Five-year overview


Five-year overview
USD million 2019 2018 2017 2016 2015
Net sales 686 613 569 521 483
Gross profit 439 387 355 328 303
Operating expenses (excl. other income) 341 304 280 256 226
EBITDA 141 107 97 94 97
EBITDA adjusted 150 115 103 98 99
EBIT 78 79 75 72 77
Net profit 69 80 58 51 51
Sales growth
Sales growth USD % 12 8 9 8 (5)
- Organic growth in LCY % 5 5 5 4 5
- Currency effect % (4) 1 0 (1) (11)
- Acquired/divested business % 11 2 4 5 1
Balance Sheet
Total assets 1,091 914 793 746 653
Equity 569 538 500 467 463
Net interest-bearing debt (NIBD) 302 180 121 119 58
Cash Flow
Cash generated by operations 120 92 90 88 84
Free cash flow 63 39 55 42 42
Key ratios
Gross profit margin % 64 63 62 63 63
EBIT margin % 14 13 13 14 16
EBITDA margin % 21 18 17 18 20
EBITDA margin before special items % 22 19 18 19 20
Equity ratio % 52 59 63 63 71
Net debt to EBITDA 2.0 1.6 1.2 1.2 0.6
Effective tax rate % 24 18 16 25 25
Return on equity % 12 15 12 11 11
CAPEX / Net sales % 4.6 5.0 3.4 4.7 4.9
Full time employees on average 3,382 2,775 2,948 2,710 2,420
Market
Market value of equity 3,340 2,055 1,871 1582 1,546
Number of shares in Millions 425 431 437 443 446
Diluted EPS in US cents 16.2 18.7 13.3 11.6 11.5

In the spotlight

Össur celebrates 20 years as a publicly traded company

In December 2019, to mark Össur’s 20th anniversary as a publicly traded company, President and CEO Jon Sigurdsson, rang the closing bell at the Nasdaq MarketSite in New York’s Times Square.

Upon its first day of trading on the Iceland Stock Exchange in 1999, Össur (Nasdaq: OSSUR) made history as Iceland’s largest Initial Public Offering (IPO), with more than 8,000 shareholders purchasing shares in the company, corresponding to approximately 3% of Iceland’s population at the time. At that time Össur had 120 employees, reported annual revenues of approximately USD 18 million, and a market value of around USD 60 million. Ten years later, Össur was listed on the Nasdaq Copenhagen exchange and is today one of the 30 most valuable companies traded there with a market cap of approximately USD 3 billion, sales of USD 686 million and about 3,500 employees.

Since its 1999 IPO, Össur has transformed from a small Icelandic prosthetics provider to a global leader in non-invasive orthopaedic technologies, delivering a 20% compound annual growth rate (CAGR) with a healthy combination of organic growth and acquisitions.

Performance in 2019


Highlights

  • Sales growth of 16% in local currency, organic sales growth of 5% and reported growth of 12%.
  • Organic growth for 2019 was 7% for prosthetics and 3% for B&S. Strong organic growth in 2019 is attributed to good sales of high-end products, recently launched products and strong sales in the emerging markets.
  • Gross profit margin was 64% in 2019 compared to 63% in 2018. The increase is driven by positive impact from changes in product mix, savings from the ongoing efficiency initiatives, and scalability in manufacturing.
  • EBITDA margin before special items for 2019 was 22% and excluding the impact of IFRS 16 is was 19% compared to 19% for 2018. Profitability was positively impacted by changes in product mix and savings from the ongoing efficiency initiatives, however profitability was impacted by acquisitions and investments in emerging markets.
  • In 2017, Össur announced efficiency initiatives in the areas of Manufacturing, Distribution, and Sourcing with estimated savings of USD 10 million by year-end 2020. The program is on track and savings began to materialize in 2018 and 2019 in line with original estimates.
  • Össur made three acquisitions with combined full-year sales of about USD 20 million in 2019.
  • Net profit for 2019 amounted to 10% of sales.
  • Cash generated by operations was strong in the year and amounted to 17% of sales in 2019 compared to 15% of sales in 2018.
  • Össur acquired 4,784,631 of own shares for approximately USD 30 million during the year.
  • The financial guidance for the full year 2020 is 3-5% organic sales growth, 21-23% EBITDA margin before special items, 4-5% CAPEX of sales, and an effective tax rate of 23-24%.

Key financials and guidance
USD million FY 2019 FY 2018 Guidance 2020
Net sales 686 613  
Sales growth, organic 5% 5% 3-5%
Growth profit margin 64% 63%
EBITDA, before special items 150 115
EBITDA margin, before special items 22% 19% 21-23%
CAPEX as % of sales 5% 5% 4-5%
Effective tax rate* 24% 24% 23-24%

* The effective tax rate has been normalized for one-time benefits impacting the tax rate in 2018.

Sales performance

Sales in 2019 amounted to USD 686 million compared to USD 613 million in 2018, corresponding to 5% organic growth, 16% growth including acquisitions (local currency growth) and 12% reported growth.

Currency movements impacted sales growth negatively by about USD 22 million which corresponds to approximately negative 4%-points effect on the reported growth rate.

Össur made three acquisitions in 2019. Further information can be found in the section “Acquisitions”.


Sales by Regions
USD million FY 2019 Organic growth Acq. / div. Curr. effect USD growth
Americas 328 3% +21% -1% 23%
EMEA 304 5% +3% -6% 2%
APAC 55 19% - -5% 14%
Total 686 5% +11% -4% 12%
Sales by Segments
USD million FY 2019 Organic growth Acq. / div. Curr. effect USD growth
Prosthetics 378 7% +17% -4% 20%
Bracing and supports 308 3% +5% -4% 4%
Total 686 5% +11% -4% 12%

Gross profit

Gross profit in 2019 amounted to USD 439 million or 64% of sales compared to USD 387 million or 63% of sales in 2018. Items impacting gross profit margin in the year were:

  • Positive impact from changes in product mix, driven by strong growth in high-end solutions in both prosthetics and bracing & supports
  • Savings from ongoing efficiency initiatives
  • Scalability in manufacturing

Operating expenses

Excluding special items, operating expenses amounted to USD 333 million or 48% of sales for 2019 compared to USD 300 million or 49% of sales for 2018.

  • Sales & marketing (S&M) expenses increased by 16% during the year and amounted to 34% of sales. Growth is mainly due to impact from acquisitions and investments in emerging markets.
  • Research & development (R&D) expenses were at a similar level as the prior year and amounted to 5% of sales. Growth in R&D expenses were moderate in the year, it is however expected that R&D expenses will outgrow organic sales growth in 2020.
  • General & administrative (G&A) expenses increased by 8% when excluding special items and amounted to 10% of sales. The increase is mainly due to acquisitions.

Efficiency initiatives

In September 2017, Össur announced efficiency initiatives in the areas of distribution, manufacturing, and sourcing, to further increase scalability and profitability. The program is on track and Össur’s savings target of USD 6 million in 2019 was reached, corresponding to USD 3 million in additional savings when compared to the previous year. Majority of the savings are visible in cost of goods sold which contributed to an increased gross profit margin between years. Össur targets savings of USD 10 million in 2020 which corresponds to USD 4 million in additional savings when compared with 2019.

Special items

Össur expensed USD 8.3 million in one-time expenses related to the ongoing efficiency initiatives and the acquisitions made in 2019. In the comparable period in 2018, Össur expensed USD 7.5 million in one-time expenses related to the ongoing efficiency initiatives and acquisitions. It should be noted that the expenses in relation to the efficiency initiatives were expected as they had already been communicated when the efficiency initiatives were first introduced in September 2017.

EBITDA

EBITDA before special items for 2019 amounted to USD 150 million or 22% of sales. EBITDA before special items and excluding the impact of IFRS 16 amounted to USD 130 million or 19% of sales for 2019 compared to an EBITDA before special items of USD 115 million or 19% of sales for 2018. Currency movements affected the EBITDA margin for 2019 positively by about 60 basis points net of hedge.

Profitability was positively impacted by changes in product mix and savings from the ongoing efficiency initiatives, however profitability was impacted by acquisitions and investments in emerging markets.

Financial items, income, tax and net profit

Net financial expenses in 2019 amounted to USD 8 million compared to USD 6 million in 2018, where the net exchange rate difference was positive by USD 1 million in 2019 compared to a negative USD 2 million in 2018.

Income tax in 2019 amounted to USD 21 million, corresponding to 24% effective tax rate, compared to USD 17 million or 18% effective tax rate in 2018. It should be noted that the comparable period in 2018 was positively impacted by a one-time revaluation of previously acquired shares. The normalized effective tax rate for 2018 amounted to 24%.

Net profit in 2019 amounted to USD 69 million or 10% of sales, compared to USD 80 million or 13% of sales in 2018. It should be noted that the comparable period in 2018 was positively impacted by USD 21 million due to a one-time revaluation of previously acquired shares. Diluted earnings per share in 2019 amounted to 16.2 US cents compared to 18.7 US cents in 2018.

Cash generated by operations

Cash generated by operations for 2019 amounted to USD 120 million or 17% of sales, compared to USD 92 million or 15% of sales for 2018. Cash generation was strong in 2019, in line with increased profits, bearing in mind higher net working capital in the year related to the ongoing efficiency initiatives.

Capital expenditures

Capital expenditures for 2019 amounted to USD 32 million or 4.6% of sales, compared to USD 31 million or 5.0% of sales for 2018. In addition to maintenance CAPEX, CAPEX in 2019 includes investments related to the ongoing efficiency initiatives in addition to an integration of a new CRM software. CAPEX relative to sales in the last two years has been higher than the historical normalized level due to changes in the supply chain related to the ongoing efficiency initiatives.

Capital structure, share buybacks and dividends

Updated Capital Structure and Dividend Policy

Össur’s Board of Directors has approved an updated Capital Structure and Dividend Policy. The level of net interest-bearing debt to EBITDA has been increased to 1.5-2.5x from the previous 1.0-2.0x. The increase is only due to the implementation of IFRS 16 which impacted both net interest-bearing debt and EBITDA. The updated policy is:

The key objective of the Capital Structure and Dividend Policy is to maintain a healthy balance sheet and a level of net interest-bearing debt of 1.5-2.5x to EBITDA. Össur will prioritize value-adding investment opportunities and acquisitions while excess capital is returned to shareholders via annual cash dividends and/or purchase of own shares. Össur’s policy is to distribute a relatively stable cash dividend which will be decided annually in DKK per share. Return of capital to shareholders is based on objectives of maintaining a solid financial position, operational outlook and investment requirements. In order to maintain flexibility, Össur can temporarily exceed the level of net interest-bearing debt to EBITDA should additional attractive acquisition opportunities present themselves.

Net-interest bearing debt

Net interest-bearing debt at year-end 2019 amounted to USD 302 million compared to USD 180 million at year-end 2018. Changes in debt levels are mostly due to the implementation of IFRS 16 where lease liabilities are now included as part of net interest-bearing debt. Net interest-bearing debt excluding the impact of IFRS 16 was USD 193 million. Other items impacting the debt level include the recent acquisitions, the share buyback program, dividends, and changes in currency rates. Net interest-bearing debt to EBITDA corresponded to 2.0x at the end of Q4 2019 (NIBD/EBITDA was 1.5x excluding the impact of IFRS 16). The ratio is therefore in line with the updated Capital Structure and Dividend policy to maintain a healthy balance sheet and a level of net interest-bearing debt of 1.5-2.5x EBITDA.

Share buybacks

Since the beginning of 2019, Össur has purchased 4,784,631 of own shares for approximately USD 30 million. The purpose of the share buybacks 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 quarter-end, Össur held 3,359,631 treasury shares.

In 2019, Össur paid a cash dividend of DKK 0.14 per share, equivalent to USD 9 million or 11% of the net profit in 2018, compared to DKK 0.13 per share for 2017, which was paid out in 2018.

Acquisitions

Össur made three acquisitions in Q4 2019, two on the first working day of the quarter and one on November 1. Sales in the three entities on a full year basis amount to around USD 20 million combined. The acquired companies have a lower EBITDA margin than Össur on a full year basis and greater seasonality in their operations, where the first quarter of the year is seasonally the weakest.

Sales
686 USD m
EBITDA
150 USD m
Net Profit
69 USD m

Outlook for 2020


Financial guidance for 2020
Guidance FY 2020 Actual FY 2019
Sales growth, organic 3-5% 5%
EBITDA margin (before special items) 21-23% 22%
CAPEX as % of sales 4-5% 5%
Effective tax rate 23-24% 24%

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

Össur made three acquisitions in 2019. The combined full-year sales of the three acquisitions amount to about USD 20 million. The acquisitions are expected to have a slightly negative impact on the EBITDA margin in 2020. Further information on the acquisitions can be found in the section “Other matters”.

For the last five years, organic growth has consistently been around 5% which is at the upper end of estimates for market growth rates. Going forward, growth is expected to continue to be at the upper end or slightly above estimates for market growth rates.

For 2020, organic sales growth is expected to be in the range of 3-5%. In prosthetics, continued good performance in key markets and high-end products are expected, including our high-end mechanical feet portfolio and bionics. The lower end of the guidance range factors in some uncertainty in the U.S. market related to the temporary slowdown in sales in the fourth quarter of 2019. Growth in prosthetics is estimated to be in line with or above estimated market growth in 2020. In bracing & supports, we expect to see a continued good performance in high-end solutions, including our Rebound and Unloader product lines. In 2020 the competitive market environment in France and the United States is expected to prevail. Continued good performance is expected in other key markets. Growth in bracing & supports is estimated to be in line with estimated market growth in 2020.

EBITDA margin before special items is expected to be in the range of 21-23% of sales. Continued underlying increase in profitability will be supported by positive development in product mix as higher margin products are expected to grow faster than the remainder of the product portfolio, savings from the ongoing efficiency initiatives, and scalability in core operations. Recent acquisitions are expected to have a slightly negative impact on EBITDA margin. At current foreign exchange rates, keeping all other factors constant, currency movements are expected to have a neutral impact on the EBITDA margin in 2020 when compared to 2019.

It should be noted that quarter one is, and has been historically, seasonally the weakest quarter of the year in terms of sales and profitability. The recent acquisitions have a greater seasonality in their operations compared to the pre-acquisition Össur business. Consequently, the seasonality of Össur’s sales and profit is expected to slightly increase in 2020, where Q1 is seasonally the weakest quarter in terms of sales and profitability.

CAPEX is expected to be in the range of 4-5% of sales. Main CAPEX items include investments in relation to the ongoing efficiency initiatives, maintenance CAPEX in manufacturing, continuation of the implementation of a new CRM software, investments in computer equipment, software, leasehold improvements, and fixtures. CAPEX relative to sales is therefore expected to be higher in 2020 than the historical normalized level of 3-4% due to changes in the supply chain related to the ongoing efficiency initiatives.

Based on the current mix of taxable income, the expectation is that the 2020 effective tax rate will be in the range of 23-24%.


Össur 2019 Annual Report