Ossur hf. Second Quarter Report for 2003

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

 

 

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 company's 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 Company's 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 Ossur's 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 company's 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 Company's 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 Company's 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%.

 

 

 

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.

 

 

 

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 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.

 

 

 

Tomorrow morning investors and other interested parties are invited to participate in 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 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.

 

 

 

The 2nd Quarter 2003 Report is available on the following link:

 

The 1st Quarter 2003 Presentation is available on the following link: