Arcam Company Review

Arcam in briefArcam provides a cost-efficient Additive Manufacturing solution for production

of metal components. The technology offers freedom in design combined with

excellent material properties and high productivity.

Arcam’s market is global with customers mainly in the orthopedic and aerospace industries. The company was founded in 1997 and is listed on NASDAQ OMX Stockholm, Sweden. Head office and production facilities are located in Mölndal, Sweden. Support offices are located in the US, the UK, Italy and China.

Arcam’s vision

Arcam’s system will become a natural element of the machin-ery in every manufacturing industrial company.

EBM® – the innovative production method

Decisions to use EBM® for production are usually driven by the need for components with complex geometries. Such components are often difficult, expensive and sometimes even impossible to produce with traditional production processes. These challenges create a need for innovative production methods, like EBM® – Electron Beam Melting.

Benefits of EBM® technology

Arcam’s systems have distinct advantages:

• Freedom in design – The EBM® technology makes it possible to create completely new designs of complex components that are not possible to produce with conven-tional methods.

• Shorter lead time – from design to production since no special tools are required.

• Low costs – efficient material utilization and the fact that no tools are required makes the EBM® technology cost-efficient.

Orthopedic implants

The market for orthopedic implants is growing steadily, also in emerging markets. This growth is mainly driven by higher demand for advanced surfaces and structures in the implants, but also by the orthopedic market’s general growth, driven by demography and higher prosperity.

Aerospace industry

The aerospace industry is driven by the demand for lighter and thus more fuel-efficient aircraft. This in turn is driving demand for new production methods and materials. The potential offered by the aerospace industry is assessed to be considerable.

Strategic initiatives and strong growth Our focus on specific customer segments to which we can add significant value, com-

bined with close, customer-oriented product development, yields results.

We are constantly enhancing our offer. 2013 was particularly eventful, with highlights as the strategic alliance with the contract manufacturer DiSanto Technology, and the agree-ment to acquire the powder manufacturer AP&C. These strategic initiatives are important for our business develop-ment, widening our offer to existing customers and reaching new ones.

Organic growth…

Sales of EBM® systems, our core business, increased by 40% in 2013. Aftermarket operations also showed robust growth, due mainly to the use of our systems to a greater extent for production applications. Our powder business is driven by three factors: the number of installed systems, the percentage of systems deployed in production, and system productivity. Overall, the aftermarket sales trend serves as a reliable gauge of market penetration.

A key condition for continued, efficient growth is that we have the foundation and structure required to scale up operations rapidly. During 2013 we set up a QA function and achieved ISO 9001 certification.

…and strategic acquisitions

In addition to organic growth, we recently took two crucially important strategic initiatives: the first one aimed at expanding our market faster and the second to ensure access to high-quality metal powder for our increased customer base. In February 2013 we entered into a strategic cooperation with DiSanto Technology Inc. (DTI), a US-based contract manufac-turer of orthopedic implants. Thanks to the cooperation with DTI, we now offer current and potential customers advanced manufacturing of EBM®-based implants.

In December 2013, we signed an agreement to acquire the powder manufacturer AP&C from Raymor Industries in Canada. AP&C is the premier producer of high quality metal powders and has been a supplier of titanium powder to Arcam since 2006.

Having the right powder quality is a key to efficient manufacturing using our EBM® systems. With the acquisition of AP&C, we secure access to outstanding technology for the manufacture of top quality metal powders. In addition to being fully in line with our growth strategy, the acquisition is an ideal complement to our EBM® technology and product portfolio.

A new EBM® system generation, the Arcam Q series

Our current product generation, the Arcam Q series, is developed in close cooperation with strategic customers. The systems offer superior productivity and resolution, enhanced ergonomics and Arcam LayerQam™ – a proprietary and patented camera-based system for quality control of manu-factured components. The Arcam Q10 was specifically developed for the production of orthopedic implants and the Arcam Q20, with its larger build envelope, is ideal for produc-tion in the aerospace industry.

Solid financial position

Private placements in 2013 provided a capital injection of totally 450 MSEK. Consequently, cash and cash equivalents totaled some 500 MSEK at year-end, enabling us to finance the acquisition of AP&C and allowing us to finance the possible acquisition of DiSanto Technology. Our strong financial position also provides means to develop the company further and the potential to capitalize on future opportunities.

Well positioned for the future

We are convinced that our market will continue to grow very rapidly, with particularly bright prospects in the aerospace and orthopedic industries. We are merely at the beginning of a long and exciting development of the market and the company.

Our systems are used by some of the world’s largest companies in advanced manufacturing. A solid financial position gives stability and possibility to act quickly on opportunities, and most important, we have a team of very dedicated and creative employees.

Magnus RenéPresident & CEO

1ARCAM 1ARCAM 1ARCAM

Business model and strategies

Arcam customer

Arcam center

Arcam’s business concept

Arcam develops, manufactures and sells equipment and methods for Additive Manufacturing in metal. Marketing is focused on the implant and aerospace industries.

Two distinct target groups

Arcam’s technology has a broad potential and the market for this technology is relatively immature, with a long introduction period of systems for volume production. For this reason, Arcam chooses to focus on two target groups: the orthopedic implant and aerospace industries. The company has its own sales organization in the US and the Nordic Region while agents are used in Asia and the rest of Europe.

1. Complete systemsArcam’s main strategy is to offer the market complete EBM® systems, hardware and software, as well as certain peripheral equipment.

2. Aftermarket salesA key part of the business is the service of sold systems and sales of metal powder. The service work is primarily preventive in the form of regular maintenance of the customers’ systems. A service contract is normally signed when the order is signed, whereby Arcam undertakes to maintain the system. The absolute majority of the installed systems have continuous service agreements.

Arcam owns AP&C, a high-end metal powder manufacturer based in Montreal, Canada. Through AP&C Arcam offers metal powders to the manufacturing market.

3. Contract manufacturingIn cooperation with DiSanto Technology Inc. in the US, Arcam offers contract manufacturing of orthopedic implants made with Arcam’s EBM® technology and processed for delivery. Arcam provides the EBM® technology while DTI provides processing know-how.

The objective of the cooperation is to facilitate and accelerate the implant companies’ transition from traditional manufacturing to Additive Manufacturing using Arcam’s EBM® technology.

Customers

Arcam targets two segments in the manufacturing industry – orthopedic implants and the aerospace industry. Arcam’s customers are in three different groups: end users – custom-ers that produce components for final applications, contract manufacturers – companies that act as suppliers to end users, and universities and research institutes.

Customers in the implant industry include Italian compa-nies Lima, Adler Ortho, as well as Nakashima Medical in Japan. In the aerospace industry, customers include Pratt & Whitney, GKN Aerospace, and Avio. University/Institutional customers include Sheffield University in the UK, NCSU and Oak Ridge National Laboratory in the U.S.

Arcam has developed close contact with a large number of prospective customers in the medical implant and aerospace industries. Strategic contacts are established with most of the aircraft designers and leading implant companies in the world.

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Unique productsArcam is a leading manufacturer of systems for Additive Manufacturing for metal. Arcam is the only

company to base its Additive Manufacturing system on electron beam melting technology, EBM®, and

to have full control of the value chain, from metal powder manufacturing via the EBM® system for

industrial production to product application development at the strategic partner DiSanto.

Arcam’s EBM® technology (Electron Beam Melting) makes it possible to manufacture components with complex geometries in small or medium-size series. In principle, Arcam’s systems are technically suitable to all kinds of metal alloys, but are commercially most suitable for alloys with high raw material prices, such as titanium and other advanced alloys.

Arcam’s EBM® technology

The patented EBM® technology is based on Arcam’s expertise in electron beam melting technology and metallurgy. The component to be manufactured is created in a three-dimension-al digital CAD design that is transferred to the machine’s control computer. The work chamber is loaded with metal powder and a vacuum is established. The system’s computer-controlled electron beam melts the metal powder with high energy and the part is gradually constructed according to the design by a thin layer of powder being added to the part and melted. The process is repeated layer by layer until the entire part has been built. This process is called Additive Manufacturing. The entire process takes place in a vacuum, which ensures melt purity and optimised material properties of the end product.

Unique electron beam

The electron beam is generated with a filament and controlled using proprietary software. The Arcam EBM® Multi Beam technology control multiple beams simultaneously, increasing productivity and accuracy

Arcam LayerQamTM provides traceability

Arcam Q10 and Arcam Q20 use Arcam LayerQamTM, a camera-based function for quality verification. The new function registers any deviation in each individual layer. With Arcam LayerQamTM, it is possible to retroactively monitor the building process and verify production quality.

Software

The proprietary software is included as an integrated part in all systems. The software is continuously developed to increase the systems’ reliability, user-friendliness and productivity. Besides process control, there is also software that supports customer monitoring (EBM® Connect), and quality assurance (Logstudio). EBM® Connect enables the customer to monitor the actual production cycle remotely over the Internet.

Arcam’s EBM® systems

The Arcam A2X, is primarily intended for the aerospace industry for manufacturing in titanium and titanium aluminide. The system is also highly suitable for research and development.

The Arcam Q10 is primarily intended for the manufacture of ortho pedic im-plants. It offers user friendliness and a new electron gun ensuring higher pre-cision and productivity. It has Arcam LayerQamTM, a newly developed func-tion for production verification.

The Arcam Q20 is based on the same new technology as the Arcam Q10, but the Arcam Q20, with its larger building chamber, is primarily intended for the aerospace industry.

Development

Long-term product developmentArcam’s future growth is highly dependent on continued development and the broadening of the current offering of products and services. Product development is mainly carried out in-house and in close collaboration with customers and other external partners.

Continuous research and development is being conducted in electron beam technology and metallurgy. The development work is dedicated to increase capacity, productivity and precision in the systems. The user interface continues to be developed to increase user friendliness. Arcam’s R&D department has extensive expertise in mechanical engineer-ing, electronics, programming and metallurgy.

Quality assurance

The company’s operation in Mölndal has been certified according to ISO 9001 since 2013.

CE-marked according to the Machinery Directive

Arcam’s EBM® systems do not require any additional authority approval for implants or aerospace component manufactur-ing. However, the parts that the customers manufacture in the systems must most often undergo certification.

Patents – a natural feature of the product development process

The patenting of Arcam’s technology is an integral part of the development process. To minimize the risk of imitation and to maintain its market-leading position, Arcam applies for patents for both process expertise and key components in the systems. Arcam continuously monitors new patent applica-tions from some ten potential competitors. Patents are initially applied for through the PCT (Patent Cooperation Treaty) and/or the EPO (European Patent Office), and the application is then filed in ten strategically selected countries, providing a broad international patent protection.

Production and installation

Arcam EBM® systems are assembled by Arcam personnel at the corporate headquarters in Mölndal, Sweden. Certain components critical to system performance and function, including the electron beam lens system, are manufactured by Arcam. Subsystems are supplied by subcontractors when possible, thus reducing the need for in-house production capacity. The majority of Arcam’s subcontractors are Swedish. Arcam quality tests the systems after final assembly. The time from order placement until a system is ready for delivery is nominally three months.

The systems are delivered as complete freestanding units and customer installation takes approximately two weeks. Metal powders are prepared by subcontractors and delivered to customers after strict quality tests by Arcam.

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Arcam’s associated products/services

Metal powder Arcam supplies metal powder to its customers through its wholly owned subsidiary AP&C.

Contract manufacturing In cooperation with DiSanto in the US, Arcam offers contract manufacturing of orthopedic implants.

Service and support Arcam offers preventive maintenance and provides assistance in application devel-opment and certification processes.

The Arcam shareSince 2012, Arcam is listed on NASDAQ OMX with the denomination ARCM. Prior to that, the company was listed on NGM Equity in 2000. The number of shares on January 31, 2014 is 18,341,632. All shares carry one vote and equal entitlement to a share in the company’s assets and profits.

Major shareholders, March 31, 2014

Name Holdings Votes, %

Stiftelsen Industrifonden 2873808 15,67%

Oppenheimer Glob Opportunity Fund 1100000 6,00%

State street bank & trust com., boston 827244 4,51%

Mellon US Tax Exempt Account 735417 4,01%

Morgan Stanley and Co Llc, W9 564074 3,08%

CBNY-National Financial Services LL 493123 2,69%

Clearstream Banking S.A., W8IMY 442740 2,41%

CBNY-Charles Schwab FBO Customer 395869 2,16%

ML, Pierce, Fenner & Smith Inc 376657 2,05%

Canadian Treaty Clients Account 343092 1,87%

Total 10 largets 8152024 44,45%

Other 8589608 55,55%

Total 10 largets 16741632 100%

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Multi-year overviewMSEK 2009 2010 2011 2012 2013

Income statement

Net sales 74.5 90.5 107.7 139.1 199.4

Operating profit -6.5 1.7 4.6 14.5 14.5

Depreciation/amortization -7.7 -7.2 -6.9 -6.1 -6.4

Profit from financial items 0 0.1 1 0.1 0.9

Net profit for the year -6.5 1.8 5.5 15 15.4

Balance sheet

Fixed assets 14.4 12.9 14.2 17.5 19.4

Current assets 48.9 52.5 56.4 94.4 111.2

Cash and cash equivalents 16.1 23.2 38.3 26.9 503.3

Total assets 79.4 88.6 109 138.8 633.9

Shareholders’ equity 57.8 60.3 65.7 83.6 552.9

Long-term liabilities – – – – –

Current liabilities 21.6 28.3 43.2 55.2 81.0

Total shareholders’ equity and liabilities 79.4 88.6 109 138.8 633.9

Key figures

Number of employees, average 36 39 43 48 57

Sales per employee, KSEK 2,258 2,321 2,504 2,898 3,498

Sales increase, % 28 21 19 29 43

Operating margin, % neg 1.9 4.3 10.3 7.3

Net margin, % neg 2 5.1 10.8 7.7

Equity/assets ratio, % 72.8 68.1 65 60.2 87.2

Debt/equity ratio, % – – – – –

Return on shareholders’ equity, % neg 3 8.7 20.1 10.7

Return on capital employed, % neg 3 8.7 20.1 10.7

Share of risk-bearing capital 73 68 60 60 87

Interest coverage ratio, multiple neg 84 25 174 168

Arcam AB · Krokslätts Fabriker 27A · SE 431 37 Mölndal · Sweden · Phone +46 31-710 32 00, Fax + 46 31-710 32 01 · www.arcam.com

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