The risk factors described here do not claim to be exhaustive. Other risks and uncertainties that have not yet been identified by the Company or that at present are not regarded as being important may also negatively impact the Company’s operations, financial position, earnings or share price.
These risk factors are neither ranked in order of importance nor intended to approximate the probability of the various circumstances that may occur in the future or, in any way, indicate how much influence these may have on the Company’s operations, financial position, earnings or share price. Share ownership is always associated with risk, and shareholders in Polygiene are therefore urged to make their own assessments of the following risk factors, other potential risk factors and their significance on future operations.
Operational and market-related risks
Polygiene has several competitors in the market for biocidal and “odor-control” and/or “anti-odor” treatment of clothing, textiles, et cetera, several of which are large multinational chemical companies. These companies currently have a limited share of the market, but are expected to have greater financial resources than Polygiene. They may therefore have greater capacity to meet unexpected changes in the industry or in the global economic climate, which may adversely affect the Company’s earnings and financial standing.
Legislation and opinion
The biocides industry (including silver salts) is tightly regulated with regard to health issues and the environment. Changing or further tightening of these regulations may lead to increased operating costs for the Company and/or for its suppliers. Occasionally, there may be discussions in the media about the use of biocides. This may potentially adversely affect the Company’s earnings and financial standing.
“Anti-odor”, “odor-control” and “wash-less” solutions for the outdoor and sportswear industry are experiencing rapid growth worldwide. If for any reason this market growth experiences a decline, this may have a material adverse effect on the Company’s earnings and financial position.
Quality of raw materials
Since the Company is active in the biocidal treatment (including, among other things, treatment based on silver salts) of clothing, textiles and other products, the Company is dependent upon the quality of raw materials. Should the quality of raw materials from the Company’s suppliers in any respect prove to be of poor or inferior quality, this may cause the market to react negatively to the Company’s products, thereby adversely affecting the Company’s earnings and financial position.
Absence of formal agreements
Customary practices in the textile industry do not call for the use of formal written agreements with suppliers, partners and customers. The majority of Polygiene’s contracts with suppliers, partners and customers are therefore based on verbal agreements and established practices between the parties. Although the contract model is consistent with industry practice, it carries the risk that discussions and disputes may arise between Polygiene and its counterparts concerning issues such as quality, quantity, contract times, delivery times and pricing. If the Company’s counterparts fail to fulfil their respective obligations, the agreement structure may make it more difficult for Polygiene to demand accountability from its counterparts. This may adversely affect the Company’s earnings and financial position.
Reliance on suppliers
The Company is dependent upon its suppliers. It is important that deliveries are made on time and at the right price in order for the Company to remain competitive. Delays in deliveries, increases in the price of raw materials, or failure of the Company’s suppliers to meet their obligations may adversely affect the Company’s earnings and financial position.
Customers and cooperation agreements
Polygiene’s sales occur, in part, through its own sales force and, in part, through distributors and agents, primarily in the U.S., Japan, China, Taiwan, South Korea, Thailand, Germany, Switzerland, Austria, the United Kingdom, France, the Benelux countries, Italy, the Czech Republic, Israel, Australia and Poland. These partners are important to the Company’s future growth because they cover markets that are otherwise difficult for the Company to reach. There is no guarantee that the companies with which Polygiene currently cooperates, or will cooperate with, will be able to meet their obligations. Furthermore, there is a risk that Polygiene’s size and financial position may affect the Company’s ability to enter into cooperation agreements with additional strategic partners as well as to secure significant new customer agreements. Most of the agreements that Polygiene has with its major partners are based on verbal agreements (see the previous section, “Absence of formal agreements”). There can therefore be no guarantee that existing collaborations will not be terminated or declared invalid, or that the Company’s existing collaborations will not be subject to change. If such change occurs, this may adversely affect the Company’s earnings and financial position.
Dependence on key personnel and employees
Polygiene currently employs skilled personnel, many of whom have been active in the Company since its establishment. These people have solid knowledge both of Polygiene and of the industry in which the Company operates. It is important for the Company to retain key personnel and employees in order to be able to continue to develop according to plan. It is also important to keep staff turnover low because high staff turnover can be both time-consuming and costly, which may adversely affect the Company’s earnings and financial position.
Financing and future capital requirements
The management and the Board actively and continually work with the Company’s governance and control, including profit, liquidity and financial position. The Board continually tests the prerequisites for continued company operation. After the new share issue in December 2015, the Board believes that the Company has sufficient financial resources to fund activities for the coming year. Since the Company is currently in a phase of expansion with relatively large capital requirements, the Company may therefore be obliged to raise additional funds in the future in order to address expansion costs or the increased demand for the Company’s products. There is a risk that such funding may not be obtained when the need arises or on terms which are acceptable to the Company. If the Company is unable to obtain financing, when required, Polygiene may be required to significantly curtail its activities or, ultimately, to completely suspend its operations.
The Company has a significant economic exposure towards its customers. Should one or more of its customers be unable to meet obligations for payment to the Company, this may adversely affect the Company’s cash flow, earnings and financial position.
Polygiene sells most of its products by assuming responsibility for functionality. Although Polygiene believes that the Company has a well-developed process for product development and quality control with a special documentation system and high standards for systematic procedures, any defects in the Company’s products resulting in liability and claims against the Company cannot be ruled out. Polygiene may therefore become responsible for damages caused by its products. Such liability is normally covered by insurance, but may also adversely affect the Company’s financial position and brand name.
Licenses and permits
The Company complies with the requirements of regulatory authorities, for example those involving environmental and health issues, for the business activities conducted. Applicable regulatory and supervisory authorities’ requirements, however, may change in the future. Should the Company fail to fulfil the existing, or any future, changed requirements, the conditions for conducting operations would cease and thereby risk affecting the Company’s earnings and financial position.
The Company is currently engaged in sales in the U.S., Europe and Asia, which exposes the company to currency risks. Sales primarily occur in USD but also in GBP, EUR and JPY, and to some extent in other currencies. Currently, Company expenses are primarily in SEK; however, when purchasing raw materials and making payments to agents and distributors, the Company also has expenses in other currencies, including USD, GBP, EUR and JPY. At present the Company does not hedge its currency transactions. Future currency fluctuations may therefore adversely affect the Company’s earnings and financial position.
The Company is dependent upon its strong brand. A company’s brand and what it stands for are important factors when existing and new customers select a supplier. Issues involving quality, logistics or operations, for instance, may damage the Polygiene brand and thereby cause difficulties in retaining existing customers and/or attracting new ones. In addition, the Company faces the risks that its employees or other representatives may undertake activities that are unethical, criminal or in violation of Polygiene’s internal guidelines and policies. This may result in customers and suppliers associating the Company with such activities, which could have a material adverse effect on the Polygiene brand. If Polygiene’s brand reputation is damaged, this may result in a loss of sales or hindrances in growth opportunities, and therefore have a material adverse effect on the Company’s business, prospects, earnings and financial position.
Risks related to international operations
Polygiene’s operations are exposed to risks as a result of the products being sold in different countries. Therefore, future earnings may be affected by various factors, including legal, tax or financial costs to the Company, changes in a country’s political or economic conditions, trade restrictions and requirements on the import or export licenses as well as inadequate protection of intellectual property. There is a risk that Polygiene’s operations may be adversely affected by these types of factors.
Polygiene may, from time to time, be subject to litigation regarding its operations. Such lawsuits may concern the infringement of intellectual property rights, contractual issues or product liability issues. Disputes and claims can be time consuming, disrupt operations, involve considerable sums or fundamentally important issues, and entail significant costs, and thereby adversely affect the Company’s operations, earnings and financial position.
Risks related to listing and shares
An investment in Polygiene is associated with risks. There are no guarantees that the share price will rise after listing. The stock market development in general as well as the development of Polygienes share price depends upon various factors, such as rising interest rates, policy changes, and economic fluctuation, which are beyond the Company’s control. Equity markets are significantly characterized by psychological factors. Shares like Polygiene’s may be affected by these factors in the same way as all others. Even if the Company experiences growth, there are risks that investors may suffer losses upon the divestment of their holdings.
Limited liquidity in the Company’s shares
A prerequisite for the well-functioning trading of shares is that there is sufficient supply and demand, which results in the continuous price setting (buy-sell or bid-ask prices) of the shares. Under such conditions, the prospects are good for shareholders to convert their holdings to liquid assets; that is, the liquidity of the share is good.
It is impossible to predict how the liquidity of the Company’s shares will develop after listing. If active, liquid trading does not develop, this may result in difficulties selling large blocks of shares within a short period of time without adversely affecting the share price.
Failure to issue dividends
To date, Polygiene has not declared or paid any dividends. The Board of Directors will propose the timing and size of any future dividend distributions. With regard to future dividends, the Board will consider various factors, including demands that the nature, scope and risks of the business have on the size of the equity as well as the Company’s consolidation requirements, liquidity and financial position. As long as no dividends are distributed, any return on investment must be generated by an increase in the share price.