Sorin Group: Preliminary Results for 2014

At a meeting held today and chaired by Rosario Bifulco, the Sorin S.p.A. (MIL:SRN) Board of Directors analyzed the results for the fourth quarter 2014 and the preliminary unaudited consolidated results for the year 2014. The final draft of the financial statements for 2014 will be approved by the Board of Directors at a meeting to be held on March 16, 2015.

"Our 2014 results came in within our previously communicated guidance, supported by a solid fourth quarter. The top-line performance in 2014 was driven by strong results of the cardiopulmonary products and by continuous improvement in the CRM business. Net earnings were also in line with our expectations taking into account the negative impact of FX and our continued investments in growth initiatives. During the year, the Company continued the roll-out of important new products, closed several strategic deals including the joint venture with MicroPort in CRM and the acquisition of Oscor’s leads business and made significant progress on the development of its New Ventures programs, as illustrated by the first successful implants of the Equilia^TM neurostimulation system for heart failure patients and by the commercialization of Respicardia’s product,” said André-Michel Ballester, Sorin Group's Chief Executive Officer. "For 2015 Sorin remains committed to top line growth acceleration and financial discipline. We plan to continue to invest in our high-growth platforms and return to more favorable earnings momentum by 2016,” he added.

CONSOLIDATED RESULTS FOR THE FOURTH QUARTER 2014

In the fourth quarter of 2014, Sorin Group posted revenues of €196.5 million, a 5.0%⁴ increase over the fourth quarter of 2013.

• The Cardiac Surgery Business Unit (cardiopulmonary products for open heart surgery and heart valve repair or replacement products) reported revenues of €136.5 million. The heart-lung machine segment performed positively, driven by penetration in the US and emerging markets. Both the oxygenator and ATS system segments reported strong growth, confirming Sorin’s successful roll-outs of the Inspire^TM- Heartlink^TM- Connect^TM and Xtra^TM systems. The tissue valves business posted negative results primarily due to the temporary limitation in the production capacity for Perceval^TM at Sorin’s Saluggia plant. The Company expects to restore full availability of Perceval^TM by the first quarter of 2015. In the fourth quarter, mechanical valves were flat as a result of volume growth in emerging markets and Japan, offset by the continued shift toward tissue valves in Europe and the US.
  
  In the fourth quarter, Sorin Group announced CE mark and FDA clearance of its new MEMO 3D ReChord^TM mitral valve annuloplasty ring.
  
  In the fourth quarter, the results of the Perceval CAVALIER Trial and of the Pooled European Multicenter Experience were presented at the 28^th Annual Meeting of the European Association for Cardio-Thoracic Surgery (EACTS) in Milan (Italy) showing Perceval’s durability, excellent hemodynamic performance, low complication rates and ease of implant. At the EACTS Annual Meeting, were also presented the results of the European and North American cohort study on the Freedom Solo^TM valve, demonstrating its safety and excellent clinical and hemodynamic performance.
  
  In January 2015, Sorin Group announced the completion of patient enrollment for the Perceval^TM IDE (Investigational Device Exemption) study in the US. The IDE trial, involving eighteen centers across the US, is designed as a prospective, non-randomized, multi-center clinical trial.

(*) For details, see attached table "Consolidated revenues by Business Unit”

• The Cardiac Rhythm Management Business Unit (implantable devices to manage cardiac rhythm disorders) reported revenues of €59.4 million, a 7.7%⁵ increase compared to the fourth quarter of 2013. CRM revenues, excluding Japan, were substantially flat in the quarter compared to the same period of 2013, confirming the stabilization of the business initiated in the previous quarters. Low voltage revenues were driven by the continued penetration of KORA^TM 100 and REPLY^TM 200 systems. Upon introduction of the latest generation of devices in Japan, the Company has decided to record a €8.1 million sales reserve in the fourth quarter for old generation products to be returned in 2015, reflecting Sorin’s commitment to provide the most advanced devices available to its Japanese customers. High voltage revenues continue to be affected by a challenging pricing environment in Europe and lower volumes in Japan.
  
  During the quarter, Sorin Group completed patient enrollment in the Respond CRT IDE clinical study, ahead of schedule. The trial, that evaluates the safety and effectiveness of the innovative SonR^TM CRT optimization system in patients with severe heart failure, enrolled over 1,000 patients in Europe, the US and Australia.
  
  In February 2015, Sorin announced the approval from Japan’s Pharmaceutical and Medical Devices Agency (PMDA) for its KORA^TM 100 pacing system with automatic MRI mode.

(*) For details, see attached table "Consolidated revenues by Business Unit”

PRELIMINARY CONSOLIDATED RESULTS FOR 2014

In 2014, Sorin Group reported revenues of €746.9 million, a 3.4%⁶ increase compared to 2013.

• The Cardiac Surgery Business Unit reported revenues of €500.9 million, up 5.1%⁶ compared to 2013.

(*) For details, see attached table "Consolidated revenues by Business Unit”

The heart-lung machine segment posted strong revenues, further reinforcing the Company’s leadership position in every major market. The oxygenator and autotransfusion segments also performed positively, driven, respectively, by the successful roll-out of the new Inspire^TM- Heartlink^TM-Connect^TM System in Europe, the US and Japan and by the continued penetration of Xtra^TM in all markets. The Company estimates it has over-achieved its 100 bps market share gain objective in the oxygenator segment for 2014.

The mechanical valve segment witnessed a decrease in revenues in line with the continued shift of the market toward biological valves and lower volumes in emerging markets particularly during the first nine months of the year. Tissue valve performance was impacted by weaker performance of the traditional tissue heart valves in the US, partially compensated by the positive performance of Perceval^TM.

During 2014, Sorin Group obtained CE mark for an expanded adult age indication for Perceval^TM, as well as dedicated reimbursement status in the Czech Republic and Germany. In October, significant clinical and health economic data from European studies were presented on Perceval^TM at the EACTS congress in Milan. In January 2015, Sorin Group announced the completion of US patient enrollment for the Perceval^TM IDE study. All these factors further reinforce the Company’s confidence in the long-term success of Perceval.

In 2014, Sorin Group obtained US FDA approval for Mitroflow^TM with Phospholipid Reduction Treatment (PRT) and Solo Smart^TM valves, now both commercially available in the US, as well as CE mark certification for the innovative stented aortic bioprosthesis CROWN PRT^TM. The Company also obtained CE mark and FDA approval for the MEMO 3D ReChord^TM mitral valve annuloplasty ring.

During 2014, Sorin Group completed the acquisition of the cardiac surgery cannulae activities from its supplier Bioengineering Laboratories S.p.A. (BEL).

• The Cardiac Rhythm Management Business Unit posted revenues of €243.5 million in 2014, a slight growth of 0.3%⁷ compared to 2013.

(*) For details, see attached table "Consolidated revenues by Business Unit”

Revenues outside Japan grew by approximately 1%⁷ in 2014 compared to 2013, confirming the continuous improvement in the CRM business. High voltage revenues were affected by a challenging pricing environment in the implantable defibrillator segment, notwithstanding the continued penetration of SonR^TM in Europe in 2014. Low voltage revenues grew in 2014, driven by the roll-out of KORA^TM 100 and REPLY^TM 200 pacing systems.

In 2014, the Company presented the results of the ANSWER study demonstrating that Sorin’s SafeR significantly reduces heart failure events and improves clinical outcomes, and also completed enrollment in the Respond CRT IDE clinical study to demonstrate safety and effectiveness of its SonR CRT optimization system.

During 2014, Sorin Group executed several important deals including the joint-venture with MicroPort Scientific Corporation to enter the Chinese CRM market and the acquisition of Oscor’s leads business, including a manufacturing facility in the Dominican Republic.

• In 2014, Sorin Group confirmed its continued commitment to New Ventures (new growth platforms in neurostimulation to treat heart failure and percutaneous mitral valve therapies). During 2014, the Company executed a US$20 million minority investment in Respicardia, a US-based developer of implantable therapies designed to improve respiratory and cardiovascular health. Under the terms of this transaction, Sorin also acquired the exclusive right to distribute the remede® System in selected European countries and an exclusive option to acquire Respicardia in the future. Throughout 2014, Sorin Group continued to support the development of New Ventures investments, as confirmed by the first commercial sales of Respicardia’s device in Europe and today’s announcement of the successful first implants of Sorin Equilia^TM, neurostimulation system for heart failure patients. In February 2015, the Company also executed further investments of €2.8 million and US$7.5 million, respectively, in HighLife and Caisson, companies that focus on the development of innovative mitral valve replacement systems, for the important milestones achieved.

Gross profit in 2014 was €438.5 million, or 58.7% of revenues, compared to 59.1% of revenues in 2013. The decrease in Gross margin is mainly due to an unfavourable country mix, to pricing erosion in CRM globally and to the effect of foreign exchange rates, partially compensated by continuous progress in manufacturing efficiencies.

Selling, general and administrative (SG&A) expenses were €285.2 million compared to €280.3 million in 2013. At constant foreign exchange rates, SG&A were substantially flat over the same period of 2013. Both fiscal years include a €2.7 million negative impact of the US medical device excise tax.

Research and development (R&D) expenses were €80.3 million (10.8% of revenues) compared to €73.7 million (10.0% of revenues) in 2013. R&D activity was primarily focused on the new product releases of Inspire^TM, Heartlink^TM, Connect^TM, the clinical studies for Perceval^TM and SonR^TM, the development of Platinium and internal neurostimulation projects.

EBITDA was €120.7 million, or 16.2% of revenues, compared to €131.1 million, or 17.8% of revenues in 2013. EBITDA included a €7.2 million impact from New Ventures and reflected a €14.0 million unfavorable foreign exchange effect.

EBIT was €74.1 million compared to €68.6 million in 2013. EBIT before special items was €73.0 million in 2014 compared to €82.8 million in 2013. Special items, positive for €1.1 million in 2014, primarily included restructuring charges for €1.5 million and €7.6 million related to the impact from the sales return reserve, balanced by a €15.5 million income related to the insurance indemnification for the earthquakes in Emilia of 2012. The remaining non-recurring charges mainly refer to business development activities and litigation costs.

Net financial charges were €7.9 million compared to €5.7 million in 2013, reflecting FX charges. On a run-rate basis, the financial charges in 2014 increased by €0.2 million compared to 2013.

Net profit was €52.5 million compared to €48.9 million in 2013. The net profit for 2014 includes €15.5 million, considered the minimum insurance payment due to the Company in relation to the damage caused by the 2012 earthquakes. Negotiations for the definitive settlement are ongoing.

Adjusted net profit⁸ was €55.1 million, compared to €60.8 million in 2013. Adjusted net profit included a €5.3 million impact from New Ventures and reflected a €10.0 million unfavorable foreign exchange effect.

Net financial debt as of December 31, 2014 was €124.4 million, compared to €68.7 million as of December 31, 2013 (€113.2 million as of September 30, 2014). Special items for the period were negative for €57.9 million, including €35.7 million for business development initiatives (see details in the attached table). In June 2014, Sorin paid-down the 2007-2014 loan from the European Investment Bank (EIB) and signed a finance contract with EIB for a new €100 million medium-long term facility.

In 2014, the Company's free cash flow⁹ amounted to €2.2 million, reflecting one-off investments related to the reconstruction of the Mirandola site and a temporary absorption in working capital.

Guidance for the current fiscal year and for the first quarter of 2015

For 2015, the Company expects revenues to grow by 4-6%¹⁰ over 2014 and Adjusted net profit⁸ of approximately €55 million, equivalent to Adjusted EPS (Earnings per share) of 11.5 euro cents, substantially in line with 2014.

In 2015 the Company will focus on accelerating long-term growth through the roll-out of the Inspire^TM-Heartlink^TM-Connect^TM system, the continued penetration of Perceval^TM and SonR^TM, the commercial launch of KORA^TM in Japan, the initial contribution from remede® System commercialization and the geographic expansion in emerging markets, primarily China and Brazil.

As for fiscal year 2014, 2015 profitability will still be impacted by unfavourable country mix, pricing erosion in CRM and investments in New Ventures. In particular, Sorin expects the temporary dilutive effect of the New Ventures to be in the region of €10 million (of which approximately €3 million incremental compared to 2014) at EBITDA level. These factors will be more than offset by manufacturing efficiencies and cost containment initiatives as well as by top-line growth. FX impact for 2015 is expected neutral at current FX rates.

Sorin Group also announces the strategic repositioning of its US CRM business. This program, which should allow the CRM business to reach operating break-even in the US by the second half of 2015, confirms Sorin’s commitment to the US market by accelerating the transition to a specific focus premium positioning on the high-tier and undertreated segment of heart failure and related co-morbidities. This strategy is supported by the Company’s strong and unique pipeline of innovative therapies expected to access the US market from 2016 onwards such as SonR^TM, Equilia^TM and Respicardia. The program, which is expected to be launched in the first quarter of 2015 and completed by the end of 2015, aims at achieving overall savings, once fully implemented, of approximately €4 million per year on a full year basis.

Sorin Group expects 2016 to show top-line growth and improvement in profitability. Top-line performance and profitability will be driven by the full conversion to Inspire, Perceval’s US FDA approval and access to the US market, the launch of the Platinium platform for CRM devices, SonR’s continued penetration following RESPOND’s clinical results and the contribution of the New Ventures initiatives, Respicardia and Equilia^TM.

For the first quarter of 2015, Sorin Group expects revenues to grow 2-3%¹¹ over the same period of 2014.

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Unaudited data

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The corporate officer responsible for the company’s financial reports, Demetrio Mauro, declares, pursuant to Paragraph 2 of Article 154-bis of the Consolidated Law on Finance that the accounting information contained in this press release corresponds to the documented results and the accounting books and records.

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In addition to the conventional indicators recommended by the IFRS, this press release provides alternative performance indicators. These indicators should not be considered as replacements for the conventional indicators recommended by the IFRS, but rather as an additional source of information, representative of the income statement, balance sheet and financial position parameters used internally in the decision-making process. An explanation of the meaning and structure of these alternative performance indicators is provided in the Interim Report on Operations at June 30, 2014.

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This press release contains forward-looking statements. These statements are based on the Group’s current expectations and projections about future events and, by their nature, are subject to inherent risks and uncertainties. They relate to events and depend on circumstances that may or may not occur or exist in the future, and, as such, undue reliance should not be placed on them. Actual results may differ materially from those expressed in such statements as a result of a variety of factors, including: continued volatility and further deterioration of capital and financial markets, changes in commodity prices, changes in general economic conditions, economic growth and other changes in business conditions, changes in laws and regulations (both in Italy and abroad), and many other factors, most of which are outside of the Company’s control.

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About Sorin Group

Sorin Group (www.sorin.com) is a global, medical device company and a leader in the treatment of cardiovascular diseases. The Company develops, manufactures, and markets medical technologies for cardiac surgery and for the treatment of cardiac rhythm disorders. With over 3,500 employees worldwide, Sorin Group focuses on two major therapeutic areas: Cardiac Surgery (cardiopulmonary products for open heart surgery and heart valve repair or replacement prostheses) and Cardiac Rhythm Management (pacemakers, defibrillators and non invasive monitoring to diagnose arrhythmias and deliver anti-arrhythmia therapies as well as cardiac resynchronization devices for heart failure treatment). Every year, over one million patients are treated with Sorin Group devices in more than 100 countries.
For more information, please refer to www.sorin.com

¹ At comparable exchange rates and perimeter
² Adjusted net profit: net profit before after-tax non-recurring income and expenses (special items)
³ See Sorin Group’s press release dated November 27, 2013
⁴ At comparable exchange rates and perimeter
⁵ At comparable exchange rates and perimeter
⁶ At comparable exchange rates and perimeter
⁷ At comparable exchange rates and perimeter
⁸ Adjusted net profit: net profit before after-tax non-recurring income and expenses (special items)
⁹ Free cash flow: net profit + depreciation, amortization and writedowns ± ? working capital – investments. This account is net of the impact of special items
¹⁰ At comparable exchange rates and perimeter
¹¹ At comparable exchange rates and perimeter