Sorin Group third quarter revenues decrease 2.1% to €171.4 million

Sorin GroupOct 29 2011

Sorin Group (MIL:SRN):

• Revenues of €171.4 million, a 2.1% decline (-4.9% as reported) over the same period last year;
• Gross profit of €104.7 million, 61.1% of revenues (58.9% in the third quarter of 2010);
• EBITDA of €27.9 million, 16.3% of revenues (14.3% in the third quarter of 2010);
• Net profit up 47.5% to €12.1 million, 7.0% of revenues (4.5% in the third quarter of 2010).

Free cash flow generated in the quarter amounted to €9.8 million. Net financial debt, due to the unfavorable impact of special items, totaled €122.4 million at September 30, 2011, compared to €156.4 million at September 30, 2010 (€101.7 million at June 30, 2011).

The Company expects full-year revenue growth of approximately 1% and net profit of €58-60 million.

At a meeting held today and chaired by Rosario Bifulco, Sorin S.p.A. Board of Directors approved the results for the third quarter of 2011.

"As anticipated, the third quarter was a challenging quarter on the top line. However, thanks to our continuous focus on cost control, the Group exceeded for the first time 60% Gross Margin. We also demonstrated our commitment to long-term growth with targeted investments in the promising and fast growing heart failure market," affirmed CEO André-Michel Ballester.

Consolidated results for the third quarter of 2011

During the third quarter of 2011, Sorin Group posted revenues of €171.4 million, representing a 2.1% decrease (-4.9% as reported) over the same period last year.

• The Cardiopulmonary Business Unit (heart-lung machines, extra-corporeal and autotransfusion blood circulation systems) reported revenues of €79.6 million representing growth of 0.5% over the third quarter 2010. The heart-lung machines segment recorded strong growth in emerging markets, partially offset by a soft performance in the United States. The oxygenator segment posted a slight erosion in revenues, despite the strong performance in emerging markets, partially offsetting a negative case load trend in Europe and the US. Autotransfusion systems expanded significantly, particularly in Europe, as a result of the commercial success of Xtra^TM (launched in the first quarter of 2011), emerging markets and Japan. The Cardiopulmonary Business Unit expanded its high-end cannulae offering with the recent acquisition, in July 2011, of Estech's business. The Group's commitment to innovation continues in 2011, with the development of Inspire (LinOx project), the new line of oxygenators. Sorin expects CE mark approval of Inspire in the fourth quarter of 2011.

• The Cardiac Rhythm Management Business Unit (implantable devices to manage cardiac rhythm disorders) reported revenues of €64.4 million, a 5.0% decrease over the same period last year. These results reflect the general global slowdown in the CRM market and the absence of significant new product launches in the high voltage segment for Sorin Group during the first nine months of the year. At the international conference "Arrhythmias 2011" held in Venice in October, Sorin announced CE mark approval and the European commercial launch of SonR, an innovative system for cardiac resynchronization therapy (CRT). The system, a result of a 10-year clinical science program, utilizes a unique hemodynamic sensor associated with Sorin's CRT Paradym^TM RF device. SonR is the first and only system to provide weekly automatic optimization with the potential to improve CRT responder rates. This contrasts with the time-consuming and costly in-clinic manual optimization which patients experience today. The introduction of the SonR system will help to stabilize sales in the fourth quarter of 2011. In October, Sorin Group also initiated enrollment in the ISIS-ICD clinical study in order to evaluate the effectiveness of its PARAD+™ algorithm in minimizing inappropriate defibrillator shocks. The CE mark for Remote Monitoring technology is expected by end of 2011.

• The Heart Valves Business Unit (mechanical, tissue heart valves and valve-repair products) reported revenues of €26.9 million, a decrease of 2.4% over the third quarter 2010. In mechanical valves the Company preserved its global market share. This segment continues to experience a shift to tissue valves. The Group's performance in tissue valves was affected by a slower trend in surgical heart valves procedures due to economic conditions and cannibalization by percutaneous valves in certain European countries. Competitive activities slowed down our tissue valve penetration in the United States and in Europe. Feedback from the physician community following the launch of Perceval^TM has been outstanding. In October, Sorin obtained CE mark approval for the new 25mm Perceval^TM valve. Following conditional IDE approval, the Company will also initiate its clinical study for the Freedom Solo valve in the fourth quarter in the United States.

Gross Profit in the third quarter of 2011 was €104.7 million, or 61.1 % of revenues, compared to 58.9% in the third quarter of 2010, marking the first time in the history of the Group that performance over 60% has been recorded. This strong improvement is due to continued cost-control, primarily in manufacturing, notwithstanding the negative impact of foreign-exchange rates and a less favorable product mix.

Selling, General and Administrative (SG&A) expenses were €69.7 million, down to 40.7% of revenues compared to 41.2% in the third quarter of 2010. Net of the impact of the adoption of hedge accounting, SG&A expenses totaled 40.5% of revenues in the third quarter of 2011 compared to 39.3% during the same period of 2010.

Research and Development (R&D) expenses rose by 3.7% to €16.9 million, or 9.9% of revenues (9.1% in the third quarter of 2010). R&D activity was focused on new product releases including Remote Monitoring and SonR technologies, clinical studies for the Perceval and Freedom Solo valves and the Inspire manufacturing scale-up.

EBITDA expanded by 8.0% to €27.9 million (16.3% of revenues), compared to €25.8 million (14.3% of revenues) in the third quarter of 2010.

EBIT was €18.1 million (10.6% of revenues), rising by 25.8% compared to the €14.4 million (8.0% of revenues) reported in the third quarter of 2010. Before special items, EBIT was also equal to €18.1 million, or 10.5% of revenues (8.6% of revenues in the third quarter of 2010).

Net financial charges amounted to €2.0 million compared to €1.3 million in the third quarter of 2010, when favorable foreign-exchange resulted in a €1.2 million positive impact. On a run rate basis, net financial charges decreased by €0.6 million as a result of lower average debt for the period and a lower spread applied to medium/long-term debt.

Net profit was €12.1 million, or 7.0% of revenues, a 47.5% increase compared to the €8.2 million (4.5% of revenues) reported in the third quarter of 2010.

Net financial debt at September 30, 2011 was equal to €122.4 million, compared to €156.4 million at September 30, 2010 and €101.7 million at June 30, 2011. The net debt reduction in the last 12 months, equal to €33.9 million, is mainly the result of increased profitability, offset in part by the unfavorable contribution of special items in the amount of €11.1 million (see attached table for details).

In the third quarter net financial debt was negatively impacted by €30.5 million of special items, including the effect of fair value of hedging portfolio and business development investments (see attached table for details). Free cash flow generated in the period amounted to €9.8 million.

On October 17, 2011, Sorin Group announced its investment in Enopace Biomedical, an early-stage company focused on the development of a neuromodulation system to treat patients with congestive heart failure, which is the most urgent and unmet clinical need in cardiovascular medicine today. The investment of $7.0 million (approximately €5.0 million) will be used for financing initial clinical studies and product development.

Consolidated results for the first nine months of 2011

In the first nine months of 2011, Sorin Group reported revenues up 1.1% to €545.5 million, Gross Profit of €327.2 million or 60.0% of revenues (58.8% in the same period of 2010), EBITDA of €90.5 million or 16.6% of revenues (15.0% in the same period of 2010) and net profit of €42.0 million or 7.7% of revenues (4.7% in the same period of 2010).

Guidance for the full year of 2011

Sorin Group expects to report full-year revenue growth for 2011 of approximately 1% and net profit of €58-60 million, increasing by approximately 50% compared to 2010. Full-year EBITDA margin is confirmed at approximately 17%.