Interim / Quarterly Report • Aug 15, 2017
Interim / Quarterly Report
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(Comparative numbers for 2016 in parenthesis)
Sales in the 2nd quarter ended at MNOK 69.2 (MNOK 67.2), a 3.0 % increase. Sales in the US increased with 11.1 %. Sales in Europe and Asia decreased with 2.1 % and 14.5 % respectively. Sales in other markets increased with 35%.
Efforts to increase production capacity for flow probes are ongoing. The increase in number of probe assemblers undergoing training led to a temporary decline in capacity in the second quarter. This resulted in delayed delivery, amounting to MNOK 5.5 in revenue for the quarter. See also comment under operational status.
There is still lack of capacity in the flow probe production. This has resulted in delayed deliveries and revenue of 5.5 MNOK not recognized in Q2. This I commented further under operational status.
Sales for the 1st half increased with 8.2 % and ended at MNOK 143.5 (MNOK 132.7). There was a growth measured in NOK in all regions. In the US, there was a 9.0 % growth. In Europe and Asia, there was a growth of 5.3 % and 17.0 % respectively. In other markets, there was a 18.3 % growth.
With the same rates as in 2016 sales would have amounted to MNOK 69.7 for the quarter, a currency neutral growth of 3.8 %. Similar for the 1st half would have resulted in sales of MNOK 144.8, a currency neutral growth of 9.1 %.
Sales of own products amounted to MNOK 49.4 (MNOK 47.7). Sales of 3.party products ended at MNOK 19.7 (MNOK 19.5). For the 1st half sales of own products ended at MNOK 105.9 (MNOK 96.8) and sales of 3.party products ended at MNOK 37.6 (MNOK 35.9). For sales of own products MNOK 88.6 was within the cardiac segment and MNOK 17.3 was within the vascular segment. Hence, the vascular segment represents 16.3 % of sales of own products.
Cost of goods sold ended at MNOK 19.0 for the quarter (MNOK 17.3) and cost of goods sold represent a percentage of 27.5 % of total sales (25.8 %). For the 1st half cost of goods sold ended at MNOK 36.9 (MNOK 33.0), which represent a percentage of 25.7 % ( 24.9 %). Increased cost of goods sold is related to the product mix with less sales of probes compared to systems.
Salaries and social expenses ended at MNOK 19.1 (MNOK 18.7) for the quarter. Other operating expenses ended at MNOK 14.1 (MNOK 11.2) for the quarter. For the 1st half salaries and social expenses ended at MNOK
44.6 (MNOK 41.1). Other operating expenses ended at MNOK 26.0 (MNOK 22.3)
The increase in salary expenses was mainly related to the buildup of increased production capacity.
The increase in other expenses was in relation to the support of the Eckstein study, a clinical vascular study, with MNOK 0.5, external assistance with MNOK 0.8, recruitment expenses with MNOK 0.5 and marketing expenses in relation to the e-learning program.
For the quarter, MNOK 2.0 (MNOK 2.1) was used within research and development (R&D). Result before R & D, depreciations and write offs was MNOK 18.5 (MNOK 21.6). This equals a margin of 26.7 % (32.2 %). During the quarter, MNOK 0.4 of the R & D expense was activated in the balance sheet (MNOK 0.4).
For the 1st half MNOK 4.1 (MNOK 4.5) was used within research and development (R&D). Result before R & D, depreciations and write offs was MNOK 39.2 (MNOK 39.9). This equals a margin of 27.3 % (30.1 %). During the 1st half MNOK 1.0 (MNOK 1.0) of the R & D expense was activated in the balance sheet.
Operating profit before depreciation (EBITDA) for the quarter ended at MNOK 16.9 (MNOK 20.0). Operating profit before depreciation (EBITDA) for the 1st half ended at MNOK 36.0 (MNOK 36.3).
Result before tax and finance (EBIT) ended at MNOK 13.6 (MNOK 17.1) for the quarter. Result before tax and finance for the first half (EBIT) ended at MNOK 29.7 (MNOK 30.6). EBIT was negatively impacted by delayed flow probe deliveries.
Net finance ended positive with MNOK 0.3 for the quarter (negative MNOK 0.1).
For the 1st half, net finance ended positive with MNOK 0.7 (negative MNOK 1.1).
Net finance was related to realized and unrealized gains or losses related to currency, hedging contracts, cash in USD and EUR and customer receivables.
Result before tax was MNOK 13.9 (MNOK 16.9) for the quarter. Result after tax for the quarter was MNOK 9.8 (MNOK 12.5).
For the 1st half result before tax was MNOK 30.3 (MNOK 29.5). Result after tax for the 1st half was MNOK 21.7 (MNOK 22.0).
Result per share for the quarter was NOK 0.54 (NOK 0.69). Result per share for the 1st half was NOK 1.19 (NOK 1.21). Average number of shares outstanding was 18.161.336 (18. 149.669) by end of June 2017.
Equity by the end of June was MNOK 156.6 (MNOK 148.3). This equals an equity ratio of 73.4 % (75.5 %). A dividend of MNOK 31.5 was paid in May. See also comment under shareholder affairs.
Cash as of 30th of June was MNOK 19.9 and the company had MNOK 18.75 in interest bearing debt. In addition to a dividend of MNOK 31,5 investments of MNOK 4,5 and increase of working capital of 2,8 reduced cash as of June 2017. The increase in working capital is related to securing critical components and establishing new productlines.
The balance sheet ended at MNOK 213.3 from MNOK 216.4 by the beginning of the year.
As previously reported, Medistim production capacity for flow probes has been to low since the fourth quarter of 2016. During the first half of the year, the company has implemented process changes and increased staffing to meet the increased need.
Despite the fact that Medistim has increased the number of assemblers, the training of new personnel has taken more time than expected and the new assembles have been less productive. In addition, the training of the new personell has reduced the productivity of the experienced assemblers who have contributed to the training.
As a result, capacity has been lower than normal for Q2. It is expected that capacity will increase during the 3rd and 4th quarter.
At the end of Q2, the company had approximately 500 probes, corresponding to MNOK 5.5, in orders not delivered due to lack of production capacity. The situation has affected probes sales in all regions, for the quarter and for the first half.
The sales of own products ended for the quarter at MNOK 17.5, a MNOK 1.1 reduction in sales. For the first half sales of own products ended at MNOK 35.9, a MNOK 2.2 increase in sales. The reduction in sales for the second quarter is explained by the situation related to the flow probes. Systems sales in the second quarter was mainly to customers where Medistim has direct representation. Sales to end customers provide double income compared to sales through distributors.
Medistim terminated its distributor agreement in Spain during the first half and established a new subsidiary, Medistim
Spain S.L. With two territory sales managers based in Madrid and Barcelona, Medistim serves the end customers directly with support from the Head Office in Oslo.
Medistim has a business model in the US that is mainly based upon sales of procedures and leasing, but also capital sale as in other markets.
The US had a 11.1 % increase in sales in the second quarter. Currency neutral growth was also 11.1 %. For the quarter there was sold 11.596 procedures compared to last year 11.313. During the quarter 1.660 (1.308) procedures was sold to customers using the imaging system. Number of flow procedures sold was 9.936 procedures (10.005).
For the 1st half there were sold 23.494 procedures (21.936) of which 3.050 were imaging procedures (2.488) and 20.444 flow procedures (19.448). Sales increased with 9.0 % for the first half of 2017. The currency neutral growth was also 9.0%. During the quarter Medistim has updated its IT infrastructure and implemented an integrated software for logistics, service finance and CRM.
Number of procedures sold per quarter in the US
In the US about 80 % of the bypass surgeries are performed with no other quality assurance of blood flow other than the surgeons experience by feeling pulse on the vessels using the finger. It is clinically proven that this method is not reliable. It is therefore a large potential and need for Medistims products in the US. Medistim has large ambitions in the US market. So far Medistim has achieved a market penetration of more than 17.5 % of the total market of approximately 230.000 bypass surgery procedures performed annually. Medistim has a market penetration of about 70 % in Germany, Scandinavia and Japan. Medistim expect that the market penetration in the US will develop in the same manner over time.
In Asia, there was an decrease in sales for the quarter with MNOK 0,6 or 14.5 %. For the 1st half there was an increase of 17.0 % and sales ended at MNOK 13.1. The reduction of sales in the second quarter was related to the flow probe situation. Medistim has during the first half established a direct contract with the distributor in South Korea that was earlier handled by the Japanese distributor. This makes sense since it reduces the number of links in the value chain.
Early in the third quarter Medistim received clearance from the China Food and Drug Administration (CFDA) for sale of its product MiraQ™. China represents a significant market opportunity for Medistim with about 50.000 CABG procedures performed per year and a projected annual growth rate of 5 to10 %. Today, Medistim covers over 30 % of these procedures with its traditional flow measurement system VeriQ™. Medistim is well positioned for further growth in China, with a number of systems placed with the largest cardiac centers supported by leading Chinese surgeons.
In other markets sales for the second quarter increased with 35.0 %. For the first half sales increased with 18.3 %. Compare to the total these are marginal markets that have little effect on the total sales.
The company aims to develop products to meet surgeons' growing need for quality control of heart-bypass surgery, peripheral vascular surgery and transplant surgery. Our vision is that Medistim's solutions should represent the «standard of care» for clinical practice and that blood flow measurements and intraoperative ultrasound imaging are performed on all patients.
Medistim's focus is to strengthen the company's ability to effectively commercialize existing product portfolio on a global basis. One of the key tasks to achieve this is closer contact with customers through a strengthened sales and marketing organization. Another important task is to produce enhanced clinical documentation and focus on putting blood flow measurements, ultrasound imaging, surgical guidance and quality assurance on the agenda in relevant forums and channels.
Continious technology and product development will secure Medistims products and leading position within cardiac surgery also in the future. The company also has ambitions to launch new products adapted to specialities within vascular- and transplant surgery.
On a global basis it is performed more than 700,000 heart bypass surgeries per year. The US represents the largest market for Medistims products with 1/3 of the world market. The global number of procedures has in the past been constant. The decrease in number of procedures perfomed in the western countries has been compensated by an increase in the BRIC countries (Brazil, Russia, India and China). It is therefore expected to have a stabil growing trend in the years to come.
Adding intraoperative ultrasound imaging to flow measurements more than doubles Medistims market potential, because of new applications and relevance and higher pricing compared to traditional flowmeasurement technollogy. Total market size within cardiac surgery is estimated to be 2 billion NOK annualy. The imagingfunctionallity makes MiraQTM and VeriQC relevant in other cardiac surgeries and not just by pass surgery. Medistim estimates this potential to be 1 billion NOK.
In addition, the company has a significant potential within the global vascular market, which is estimated to be about 600,000 vascular procedures annually. Total market size within vascular surgery is estimated to be over 1 billion NOK.
The trend in surgery moves towards less intervention and keyhole surgery, which gives the surgeon less workspace and the ability to control in a traditional way. It is therefore an increased need to verify the desired result in the future.
Global demographic trends are an important driving force for the many cost-efficiency measures around the world, with America's health care reform as very important. Focus on quality is growing, driven by the need to reduce costs, particularly related to correction of errors, the need for repeated treatments and repeated hospital admissions. Medistim therefore has a good opportunity to position their products as an important contributor to achieving these goals.
Medistim's flow meters have been in use in more than 1.5 million patients worldwide since it came on the market, and the company is the clear leader in its niche. The equipment is used today in more than 28 % of the total number of by-pass surgeries performed worldwide. Medistims penetration and market share is expected to increase gradually as quality assurance in surgery is getting more attention and acceptance.
There are competitors that use the transit time measurement principle. Equipment from competitors is estimated to be in use in about 7 % of the procedures performed. This means that in about 65 % of the cases where by pass surgery is performed there is no equipment in use to verify blood flow. This market represent Medistim's largest opportunity.
With Medistim's Ultrasound imaging technollogy and MiraQTM platform, the company has acquired a new edge compared to competitors, with unique and differentiated products that is currently alone in its segment.
The company is exposed to EUR and USD. Exposure can vary depending on how large share of revenues and costs USD and EUR account for of total income and expenses. For 2016 a 10 % change in the exchange rate against USD and EUR would result in a 7.4 % change in sales and a 13.1 % change in operating result. The company partly secures its positions with hedging contracts.
The company had 176.000 Medistim shares by the end of June 2017. The shares were purchased at a price per share of NOK 14.70. The share price was NOK 80.00 per share at the end of the quarter. The number of shares traded in the 1st half of 2017 was 4.406.263.
The five largest shareholders by the end of the 1st half were Intertrade Shipping AS with 4.003.500 shares, Salvesen & Thams Invest with 1.862.500 shares, Rorbur with 1.376.596 shares, Follum Capital with 1.000.000 shares and Protector forsikring with 784.155 shares. 10.000 Medistim shares were transferred to CEO in the first half of 2017 according to previously agreed terms. By the end of the quarter CEO, Kari Krogstad, had 100.000 Medistim shares.
The General Assembly held the 26th of April decided to pay a dividend of NOK 1.75 per share (NOK 1.65). This is a pay out ratio of 81 % (74 %). The dividend was paid the 8th of May.
The financial report per 30th of June 2017 has been prepared according to the IFRS (International Financial Reporting
Standard) and follows IAS 34 for interim financial reporting, as do the comparable numbers for 2016. The board of Directors and managing Director confirm to the best of our knowledge that the condensed set of financial statements for the period 1st of January to 30th of June 2017 has been prepared in accordance with IAS 34 "Interim Financial Reporting" and gives a true and fair view of the groups assets, liabilities, financial position and result for the period viewed in their entirety. The board of Directors and managing Director confirm that the interim management report includes a fair review of any significant events that arouse during the six month period and their effect on the half yearly financial report, any significant related parties transactions, and description of the principal risks and uncertainties for the remaining six months of the year.
The group risk and uncertainty factors remain the same as described in the annual report for 2016.
There were no transactions between related parties in the period.
Sales per quarter
Operating profit per quarter
Oslo 14th of August 2017, Board of Directors and managing director in Medistim ASA
| Profit & loss | 2. quarter 17 | 2. quarter 16 | 1. half 17 | 1. half 16 | 2016 |
|---|---|---|---|---|---|
| All numbers in NOK 1000 | |||||
| Sales | 69 177 | 67 194 | 143 537 | 132 694 | 268 061 |
| Cost of goods sold | 19 026 | 17 322 | 36 885 | 33 009 | 64 957 |
| Salary and sosial expenses | 19 701 | 18 692 | 45 119 | 41 088 | 89 719 |
| Other operating expenses | 13 568 | 11 217 | 25 490 | 22 261 | 45 304 |
| Total operating expenses | 52 295 | 47 231 | 107 494 | 96 358 | 199 980 |
| Opr. res.before. depr. and write offs | 16 882 | 19 963 | 36 043 | 36 336 | 68 081 |
| Opr. res before depr. and write off % | 24,40 % | 29,71 % | 25,11 % | 27,38 % | 25,40 % |
| Depreciation | 3 252 | 2 880 | 6 371 | 5 714 | 11 726 |
| Write offs and provisions | - | - | - | - | - |
| Operating result | 13 629 | 17 083 | 29 672 | 30 622 | 56 355 |
| Financial income | 1 720 | 3 427 | 3 833 | 3 553 | 7 506 |
| Financial expenses | 1 438 | 3 566 | 3 168 | 4 631 | 10 334 |
| Net finance | 282 | (139) | 665 | (1 079) | (2 828) |
| Pre tax profit | 13 911 | 16 944 | 30 337 | 29 543 | 53 527 |
| Tax | 4 090 | 4 426 | 8 657 | 7 517 | 14 429 |
| Result | 9 822 | 12 517 | 21 680 | 22 026 | 39 098 |
| Dividend | 31 474 | 29 950 | 31 474 | 29 950 | 29 950 |
| Comprehensive income | |||||
| Result after tax | 9 822 | 12 517 | 21 680 | 22 026 | 39 098 |
| Exchange differences arising | - | - | - | - | - |
| on translation of foreign operations | (168) | 3 | (276) | (111) | 216 |
| Total comprehensive income | 9 654 | 12 520 | 21 404 | 21 915 | 39 314 |
| Key figures | 2. quarter 17 | 2. quarter 16 | 1. half 17 | 1. half 16 | 2016 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Equity share | 73,44 % | 75,86 % | 73,44 % | 75,86 % | 77,02 % | |||||
| Earnings per share | kr | 0,54 | kr | 0,69 | kr | 1,19 | kr | 1,21 | kr | 2,15 |
| Earnings per share diluted | kr | 0,54 | kr | 0,69 | kr | 1,19 | kr | 1,21 | kr | 2,15 |
| Average shares outstanding in 1000 | 18 161 | 18 116 | 18 156 | 18 149 | 18 150 | |||||
| Average shares outstanding in 1000 diluted | 18 161 | 18 116 | 18 156 | 18 149 | 18 150 |
| Split of operating result | |||||
|---|---|---|---|---|---|
| per segment | 2. quarter 17 | 2. quarter 16 | 1. half 17 | 1. half 16 | 2016 |
| All numbers in NOK 1000 | |||||
| Result from Medistim products | 9 558 | 13 553 | 24 010 | 25 606 | 49 381 |
| Margin from Medistim products | 19,35 % | 28,42 % | 22,67 % | 26,46 % | 24,74 % |
| Result from 3 party products | 4 072 | 3 530 | 5 662 | 5 016 | 6 974 |
| Margin from 3 party products | 20,59 % | 18,10 % | 15,04 % | 13,97 % | 10,19 % |
| Totalt result | 13 629 | 17 083 | 29 672 | 30 622 | 56 355 |
| Margin | 19,70 % | 25,42 % | 20,67 % | 23,08 % | 21,02 % |
| Balance sheet | 30.06.2017 | 30.06.2016 | 31.12.2016 |
|---|---|---|---|
| All numbers in NOK 1000 | |||
| Assets | |||
| Intangible assets | 48 513 | 53 868 | 51 698 |
| Fixed assets | 22 072 | 16 469 | 18 404 |
| Total tangible and fixed assets | 70 585 | 70 336 | 70 102 |
| Inventory | 62 953 | 60 453 | 59 297 |
| Customers receivables | 50 983 | 40 446 | 48 328 |
| Other receivables | 8 909 | 5 986 | 7 651 |
| Cash | 19 860 | 18 229 | 31 065 |
| Total current assets | 142 706 | 125 114 | 146 341 |
| Total assets | 213 291 | 195 450 | 216 443 |
| Equity and liability | |||
| Share capital | 4 585 | 4 585 | 4 585 |
| Share premium reserve | 41 852 | 41 852 | 44 172 |
| Other equity | 110 208 | 101 841 | 117 946 |
| Total equity | 156 645 | 148 278 | 166 703 |
| Long term debt | |||
| Deferred income | 328 | 1 026 | 677 |
| Other long term debt | 12 000 | 3 750 | 1 875 |
| Total long term debt | 12 328 | 4 776 | 2 552 |
| Total short term debt | 44 318 | 42 396 | 47 188 |
| Total equity and liability | 213 291 | 195 450 | 216 443 |
| Net interest bearing debt | (1 110) | (10 729) | (25 440) |
| Change in equity | 30.06.2017 | 30.06.2016 | 31.12.2016 |
|---|---|---|---|
| All numbers in NOK 1000 | |||
| Equity start of period | 166 703 | 156 163 | 156 164 |
| Result for the period | 21 680 | 22 026 | 39 098 |
| Capital increase | - | - | - |
| Dividend | (31 474) | (29 950) | (29 950) |
| Minority | - | - | - |
| Medistim shares | - | 150 | 1 176 |
| Changes in exchange rates | (265) | (112) | 216 |
| Equity end of period | 156 645 | 148 278 | 166 703 |
| Cash flow analysis | 30.06.2017 | 30.06.2016 | 31.12.2016 |
|---|---|---|---|
| All numbers in NOK 1000 | |||
| Result for the period | 21 680 | 22 026 | 39 098 |
| Cash flow from operation | (10 059) | (15 935) | (10 825) |
| Cash flow from operation | 11 621 | 6 091 | 28 274 |
| Cash flow from investments | (4 477) | (5 170) | (11 943) |
| Cash flow from financing (loan\dividend) | (18 349) | (31 617) | (34 191) |
| Change in cash for the period | (11 205) | (30 696) | (17 860) |
| Cash at start of period | 31 065 | 48 925 | 48 925 |
| Cash by the end of period | 19 860 | 18 229 | 31 065 |
| All numbers in NOK 1000 USA 25 212 22 697 49 753 45 653 90 990 Asia 3 455 4 043 13 089 11 185 24 805 Europe 37 287 38 067 73 491 69 768 136 383 Rest of the world 3 223 2 387 7 204 6 088 15 883 Total sales 69 177 67 194 143 537 132 694 268 061 Geographic split of sales in number of units 2. quarter 17 2. quarter 16 1. half 17 1. half 16 2016 USA Procedures flow measurement 9 936 10 005 20 444 19 448 40 394 Procedures imaging 1 660 1 308 3 050 2 488 5 807 Capital sales MiraQ\VeriQ flowmeasurement instrume 2 1 2 2 6 Capital sales MiraQ\VeriQC imaging and flowmeasure 3 2 6 4 7 Asia VeriQ flowmeasurement instrument 11 3 17 11 20 VeriQC imaging and flowmeasurement instrument 1 - 7 4 14 Imaging probes - - 5 9 22 Flowmeasurement probes 120 400 797 811 1 651 Europe MiraQ and VeriQ flowmeasurement instrument 5 14 18 20 40 MiraQ and VeriQC imaging and flowmeasurement ins 4 4 6 5 7 Imaging probes 13 7 16 8 13 Flowmeasurement probes 853 970 1 866 1 886 3 833 Rest of the world MiraQ andVeriQ flowmeasurement instrument 4 2 8 4 11 MiraQ and VeriQC imaging and flowmeasurement ins 1 1 2 4 12 Imaging probes 2 1 3 6 18 Flowmeasurement probes 113 148 322 322 724 Sales outside the US Number of MiraQ and VeriQ flow instruments outside 20 19 43 35 71 MiraQ and VeriQC imaging and flowmeasurement in 6 5 15 13 33 15 8 24 23 53 Total number of imaging probes Total number of flowmeasurement probes outside U 1 086 1 518 2 985 3 019 6 208 Split of sales per segment 2. quarter 17 2. quarter 16 1. half 17 1. half 16 2016 All numbers in NOK 1000 USA Procedural revenue 21 572 20 292 43 071 40 751 81 924 Capital sales VeriQ flowmeasurement instruments 929 654 929 1 253 3 353 Capital sales VeriQC imaging and flowmeasurement 2 711 1 752 5 754 3 649 5 713 Outside USA MiraQ and VeriQ flowmeasurement instrument 3 749 3 444 8 495 7 164 14 361 MiraQ and VeriQC imaging and flowmeasurement ins 3 895 2 173 7 736 6 152 15 281 Imaging probes 1 093 518 1 796 1 346 3 146 Flowmeasurement probes 13 909 17 602 34 822 34 801 70 446 Other 1 548 1 257 3 294 1 664 5 389 Total sale of Medistim products 49 405 47 691 105 896 96 780 199 613 Sale of 3 party products 19 772 19 503 37 641 35 914 68 448 Total sales 69 177 67 194 143 537 132 694 268 061 |
Geographic split of sales | 2. quarter 17 | 2. quarter 16 | 1. half 17 | 1. half 16 | 2016 |
|---|---|---|---|---|---|---|
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