Optomed Plc Financial statements bulletin January - December 2020

Optomed Plc         Stock Exchange Release    18 Febryary 2021 at 9:00, Helsinki

Optomed Plc: Financial Statements Bulletin, January – December 2020

October – December 2020

• Revenue decreased by 6.6 percent to EUR 4,041 (4,329) thousand

• Adjusted EBITDA amounted to EUR -62 (-211) thousand corresponding to –1.5 (-4.9) percent of revenue
• The COVID-19 pandemic continued to negatively affect especially the OEM sales of the Devices segment, whereas the Software segment continued its solid performance
• Solid revenue growth in China
• Regulatory approval received for Optomed Aurora camera in China
• The US revenue continued to grow
• Successful launch of Aurora IQ, handheld fundus camera with seamless AI integration in November 2020

January – December 2020

• Revenue decreased by 13.1 percent to EUR 13,011 (14,977) thousand

• Adjusted EBITDA amounted to EUR -733 (-196) thousand corresponding to –5.6 (-1.3) percent of revenue
• The COVID-19 pandemic has negatively affected the Devices segment whereas the Software segment continues its solid performance

Key figures

*) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations.

CEO comments

Optomed's business developed towards a positive direction during the last quarter of the year, even though revenue slightly declined.  The overall demand for our own branded fundus cameras and related software solutions increased, despite the pandemic continued to negatively impact our business, particularly in Europe and the United States.

Both revenue and profitability of our Software segment, which has performed well during the pandemic, continued to grow. This growth came from increasing recurring revenue from the existing customer base and new customer deliveries made during the quarter.

For the Devices segment, 2020 was a year of significant change. Optomed's strategy has been to expand its own distribution network and thus increase sales of camera products and complete screening solutions under its own brand. Optomed branded camera sales via our distribution network started to grow in the third quarter and continued this strong growth during the fourth quarter, while sales to our OEM customers declined. During 2020, the share of cameras sold under the company's own brand significantly exceeded the number of products sold through our OEM customers, growing our own installed base, and providing more opportunities for additional software and other recurring revenue streams in the coming years.

Revenue of our Chinese subsidiary developed favorably, especially in the last quarter of the year. The new product registrations and launches in 2020 are expected to have a positive impact on our China sales in the current and future years.

In the last quarter of 2020, the Devices segment’s revenue decreased but the profitability increased. The decline in the revenue was caused by the Covid-19 pandemic constraints in traditional sales work to hospitals affecting our OEM sales the most.

In the fourth quarter, we were especially pleased that we were able to sell and deliver several complete diabetic retinopathy screening solutions, including cameras, software and artificial intelligence services, for healthcare and screening programs in Asia and the Middle East. We expect the number of complete screening solution deliveries to increase further during 2021, especially when the pandemic related travel restrictions begin to ease. The new Aurora IQ camera with AI services launched in November has received very positive feedback from the market, but due to logistics, the delivery volumes were not yet significant in 2020. The Aurora IQ camera is expected to have a considerable impact on the company’s growth from 2021 and onwards.

Overall, the company’s revenue in the fourth quarter decreased by 6.6 percent due to the decline in camera sales to our OEM customers caused by the pandemic. However, profitability improved because of increased software and higher margin Optomed branded camera sales. The cash flow from operating activities was positive.

The changes in our sales channel structure during 2020, establishment of our US subsidiary, launch of the Aurora IQ camera, new product registrations in China and Canada, and the positive market outlook in China give us a good starting point for 2021. Several of our key markets are showing clear signs of recovery, and therefore in the end of 2020, we started to significantly increase our sales and marketing activities. Although the impact of the Covid-19 pandemic to the market and our business is expected to continue going forward, we expect the company’s revenue to grow during 2021.

CEO

Seppo Kopsala

Outlook 2021

Optomed expects its full year 2021 revenue to grow compared to 2020.

Telephone conference

A telephone conference for analysts, investors and media will be arranged on 18 February 2021 at 11.00 EET. The event will be held in English. The presentation material will be available at www.optomed.com/investors 10.00 EET at the latest.

The participants are requested to register for the call in advance by email to sakari.knuutti@optomed.com.

Please see the call-in numbers below:

FI +358 9 856 26300

SE +46 8 505 218 52

UK +44 20 3321 5273

US +1 646 838 1719

FR +33 1 70 99 53 92

The conference id is 554 810 399#.

Please note that by dialing into the conference call, the participant agrees that personal information such as name and company name will be collected.

Group performance

October – December 2020

In October-December 2020, Group revenue decreased by 6.6 percent to EUR 4,041 (4,329) thousand. The Software segment’s solid performance continued, and its revenue increased by 6.1 percent driven by stable recurring business from the existing customers in addition to new global delivery projects. The Devices segment OEM sales were still affected by the pandemic and the segment’s revenue decreased by 19,5 percent. China, the US, and distribution sales channels performed well. The Group gross margin increased to 69.5 from 63.4 percent last year. The Group recorded other operating income of EUR 40 (11) thousand during October-December. The October-December Group gross margin excluding other operating income was 68.5 percent in 2020 and 63.2 percent in 2019.

In October-December 2020, Group EBITDA amounted to EUR -62 (550) thousand and adjusted EBITDA totaled EUR -62(-211) thousand. The October-December 2019 was affected by EUR 760 thousand of rebooked IPO expenses classified as items affecting comparability. The main reasons for the positive adjusted EBITDA variance versus 2019 were higher gross profit due to more software and Optomed branded product sales and lower operating expenses because of the company’s swift response to the pandemic and the related cost reduction actions. The Group has since April cut travelling and postponed external events. EBIT was EUR -594 (-33) thousand and adjusted EBIT was EUR -594 (-794) thousand.

In October-December 2020, net financial items amounted to EUR -69 (-67) thousand and consisted mainly of interest payments to financial institutions and the translation effect of Chinese RMB to EUR.

January – December 2020

In January-December 2020, Group revenue decreased by 13.1 percent to EUR 13,011 (14,977) thousand. The Software segment performed well considering the ongoing COVID-19 situation, and its revenue growth was 3.2 percent driven by stable recurring business from the existing customers. The Devices segment’s revenue decreased by 30.3 percent. The decrease was a result of the COVID-19 pandemic causing a decline in OEM sales. Optomed branded products performed well despite pandemic and exceeded OEM sales. The gross margin increased to 68.8 percent from 66.4 percent of the comparison period. The company received other operating income of EUR 157 (254) thousand for the full year of 2020 and 2019, which increased the gross margin of both periods.  The January-December gross margin excluding other operating income was 67.6 percent in 2020 and 64.7 percent in 2019.

In January-December 2020 EBITDA amounted to EUR -733 (-335) thousand and adjusted EBITDA totaled EUR -733 (-196) thousand. January-December 2019 was affected by EUR 139 thousand of IPO expenses classified as items affecting comparability. The main reasons for the adjusted EBITDA variance versus 2019 were lower revenue which was partly compensated by higher gross margin and lower operating expenses due to the layoffs, lower level of corporate travelling, as well as external events that had been cancelled or postponed due to the COVID-19 situation. EBIT was EUR -2,906 (-2,596) thousand and adjusted EBIT was EUR -2,906 (-2,457) thousand.

Net financial items amounted to EUR -341 (-356) thousand in January-December 2020 and consisted mainly of interest payments to financial institutions and the translation effect of Chinese RMB and USD to EUR.

Cash flow and financial position

October- December 2020

In October-December 2020, the cash flow from operating activities amounted to EUR 383 (2,000) thousand. Net cash used in investing activities was EUR -651 (-407) thousand and relates mainly to capitalized development expenses. Net cash from financing activities amounted to EUR -34 (15,548) thousand. Financing activities in the fourth quarter 2019 include share issue proceeds from the IPO of EUR 20 million.

January- December 2020

In January-December 2020, the cash flow from operating activities amounted to EUR –2,801 (161) thousand. Net cash in investing activities was EUR –1,820 (-1,434) thousand and relates mainly to capitalized development expenses. Net cash from financing activities amounted to EUR –3,698 in 2020 and include a loan repayment of EUR 3,2 million in the first quarter of 2020. Net cash from financing activities in 2019 amounted to EUR 18,123 thousand and include the proceeds of two share issues. Optomed received proceeds of EUR 3,0 million in a share issue conducted prior to the IPO in 2019 and proceeds of EUR 20 million in the IPO.

Consolidated cash and cash equivalents at the end of the period amounted to EUR 10,608 (18,866) thousand. Interest-bearing net debt totaled EUR -4,090 (-8,940) thousand at the end of the period.

Net working capital was EUR 3,440 (1,275) thousand at the end of the period.

Devices segment

Optomed has two synergistic business segments: Devices and Software.

The Devices segment develops, commercializes and manufactures easy-to-use, and affordable handheld fundus cameras, that are suitable for any clinic for screening of various eye diseases, such as diabetic retinopathy, glaucoma and AMD (Age Related Macular Degeneration).

*) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations.

October- December 2020

In October-December 2020, the Devices segment revenue decreased by 19.5 percent and was EUR 1,738 (2,158) thousand. The decrease was, as in the second and third quarter, caused by the COVID-19 pandemic affecting personal sales work to hospitals and clinics, seen as lower OEM sales. Optomed branded product sales via distributors and our China and US business performed well despite pandemic and exceeded OEM sales.

In October-December 2020, the gross margin increased to 56.9 percent from 51.6 percent in the previous year. The positive variance is mainly due to a higher share of Optomed branded products sold with a higher gross margin compared to OEM products.

In October-December 2020, EBITDA was EUR 1 (-169) thousand or 0.0 (-7.8) percent of revenue. The key drivers for the increase in EBITDA were higher gross margin and the COVID-19 outbreak affecting corporate traveling and external events.

January- December 2020

In January-December 2020, the Devices segment revenue decreased by 30.3 percent and was EUR 5,097 (7,309) thousand caused by the COVID-19 pandemic affecting mainly OEM sales.

In January-December 2020, the gross margin decreased to 56.1 percent from 57.5 percent in the previous year. The company received other operating income of EUR 101 (175) thousand in 2020. The gross margin excluding other operating income was 54.1 percent in 2020 and 55.1 percent in 2019.

In January-December 2020, EBITDA was EUR -251 (-408) thousand or -4.9 (-5.6) percent of revenue. In spite the revenue decreased by 30.3 percent, the EBITDA was improved while cost saving measures started in response to the pandemic.

Software segment

Optomed has two synergistic business segments: Devices and Software.

The Software segment develops and commercializes screening software for diabetic retinopathy and cancer screening for healthcare organizations. The segment also distributes off-the-shelf products from selected partners to supplement its own solutions and expertise and provides software consultation to support the Devices segment screening solution projects.

*) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations.

October – December 2020

In October-December 2020, the Software segment had another successful quarter and the revenue increased by 6.1 percent and was EUR 2,303 (2,171) thousand. The performance was driven by the stable recurring business with the current customer base that was not affected by the pandemic and new delivery projects abroad.

In October-December 2020, the gross margin was 79,0 (75.2) percent. Other operating income was EUR 40 (11) thousand in 2020. The gross margin excluding other operating income was 77.0 percent in 2020 and 74.9 percent in 2019. The positive variance is due to favorable customer and product mix.

EBITDA stood at EUR 635 (476) thousand or 27.6 (21.9) percent of revenue, respectively. The travel restriction due to the pandemic have slowed down the global screening solution sales.

January – December 2020

In January-December 2020, the Software segment revenue increased by 3.2 percent and was EUR 7,913 (7,668) thousand. The gross profit included other operating income of EUR 56 thousand in 2020 compared to EUR 79 thousand in 2019. The gross margin excluding other operating income was 76.3 percent in 2020 and 73.9 percent in 2019.

EBITDA was EUR 1,926 (1,667) thousand or 24.3 (21.7) percent of revenue.

Organic growth

The following table shows the organic growth of the group and the segments. The adjusted elements are related to exchange rate variances between EUR and Chinese RMB and USD.

*) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations

Group-wide expenses

Group-wide expenses relate to functions supporting the entire group such as treasury, group accounting, Marketing, legal, HR, IT and public listing expenses.

October – December 2020

In October-December 2020, group-wide operating expenses amounted to EUR 697 (+242). The fourth quarter of 2019 includes reclassified IPO expenses of EUR 760 thousand. The increase in review period excluding the IPO expenses was EUR 179 thousand.

January – December 2020

In January-December 2020, group-wide operating expenses amounted to EUR 2,408 (1,593). The full year 2019 includes IPO expenses of EUR 139 thousand.

Personnel

Number of personnel at the end of the reporting period.

Corporate Governance

Optomed complies with Finnish laws and regulations, Optomed’s Articles of Association, the rules of Nasdaq Helsinki and the Finnish Corporate Governance Code 2020 issued by the Securities Market Association of Finland. The code is publicly available at http://cgfinland.fi/en/. Optomed’s corporate governance statement 2019 is available on the company website www.optomed.com/investors/.

Annual General Meeting

The Annual General Meeting held on 11 June 2020 approved the financial statements, adopted the Remuneration Policy for governing bodies and discharged the responsible parties from liability for the financial period ended 31 December 2019.

The Annual General Meeting resolved in accordance with the proposal of the Board of Directors that no dividend will be paid for the year 2019.

The number of members of the Board of Directors was confirmed as five:

• Seppo Mäkinen, Petri Salonen, Reijo Tauriainen and Jun Wu were re-elected as members of the Board

• Anna Tenstam was elected as a new member of the Board

The Annual General Meeting confirmed the annual Board remuneration as follows:

• Chairman of the Board EUR 36,000

• Members of the Board EUR 18,000

In addition, a meeting fee in the amount of EUR 500 is paid to the Chairman of the Audit Committee for each Audit Committee meeting. 40 percent of the Board remuneration is paid in Optomed shares and 60 percent in cash. The remuneration was paid in August, after Optomed’s H1 report was announced.

The Annual General Meeting decided that KPMG Oy Ab, authorized public accountants is elected as the Company’s auditor. KPMG Oy Ab has informed the Company that Authorized Public Accountant Tapio Raappana would continue as the auditor with principal responsibility. Auditor’s remuneration will be paid in accordance with an invoice approved by the Company.

The General Meeting approved the authorization for the Board of Directors to accept as pledge and repurchase of Optomed’s own shares. Altogether no more than 1,400,314 shares may be repurchased or accepted as pledge. The authorization will be valid until the earlier of the end of the next Annual General Meeting or 18 months from the resolution of the Annual General Meeting.

The General Meeting authorized the Board of Directors to decide on the issuance of shares as well as the issuance of options and other special rights entitling to shares referred to in chapter 10 section 1 of the Finnish Companies Act. The number of shares to be issued based on this authorization may not exceed 1,400,314. The Board of Directors is authorized to resolve on all terms and conditions of the issuance of shares and special rights entitling to shares, including the right to derogate from the pre-emptive right of the shareholders. The authorization will be valid until the earlier of the end of the next Annual General Meeting or 18 months from the resolution of the Annual General Meeting.

At its meeting held after the Annual General Meeting, the Board of Directors elected from among its members Petri Salonen as its Chairman. The committee members were elected as follows:

Audit Committee:

Reijo Tauriainen (chairman)

Seppo Mäkinen

Anna Tenstam

Remuneration Committee:

Seppo Mäkinen (chairman)

Reijo Tauriainen

Anna Tenstam

Shares and shareholders

The company has one share series with all shares having the same rights. At the end of the review period Optomed Plc's share capital consisted of 14,003,144 shares and the company held 740,378 shares in the treasury which corresponds approximately 5.3 percent of the total amount of the shares and votes. Additional information with respect to the shares, shareholding and trading can be found on the company’s website www.optomed.com/investors/.

Risks and uncertainties

The key risks and uncertainties are described in the company’s annual report 2019 which was published on 20 March 2020. The complete report is available at https://www.optomed.com/investors/. In this financial report, the company describes only the changes to the complete risks and uncertainties described in the annual report.

The COVID-19 coronavirus risk as disclosed in the previous financial report has been updated as follows:

COVID-19 coronavirus

The COVID-19 outbreak has turned into a pandemic the length and prolonged effect of which are uncertain.

The company’s software segment continues to be largely unaffected due to recurring nature of the business and long-term customer agreements, however, the Devices segment sales have been negatively affected by the pandemic. The medical sector as a whole is concentrated on addressing the immediate pandemic and other supplier meetings and purchases are postponed. This has an effect on the company’s ability to sell its devices and increase its customer base especially because face-to-face meetings are market standard for fundus camera sales.

Currently, it seems like the People’s Republic of China and the Asia-Pacific have recovered from the pandemic and demand is back to normal in key countries of the area. However, Europe and the US have been hit by a new wave of infections which may have a negative effect on both the European sales and the US operations that are in the ramp-up phase. In spite the vaccinations are progressing, Optomed recognizes the risk of a prolonged pandemic which may cause additional restrictions and other negative effects globally. Further, the pandemic has increased the risk of component sourcing issues. The company has taken precautions to protect its currently strong cash position and to secure alternative components.

Flagging notifications

In October-December 2020, Optomed received two major shareholder notifications from OP-Rahastoyhtiö Oy. According to the latest notification, the total holdings in Optomed shares and votes held by OP-Rahastoyhtiö has decreased to 4.99 per cent of all of the registered shares in Optomed on 16 November 2020.

Events after the review period

On 12 January 2021, Optomed announced that it has been awarded a contract to develop an advanced IT system for the automation and evaluation of outcomes in ophthalmic care. The system is developed for the Finnish University Eye Clinics.

On 14 January 2021, Optomed announced the proposal of the Nomination Board to the next Annual General Meeting. The Nomination Board proposed that Seppo Mäkinen, Petri Salonen, Reijo Tauriainen and Anna Tenstam are re-elected as Board members and Haohao Zhang is elected as a new Board member. The Board remuneration was proposed to remain as-is.

On 28 January, Optomed announced that it has established an international scientific advisory board. The board consists of globally recognized and scientifically merited medical doctors specializing in ophthalmology and neuro-ophthalmology, with advanced experience on artificial intelligence applied to detection of ophthalmic conditions.

The Board’s proposal for the distribution of profit

The parent company’s non-restricted equity on December 31, 2020 was EUR 19,442,899.33 and the net loss for the financial year was EUR 2,142,670.91. The Board of Directors proposes to the Annual General Meeting that no dividend will be paid and the non-restricted equity on the outstanding 14,003,144 shares shall be retained and carried forward.

Audit review

This financial report has been audited by the company's auditors.

Financial reporting in 2021

Week 10 at the latest          Annual Report 2020

6 May 2021                           Interim Report for 1 January – 31 March 2021

5 August 2021                      Half-Year Financial Report for 1 January – 30 June 2021

4 November                         Interim Report for 1 January – 30 September 2021

For more information, contact

Lars Lindqvist, CFO

Tel: +46 702 59 57 89

E-mail: lars.lindqvist@optomed.com

Seppo Kopsala, CEO

Tel.: +358 40 555 1050

E-mail:  seppo.kopsala@optomed.com

About Optomed

Optomed is a Finnish medical technology company and one of the leading providers of handheld fundus cameras. Optomed combines handheld screening devices with software and artificial intelligence with the aim to transform the diagnostic process of blinding eye-diseases such as rapidly increasing diabetic retinopathy. In its business Optomed focuses on eye-screening devices and software solutions related R&D in Finland and sales through different channels in over 60 countries. The company has an extensive portfolio of 56 international patents protecting the technology. In 2020, Optomed’s revenue reached EUR 13 million and in 2019 revenue amounted to EUR 15 million. At the end of 2020, Optomed employed 109 professionals.

Alternative Performance Measures

Optomed uses certain alternative performance measures (APMs) with the purpose to provide a better understanding of how the business develops. These APMs, as defined, cannot be fully compared with other companies’ APMs.

Reconciliation of Alternative Performance Measures

Organic growth for the Group

Consolidated income statement

Consolidated condensed comprehensive income statement

Consolidated balance sheet

Consolidated statement of changes in shareholders’ equity

Consolidated cash flow statement

Selected notes

Corporate information and basis of accounting                                                                  

Corporate information

Optomed is a Finnish medical technology group (hereafter ‘Optomed’ or ‘Group’) that specialises in handheld fundus cameras and solutions for screening of blinding eye diseases, established in 2004.

The Group’s parent company, Optomed Plc. (hereafter the ‘company’) is a Finnish public limited liability company established under the laws of Finland, and its business ID is 1936446-1. It is domiciled in Oulu, Finland and the Company’s registered address is Yrttipellontie 1, 90230 Oulu, Finland.

Basis of accounting                                                                         

Optomed’s consolidated financial statements has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The preparation of this interim report also takes into account the amendments to IFRS standards that have become effective by January 1, 2020.

All presented figures have been rounded. Financial ratios have been calculated using exact figures.

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with Group`s last annual consolidated financial statements as at and for the year ended 31 December 2019. This Interim financial statements do not include all of the information required for a complete set of IFRS financial statements: selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group`s financial position and performance since the last annual financial statements.

Critical management judgments and related estimates and assumptions

The preparation of financial statements under IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of the reporting period as well as the reported amounts of income and expenses during the reporting period. These estimates and assumptions are based on historical experience and other justified assumptions, such as future expectations, that Optomed management believes are reasonable under the circumstances at the end of the reporting period and the time when they were made.

Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on an on-going basis and when preparing financial statements. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or more experience. Such changes are recognized in the period in which the estimate or the assumption is revised.

Use of judgment and estimates

Judgements that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognised in the financial statements, relate to the following areas:

— capitalisation of development costs: determination of development expenditure eligible for capitalisation

— impairment testing of development expenditures

Reportable segments

Q4/2020

Q4/2019

2020

2019

Revenue

Tangible assets

Leases

Intangible assets and goodwill

Financial liabilities 

The financial loans have been restructured during the 2020. Financial loans were paid prematurely 3,173 thousand euros. Within next 12 months there will be no amortization for borrowings from financial institutions.

Fair values - financial liabilities measured at amortised cost

Optomed considers that the carrying amounts of the financial liabilities measured at amortised cost substantially equal to their fair values. This estimate corresponds to the fair value hierarchy Level 3, as the measurement of the said liabilities is based on Optomed management view.

Financial covenant

Optomed's borrowings from financial institutions contain a financial covenant (equity ratio) and Optomed also has to meet certain key operative targets. The borrowings will be repaid in accordance with the new repayment schedule.

Optomed has to comply with the financial covenant terms specified in the loan agreement terms at the financial year-end. Equity ratio is calculated in FAS figures using the agreed formula. The table below summarises the Group's financial covenant term and compliance during 2018 and the reporting period.

Related party transactions

Revenue and trade receivables and some of the other expenses relate to the major shareholders of Optomed Ltd considered to be related parties to the parent company.

Other expenses consist of consulting fees and travel expenses paid to the Chairman of the Board of Directors.