Össur hf. 3Q Results

Net sales hit a new high, with increases in sales corresponding to 18% organic growth over the third quarter.
Profit from operations in the first nine months of the year increased by 24% from the preceding year, to USD 9.2 million.

Profit in the first three quarters came to slightly less than USD 7.3 million, increasing by 24% from the preceding year. 

EPS increased by 31% from the previous year, reaching 3.06 US Cents per share.


The Össur hf. interim Consolidated Financial Statements for the third quarter of 2002 was approved at meeting of the Board of Directors on 28 October. The statements have been reviewed and endorsed by the auditors of the Company.

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 Third-Quarter Results

Consolidated Income Statements
3Q 2002 and 3Q 2001 (USD ‘000)  3Q
2002  % of
Sales  3Q
2001  % of
Sales  Change   
                                                                                                                  
Net sales                                                         21,391      100.0%   18,108      100.0%   +18.1%
Cost of goods sold                                                -8,305      -38.8%   -5,666      -31.3%   +46.6%
Gross profit                                                      13,086       61.2%   12,442       68.7%    +5.2%
                                                                                                                  
Other income                                                         165        0.8%       24        0.1%  +587.5%
Sales and marketing expenses                                      -3,748      -17.6%   -2,729      -15.0%   +37.3%
Research & development expenses                                   -1,676       -7.8%   -1,159       -6.4%   +44.6%
General & administrative expenses                                 -3,137      -14.7%   -4,783      -26.4%   -34.4%
                                                                                                                  
Profit from operations                                             4,690       21.9%    3,795       21.0%   +23.6%
                                                                                                                  
Interest income/(expenses)                                          -151       -0.7%       10        0.0%  -1,500%
Income from associates                                                 2       -0.0%       16        0.1%   -87.5%
                                                                                                                  
Profit before tax                                                  4,541       21.2%    3,821       21.1%   +18.8%
Income tax                                                          -892       -4.2%   -1,321       -7.3%   -32.4%
                                                                                                                  
Net profit for the period                                          3,649       17.0%    2,500       13.8%   +46.0%
                                                                                                                  
EBITDA                                                             5,370       25.1%    4,291       23.7%   +25.1%



The principal results for January - September are as follows:

Consolidated Income Statements
Jan-Sept 2002 and Jan-Sept 2001 (USD ‘000)  Jan-Sept 2002  % of
Sales  Jan-Sept 2001  % of
Sales           Change               
                                                                                                                                                               
Net sales                                                                           61,206      100.0%         51,256               100.0%               +19.4%
Cost of goods sold                                                                 -24,394      -39.9%        -19,103               -37.3%               +27.7%
Gross profit                                                                        36,812       60.1%         32,153                62.7%               +14.5%
                                                                                                                                                               
Other income                                                                           495        0.8%            635                 1.2%               -22.0%
Sales and marketing expenses                                                       -12,837      -21.0%         -9,208               -17.9%               +39.4%
Research & development expenses                                                     -5,251       -8.6%         -3,917                -7.6%               +34.1%
General & administrative expenses                                                   -9,997      -16.3%        -12,230               -23.9%               -18.3%
                                                                                                                                                               
Profit from operations                                                               9,222       15.0%          7,433                14.5%               +24.1%
                                                                                                                                                               
Interest income/(expenses)                                                            -136       -0.2%           -138                -0.2%                -1.4%
Income from associates                                                                  40        0.1%             48                 0.0%               -16.7%
                                                                                                                                                               
Profit before tax                                                                    9,126       14.9%          7,343                14.3%               +24.3%
Income tax                                                                          -1,857       -3.0%         -1,481                -2.9%               +25.4%
                                                                                                                                                               
Net profit for the period                                                            7,269       11.9%          5,862                11.4%               +24.0%
                                                                                                                                                               
EBITDA                                                                              11,127       18.2%          8,986                17.5%               +23.8%
                                                                                                                                                               
                                                                                                                                                               
                                                                                                                                                               
Consolidated Balance Sheets (USD ‘000)                                                    30. 
Sept   30. June       31.
Dec.             Change from 31.      
                                                                                          2002        2002           2001                 Dec.                 
                                                                                                                                                               
Fixed assets                                                                                    31,938         32,644               30,948                +3.2%
Current assets                                                                                  37,703         34,555               27,253               +38.3%
Total assets                                                                                    69,641         67,199               58,201               +19.7%
                                                                                                                                                               
Equity                                                                                          36,966         33,559               30,547               +21.0%
Long-term liabilities                                                                           15,969         16,338               12,931               +23.5%
Current liabilities                                                                             16,706         17,302               14,723               +13.5%
Total equity and liabilities                                                                    69,641         67,199               58,201               +19.7%
                                                                                                                                                               
                                                                                                                                                               
Consolidated Statement of Cash Flows
January to September 2002 (USD ‘000)                                            1 Jan-?30 Sept
2002  1 Jan-?30 Sept
2001  
                                                                                                                                                               
Working capital from operating activities                                                                                           10,623                8,119
                                                                                                                                                               
Net cash provided by operating activities                                                                                            5,092                7,908
Investing activities                                                                                                                -2,654               -2,589
Financing activities                                                                                                                   813               -5,500
Net increase/(decrease) in cash                                                                                                      3,251                 -181
                                                                                                                                                               
                                                                                                                                                               
Key Financial ratios                                                                                                 1 Jan-?30 Sept
2002  1 Jan-?30 Sept
2001  
                                                                                                                                                               
Earnings per share, EPS (US cents)                                                                                                    3.06                 2.34
P/E ratio                                                                                                                             19.4                 17.5
Return on common equity                                                                                                              31.0%                30.5%
Current ratio                                                                                                                          2.3                  1.7
Equity ratio                                                                                                                         53.1%                48.4%
Market cap (Million USD)                                                                                                               195                  135


Comparison with Operating Budget

Consolidated Income Statements
3Q 2002 vs 3Q budget (USD ‘000)  3Q
2002  % of
Sales  3Q
Budget  % of
Sales  Variance  
                                                                                                                      
Net sales                                                          21,391      100.0%     21,187      100.0%      +204
Cost of goods sold                                                 -8,305      -38.8%     -7,598      -35.9%      -707
Gross profit                                                       13,086       61.2%     13,589       64.1%      -503
                                                                                                                      
Other income                                                          165        0.8%         43        0.2%      +122
Sales and marketing expenses                                       -3,748      -17.6%     -4,072      -19.2%      +324
Research & development expenses                                    -1,676       -7.8%     -1,578       -7.4%       -98
General & administrative expenses                                  -3,137      -14,7%     -3,148      -14.9%       +11
                                                                                                                      
Profit from operations                                              4,690       21.9%      4,834       22.8%      -144
                                                                                                                      
Interest income/(expenses)                                           -151       -0.7%       -249       -1.2%       +98
Income from associates                                                  2       -0.0%         14        0.1%       -12
                                                                                                                      
Profit before tax                                                   4,541       21.2%      4,599       21.7%       -58
Income tax                                                           -892       -4.2%       -713       -3.4%      -179
                                                                                                                      
Net profit for the period                                           3,649       17.0%      3,886       18.3%      -237
                                                                                                                      
EBITDA                                                              5,370       25.1%      5,449       25.7%       -79



Third Quarter Operations

The first three quarters of the year were characterised by excellent organic growth. The third quarter is the best in terms of sales for the Company since it’s founding, with sales increasing by 18% from the corresponding quarter last year. This is the third consecutive quarter of record sales for the Company. In all, income from sales grew by over 19% over the first nine months of the year in comparison with the first nine months of 2001. The entire increase is a result of organic growth. 

All in all, third-quarter sales, and sales in the first nine months of the year, were in line with the median values of the operating budget, with deviation at less than 1%. The Company did not quite meet the goals of the operating budget regarding sales in North America, the Company’s largest market, with sales at approximately 1% below budget. Sales through Össur Europe B.V., however, exceeded budget projections by just over 7% and third-quarter sales of Össur Nordic A.B. were 17% above budget projections. Sales in other international markets fell 21% short of budget projections, which is still considerably closer to established goals than in the first and second quarter. More precisely, the external sales of the Consolidation are divided as follows according to market areas:

Thousand USD                   3d Quarter 2002  %     Budget  Variance  
                                                                        
North America                             12,182   57%  12,346      -164
Europe                                     4,384   21%   4,089      +295
Scandinavia                                2,594   12%   2,221      +373
Other international markets                1,792    8%   2,279      -487
Domestic sales                               439    2%     252       187
                                                                        
Total                                     21,391  100%  21,187      +204

The cost of goods sold, as a ratio of sales, was somewhat higher in the third quarter than projected in the operating budget, with the deviation at 2.9%. In comparison, the corresponding variance in the second quarter was unfavourable by 3.6%. There have always been some fluctuations in this ratio in the Company’s operation, but fluctuations in 2002 were less than in 2001. Apart from normal deviations resulting from changes in the product composition of the Company’s sales, the deviation is largely a result of the relocation and reorganisation of production units.

Sales and marketing costs were slightly less than 8% below projected costs in the third quarter. For the first nine months of the year, this cost is just over 6% below projections. In comparison with the preceding year, the ratio of sales and marketing costs as a proportion of sales has increased by just over 2% in the first nine months of the year. 

Research and development costs amounted to 7.8% of sales in the third quarter, which is just over 6% above projections. In the second quarter, this cost was well below projections, but above projections in the first quarter owing to speeding up of projects. On the whole, the ratio of R&D costs to sales was 8.6% in the first three quarters, which is in line with the Company’s overall strategy.

General and administrative costs were according to budget in the third quarter, but 2% over budget for the combined first three quarters. The ratio of general and administrative expenses as a proportion of sales, was in the first nine months of the year slightly over 16%, down from 24% in the preceding year. 

Interest items continued to be slightly more favourable for the Company than budget projections. 

Any comparison of operations in January to September between 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 733 thousand based on the accounting principles used in 2002.

The manufacture of carbon-fibre artificial feet, which was started in a new production line in Iceland on 1 July, has been successful and according to plan.

As previously announced, the Company acquired the assets of the Swedish technology company Cabod Systems AB in Sweden last September. The transfer of technology and development of operations in the field of CAD/CAM solutions is proceeding as planned.  The impact of the acquisition on the Company’s operations in 2002 is insignificant.

The updating of the Company’s product line was concluded in the third quarter with the introduction of the new Stabilo and Transfemoral II liners in the United States. With these new products, the Company’s entire range of liners has been updated on the basis of new materials technology with greater adaptation and differentiation based on user needs than ever before.

A new range of adaptors was introduced in the third quarter. With the new adaptors, the Company has succeeded in eliminating the head start previously enjoyed by its competitors in this section of the market.


Prospects for the remainder of the year

Despite growing competition in North America, the Company’s principal market area, at this point in time, Össur management team believes that the result of operations over the year will be within the range projected in the operating budget. 


Publication of Annual Financial Statement

The Company will publish its annual financial statement on 12 February 2003, one week from the originally scheduled date. The date of the Annual General Meeting remains 14 February, as announced earlier.


Open Conference with the Management

Tomorrow morning investors and other interested parties are invited to join an open conference with the Company’s Management. At the conference, Mr. Jon Sigurdsson, President & CEO, will review the results of the quarter and discuss the results with investors together with Mr. Hjorleifur Palsson, CFO. Hilmar B. Janusson, VP of the Technical division will attend the conference and discuss in brief patent issues. 


The conference will be held tomorrow, Thursday 31 October, at 9:00 a.m. at the office of Össur hf. at Grjothals 5, Reykjavik.