Ossur hf. Second Quarter Report for 2004

The Ossur hf. interim Consolidated Financial Statements for the second quarter of 2004 were approved at a meeting of the Board of Directors on 26 July. The quarterly statement, prepared in compliance with the International Financial Reporting Standards (IFRS), has been reviewed 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's second quarter operations were satisfactory. Operations as a whole have been smooth over the first half of the year with no extraordinary expenses in this quarter, as, in fact, was the case also in the first quarter. The quarter was characterized principally by substantial increases in sales in three of the four main marketing areas of the Company, after taking into account acquisitions and currency effects. Another positive note is that sales in the US market are on the rise again, although organic growth in that area is less than in other market areas. The main challenge over the year relating to the acquisition of Generation II will be to maintain sales at the same time as rapid organizational changes and development work on the product lines of Generation II under the auspices of Ossur are just getting under way.

 

Sales in the second quarter amounted to USD 31.8 million, which represents the greatest single-quarter volume in the history of the Company and a 3% increase from the first quarter. In comparison with the second quarter of last year, sales increased by 40%, but adjusted for currency effects the increase in sales was 38%. 

 

Calculated in local currencies, sales trends in principal market areas were as follows between the second quarter of 2003 and 2004:

 

 

                                                           

If the increase in sales in local currencies is weighted by proportional market size, the result is that sales increased by just over 15% net of acquisitions, and 38% if acquisitions are included.

 

Sales grew in the North American Market by 43%. The acquisition of Generation II resulted in a 41% increase in sales, while 2% can be traced to organic growth. In the assessment of organic growth in this market, account should be taken of the fact that sales by the Ossur subsidiary, Mauch Inc., of implant products have decreased by 48% from the corresponding quarter of last year. This decline, attributable to changes in the ownership of Mauch's largest customer, reduced the organic growth in this market area by 3%, from 5% to 2%. 

 

Sales in Europe were up by 31% in the second quarter of 2004, as compared to the corresponding quarter last year.  Taking acquisitions into account, the growth was 22% in local currencies. The reasons for the favorable results in this market area include the interest generated through successful participation in the Orthopädie & Reha Technik Trade show and Congress in Leipzig in Germany in May.

 

Considerable changes occurred in the market in the Nordic countries during the second quarter, and sales increased by 30% between years, as compared to a 3% decrease between years over the first quarter.  The first quarter was particularly good in 2003 in this area, while the second was extremely poor, partly as a result of strikes.

 

Sales in other markets were satisfactory, with a 40% increase in sales between years.

 

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

 

 

 

The gross profit for the second quarter amounted to 60%. This percentage is comparable to the year before. The gross profit for the first half of the year was also 60%, approximately 1% better than the first half of the year 2003.

 

The ratio of operating costs to income was, on the whole, similar in the second quarter of 2004 to the corresponding quarter of last year, with the exception of research and development expenses.  The same applies to the first half of the year as a whole.

 

Sales and marketing costs amounted to approximately 22% of sales in the second quarter, virtually unchanged from the corresponding quarter of 2003. An unchanged ratio is more than acceptable in light of the fact that sales expenses were much higher at the Generation II companies than at Ossur.

 

R&D expenses came to 7%, down from 11% in the preceding year. To date, the ratio is 7%, which is in line with the long-term target of the Company of a 6-8% investment of sales in R&D activities. As before all internal R&D investment is expensed.

 

General and administrative expenses amounted to 15% of sales in the second quarter, a similar ratio to the second quarter of 2003.

 

There were no extraordinary expenses in the second quarter.

 

 

 

Sales prospects are projected as relatively good and there are various indications that quarterly sales will be more even over the course of the year than in previous years.

 

 

 

The silicone liner, Iceross® Seal-In Liner(TM), was launched in November 2003, and a new version of this liner is now available for above-knee amputees, the Iceross® Transfemoral Seal-In(TM). Ossur hf. has been a leading company in liner technology and maintains its leadership through the development of liner technology which is independent of conventional locking systems. This new sealing technique has generated a great deal of interest and has been highly appreciated by Ossur customers.

 

Ossur has launched a line of cosmetic solutions for artificial feet, TT Flex-skin(TM), based on the technical expertise of the Swedish Company Linea Orthopedic, acquired by Ossur in 2003.

 

A new computer-controlled measuring device to monitor the activity of prosthetics users has been launched. The device makes it easier for prosthetists to determine with precision the activity level of users and what products will suit them.

 

As revealed before, Ossur has over the past two years been engaged in the development of highly advanced wound dressings under the Gentleheal(TM) brand. The innovation is based, among other things, on the use of silicone in dressings used to treat chronic wounds. The principal characteristic of the product is that it absorbs and retains a greater quantity of wound exudates than other comparable products, resulting in optimum healing conditions for the wound. The wound-contact surface draws on the atraumatic silicone technology already in use in various prostheses manufactured by Ossur. The development work has benefited from co-operation with the Icelandic Landspitali University Hospital. Ways are being sought to mass-manufacture the product line in order to achieve an acceptable contribution margin. If this is successful, there is a confirmed and substantial market demand for the product. Disagreement with another manufacturer in this market on patent issues has been noted, which further increases the uncertainty of the project.

 

Preparations for the launch of the Rheo Knee(TM) are proceeding according to plan. The promotion of the knee at the Orthopädie & Reha Technik Trade show and Congress in Leipzig in Germany, the largest international trade fair in the industry, was seen as the crowning point of the event by many participants. The knee is scheduled for launch in October.

 

 

 

Tomorrow, Wednesday 28 July, Ossur will host briefings for investors.

 

At 8:15 a.m., Icelandic time, 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 second quarter operations. The meeting will be held at the Grand Hotel at Sigtun in Reykjavik and will take place in Icelandic. 

 

A telephone conference in English will be held at 14:00, local time (14:00 GMT, 16:00 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) 20 7162 0181

Telephone number for the United States: +1 334 3236 203

 

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

 

 

The 2nd Quarter 2004 Report is available on the following link: 

 

The 2nd Quarter 2004 Presentation is available on the following link:  

 

 

 

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