Sorin: The board of directors approves the results for the third quarter of 2004 and the group’s industrial restructuring and operations reorganization program
11/12/2004
Sorin: The board of directors approves the results for the third quarter of 2004 and the group’s industrial restructuring and operations reorganization program
Milan, November 12, 2004 – The Board of Directors of Sorin SpA, meeting today in Milan under the chairmanship of Umberto Rosa, reviewed and approved the report on operations in the third quarter of 2004 presented by Drago Cerchiari, the Company's Chief Executive Officer.
In the third quarter of 2004, revenues grew to 167.8 million euros, or 1.2% more than in the same period last year (on a comparable foreign exchange translation basis). In the first nine months of the year, revenues totaled 535.3 million euros, +4.8% on a comparable basis.
The Cardiac Surgery Business Unit (implantable devices and systems for cardiac surgery) had revenues of 97.4 million euros (+0.2% on a comparable foreign exchange translation basis).
An analysis by product line shows a strong growth in tissue valves and a slight decline in mechanical valves. Positive growth in oxygenators and products for autologous blood transfusion.
The Cardiac Rhythm Management Business Unit (implantable devices for cardiac rhythm management) reported revenues of 40.9 million euros in the third quarter of 2004. The gain of 4.3% on a comparable basis reflects in part the beginning of a sales upturn made possible by the gradual elimination of capacity constraints. More specifically, the Business Unit's September revenues were 10.3% higher than they were in 2003 (on a comparable foreign exchange translation basis) and the rate of growth is expected to accelerate further in the fourth quarter.
The Vascular Therapy Business Unit (drug-eluting and bare-metal coronary stents, endovascular stents and catheters for angioplasty) booked revenues of 4.7 million euros, (-5.2% on a comparable basis). Sales were adversely affected by the ongoing contraction in demand for bare-metal stents, to the benefit of drug-eluting stents. However, on October 25, 2004, Sorin was awarded the CE mark it needed to begin marketing Janus, its drug-eluting stent. Janus is the only drug-eluting stent that combines the benefits of a CarbofilmÔ coating with an innovative drug delivery system. The Group believes that the commercial launch of the Janus stent will provide fresh sales momentum as soon as the fourth quarter of this year.
The Renal Care Business Unit (biomedical devices that treat kidney diseases) had revenues of 24.8 million euros, +1.4% on a comparable basis. It recorded its best sales gains in Belgium and Great Britain.
Consolidated EBITDA totaled 13.6 million euros in the third quarter of 2004, down from 16.9 million euros in the same period last year (on a comparable foreign exchange translation basis). EBIT improved from a negative 3.9 million euros in the third quarter of 2003 to a negative 2.1 million euros for the three months ended September 30, 2004, after nonrecurring charges of 1.3 million euros.
At September 30, 2004, the net indebtedness of the Sorin Group totaled 331.2 million euros, compared with 317.6 million euros at June 30, 2004.
Considering the delays in Janus approval, that just recently obtained the CE mark and thus is ready to be launched, and the persistence of production limitations in the third quarter in the Cardiac Rhythm Management Business Unit, the Group projections for all of 2004 call for consolidated revenues of 720 million euros and EBITDA of about 70 million euros.
After an intense campaign of acquisitions and business combinations pursued in the past few years and after resolving in recent months the main problems facing the operating units (the CRM production issues and the Janus approval and launch in particular), the Group now believes that the time has come to move beyond the aggregation to a phase of greater integration, with the goal of fully realizing all of the Group's untapped value. To that end, management has finalized an analysis of the actions to undertake in order to accelerate the process of increasing the Group's profitability and enhancing the efficiency of its manufacturing system and overall organization.
The Board of Directors approved an industrial restructuring and operations reorganization program, which, when fully operational in 2006, is expected to improve operating earnings by an estimated 50 million euros.
The program includes the following main projects:
Industrial Restructuring Projects
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Consolidation of the production of mechanical cardiac valves in one first-class manufacturing facility in Saluggia (Vercelli, Italy) and gradual transfer of the production of Carbomedics valves away from Austin, Texas (USA), which will continue to serve as the assembly location of the finished products for the North American market. This production shift will enable the Group to benefit from economies of scale and exploit the technological knowhow developed through the work carried out in Saluggia over several decades. Since 1977, hundreds of thousands of mechanical valves have been manufactured at Saluggia, and have been implanted in more than 70 countries without any structural malfunction. The process of integrating the various operating units and technologies, which will involve the Group's best resources, will be overseen by the Carbomedics management team. The move will occur gradually and should be completed in the first quarter of 2006. The transfer of the production processes will be carried out with the goal of ensuring full compliance with the regulatory approvals received from the European Union and the U.S. Food and Drug Administration (FDA), maintaining the effectiveness of the relative authorizations. The benefits that this integration effort is expected to produce include: greater operational flexibility in managing brands and product lines, enabling the Group to respond to any shifts in market demand; major economies of scale and reduction of manufacturing costs; and greater integration between the manufacturing and R&D organizations. Consequently, this production relocation will result in a strategic reinforcement of the overall Cardiac Valves area, and in particular of the Carbomedics brand, which will benefit from the world's greatest concentration of medical technology resources and product-specific knowhow.
- Transfer of the production of dialyzers from Saluggia to Bellco's main facility in Mirandola, near Modena (Italy). This move will help lower manufacturing costs, thanks to the integration with other Renal Care operations, while at the same time freeing up space to expand cardiovascular production in Saluggia, including the manufacturing of the new drug-eluting stent.
In addition, the Group is launching a plan for improving efficiency, flexibility, time-to-market and manufacturing costs for its cardiopulmonary and autologous blood transfusion product lines.
This transaction does not entail a current or potential conflict-of-interest risk for the related parties involved in the transaction. The buildings subject of the transaction are located at the Saluggia site, where Sorin already operates and, as mentioned above, plans to further expand its activities.
These buildings are already being used by companies of the Sorin Group. The sales price was determined on the basis of the market value of the buildings, as set forth in an appraisal report provided by American Appraisal Italia. The sales price will be paid on the date when the sales agreement is executed, i.e., on December 13, 2004. The Sorin companies that will purchase the buildings are in the process of finalizing mortgage financing in the amount of 5.8 million euros.
No change in the compensation paid to Sorin Directors is required as a result of purchases of real estate.
Operations Reorganization Project
The purpose of this project is to reduce overhead to a level consistent with current revenue generating capacity, and improve the organization's profitability through the following initiatives:
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Reduce and integrate the Group's commercial legal entities (from 65 at the end of 2003 to 32 at the end of 2005), creating a single Sorin Group company in each country, with the goal of lowering administrative and corporate costs.
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Rationalize and improve the efficiency of administrative processes and of the organizations that provide operating support to the Group's businesses, and create shared service organizations for homogeneous areas.
- Focus processes and resources on activities with the greatest value added and eliminate/downsize activities that are of marginal significance.
The Board of Directors resolved to set aside restructuring reserves of 32.1 million euros in 2004. The Group expects that the programs outlined above will have a positive impact on the bottom line starting in 2005.
"Ever since the Group's shares began trading on Borsa Italiana on January 5, 2004, we have launched numerous initiatives to improve operating efficiency and enhance the competitive position of the Group's Business Units. We are firmly committed to growth, in terms of revenues, profitability and cash flow generation, with the goal of providing an adequate return to our stockholders," said Drago Cerchiari, Sorin's Chief Executive Officer. "The restructuring and reorganization program that we approved today will enable us to lower the Group's breakeven point significantly and will free up financial resources that can be invested in developing those businesses that offer the greatest growth opportunities."
The Sorin Group (Reuters code: SORN.MI), a world leader in the development of medical technologies for cardiac surgery, offers innovative therapies for cardiac rhythm management, interventional cardiology and the treatment of chronic kidney diseases. The companies of the Sorin Group are: Bellco, CarboMedics, COBE Cardiovascular, Dideco, ELA Medical, Mitroflow, Soludia, Sorin Biomedica and Stöckert. The Sorin Group has about 4,800 employees working at facilities in more than 80 countries throughout the world to serve over 5,000 public and private treatment centers.
For additional information, please visit our website: www.sorin.com
Marilena Giavara
Director, Corporate Communications & Investor Relations
Tel. +39-02-6332201
e-mail: marilena.giavara@sorin.com