Ellex hit by sales slump, MD resignation

Ophthalmic laser manufacturer Ellex Medical was battered this week after announcing a downturn in revenues caused by lower than expected sales, as well as the unanticipated resignation of managing director Peter Rowland due to differences with the board over the direction of the company.

The company's share price halved on Monday after it announced that sales revenues were expected to be down for the first half of the year by about 10 per cent in comparison to last year. In addition, increased R&D expenditure was expected to force profits down 20 per cent compared last year.

According to Victor Previn, who has taken over from Rowland as managing director, sales of OEM lasers under the company's own brand Laserex actually increased, but not enough to offset laser sales though distribution partners. Last year sales through these partners accounted for 45 per cent of the total sales, however so far this year the figure has dropped to around 30 per cent, he said.

Previn said that the downturn in sales has been due to the flat market for new ophthalmic equipment sales this year, and noted that Ellex had not cut its margin on sales.

"We have a number of measures we are in the process of implementing to increase sales, including adding more value with the sale, such as an increased warranty and new accessories packaged with the sale, and working closely with the distribution network to increase their sales," Previn said.

He said while there were some promising signs of upward movement, it was too early to tell whether the new measures were working yet.

Ellex will also double its R&D spend in the first half of this year to $1.7 million in support of the Selective Laser Trabeculoplasty (SLT) platform technology for the treatment of glaucoma, which is being developed in collaboration with US company Lumenis.

Previn said that he had been meeting with major investors of Ellex this week to clarify the company's position after the shake up of events at the beginning of the week. He noted that the company was in a stable financial position with good cash reserves as evidenced by its commitment to pay dividends of 2.5 cents per share in December.

Alison Coutts, a director of boutique broking firm and investment bank EG Capital, said another factor that could possibly run against Ellex's favour was that Lumenis had launched four top-end lasers earlier this year, which were selling well.

"Ellex certainly needs to spend more on R&D to fill out its product line, especially with high-end lasers," she said.

Coutts said there was also a question mark over the company's cash position, as it had just $1 million in reserves at June 30.

She said the market would also be interested in seeing a beefed-up Ellex board, and clearer strategic directions and financial projections for the company.

Additional reporting by Iain Scott