Annual report 2009 Fingerprint Cards AB (publ)
Contents
CEO’s comments . . . . 4
Operations . . . . 5
Value-creating human capital . . . . 6
Market . . . . 7
Product development and production . . . . 10
Financial and technical glossaries, and exchange rates . . . . 12
Share data and ownership . . . . 14
Ten-year summary, the Group . . . . 16
Administration report . . . . 18
Income statement, Consolidated statement . . . . . 22
Income statement, Parent Company . . . . 25
Notes to the financial statements . . . . 28
Audit report . . . . 41
Corporate governance report . . . . 42
Board of Directors . . . . 45
Executive management . . . . 46
Financial information . . . . 47
Press releases . . . . 47
Annual General Meeting . . . . 47
Contacts . . . . 48
Business concept
In collaboration with a global network of distributors and resel- lers, FPC shall supply high-quality, cost-effective systems for fingerprint verification.
Objectives
FPC aims to create value for shareholders through high sales growth and stringent cost control, combined with the further de- velopment of existing and new fingerprinting technology.
Business goals
• To be a leading player in the volume market for fingerprint verifi- cation systems.
• To be the leading player in the Chinese market for area sensors.
• To become an established innovator of swipe sensors for the global mobile telephony market.
Fingerprint Cards in brief
Fingerprint Cards (FPC) develops power-efficient, cost-effective systems for fingerprint verification.
FPC’s technology portfolio has comprehensive patent protection. Customers are primarily developers of end products and solutions into which FPC techno- logy is integrated. Customers are reached through direct contact or via an established network of regio- nal distributors and resellers. FPC, which is headqu- arter in Gothenburg, Sweden, has a workforce of 12 and reported sales of SEK 38.5 M in 2009.
• Strategic cooperation with Japanese companies.
• New distributor contracts signed with companies in South America.
• FPC announces the replacement of its CEO.
• Pontus Jägemalm is appointed Technology Manager.
• Market potential for the application of biometrics in mobile telephony is confirmed.
• New orders worth a total of SEK 35 M are received from China.
• Orders for card projects are secured from South Korea, while shipments to China increase.
2009 in brief
First quarter Third quarter
Second quarter Fourth quarter
• Johan Carlström commences as the new CEO.
• Change programs commence in the form of a restructuring of operations.
• Visits to key distributors and suppliers.
• The Annual General Meeting approves the appointment of a partly new Board of Directors.
• An Advisory Board for mobile telephony is established.
• Jens Reckman takes office as acting Chief Financial Officer.
• New Series A shareholders in FPC. Preferential rights issue is oversubscribed and contributes proceeds of SEK 40.3 M gross.
• Success in China continues with the winning of new orders.
• Production disruptions resolved through resource focusing and an action package.
Net Sales (SEK M)
Netsales SEK M Gross Profit SEK M
0,0 4,000 8,000 12,000 16,000 14,000 10,000
6,000
2,000
Q1 Q2 Q3 Q4
Omsättning, Mkr
2008
2009 -2,000
0,000 2,000 4,000 5,000
3,000
1,000
-1,000
Q1 Q2 Q3 Q4
Bruttoresultat, Mkr
2008 2009
0,0 10,0 20,0 30,0 40,0 45,0
35,0 25,0
15,0
5,0
2000 2001 2002 2003 2004 2005 Netto-omsättning (Mkr)
2006 2007 2008 2009
2009 was a year of change. Supported by hard work, many issues and important decisions, tomorrow’s Fingerprint Cards (FPC) is starting to emerge. It is a company characterized by an entrepre- neurial approach, energy and a determination to become a strong global supplier in the biometrics market. Since May 2009, FPC has appointed a new CEO, replaced two-thirds of its senior manage- ment team and elected new members of the Board. An Advisory Board representing established competencies in selected areas has also been formed, and resources have been secured to develop the next generation of biometric sensors that will be competitive in a volume market.
During the autumn, an oversubscribed rights issue generated funds that will enable the company to implement changes and build for the future. In parallel, we have also focused on securing and growing our existing business activities in area sensors. Production has been improved by reducing the number of links in the produc- tion chain, thereby releasing resources that can be focused on pro- duction and adding production capacity to meet the growing de- mand. Resources for more effective and market-focused cultivation efforts have been assigned special priority. As a result, we now have better knowledge of the market, thus enabling us to formulate deli- very plans more easily. Sharp improvements have been achieved in profitability and profit margins. Through a stronger market presen- ce, we are able to identify more projects at existing distributors and, through new agreements in India and Brazil, we have opened new geographic markets and created new business opportunities.
A new business segment is now under development with special focus on mobile telephony, a market aligned fully with my previous experience in telecommunications and mobile telephony. The Board of Directors is also supporting these efforts and the recently esta- blished Advisory Board provides further experience, competencies and an expanded network that will be used to verify requirement specifications for future sensors in mobile telephony. The newly launched swipe sensor project is progressing in accordance with the proposed requirement specifications, the established develop- ment plan and market preferences for the next generation of swipe sensors for consumer applications, with particular emphasis on the mobile telephony market.
Financial strength and stability are basic requirements for any company striving to become a serious, respected and reliable supp- lier in a high-volume market. The recent share issue showed that our shareholders have the same desire to see the emergence of tomorrow’s FPC, and they share our belief in FPC’s business con- cept and market potential. As representatives of the company, we have started to show that it’s possible to achieve better profitability through effective cost control and, in turn, to strengthen our market presence, invest in the right personnel and remain receptive to the market’s signals.
In conclusion, I would like to thank all our shareholders, custo- mers, partners and employees for their help in laying the founda- tion for tomorrow’s FPC. With a 40 percent increase in sales during 2009, compared with 2008, and an increase of 57 percent in the se- cond half of the year, improved profitability and our penetration of new markets, the potential for tomorrow’s FPC is very exciting and, above all, very real.
Welcome to the future, here and now!
Johan Carlström
Fingerprint Cards (FPC) develops power-efficient, cost-effective systems for fingerprint verification. FPC’s technology portfolio has comprehensive patent protection. Customers are primarily develo- pers of end products and solutions into which FPC technology is integrated. Customers are reached through direct contact or via an established network of regional distributors and resellers. The market for biometrics continues to grow in depth and diversity, and the advantages of biometric methods are being recognized in an ever greater number of products and system solutions.
FPC’s product offering consists of components that are delive- red separately or as complete systems, as well as self-contained biometric modules. All products have been developed in-house by FPC and consist of:
• Area sensors
• Swipe sensors
• ASIC processors
• Modules (biometric subsystems)
Business activities
FPC has two business models. One of the models applies exclusively to licensed technology developed by FPC, whereby the licensees pay royalties to FPC and assume responsibility for their own product de- velopment and production. Under the second business model, FPC produces the hardware that is sold together with the software and delivered to customers. FPC works with the latter business model via distributors and concludes license agreements with distributors for retail sales in specifically defined geographical regions.
Sales via distributors
Most of FPC’s sales are invoiced via resellers and distributors that, in turn, cultivate product development companies in different regional markets. FPC today has resellers that cover 17 countries, providing geographic coverage from Asia through Europe to the Americas.
Hardware & Software Technologies Co. (HST), with headquarters in Taiwan and three regional offices in China, has been FPC’s princi- pal reseller since 2002. In terms of volume, the most important end-products for FPC’s technology in the Chinese market are bio- metric log-in devices that are supplied to Chinese banks.
Patent protection – strength and asset
Increased deliveries to a volume market also exert price pressure on technology, thereby increasing the potential for a business mo- del focused exclusively on IP licensing. FPC has strong IP rights in segments comprising sensor technology, algorithms and matching methods. FPC’s principal patent protects the company’s sensor ar- chitecture, algorithms and packaging solution. These patents cover many of FPC’s most critical competitive advantages, such as image quality in scanning, opportunities to apply a thick protective layer on the sensor with no loss of image quality, fast and method-adapted processing of scanned fingerprint patterns, the method used to en- ter image segments of a fingerprint in motion and opportunities to produce robust sensors with long useful product lifetimes.
Business concept
In collaboration with a global network of distributors and resellers, FPC shall supply high-quality, cost-effective systems for fingerprint verification.
Objectives
FPC aims to create value for shareholders through high sales growth and stringent cost control, combined with the further deve- lopment of existing and new fingerprinting technology.
Business goals
• To be a leading player in the volume market for fingerprint verifi- cation systems.
• To be the leading player in the Chinese market for area sensors.
• To become an established innovator of swipe sensors for the glo- bal mobile telephony market.
Strategies
To achieve these objectives, FPC intends to pursue the following strategies in the future:
• FPC will achieve strong sales growth in the Chinese market trough a greater presence on distributor and customer levels.
• FPC will position itself for the aggressive launch of its focus on the mobile telephony market. This will involve securing financial resources, business partners and other competencies with com- prehensive experience from the mobile telephony market.
• FPC will cultivate new geographical markets with strong busi- ness potential and the understanding of, and need for, biometric solutions.
CEO’S COmmEnTS
Emergence of tomorrow’s Fingerprint Cards.
OPEraTiOnS
The Journey has just begun.
What is biometrics?
Identity theft and impersonation have always been a major social problem. Historically, impersonation has pertained to paper-based identity documents such as passports, ID cards and driving licen- ses. Nowadays, and to an ever-increasing degree, this form of theft involves electronic identities that are totally depersonalized. Bio- metrics security solutions have emerged as a solution to this pro- blem. Biometrics is currently the leading product segment for elec- tronic identity authentication. Biometric solutions are the only tech- nology currently available that directly links a specific person to a function or a service.
Biometrics encompasses solutions that measure a person’s physiology to verify his/her identity. There are two primary groups of biometrics solutions. This first is physical technologies, including verification via fingerprints, iris, voice, face, hands and DNA. The second is behavioral verification, primarily including verification via electronic signature. In addition to these primary groups, there are solutions that combine two or more biometric technologies, which are referred to as multi-biometric solutions.
Biometrics – a growth market
According to the International Biometrics Group’s Biometrics Mar- ket and Industry Report 2009 – 2014, the market for biometric pro- ducts in 2009 totaled more than USD 3,400 M and is expected to show annual growth (CAGR) of some 20 percent up to 2014.
The research consultants Frost & Sullivan estimate that North America is the largest geographical biometrics market, followed by Europe, Middle East and Africa (EMEA). Asia’s share is estimated at
some 20 percent. Asia, however, has made most progress in terms of the penetration of biometrics in certain applications, such as mo- bile phones.
According to the report of the Frost & Sullivan research consul- tancy entitled “World Biometrics Market 2007,” the public sector is expected to account for some 40 percent of the global biometrics market, with banking and finance accounting for some 30 percent.
Combined, these two segments represent about 70 percent of the overall biometrics market. Other sectors in which biometrics is used significantly are the pharmaceuticals industry and education.
Verification using fingerprints is most common
The pie diagram below shows the distribution among various verifi- cation technologies. Technologies based on fingerprints represent about 70 percent of the biometrics market and, thus, comprise the largest single segment.
One of the reasons that fingerprint verification has established itself as the leading technology is that fingerprint patterns are uni- que. Moreover, the probability of mismatching is low, since finger- print patterns are stable in the sense that they do not alter over time.
In the case of mobile phones, sharp growth in mobile telephony ser- vices – in which the mobile phone is increasingly used for payment – has contributed to greater interest in biometrics and fingerprint verification solutions. Japan and South Korea have been the leading countries in this respect, and demand for mobile phones with bio- metric applications has displayed steep growth in recent years. The penetration of fingerprint verification technologies for mobile pho- In a high-tech, competitive industry, it is important to attract, mana-
ge and develop human capital. In a small focused organization, it is also critical to have the right resources in the right place at the right time. FPC has successfully developed unique skills and expertise in the field of biometrics, and we continuously strive to further develop our personnel through participation in exciting projects, increased responsibility and active roles in our business development.
In addition to specific industry know-how, marketing and finan- ce, special demands are also placed on leadership and motivational skills to enable these unique competencies to be gathered and sup- ported in a single company. It is also important to supplement the technical know-how with the social talents of each and every indivi- dual in the group, working as a unified force to develop and deliver the results that FPC strives to offer the market and its sharehol- ders. FPC is a unique creation, with a strong organization and the ability to work together and achieve results through collective ef- forts that are stronger than the sum of the individual capabilities. At FPC, we are aware of the position we hold and the importance of continued efforts to develop our company by contributing the right know-how and skills at the right time in order to build tomorrow’s FPC.
Johan Carlström was appointed President and CEO of FPC on April 1, 2009 and has since started to restructure the operational organization to make it more market-oriented and technologically creative. Project management and the insight that it is the collective effort that creates the optimal result are lodestars in our opera-
tions. As a result, FPC has been able to increase its cooperation across organizational boundaries and enhance the global presence of our proprietary market resources in terms of geographic mar- kets and customers.
Flexible and virtual organization
Since all skills, particularly with respect to development projects, are not needed regularly, long-term or continuously, a number of complementary and qualified resources are brought into the opera- tions on a project basis. In this way, FPC’s personnel and know-how are complemented in a flexible and optimal manner. However, FPC’s permanently employed employees always represent the co- ordinated and controlling resources. Together, we comprise a vir- tual organization, a network that extends beyond FPC.
The level of education is high in all areas, and includes cutting- edge skills in knowledge areas relevant to the company’s business activities. At the close of 2009, the workforce comprised 12 employ- ees, all men, and FPC is striving to create a more evenly balanced gender distribution, which is also a factor in today’s personnel re- cruitment efforts. The average age of company employees at year- end 2009 was 42, and the average term of employment was five ye- ars. Sickness absence was 0.5 percent, and no portion of the total pertained to sickness absenteeism lasting more than 60 days. Be- ginning in 2010, FPC will offer healthcare services to its employees, which will benefit both individuals and the company.
ValuE-CrEaTing human CaPiTal
Employees are the greatest asset.
markET
most indications favor fingerprints.
● North America, 37%
● EMEA, 32%
● Asia Pacific, 23%
● South America, 8%
Global biometrics market – geographic distribution
Source: Frost & Sullivan: World Biometrics Market, 2007
Source: International Biometrics Group: Biometrics Market and Industry Report 2009 - 2014
* Including Non-AFIS and AFIS
● Technologies for
fingerprint verification*, 66.7%
● Face recognition, 11,4%
● Hand geometri, 1,8%
● Irisrecognition, 5,1%
● Middleware, 8,0%
● Vein regocnition, 2,4%
● Voice recognition, 3,0%
● Other modalities, 1,6%
Market distributed by biometric technology 2008
0 50 000 100 000 150 000 200 000
2008 2009P 2010P 2011P 2012P
Smart phones/Notebook PCs, 2008-2012P
Sources: Frost & Sullivan, Non-AFIS Fingerprint in Notebook PCs and Wireless Devices Markets 2008
0 2 000 4 000 6 000 8 000 10 000
2009P 2010P 2011P 2012P 2013P 2014P Anticipated revenue in the biometrics market,
2009 – 2014, USD M
Source: International Biometrics Group: Biometrics Market and Industry Report 2009 – 2014
Tier 1 capital
1($MIL) 1. Mitsubishi UFJ Financial Group $77,218 2. Industrial & Commercial Bank of China 74,701
3. Bank of China 64,961
4. China Construction Bank 63,113
5. Mizuho Financial Group 48,752
6. Sumitomo Mitsui Financial Group 46,425
7. Agricultural Bank of China 39,998
8. Norinchukin Bank 23,636
15. Korea Development Bank 12,178
16. Kookmin Bank 12,150
asias biggest banks
Japan and China dominates the top ranks in terms of tier 1 capital, but KDB and another Korean bank also make a showing.
1
Includes equity capital and disclosed reserves, as of the end of 2008.
Sources: The Banker, KDS.
nes is expected to commence in the high-price, smart phone seg- ment. The graph below illustrates market growth for smart phones during the period 2008 to 2012. The total mobile phone market amounted to 1.26 billion units in 2009.
Dynamic market
Fingerprint verification is becoming increasingly common in con- nection with physical access, logistics access, IT security and free- standing units such as USB keys and safes. These markets are showing steady growth, thanks to the added value that the products offer, and enjoy the advantage that fingerprint verification techno- logy is available to millions of users at an affordable price. Many end users may now own one or several biometrics-equipped products.
Other dynamic forces driving the biometrics market forward are le- gislation and rules introduced to tighten security in a certain indu- stry or business areas. In China, for example, regulations were re- cently introduced that require a far more extensive use of biome- trics to boost IT security. In most cases, it means that biometric applications are used for logging onto computers and networks, but the technology is also used for physical access. This has been par- ticularly evident in the financial sector in China, where use of bio- metric solutions is widespread.
The solutions offered to banks in China are primarily designed to link transactions to individual employees. The installation of these systems emerged after security heads and department managers were made personally responsible for transactions illegally con- ducted by bank employees. Such illegal transactions among em-
ployees have now been thwarted by using biometrics – rather than a security card or code word – to link transactions to individuals.
Sales via distributors
Most sales are conducted via FPC’s distributors, who covered more than fifteen countries at year-end. The distributors function as FPC’s extended arm in local markets in which their industry know- how and cultural and linguistic skills offer FPC a strong local pre- sence. During the year, discussions were conducted with potential partners in such regions as South America, and in April 2009 a dist- ribution agreement was signed with Cash Pass Argentina S.A., which now represents FPC in Argentina, Paraguay and Uruguay.
Also during the year, FPC pursued negotiations covering distribu- tors in Brazil and India, which resulted in the signing of agreements with Alphatech Servicose Com Ext Ltda. for Brazil in early 2010 and with Implantaire Technologies (India) Private Limited for India early in the second quarter of 2010.
The primary market segment for FPC products is IT security for banking, both for employees and bank customers. Today, personnel and customers at the five largest Chinese national banks use FPC technology – in addition to more than 80 Chinese local, private or cooperative banks. Some of these banks are among by far largest banks in the region. FPC products are also supplied as solutions for biometric keys, USB memory units, door locks, safes, portable and stationary payment machines, cash systems, time reporting sys- tems and bags.
During the year, FPC also participated in a number of interesting card-based projects in Asia, Europe and North America to which area sensors, swipe sensors and wafer processors level were supp- lied. The largest markets for FPC are currently China and South Korea, although sales also conducted in other countries and re- gions such as France, India, Canada, Rumania, Singapore, UK, Sweden, South America, Germany and the US.
Sales during the year
Sales in 2009 totaled SEK 38.5 M, up 40 percent from the preceding year. The sales increase was very sharp during the latter half of the year, rising 57 percent compared with the year-earlier period.
Fourth-quarter sales amounted to SEK 13.6 M, corresponding to 50 percent of total sales for 2008. Parallel with higher sales, the gross margin also improved steadily during the year. The major factor un- derlying the higher gross margin was the new packaging solution for the FPC1011F area sensor. Delivery of the new packaging solu- tion commenced in 2008, but a total transition from the older solu- tion did not occur until the second quarter of 2009. This led both to lower production costs and fewer customer rejects. Most sales (85
percent) are based on sales of the FPC1011F area sensor, of which the majority are supplied to the Asian market, notably to China.
Other sales comprise modules, processors and wafers for various FPC products.
During the year, FPC exhibited at the Secure Exhibit & Confe- rence trade fair in Mumbai in an effort to meet existing customers and to secure new sales outlets. In addition, there was an interest in meeting more potential partners, with the aim of appointing a dist- ributor in the region.
market-driving forces
Several competitive factors are at work in the biometrics market. By far most significant are reliability and function, user-friendliness, ro- bustness, price, quality, strategic partnerships and alliances and re- ference customers. User-friendliness, cost and security factors are currently some of the key factors driving growth in the biometrics market.
greater convenience in authentication
Biometrics makes authentication easier, faster and also offers the potential to raise the level of access rights and privileges. It is less complicated to make sensitive information available in a network protected by biometrics, compared with a network protected by co- des. Moreover, the user does not need to memorize several different codes, as these are replaced by biometric verification.
lower costs
Technological hardware and software development has reduced the price of biometric technology for the broad-based commercial market.
In addition, the performance of computers, networks and database systems has risen, making biometric systems faster and easier to use.
rising security requirements
In meeting today’s stringent security requirements in terms of logis-
tics and physical access, biometrics represents an attractive ap- proach to security against theft or loss of identification carriers such as cards or codes. Compared with conventional authentication met- hods, biometric systems can ensure a higher degree of security by permitting access solely to authorized users.
greater traceability
Growing requirements in terms of higher security entail a greater need for registering and activating systems-based transactions. The deployment of biometrics boosts this potential significantly, while si- multaneously linking the transaction to an individual. As a result, the transaction also becomes easier to trace after its occurrence.
Cost savings
Another driving force underlying the deployment of biometrics is that authentication systems represent a cost saving for companies in, for example, back-up departments, since new codes or security cards no longer need to be set.
Price drives the volume market
The leading technology companies continue to supply products to the
volume market, which is marked by customer-driven demand for up-
grades. These demands mainly involve the supply of technology at
lower cost, while continuing to meet security requirements and being
user-friendly. This is a natural feature of market dynamics in this
sector, as opposed to the public sector and biometrics for large-sca-
le identification systems in which performance interoperability are
more important. The need to reduce the cost of biometrics has be-
come a key issue in volume markets, as well as for those developing
the technology for these product segments. This also points to fing-
erprint verification being the most promising of the biometric tech-
nologies, thanks to its ability to offer excellent performance at com-
petitive prices. Development also shows that fingerprint verification
meets market expectations in terms of lower costs over time.
Wafer production and test
Substrate manufacturing
Application of surface coating
Wafer saw chip to substrate attach and wirebonding
Molding of plastic to cover
chip edges
Bezel and connector attach
and singulation
Visual inspection and electrial test
Product development based on market requirements and an advan- ced level of technology lay the foundation for operations, while effi- cient, optimized production processes create profitable business. A basic factor at the core technology level is the capacity to scan a fingerprint pattern and effectively manage the scanned information.
In both of these areas – sensor technology and algorithms – FPC is deemed to hold a leading market position and has comprehensive patent protection for proprietary solutions. As a result of its consis- tent focus on a technology portfolio distinguished by a compact, power-efficient and effective technology for scanning and matching fingerprint patterns, FPC occupies a strong position in the develop- ment of cost-effective biometric systems. The customer has the potential to use all or part of the components comprising a system, depending on the end product that the customer develops. Factors guiding the customer’s selection are the requirements that the end user imposes on the particular application. FPC does not pursue in-house production but, instead, outsources the manufacture of sensors and processors to specialist suppliers.
Develop what the market requires
Development is marked by a consistent response to changes in market requirements and anticipations as regards technology, pri- marily in terms of design, format and price. In the past this has been confirmed by, for example, the development of a compact swipe sensor and accompanying algorithm and methods for the matching of fingerprint patterns. During 2008 and 2009, operations focused primarily on the production of FPC’s areas sensors and the development of new products and production solutions. As a result, a new packaging solution for area sensors was introduced in the market. Development evolved in cooperation with a number of the market’s most experienced suppliers, thus providing conditions for favorable, future production economy, high quality and short deli- very times.
During the second half of 2009, resources were focused on the development of the new swipe sensor project. FPC sees a number of possible application areas for a competitive swipe sensor, with mobile telephony as one of the most significant. The new swipe sensor is based on the sensor platform developed in the past year and which is now being adapted to a specific swipe sensor product.
In a bid to shorten the period for silicon development, resources were commissioned from two consulting companies with expertise in ASIC development. In addition to silicon development, an upgrade
of packaging for the new swipe sensor was developed, as well as the creation of algorithms and software for the swipe sensor sys- tem. The development of packaging will be conducted in close col- laboration with a supplier of manufacturing equipment, as well as with sub-suppliers active in packaging. Algorithms and software will be developed primarily using in-house resources.
higher sales require increased output
With a view to increasing output volumes, the focus has been on optimizing production for area sensors. New suppliers were asses- sed and a number of improvements in the production process intro- duced, permitting a reduction in production wastage and improved product quality. During the fourth quarter, resources were ear- marked to solve the shortage of components comprising part of the area sensor’s design.
Production capacity was also a challenge during the latter half of the year, particularly due to the breakdown of machinery at a sub- supplier. Since the machine in question specializes in the manufac- ture of sensors, the degree of parallel manufacturing lines for this part of the processes was not great. As part of efforts to ensure pro- duction capacity for the future and reduce the potential risk in the production chain, FPC placed an order for this type of production equipment during the fourth quarter, which will be located at the sub-supplier.
As of the fourth quarter, FPC has personnel on-site at the packa- ging supplier. The objective of this local representation is to ensure quality and that the production flow is maintained at the planned le- vel, while working to further improve the production outcome. An- other task is to shorten lead times in the delivery chain, which can be attained through direct deliveries to customers.
During the year, two production-related projects were in pro- gress to reduce manufacturing costs for the area sensor. Both pro- jects were successful and now offer the potential for lower produc- tion costs and higher quality, in addition to shorter delivery times. As a direct result of the quality programs for the new packaging solu- tion, the number of rejects from end customers for the new solution has, to date, been drastically lower than for the previous product.
From wafer to finished sensor
The path from silicon to a finished sensor is a complex process that must be continuously optimized in terms of production results, quality and lead times. The first step in the production chain is that
a silicon wafer undergoes very extensive, hi-tech processing at the silicon supplier, including a test that shows which chip on the wafer copes with the stringent requirements. The wafer is then coated with a thick, protective surface coating before being cut up into in- dividual chips (a sensor chip in our case) each containing an inte- grated circuit. Parallel with this process, a substrate, or circuit card, is produced,, which is processed using a number of conductor paths for connection of the components and chip. A number of pas- sive components are mounted on this card and, subsequently, the chip and circuit card interact when chip mounting is conducted.
This stage sees the removal of chips that previously did not cope with the requirements. The chip is then connected electrically to the circuit card using wire bonding (involving the laying of super-thin wires) and – to protect the chip’s edges – a plastic mixture is then coated across the top of the circuit card and around the chip.
The next stage involves the mounting of an electricity-conduc- ting frame which – apart from protecting the sensor chip mechani- cally – supplies a weak measurement signal to the finger and pro- tects the sensor in the event of electrical discharge. Ahead of final testing and inspection, the circuit card and its multiple sensors are divided into individual units. After packaging, the sensor is ready for shipment to customers.
Patents – a strength and asset iP licensing
IP-licensiering: In pace with the rising volume of low-cost biometrics , the potential also increases for a business model aimed solely at IP licensing. Since FPC holds well-protected IP rights in the areas of sensor technology, algorithms and matching methods, the conditions for this type of business arrangement are continuously evaluated.
Patent strategy: FPC deploys an active patent strategy based on de tailed monitoring of the market as part of efforts to assess new potential for patents and identify any infringement of FPC’s patents.
All development contracts with sub-suppliers require them to be attentive to patenting potential resulting from development work,
and to notify FPC of such potential. All rights to technological re- sults and patents in such collaborative efforts accrue to FPC. In design work undertaken with customers and aimed at the develop- ment of customer-specific solution, encased IP blocks are delive- red, which prevent the customer from copying or further developing the design personally.
FPC’s most important patents involve sensor architecture, pixel elements in the sensor, matching algorithms, swipe sensor design and packaging solutions. These patents cover many of FPC’s key competitive advantages, such as image quality, rapid and method- adjusted processing of the scanned finger patterns, method of ef- fective storage of part-images of a moving finger print and the po- tential to manufacture robust sensors with a lengthy service life.
Quality and environment – self-evident features
Quality: All production of FPC products is conducted by a number of carefully selected suppliers. Cooperation with these suppliers is re- gularly followed up and, during the year, additional efforts were made to ensure quality, traceability and efficiency in the production chain. Investments were also made to enhance efficiency in hand- ling business documents and transactions in the company – all in a bid to enhance quality and efficiency.
Environment: FPC does not conduct the manufacture of physical products in-house, but instead purchases electronic components from various selected suppliers who meet the requirements impo- sed in terms of function, quality, stability and the environment.
It is crucial to protect the environment and FPC complies with the EU’s and China’s RoHS directives on the curtailment of sub- stances in electrical products. It is also important to ensure that collection and recycling are performed in an environmentally ef- fective manner.
Needless to say, FPC also tries to be particularly environmen- tally friendly in its home market, preferably using recoverable and energy-efficient products.
PrODuCT DEVElOPmEnT anD PrODuCTiOn
We’re strengthening our positions.
6,00 8,00 10,00 12,00 11,00 9,00
7,00
Jan Feb Mar Apr Maj Jun Jul Aug Sep Okt Nov Dec
SEK/EUR SEK/USD
Earnings per share
Earnings for the fiscal year attributable to the Parent Company’s shareholders divi- ded by the Parent Company’s average number of shares for the fiscal year.
Earnings per share after dilution Earnings for the fiscal year attributable to the Parent Company’s shareholders divi- ded by the weighted average of the number of shares outstanding, plus the average number of shares that could be issued as a result of current remuneration and per- sonnel programs.
Shareholders’ equity per share Shareholders’ equity attributable to the Parent Company’s shareholders divided by the number of shares outstanding, before dilution, at the end of the fiscal year.
Shareholders’ equity per share after dilution
Shareholders’ equity attributable to the Parent Company’s shareholders divided by the number of shares outstanding, before dilution, at the end of the fiscal year.
average number of shares
The Parent Company’s average weighted number of shares for the fiscal year.
average number of shares after dilution The average weighted number of shares outstanding, plus the average number of shares that could be issued as a result of current remuneration and personnel pro- grams.
Equity/assets ratio
Shareholders’ equity divided by total assets.
inventory turnover rate
Cost of goods sold divided by average in- ventories.
average credit year
Average value of accounts receivable over a year in relation to net sales, multiplied by 30 days.
Order backlog
The difference between order bookings for the fiscal year and worked-up sales, plus order backlog at the beginning of the fiscal year.
Working capital
Current assets less current non-interest- bearing provisions and liabilities.
gross margin
Gross margin as a percentage of net sales.
Operating margin
Operating profit/loss as a percentage of net sales.
net margin
Profit/loss for the fiscal year as a percen- tage of net sales.
algorithm
A systematic procedure for how to conduct a calculation or solve a problem in a given number of steps. In FPC’s specific case, the method refers to the comparison of two fingerprints with each other.
area sensor
A sensor with the size of a fingertip that can scan an entire fingerprint simultaneo- usly. The fingertip is simply drawn against the sensor surface; refer to swipe sensor.
aSiC
(application Specific integrated Circuit) An integrated circuit in the form of a silicon chip that is designed to conduct specific functions – in our case the measurement of a fingerprint.
authentication
Control process for a particular entity; in conjunction with logging on, for example.
The word is synonymous with verification.
Biometric system
A pattern recognition system that identifies or verifies a person by studying a physiolo- gical character of the person, in our case a fingerprint pattern.
Chip
A piece of silicon in which the integrated circuit is embedded, such as a sensor chip.
Normally, a silicon wafer is cut into a num- ber of chips, in which each chip is essenti- ally identical.
dpi
Dots per inch – resolution per spacial unit (in this case inches). The higher the value, the better the resolution and degree of detail.
identification
Comparison of compiled biometric data with all stored templates for the purpose of identifying one of these templates (and thus an individual) from a multitude.
intellectual Property, iP
Ownership rights to patents and other methods and processes unique to FPC.
Enrolment
Compilation of biometric data used to cre- ate a template. [The process in which in-
formation is compiled from the individual and subsequently processed and stored as a reference image.]
matching
The process of comparing an image of a fingerprint with a pre-processed template, and assessing whether or not they are si- milar.
Packaging
The work and components, apart from the silicon chip, required for building a sensor.
Sensor platform
The silicon technology that FPC has crea- ted for the development of future sensors, meaning the basic technology.
Swipe sensor
A sensor with a width equal to a fingertip but much narrower throughout the length of the finger. The fingertip is drawn across the sensor surface and part of the fingertip is scanned step-wise; see area sensors.
The fingerprint is thus scanned in this manner.
Template
An arrangement of unique data that repre- sents a certain fingerprint.
Verification
The comparison of compiled biometric data with a given template for the purpose of ve- rifying matching of the two. By this means, the authentication of an individual can be made with a high degree of certainty.
Wafer
A thin circular silicon disc that contains several integrated circuits, such as sensor chips.
Wire bonding
Connection of a chip using thin metal wires that run between the contact points on the chip and contact points on the substrate (frequently a circuit board).
Yield
The percentage of a number of approved units divided by the number of initial units.
The term is used primarily in production.
Financial glossary Technical glossary
Exchange rates
FPC’s sales and materials purchases are undertaken almost ex- clusively in USD, with purchases of technical services in EUR to a lesser degree. Otherwise SEK is used. As of December 31, 2009, the SEK/USDD rate was 7.18, with the SEK/EUR rate at 10.30. The SEK/USD rate fell steadily during the year before closing at more than SEK 7 per dollar. No currency hedging was undertaken during 2009, resulting in exchange rate losses in operating flows during 2009. Effective year-end, net flows in USD are currency hedged.
Trend in USD and EUR exchange rates during 2009
6,00 8,00 10,00 12,00 11,00 9,00
7,00
Jan Feb March Apr May June July Aug Sep Oct Nov Dec
SEK/EUR SEK/USD
The Share
Shares in Fingerprint Cards are issued pursuant to Swedish law and are registered at Euroclear in electronic form under the ISIN Code SE0000422107. The company’s shares are denominated in SEK (Swedish kronor). According to the Articles of Association of Finger- print Cards, the issued share capital shall be a minimum of SEK 3,000,000 and a maximum of SEK 12,000,000. The number of shares shall be at least 15,000,000 and at most 60,000,000. The quotient va- lue of each share is SEK 0.20. All shares confer equal rights to parti- cipation in earnings and surpluses.
Class A shares each carry 10 votes, while Class B shares carry one vote each at General Shareholder Meetings. All shares are fre- ely transferable.
Changes in shareholder rights require an amendment of the Ar- ticles of Association pursuant to applicable legislation. Pursuant to the Swedish Companies Act (2005:551), the shareholders have pre- ferential rights for subscription of new shares in conjunction with new share issues. Any payment of dividends requires the approval of the Annual General Meeting, refer below to Dividend policy. Follo- wing a period of limitation of 10 years, entitlement to a dividend re- verts to the company. There are no restrictions on dividends or spe- cial procedures for shareholders resident outside Sweden and pay- ment is made via Euroclear in the same manner as in the case of shareholders resident in Sweden. Fingerprint Cards AB was intro- duced on the “Nya Marknaden” list of the Stockholm Stock Exchan- ge on May 8 1998.
Since April 19, 2000 the share has been traded on the Small Cap list of the Stockholm Stock Exchange, currently known as Nasdaq OMX, Stockholm. The company is traded under the ticker FING B. A trading lot is one share. The company publishes interim reports and other stock market information and otherwise complies with the ru- les and recommendations applying to companies whose securities are listed on Nasdaq OMX Stockholm.
Share performance and trading
During 2009, the share price fluctuated between SEK 2.50 and 7.90.
The share price trend, in SEK, is illustrated in the graph below:
During the year, 59,050,299 shares were traded for a total of SEK 275,029,446. The average number of shares changing owner on a daily basis amounted to 235,260. Fluctuations in daily trading, in terms of the number of shares, are illustrated below:
Market capitalization in 2009 increased from SEK 56 M at the begin- ning of to SEK 131 M at year-end.
As of December 31, 2009, the share capital in Fingerprint Cards totaled SEK 7,933,913 represented by 1,200,000 Class A shares and 38,469,586 Class B shares. Each share has a quotient value of SEK 0.20. Each Class A share entitles the holder to ten (10) votes and each Class B share to one (1) vote. All shares confer equal entitle- ment to participation in the company. Over the course of 2009, two new share issues were completed, which contributed SEK 54.0 M to the company, after issue expenses. The number of shares rose by 27,516,853, of which 900,000 were Class A and 26,616,853 were Class B. At 30 December 2009, the company’s Class B share traded at SEK 3.30.
number of shareholders
The number of shareholders at December 30, 2009 was 8,300 (7,125 December 30, 2008). As of December 30, 2009, 670 legal entities were shareholders, along with 7,630 individuals, of whom 5,574 were men and 2,056 women.
major changes in shareholdings
Effective 12 April, 2010, Transferator AB acquired Imagio Tech AB’s 600,000 Class A shares and, following the acquisition, holds 1,200,000 Class A shares, corresponding to 3.02 percent of the share capital and 23.77 percent of the votes.
Shareholder agreement
To the knowledge of the Board of Directors of Fingerprint Cards AB, there are no shareholder agreements or other agreements among any of the Company’s shareholders aimed at exercising joint influ- ence over the company. To the knowledge of the Board of Directors, there are no agreements or equivalent accords that could lead to a change in the control of the company.
Dividend policy
The company’s cash flow in the years ahead will be used to finance further expansion and development. This means that Fingerprint Cards AB does not plan to propose a dividend in the immediate fu- ture. The Board will annually review the established dividend policy.
Warrant program
The Annual General Meeting of May 31, 2007 approved the introduc- tion of an incentive program for the company’s employees. Of the overall program, employees hold 140,000 warrants. The warrants program provides entitlement to subscribe for shares in the com- pany at a price of SEK 23.60 per share. The warrants may be exerci- sed for subscription during the period June 1, 2010 through Novem- ber 30, 2010. On full exercise, a total of 222,600 Class B shares will be issued, corresponding to a dilution rate of about 0.6 percent of the number of shares and some 0.4 percent of the number of votes.
The Extraordinary Meeting of Shareholders held on March 3,
2010 approved a new incentive program involving 3,925,000 war- rants. The warrants provide entitlement to subscribe for shares in the company at a price of SEK 7.48 per share. The options may be exercised for subscription during the period June 1, 2012 through August 31, 2012.
On full exercise, 3,925,000 new Class B shares will be issued, corresponding to a dilution rate of some 9.0 percent of the number of shares and about 7.2 percent of the number of votes.
authorization
The Annual General Meeting on June 4 of 2009 approved the autho- rization of the Board to make one or more decisions regarding the new issue of a maximum 8,000,000 Class B shares, disapplying the preferential rights of shareholders. Subscription shall primarily be available to industrial, financial and institutional investors.
annual general meeting
The Annual General Meeting will be held on June 17, 2010. The re- cord date for the Meeting is June 11, 2010.
Share data and ownership
Ownership structure, December 31, 2009
Number of Number of Total number Number of Capital Votes
Shareholders A-shares B-shares of shares votes in % in %
Imagio Tech AB 600,000 28,800 6,028,800 6,028,800 1,59 11,95
Transferator AB 600,000 – 600,000 6,000,000 1,51 11,89
Non-Swedish shareholders 10,847,582 10,847,582 10,847,582 27,34 21,49
of which, Balling Storköb, Denmark 1,039,466 1,039,466 1,039,466 2,62 2,06
of which, Amagerbanken A/S Denmark 615,079 615,079 615,079 1,55 1,22
of which, Danske Bank International 418,000 418,000 418,000 1,05 0,83
of which, other non-Swedish shareholders 8,775,037 8,775,037 8,775,037 22,12 17,38
Other Swedish shareholders 27,593,204 27,593,204 27,593,204 69,56 54,67
of which, Avanza pension 933,061 933,061 933,061 2,35 1,85
of which, Nordet pension 905,572 905,572 905,572 2,28 1,79
of which, other Swedish shareholders 25,754,571 25,754,571 25,754,571 64,93 51,03
Total 1,200,000 38,469,586 39,669,586 50,469,586 100,0 100,0
Composition of share capital
Type of share Votes Number of shares Number of votes Percentage of capital Percentage of votes
Class A 10 1 200 000 12 000 000 2,5 20,2
Class B 1 38 469 586 38 469 586 97,5 79,8
Total 39 669 586 50 469 586 100,0 100,0
Change in share capital
Change in Total number Increase in Total
Year Event Par Value number of shares of shares share capital share capital
1997 Split 500:1 0,20 249 500 250 000 0 50 000
1997 Bonus issue 0,20 250 000 500 000 50 000 100 000
1997 New share issue 0,20 2 000 000 2 500 000 400 000 500 000
1997 New share issue 0,20 370 000 2 870 000 74 000 574 000
1998 New share issue 0,20 2 000 000 4 870 000 400 000 974 000
2000 New share issue 0,20 540 000 5 410 000 108 000 1 082 000
2000 New share issue 0,20 938 258 6 348 258 187 651 1 269 651
2005 New share issue 0,20 3 000 000 9 348 258 600 000 1 869 651
2006 New share issue 0,20 2 804 475 12 152 733 560 895 2 430 546
2009 New share issue 0,20 7 682 060 19 834 793 1 536 412 3 966 958
2009 New share issue 0,20 19 834 793 39 669 586 3 966 959 7 933 916
0,00 2,00 4,00 6,00 7,00 8,00
5,00 3,00
1,00
2009 jan feb march apr may june july aug sep oct nov dec
0,00 1 000 000,00 2 000 000,00 2 500 000,00 1 500 000,00 500 000,00
2009 jan feb march apr may june july aug sep oct nov dec
