© 2014 Nexamchemical.com, Nexam Chemical Holding AB (publ). Registered Office: Lund; Reg. No. 556919-9432
All business operations and all ownership of shares are associated with risks. Risks that are managed well can lead to opportunities and add value, while risks that are not managed well can result in damage and losses. Nexam Chemical operates on a global market, developing, manufacturing, marketing and selling crosslinkers for polymers and also services for professional users and therefore has exposure to a wide variety of different external and internal risks in its operating activities.
Risk management is therefore a key part of the management and control of the Company. Nexam Chemical's risk management includes strategic risks, operating risks, risks of non-compliance with laws and regulations, and risks of errors in the Company's reporting, including financial reporting. The risks can mainly be divided up between market-related risks, operational risks and financial risks. Continuous work is done on different levels within the company to identify all material risks that occur and assess how they are to be managed.
The risks described below are not ranked relative to one another and the description makes no claim of being complete.
Nexam Chemical has sales in a large number of markets. Changes in laws and regulations, e.g. customs regulations, export regulations and other laws and regulations in countries that the Company operates in and where the Company's products are sold can affect the Company's operations negatively.
Nexam Chemical's sales are partly dependent on the global economic climate. A protracted recession with a reduced drive for new developments among customers could lead to a reduction in demand for the Company's products. That can result in orders not being received, being cancelled or being postponed. A weaker economic climate can thus have a negative impact on Nexam Chemical's operations.
The market for Nexam Chemical's type of crosslinkers for polymers is relatively new and Nexam Chemical only knows of a certain amount of competition concerning the product by the name of PEPA, which is one of Nexam Chemical's existing products that are offered to the market. Nexam Chemical strives to take market shares from other materials and solve problems customers have in a new and more economical way. It however cannot be ruled out that other systems will be developed by competitors that will compete with Nexam Chemical's products in the future, either directly or by solving customers' problems in another way. If Nexam Chemical cannot adapt its operations and its products to market trends, there is a risk that the Company will lose its competitiveness, which could affect the Company's opportunities for growth negatively. The market for Nexam Chemical's type of crosslinker is expected to experience long-term growth.
The market for modification of polymers is expected to undergo shifts in technology in the future and be exposed to changing market trends. Development can lead to technical problems that result in it taking a longer time than planned before new products reach the market and that the costs for the Company can be higher than estimated, both as a result of increased costs in the development phase and delayed market introduction. If the Company fails to develop and launch products based on the research and development work undertaken, there is also a risk of the value of the Company's assets having to be adjusted.
Nexam Chemical's operations may grow as a result of increased demand for the Company's products, which would place high demands on the Company's management and operating and financial infrastructure. The Company currently has a small organisation. It is important that the Company always has effective planning and management processes to be able to secure production and delivery to customers in the event of increased demand.
To be able to manage growth, the Company is also dependent on being able to procure contract manufacturing capacity and manage and monitor the contract manufacturers Nexam Chemical chooses to work with. If the Company does not succeed in adapting its organisation, its processes and its capacity to increased demand, it could have negative effects on the Company's sales, profit and financial position.
Nexam Chemical plans to develop and launch new products onto the market on an ongoing basis. There is always a risk that new products will not be received by the market positively, or that competing products or solutions launched by other players could be more successful.
Nexam Chemical in large part sells its products according to specifications and with liability concerning purity requirements. If products deviate from their specifications, the buyer will receive a new product as a replacement. Even though Nexam Chemical is of the opinion that the Company has a well-developed process for product development with special documentation systems and strict systematic routine requirements, it cannot be ruled out that potential errors in the Company's products could trigger liability and claims for damages against the Company. Nexam Chemical can thus be liable for damage caused by its products. This is normally covered by insurance policies, but it cannot be ruled out that such liability could affect the Company's position and brand name negatively.
Nexam Chemical's future growth depends on the knowledge, experience and creatively of existing employees as well as the Company's ability to recruit and retain key personnel. If the Company fails to recruit and retain qualified personnel, it could be hard to fulfil the Company's business strategy.
Nexam Chemical's sales are primarily handled in-house, but also through distributors and resellers primarily in Japan and China. These partners are important for the Company's future growth, since they cover markets that otherwise are difficult for the Company to serve. There is no guarantee that the companies Nexam Chemical has signed or will sign contracts with will be able to fulfil their obligations under these contracts. Furthermore, there is a risk that Nexam Chemical's size and financial position could affect the Company's opportunities to enter into cooperation agreements with strategic partners and win key customer contracts. It cannot be guaranteed that existing contracts will not be terminated or declared null and void or that there will not be amendments to contracts already entered into.
Nexam Chemical's intellectual property rights are protected primarily by patent applications, contracts and legislation protecting trade secrets. Nexam Chemical has pending patent applications in twelve patent families geared toward products, their use and production processes for producing the products. Nexam Chemical has also protected the trademarks Nexam Chemical, NEXIMID and NEXAMITE, among others.
Infringement of the Company's intellectual property rights, or infringement by the Company of other companies' potential intellectual property rights could weaken the Company's competitiveness or damage the Company's operations in another way. It could turn out to be necessary for the Company to institute legal proceedings to protect its intellectual property rights. Such legal proceedings could be burdensome and costly and there is no guarantee that the Company will win such proceedings. In addition to patented products and technology, Nexam Chemical also uses its own know-how, which does not enjoy patent protection. Nexam Chemical takes measures to protect such information, which include non-disclosure agreements with employees, consultants and business partners.
However, there is no guarantee that such agreements protect against disclosure of confidential information, the rights of employees, consultants and business partners to intellectual property rights or that the agreements provide for a sufficient penalty in the event of a breach of contract. Furthermore, Nexam Chemical's trade secrets can be learned of in another way or developed independently by competitors. If Nexam Chemical's internal information and knowledge cannot be protected, its operations may be affected negatively.
Nexam Chemical's products are mainly produced by its subsidiary in Scotland, but also, when needed, by contract manufacturers which are primarily located in Europe. For Nexam Chemical to be able to deliver its products, the Company is dependent on raw materials, products and services from third parties meeting agreed requirements concerning, for example, quantity, quality and delivery time Deficient or missed deliveries from suppliers can lead to Nexam Chemical's production and/or delivery being delayed, which in the short-term can lead to lower sales or missing sales.
The most important risks of errors in financial reporting primarily concern the carrying amount of intangible fixed assets in the form of intangible and tangible assets of the subsidiary in Scotland that are acquired. If the carrying amount of these assets ends up deviating from the fair value, that can lead to a need for impairment, which would have negative effects on the Company's profit and financial position. The Company's judgement as at 31 December 2012 is that the carrying amount of these items does not exceed the fair value.
Nexam Chemical is exposed via its operations to various financial risks, such as interest rate risk, foreign exchange risk, price risk, credit risk and financing and liquidity risk. It has been assessed that Nexam Chemical's financial risks primarily consist of a financing risk, liquidity risk and foreign exchange risk, which are described below.
A financing risk is defined as the risk of the refinancing of maturing loans being made difficult or becoming costly and that the Group thus has difficulty fulfilling its payment obligations. A liquidity risk is defined as the risk of not being able to fulfill payment obligations when they fall due.
As at 31 December 2012, Nexam Chemical had liabilities to credit institutions in Scotland in the amount of SEK 2 million and SEK 0.9 million in financial leases, see also Nexam Chemical AB's annual report for 2012. Management and the Board actively and continuously works on the Company's management and control, including profit, liquidity and financial position. The Board checks whether the conditions for continuing operation are fulfilled on an ongoing basis. After the issue conducted in January 2013, the Board assesses that the Company has more than enough financial resources to finance its operations this year. Nexam Chemical has never reported a profit thus far. It can't be ruled that the Company may need additional capital contributions until its operations reach break-even with a profit and cash flow, and there are no guarantees that such a capital contribution can be obtained in the first place and that it can be obtained at favourable conditions.
Foreign exchange risks exist in the form of both transaction risks and translation risks. Transaction risks occur in conjunction with purchases and sales of products and services in currencies other than the respective company's local currency. Translation risks occur in conjunction with the translation of the income statements and balance sheets of foreign subsidiaries into SEK. Nexam Chemical operates on a global market with large portions of its sales and purchases in currencies other than SEK. Sales are primarily made in USD, yen and EUR. The Group's raw materials purchases are primarily made in USD and EUR, but also in other currencies. The Group's purchases of services are primarily made in SEK, but also in EUR and GBP. Overhead costs are incurred primarily in SEK, but also in GBP. Changes in the value of SEK in relation to other currencies can thus have both positive and negative effects on the Company's profit and financial position. The Group's exposure to the subsidiary's net assets as at 31 December 2012 totalled GBP 499,593 ( SEK 5,241,430). Net exposure in other currencies is currently limited, and the Group does not hedge currency exposure at this time.
Through their ownership, the Company's private founders will have the opportunity to exercise a significant influence in matters requiring the approval of the shareholders at the general meeting, including appointing and removing board members and any proposals for mergers, consolidation or selling assets and other business transactions. This influence may be a disadvantage to shareholders whose interests differ from the interests of the founders. Other owners could also have, or later acquire, holdings of a large enough size to be able to have significance for influence over the Company.
The conditions for good liquidity for Nexam Chemical's shares are good, given that the Company will have approx. 5,500 shareholders at the time of the listing. There may be uncertainty concerning the stock market's interest in Nexam Chemical's shares and if active and liquid trading of the shares does not develop, it may lead to difficulties for shareholders in selling large items in a short period of time without affecting the share price.
Investments in Nexam Chemical are associated with risk. Nexam Chemical's share price may fluctuate over time and there are no guarantees that there will be a positive share price trend. The stock market's general performance and the performance of Nexam Chemical's shares depend on a series of factors that are outside of the control of the Company. Even if the Company's operations experience positive growth, there is a risk that investors will suffer a loss when disposing of their holdings.