Ossur hf
CSE:OSSR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
26.4
34.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the Össur's Q3 Results 2019. Today, I am pleased to present Mr. Jón Sigurdsson, President and CEO; and Mr. Sveinn Sölvason, CFO. [Operator Instructions] Mr. Sigurdsson and Mr. Sölvason, please begin.
Yes. Thank you very much. I would also like to welcome you to the Össur investor conference call where we will cover the results for the third quarter of 2019. As previously mentioned, my name is Jón Sigurdsson, and I'm the President and CEO, and with me here today is Sveinn Sölvason, our CFO. I will start by going through the highlights of the quarter and end with our guidance for 2019. A question-and-answer session will then follow.Sales in the third quarter of the year amounted to $168 million, corresponding to 19% growth in local currency, 5% organic growth and 15% reported growth in U.S. dollars. In the first 9 months of the year, local currency growth amounted to 19% and organic growth was 7%. EBITDA before special items grew by 34% in the third quarter and amounted to $40 million or 24% of sales. Excluding the impact of IFRS 16, EBITDA amounted to $35 million or 21% of sales, which is the same as in the comparable quarter last year. With strong sales growth in the first 9 months of the year, the financial guidance for the organic growth range has been narrowed approximately 6%.Össur recently acquired 2 companies with combined sales of around $13 million, which will both begin to contribute to our operating income in the fourth quarter of the year. As previously mentioned, sales amounted to $168 million in the third quarter of 2019 compared to $145 million in the same quarter last year. The prosthetics segment grew by 6% organic, bearing in mind a strong comparable quarter. We continue to see a good performance in prosthetics where high-end innovative products continue to deliver strong growth in the segment globally, which includes the recently launched bionic PROPRIO FOOT. Growth in the other product categories was also good in the quarter. Bracing and support grew by 5% organic. Good growth can be attributed to sales of high-end products such as at the OA and Rebound product lines. Total reported growth was 15%. Companies acquired in 2018 contributed 13 percentage points to total growth, and sales were negatively impacted by changing currency rates corresponding to a negative 3 percentage points impact on total growth.Americas local currency growth was 25% and organic sales growth was 1% in the quarter. Growth in the prosthetics segment was good with excellent growth in Canada. Sales in bracing and supports segment were soft primarily due to competitive market environment and lower sales to large distributors. Local currency growth was 11% EMEA, and organic sales growth was 8% in the quarter. Growth in prosthetics was strong in all main market regions. In bracing and supports, growth was good apart from France where sales were negatively impacted by competitive market environment. Organic growth in APAC was 19% in the quarter where we continued to see strong results. Growth in China, Japan and Australia were strong, and we see goods result in the other emerging markets. Over to you, Sveinn.
Thank you very much, Jón. As already covered, organic sales growth amounted to 5% in the quarter and local currency growth was 19%. The gross profit margin was 64%, both with and without the impact of IFRS 16, which is the same margin in the comparable quarter last year. In the first 9 months of the year, the gross profit margin is increasing, which can be attributed to a positive impact from product mix, these savings initiatives and scalability in our global manufacturing platform. Special items in the quarter amounted to $8.3 million, out of which roughly $6 million are related to the efficiency initiatives as we had previously communicated. The remainder of the onetime costs are related to signing the agreement to acquire the prosthetics manufacturer, College Park Industries, as communicated in July of this year and then also the 2 recent acquisitions that Jón mentioned. EBITDA before special items grew by 34% and amounted to $40 million in the quarter or 24% of sales. EBITDA margin, excluding the impact of IFRS 16 and special items amounted to 21%, which is the same as in the comparable quarter last year. EBITDA margin before special items for the first 9 months of the year was 22%, and I'll discuss the margin development in some more details on the next slide. The effective tax rate was 33% in the quarter and for the first 9 months of the year, and therefore, in line with our guidance. Net profit was $50 million and the net profit margin was 9% compared to 10% of sales in the comparable quarter in 2018. It should already be noted that the quarter 3 in 2018 included the onetime impact of $5 million related to the revaluation of minority interests. In the first 9 months of the year, net profit grew by 12%.If we go to next slide, please. The key items impacting the EBITDA margin between the comparable quarters are: we have a slight positive impact on gross profit margins where product and customer mix in the quarter are neutral. We have temporary, in the quarter, I would say, higher manufacturing cost, which was, though, offset by savings from the efficiency initiatives.There is an increase in sales and marketing costs, which is driven by the addition of the recent acquisitions, in addition to also investment that we've made in growing our emerging markets sales and infrastructure and also other new business development initiatives.Excluding the impact of acquisitions and special items, G&A costs are flat between the comparable quarters, and I'd say, organic terms. R&D costs grew faster than sales measured in local currency here, in quarter 3. And lastly, currency impacted EBITDA margin positively by about 60 basis points, net of our hedge, all else stand equal. Also, note that IFRS 16 increased EBITDA margin by 2.9 percentage points in quarter 3, and we expect a similar impact for the full year.On the next slide, we have the EBITDA margin development for the first 9 months. We see a healthy increase in profitability driven by a combination of strong sales growth, scalability on the cost side, positive impact from changes in product mix and ultimately savings from the efficiency initiatives.On the next slide, we have cash flow. Free cash flow amounted to $43 million compared to $25 million in comparable quarter last year. Now the main items affecting cash flow in the quarter are positive impact from strong operational results and positive impact from net working capital, mainly due to here in quarter 3 contribution from payables that are, to some degree, shifting between quarters but also a reversal of some net working capital investments from prior quarters in the year. Similar paid interest, tax and capital expenditures as in the comparable quarter. Lastly, net interest-bearing debt was $261 million at the end of the quarter. But excluding the impact of IFRS 16, the net interest-bearing debt was $167 million, which corresponds to a 1.3x net interest-bearing debt-to-EBITDA, and hence, in line with our capital structure policy. If you would then now, go ahead, Jón, please with the guidance.
Yes. Thank you, Sveinn. Growth in prosthetics has been strong in the first 9 months of the year with 9% organic growth. The strong performance can be attributed to a good momentum in sales of high-end innovative solutions and good market acceptance of recently launched products such as Pro-Flex Align and the new bionic PROPRIO FOOT. Growth in prosthetics is, therefore, estimated to be above estimates for market growth in 2019. Growth in bracing and support is still expected to be in line with estimated market growth in 2019. As such, the financial guidance for organic growth range has been narrowed to approximately 6%. We would also like to highlight that Össur recently made 2 acquisitions at the beginning of Q4 2019. Combined sales in those 2 entities on a full year basis amount to around $13 million. The acquired companies have a lower full year EBITDA margin than Össur and they also have a greater seasonality in their business where the first quarter of the year is seasonally the weakest and the fourth quarter the strongest. We, therefore, expect to see a slight increase in seasonality of Össur next year. Please note that the acquisitions do not impact impairments included in the guidance, but we would like to emphasize that quarter 4 of 2019 will increase sales and profit from the acquisitions, and hence, quarterly growth measured in dollars will be impacted. The full year guidance is therefore as follows: organic sales growth is expected to be approximately 6%, EBITDA margin before special items is expected to be around 23% of sales, we expect capital expenditures to be in the range of 4% to 5% of sales, the effective tax rate is expected to be in the range of 23% to 24%. Now thank you all. And let's go to the question-and-answer session.
[Operator Instructions] Our first question comes from the line of Christian Ryom from Nordea Markets.
This is Christian here from Nordea. A couple of questions from me. First, can you elaborate on the developments in the French market in bracing and support. To what extent do you see the effect here being a reflection of changes in regulation or reimbursement or simply a matter of intensified competition? And maybe adding to that, what your expectations are for when you could potentially see a more positive development in France.And then my second question is to your guidance and your guidance for Q4, having delivered 7% year-to-date and guiding for around 6% for the full year. I think you're suggesting organic growth of 3% to 4% in Q4. Where do you see the squeeze coming in the fourth quarter? That's my first 2 questions.
Yes. Thank you, Christian. Let me start on the French market. You mentioned, is it the regulation, is it adverse competition in the market. It is both. And it's probably the best way of describing this is that there is a squeeze in the regulation, reimbursement, specifically on the compressed stocking side, which leads to adverse conditions and tougher competition and quite a lot of price fight. We continue -- we think that this will continue. I don't think we will see change on that. It's still not by market, but it's -- it will continue to be adverse conditions there, although I don't think it will be any worse than it is.
On the second question, Christian, we don't necessarily expect any squeeze as such or any main change in our growth trajectory. Yes, you're right, all else equal, growth in quarter 4 will be lower than in previous half of the year. We are now starting to compare with periods from prior year where we had launched the new PROPRIO FOOT, for example, and as such, expect, yes, let's say, a similar to slightly lower growth than what we reported here in quarter 3. So with what we know today and the way we look at the development for the next couple of months, we expect to report 6% organic growth rate for full year in 2019.
Okay. And a quick third question. Can you provide an update on the status of the College Park acquisition?
Can you repeat, please. It's on the College Park. That is still under regulatory review.
Okay. And it's still your expectation that you will close it this year?
We can't confirm that.
Our next question comes from the line of Benjamin Silverstone from ABG.
I was quickly looking through the report and I saw that the bionics segment of prosthetics account for 22% of the revenue this year. Would you happen to have a number of the amount of the volume that it accounts for this quarter?
Right. I mean that's -- yes. The volume is still like what we've previously communicated. This is in the low single-digit in terms of the units we see outside the door when it comes to our product sales. Even though bionics are -- yes, around 1/4 of our dollar sales in prosthetics, it is still low single digit in terms of units that we see out the door.
So just around the 2 percent-ish?
That's not a bad assumption. Yes.
[Operator Instructions] Our next question comes from the line of Niels Granholm-Leth from Carnegie.
So my first question, how come that you are able to make a provision for integration of College Park when you don't have the regulatory approval in place? And the second question. Could you talk about the 2 acquisitions that you announced today? In which line of business are they and where are they placed geographically?
I'll take the first question, Niels. On the -- this, we are not making a provision for restructuring costs, this is just the fees basically, I mean, that we've incurred, let's say, for this acquisition of College Park and the other 2 acquisitions that we closed now in the beginning of quarter 4. This has nothing to do with any sort of estimated integration cost or anything like that.
So does that mean that we should expect integration costs related to College Park when you have the regulatory approval in place?
If we get the regulatory approval in place, I would not necessarily assume so, no.
So the second question is those are 2 -- those 2 companies are small American companies in their peer industry, which is service and manufacturing of mostly prosthetics.
And there are no further questions at this time, so I will hand back for closing comments. Please go ahead, Mr. Sigurdsson and Mr. Sölvason.
Yes. Thank you for your questions and participation. And as our final remark, in the next couple of months, we will be presenting at the conferences in Europe and U.S. so please reach out to our Investor Relations team if you would like to meet with us and if you have any questions after this call. And thank you for participating, and have a nice day.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.