy, Sweden; Master of Science in Civil Bachelor’s degree in Business Administration, Engineering, University of California, Stockholm School of Economics. Berkeley, USA; Officer Degree in The Other assignments: Madrague Capital Partners Royal Swedish Navy. AB, Nordia Innovation AB (Chairman), Linum Other assignments: Board member of AB, Delta Projects AB, Allgotech AB (Chairman), WCC Group BV, Authasas BV Eyeverify Fiberdata AB (Deputy Member of the Board). LLC and Quixter AB. Shareholdings in FPC: - Previous assignments in the past five Independent in relation to major shareholders years: Vice President Biometric and executive management. Solutions Fujitsu Frontech North America; Chairman of the Board of Johan Carlström Swecard AB; CEO and Chairman of the CEO since 2009. Board of IdentiPHI Inc.; Board member Born: 1963. of SweCard AB. Education: Graduate in economics from Shareholdings in FPC: 78,500 Class Uppsala University and Stockholm University. B shares*. Independent in relation Previous assignments: Twenty years in execu- to major shareholders and executive tive sales at Ulticom, Ericsson and Mercury management. Interactice. Five years as a Financial Analyst. Shareholdings in FPC: 1,200,000 Class A shares via Sunfloro AB, 16,600 Class B shares, 2,808,000 warrants* Independent in relation to major shareholders and executive management
*Shareholdings at March 12, 2014
66 Beyond keys and pins FPC ANNUAL REPORT 2013
Executive Management
Johan Carlström Pontus Jägemalm CEO since 2009. Senior VP Research & Development since Born: 1963. 2009. Education: Graduate in economics from Born: 1971. Uppsala University and Stockholm University. Education: Master’s degree in and PhD in Previous assignments: Twenty years Engineering Physics, Chalmers University in executive sales at Ulticom, Ericsson of Technology, Gothenburg. and Mercury Interactice. Five years as a Shareholdings in FPC: 625,000 warrants* Financial Analyst. Shareholdings in FPC: 1,200,000 Class A shares via Sunfloro AB, 16,600 Class B shares, 2,808,000 warrants*
Jens Reckman Thomas Rex CFO since 2010. Executive VP Sales and Marketing since Born: 1963. 2011. Education: Graduate in Business Born: 1963. Administration, University of Education: MSc Electronics Engineering, Gothenburg. Lund Institute of Engineering. Previous assignments: a total of 25 Previous assignments: Vice President years’ experience as an auditor and Sales Asia/Oceania, Ericsson Mobile CFO. Platforms; Vice President Sales, Shareholdings in FPC: 450,000 Nanoradio. warrants* Shareholdings in FPC: 25,000 Class B shares, 1,700,000 warrants*
Jörgen Lantto Jonas Spannel Executive VP CTO since 2013. VP Sourcing and Supply since 2013. Born: 1963. Born: 1963. Education: Technical college engineer. Education: Military training at the Previous assignments: CTO ST- Swedish Armed Forces Staff and War Ericsson 2009-2012; 22 years at College (under various names 1985, 1990, Ericsson, President of Alice Systems 1994). Business Administration at Örebro and co-founder of Northstream. University (1996). Shareholdings in FPC: 7,800 Class B Previous assignments: Director of shares, 1,300,000 warrants* Electronics Sourcing and VP Strategic Sourcing at Sony Mobile. Shareholdings in FPC: 30,000 warrants*
Niklas Strid VP Customer Projects since 2014. Born: 1972. Education: MSc Electronics Engineering, Lund Institute of Engineering. Previous assignments: Customer Program Manager for Asian OEMs at ST-Ericsson and Ericsson Modem. Shareholdings in FPC: 10,000 warrants*
*Shareholdings at March 12, 2014
Beyond keys and pins 67 FPC ANNUAL REPORT 2013
Shareholder information
FPC’s website for investors Interim report January – June attend the Meeting not later than May 28, At www.fingerprints.com, there is up- 21 August 2014 2013, at 4.00 p.m. at the following address: to-date company, share and insider Interim report July – September Fingerprint Cards AB, Box 2412, SE-403 information, reports and a press-release 23 October 2014 16 Gothenburg, or by e-mail: archive, and opportunities to subscribe Year-end report [email protected]. for reports and press release. February 5, 2015 Contact information The Annual Report is available via 2014 Annual General Meeting Fingerprint Cards AB (publ) FPC’s website. The 2014 Annual General Meeting will be Box 2412, SE-403 16 Gothenburg, For the sake of the environment and held on June 4, 2014 at the Radisson Blu Street address: Kungsportsplatsen 2, expenses, FPC has chosen not to distrib- Scandinavia Hotel, at Södra Hamngatan 59, Gothenburg ute a physical copy of the Annual Report Gothenburg, Sweden. to shareholders. Annual reports, interim Telephone: +46 31-60 78 20 reports and press releases are available at Registration Fax: +46 031-13 73 85 the company’s website for investors. Shareholders wishing to attend the Annual E-mail: [email protected] General Meeting (AGM) must be entered in Website: www.fingerprints.com Future reporting dates the share register maintained by Euroclear Interim report January – March Sweden AB by Wednesday, May 28, 2014, 24 April 2014 and notify the Company of their intention to
68 Beyond keys and pins FPC ANNUAL REPORT 2013
Glossary and definitions
Glossary OEM Average credit period Algorithm Original Equipment Manufacturers - companies Average value of accounts receivable over the A systematic procedure for how to conduct a that manufacture the end product that is sold in period in relation to net sales, multiplied by 360 calculation or solve a problem in a given number the open market days. of steps. In FPC’s specific case, the method refers to the comparison of two fingerprints with each Packaging Adjusted gross profit other. The work and components, apart from the silicon Income less cost of goods sold excluding chip, required for building a sensor. production expenses and amortization according Area sensor to plan of capitalized development expenditure, A sensor with the size of a fingertip that can scan Yield meaning that only the cost of materials with an entire fingerprint simultaneously. The percentage of a number of approved units subcontracted work and freight costs are included The fingertip is simply drawn against the sensor divided by the number of initial units. The term is in the costs component. surface; refer to swipe sensor. primarily used in production. Adjusted gross margin* ASIC (Application Specific Integrated Sensor platform Adjusted gross profit as a percentage of net sales. Circuit) The silicon technology that FPC has created for An integrated circuit in the form of a silicon chip the development of future sensors, meaning the Cost of goods sold that is designed to conduct specific functions - in basic technology. Cost of materials, production expenses and our case, the measurement of a fingerprint. amortization according to plan of capitalized Template development expenditure. Authentication An arrangement of unique data that represents a Control process for a particular entity; in certain fingerprint. Net margin conjunction with logging on, for example. The Profit for the period as a percentage of net sales. word is synonymous with verification. Verification The comparison of compiled biometric data with a Order backlog Biometric system given template for the purpose of verifying the The difference between order bookings for the A pattern recognition system that identifies or matching of the two. This enables the authentica- fiscal year and worked-up sales, plus order verifies a person by studying a physiological tion of an individual to be made with a high degree backlog at the beginning of the fiscal year. character of the person, in our case a fingerprint of certainty. pattern. Earnings per share after dilution Wafer Earnings for the fiscal year attributable to the Chip A thin circular slice of silicon containing a number Parent Company’s shareholders divided by the A piece of silicon in which the integrated circuit is of integrated circuits, such as sensor chips. weighted average of the number of shares embedded, such as a sensor chip. Normally, a outstanding, plus the average number of shares silicon wafer is cut into a number of chips, with Definitions that could be issued as a result of current each chip being essentially identical. Gross margin remuneration and personnel programs. Gross profit as a percentage of Net sales. Order backlog at the beginning of the fiscal year. DPI Dots per inch - resolution per spacial unit, in this Gross profit Earnings per share case inches. The higher the value, the better the Net sales less cost of goods sold. Earnings for the period attributable to the Parent resolution and degree of detail. Company’s shareholders divided by the Parent Equity per share Company’s average number of shares for the Enrolment Shareholders’ equity attributable to the Parent fiscal year. Compilation of biometric data used to create a Company’s shareholders divided by the number of template. (The process in which information is shares outstanding before dilution at period-end. Working capital compiled from the individual and subsequently Current assets less current non-interest-bearing processed and stored as a reference image.) Shareholders’ equity per share after provisions and liabilities. dilution Identification Shareholders’ equity attributable to the Parent Operating margin Comparison of compiled biometric data with all Company’s shareholders divided by the number of Operating profit as a percentage of net sales. stored templates for the purpose of identifying one shares outstanding after dilution at period-end. of these templates (and thus an individual) from a Equity/assets ratio multitude. Added value per share Shareholders’ equity divided by total assets. Operating profit plus payroll costs and overheads Swipe sensor divided by the average number of employees. Inventory turnover rate A sensor with a width equal to a fingertip but much Costs of average inventories divided by goods sold. narrower than the length of the finger. The Average number of shares fingertip is drawn across the sensor surface and The Parent Company’s average weighted number part of the fingertip is scanned step-wise; of shares for the fiscal year. compare with area sensors. Average number of shares after dilution Matching The average weighted number of shares The process of comparing an image of a outstanding, plus the average number of shares fingerprint with a pre-processed template, and that could be issued as a result of current assessing whether or not they are similar remuneration and personnel programs.
Production: text and structure - Stakeholder communication, Translation: The Bugli Company, Graphic production - Wallmander & Co, Photography - Jesper Wallmander, Anna Hult, Johan Olsson and Shutterstock
Beyond keys and pins 69 Fingerprint Cards AB (publ), Box 2412, SE-403 16 Gothenburg, Sweden, www.fingerprints.com