Ossur hf. sales in the first six months of 2003 came to just over USD 44 million. The increase in sales between years corresponds to an organic growth of 12%.
Operating profit amounted to USD 4.5 million, which is similar to the results of the corresponding quarter of the preceding year.
Profit for the first six months of the year was USD 3.3 million, down by 9% from the preceding year.
Earnings per share came to 3.02 US cents for the preceding 12 months, up from 2.74 cents per share from the corresponding period last year.
The Ossur hf. interim Consolidated Financial Statements June 30th 2003 were approved at a meeting of the Board of Directors on 23 July. The statement has been reviewed and endorsed by the company external auditors.
The principal companies of the Ossur Consolidation are Ossur hf. in Iceland, the Ossur Holdings Inc. Consolidation in the USA, the Ossur Holding A.B. Consolidation in Sweden and Ossur Europe B.V. in the Netherlands.
Key Operating Results, January through June 2003
Income Statements for January June 2003/2002 (USD 000) Jan June?2003 % of sales Jan June?2002 % of sales Change
Net sales 44,418 100% 39,816 100% 12%
Cost of goods sold -18,148 -41% -16,090 -40% 13%
Gross profit 26,270 59% 23,726 60% 11%
Other income 104 0% 329 1% -68%
Sales and marketing expenses -9,885 -22% -9,089 -23% 9%
Research & development expenses -4,852 -11% -3,575 -9% 36%
General & administrative expenses -7,118 -16% -6,859 -17% 4%
Profit from operations 4,519 10% 4,532 11% 0%
Interest income/(expenses) -373 -1% 15 0% -2587%
Income from associates 0 0% 38 0% -100%
Profit before tax 4,146 9% 4,585 12% -10%
Income tax -834 -2% -965 -2% -14%
Net profit for the period 3,312 7% 3,620 9% -9%
EBITDA 5,848 13% 5,732 14% 2%
Consolidated Balance Sheets 30 June
Consolidated Balance Sheets (USD 000) 30.6.2003 31.12.2002 Change
Fixed assets 33,219 32,836 1%
Current assets 52,606 38,589 36%
Total assets 85,825 71,425 20%
Stockholders equity 44,171 39,861 11%
Long-term liabilities 26,828 14,627 83%
Current liabilities 14,826 16,937 -12%
Total equity and liabilities 85,825 71,425 20%
Consolidated Statements of Cash Flows for January June
Cash Flow (USD 000) Jan June?2003 Jan June?2002
Working capital from operating activities 5,354 5,547
Net cash provided by operating activities 4,916 997
Net cash used in investing activities -2,044 -2,134
Net cash provided from financing activities 10,200 1,364
Net change in cash and cash equivalents 13,072 227
Key Financial Ratios for January June
Financial ratios Jan June?2003 Jan June?2002
Earnings per share, EPS (US cents) 3.02 2.74
P/E ratio 22.6 23.7
Return on common equity 25% 29%
Current ratio 3.5 2.0
Equity ratio 51% 50%
Market value of stock (Million USD) 221 211
Key Operating Results for the Second Quarter
Consolidated Income Statements (USD 000) Q2 2003 % of sales Q2 2002 % of sales Change
Net sales 22,726 100% 21,223 100% 7%
Cost of goods sold -9,019 -40% -8,595 -40% 5%
Gross profit 13,707 60% 12,628 60% 9%
Other income 22 0% 107 1% -79%
Sales and marketing expenses -5,013 -22% -4,891 -23% 2%
Research & development expenses -2,595 -11% -1,557 -7% 67%
General & administrative expenses -3,572 -16% -3,298 -16% 8%
Profit from operations 2,549 11% 2,989 14% -15%
Interest income/(expenses) -247 -1% 338 2% -173%
Income from associates 0 0% -18 0% -100%
Profit before tax 2,302 10% 3,309 16% -30%
Income tax -394 -2% -720 -3% -45%
Net profit for the period 1,908 8% 2,589 12% -26%
EBITDA 3,205 14% 3,604 17% -11%
Second Quarter Operations
Second-quarter sales amounted to USD 22.7 million, the highest single-quarter sales in the history of the Company. Sales in the first six months of 2003 increased by 12% from the preceding year. No new companies have been acquired in 2003 with any impact on the sales revenues for the period, which means that the entire increase is a result of organic growth.
The most prominent feature of the second-quarter sales is that the increase in sales fell short of previous increases, at 7% between years. The North American market continues to be sluggish, with sales down by 3%, as compared to the corresponding quarter of last year; in the first quarter, however, sales increased by 1%. General economic conditions have been difficult in this market area, as reflected in the interest rate and exchange rate trends of the US dollar in recent months. Growth has been satisfactory in the European markets, both in Western Europe and in Scandinavia. Sales of spinal implants through Mauch Inc. are down. This manufacture primarily involves sales to a single large buyer who has temporarily reduced his orders. There are prospects of a continued decline for the remainder of the year in sales of spinal implants. Any general comparison of second-quarter sales must take account of the fact that sales in 2002 were exceptionally good, increasing by 26% from 2001. More precisely, external sales of the Consolidation were as follows divided by market area:
Thousand USD Q2
2003 % Q2 % Change %
2002
Ossur North America, Inc. 10,856 48% 11,181 53% -3%
Ossur Europe, B.V. 6,026 26% 4,237 20% 42%
Ossur Nordic, A.B. 3,020 13% 2,730 13% 11%
Other markets 1,999 9% 1,931 9% 4%
Mauch, Inc. 825 4% 1,144 5% -28%
Total 22,726 100% 21,223 100% 7%
Gross profit in the first six months of 2003 was 59% of sales, virtually unchanged from the 2002 margin of 60%. The second-quarter profit was 60%, which is the same as last year.
Sales and marketing expenses amounted to 22% of sales in the first six months of the year, slightly down from the 23% ratio of the corresponding period last year.
Research and development expenses amounted to 11% of sales in the first six months of the year, as compared to 9% last year. R&D expenses came to 11% in the second quarter, up from 7% in the preceding year. The companys targets place R&D expenses at 6-8% of annual net sales. One of the reasons that these expenses have been increased temporarily is the effort that the company is investing in bringing out its first range of orthotic products, scheduled for marketing before year-end. As Ossur has revealed in earlier communications, the Company is actively seeking investment opportunities in this sector, although no actual investments have been made to date. For this reason, the Company has focused increased efforts on internal development in this area. The Companys long-term target of limiting normal R&D expenses to 8% per year remains unchanged.
General and administrative expenses have been falling slightly, amounting to 16% of sales in the first six months of the year, as compared to 17% for the corresponding period last year. The second-quarter ratio is consistent with 2002 results, at approximately 16%. In the first six months of this year, substantial funds have been spent on litigation for infringement of Ossur patents.
There has been some reversal in the financial items in the accounts between years. The principal reason for the change is that last year saw a substantial one-off exchange rate gain on a short-term loan taken by one of Ossurs subsidiaries.
The salient points of operations in the first six months of the year, in the opinion of the Company management, are the following:
Sales in the first quarter were in line with expectations, while second quarter sales were softer than expected.
Work on research and development has been increased temporarily, as no acquisition target has been located yet in the orthotics sector which fits the companys business development strategy.
The Company has cut costs in its operations, as the purchasing power of the US dollar against the Icelandic krona has been eroded by over 21% between years.
Refinancing and New Loan Capital
In early June, refinancing of the Companys long-term debt was concluded and new borrowings negotiated. A deal was reached with Íslandsbanki hf. following an offer for tenders, with the eventual total loan agreement amounting to USD 25 million. Of this amount, slightly less than USD 10 million were used to refinance current loans, while USD 10 million constitute a new investment loan; in addition, a line of credit was established amounting to USD 5 million. All the borrowings have the form of 5-year bullet loans with fixed interest. The terms of the loans and interest rates are highly favorable for the Company. If the line of credit is included, the Company now has at its disposal almost USD 30 million in cash.
Partnership Agreements and Development Companies
As revealed in an earlier press release from the Company, Ossur concluded a research and development partnership agreement in the second quarter of this year with Victhom Human Bionics Inc. in Canada.
Just after the end of the second quarter, Ossur completed its acquisition of Linea Orthopedics in Sweden, a start-up company specializing in high quality cosmetic covers designed for prostheses, as announced in an earlier press release.
Customer Survey
A survey commissioned by Ossur hf among customers at over 600 prosthetics workshops in the United States and Europe revealed that 98% of the respondents would recommend the Companys products, and 91% are satisfied with the services provided by the Company. The results of the survey as a whole show that Ossur enjoys a very strong position among its customers. The purpose of the survey was to measure customer satisfaction with the products and services of the Company and obtain a comparison with the products and services of major competitors. The survey was conducted last February and March and had a response rate of 68%.
Investor Relations Award
For the second year in a row, Ossur received recognition for outstanding investor relations at the annual award ceremony of Investor Relations Magazine, held in Copenhagen last May.
Ö gives way to O
The decision has been made to discontinue the letter Ö in all material disseminated by the Company outside Iceland. The name of the Company in the future will therefore be written Ossur outside Iceland, but remains Össur in Iceland. The Company logo will remain unchanged.
The Outlook for Third Quarter operations
The prospects are that the growth in sales will continue in line with the growth of the first half of the year, i.e. slower than between 2001 and 2002. Assuming unchanged conditions, it appears that operating profit and EBITDA in the third quarter of this year will be lower as a ratio of net sales than in 2002.
Meeting with Managers
Tomorrow morning investors and other interested parties are invited to participate in an open conference with the Companys Management. At the conference, Mr. Jon Sigurdsson, President and CEO, will review the results of the quarter and discuss them with investors. Mr. Hjorleifur Palsson, CFO will attend the meeting as well.
The conference will be held tomorrow, Friday 25 July, at 8:30 a.m. at the office of Ossur hf. at Grjothals 5, Reykjavik. The meeting will be conducted in English and can be observed on the Internet through the Ossur hf. website at www.ossur.com.
