„Financial performance in 2017 was good. The results were in line with our financial guidance, strong organic growth of 5% and profit growing faster than sales.“

Five year overview


Five year overview
USD m20172016201520142013
Net sales 569 521 483 509 436
Gross profit 355 328 303 323 270
Operating expenses (excl. other income) 280 256 226 237 210
EBITDA 97 94 97 104 75
EBITDA before special items 103 98 99 104 80
EBIT 75 72 77 86 60
Net profit 58 51 51 59 41
Sales growth
Sales growth USD % 9 8 (5) 17 9
- Organic growth in LCY % 5 4 5 5 2
- Currency effect % 1 (1) (10) (1) 1
- Acquired/divested business % 4 5 1 13 6
Balance Sheet
Total assets 793 746 653 678 706
Equity 500 467 463 442 448
Net interest-bearing debt (NIBD) 121 119 58 93 108
Cash Flow
Cash generated by operations 90 88 84 98 73
Free cash flow 55 42 42 68 49
Key ratios
Gross profit margin % 62 63 63 63 62
EBIT margin % 13 14 16 17 14
EBITDA margin % 17 18 20 20 17
EBITDA margin before special items % 18 19 20 20 18
Equity ratio % 63 63 71 65 63
Net debt to EBITDA 1.2 1.2 0.6 0.9 1.3
Effective tax rate % 16 25 25 24 26
Return on equity % 12 11 11 13 10
CAPEX / Net sales % 3.4 4.7 4.9 3.3 3.9
Full time employees on average 2,948 2,710 2,420 2,214 1,765
Market
Market value of equity 1,871 1582 1,546 1,311 880
Number of shares - Millions 437 443 446 454 454
Diluted EPS - US cents 13.3 11.6 11.5 13.1 9.1
Diluted cash EPS - US cents 18.5 16.5 16 17.2 12.5

Performance in 2017


Highlights

  • Sales amounted to USD 569 million, corresponding to 8% growth and 5% organic growth, both measured in local currency.
  • Prosthetics segments grew 9% organically and above estimated market growth with an excellent contribution from high-end innovative solutions such as our bionic RHEO KNEE®. Growth in the B&S segment was 1% organic with continued growth in direct sales and a good contribution from high-end innovative products, but B&S growth was negatively impacted from the restructuring of own distribution companies in the US.
  • Gross profit amounted to USD 355 million or 62% of sales. Gross profit improvements from product mix and scalability in the year were offset by temporary cost increases in certain smaller manufacturing locations and adverse currency movements.
  • EBITDA before special items grew by 10% in local currency and amounted to USD 103 million or 18% of sales. Currency movements impacted the EBITDA margin negatively by about 70 basis points net of hedge. Favorable trend in product mix, integration efforts, and good sales growth resulted in EBITDA growing faster than sales.
  • Net profit grew by 13% and amounted to USD 58 million or 10% of sales.
  • Cash generated by operations amounted to USD 90 million or 16% of sales.
  • Össur acquired 9,182,226 of own shares for approximately USD 37 million during the year.
  • Touch Bionics and Medi Prosthetics, which were acquired in 2016, were successfully integrated during the year.
  • Össur announced efficiency initiatives in the areas of Manufacturing, Distribution, and Sourcing with expected savings of USD 10 million by the end of 2020.
  • Össur hosted a Capital Markets Day in September. The presentation material from the event can be found on the Össur corporate website.
  • Trading of Össur shares was concentrated on Nasdaq Copenhagen in December 2017 following Nasdaq Iceland's decision to accept Össur's request to cancel the trading of Össur shares on Nasdaq Iceland.

Sales performance

Sales amounted to USD 569 million, compared to USD 521 million in 2016, corresponding to 8% growth and 5% organic growth, both measured in local currency. Due to the appreciation of few major operational currencies against the USD, mainly the EUR, currency movements in 2017 impacted sales growth positively compared to 2016 by USD 4 million, which corresponds to a positive 80 basis points effect on USD growth.

Commentary on sales by segments can be found in Chapter 2.1. “Sales by segments”.

Sales by Regions
USD m 2017 FY % of sales USD growth LCY growth Organic growth
EMEA 281 49% 11% 11% 7%
Americas 246 44% 5% 4% 1%
APAC 41 7% 21% 17% 15%
Total 569 100% 9% 8% 5%
Sales by Segments
USD m 2017 % of sales USD growth LCY growth Organic growth
Bracing and supports 285 50% 2% 1% 1%
Prosthetics 282 50% 18% 17% 9%
Other 1 0% - - -
Total 569 100% 9% 8% 5%

Gross profit

Gross profit amounted to USD 355 million or 62% of sales, compared to USD 328 million or 63% of sales in 2016. Within both prosthetics and bracing & supports there continues to be strong growth in high-end innovative products, which contribute positively to the gross profit margin. However, the product mix and scalability from a strong sales growth in the year were offset by temporary cost increases in certain smaller manufacturing locations and approximately 30 basis points negative impact from adverse currency movements.

Operational expenses

Operating expenses amounted to USD 280 million or 49% of sales compared to USD 256 million or 49% of sales in 2016. Operating expenses, excluding special items, grew by 7% and 4% organically, both measured in local currency. Scalability and synergies from integration efforts positively contributed to margin improvements during the year but were partly offset by additional investments in R&D projects for high-end products, e.g. bionic bracing and mind-controlled prosthetics.

On 25 September 2017 Össur announced efficiency initiatives in the areas of Manufacturing, Distribution, and Sourcing to further increase scalability and profitability. The program is on track as previously communicated. The latest update is regarding our West Coast distribution center in the US which will be moved to the manufacturing location in Mexico. This change will result in a simplification and internal efficiency in our global distribution process.

Össur expensed one-time costs of USD 5.6 million as special items in 2017. The USD 2.6 million one-time costs in Q2 were related to the Medi Prosthetics integration and the USD 3.0 million one-time costs in Q3 were related to the efficiency initiatives announced on 25 September 2017.

EBITDA

EBITDA before special items amounted to USD 103 million or 18% of sales, compared to USD 98 million or 19% of sales in 2016 which corresponds to 10% growth and 8% organic growth, both measured in local currency. Currency movements affected the EBITDA margin in 2017 negatively by approx. 70 basis points net of hedge.

Financial items, income, tax and net profit

Net financial expenses amounted to USD 6.2 million compared to USD 2.5 million in 2016. The change is mainly due to a USD 3 million negative net exchange rate difference due to currency movements that are impacting current assets and liabilities. Interest rate margins on long-term borrowings slightly improved in 2017 compared to last year.

Össur derives a significant part of its sales in the US. When the Tax Cuts & Jobs Act was signed in the US in December 2017, the federal tax rate was significantly reduced, effective as of 1 January 2018. France enacted a reduction of its corporate income tax rate in December 2017 as well. This resulted in a one-time accounting tax benefit in 2017 in the amount of USD 6 million which impacted the effective tax rate. It is stressed that the one-time benefit has no cash flow impact. Expectations for the effective tax rate for 2018 can be found in the outlook for 2018 section.

Net profit grew by 13% and amounted to USD 58 million or 10% of sales, compared to USD 51 million or 10% of sales in 2016. Diluted earnings per share in 2017 amounted to 13.3 US cents compared to 11.6 US cents in 2016.

Cash Flow

Cash generated by operations amounted to USD 90 million or 16% of sales, compared to USD 88 million or 17% of sales in 2016.

Capital expenditures amounted to USD 19 million or 3.4% of sales, compared to USD 25 million or 4.7% of sales in 2016. The ratio is slightly below the guided parameter for the full year.

Capital structure, share buybacks and dividends

Net interest-bearing debt at year-end 2017 amounted to USD 121 million compared to USD 119 million at year-end 2016. The relative stable net debt is mostly due our share buyback program and changes in currency rates. Net interest-bearing debt to EBITDA corresponded to 1.2x at the end of 2017 compared to 1.2x at year-end 2016. The ratio is in line with the Company‘s Capital Structure and Dividend policy to maintain a healthy balance sheet and a level of net interest bearing debt of 1-2x to EBITDA.

On 15 August 2017, Össur initiated a new share buyback program, which replaced the share buyback program that was completed on 11 August 2017. Since the beginning of 2017, Össur has purchased 9,182,226 of own shares for approximately USD 37 million. The purpose of the Program is to reduce the Company’s share capital and adjust the capital structure by distributing capital to shareholders in line with the Company’s Capital Structure and Dividend Policy. At year-end 2017, Össur held 9,079,662 treasury shares.

Sales
569 USD m
EBITDA
103 USD m
Net Profit
58 USD m

Outlook for 2018


Financial guidance for 2018
Guidance FY 2018 Actual FY 2017 Guidance FY 2017
Sales growth, LCY 4-5% 8% 7-8%
Sales growth, organic 4-5% 5% 4-5%
EBITDA margin (before special items) ~19% 18% 18-19%
CAPEX as % of sales ~4% 3% ~4%
Effective tax rate 23-24% 16% ~26%

The financial guidance assumes the prevailing economic outlook in key markets and no major fluctuations of major operating currencies.

Organic sales growth is expected to be in the range of 4-5%. In prosthetics, we expect to see a continued good performance in key markets and high-end products, with growth at or above estimated market growth. In B&S, growth in the EMEA and APAC regions is expected to be good and the same goes for the expected growth contribution from our high-end B&S products. Direct B&S sales in the Americas are expected to grow in line with the market as with previous years. With the restructuring of our own distribution companies in the US finalized in 2017, we expect the distribution companies to have a limited impact on growth in 2018. B&S sales are therefore expected to grow in line with the market in 2018.

EBITDA margin before special items is expected to be around 19% of sales. The EBITDA margin is expected to improve compared to 2017 due to favorable developments in product mix, scalability in the underlying business, savings from efficiency initiatives, and synergies from the integration of Touch Bionics and Medi Prosthetics. At current foreign exchange rates, keeping all other factors constant, the EBITDA margin will be slightly negatively impacted in 2018 compared to 2017. Furthermore, at current foreign exchange rates, Össur’s hedging agreements will have an insignificant impact on the EBITDA margin.

It should be noted that quarter one is seasonally the weakest quarter of the year in terms of sales and profitability.

Capital expenditures (CAPEX) are expected to be around 4% of sales. Key CAPEX items include maintenance CAPEX in manufacturing in addition to expected investments related to the efficiency initiatives announced in September 2017. Other main CAPEX items include investments in computer equipment, software, and fixtures.

The Tax Cuts & Jobs Act will have a favorable impact on Össur’s effective tax rate going forward. Based on the current mix of taxable income, the expectation is that our 2018 effective tax rate will be in the range of 23-24%. The ultimate impact of the changes in the tax environment is however subject to various provisions, with further guidance and clarifications expected to be issued by the US tax authorities during 2018.


Össur 2017 Annual Report