SORIN-GROUP

Sorin Group (MIL:SRN):

At a meeting held today and chaired by Rosario Bifulco, the Sorin S.p.A. Board of Directors approved the results for the first half of 2014.

“Our second quarter revenues came in at the high-end of the guidance. The Cardiac Surgery business unit continued to report robust revenue growth, driven by strong momentum in the cardiopulmonary products and by the penetration of Perceval^TM . The Cardiac Rhythm Management business was still affected by lower volumes in Japan. Net earnings in the quarter were in line with our expectations taking into account the negative impact of FX and our continuous investment in New Ventures," said André-Michel Ballester, Chief Executive Officer, Sorin Group. "By year-end, however, we expect our CRM business to confirm its stabilization and we remain committed to achieving our profitability targets, while increasing our investments in growth initiatives," he added.

Results for the second quarter of 2014

In the second quarter of 2014 , Sorin Group posted revenues of €190.6 million , up 4.4% at comparable foreign exchange over the second quarter of 2013.

• The Cardiac Surgery Business Unit (cardiopulmonary products for open heart surgery and heart valve repair or replacement products) reported revenues of €126.8 million , up 9.5%⁴ compared to the second quarter of 2013. Heart-lung machines achieved a quarter of record revenue growth, driven by strong penetration in the US, Europe and Australia. The oxygenator and autotransfusion system segments both reported positive momentum in every major market. The oxygenator business also benefitted from the roll-out of Inspire^TM , particularly in Europe. The tissue valves business posted positive results, thanks mostly to the contribution of Perceval^TM , which more than offset the weak performance of traditional valves in the US. In the second quarter, mechanical valves reported lower volumes in emerging markets and in the US.
  
  During the quarter, Sorin Group received U.S. Food and Drug Administration (FDA) approval for the Mitroflow^TM Aortic Pericardial Heart Valve with Phospholipid Reduction Treatment (PRT), a patented advanced tissue treatment intended to further improve valve durability. In May, Sorin Group announced the Freedom Solo^TM FDA study results at the Annual Meeting of American Association for Thoracic Surgery (AATS) in Toronto (Canada). This multicenter study showed outstanding hemodynamic and clinical performance of Freedom Solo^TM stentless valve.
  
  Finally, Sorin Group announced in July it has received CE mark certification for its innovative stented aortic bioprosthesis CROWN PRT^TM , now commercially available in Europe. CROWN PRT^TM features surgeon-friendly design, PRT technology, state-of-the-art hemodynamic and durability performance. In July, Sorin Group also obtained U.S. FDA approval for Solo Smart^TM , the first aortic valve with a removable stent, providing native-like performance with the ease of implant of a stented valve.

(Euro million)
		Q2 14 Revenues		Underlying growth %*
Heart-lung machines		27.1		38.7%
Oxygenators		51.5		5.2%
Autotransfusion machines and devices		15.7		7.2%
Mechanical Heart Valves		12.2		-9.8%
Tissue Heart Valves		17.1		6.9%
Other		3.3		ns
Totale Cardiac Surgery		126.8		9.5%

(*) 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 €63.2 million , a 4.6%⁵ decrease compared to the second quarter of 2013. In a challenging pricing environment, the CRM business, excluding Japan, reported flat revenues in the quarter thanks to the roll-out of KORA^TM 100 and REPLY^TM 200 pacing systems in Europe. The KORA^TM 100 family is expected to be approved in Japan in the fourth quarter of 2014.
  
  In June, the ANSWER study results were presented at the Cardiostim/EHRA congress in Nice (France) and showed that Sorin’s SafeR, a unique pacing mode designed to limit right ventricular pacing, significantly reduces heart failure events and significantly improves clinical outcomes. During the quarter, Sorin Group also officially established the CRM joint venture in China after receiving approvals from government authorities. The joint-venture between MicroPort Scientific Corporation and Sorin Group will allow both companies to collaborate on the import, sale and service of Sorin’s CRM devices in Greater China and accelerate the R&D and manufacturing of local CRM products for the Chinese market.

(Euro million)
		Q2 14 Revenues		Underlying growth %*
High Voltage (defibrillators and CRT-D)		21.7		-8.0%
Low Voltage (pacemakers)		38.3		-3.6%
Other		3.1		ns
Total Cardiac Rhythm Management		63.2		-4.6%

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

Gross profit in the second quarter of 2014 was €110.5 million, or 58.0% of revenues, compared to 59.3% in the second quarter of 2013. The decrease is due to the soft performance of CRM in Japan, pricing erosion in CRM globally and negative effect of foreign exchange rates, not fully offset by manufacturing efficiencies.

Selling, General and Administrative (SG&A) expenses were €73.2 million, compared to €72.4 million in the second quarter of 2013. At constant foreign exchange rates, SG&A increased by 1.4% over the same period of 2013.

Research and Development (R&D) expenses rose by 6.3% to €20.4 million (10.7% of revenues) compared to €19.2 million (10.2% of revenues) in the second quarter of 2013.

EBITDA in the second quarter of 2014 was €28.6 million, or 15.0% of revenues, compared to €31.2 million, or 16.6% of revenues in the second quarter of 2013, reflecting the negative impact of foreign exchange and continuous investments in New Ventures.

EBIT was €15.8 million compared to €19.8 million in the second quarter of 2013. EBIT before special items was €16.9 million compared to €19.7 million in the second quarter of 2013. Special items were negative for €1.1 million in the second quarter of 2014 (see details in attached table).

Net financial charges were €1.7 million compared to €2.5 million in the second quarter of 2013. On a run-rate basis, the financial charges in the second quarter of 2014 increased by €0.3 million over the same period of 2013.

Net profit was €10.0 million compared to €12.9 million in the second quarter of 2013.

Adjusted net profit ⁶ was €10.8 million compared to €12.9 million in the second quarter of 2013. Adjusted net profit included a €2.0 million impact from New Ventures and reflected a €2.1 million unfavorable foreign exchange effect.

Net financial debt as of June 30, 2014 was €109.4 million compared to €90.9 million as of June 30, 2013 (€95.6 million as of March 31, 2014). Special items for the period were negative for €2.2 million (see details in attached table). During the quarter, 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 the second quarter of 2014, the Company’s free cash flow ⁷ was negative for €11.7 million. Sorin’s free cash flow was primarily impacted by one-off investments associated with the reconstruction of the Mirandola site and by a temporary increase in inventory in Cardiac Surgery.

Results for the first half of 2014

In the first half of 2014, Sorin Group posted revenues of €366.9 million , a 3.1% increase at comparable foreign exchange rates over the first half of 2013.

Gross profit for the first half of 2014 was €214.8 million, or 58.6% of revenues, compared to €216.9 million, or 59.2% of revenues in the first half of 2013. The decrease is mainly due to pricing erosion in CRM, the effect of foreign exchange rates and the soft performance of CRM in Japan, not fully offset by manufacturing efficiencies.

Selling, General and Administrative (SG&A) expenses were €142.3 million, compared to €144.6 million in the first half of 2013. At constant foreign exchange rates, SG&A expenses were substantially flat.

Research and development (R&D) expenses rose by 4.9% to €40.1 million (10.9% of revenues) compared to €38.2 million (10.4% of revenues) in the first half of 2013.

EBITDA in the first half of 2014 was €55.4 million, or 15.1% of revenues, compared to €57.5 million, or 15.7% of revenues in the first half of 2013, reflecting the negative impact of foreign exchange and continuous investments in New Ventures.

EBIT was €30.1 million compared to €28.5 million in first half of 2013. EBIT before special items was €32.4 million compared to €34.0 million in the first half of 2013.

Net financial charges were €3.5 million compared to €4.1 million in the same period of 2013. On a run-rate basis, the financial charges increased by €0.4 million in the first half of 2014.

Net profit was €19.9 million compared to €17.9 million in the first half of 2013.

Adjusted net profit ⁸ was €21.6 million compared to €22.0 million in the first half of 2013. Adjusted net profit included a €3.8 million impact from New Ventures and reflected a €4.5 million unfavorable foreign exchange effect.

Net financial debt as of June 30, 2014 totalled €109.4 million compared to €90.9 million at June 30, 2013 (€68.7 million at December 31, 2013). The special items for the period were unfavourable for €26.6 million, including €15.4 million for business development initiatives.

In the first half of 2014 the Company’s free cash flow ⁹ was negative for €14.1 million.

Guidance for the third quarter of 2014

For the third quarter 2014, Sorin Group expects revenues to grow from 2% to 4% at comparable foreign exchange rates over the same period of 2013. The Company also confirms the previously communicated 2014 full-year guidance¹⁰ for Adjusted net profit and expects to be at the high-end of the sales guidance.

* * *

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.

* * *

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, 2013.

* * *

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.

* * *

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 over 3,500 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 At comparable exchange rates and perimeter
² Adjusted net profit: net profit before the after-tax non-recurring income and expenses (special items)
³ See press release dated February 6, 2014
⁴ At comparable exchange rates and perimeter
⁵ At comparable exchange rates and perimeter
⁶ Adjusted net profit: net profit before the after-tax non-recurring income and expenses (special items)
⁷ Free cash flow: net profit + depreciation, amortization and writedowns ± ∆ working capital – investments. This account is net of the impact of special items
⁸ Adjusted net profit: net profit before the 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 See press release dated February 6, 2014

Contact:

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

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