Ossur Annual Financial Statements for 2004

 

 

 

 

 

 

 

The Ossur hf. Annual Consolidated Financial Statement for the year 2004 was approved at a meeting of the Board of Directors on 7 February. The statement, prepared in compliance with the International Financial Reporting Standards (IFRS), has been audited and endorsed by the Company 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, Ossur Europe B.V. in the Netherlands and Generation II Orthotics, Inc. in Canada.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ossur enjoyed a successful year in 2004.Products were launched which represent the fruit of years of development work and will place the Company in pole position in the prosthetics sector. Most prominent in the new line of products is the Rheo KneeTM which takes the Company to a new level of technology that will form a platform for other future products. As revealed in earlier reports, the knee has attracted a great deal of attention, not only in international prosthetic trade fairs, but also among the general public, with Time Magazine selecting the knee as one of the year's "most amazing inventions".  The Iceross® Seal-InTM range of liners was marketed during the year, with the first product appearing in November 2003. The liner range has attracted deserved attention, securing the Company continued leadership in this area of its business. The Flex-Foot Axia was launched toward the end of the year. Designed for users of average activity, the foot has been received with acclaim. The targets of the year relating to orthotics products was to maintain current levels of sale while concentrating on the rapid integration of Generation II, acquired in 2003.  This was successful in all main respects, and the task at hand now is to reorganise product lines and launch new products for this market to create opportunities for expansion.

 

General operations were quite successful, and all key ratios were in line with targets.  Sales increased by 32% as measured in US dollars, or 27% as measured in local currencies. Gross profit amounted to 60.2% of sales, profit from operations 16.4% and net profit 12.2%. EBITDA was 20.1%.

 

Sales by market area were as follows.

 

 

The Ossur subsidiary Mauch Inc. in Dayton, Ohio, with sales in 2004 of USD 2.2 million, was sold at year-end. Generation II was acquired in October 2003, with the impact of Generation II sales felt in the fourth quarter of 2003. Taking these changes in the Consolidation into account, with the revenues of Mauch Inc. written out in 2003 and 2004, and the revenues of Generation II for the first three quarters of 2003 written in, the growth in sales from continuous operation was 8%, as measured in local currencies.

 

In the North American market, the Company has been successful in turning around the negative trends that appeared in 2003, when sales of prosthetic products fell by 4%.  In 2004 sales of prosthetic products increased by 8% from the preceding year.

 

In the European market, Ossur continued to make significant advances. The increase in sales as measured in local currencies came to 22%. Approximately 6% of the increase can be traced to acquisitions.

 

Sales in the Nordic countries were also successful during the year, increasing by 14% as measured in local currencies, with virtually the entire increase resulting from organic growth.

 

Sales in other markets increased by 25%. About 6% of the increase derives from acquisitions.

 

Gross profit over the year was 60.2% of sales, as compared to 57.4% in 2003. As revealed earlier, the Company has been successful in controlling its manufacturing processes and costs, and the increase in sales has also resulted in pressure on manufacturing units, improving the utilisation of fixed production factors.

 

In comparing cost ratios between 2003 and 2004, note must be taken of the fact that the operation of Generation II is included in 2004, but only one quarter in 2003. From a cost perspective the integration of these units was successful.

 

Sales and marketing expenses amounted to 21.5% of sales in 2004, as compared to 22.5% in 2003. The reduction confirms the success of the merger of Generation II with Ossur. The ratio of sales costs to sales was much higher in the Generation II companies than at Ossur, which in fact should have led to an increase in this expense item on the merger of the companies. The successful cost cutting and restructuring of the sales structure is reflected in these results.

 

R&D expenses were 7.3%, down from 10.2% in the preceding year. All research and development costs were incurred within the Company and expensed in the income statement.  The long-term target of the Company is to channel 6-8% of sales into research and development, which is a significantly higher ratio than the estimated ratio of Ossur's competitors. This has paid off in the form of a technological advantage on competitors. The ratio of research and development expenses in 2003 was unusually high owing to projects such as the Rheo KneeTM and the development of Ossur's first orthotics products.  The restructuring of the development units, coupled with the fact that the Generation II companies spent a lower proportion on development than Ossur, also contributed to the falling cost ratio.

 

General and administrative expenses amounted to 15.8% of sales in 2004, as compared to 18.6% in 2003.  The principal reason for the reduction between years can be attributed to the unusually high expenses relating to structural changes and patent-related litigation in 2003.  There were no extraordinary expense items in 2004.

 

Expensed taxes as a ratio of earnings before taxes increased from just over 18% in 2003 to just over 20% in 2004. Business activities in higher-tax areas increased significantly with the acquisition of Generation II, as virtually the entire sales of Generation II is generated in North America.

 

Net cash from operating activities amounted to USD 19.2 million, as compared to 14.3 million in 2003. The increase corresponds to 34% between years.

 

Fixed assets at year-end amounted to USD 109 million, rising by 7% over the year.

 

The salient points of the operation over the year, in the opinion of the Company management, are the following:

 

         Excellent sales growth

 

         Favourable operating results

 

         New technological platform attained with the development and launch of the Rheo KneeTM

 

 

 

 

 

 

 

 

 

Sales in the fourth quarter amounted to USD 31.3 million, increasing by 13% from the preceding year. The two quarters are comparable, as Generation II sales were included in the fourth quarter of 2003.  Net of currency impact, the increase amounted to just over 9%. The increase in sales in ordinary continuous operation measured in local currencies came to just over 10% between years. 

 

Sales in the North American Market grew by 3% between years. Excluding the sales revenues of Mauch Inc., which was sold at year-end, the growth was 4%. The increase in sales in the European market was 12%, as measured in local currencies.  In the Nordic markets sales increased by 19%, as measured in local currencies. Sales in other international markets were extremely successful, increasing by 36%.

 

Gross profit amounted to 58.6%, which is somewhat lower than in the first three quarters. The change falls within the normal fluctuation range of the Company, and there are no specific reasons or changes underlying the fall in gross profit. As compared to the gross profit for the fourth quarter of 2003, gross profit margin improved by 3.5% between years.

 

The cost ratios in the fourth quarter were consistent with the rest of the year and much lower than in the fourth quarter of 2004. Any comparison between years needs to take account of the fact that extraordinary items had a significant impact in the fourth quarter of 2003, when USD 2.2 million were expensed in connection with restructuring, litigation and other items.  Those expenses corresponded to slightly less than 8% of sales in that quarter.

 

Profit from operations corresponded to 15% of sales, as compared to an operating loss of 5% in 2003. Taking into account the extraordinary expenses of 2003, operating profit rose from 3% of sales to 15%.

 

Net profit in the fourth quarter amounted to 11% of sales, and the EBTDA ratio was 19%.

 

 

 

 

The prospects for operation in 2005 are fair. There are no prospects for strong growth in sales in the first quarter, the main reason being the sales trends in orthotic products, which are projected to have the effect of bringing down the total sales of the Company. There is some uncertainty as regards currency matters, but a strong euro against the dollar favours the Company, although this is somehow offset by the strength of the Icelandic króna.

 

 

 

At year-end, Ossur withdrew from all its business activities in Dayton, Ohio, selling its subsidiary, Mauch Inc., and thereby all the manufacturing equipment and business relationships relating to components for spinal implants.  Sales of Mauch Inc. in 2004 amounted to USD 2.2 million. Profit from the sale was insignificant.

 

 

 

 

Substantial stress was placed on product development last year and important milestones were passed with the launching of the Rheo knee in October. The Rheo project is the largest and most complex development project ever undertaken by the Company, and it brings Ossur's products up to a new level of technology. The knee features a new electronics and hydraulics technology designed to adjust the motion of the knee to the walking speed of the user. The Rheo knee attracted great attention during the year and was selected by Time Magazine as one of the most amazing inventions of the year. The knee also featured in Fortune Magazine's coverage of the 25 best products of the year in the design category.

 

 

The Flex-Foot Axia was launched in December, a product specifically intended to meet the needs of users of average activity with long residual limbs. The Flex-Foot Axia ankle is designed for improved resilience and a more natural gait.

 

 

 

In 2002, preparations were begun for the implementation of International accounting standards in the Company's financial reporting; the work was concluded in 2003. The third-quarter 2003 report was the first report confirmed by the Company's auditors as consistent with the provisions of the standards. The introduction of the standards did not require any specific changes in the methods of measuring the performance and assets of the Company and therefore had no material impact on the results of the Company's accounts. The principal effect of the new standards was that financial reports now contain much more detailed notes than before, in addition to the fact that the accounting processes within the Company were improved and a separate accounting manual published. 

 

 

 

In connection with the auditing of the annual accounts, the decision was made to appoint separate auditors to conduct an impairment test of the goodwill capitalised on the acquisition of Generation II in 2003. Their conclusion was that there was no reason to change the valuation of the goodwill. This conclusion was confirmed by the Company's auditors.

 

 

 

 

 

 

 

 

 

The following are the estimated dates of publication of financial statements in 2005:

 

            Ossur Annual General Meeting 2005               25. February 2005

            1st quarter                                                             29 April 2005

            2nd quarter                                                 28 July 2005

            3d quarter                                                             26 October 2005

            4th quarter                                                 7 February 2006

Ossur Annual General Meeting 2006             24 February 2006.

 

Ossur's annual report will be submitted at the Annual General Meeting of the Company.

 

 

 

Tomorrow, Wednesday, 9 February, Ossur will be hosting investor meetings.

 

At 8:15 a.m., Icelandic time (GMT), 9:15 CET, investors and other interested parties are invited to participate in an open conference with the Company Management, where Jon Sigurdsson, President & CEO, and Hjorleifur Palsson, CFO, will discuss the Company's operations in the past year. The meeting will be held at the Grand Hotel at Sigtun in Reykjavík and will take place in Icelandic. 

 

A telephone conference in English will be held at 14:00, local time, 15:00 CET. The telephone conference will be accessible on the Ossur website: www.ossur.com.

 

Please call the following telephone numbers to participate in the telephone conference:

 

Telephone number for Europe: +44 (0) 207 162 0183

Telephone number for the United States: +1 334 323 6203

 

Queries can also be sent to the meeting held in English by e-mail to investormeeting@ossur.com.

 

The 4th Quarter 2004 Report is available on the following link: 

 

The 4th Quarter 2004 Presentation is available on the followi ng link: 

http://hugin.info/133773/R/979380/144917.pdf