Ossur hf. Third Quarter Report for 2003

The Ossur hf. interim Consolidated Financial Statements for the third quarter of 2003 were approved at a meeting of the Board of Directors on 22 October. The statements have been reviewed and endorsed by the auditors of the company.

 

The statements were prepared in accordance with the IFRS-International financial reporting standards, making Ossur the first listed company in Iceland to submit an interim report based on those standards. The introduction of the standards in the Company's accounting procedures has not called for any major changes in accounting policies or major reorganisation of individual items, but the notes to the Financial Statements have been expanded substantially. 

 

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. The operation of the Generation II companies acquired by Ossur in early October does not figure in the operating items of this financial report.

 

 

 

 

 

 

 

 

 

 

 

 

Net sales in the third quarter came to USD 22.4 million, virtually the same figure as the second quarter sales. Sales in the first nine months of 2003 increased by 9% from the preceding year in USD, but calculated in local currencies sales increased by 2%. There were no changes in the net sales over the period resulting from acquisitions of enterprises.

 

A prominent feature of third quarter sales is that overall growth has slowed. The recession continued in North America, with sales falling by slightly less than 7%, as compared to the corresponding period last year. Sales in this market fell by 3% in the second quarter, but increased by 1% in the first quarter.  There are four principal reasons for this trend, in the opinion of the Ossur management:

First, the economic conditions in this market area have been difficult, and still are.

 

Second, the concentration in the prosthetics market has brought increased competition, which is reflected in temporary discount offers by competitors, up to 50%.

 

Third, the period saw unusually few new prosthetic products from the Company.  More products are expected to be launced in the near future.

 

Fourth, Ossur management believes a competitor is infringing the Company's lawful patents on artificial feet.  Ossur has filed a lawsuit against this company in California, US.

 

Growth in the European market was very good. In Western Europe, sales increased by 39% in USD, while real growth measured in euros was 21% in the third quarter.  Sales in the Nordic countries measured in USD increased by 13% during the quarter, but fell by 2% as measured in the local currencies.  Sales of metal implants through Mauch Inc. fell, as they did in the second quarter. Sales in other markets remained similar between years.

 

More precisely, external sales of the Consolidation were as follows divided by market area:

 

 

Gross profit margin in the first nine months of 2003 was 58%, as compared to 60% in the corresponding period of 2002. The third-quarter gross profit margin was 57%, as compared to 61% last year. The transfer of Ossur's domestic workshop to new premises in the third quarter cut gross profit by over USD 300,000, or 1.4%, both as a result of lost sales and expensed costs. Discounts have increased in the course of the year, which accounts for the 1% fall in gross profit for the first nine months of the year. 

 

Sales and marketing costs amounted to 21% of sales in the first nine months of the year, which is a comparable ratio to the corresponding period last year.

 

Research and development expenses amounted to 10% of sales in the first nine months of the year, as compared to 9% in the first nine months of 2002. R&D expenses came to 9% in the third quarter, up from 8% in the preceding year. As revealed earlier, work has been in full swing on developing the Company's first line of orthotic products, which was launched on 1 September.

 

General and administrative expenses amounted to 16% of sales in the first nine months of the year, which is the same ratio as in the corresponding period last year. The third quarter ratio was 17%, as compared to 15% in 2002. In the first nine months of the year, slightly less than USD 1.3 million have been expended on legal action relating to infringements of Ossur patent rights and breach of contract litigation; of this amount, USD 745,000 accrued in the third quarter.

 

The salient points of operations in the first nine months of the year, in the opinion of the Company management, are the following:

 

Difficult market conditions in North America.

 

High costs of litigation.

 

Emphasis on research & development in the fields of orthotic products, prosthetics and woundcare.

 

New orthotic product line on 1 September.

 

 

There are prospects of continued difficulties in the North-American market in the fourth quarter. Substantial litigation costs are anticipated in the last three months of the year.

 

A new range of ankle braces was launched on 1 September. The new range represents a milestone in Ossur's expansion into the orthotics market. The design of the braces draws on the Company's expert knowledge of carbon fiber techniques, and the product is characterised by its lightness, suppleness and elasticity. The braces are principally intended for people suffering from dropfoot, which is a consequence of stroke, discus prolapse or back disorders.

 

In late September, Ossur hf. signed an agreement on the acquisition of Generation II Group, a consolidation of two leading companies in North America in the design and manufacture of knee braces. The two companies have a combined workforce of 168 people, stationed primarily in Vancouver, Canada, Seattle in the US and Brussels in Belgium.

 

In connection with the acquisition of the Generation II Group, additional borrowing in the amount of USD 10 million has taken place.  The loan is a revolving credit line in addition to a line of credit negotiated in June and amounting to USD 5 million. The Company has the option of drawing on the line of credit or paying it up at  a pace of its own choice over the coming five years. Interest rates are floating. 

 

A new foot, the Low Profile Variflex®, was launched in September. The new foot combines the features of Flex-Walk and Alurion, which are specially designed for users with long residual limbs capable of taking advantage of the increased dynamics of the foot. Initial sales of LP Variflex have been good, exceeding anticipations in the United States.

 

In September, the Ossur domestic workshop were moved to new premises in the so-called "Energy Building" in eastern Reykjavík. The Energy Building is the former headquarters of the Reykjavík Energy Utility, hence the name, and now houses one of Iceland's largest private clinic centres, which will facilitate co-operation with orthopedists and physiotherapists.

 

Ossur Nordic has entered into an agreement with Repecta OY in Helsinki. The agreement has a term of two years and involves the purchase by Respecta of all insoles from Ossur Nordic during the term of the agreement, at least 10,000 pairs. The manufacture of the insoles is based on CAD/CAM technology acquired by Ossur from Capod Systems AB last year.

 

Tomorrow, 24 October, investors and other interested parties are invited to participate in an open conference with the Company's Management, where Jon Sigurdsson, President & CEO, and Hjorleifur Palsson, CFO, will discuss the results of the report.

 

A morning meeting will be held at the Grand Hotel at Sigtun in Reykjavík at 8:15; that meeting will be conducted in Icelandic.

 

 A telephone conference in English will be held at 2 p.m., local time, and accessible on the Ossur website, www.ossur.com.

 

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

 

 

The 3rd Quarter 2003 Report is available on the following link: 

 

The 3rd Quarter 2003 Presentation is available on the following link: