Össur hf. - Annual Financial Statement for 2002
All R&D cost was expensed in 2002 as in previous years. The previous news release was wrong in the way that it stated that all R&D cost was capitalized instead of expensed.
Sales over the year amounted to USD 81.3 million. The increase in sales between years corresponds to an internal growth of 19%.
Operating profit for the year was USD 11.5 million, increasing by 6% from the preceding year.
Profit for the year was slightly short of USD 10.1 million, increasing by 16% from the preceding year.
EPS increased by 18% from the previous year, reaching 3.12 US cents per share.
The Össur hf. Annual Consolidated Financial Statement for the year 2002 was approved at a meeting of the Board of Directors on 11 February. The statement has been audited and endorsed by the auditors of the company without comment.
The principal companies of the Össur Consolidation are Össur hf. in Iceland, the Össur Holdings Inc. Consolidation in the USA, the Össur Holding A.B. Consolidation in Sweden and Össur Europe B.V. in the Netherlands.
Principal Operating Results for 2002
Income Statements for 2002 and 2001 (USD 000) 2002 % of
Sales 2001 % of
Sales Change
Net sales 81,284 100.0% 68,380 100.0% +18.9%
Cost of goods sold -33,434 -41.1% -25,376 -37.1% +31.8%
Gross profit 47,850 58.9% 43,004 62.9% +11.3%
Other income 1,030 1.2% 799 1.2% +28.9%
Sales and marketing expenses -16,927 -20.8% -12,773 -18.7% +32.5%
Research & development expenses -7,103 -8.7% -5,101 -7.5% +39.2%
General & administrative expenses -13,349 -16.4% -15,040 -22.0% -11.2%
Profit from operations 11,501 14.2% 10,889 15.9% +5.6%
Interest income/(expenses) 182 0.2% -487 -0.7% +137.4%
Income from associates 154 0.2% 22 0.0% +600.0%
Profit before tax 11,837 14.6% 10,424 15.2% +13.6%
Income tax -1,781 -2.2% -1,792 -2.6% -0.6%
Net profit for the period 10,056 12.4% 8,632 12.6% +16.4%
EBITDA 14,310 17.6% 12,973 19.0% +10.3%
Consolidated Balance Sheets (USD 000) 31.12
2002 31.12
2001 Variance
Fixed assets 32,093 30,948 +3.7%
Current assets 38,589 27,253 +41.6%
Total assets 70,682 58,201 +21.4%
Equity 39,861 30,547 +30.4%
Long-term liabilities 13,884 12,931 +7.4%
Current liabilities 16,937 14,723 +15.0%
Total equity and liabilities 70,682 58,201 +21.4%
Consolidated Statements of Cash Flows 2002 (USD 000) 1.1-31.12
2002 1.1-31.12
2001
Working capital from operating activities 14,661 10,771
Net cash provided by operating activities 10,502 10,359
Investing activities -2,881 -3,016
Financing activities -1,642 -8,049
Net increase/(decrease) in cash 5,979 -706
Key financial ratios 2002 2001 2000 1999 1998
Earnings per share. EPS (US cents) 3.12 2.64 1.48 0.91 n/a
P/E ratio 21.8 19.4 53.0 60.8 n/a
Return on common equity 28.6% 32.4% 9.0% 44.7% 77.3%
Current ratio 2.3 1.9 1.5 2.2 2.7
Equity ratio 56.4% 52.5% 44.6% 78.6% 35.7%
Market cap (Million USD) 220 158 256 117 n/a
Principal Fourth-Quarter Results
Consolidated Income Statements
4Q 2002 (USD 000) 4Q
2002 % of
Sales 4Q
2001 % of
Sales Change
Net sales 20,077 100.0% 17,125 100.0% +17.2%
Cost of goods sold -9,039 -45.0% -6,274 -36.6% +44.1%
Gross profit 11,038 55.0% 10,851 63.2% +1.7%
Other income 536 2.7% 165 1.0% +224.8%
Sales and marketing expenses -4,091 -20.4% -3,565 -20.8% +14.8%
Research & development expenses -1,852 -9.2% -1,184 -6.9% +56.4%
General & administrative expenses -3,352 -16.7% -2,810 -16.4% +19.3%
Profit from operations 2,279 11.4% 3,457 20.1% -34.1%
Interest income/(expenses) 318 1.6% -350 -2.0% +190.9%
Income from associates 114 0.5% -26 -0.2% +538.4%
Profit before tax 2,711 13.5% 3,081 17.9% -12.0%
Income tax 76 0.4% -311 -1.8% +124.4%
Net profit for the period 2,787 13.9% 2,770 16.1% +0.6%
EBITDA 3,183 15.9% 3,987 23.3% -20.2%
Comparison with Operating Budget
Consolidated Income Statements
4Q 2002 (USD 000) 4Q
2002 % of
Sales 4Q
Budget % of
Sales Variance
Net sales 20,077 100.0% 20,714 100.0% -637
Cost of goods sold -9,039 -45.0% -7,788 -37.6% 1,251
Gross profit 11,038 55.0% 12,926 62.4% -1,888
Other income 536 2.7% 43 0.2% +493
Sales and marketing expenses -4,091 -20.4% -3,916 -18.9% -175
Research & development expenses -1,852 -9.2% -1,468 -7.1% -384
General & administrative expenses -3,352 -16.7% -3,292 -15.9% -60
Profit from operations 2,279 11.4% 4,293 20.7% -2,014
Interest income/(expenses) 318 1.6% -249 -1.2% +567
Income from associates 114 0.5% 14 0.1% +100
Profit before tax 2,711 13.5% 4,058 19.6% -1,347
Income tax 76 0.4% -718 -3.5% 794
Net profit for the period 2,787 13.9% 3,340 16.1% -553
EBITDA 3,183 15.9% 4,914 23.7% -1,731
Operation During the Year and Fourth Quarter Results
Sales in 2002 were characterized by strong organic growth. Sales grew by USD 12.9 million, which corresponds to 19% internal growth. Sales were according to budget, with variance at within 1% of the published operating budget.
Although fourth quarter sales increased by 17% between years, the increase was 3% short of budget projections. Sales in North America, the Companys largest market, were 7% short of projections. Sales through Össur Europe B.V. exceeded budget projections by slightly less than 4%. Fourth quarter sales of Össur Nordic A.B. were 13% above budget projections. Sales in other international markets were 22% short of projections, which is similar to the third quarter variance. External sales of the Consolidation, divided more precisely by market area, were as follows:
4Q (USD 000) 4Q 2002 % Budget Variance
North America 10,705 53% 11,517 -812
Europe 4,803 24% 4,638 +165
Scandinavia 2,874 14% 2,550 +324
Other international markets 1,357 7% 1,742 -385
Domestic sales 338 2% 267 +71
Total 20,077 100% 20,714 -637
Year 2002 (USD 000) 2002 % Budget Variance
North America 46,119 57% 46,443 -324
Europe 16,995 21% 16,505 +490
Scandinavia 10,489 13% 9,544 +945
Other international markets 6,388 8% 8,510 -2.122
Domestic sales 1,293 1% 1,046 247
Total 81,284 100% 82,048 -764
The cost of goods sold, as a ratio of sales, was substantially higher in the fourth quarter than projected in the operating budget, placing gross profit over 7% short of the projected figure in the budget. The gross profit for the year as a whole was slightly less than 59%, as compared to the 63% assumed in the budget. There are four principal reasons for the lower gross profit in the fourth quarter. Great stress was placed on increasing production capacity of carbon fiber feet in Iceland, setting up new product lines and improving performance. The charged cost of these measures was USD 400 thousand. In light of expanded business activities, provisions for warranty repairs were increased by USD 210 thousand. Inventory in the amount of USD 320 thousand was written off at Össur Engineering Inc. in Albion, Michigan, following reassessment of potential sales in the light of foreseeable new product introductions. The weight of the Icelandic króna in manufacturing costs grew over the year as a result of increased sales and as a result of the new production line of carbon fiber feet. The strengthening of the Icelandic króna in the fourth quarter had the result of reducing gross profits by USD 450 thousand.
Sales and marketing costs were slightly more than 4% over the budgeted costs in the fourth quarter, but slightly less than 8% below budgeted costs in the third quarter. In all, for the year 2002, costs were 4% below budget. Compared with the preceding year, sales and marketing costs as a ratio of sales have increased by just over 2% between years.
Research and development costs amounted to 9.2% of sales in the fourth quarter, 26% above the budgeted figure, but part of this cost will be recovered through other income deriving from a research project funded in part by a grant from the European Union. The total ratio of R&D costs to sales in 2002 was 8.7%. This is 5% above the projected ratio. All R&D costs of the year have been expensed.
Office and management costs were according to budget in the fourth quarter, but 2% over budget for the year as a whole. The ratio of general and administrative expenses in 2002 was slightly over 16%, down from 22% in 2001.
Interest items continued to be substantially more favorable for the Company than budget projections, partly as a result of the strengthening of the króna.
Any comparison of operations in the years 2002 and 2001 must take account of the fact that inflation adjustments in the financial statements were discontinued as of the year 2002. Profit for 2001 would have been lower by USD 761 thousand based on the accounting principles used in 2002, or USD 7,771 thousand instead of USD 8,632 thousand. Based on same accounting principles net profit increases between 2001 and 2002 by 29%.
In the fourth quarter, work was concluded on marketing a comprehensive range of high-quality locks and sleeves, components, adapters and shock absorbers, all of which have the purpose of increasing the functionality of Össur prostheses. This range of products comprises a total of 49 items. Promotion work was also started on a new treatment process known as the SMART program. A key component in the process is the Iceross Post-op socket which has already been introduced in Scandinavia and is used for pressure treatment of residual limbs following amputation.
Publication of Operating Budgets
A decision has been made to abandon the policy adopted in 2002 of publishing detailed operating budgets; in its publication of the budget in 2002, Össur took this policy a step beyond the normal practices in the financial markets. In addition, there has been a change in the perception of global investors as regards the publication by corporations of precise information relating to their operating prospects, with the general consensus being that the publication of such information does not contribute to healthier financial markets. Generally speaking, global companies are curtailing the amount of detail in published information relating to their operating prospects.
As regards the Companys objectives for the coming year, reference is made to the strategy of maintaining strong internal growth and increasing earnings per share by 15% per year.
2003 Annual General Meeting
The Annual General Meeting of the Company will be held on Friday, 21 February, at 09:00 a.m. at the Grand Hotel in Reykjavík. Admission tickets, ballots and other documents of the meeting will be available at the place of the meeting at 08:30 a.m. The agenda of the meeting is as follows:
Normal business of the Annual General Meeting pursuant to Section 4.02 of the Companys Articles of Association
Motion for amendment of Section 5.01 of the Articles of Association of the Company with the effect of increasing the number of members of the board from six to seven.
Motion to grant authorization to the board of directors for the Company to buy its own shares.
Any other business lawfully submitted or approved for discussion by the meeting.
Voting rights at the meeting will be based on the share register of Össur hf. at the close of Thursday, 20 February, 2002.
Publication of Financial Statements in 2003
The following are the estimated dates of the publication of financial statements in 2003:
1st quarter 29 April 2003
2nd quarter24 July 2003
3d quarter 23 October 2003
4th quarter2. February 2004
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, CEO, will review the results of the quarter and discuss the results with investors together with Mr. Hjorleifur Palsson, CFO.
The conference will be held tomorrow, Thursday 13 February, at 9:00 a.m. at the office of Össur hf. at Grjothals 5, Reykjavik.
