Össur hf. Annual Financial Statement for 2003

The Össur hf. Annual Consolidated Financial Statements for the year 2003 was approved at a meeting of the Board of Directors on 30 January. The statements, prepared in compliance with the International Financial Reporting Standards (IFRS), has been audited and endorsed by the Company auditors.

 

The operation of the Generation II companies, which Ossur took over as of 3 October 2003, is fully included in fourth quarter operations.

 

The principal companies of the Ossur Consolidation are Ossur hf. in Iceland, the Ossur Holdings, Inc., Consolidation in the USA - which now includes Generation II USA, Inc. - the Ossur Holding A.B. Consolidation in Sweden and Ossur Europe B.V. in the Netherlands, in addition to Generation II Orthotics, Inc. in Canada and GII Orthotics Europe NV.

 

 

 

 

 

 

 

 

 

 

 

 

 

The most prominent feature of the year's sales is that organic growth has slowed. Overall, sales increased by 16% between years in USD, of which 7% is a result of the acquisition of the Generation II companies. Calculated in local currencies, sales trends in principal market areas were as follows:

 

 

If the increase in sales in local currencies is weighted by proportional market size, the result is that sales increased by slightly above 2% net of acquisitions and 8% if acquisitions are included.

 

The North America market has been difficult for the Company over the year. However, the fourth quarter saw a slight turnaround.  The increase in sales in fourth quarter was 46%, but if the increase resulting from the acquisition of Generation II is excluded, sales fell by 2%.  The third-quarter reduction in sales in this market, however, was 7%.   

 

Growth in the European market was excellent. In Western Europe, sales over the year increased by 43% in USD (40%, excluding Generation II), while real growth, measured in euros, was 17%. 

 

Sales in the Nordic countries, measured in USD, increased by 20% over the year, and by 3% as measured in the local currencies. Sales in other market were similar between years.

 

Total Generation II sales in the fourth quarter amounted to USD 5.9 million, which is consistent with anticipations at the time of the acquisition.

 

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

 

Sales by market area, excluding Generation II, were as follows, divided by market:

 

Gross profit margin over the year was 57%, as compared to 59% in 2002. Gross profit margin in the fourth quarter was similar to that of the fourth quarter 2002. Pressures on prices, increased discounts and numerous initial-stage projects have had a negative impact on gross profit margin. The acquisition of Generation II did not impact gross profit margin, as the gross profit ratio in those operations proved comparable in the fourth quarter as to that of Ossur.

 

However, the acquisition of Generation II did have some impact on cost ratios, as the sales and marketing expenses as ratio to sales of the GII companies was higher than Ossur's ratios, while R&D ratios were lower.

 

Extraordinary expenses made their effects in the operating year. A total of 2.2 million USD were spent on litigation costs, and 1.5 million on restructuring costs and severance agreements. In all, extraordinary expenses over the year amounted to approximately 4.3 USD, of which USD 2.5 million fell in the fourth quarter.

 

In December, a settlement was reached between Ossur and Freedom Innovations Inc. on the discontinuation of legal action taken by Ossur against Freedom in March 2003 for patent infringement.

 

Sales and marketing expenses amounted to 22% of sales over the year, as compared to 21% in 2002. Taking into account the restructuring costs, entered under sales and marketing expenses, the ratio was similar.  

 

Research and development expenses amounted to 10% of sales in 2003, as compared to 9% in 2002. R&D expenses came to 10% in the fourth quarter, up from 9% in the preceding year. Net of severance agreements in the development department, the cost ratio was similar between years. The Company budget projections assume a considerable reduction in the ratio of R&D expenses next year. There are three principal reasons for this: changed ratios arising from the advent of Generation II; cost saving benefits from restructuring and mergers of development departments in 2003; and, finally, reductions resulting from the completion of large projects and fewer development projects following record investments in development over the past two years.

 

General and administrative expenses amounted to 19% of sales in 2003, as compared to 16% in 2002. The entire increase can be attributed to extraordinary expenses, as USD 2.8 million were entered under this item owing to litigation and restructuring, which corresponds to 3% of sales.  Litigation costs in the fourth quarter amounted to USD 1 million.

 

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

 

The acquisition of the Generation II companies, which corresponds to a 25% increase in the size of the Company over the year, and the rapid co-ordination process designed to achieve synergy;

 

Major restructuring and management changes in North America.;

 

The cost of restructuring, USD 1.5 million;

 

The end of the legal action against Freedom Innovation, Inc. in December. The cost of the litigation was USD 2.2 million;

 

Emphasis on development in the fields of orthotic products, prosthetics and advanced wound care.

 

New orthotic product line September 1st.

 

Increased competition and greater focus on prices in the principal markets.

 

 

 

 

There are indications that sales in the North American market will be better in the first quarter than it has been in the past year. Sales prospects in other markets are fair. There is some uncertainty as to how rapidly the operations of Generation II can be co-coordinated with the operation of Ossur to meet anticipated operational profit goals, but measures have been taken and substantial changes made that are expected to return results as the year progresses.

 

 

Low Profile Ceterus®.  In October LP Ceterus was launched. This is a new prosthetic foot which is specially designed for users with a long residual limb.  The Low Profile Ceterus® foot combines rotation, shock absorption and energy return (dynamic response).

 

A new silicon liner, the Iceross®  Seal-In Liner(TM), was launched in November.  The liner represents a true breakthrough in the prosthetics market with its secure suspension by hypobaric sealing without the use of an external sleeve.  With its lock-free technology, this liner is set to place Ossur ahead of competitors in the manufacture and development of new liners which are independent of conventional locking systems.

 

A comprehensive children's line, the Ossur Junior Solution, entered the market in November. The product line consists of a carbon fiber foot, a knee, silicon liner and adapters. The technology featured in the products will increase children's mobility from the age of five and reduce physical strain.

 

 

The acquisition price of the GII companies was USD 31 million. The cost of the acquisition was USD 1.6 million. The capitalized acquisition price came to USD 32.6 million, of which capitalized goodwill came to 23 million and capitalized other intangible assets came to about four million. The goodwill will not be amortized, except in the event of an appreciable reduction in value, but other intangible assets will be amortized by a regular process.

 

 

The Annual General Meeting of the Ossur will be held on Friday, 13 February, at 09:00 a.m. at the Nordica Hotel in Reykjavík. Admission tickets, ballots and other documents of the meeting will be available at the place of the meeting at 08:30 a.m. The agenda of the meeting is as follows:

 

1. Normal business of the Annual General Meeting pursuant to Section 4.02 of the Company's Articles of Association

2. Motion for the reduction of the share capital of the Company by ISK 10,000,000, from ISK 328,441,000 to ISK 318,441,000, using the method of reducing the treasury shares of the Company by the above amount.

3. Motion to grant authorization to the board of directors for the Company to buy treasury shares.

4. Any other business.

Voting rights at the meeting will be based on the share register of Össur hf. at the close of Thursday, 12 February, 2004.

 

 

 

The following are the estimated dates of earning releases in 2004:

 

            1st quarter             29 April 2004.

            2nd quarter            27 July 2004.

            3rd quarter             26 October 2004.

            4th quarter               8 February 2005.

 

The Annual General Meeting of Ossur hf. in 2005 is scheduled on 25 February 2005.

 

 

Tomorrow, 3 February, 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 financial results of the year and the quarter.

 

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 3 p.m., local time, accessible on the Ossur website, www.ossur.com.

 

To participate please call the following numbers:

UK- dial in number: +44 (0) 20 7162 0182

US- dial in number: +1 334 3236 203

 

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

 

The 4th Quarter 2003 Report is available on the following link: 

 

The 4th Quarter 2003 Presentation is available on the following link: