Sorin Group Announces Results for the First Quarter of 2015

At a meeting held today and chaired by Rosario Bifulco, the Sorin S.p.A. (MIL:SRN) Board of Directors approved the results for the first quarter of 2015.

“Although first quarter revenues came below expectations, primarily due to operational challenges in the heart valves segment, I am encouraged by the current level of business activity and expect an acceleration in the second half of the year driven by the full conversion to Inspire^TM, Perceval^TM’s expected US FDA approval and the launch of the Platinium^TM platform for CRM devices in Europe," said André-Michel Ballester, Sorin Group's Chief Executive Officer. "During the quarter, we announced our intention to merge with Cyberonics to create a new global leader in medical technologies. As one company we will be able to leverage our combined strengths and capture new opportunities to drive growth and build significant shareholder value," he added.

In the first quarter of 2015, Sorin Group posted revenues of €189.4 million, up 0.6% at comparable foreign exchange and 7.4% as reported over the first quarter of 2014.

• The Cardiac Surgery Business Unit (cardiopulmonary products for open heart surgery and heart valve repair or replacement products) reported revenues of €126.3 million, up 0.5%⁴ compared to the first quarter of 2014. Heart-lung machines achieved another quarter of revenue growth in most major markets. The oxygenators segment benefited from the roll-out of Inspire^TM in Europe, the US and Japan, partially offset by a soft performance in emerging markets. The autotransfusion systems segments also recorded strong momentum, primarily in Europe and the US. The tissue valves business posted negative results primarily due to a weak performance in traditional valves in the US and to the temporary limitation in the production capacity for Perceval^TM at Sorin’s Saluggia plant. The Company expects to restore the full commercial availability of Perceval^TM during the second quarter of 2015.
  
  During the first quarter of 2015, Sorin Group completed the patient enrollment for the Perceval^TM IDE (Investigational Device Exemption) study in the US and filed the PMA (Pre-Market Approval) with FDA.

(Euro million)
		Q1 15 Revenues		Underlying growth %*
Heart-lung machines		24.1		3.1%
Oxygenators		53.3		0.8%
Autotransfusion machines and devices		17.1		5.8%
Mechanical Heart Valves		12.3		-5.7%
Tissue Heart Valves		15.9		-4.6%
Other		3.5		2.2%
Totale Cardiac Surgery		126.3		0.5%

(*) For details, see the table entitled “Consolidated revenues by Business Units”

• The Cardiac Rhythm Management Business Unit (implantable devices to manage cardiac rhythm disorders) reported revenues of €62.5 million, a 0.8%⁴ increase compared to the first quarter of 2014. Low-voltage reported growth thanks to the initial launch of KORA^TM 100 in Japan and the roll-out of both REPLY^TM 200 and KORA^TM 100 in Europe. High-voltage was impacted by a still challenging pricing environment.
  
  During the quarter, Sorin announced the approval from Japan’s Pharmaceutical and Medical Devices Agency (PMDA) for its KORA^TM 100 pacing system with automatic MRI mode. The Company also announced in the quarter the strategic repositioning of the business in the US with a specific focus on the high-tier and undertreated segment of heart failure and related co-morbidities.

(Euro million)
		Q1 15 Revenues		Underlying growth %*
High Voltage (defibrillators and CRT-D)		20.7		-8.9%
Low Voltage (pacemakers)		38.6		7.0%
Other		3.2		-1.0%
Total Cardiac Rhythm Management		62.5		0.8%

(*) For details, see the table entitled “Consolidated revenues by Business Units”

• In New Ventures (new growth platforms in neurostimulation for heart failure and related co-morbidities and percutaneous mitral valve therapies), during the first quarter of 2015, Sorin continued the initial commercial roll-out of Respicardia’s device in Europe and started the enrollment of first patients in the clinical study of Equilia^TM, Sorin’s neurostimulation system for heart failure patients. In the quarter, 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.

Gross profit in the first quarter of 2015 was €107.3 million, or 56.7% of revenues, compared to 59.2% of revenues in the first quarter of 2014. The decrease in Gross margin is mainly due to a different country mix, to pricing erosion in CRM globally and to a negative foreign exchange impact.

Selling, General and Administrative (SG&A) expenses were €75.1 million, compared to €69.2 million in the first quarter of 2014. At constant foreign exchange rates, SG&A decreased by 3.9%.

Research and Development (R&D) expenses rose by 3.5% to €20.4 million (10.8% of revenues) compared to €19.7 million (11.2% of revenues) in the first quarter of 2014.

EBITDA was €24.7 million, or 13.0% of revenues, compared to €26.8 million, or 15.2% of revenues in the first quarter of 2014, reflecting the negative impact of foreign exchange and continuous investments in growth initiatives.

EBIT was €1.9 million compared to €14.2 million in the first quarter of 2014. EBIT before special items was €11.9 million, compared to €15.5 million in the first quarter of 2014. Special items, negative for €10.0 million, primarily included restructuring charges for €2.0 million (mostly related to CRM US re-positioning) and €6.1 million related to transaction expenses associated with the pending merger with Cyberonics.

Net financial charges were €3.1 million compared to €1.8 million in the first quarter of 2014, primarily due to FX losses. On a run-rate basis, the financial charges in the first quarter of 2015 improved by €0.4 million compared to the same period of 2014.

Net result was negative for €1.5 million compared to €9.9 million in the first quarter of 2014.

Adjusted net result ⁵ was €7.7 million, compared to €11.2 million in the first quarter of 2014. Adjusted net profit included a €1.9 million impact from New Ventures and reflected a €3.4 million unfavorable foreign exchange effect.

Net financial debt as of March 31, 2015 was €163.9 million compared to €124.4 million as of December 31, 2014 (€95.6 million as of March 31, 2014). Special items for the period were negative for €23.8 million, including €10.0 million for business development initiatives (see details in attached table).

In the first quarter of 2015, the Company’s free cash flow ⁶ was negative for €15.7 million. Sorin’s free cash flow was adversely impacted by an unexpected deterioration in the collection cycle particularly in some Southern European and emerging market countries and by a temporary increase in inventory to support new product launches in the second half of the year.

During the quarter Sorin Group announced its intention to merge with Cyberonics Inc. (NASDAQ: CYBX), a medical device company with core expertise in neuromodulation, to create a new global leader in medical technologies⁷. This all-stock transaction, unanimously approved by the boards of directors of both companies, is currently expected to be completed around the end of the third calendar quarter of 2015. The transaction is subject to approval by both Sorin and Cyberonics shareholders, the receipt of required regulatory clearances, and other customary closing conditions.

Guidance

For the second quarter, Sorin Group expects revenues to grow by 2% to 3%⁸.

The Company expects to accelerate top-line growth in the second half of the year and particularly in the fourth quarter thanks to the full conversion to Inspire^TM, Perceval^TM’s expected US FDA approval and the launch of the Platinium^TM platform for CRM devices in Europe.

Therefore, Sorin Group confirms previously communicated 2015 full-year guidance⁹.

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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 Annual Report as of December 31, 2014.

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This press release contains forward-looking statements. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise. They are based on current beliefs of Sorin’s management as well as assumptions made by, and information currently available to, such management, and therefore, you are cautioned not to place undue reliance on them. These forward-looking statements are subject to various risks and uncertainties, many of which are outside Sorin’s control. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. Sorin does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by law. Forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of the medical device industry, and other legal, regulatory and economic developments. Sorin uses words such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “will,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and similar expressions to identify these forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include risks to the industry in which Sorin operates that are described in Sorin’s annual reports and other documents filed from time to time with the Italian financial market regulator (CONSOB); risks associated with assumptions Sorin makes in connection with its critical accounting estimates and legal proceedings; Sorin’s international operations, which are subject to the risks of currency fluctuations and foreign exchange controls; and the potential of international unrest, economic downturn or effects of currencies, tax assessments, tax adjustments, anticipated tax rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect Sorin’s business, including those described in Sorin’s annual reports, registration documents and other documents filed from time to time with CONSOB. Nothing in this press release is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per Sorin share for the current or any future financial period will necessarily match or exceed the historical published earnings per Sorin share. Sorin does not give any assurance (1) that it will achieve its expectations or (2) concerning any result or the timing thereof, in each case, with respect to any regulatory action, administrative proceeding, government investigation, litigation, warning letter, consent decree, cost reduction, business strategy, earnings or revenue trend or future financial result.

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About Sorin Group

Sorin Group (Reuters Code: SORN.MI), 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 3,900 employees worldwide, the Company focuses on two major therapeutic areas: Cardiac Surgery (cardiopulmonary products for open heart surgery and heart valve repair or replacement products) and Cardiac Rhythm Management (pacemakers, defibrillators, cardiac resynchronization devices). Every year, over one million patients are treated with Sorin Group devices in more than 80 countries.

For more information, please refer to www.sorin.com

¹ Adjusted net profit: net profit before after-tax non-recurring income and expenses (special items)
² At comparable exchange rates and perimeter
³ See press release dated February 11, 2015
⁴ At comparable exchange rates and perimeter
⁵ Adjusted net result: net result before after-tax non-recurring income and expenses (special items)
⁶ Free cash flow: net profit + depreciation, amortization and writedowns ± ∆ working capital – investments. This account is net of the impact of special items
⁷ See press release dated February 26, 2015
⁸ At comparable exchange rates and perimeter
⁹ See press release dated February 11, 2015

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Contact information

Gabriele Mazzoletti, Tel: +39 02 69969785
Mobile: +39 348 9792201
Director, Corporate Communications
Sorin Group
e-mail: corporate.communication@sorin.com
or
Francesca Rambaudi, Tel: +39 02 69969716
Director, Investor Relations
Sorin Group
e-mail: investor.relations@sorin.com