At a meeting held and chaired by Rosario Bifulco, the Sorin Board of Directors analysed the results for the fourth quarter 2012 and the preliminary unaudited consolidated results for the year of 2012. The final draft of the financial statements for the year of 2012 will be approved by the Board of Directors at a meeting to be held on 14th March 2013.
Consolidated Results For The Fourth Quarter 2012
In the fourth quarter of 2012, Sorin posted revenues of EUR 190.8 million.
The Cardiopulmonary Business Unit (heart-lung machines, oxygenators and autotransfusion blood circulation systems) reported revenues of EUR 87.9 million. The heart-lung machines segment, which was not affected by the earthquakes, posted a 6.4 per cent contraction in the fourth quarter, mostly attributable to a challenging quarter-over-quarter comparison. The oxygenators and autotransfusion segments were recovering from the earthquakes in Mirandola, Italy, ahead of plan. The company estimates that the negative impact of these events on revenues is equal to approximately EUR 15 million in the fourth quarter.
The Heart Valves Business Unit (mechanical, tissue and sutureless heart valves and valve-repair products) reported revenues of EUR 32.0 million, a 3.3 per cent increase compared with the fourth quarter of 2011. The quarter was marked by a very strong performance of the tissue valves segment, mostly attributable to the ongoing penetration of Mitroflow in the US, Japan and emerging markets, and the contribution of Perceval, which more than offset the weak performance of mechanical valves. During the quarter, the company launched in the US its Mitroflow Valsalva Conduit, believed to be the only Valsalva conduit graft for use in combination with an aortic tissue valve, and secured the approval for marketing and sale of its Mitroflow aortic heart valve in Japan. Finally, in the period, Sorin acquired a minority investment with option-to-buy in HighLife, an early-stage company focused on the development of a unique transcatheter mitral valve replacement system.
The Cardiac Rhythm Management Business Unit (implantable devices to manage cardiac rhythm disorders) posted revenues of EUR 70.3 million, a slight 0.7 per cent decrease compared with the fourth quarter of 2011, reflecting continuous share gains in a contracting CRM market. Revenue growth in the high-voltage segment is mainly attributable to the ongoing penetration of Sorinâs CRT-D SonR premium device in Europe. The low voltage segment reported a decrease in revenues, mainly as a result of growing pricing pressure in all major markets. During the quarter, Sorin acquired Neurotech, a development-stage company focused on neurostimulation devices.
Sorin also announced a cost savings programme to strengthen the companyâs competitive position and to free-up resources to re-invest in its long-term growth initiatives. The programme is expected to be completed in 2013 and aims at achieving overall savings, once fully implemented, of approximately EUR 15-17 million per year. Sorin expects to reinvest part of these savings in its new growth platforms and in the fast-growing emerging markets. To achieve the overall programme savings the company will incur in approximately EUR 16 million of restructuring charges, of which EUR 6.8 million recorded in the fourth quarter of 2012. This program also reflects the combination of Sorinâs Cardiopulmonary and Heart Valves divisions into a single Cardiac Surgery business unit and, in order to allow the company to respond more effectively to the challenging CRM environment, particularly in the US, a streamlining of the CRM field organisation, including the shut-down of the Plymouth, MN facility and subsequent centralisation of the companyâs US CRM activities in the site of Arvada, CO.
Preliminary Consolidated Results For 2012
In 2012, Sorin reported revenues of EUR 731.1 million, a 1.7 per cent decrease, as reported, compared with 2011. Revenues of the product segments not impacted by the earthquakes increased by 5.3 per cent, as reported, or by 2.0 per cent at constant foreign exchanges over 2011.
The Cardiopulmonary Business Unit realised revenues of EUR 319.4 million in 2012, a 7.4 per cent decrease, as reported, compared with 2011, due to the earthquakes that hit the Mirandola plant in May 2012. The company estimates that the negative impact on revenues as a result of the earthquakes is equal to approximately EUR 62 million for the full year of 2012.
The heart-lung machines segment, which was not affected by the earthquakes, posted record revenues for the fourth consecutive year, further reinforcing the companyâs leadership position in every major market.
The oxygenators and autotransfusion segments were impacted by the earthquakes. As Sorin was able to restart production for both product segments ahead of plan, the negative impact on revenues was significantly lower than initially anticipated. The company expects to regain 100 per cent of its market share in the oxygenators and autotransfusion product segments by June 2013. During 2012, Sorin focused on the manufacturing scale-up of the new family of oxygenators Inspire, which the company plans to roll-out in the first half of 2013.
In July 2012, Sorin acquired the US-based company, California Medical Laboratories, a manufacturer of high quality cannulae, catheters and accessories for cardiac surgery. This acquisition represents a further strengthening of Sorin's competitive positioning in the cannulae product segment, and follows the July 2011 acquisition of Estech's minimally invasive cannulae product line.
The Heart Valves Business Unit realised revenues of EUR 126.5 million, a 2.1 per cent increase compared with 2011. The mechanical valves segment witnessed a decrease in revenues in line with the continued shift of the market toward biological valves. The tissue valves segment reported a 6.2 per cent growth, driven by the ongoing penetration of Mitroflow in emerging markets and the US, and the strong performance of Perceval, whose annual revenues amounted to EUR 8.4 million. During 2012, the company received CE mark for Percevalâs proprietary MIS introducer, next generation kit of accessories and extended indications (from patients over the age of 75 to patients over 65).
In the second half of the year, Sorin received the FDA approval for the Mitroflow Valsalva Conduit and the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) approval for the Mitroflow aortic valve in Japan.
The growth in the Other segment was driven by the solid performance of the annuloplasty rings, including the Memo 3D mitral repair ring launched in Japan and other accessories for heart valve cardiac surgery.
During 2012, Sorin demonstrated its commitment to build a new growth platform in percutaneous mitral valve therapies through two selected investments. In July and November 2012, Sorin acquired, respectively, a minority interest with option-to-buy in Cardiosolutions and HighLife, companies both focused on the development of innovative percutaneous systems to treat patients with mitral valve regurgitation.
As a result of the combination of Sorinâs Cardiopulmonary and Heart Valves divisions, the company will start to report together, at the next quarterly results release, the above revenues for the newly created Cardiac Surgery Business Unit. For reference purposes, in 2012 the Cardiac Surgery Business Unit reported revenues of approximately EUR 445.9 million compared with EUR 463.9 million in 2011.
The Cardiac Rhythm Management Business Unit posted revenues of EUR 282.7 million in 2012, a slight 0.6 per cent contraction compared with 2011, thus reflecting the continued negative trend of this market.
In the low-voltage segment, the company maintained its competitive position despite a decrease in revenues mainly attributable to a slowdown in the US market, pricing pressure in Europe and reimbursement changes in Japan.
The companyâs commitment to innovation continued in 2012, with significant marketing approvals and roll-out of key products including: a new portfolio of leads in Europe and in the US, the Paradym RF family of implantable cardioverter defibrillators and cardiac resynchronisation devices with remote monitoring capabilities in the US, the Smartview remote monitoring solution for patients with implantable cardiac devices in Europe, and finally, the SFDA approval and the commercial launch of the Reply and Esprit ranges of pacemakers in China. During the year, the full results of the CLEAR study were also published in Europace Advance Access, a peer reviewed cardiology journal, and the first patients were enrolled in the DREAM clinical study, aimed at evaluating the sensitivity and positive predictive value of the Sleep Apnoea Monitoring (SAM) feature in implantable pacemakers.
Finally in 2012, Sorin confirmed its commitment to build a new growth platform in neuromodulation therapies to treat heart failure. During the year, the company initiated the âIntenseâ collaborative R&D project, which was selected for the Investissements dâAvenir program by the French Government, and acquired the Belgian developer of neurostimulation devices Neurotech. Both projects are highly complementary and are aimed at the development of implantable medical devices that stimulate the vagus nerve. Such programs, which follow the 2011 investment in Enopace Biomedical, represent important steps forward in the implementation of the company's long-term growth strategy.
Gross profit in 2012 was EUR 443.5 million, or 60.7 per cent of revenues, compared with 60.2 per cent of revenues in 2011. This improvement is mostly driven by a favourable product mix and ongoing manufacturing efficiencies, which more than offset the negative impact of the pricing pressure in CRM.
Selling, general and administrative (SG&A) expenses were EUR 310.1 million compared with EUR 289.7 million in 2011. At constant foreign-exchange rates, SG&A expenses increased by 1.1 per cent or EUR 3.2 million in absolute terms. Notwithstanding the earthquakes and in order to preserve the companyâs ability to accelerate its recovery plan, Sorin did not reduce its sales and marketing activities in the Cardiopulmonary Business Unit.
Research and development (R&D) expenses were EUR 75.4 million compared with EUR 70.1 million in 2011. At constant foreign-exchange rates, R&D expenses increased by 6.5 per cent or EUR 4.5 million in absolute terms. R&D activity was primarily focused on the manufacturing scale-up of Inspire, the development of Heartlink, the new product releases of SonR and Remote Monitoring systems, the clinical studies for the Perceval and Freedom Solo valves and the Intense neuromodulation project.
EBITDA was EUR 101. 8 million compared with EUR 128.7 million in 2011. The company estimates that the earthquakes had a negative impact on EBITDA of approximately EUR 31 million for the full year of 2012.
EBIT was EUR 37.7 million compared with EUR 87.7 million in 2011. EBIT before special items was EUR 58.0 million (EUR 87.8 million in 2011). Special items, totalling EUR 20.3 million for 2012, include restructuring charges for EUR 7.9 million, non-recurring charges related to the earthquakes (such as inventory and fixed assets write-off, costs for demolition and reconstruction) for EUR 13.4 million and extraordinary expenses related to the write-off of in-process research & development for EUR 7.5 million, partly balanced by the partial indemnification for the earthquakes of EUR 13.75 million. This indemnification reflects a first instalment of EUR 10 million received by the company in July 2012 and a second instalment of EUR 3.75 million received in January 2013. The remaining non-recurring charges refer to business development activities and legal fees and disputes.
Financial charges amounted to EUR 12.8 million compared with EUR 7.3 million in 2011. The full-year 2012 incorporates a financial charge of EUR 4.8 million for the unwinding of an over-hedging position resulting from a lower revenue level following the earthquakes. On a run-rate basis, interest expenses decreased by EUR 1.4 million in 2012, mostly as a result of lower average debt. Sorinâs medium-long term debt, amounting to EUR 95.2 million at 2012 year-end, is financed by the European Investment Bank and due in June 2014.
Net profit was EUR 23.7 million compared with EUR 58.0 million in 2011. Adjusted net profit was EUR 42.1 million compared with EUR 58.6 million in 2011. The company estimates that the negative impact on adjusted net profit related to the earthquakes amounted to approximately EUR 20 million for the full-year 2012.
Net financial debt as of 31st December 2012 was down to EUR 87.8 million, compared with EUR 105.9 million as of 31st December 2011 (EUR 89.1 million as of 30th September 2012). Improvements in working capital were partially offset by special items totalling EUR 29.8 million. Special items include EUR 38.0 million associated to business development initiatives related to the implementation of the companyâs long-term growth strategy.
In 2012, the company's free cash flow amounted to EUR 47.8 million. Sorin estimates that the negative cash impact related to the earthquakes amounted to approximately EUR 20 million, including the first installment of EUR 10 million of the partial insurance indemnification.
Guidance for the current fiscal year
For 2013, the company expects:
â¢ Cardiopulmonary to recover from the earthquakes and to grow revenues by approximately 10 per cent over 2012.
â¢ The remaining businesses to grow by 3-5 per cent over 2012.
â¢ Adjusted net profit of approximately EUR 55-60 million.
In 2013, the company will focus on accelerating long-term growth through the full market share recovery in the product segments affected by the earthquakes, the commercial launch of Inspire and Heartlink, the continued growth of SonR, the roll-out of Perceval (which is expected to generate EUR 13-153 million of sales), the ongoing management of the companyâs recent investments in innovation and the geographic expansion in emerging markets. For the first quarter of 2013, Sorin expects revenues of approximately EUR 178-180 million.