Ossur hf. (Ossur), an orthopedic devices company, has reported net sales of $77.1 million for the first quarter of 2009, up 6%, compared with the net sales of $88.8 million in the year-ago quarter. It has also reported net profit of $7.6 million, or $1.79 per diluted share, for the first quarter of 2009, compared with the net profit of $6.6 million, or $1.58 per diluted share, in the year-ago quarter.
Jon Sigurdsson, president & chief executive officer, comments: “The first quarter shows slower sales than anticipated, declining by 4% measured in local currency. Sales in the first quarter are affected by the slowdown in the economy, in all our major markets. Sales in prosthetics are in line with the market whereas sales of bracing and supports in the Americas continue to be challenging. We have made some extensive changes in the leadership in the sales and marketing in the Americas which we believe will return positive results for this segment. In 2009 we have an exciting product pipeline and in the first quarter two new products were introduced.”
Income Statements for the first quarter of 2009
Exchange rate trends had a negative impact on sales amounting to $8.2 million. Sales declined by 13% measured in $and 4% measured in local currency. Sales in January were slow but increased gradually during the quarter. Customers are cautious due to uncertainty and slowdown in the economy, affecting the sales.
The gross profit was $47.0 million compared to $55.1 million in the same period in 2008, decreasing by 15%. Net negative effects of exchange rate developments amount to $3.4 million. Net of exchange rate effects, the gross profit margin decreased by 2.9 percentage points. The decrease is partly due to revaluation of inventory, relating to the significant weakening of the Icelandic Krona. Slow sales also affect the ratio due to fixed cost.
Other income amounted to $227 thousand compared to 5.7 million in the first quarter of 2008. Included in the first quarter of 2008 is one-time income of $5.5 million sales gain realized through the divestment of the advanced wound care product line.
Operating expenses as a ratio to sales were 51%, compared to 49% in the first quarter of 2008. The ratio of operating expenses to sales increased by 1.8 percentage points due to fixed cost and lower sales. Net of exchange rate effects the operating expenses remained unchanged in US Dolllar.
Profit from operations amounted to $7.8 million or 10% of sales, compared to $17.0 million and 19% of sales in the same period of 2008. Net of exchange rate differences and unusual income, profit from operations decreased by 41%. Affecting the ratio to sales are slow sales and fixed cost.
Amortization of intangible assets relating to acquisitions amounted to $3.1 million, compared to $3.6 million in the first quarter of 2008. The amortization following acquisitions in the past is in accordance with accounting standards, affecting the income statements although the underlying intangible assets may not be decreasing in value. Amortization due to acquisitions in the past is estimated to drop significantly in 2010.
The net financial expenses in the first quarter were positive by $1.9 million compared to expenses of $9.0 million in the same period in 2008. This is mainly due to exchange rate developments of the EUR against the USD. Exchange rate difference reversed from being negative by $4.2 million in the first quarter of 2008 to being positive by $5.2 million in the first quarter of 2009. Exchange rate effects are mostly due to the EUR portion of the long term liabilities, a gain of $3.2 million. No forward contracts were in effect in the period.
Following the collapse of Kaupthing Bank in October 2008, the treatment of Ossur’s interest rate swap agreements is subject to uncertainty. Ossur has formally declared the agreements void and invalid, mainly based on the counterparty’s inability to fulfil its obligations according to the agreements. At the end of March the market value of the agreements amounted to minus $10.9 million. Changes in market value net of tax are realized through equity.
Income tax was $2.2 million, corresponding to a 22% effective tax rate, compared to $1.3 million and 16% in the first quarter of 2008. Partly affecting the tax rate, are lower tax benefits as current liabilities have decreased. The effective tax rate in the quarter is within the range of 20-25%, which is expected for the year. Net profit amounted to $7.6 million, compared to $6.7 million in the same period of 2008.
EBITDA was $12.9 million, 17% of sales, compared to $23.0 million and 26% of sales in the first quarter of 2008. EBITDA adjusted amounted to $13.6 million and 18% of sales in the first quarter of 2009 and $17.4 million and 20% in the first quarter of 2008. One-time expenses in 2009 amounted to $728 thousand, including severance payments. One-time income in 2008 included sales gain of $5.5 million realized through the divestment of the advanced wound care product line.