Össur hf. - Financial Statements for the Second Quarter of 2002

Net sales hit a new high, with increases in sales corresponding to 26% organic growth over the second quarter.  
Profit from operations in the second quarter increased by 53% from the corresponding quarter of the preceding year.

EPS increased by 31% from previous year and was 2.7 US Cent a share.

Net sales in the second quarter amounted to USD 21.2 million, which is in line with the operating budget.

Profit from operations came to slightly less than USD 3 million, which is USD 460 thousand short of the lower limits of the operating budget.

Second quarter profit was just under USD 2.6 million, which is slightly above the lower limits of the budget.


The Össur hf. interim Consolidated Financial Statements for the second quarter of 2002 was approved at a meeting of the Board of Directors on 24 July. The statements have been reviewed and endorsed by the company auditors.

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
 

The principal results for the second quarter are as follows:

Consolidated Income Statements
2Q 2002 and 2Q 2001 (USD ‘000)              2Q
2002        % of
Sales  2Q
2001        % of
Sales          Change              
                                                                                                                                                             
Net sales                                                                           21,223      100.0%         16,822              100.0%              +26.2%
Cost of goods sold                                                                  -8,595       40.5%         -7,149               42.5%              +20.2%
Gross profit                                                                        12,628       59.5%          9,673               57.5%              +30.5%
                                                                                                                                                             
Other income                                                                           107        0.5%            462                2.7%              -76.8%
Sales and marketing expenses                                                        -4,891      -23.0%         -3,144              -18.7%              +55.6%
Research & development expenses                                                     -1,557       -7.3%         -1,600               -9.5%               -2.7%
General & administrative expenses                                                   -3,298      -15.5%         -3,442              -20.4%               -4.2%
                                                                                                                                                             
Profit from operations                                                               2,989       14.1%          1,949               11.6%              +53.4%
                                                                                                                                                             
Interest income/(expenses)                                                             339        1.6%            213                1.3%              +59.2%
Income from associates                                                                 -18       -0.1%             23                0.1%             -178.3%
                                                                                                                                                             
Profit before tax                                                                    3,310       15.6%          2,185               13.0%              +51.5%
Income tax                                                                            -720       -3.4%            522                3.1%             +237.9%
                                                                                                                                                             
Net profit for the period                                                            2,590       12.2%          2,707               16.1%               -4.3%
                                                                                                                                                             
EBITDA                                                                               3,604       17.0%          2,478               14.7%              +45.4%
                                                                                                                                                             
Consolidated Income Statements
Jan-June 2002 and Jan-June 2001 (USD ‘000)  Jan-June
2002  % of
Sales  Jan-June 2001  % of
Sales          Change              
                                                                                                                                                             
Net sales                                                                           39,816      100.0%         33,147              100.0%              +20.1%
Cost of goods sold                                                                 -16,089       40.4%        -13,436               40.5%              +19.7%
Gross profit                                                                        23,727       59.6%         19,711               59.5%              +20.4%
                                                                                                                                                             
Other income                                                                           329        0.8%            611                1.8%              -46.2%
Sales and marketing expenses                                                        -9,089      -22.8%         -6,479              -19.5%              +40.3%
Research & development expenses                                                     -3,575       -9.0%         -2,759               -8.3%              +29.6%
General & administrative expenses                                                   -6,860      -17.2%         -7,447              -22.5%               -7.9%
                                                                                                                                                             
Profit from operations                                                               4,532       11.4%          3,637               11.0%              +24.6%
                                                                                                                                                             
Interest income/(expenses)                                                              15        0.0%           -148               -0.4%             +110,1%
Income from associates                                                                  38        0.0%             33                0.0%               +1.2%
                                                                                                                                                             
Profit before tax                                                                    4,585       11.5%          3,522               10.6%              +30.2%
Income tax                                                                            -965       -2.4%           -161               -0.5%             +499.4%
                                                                                                                                                             
Net profit for the period                                                            3,620        9.1%          3,361               10.1%               +7.7%
                                                                                                                                                             
EBITDA                                                                               5,732       14.4%          4,695               14.2%              +22.1%
                                                                                                                                                             
                                                                                                                                                             
                                                                                                                                                             
Consolidated Balance Sheets (USD ‘000)                                                                30 June        31 Dec.             Change              
                                                                                                      2002           2001                                    
                                                                                                                                                             
Fixed assets                                                                                                   32,644              30,948               +5.5%
Current assets                                                                                                 34,555              27,253              +26.8%
Total assets                                                                                                   67,199              58,201              +15.5%
                                                                                                                                                             
Equity                                                                                                         33,559              30,547               +9.9%
Long-term liabilities                                                                                          16,338              12,931              +26.3%
Current liabilities                                                                                            17,302              14,723              +17.5%
Total equity and liabilities                                                                                   67,199              58,201              +15.5%
                                                                                                                                                             
                                                                                                                                                             
Consolidated Statement of Cash Flows
January to June 2002 (USD ‘000)                                                 1 Jan-?30 Jun
2002  1 Jan-?30 Jun
2001  
                                                                                                                                                             
Working capital from operating activities                                                                                           5,547               4,386
                                                                                                                                                             
Net cash provided by operating activities                                                                                             997               4,095
Investing activities                                                                                                               -2,187              -2,390
Financing activities                                                                                                                1,363              -3,098
Net increase/(decrease) in cash                                                                                                       173              -1,393
                                                                                                                                                             
                                                                                                                                                             
Financial ratios                                                                                                     1 Jan-?30 Jun
2002  1 Jan-?30 Jun
2001  
                                                                                                                                                             
Earnings per share, EPS (US cents)                                                                                                   2.71                2.07
P/E ratio                                                                                                                            23.7                21.7
Return on common equity                                                                                                             29.0%               25.8%
Current ratio                                                                                                                         2.0                 1.7
Equity ratio                                                                                                                        49.9%               50.1%
Market cap (Million USD)                                                                                                              211                 148



Comparison with Operating Budget

Consolidated Income Statements
2Q 2002 and 2Q 2001 (USD ‘000)  2Q
2002  % of
Sales  2Q
Budget  % of
Sales  Variance  
                                                                                                                     
Net sales                                                         21,223      100.0%     21,359      100.0%      -136
Cost of goods sold                                                -8,595       40.5%     -7,886       36.9%      -709
Gross profit                                                      12,628       59.5%     13,473       63.1%      -845
                                                                                                                     
Other income                                                         107        0.5%         43        0.2%        64
Sales and marketing expenses                                      -4,891      -23.0%     -4,828      -22.6%       -63
Research & development expenses                                   -1,557       -7.3%     -1,874       -8.8%       317
General & administrative expenses                                 -3,298      -15.5%     -3,181      -14.9%      -117
                                                                                                                     
Profit from operations                                             2,989       14.1%      3,633       17.0%      -644
                                                                                                                     
Interest income/(expenses)                                           339        1.6%       -245       -1.1%       584
Income from associates                                               -18       -0.1%         14        0.0%       -32
                                                                                                                     
Profit before tax                                                  3,310       15.6%      3,402       15.9%       -92
Income tax                                                          -720       -3.4%       -637       -3.0%       -83
                                                                                                                     
Net profit for the period                                          2,590       12.2%      2,765       12.9%      -175
                                                                                                                     
EBITDA                                                             3,604       17.0%      4,233       19.8%      -629
                                                                                                                     



Second Quarter Operations

The most prominent feature characterizing the second quarter operation is the substantial organic growth.  The quarter is the best in terms of net sales for the company since its founding, with sales increasing by 26% from the corresponding quarter last year.   The best previous quarter in terms of sales was the first quarter of this year.  In all, income from sales grew by over 20% over the first six months of the year in comparison with the first six months of 2001.  The entire increase is the result of organic growth, as there were no acquisitions during the period.

Sales in North America, the Company’s largest market, have continued to exceed projections.  Sales through Össur Europe B.V. are according to budget, as in the first quarter.  Sales by Össur Nordic A.B. exceeded projections by 16% in the second quarter, but fell short by 5% in the first quarter.  Sales in other markets have remained sluggish, at 32% below projections for the second quarter.  All in all, second-quarter sales and sales in the first half of the year were in line with the median values of the operating budget, with deviation at less than 1%.  More precisely, the external sales of the Consolidation are divided as follows according to market areas:

Thousand USD                 2Q 2002  %     Budget  Variance  
                                                              
Össur North America, Inc.       12,326   58%  12,078      +248
Össur Europe, B.V.               4,237   20%   4,150       +87
Össur Nordic, A.B.               2,715   13%   2,336      +379
Other markets                    1,945    9%   2,795      -850
                                                              
Total                           21,223  100%  21,359      -136

The cost of goods sold, as a ratio of sales, was considerably higher in the second quarter than projected in the operating budget, with the deviation at 3.6%.  Nevertheless, the ratio represents an improvement of 2% over the second quarter of the preceding year.  This ratio has always been subject to fluctuation in the Company’s operation, and the relocation of the US production unit from Dayton, Ohio, to Albion, Michigan, together with restructuring measures, had the effect of increasing the fluctuation this year.

Sales and marketing costs are according to budget for the second quarter, but were substantially below projections in the first quarter.  In comparison with the preceding year, the ratio of sales and marketing costs as a proportion of sales has been increased by just over 3% in the first six months of the year compared to the preceding year; this is in line with the Company’s strategy.

Research and development costs amounted to 7.3% of sales in the second quarter, which is well below projections.  As revealed earlier, several projects were brought forward to the first quarter, which accounts for the high ratio of research and development costs in that quarter.  The total ratio of research and development costs to sales amounts to slightly less than 9% for the first half of the year. The research and development cost is is just over 3% below the budgeted figure for the first six months of the year.

General and administrative expenses were slightly above budget in the second quarter, and in total these expenses were 3% over budget in the first half of the year. The ratio of general and administrative expenses in the first half of the year was slightly over 17%, down from 22% in the preceding year. 

Financial items were more favorable for the Company than projected in the budget owing to exchange rate gains resulting from the strengthening of the euro against the US dollar.

Comparison of the first six months of 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 600 thousand based on the accounting principles used in 2002.

The development in Iceland of a new production line for the manufacture of carbon-fiber artificial feet was successful, with production starting on 1 July.  All scheduled deadlines were met, and total investment in the production line was below budget.

An international workplace analysis was conducted in all Össur workplaces.   IMG Gallup conducted the study.  The results were very positive, confirming the company’s success in uniting the employees of different companies under the Össur banner.  The study confirms that the Company’s human resource strengths are substantially above those of the benchmark companies.  

At the same time, a 360° performance appraisal was also conducted of the Company’s executive management team.    The conclusion of the evaluation was that the strengths of the top management are considerably in excess of the benchmark group, i.e. UK company managers.

New product marketing proceeded according to plan in the second quarter. In early May, the Company participated in the Orthopädie Reha Technik trade fair in Leipzig, Germany, the largest prosthetics trade fair in Europe.    Össur presented six new products at the fair, including a new knee, the Mauch XG™, which is specially designed for heavy wear and highly active users, including athletes.  The design of the Mauch XG™ is a good example of the success in combining the expertise available in the individual companies now forming Össur.  In the new version of the Mauch XG™, the frame of the knee is manufactured from the same kind of carbon fiber as the Flex-Foot ankles instead of aluminum, which makes the knee both lighter and stronger. 


Open Conference with the Management:

Tomorrow, investors and other interested parties are invited to join an open conference with the Company’s Management. At the conference, Mr. Jon Sigurdsson, President and 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, Friday 26 July, at 9:00 a.m. at the office of Össur hf. at Grjothals 5, Reykjavik.