Bactiguard’s operations and profits are affected by several external factors. The company continually engages in a continual process at all levels of the organisation to identify risks that may arise and assessing how each of these risks should be managed.
Bactiguard is primarily exposed to market related risks, operational related risks and financial risks. The risks Bactiguard is thus exposed to are addressed separately below and how they are managed.
Bactiguard both licenses its technology and has its own product portfolio. Its own products are produced at its facilities in Malaysia and Sweden. By having several facilities, the Group is less exposed to the risk of any production losses if a site is forced to reduce or stop production.
Financial risk management and financial instruments
Through its activities, the Group is exposed to various types of risk and therefore has a comprehensive risk management programme that concentrates on minimising potential unfavourable effects on financial results. The company’s Board of Directors is ultimately responsible for the exposures, management and follow-up of the Group’s financial risks.
The frameworks that apply are set by the Board of Directors and revised annually. The Board of Directors has delegated responsibility for daily risk management to the company’s CEO, who in turn has delegated this to the company’s CFO. The Board of Directors is able to decide on temporary departures from these established frameworks.
Financial risks are described in note 4.
Liquidity risk is defined as the risk of not having access to cash assets or credit available to cover payment commitments, including interest payments and amortisation. Liquidity risk is especially significant in the event large unanticipated payment commitments arise. Lack of liquidity for large payment commitments can have a negative impact on Bactiguard’s operations and its financial position.
In 2020 there was a weakening of the cash flow at times, caused by a temporary reduction in the number of incoming orders, which was managed using the bank overdraft facility. As per 31 December 2020, the Group has liquidity amounting to MSEK 31.0, including approved bank overdraft facilities of MSEK 30.
In conjunction with the acquisition of Vigilenz, the Group’s existing credit facility with SEB was renegotiated. This means that the term has been extended to February 2023 and the total outstanding amounted was MSEK 170.9 (127.5) as of 31 December 2020. The loan agreement contains a mandatory repayment, which means that an amount equivalent to 50% of free cash flow (cash flow before financing with deductions for interest and the repayment of leasing liabilities), but not exceeding MSEK 35, is payable every year (a ‘cash sweep’).
As a result of the effects of the pandemic, the terms and conditions in the loan agreement with SEB were renegotiated in January 2021. The terms and conditions have been renegotiated with respect to covenants and the overdraft available, which now amounts to MSEK 45 (30); the other terms and conditions remain unchanged.
The liquidity risk is monitored on a monthly basis through rolling forecasts of three months which evaluate the liquidity situation and is the base of taking relevant financial or operational measures. The management currently deems that current liquidity levels will be sufficient to manage the company’s commitments for the coming year.
Weak economic performance and high national debt may cause both public and private customers to experience difficulty in
obtaining financing. As well, this may have a negative impact on some countries’ ability and political willingness to invest in and allocate public resources to healthcare. Bactiguard maintains market presence in many geographic markets for the purpose of minimising any country-specific portion of the combined macro-economic risk.
As a manufacturer of medical devices, Bactiguard’s operations are subject to requirements and standards that are determined by regulatory authorities for each of the markets where Bactiguard operates and sells products. Regulatory processes in various countries may cause a risk of delays in the launching process of products in these countries. Bactiguard works with its local distributors and regulatory advisors to minimise these risks..
There are technological advances in medical technology, which result in new products and improved treatment methods being launched continuously. Bactiguard has obtained patents in many of the countries in which the company operates in order to protect its technology, and has applied for patents in additional countries. Bactiguard has also taken several other measures to ensure that company-unique knowledge (such as application and manufacture of the Bactiguard coating) is not disclosed to any competitor.
Regulations for medical devices, for example, the MDR, are getting stricter, which means that Bactiguard’s strong clinical evidence will become an even more important competitive advantage. Bactiguard’s technology has been tried and tested for many different applications. New competitors and technologies must invest in clinical evidence in order to be approved, which takes a long time and requires financial investment.
As well as the risks already identified, the impact of the current pandemic is being regularly analysed. Bactiguard as a company complies with the recommendations of the equivalent body to the Public Health Agency of Sweden in the relevant country, and implements measures accordingly.
In 2020 the pandemic impacted Bactiguard in several different ways. The pandemic has increased the need for infection prevention, creating new opportunities for Bactiguard, which had a positive effect on sales in the first half of the year. In the third quarter the pandemic had a clearly negative impact on its operations as regular health services were cut back and operations were postponed. In the fourth quarter there was a recovery to more normal levels in the license business and stronger sales of its own BIP products than in the third quarter. Both license revenues and the sale of BIP products continued to be affected as regular health services were cut back and operations were postponed.
The acquisition of Vigilenz has strengthened Bactiguard and improved its cash flow. There is now a high healthcare backlog globally that needs to be tackled. The roll-out of vaccines will have a positive impact and we can see that there will be a great need for Bactiguard’s infection prevention products. However, what will happen in the near future is still difficult to assess.
Although Covid-19 has had a negative impact on sales and profit, we believe this to be temporary. The need for healthcare remains and a healthcare backlog is building up that needs to be tackled.
During the pandemic societies and companies have been affected by lock-downs, which has increased the risk of payments being delayed or defaulted. The company continually monitors payments from all of its customers. In 2020 there were no defaults on large payments, so the pandemic did not result in an increase in customer losses for Bactiguard.