CORR* Össur hf. Annual Financial Statement for 2002

*All R&D cost was expensed in 2002 as in previous years. The previous news release was wrong in the way that it stated that all R&D cost was capitalized instead of expensed.

 

 

 

 

 

 

 

The Össur hf. Annual Consolidated Financial Statement for the year 2002 was approved at a meeting of the Board of Directors on 11 February. The statement has been audited and endorsed by the auditors of the company without comment.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales in 2002 were characterized by strong organic growth. Sales grew by USD 12.9 million, which corresponds to 19% internal growth. Sales were according to budget, with variance at within 1% of the published operating budget.

 

Although fourth quarter sales increased by 17% between years, the increase was 3% short of budget projections. Sales in North America, the Company's largest market, were 7% short of projections. Sales through Össur Europe B.V. exceeded budget projections by slightly less than 4%. Fourth quarter sales of Össur Nordic A.B. were 13% above budget projections. Sales in other international markets were 22% short of projections, which is similar to the third quarter variance. External sales of the Consolidation, divided more precisely by market area, were as follows:

 

 

 

 

The cost of goods sold, as a ratio of sales, was substantially higher in the fourth quarter than projected in the operating budget, placing gross profit over 7% short of the projected figure in the budget. The gross profit for the year as a whole was slightly less than 59%, as compared to the 63% assumed in the budget. There are four principal reasons for the lower gross profit in the fourth quarter. Great stress was placed on increasing production capacity of carbon fiber feet in Iceland, setting up new product lines and improving performance. The charged cost of these measures was USD 400 thousand. In light of expanded business activities, provisions for warranty repairs were increased by USD 210 thousand. Inventory in the amount of USD 320 thousand was written off at Össur Engineering Inc. in Albion, Michigan, following reassessment of potential sales in the light of foreseeable new product introductions. The weight of the Icelandic króna in manufacturing costs grew over the year as a result of increased sales and as a result of the new production line of carbon fiber feet. The strengthening of the Icelandic króna in the fourth quarter had the result of reducing gross profits by USD 450 thousand.

 

Sales and marketing costs were slightly more than 4% over the budgeted costs in the fourth quarter, but slightly less than 8% below budgeted costs in the third quarter. In all, for the year 2002, costs were 4% below budget. Compared with the preceding year, sales and marketing costs as a ratio of sales have increased by just over 2% between years.

 

Research and development costs amounted to 9.2% of sales in the fourth quarter, 26% above the budgeted figure, but part of this cost will be recovered through other income deriving from a research project funded in part by a grant from the European Union. The total ratio of R&D costs to sales in 2002 was 8.7%. This is 5% above the projected ratio. All R&D costs of the year have been expensed.

 

Office and management costs were according to budget in the fourth quarter, but 2% over budget for the year as a whole. The ratio of general and administrative expenses in 2002 was slightly over 16%, down from 22% in 2001.

 

Interest items continued to be substantially more favorable for the Company than budget projections, partly as a result of the strengthening of the króna.

 

Any comparison of operations in 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 761 thousand based on the accounting principles used in 2002, or USD 7,771 thousand instead of USD 8,632 thousand. Based on same accounting principles net profit increases between 2001 and 2002 by 29%.

 

In the fourth quarter, work was concluded on marketing a comprehensive range of high-quality locks and sleeves, components, adapters and shock absorbers, all of which have the purpose of increasing the functionality of Össur prostheses. This range of products comprises a total of 49 items. Promotion work was also started on a new treatment process known as the SMART program. A key component in the process is the Iceross Post-op socket which has already been introduced in Scandinavia and is used for pressure treatment of residual limbs following amputation.

 

 

 

A decision has been made to abandon the policy adopted in 2002 of publishing detailed operating budgets; in its publication of the budget in 2002, Össur took this policy a step beyond the normal practices in the financial markets. In addition, there has been a change in the perception of global investors as regards the publication by corporations of precise information relating to their operating prospects, with the general consensus being that the publication of such information does not contribute to healthier financial markets. Generally speaking, global companies are curtailing the amount of detail in published information relating to their operating prospects.

 

As regards the Company's objectives for the coming year, reference is made to the strategy of maintaining strong internal growth and increasing earnings per share by 15% per year.

 

 

 

The Annual General Meeting of the Company will be held on Friday, 21 February, at 09:00 a.m. at the Grand 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 amendment of Section 5.01 of the Articles of Association of the Company with the effect of increasing the number of members of the board from six to seven.

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

4.      Any other business lawfully submitted or approved for discussion by the meeting.

 

Voting rights at the meeting will be based on the share register of Össur hf. at the close of Thursday, 20 February, 2002.

 

 

 

The following are the estimated dates of the publication of financial statements in 2003:

 

            1st quarter        29 April 2003

            2nd quarter       24 July 2003

            3d quarter        23 October 2003

            4th quarter       2. February 2004

 

 

 

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, CEO, will review the results of the quarter and discuss the results with investors together with Mr. Hjorleifur Palsson, CFO.

 

The conference will be held tomorrow, Thursday 13 February, at  9:00 a.m. at the office of Össur hf. at Grjothals 5, Reykjavik.