A l report 2009
Information to Our Shareholders Annual General Meeting 2010
The Annual General Meeting will be held at 4 pm on Wednesday, April 14, 2010 at the offices of the law firm Kilpatrick Stockton at Hovslagargatan 5B, Stockholm. An official notification will be published no earlier than six weeks and no later than four weeks before the Meeting. To be entitled to participate in the Annual General Meeting, shareholders must be registered in the share register maintained by Euroclear Sweden AB (previously VPC AB – Swedish Central Securities Depository & Clearing Organization) no later than April 8, 2009, and must notify the company of their intention to attend the Annual General Meeting by 4 pm on Wednesday, April 8, 2009. To be entitled to participate in the Meeting, shareholders whose shares are held in the name of a trustee must temporarily re-register their shares with Euroclear Sweden AB in their own name. Such registration must be completed no later than April 8, 2010.
Financial Reporting
January–March 2010: April 14, 2010 January–June 2010: July 21, 2010
January–September 2010: October 21, 2010 Year-end report 2010: January 27, 2011
All financial reports and other press communiqués are available from the company’s website at www.effnetholding.se.
N.B. The Annual Report is prepared in Swedish and translated into English. Should differences occur between the Swedish Annual Report and the English translation, the Swedish version shall prevail.
Contents
Brief Presentation of the Group
Information to Our Shareholders 2
About Effnet Holding 3
Highlights of 2009 4
Five-Year Summary and Key Ratios 5 The Business
CEO’s Comments 6
Mission Statement, Goals and Strategies 8
Personnel and Organization 9
Factum Electronics AB 10
Effnet AB 14
Board, Management and Auditors
Board, Management and Auditors 18 Share and Shareholders
The Effnet Share and Shareholders 20
Financial Information
Board of directors’ report 22
Income statements 26
Balance Sheets 27
Statement of changes in equity 28
Statements of cash flows 29
Notes 30
Proposed Distribution of
Unappropriated Earnings 37
Audit Report 37
Other information
Financial Glossary 38
Technical Glossary 38
Addresses 40
About Effnet Holding – leading edge technology for digital communication
The Business
The Effnet Group is active in advanced digital communication and, within its niches, serves customers in market segments characterized by high growth potential. The Group’s products are based on leading technology and its mission is to be the leader in the respective business areas.
The Group has two business areas: Digital Broadcasting via the subsidiary Factum Electronics AB and Header Compression via the subsidiary Effnet AB.
Digital Broadcasting
Factum Electronics AB is a world-leading supplier of systems and components for digital broadcasting of radio (DAB/DAB+) and mobile TV (DMB). Factum develops and sells systems and components, including test and monitoring systems, to radio and television companies, as well as network operators, around the world. Factum also supplies modular software
developed by the company (middleware) for manufacturers of chipsets for receivers, including mobile telephones, as well as components for digital stereo sound for analog television broadcasts (NICAM). As of early 2009, Factum Electronics also sells third-party products in DAB/DAB+/DMB.
Header Compression
Effnet AB develops and sells the Effnet Header Compression software family. Effnet Header Compression increases the speed, efficiency and reliability of IP traffic in mobile, fixed and satellite based networks. Typically, customers are manufac- turers of chipsets, protocol stack vendors and manufacturers of infrastructure systems and terminals, primarily within the telecom sector. Effnet is the world-leading supplier in its field.
EFFNET HOLDING AB (puBL) Parent company
FACTuM ELECTRONICS AB Digital Broadcasting
EFFNET AB Header Compression
2009 2008 2007 2006
Net sales 18.2 31.5 24.6 36.3
Operating income -13.3 -9.2 -15.3 -3.6
Net loss -13.4 -8.9 -14.7 1.2
Number of employees at
year-end 20 24 30 27
EARNINGS TREND, SEKM
NET SALES 2009 SEKM
Europe 8.1 Asia 5.4
Oceania 3.9
North America 0.8
Highlights of 2009
Effnet AB
• Effnet AB licensed its Header Compression technology to a company in the test and measurement systems market.
• Effnet AB successfully licensed its simulation tool HC-Sim to a leading manufacturer of network equipment for LTE.
• Effnet AB introduced its new product Effnet ROHC-IP™.
This product belongs to the Effnet ROHC product family, complementing this product family with compression in accordance with another IETF standard.
Events at the beginning of 2010
• In early January 2010 Raiway in Italy and The Bridge Networks in Australia placed orders for additional Factum head end equipment. Orders were received from Asia for NICAM equipment from the distributors Plisch Asia in Singapore and Triwi Putra Jaya in Indonesia.
Group
• The Group’s sales were SEK 18.2m (31.5). Net loss was SEK -13.4m (-8.9) or SEK -0.08 (-0.06) per share.
• The reorganization with accompanying cost-savings program, which was resolved in December 2008, was implemented with expected results in 2009. The outcome on a full-year basis was a reduction of the Group’s fixed costs by about 30 percent.
• The Board of Directors’ decision to carry out a public offering with preferential rights for shareholders in Effnet Holding AB, at a subscription price of SEK 0.09/share, was approved by an extraordinary general meeting in October 2009. The share issue was carried out in November 2009 at a subscription rate of 271 percent and raised approximately SEK 9.4m for the Group after deducting issue expenses.
• Fredrik Hånell became the Group’s new CEO on October 23, 2009 and Jonas Saric became the Group’s new Chief Financial Officer on August 17, 2009.
• The company’s share was traded on the First North NASDAQ OMX up until February 27, 2009. On March 2, 2009, the company’s share was listed on NASDAQ OMX First North Premier.
Factum Electronics AB
• During the year Factum Electronics sold DAB+/DMB equipment to Italy, Greece, Norway, Germany, China, Malaysia and Switzerland. In conjunction with the official start of commercial DAB+ broadcasts in Australia, additional orders arrived to complete the existing Factum installation.
• The two major network operators in France, TDF and Towercast, as well as a major German operator, bought their leased Factum systems during the year.
• One groundbreaking order for middleware came from a
German automaker for DAB/DMB test vectors.
Five-Year Summary and Key Ratios
COMMENTS
The average number of shares was used to calculate all share-related sales/earnings/
cash flow ratios. Other share-related key ratios are based on the actual number of outstanding shares at the respective point in time. The average the number of shares was calculated in accordance with IAS33, where a mathematical adjustment of the his- torical number of outstanding shares in Eff- net Holding was made, based on the bonus issue element/discount in the company’s share issue in November 2009.
The Annual General Meeting resolved on April 26, 2006 to issue a maximum of 4.0 million warrants relating to shares in Effnet Holding AB to the personnel. The options were forfeited during the second quarter of 2009 and can thus no longer be redeemed for shares. The potential dilutive effect of the employee stock options is therefore no longer present as of December 31, 2009.
A financial glossary is available on page 38.
SEKM uNLESS STATED OTHERwISE 2009 2008 2007 2006 2005
Net sales 18.2 31.5 24.6 36.3 53.8
Sales growth -42% 28% -32% -32% 97%
Operating income -13.3 -9.2 -15.3 -3.6 14.6
Operating margin Neg Neg Neg Neg 27%
Value added ratio 33% 51% 36% 49% 64%
Net loss -13.4 -8.9 -14.7 1.2 17.8
Cash flow from operating activities -10.3 -10.0 -6.4 -4.5 13.4
Total assets 22.2 27.4 34.1 47.4 46.0
Equity 13.5 17.4 26.0 39.8 37.9
Equity/assets ratio 61% 63% 76% 84% 83%
Cash and cash equivalents 6.5 5.7 16.0 23.4 29.2
Return on equity Neg Neg Neg 3% 61%
Return on capital employed Neg Neg Neg Neg 50%
Number of employees 20 24 30 27 23
Average number of employees 21 26 26 24 21
Net sales per employee 0.9 1.2 0.9 1.5 2.6
Value added per employee 0.3 0.6 0.3 0.7 1.6
Number of shares, thousands, at year-end 217,336 108,668 108,668 108,668 108,668
Number of shares, thousands, average 159,131 149,887 149,887 149,887 149,887
Net sales per share, SEK 0.11 0.21 0.16 0.24 0.36
Earnings per share, SEK Neg Neg Neg 0.01 0.12
Cash flow per share, SEK -0.07 -0.07 -0.04 -0.03 0.09
Cash and cash equivalents per share, SEK 0.03 0.05 0.15 0.22 0.27
Equity per share, SEK 0.06 0.16 0.24 0.37 0.35
Share price at year-end, SEK 0.20 0.38 0.95 1.86 2.14
Price/equity 323% 238% 398% 508% 613%
Market value 43.5 41.3 103.2 202.1 232.5
Dividend per share, SEK 0.00* 0.00 0.00 0.00 0.00
* Board of Directors’ proposal.
10 0 20 30 40 50 60
2005 2006 2007 2008 2009
NET SALES, SEKM
CEO’s Comments – Positioned for growth
Dear shareholder,
The past year has been greatly influenced by events beyond our control. In addition to the long sales cycles typical in the Header Compression business, delays in the political decision- making processes for implementing global digital radio have caused 2009 to become an intermediate year for our digital broadcasting business. These conditions affect the financial performance of the Group.
As the new CEO of the Effnet Group and the subsidiary Factum Electronics AB, my work in November and December 2009 has focused on organizing the operation to make it better prepared for industry fluctuations.
Factum secures its market-leading position From a historical perspective, Factum has dominated its industry, with an annual market share of over half the global market. As the digital radio industry awaits final decisions from politicians, competition has eased, largely because Factum’s dominance has resulted in our winning most of the business deals that could be won. Many of our competitors have tried to dump prices or even give away equipment to get a foot in the door with customers, causing their margins to deteriorate to the point of causing financial problems.
Over the years Factum has sold almost 200 digital broad- casting systems to more than 20 countries. These systems have functioned faultlessly since installation. This recognized high operational reliability gives us an unbeatable track record and existing customers are more than willing to be references during ongoing procurement processes. We can therefore resist the strong pressure on prices from the competition whilst retaining our margins.
As the dominating market leader, Factum has a unique oppor- tunity to set the strategic focus for the entire industry, thus establishing a new de facto standard for digital radio systems.
We work closely with our customers to specify future digital radio solutions, which then establish our product road map over the next few years. We plan development initiatives with a mix of newly developed products for the near term and strategic product development.
We have reorganized the sales organization and imple- mented a stronger focus on strategic procurement in the near future. We dedicate resources to intensified monitoring of national decision-making hierarchies and try to exercise influence through the media and personal meetings wherever we can.
During the year we established many new customer contacts for our middleware products. We greatly benefited from our experiences with Header Compression sales and we study opportunities for greater coordination between operations to take advantage of the many intersecting points in business proposals.
We see continued demand for NICAM equipment. In the
wake of the financial crisis, NICAM is an inexpensive option
and several countries choose to continue to upgrade their
analog TV networks with NICAM stereo sound while awaiting
a full-scale transition to digital TV in the future.
In closing
The Group’s two operations in Digital Broadcasting and Header Compression are very well-positioned for develop- ments in their respective markets. We strive to maintain our dominant market share in digital radio by building on our strong track record and positioning ourselves as the industry’s undisputed leader. We will expand our middleware initiatives with a broader product portfolio and continued intensive sales efforts. We expect revenues from Header Compression royalties to continue to increase as existing customers implement and commercialize their new products, while growing pressure on networks will result in new customers choosing our solutions.
We retained our strong global market presence even though 2009 was an intermediate year for the entire Group. Our efforts in recent years have been characterized by great uncertainty in our markets. Considering the latest market developments we are extremely well-positioned to achieve our full potential over the next few years.
Linköping, March 2010
Fredrik Hånell
President of the Effnet Group and CEO of Factum Electronics AB
Fredrik.Hanell@effnet.com Effnet is well-positioned for growth
The business concept of the Header Compression operation is based on mobile phone and satellite modem manufacturers first designing header compression functionality into their new products, before we receive royalty revenues through their sales.
Since mobile networks have been continuously expanded, until recently bandwidth availability has not been a problem.
Connection to the Internet by mobile phone with IP has been sporadic, depending on the application used, and therefore the benefits of header compression have not been as apparent for manufacturers and operators. However, the commercial success of the iPhone and similar smartphones has increased the traffic load on mobile networks due to the continuous IP connection to the Internet. In the new LTE, or 4G, networks, all applications used in cell phones go over IP.
For Effnet, this development entails a sharp increase in the need for Header Compression. To conserve bandwidth in their networks, operators require standard vendor-neutral Header Compression functions implemented in the equipment. Effnet’s offering is extremely well-positioned in this context.
Satellite modem manufacturers have needed Header
Compression for a long time, given the high cost of bandwidth
by satellite. The suppliers have implemented their own
compression algorithms and our challenge is to replace or
supplement them with our solution. The satellite commu-
nication industry is currently undergoing a transformation,
and just as during the telecom deregulation period 20 years
ago, new players are appearing to tailor solutions for specific
segments. For us, this trend means an increased need for
vendor-neutral standardized Header Compression.
Mission Statement, Goals and Strategies
– Shareholder value through long term profitable growth
Mission statement
The Group’s mission is to deliver leading-edge products and services within digital communication to customers in market segments with high growth potential.
Overall goals
The Group’s overall goal is increased shareholder value created primarily through long-term profitability and growth.
Financial goals
A number of financial goals have been established. The aim of these goals is to strengthen the focus of the operations on the Group’s overall goal, and to limit risk. The financial goals apply to the present Group structure and risk level, and may be adjusted due to changes, such as an acquisition.
Cash flow and performance
Each business area should show a positive cash flow and make an operating profit.
Equity/assets ratio
Considering that the business has a relatively high risk level, the equity/assets ratio should be at least 40 percent.
Earnings per share
Earnings per share should continuously improve. The Group may issue new shares in conjunction with an acquisition, or for other reasons. The guideline when doing so is that earnings per share should always be improved.
Dividend
Currently, the Board prioritizes the Company’s capital requirements for expansion, as well as investment in product development and in new or complementary businesses.
Strategies
The Group’s main strategy is to further develop its businesses
on the basis of organic growth. In addition, the Group can
be expanded with new or complementary businesses through
acquisition, provided that they create added value for the
shareholders.
Organization structure
The organization of the Effnet Group is strongly customer oriented, with marketing and sales staff closely tied to the respective business areas. Both business areas have strong research and development departments. The business of Factum Electronics is conducted in Linköping, whereas Effnet AB is located in Luleå. Group functions are located at the headquarters of this company, which as of March 2009 was located in Linköping.
The sales organizations for the business areas consist partly of own personnel based in Sweden, with a global field of operation, and partly of a network of agents in key markets.
The Group’s development engineers are increasingly being involved in the sales process since it is very technology- intensive.
Number of employees
The average number of employees during the year amounted to 21 (26) persons. At the turn of the year, there were 20 (24) employees, of whom 2 (3) were women. The reduced number of employees is a result of ongoing cost savings, which were made possible since the product families of the subsidiaries now require a lower level of development resources.
Equal opportunities
The Group is active in a traditionally male-dominated field. The Effnet Group offers its employees equal opportu- nities regardless of gender, ethnic origin, religion or other background or affiliation. Competence and achievement are the only criteria in employment and promotion.
Flexibility
The Group strives for a great deal of mutual flexibility vis-à-vis its employees. This flexibility means that the Group is positively inclined to parental leave and, for instance, leave for studies.
In return, the employees are expected to be flexible regarding working hours, holidays and the like.
Competent personnel/High level of education The Group’s personnel generally have a high level of education.
The Group’s development engineers have extensive experience and sound knowledge within their respective fields.
personnel and Organization – competent employees
EMpLOYEES BY FuNCTION 2009 Management and administration 13%
Sales and marketing 33%
Research, development and production 54%
AGE STRuCTuRE 2009
29 years and younger 5%
30–39 years 45%
40–49 years 40%
50 years and older 10%
EDuCATIONAL LEVELS IN THE GROup 2009
Other academic degrees 10%
Institute (university) of technology/equivalent 70%
High school 20%
2009 2005 2006 2007 2008
Staff turnover,%
Average number of employees
Average number of %
Factum Electronics AB – continued market dominance
Digital Broadcasting (DAB/DAB+/DMB) Customer benefits
DAB/DAB+/DMB is a worldwide standard for digital broad- casts of radio and data to mobile and stationary receivers. DAB/
DAB+/DMB technology offers radio and television companies the possibility of providing a broader selection of services and programs in combination with lower operating costs and increased quality. The introduction of the new audio coding standard DAB+ enables operators to transmit approximately three times as many radio channels using the same infrastructure as was rolled out for DAB. DMB is, technically and financially, the most efficient method of broadcasting mobile TV.
Products and technological development
Factum Electronics is a world leading supplier of complete systems solutions within DAB/DAB+/DMB. “DAB/DAB+/DMB by Factum” is now an established and strong brand which stands for user-friendly, flexible and high-quality systems, software and components. The product range includes audio encoders, multi- plexers, equipment for IP and video broadcasting, control and monitoring systems, testing systems and solutions for complete system redundancy. The equipment is used in the interface between the studio and the broadcasting mast. Requirements for the availability and reliability of services are increasing in line with the rise in the number of regularly scheduled digital broad-
casts, which implies significant market advantages for Factum’s solutions for redundancy (back-up systems) for reliable operation.
What’s more, Factum engages in continuous development and refinement of its product range in close collaboration with customers. In 2009 Factum continued to develop its DAB/
DAB+/DMB system for complete interoperability with IP.
The systems have also been better adapted for integration into our customers’ system configurations.
Factum also sells third-party products from All-In-Media, Unique Interactive and VAD to broaden the product range and increase competitiveness, thereby increasing sales and improving financial performance. These products supplement Factum’s own DAB/DAB+/DMB systems and are directed at the same customer groups.
Factum Electronics AB develops and sells components, software and systems for digital broadcasting, such as digital radio (DAB/DAB+) and mobile TV (DMB), as well as components for digital stereo sound for analog TV broadcasts (NICAM).
Customers include radio and TV companies worldwide and their network operators.
Factum has also developed middleware for DAB/DAB+/DMB, which is licensed to manufacturers of chipsets and receivers.
From 2009, Factum has also sold third-party products within the areas of DAB/DAB+/DMB.
During the year, Factum was active in WorldDMB and participated in both the technological and the market-related development of the DAB/DAB+/DMB standard, among other things by being represented on its board.
Market
As of the addition of DAB+ to the DAB standard, the interest in digitizing analog radio has increased markedly around the world, and consequently expectations on market growth over the next few years are high. The frequencies available for digital broadcasting will also gradually increase as analog TV and radio broadcasts are switched off, which is exemplified by the decision of the European frequency conference RRC06 stating that the frequencies where analog TV and radio are
FACTuM ELECTRONIC’S pRODuCT OFFERING IN DIGITAL RADIO
Factum DAB/DAB+/DMB
Factum DAB/DAB+/DMB
currently being broadcast will gradually be used for digital broadcasting. However, this kind of extensive technology shift can take several years and often depends on other political decisions.
Even though the market is still relatively immature, currently over 500 million people in 25 countries can be reached by more than 1,000 different DAB/DAB+/DMB services. The number of consumers and the number of services are expected to increase as more licenses are granted and more countries introduce full-scale national and regional investments in the DAB/DAB+/DMB standard. Only a few full-scale initiatives have been carried out in a few countries at this time.
Germany offers a DAB selection of 180 digital radio channels that cover 85 percent of the country. The public broadcasting companies ARD and Deutschlandradio are planning a new launch of digital radio based on the DAB+ standard in the summer of 2010. During the autumn of 2009, German network operator Media Broadcast was granted a license to run the national digital radio network, thus enabling countrywide radio services for the first time in Germany. The project plan is currently being evaluated by the financial authority KEF, after which new infrastructure investments can be expected.
During the spring of 2010, broadcasting companies will apply for permission to begin broadcasting.
The Italian regulatory authority AGCOM decided in December 2009 on regulations for a commercial rollout of DAB+ in Italy. The regulations came into force in January 2010, after which an expansion of the network will begin.
The implementation of digital radio on the regional and national level in France has been further delayed due to conflicts about license costs for commercial radio channels.
The French regulatory authority CSA hopes to see an infra- structure rollout in the second half of 2010, so that digital radio can be offered in the retail sector in time for Christmas 2010.
In the UK, 17.1 million people–or 27 percent of all adults–own a DAB radio, an increase of 2 million DAB receivers sold over the past year. DAB broadcasts cover 85 percent of the population, with 415 services.
In Australia the industry players agreed to ensure a successful transition to digital radio. The DAB+ network went live in May and June 2009 in the five largest cities, and the services was launched on August 6 with great media fanfare under the slogan “Radio United.”
Denmark stopped broadcasting analog TV in late October 2009, which made frequency space available for additional digital radio services. The existing 17 countrywide public and commercial DAB services cover 90 percent of the country and every third household owns a DAB receiver. The regional
COuNTRIES wITH DAB/DAB+/DMB BROADCAST SERVICES
rollout in 2011 will build on DAB+.
In May 2009, Norges mobil-TV AS, jointly owned by the public services company NRK and the private companies TV2 and MTG, launched a two-year pilot program with mobile TV services based on T-DMB. Up to nine television channels will be offered. Currently, 26 DAB services cover 80 percent of the country and 17 percent of the population has access to DAB receivers.
DAB broadcasts in Sweden currently cover all metropolitan areas, representing approximately 35 percent of the population.
However, the broadcasting network already covers 85 percent of the population. The Swedish Radio and TV Authority published a final report in June 2008 on the implementation of digital radio in Sweden and recommend that Teracom use DAB+ instead of DAB. During the autumn of 2009 Teracom launched a one-year DAB+ pilot with public service, commercial and municipal services in Stockholm, Uppsala and Gävle. The primary purpose is to understand listener prefer- ences for selection, as well as to evaluate handling of content and quality.
Tests with DAB/DAB+/DMB are underway in several other countries, including Poland, Indonesia, Malaysia, Mexico, New Zealand, Czech Republic and Vietnam.
product group
Standard Business segment
Target groups DAB/
DAB+/
DMB
ETS 300 401 Digital
broadcasting networks, digital mobile services network
Radio and TV stations, system suppliers and network operators
Middleware ETS 300 401
ETSI TS 802 818/102 371 ETSI EN 301 234 v2.1.1 ETSI TS 101 499 v2.1.1
Mobile phones and digital radio receivers
Chipset manufacturers, manufacturers of mo- bile phones and digital audio receivers NICAM
encoders/
modulators
EN 300 163 Analog
broadcasting network, cable TV
TV stations,
System suppliers as
well as network and
cable TV operators
FACTuM ELECTRONICS pRODuCTS AND MARKETS
Such program modules, which functionally lie between the operating system of the receiver and the applications, are called middleware.
Low development costs and time-to-market are important for chipset and receiver manufacturers and, thus ready-made program modules for decoding advanced services are also in demand.
Products and technological development
As the leading developer of DAB/DAB+/DMB systems, Factum Electronics has unique knowledge as regards the manner in which the different services are coded before broad- casting. Based on this knowledge, in 2009 Factum continued to develop middleware modules for the decoding of different types of data services, such as electronic program guides (EPG) and slide shows (SLS). The ability to develop and test the entire chain in the data flow guarantees the compatibility of Factum’s middleware modules with the DAB/DAB+/DMB standard.
Factum can also offer chipset and receiver manufacturers a DAB/DAB+/DMB test system, which is a system with limited functionality used to locally transmit DAB/DAB+/DMB signals and thereby enable testing of chipsets and receivers.
Market
The market for DAB/DAB+/DMB receivers is rapidly expanding. Eureka Research now estimates that 70 million receivers for DAB/DAB+/DMB will have been sold by 2015.
This, together with the need for advanced data services, makes middleware a strong growth market.
Customers
Customers in middleware can be divided into three groups:
chipset manufacturers, module manufacturers (provide the base chip with processor capacity and certain software) and receiver manufacturers. The chipset manufacturers deliver to several module manufacturers who, in turn, deliver to many receiver manufacturers. By chiefly focusing on the chipset Customers
Factum Electronics is currently the leading supplier within DAB/DAB+/DMB. Factum has sold complete DAB/DAB+/
DMB systems and components to public and private network operators and to broadcasting companies in a large number of countries. Examples of customers include Swedish Radio and Teracom in Sweden, NRK and Norkring in Norway, Danish Broadcasting Corporation in Denmark, Media Broadcast in Germany, SRG SSR idée Suisse in Switzerland, VRT in Belgium, Raiway in Italy, the BBC in the UK, Commercial Radio Australia in Australia, Digi B Network in Malta and Radio Beijing in China. In South Korea, Factum is the leading supplier of DMB Systems, with all major broadcasting companies as customers.
Mobile TV via DMB brings customers in new segments, such as TV companies and mobile operators.
Competitors
There are only a few direct competitors within the DAB/
DAB+/DMB market today. Measured in new sales of DAB/
DAB+/DMB multiplexer systems, with a global market share of more than 50 percent, Factum Electronics is the market leader, followed by competitors RadioScape (UK), VDL (F) and Digidia (F). With its market dominance and global market presence, Factum is well aware of the competitive situation in individual markets.
The USA and Japan have chosen other standards for digital radio, HD Radio and ISDB, respectively. Furthermore, there are other standards regarding digital long-wave radio and satellite radio. Within mobile TV, there is also competition from the standards DVB-H and MediaFLO.
Middleware Customer benefits
DAB/DAB+/DMB technology is now sufficiently mature for more advanced data services, and interest in such services has increased among both broadcasters and consumers.
This means that digital radio receivers and mobile phones
must be able to handle the decoding of these new services.
manufacturers, a huge number of end users can be efficiently reached.
The largest concentrations of chipset manufacturers within DAB/DAB+/DMB are located in India, China, the United Kingdom, South Korea and Taiwan, countries where Factum Electronics is already active with DAB/DAB+/DMB systems.
Since 2006, Factum has had a strategic alliance with Frontier Silicon, the leading manufacturer of chipsets for DAB/DAB+/
DMB. Since 2008 Factum has also had a strategic alliance involving technology and marketing with Analog Devices, which also covers licensing of Factum’s middleware.
Competitors
Competition consists of the larger receiver manufacturers developing their own middleware modules. Examples of such competitors, who could conceivably sell their program modules separately, are Imagination Technologies/Pure (UK) and NDS (IL).
Digital stereo sound in TV broadcasts (NICAM) Customer benefits
The transition to digital TV is underway. In the interim, NICAM (Near Instantaneous Companded Audio Multiplex) is a cost-effective solution for network operators when upgrading existing analog TV broadcasts with digital stereo sound.
Network operators also gain the possibility of broadcasting two languages simultaneously via their analog systems.
NICAM, like teletext, is a supplementary service. NICAM receivers are integrated in all modern TV sets.
Products and technological development
Factum Electronics offers well-tested NICAM components for installation in a TV studio or in a TV transmitter. Factum Electronics also sells NICAM modules to suppliers of complete centrals for cable TV. The main product is a component for NICAM encoding developed by the company. The products are continuously being adapted for customers and modernized.
Market
Today, NICAM is used in approximately 35 countries. At present, the largest share of the NICAM market consists of reconditioning and complementary additions to existing networks. For an additional number of countries, NICAM could be an interesting solution for upgrading analog TV networks.
Customers
Factum Electronics has NICAM customers among TV companies, network operators, system integrators and trans- mitter manufacturers around the world.
Competitors
Factum Electronics is currently meeting insignificant compe- tition within NICAM as regards broadcasting. Within the cable TV sector, there are some minor competitors.
Business model
Factum Electronics’ revenues within DAB/DAB+/DMB and NICAM refer to delivered systems and components. Added to this are fees for customization projects and training, as well as revenues from service and support agreements. Factum sells a large number of systems and components every year, where a component can be priced at a few thousand Swedish kronor, whereas a system can cost anywhere from a hundred thousand to several million Swedish kronor. Sales of third-party products are commission-based.
The middleware business area is based on license revenues and royalties from chipset and receiver manufacturers for units sold to end users. Typically, customers pay a one-time fee for a specified number of licenses, after which the revenues occur when Factum’s middleware is implemented in the final products as volumes increase.
A detailed technical description of Factum’s products can
be found at www.factum.se.
Effnet AB – continued build-up of the customer base
Effnet AB develops and sells the Effnet Header Compression family of software products and related support services to manu- facturers of chipsets, protocol stacks, infrastructure equipment and terminals, mainly within telecom. Effnet Header Compression saves bandwidth and improves the speed, efficiency and reliability of IP traffic in mobile, fixed and satellite based networks.
Effnet Header Compression (HC) Customer benefits
In IP traffic, information is sent in data packets consisting of a header and a message. The header, which can be the largest portion of a data packet, is essentially an address label containing information regarding the packet’s contents, origin and destination. Effnet’s Header Compression products compress the header of the data packet so that space is freed in the data link and more data packets can be sent, thereby increasing the transfer speed.
The reduced size of the data packet also improves the relia- bility and quality of data transfers due to the reduced risk of
disruption. Effnet Header Compression provides the greatest user benefit for applications that send many small information packets with relatively large “headers”, such as Voice over IP (voice traffic over the Internet), video over IP (video traffic over the Internet) and multimedia services, as well as for mobile IP that is sent via links with limited and expensive bandwidth.
This makes the Effnet’s Header Compression products attractive, for example, to manufacturers and subcontractors for infrastructure systems manufacturers, and terminals for fixed and mobile networks, as well as for manufacturers of equipment for satellite networks.
Telecom: Mobile networks
Effnet Header Compression enables a more efficient usage of expensive network capacity. Through reduced bandwidth requirements and decreased packet losses, capacity in the networks is increased while response times are simultaneously shortened. The increased speed of information transmission also results in increased quality and interactivity during multi- media transmission. Independent studies have shown that Robust Header Compression (ROHC) can increase bandwidth capacity by 50 to 100 percent for VoIP, depending on the network type. Operators can also take advantage of Effnet Header Compression in IP-based radio access networks where the cost of bandwidth is high.
Telecom: Fixed networks
Traditional fixed networks are also moving toward IP-based technology to achieve cost advantages and be able to handle both standard telephony and data traffic, in competition with the Internet providers’ telephony services. Effnet Header Compression enables fixed network operators to use bandwidth economically, while still allowing a large number of users at a lower cost. The advantages of IP traffic are therefore obvious.
In IP traffic, information is sent in data packets consisting of a header and a message. Effnet’s Header Compression prod- ucts compress the header, which is essentially an address label, of the data packet so that space is freed in the data link and more data packets can be sent, increasing the transfer speed.
HEADER COMpRESSION Uncompressed header 40 bytes
Compressed header 2-4 bytes
Ip uDp RTp DATA DATA
400 350 300 250 200 150 100 50
0 2008 2009 2010 2011 2012 2013 Source: Forward Concepts, Feb. 2009 SMARTpHONE MARKET
Millions of units
Satellite networks
Internet and IP-based services are currently used in satellite networks, though traffic is expensive since satellite link capacity limits the accessible bandwidth. Effnet Header Compression functions efficiently in this environment and contributes to increased utilization of bandwidth, enabling satellite network operators to provide all types of IP-based services.
Public sector, public and military networks
The public sector requires secure communications systems with high reliability and efficiency – a suitable environment for Effnet’s Header Compression products. Networks in the security, disaster and emergency industry often work completely independently or combined with available local commercial networks, which provide a reliable and cost- effective opportunity for communication via new technology such as VoIP over wireless networks. The need for rapid access to information along with fundamental voice communications has led to a combination of standard components for mobile networks together with IP networks.
Military networks often adopt new and advanced technology such as IPv6, multicasting/broadcasting and mesh/adhoc.
Furthermore, they must function under challenging circum- stances; Effnet’s Header Compression products are therefore considered to be able to substantially streamline data commu-
nications in military networks.
Products and technological development
Effnet offers a complete range of software developed in-house under a strong brand: “Effnet – the Experts in IP Header Compression.” Effnet also offers effective software for integration, testing and validation. Effnet’s Header Compression products are off-the-shelf software that can quickly and easily be integrated into customers’ products.
At present, the development of new products and further technical development of existing products are in progress, as are certain customer adaptations. In 2009 Effnet continued to update its product portfolio by launching two new products, Effnet ROHCv2 and Effnet ROHC-IP. The two products implement RFC 4995, RFC 5225 and RFC 3843, which are used in 3GPP’’ LTE specifications.
Header compression is based on several open standards, which means that the basic principles are commonly known.
Effnet develops implementations of header compression that
maintain a very high quality and very high performance,
something that has been proven in independent interoper-
ability testing conducted by IETF (Internet Engineering Task
Force), as well as by testing with customers. Development also
takes place in close cooperation with research and standardi-
zation organizations such as IETF, 3GPP, 3GPP2, WiMAX
and WorldDMB. Effnet is working to establish Effnet Header Compression as a de facto standard within telecommunica- tions and mobile broadband, for example WiMAX and LTE.
In 2009, Effnet continued its work updating the ROHC standard within IETF. This updating work was performed in the IETF’s for ROHC working group, which Effnet chaired.
Collaboration with new partners who use various advanced technical platforms continues with the aim of improving these products’ performance. Continued interoperability work with various companies has further increased the level of quality of the products.
Market
Today, the mobile market is mainly driven by smartphones and “dongles,” which enable laptop computers to connect to the Internet via mobile networks. According to Bernstein Research, in late 2008 there were 189 million mobile broadband connections that generated an average of 175 megabytes of traffic per month. One year later the number of mobile connec- tions has increased to 312 million, which burden the network with an average of 273 megabytes per month. Thus data traffic has increased by 158 percent in one year. AT&T in the U.S.
currently has between 12 and 14 million iPhones connected to its network, which is one of the main reasons that data traffic has increased in the network by about 5,000 percent over the
product group IETF standard
Business seg- ment
Target groups
Effnet IPHC™
(Internet Protocol Header Compression)
RFC 2507 Satellite networks and mobile networks, for example 2.5G and 3G
Manufacturer of infrastructure equipment and terminals and their subcontractors Effnet CRTP™/
ECRTP™
(Compressed Realtime Transport Protocol)
RFC 2508/
RFC 3545
Satellite networks and fixed net- works, especially for VoIP & multi- media
Manufacturer of network equipment and their subcontractors
Effnet ROHC™
(RObust Header Compression)
Effnet ROHCv2™
Effnet ROHC-IPTM
RFC 3095
RFC 4995/
RFC 5225
RFC 3843
Satellite networks and mobile net- works, such as 2.5G and 3G.
HSPA, LTE, Mobile WiMAX, VPN
Manufacturer of infrastructure and terminals and their subcontractors
Effnet HC-Sim™
(Header Compression Simulator)
All of the above All of the above
A detailed technical description of Effnet Header Compression products can be found at www.effnet.com.
THE EFFNET HEADER COMpRESSION pRODuCT FAMILY
AND ITS MARKETS
past three years. In general, operators are finding it difficult to handle this growth and bandwidth access in mobile networks has become crowded. In this context, header compression is an effective method for releasing bandwidth and Effnet’s products appear to be very well-positioned for this trend.
The most recent 3G standard, Long Term Evolution (LTE), has further strengthened the need for Effnet’s products since LTE is completely based on packet-switched communication, which means that VoIP is used instead of circuit-switched voice traffic. The upgrade of the WCDMA network to HSPA has led to a sharp increase in data traffic, which also favors Effnet’s products. WiMAX, a technology in which header compression is extremely helpful, has become increasingly common in many places around the world and fixed network operators provide their customers with triple play services, whether they have fiber, copper or cable networks. The satellite networks need to support All-IP, and the military sector adapts to or in some cases leads this development. Combined with an increasing traffic and number of users, this is building Effnet’s future market.
Customers
In 2009 Effnet achieved a breakthrough in the test and measurement systems market and even succeeded in expanding in this segment. The licenses relate to integration of
Effnet’s header compression products in customers’ tests for mobile networks based on EVDO, HSPA, HSPA+ and LTE technology. The new licenses strengthen the portfolio that generates recurring revenues for Effnet AB.
In addition, Effnet AB licensed its simulation tool, Effnet HC-Sim, to a leading manufacturer of network equipment for LTE.
Competitors
Effnet is the only independent supplier with a comprehensive product family within Header Compression. The company’s competition mainly consists of the research and development units of potential customers. Even here, Effnet has managed to convince customers of the advantages of Effnet Header Compression, which offers well-tested, well-functioning Header Compression products with access to support and updates.
Business model
Effnet’s revenues derive from license fees and royalties from test and production licenses and fees from maintenance, support, training and customization projects.
Effnet is building a contract portfolio with recurring and
rising revenues.
Board of Directors, Management and Auditors
Board of Directors
GöRAN E LARSSON
Chairman of the Board since Novem- ber 2006, elected to the Board in Au- gust 2002.
Born in 1943. M.Sc. in Engineering from the Royal Institute of Technology in Stockholm and M.Sc. in Economics from the Stockholm School of Economics.
Göran is the chairman of the Board of AB Sagax (publ), ReadSoft AB (publ), Aqeri Holding AB (publ) and Deputy Chairman of Avega AB (publ), as well as a member of the Board of Habia Cable AB. Göran has previously been President of Micronic Laser Sys- tems AB, Standard Radio AB, Tidnin- garnas Telegrambyrå AB, Norstedts Tryckeri AB and Interforward AB, among other companies.
Not independent.
SHAREHOLDING: 27,016,259 shares*
ERIK NERpIN
Board Member, elected to the Board in April 2009.
Born in 1961. LL.B. from Uppsala University. LL.M. in International Banking Law from Boston University School of Law, Boston, MA. Erik is an attorney, a member of the Swed- ish Bar Association and a partner in the law firm of Kilpatrick Stockton in Stockholm.
Erik specializes in commercial law and securities law and has extensive experience of stock-market related transactions, such as listing on the stock exchange, acquisitions, new is- sues, restructuring and corporate gov- ernance issues.
Independent in relation to the com- pany and its principal owners.
SHAREHOLDING: 100,000 shares HANS RuNESTEN
Board Member, elected to the Board in August 2002. Chief Executive Offic- er of the Effnet Group from May 2003 up to and including February 2009.
Born in 1956. B.Sc. in Economics from Stockholm University.
Hans has extensive international experience from the financial indus- try and has also worked with the Eu- ropean Commission in Brussels. Hans was previously active within the Eu- roNordic Group and Mellon Bank in London and in the U.S., where he held a number of management positions at various levels. Prior to that, he worked for Deutsche Bank in Germany.
Hans is Chairman of the Board of Scan Baltic Limited, London.
Not independent.
SHAREHOLDING: 27,016,259 shares**
Shareholdings are reported according to Euroclear Sweden AB’s shareholder register on December 30, 2009. Share- holdings include shares held by close families or through companies.
* At year-end Göran E Larsson owned his shares through the wholly owned company Eddainvest Holding AB.
** At year-end Hans Runesten owned his shares through the wholly owned company Ironbridge AB.
FrEDrIk HåNELL
President of the Effnet Group and Chief Executive Officer of the parent com- pany as well as Factum Electronics AB since October 2009.
Born in 1967. M.Sc. in Engineering Physics from the Royal Institute of Technology, Stockholm and MBA from INSEAD (France).
Fredrik’s background includes sever- al senior management positions within the telecom and datacom industries, in- cluding the Norwegian fiber component manufacturer Ignis ASA (publ), router manufacturer Dynarc AB, management consulting firm Gemini Consulting AB, and Ericsson. Fredrik joins us most re- cently from C2SAT holding AB (publ), where he was President.
SHArEHOLDING: 0 shares
JONAS SArIc
Chief Financial Officer of the Effnet Group since August 2009.
Born in 1972. M.Sc. in Business Ad- ministration from Umeå University, B.Sc. in Economics.
Jonas joins us most recently from the Scandinavian real estate company Fredensborg AS, where he was CFO.
He also has experience from several executive positions in the installation wholesale industry, as well as bank- ing.
SHArEHOLDING: 0 shares
JOAkIm ENErSTAm
President of Effnet AB since January 2009.
Born in 1973. M.Sc. in Engineering from Luleå University of Technol- ogy.
Joakim has 10 years of experience from Effnet AB, both from research &
development and sales & marketing.
SHArEHOLDING: 10,000 shares
management Auditors
PricewaterhouseCoopers AB with authorized public
accountant Lars Wennberg, born in 1957, as auditor in
charge.
Share trading Share capital
The share capital in Effnet Holding AB (publ) amounted to SEK 2,173,364.32 at the end of the year, comprising 217,336,432 shares with a quotient value amounting to SEK 0.01. Each share entitles the holder to one (1) vote.
Listing
Effnet Holding AB’s share (designation EFFN) has been listed on the NASDAQ OMX First North Premier since March 2009.
The trading ticket size at year-end was 1 share.
Certified Adviser
Companies traded on NASDAQ OMX First North Premier are required to have a Certified Adviser, who is to perform certain supervisory duties. Remium AB is Effnet’s Certified Adviser.
Share performance and turnover
Compared with the end of 2008, the share price fell from SEK 0.23 to SEK 47, adjusted for the company’s share issue in November 2009, to SEK 0.20 as of December 31, 2009, or 13 percent, while the Stockholm Stock Exchange as a whole (OMXS index) rose 47 percent, and the IT index (SX IT) rose by 16 percent. Effnet’s market capitalization as of December 31, 2009, was SEK 43.5m (41.3).
A total of approximately 52 million (52) Effnet shares were traded during 2009, which implies that the average number of outstanding shares turned over 0.4 times during the year. An average of approximately 0.2 million shares changed hands per day. The highest number of shares traded on a single day was 1.5 million shares (November 3). The share was the object of transactions on all but two of the trading days in 2008. The lowest closing price during the year was SEK 0.16 (during the period December 11-23) and the highest was SEK 0.32 (October 21).
Shareholders Effnet’s shareholders
As of the end of 2009, the number of shareholders totaled 6,304. The company’s largest shareholders as per December 30, 2009 were Ironbridge AB with 12.4 percent of capital and votes and Eddainvest Holding AB, with 12.4 percent of capital and votes.
Shareholder agreements
The Board of Directors is not aware of any shareholder agree- ments involving Effnet Holding AB.
Dividend
All shares are of one and the same category, and therefore, carry the same right to the company’s assets, profit and dividend.
EFFNET’S LARGEST SHAREHOLDERS, 2009-12-30
NuMBER OF SHARES
pERCENT- AGE OF VOTES CApITAL
Ironbridge AB* 27,016,259 12.4
Eddainvest Holding AB** 27,016,259 12.4
Försäkringsaktiebolaget
Avanza Pension 8,736,687 4.0
Nordnet Pensionsförsäkring AB 6,963,802 3.2
Wermlands Invest KB 5,200,000 2.4
JP Morgan Bank 4,605,138 2.1
Edvardsson, Ingemar 4,450,001 2.1
Wilhelmsson, Ulf 3,680,000 1.7
Olsson, Björn 3,472,000 1.6
Victory Life (GGB 2100) 3,072,530 1.4
Total 10 largest shareholders 94,212,676 43.3
Other shareholders 123,123,756 56.7
Total 217,336,432 100
* Of Ironbridge AB’s 27,016,259 shares, 200,000 shares are on loan to Remium AB relating to Remium’s undertaking as liquidity guarantor in the Effnet Holding share.
** Of Eddainvest Holding AB’s 27,016,259 shares, 200,000 shares are on loan to Remium AB relating to Remium’s undertaking as liquidity guarantor in the Effnet Holding share.
The Effnet Share and Shareholders
DISTRIBuTION OF SHAREHOLDERS BY SIZE OF HOLDING,
DECEMBER 30, 2009
NuMBER OF SHARE- HOLDERS
pERCENTAGE OF VOTES/CApITAL
1–1,999 3,550 0.8
2,000–9,999 1,512 2.7
10,000–99,999 978 12.9
100,000–999,999 236 28.4
1,000,000– 28 55.2
Total 6 304 100,0
OwNERSHIp STRuCTuRE BY COuNTRY, Dec. 30, 2009
NuMBER OF SHAREHOLDERS
pERCENT- AGE OF VOTES / CApITAL
Sweden 5,872 82.3
Denmark 262 5.7
Luxembourg 18 2.8
USA 18 0.1
Norway 15 0.5
United Kingdom 14 2.5
Other countries 105 6.1
Total 6,304 100.0
The Annual General Meeting has at its disposal unrestricted funds in the Parent Company amounting to SEK 20 million.
The current dividend policy recommends no dividend since the funds are needed to build up the operations, which is why the Board of Directors proposes that no dividends be paid.
Other information Options program
At the Annual General Meeting on 26 April 2006, an options program for the equivalent of 4,000,000 shares directed toward the personnel was resolved upon. The options were forfeited during the second quarter of 2009 and can thus no longer be redeemed for shares. The potential dilutive effect of the employee stock options is therefore no longer present as of December 31, 2009. Aside from this options program, there are no other share-based payment programs or similar instruments.
Authorization
During the Annual General Meeting of 2009, the Board of Directors was granted the authority to resolve upon the issuance of new shares or other financial instruments equivalent to a total of 37,000,000 shares in connection with alliances and acquisitions. The authorization is valid until the next Annual General Meeting. The authorization had not been exercised as per the end of the year.
SHARE pRICE pERFORMANCE 2004-07-26 – 2010-03-15
F or key financial indicators per share, see the Five year Sum- mary on page 5.
Insider reporting
The shares in Effnet Holding AB are traded on the NASDAQ OMX First North Premier. Trading of the Effnet share by insiders is published on the company’s website, but not reported to the Financial Supervisory Authority.
The company has defined the members of the Board and Senior Management as insiders. All of the company’s insiders have signed an agreement for individuals having insider positions. All employees are subject to current insider legis- lation and to an internal insider policy aimed at preventing the purchase or sale of Effnet shares based on undisclosed information.
Analysts
Effnet Holding is analyzed by Kristian Kierkegaard at Remium Securities.
50,000 100,000 150,000 200,000 250,000 300,000
2004 2005 2006 2007 2008 2009 2010
0.15 0.5 1 1.5 2 2.5 3
Number of shares traded, thousands Share
OMX Stockholm_PI SX50 Telecommunication Services
Effnet Holding
© NASDAQ OMX
