Third quarter The Diagnostic Specialist

Transcription

1 iagnostic Specia Third quarter 2007 The Diagnostic Specialist

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3 DIASORIN GROUP QUARTERLY REPORT AT SEPTEMBER 30, 2007 DiaSorin S.p.A. Via Crescentino Saluggia (VC) - Tax I.D. and Vercelli Company Register N

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5 Third quarter 2007 Contents Governative bodies p. 5 Consolidated financial highlights p Report on operations p Review of the Group s operating performance and financial position p The foreign exchange market p Operating performance in the Third Quarter of 2007 p Analysis of consolidated cash flow p Analysis of consolidated net borrowings p Operating performance in the first nine months of 2007 p Transactions with related parties p Significant events occurring after september 30, 2007 p Consolidated financial statements at september 30, 2007 p. 21 Consolidated income statement p. 21 Consolidated balance sheet p. 22 Consolidated statement of cash flow p. 24 Consolidated statement of changes in shareholders equity p. 25 Notes to the consolidated financial statements p Accounting principles and scope of consolidation p Segment information p Description and main changes p Income statement p Balance sheet p. 31 3

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7 Third quarter 2007 GOVERNATIVE BODIES Board of directors (ELECTED ON MARCH 26, 2007) Chairman Executive Deputy Chairman Gustavo Denegri Antonio Boniolo Chief Executive Officer Carlo Rosa 1 Director Giuseppe Alessandria 2 Chen Menachem Even Enrico Mario Amo Ezio Garibaldi 2 Michele Denegri Franco Moscetti 2 Board of statutory auditors Chairman Luigi Martino Statutory auditors Bruno Marchina Vittorio Moro Alternates Alessandro Aimo Boot Maria Carla Bottini Independent Auditors Deloitte & Touche S.p.A. 1 General Manager 2 Independent Director 5

8 CONSOLIDATED FINANCIAL HIGHLIGHTS Third quarter First nine months as a % of as a % of as a % of as a % of (in thousands of Euros) 2007 revenues 2006 revenues 2007 revenues 2006 revenues Net revenues 49, % 43, % 151, % 136, % EBITDA 13, % 15, % 45, % 44, % Operating result (EBIT) 10, % 11, % 34, % 33, % Net result 5, % 6, % 19, % 18, % Adjusted EBITDA 15, % 13, % 49, % 42, % EBIT before nonrecurring income/expense 11, % 10, % 38, % 31, % Net result before nonrecurring income/expense 6, % 5, % 21, % 17, % (in thousands of Euros) At September 30, 2007 At December 31, 2006 Total assets 219, ,081 Net borrowings 15,884 34,730 Shareholders equity 112,509 87,737 6

9 Third quarter Report on operations 1.1. Review of the Group s operating performance and financial position Pursuant to Article 3 of Legislative Decree No. 38 of February 28, 2005, which governs the selection of the alternatives provided in Article 5 of EC Regulation No. 1606/2002 of the European Parliament and Council dated July 19, 2002 concerning the adoption of the International Financial Reporting Standards, the Company voluntarily elected to adopt the International Financial Reporting Standards (hereinafter also referred to as IFRS ), as published by the International Accounting Standards Board ( IASB ) and officially approved by the European Union, for the preparation of its consolidated financial statements, starting with the year ended December 31, This quarterly report was prepared in accordance with the provisions of IAS 34 Interim Financial Reporting. The data at September 30, 2006 have been restated in accordance with International Financial Reporting Standards (IFRS). With regard to the composition of gross profit, some of the items that were included in last year s computation have been reclassified in accordance with the presentation criteria adopted this year, which reflect a more accurate allocation of such items, consistent with sound management criteria. Lastly, this quarterly report was not audited The foreign exchange market The average exchange rates for the third quarter of 2007 show that the euro appreciated significantly versus the currencies that have an impact on the Group s operations. The table below provides a comparison between the exchange rates for the third quarter of 2007 and the same period last year (source: Italian Foreign Exchange Office): Currency Third quarter 2007 Third quarter 2006 First nine months 2007 First nine months 2006 U.S. dollar (USD) Brazilian real (BRL) British pound (GBP) Swedish kronor (SEK) Mexican peso (MXN) Israeli shekel (ILS) Operating performance in the Third Quarter of 2007 In the third quarter of 2007, the progress made by the Diasorin Group in implementing its program of geographic and technological expansion enabled it to report a further acceleration in its rate of revenue growth. Specifically, third quarter revenues totaled 49.0 million Euros in 2007, for a gain of 12.6% over the same period last year. The increase over the revenues reported in the third quarter of 2006 would have been even greater, had it not been for the appreciation of the Euro versus the other currencies used by the Diasorin Group, particularly the U.S. dollar. Restated on a comparable foreign exchange translation basis (third quarter of 2006), revenues show an increase of 14.7%. In terms of technology, growth was driven mainly by higher sales of CLIA technology products, which were up 27% in the third quarter of This improvement reflects a steady expansion of the installed base of LIAISON systems, with about 90 new systems installed during the quarter and about 1,960 units in place at September 30, As of the same date, sales of CLIA technology reagents accounted for 51.1% of total revenues. All profitability indicators show a further improvement compared with the third quarter of 2006, particularly when the data are restated to eliminate the impact of extraordinary items, which had opposite effects in 2006 and

10 In the third quarter of 2007, EBIT and EBITDA totaled 10.0 million Euros and 13.5 million Euros, respectively. If they are restated to eliminate the impact of extraordinary items (in 2006, extraordinary income recognized in connection with the receipt of a government grant for research projects covered by Law No. 346/1998, in 2007, extraordinary charges incurred by the Group s Parent Company to list its shares on the STAR Segment of the online stock market in Milan), consolidated EBIT amount to 11.9 million Euros, or 18.1% more than the previous year, and EBITDA amount to 15.3 million Euros, for a gain of 13% compared with In addition, due to the listing of the Company s shares on the online stock market, the options granted under the Stock Option Plan became exercisable. As a result of Group employees exercising their stock options, the remaining cost of the abovementioned option plan (600,000 Euros) was recognized in the income statement for the third quarter. Lastly, the net result reported by the Diasorin Group, as reduced by the abovementioned nonrecurring items, totaled 5.3 million Euros, compared with 6.8 million Euros in the third quarter of Restated to eliminate the impact of extraordinary items, the net result for the third quarter of 2007 amounts to 6.5 million Euros, up from 5.5 million Euros in the same period last year. The table below shows the consolidated income statement for the quarters ended September 30, 2006 and CONSOLIDATED INCOME STATEMENT (*) (in thousands of Euros) Third quarter 2007 Third quarter 2006 Net revenues 49,003 43,514 Cost of sales (18,623) (16,749) Gross profit 30,380 26, % 61.5% Sales and marketing expenses (10,269) (9,273) Research and development costs (2,736) (2,164) General and administrative expenses (6,166) (5,151) -39.1% -38.1% Other operating income (expenses) (1,175) 1,819 out of which nonrecurring (1,855) 1,932 Operating result (EBIT) 10,034 11, % 27.6% Net financial expense (750) (854) Result before taxes 9,284 11,142 Income taxes (3,966) (4,382) Net result 5,318 6,760 EBITDA (1) 13,452 15,480 (*) Unaudited data (1) The Board of Directors defines EBITDA as the result from operations before amortization of intangibles and depreciation of property, plant and equipment. 8

11 Third quarter Breakdown of revenues by geographic region The table below provides a breakdown of the consolidated revenues of the Diasorin Group by geographic region of destination: Third quarter (in thousands of Euros) % change Italy 10,356 9, % Rest of Europe 18,352 15, % North America (United States and Canada) 11,645 9, % Rest of the world 8,650 7, % Total 49,003 43, % Italy In the third quarter of 2007, the revenues generated in Italy totaled 10,356,000 Euros, or 6.1% more than in the same period a year ago, accounting for 21.1% of the Group s total revenues. Rest of Europe In the three months ended September 30, 2007, business volume in other European countries showed a similar acceleration of the growth rate with revenues rising from 15,957,000 Euros in 2006 to 18,352,000 Euros in 2007 (+15.0%). As a result of the growth described above, the rest of Europe (excluding the Italian market) raised to 37.5% its contribution to the consolidated revenues of the Diasorin Group. North America In the third quarter of 2007, the sales in North America continued to grow at a significantly faster rate than the average for the whole Group, even though the gains achieved during the period under review are not fully reflected in the consolidated revenues due to the change in foreign exchange rates discussed earlier in this Report. Stated at current exchange rates, the revenues booked in North America in the third quarter show an increase of 18.0%, rising from 9,865,000 Euros in 2006 to 11,645,000 Euros in However, when the data for the third quarter of 2007 are compared with those in the same period in 2006 using amounts stated in local currencies, unaffected by fluctuations in foreign exchange rates, revenues show increases of 27.7%. Even though the growth of CLIA technology products and the expansion of the installed base of LIAISON systems in the United States lagged compared with the European markets due to the time needed to secure registration from the Food and Drug Administration (FDA), sales based on this technology platform have quickly become the engine driving growth in the North American market. In the third quarter of 2007, North American sales accounted for 23.8% of the Diasorin Group s total revenues. 9

12 Rest of the World Outside Europe and North America, the Group s revenues increased by 9.1% compared with the third quarter of 2006, despite lower sales in Brazil, where the local subsidiary, after a period of sustained growth, is going through a consolidation process in preparation for a new phase of expansion. In the other regions, where the Group operates through independent distributors, revenues were up 10% compared with Particularly strong results were reported in the Chinese market, where the Group has operated since 2006 through a joint venture with a local partner. Revenues booked in this market in the third quarter of 2007 totaled 855,000 Euros, or 30% more than in the same period last year Breakdown of revenues by technology Concurrently with its geographic expansion, the Group increased the revenues generated by the LIAISON closed platform. The table below, which is provided merely for information purposes, shows the percentage of consolidated revenues contributed by each technology in the third quarter of 2006 and Third quarter 2007 Third quarter 2006 % of total revenues RIA ELISA CLIA Equipment and other revenues Total In the third quarter of 2007, revenues generated by LIAISON products were up 27% compared with the same period a year ago. Sales of products based on CLIA technology accounted for 51.1% of total revenues in the third quarter of 2007 (5.8 percentage points more than in 2006). At September 30, 2007, about 1,960 automated LIAISON analyzers had been installed at facilities operated by direct and indirect customers of the Group. Seven new LIAISON products have been launched since the beginning of Six of these products were specialty items that helped differentiate the LIAISON product line even further compared with the products offered by the Group s competitors. 10

13 Third quarter Operating result (EBIT) In the third quarter of 2007, the Group s gross profit was higher than in the same period last year, but the rate of growth was lower than in the previous two quarters. The increase in the contribution provided to total revenues by LIAISON products, which have higher margins than those based on the RIA and ELISA technologies, continues to drive this improvement in profitability, which also benefited from a decrease in the percentage of revenues absorbed by the depreciation of systems installed at customer facilities. These positive developments were offset in part by an increase in the percentage of revenues generated by sales of systems to distributors, which generate smaller margins than sales of reagents, and a lower coverage of fixed production costs caused by the seasonal patterns that affect the manufacturing operations. The net result of these factors was a gross profit that, at 30.4 million Euros (equal to 62.0% of total revenues), was 13.5% higher than in the third quarter of In the three months ended September 30, 2007, operating expenses increased to 19.2 million Euros (equal to 39.1% of revenues), or 15.6% more than in the same period last year. A contributing factor was the vesting of the options held by the beneficiaries of the Stock Option Plan, which was consequently closed. The resulting impact on the income statement amounted to 0.6 million Euros, or 0.4 million Euros more than in the same period last year. Research and development costs incurred in the first quarter of 2007 amounted to 2.7 million Euros, for an increase of 26.4% compared with the same period in In the third quarter of 2007, the consolidated operating result (EBIT) totaled 10 million Euros, equal to 20.5% of revenues. EBITDA for the same period were 13.5 million Euros, or 27.5% of revenues. As mentioned earlier in this Report, nonrecurring items continued to have an impact on these gauges of the Group s profitability: in the third quarter of 2007, the Group s Parent Company incurred extraordinary charges of 1,855,000 Euros to list its shares on the STAR Segment of the online stock market in Milan; in the same period last year, the Group recognized extraordinary income of 1,932,000 Euros in connection with the receipt of a government grant for research projects covered by Law No. 346/1998. If the data for the third quarter are restated to eliminate the impact of these items, consolidated EBIT amount to 11.9 million Euros, or 18.1% more than the previous year, and EBITDA total 15.3 million Euros, for a gain of 13% compared with Financial transactions Stated in absolute terms, the impact of financial transactions on the Group s reported result was smaller than in the third quarter of In the three months ended September 30, 2007, net financial expense totaled 750,000 Euros, down from 854,000 Euros in the same period last year Result before taxes and net result In the third quarter of 2007, the Group s result before taxes amounted to 9,284,000 Euros (tax liability of 3,966,000 Euros), down from 11,142,000 Euros (tax liability of 4,382,000 Euros) in the three months ended September 30, The consolidated net result for the third quarter of 2007 amounted to 5,318,000 Euros, compared with 6,760,000 Euros in the same period in If the data are restated to eliminate the impact of nonrecurring items (net of the applicable tax effect), the net result for the third quarter amounts to 6,482,000 Euros in 2007 and 5,548,000 Euros in

14 Analysis of consolidated cash flow The table below shows the highlights of the consolidated cash flow statement and the changes that occurred compared with the previous year. Third quarter First nine months (in thousands of Euros) (*) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,574 2,716 8,718 6,116 Net cash from operating activities 11,442 15,953 23,759 26,763 Cash used for investing activities (3,150) (3,420) (11,207) (12,233) Cash from (used for) financing activities 4,617 1,204 1,213 (4,193) Net change in cash and cash equivalents 12,909 13,737 13,765 10,337 CASH AND CASH EQUIVALENTS AT END OF PERIOD 22,483 16,453 22,483 16,453 (*) Unaudited data. In the third quarter of 2007, cash flow from operating activities totaled 11,442,000 Euros, down from 15,953,000 Euros in the same period in 2006, owing in part to the opposing effect of nonrecurring charges in 2007 and nonrecurring income in In the first nine months of 2007, cash flow from operating activities amounted to 23,759,000 Euros, compared with 26,763,000 Euros in the same period a year ago. In the third quarter of 2007, cash used in investing activities totaled 3,150,000 Euros, down from 3,420,000 Euros in the same period in Specifically, investments in property, plant and equipment and intangible assets increased slightly in the third quarter of 2007, while retirements of property, plant and equipment were significantly higher than in the same period last year. In the first nine months of 2007, the cash used for investing activities decreased to 11,207,000 Euros, compared with 12,233,000 Euros in the same period last year. The reduction in capital expenditures reflects primarily a rise in the percentage of LIAISON systems that are sold to independent distributors compared with the systems that are loaned to customers free of charge and are capitalized by the Group, which contributed to the increase of the installed base during the reporting period. While investments in property, plant and equipment were lower, those in intangible assets increased, due mainly to the capitalization of the costs incurred to develop the new LIAISON XL analyzer. Cash from financing activities increased to 4,617,000 Euros in the third quarter of 2007, up from 1,204,000 Euros in the three months ended September 30, 2006, reflecting the impact of the share capital increase reserved for the exercise of stock options and a reduced use of finance leases to purchase equipment. Due to these developments, financing activities generated a net cash flow of 1,213,000 Euros in the first nine months of 2007 and absorbed 4,193,000 Euros in the same period in As the net result of the changes discussed above, the third quarter of 2007 ended with an increase of 12,909,000 Euros in the liquid assets available to the Group, which totaled 22,483,000 Euros at September 30,

15 Third quarter Analysis of consolidated net borrowings At September 30, 2007 At December 31, 2006 Cash and cash equivalents (22,483) (8,718) Liquid assets (22,483) (8,718) Current financial receivables - (28) Current bank debt 6,921 7,224 Other current financial obligations 2,040 2,696 Current indebtedness 8,961 9,920 Net current indebtedness (13,522) 1,174 Non-current bank debt 26,287 29,715 Other non-current financial obligations 3,119 3,841 Non-current indebtedness 29,406 33,556 Net borrowings 15,884 34,730 13

16 Operating performance in the first nine months of 2007 CONSOLIDATED INCOME STATEMENT (*) (in thousands of Euros) First nine months Net revenues 151, ,656 Cost of sales (54,856) (53,625) Gross profit 96,307 83, % 60.8% Sales and marketing expenses (31,769) (29,401) Research and development costs (8,144) (6,691) General and administrative expenses (17,691) (14,596) -38.1% -37.1% Other operating income (expenses) (4,050) 1,127 out of which nonrecurring (4,508) 1,932 Operating result (EBIT) 34,653 33, % 24.5% Net financial expense (2,864) (2,807) Result before taxes 31,789 30,663 Income taxes (12,735) (11,684) Net result 19,054 18,979 EBITDA (1) 45,093 44,014 (*) Unaudited data. (1) The Board of Directors defines EBITDA as the result from operations before amortization of intangibles and depreciation of property, plant and equipment. The Diasorin Group performed particularly well during the first nine months of Revenues were up significantly compared with the same period last year, despite the dampening effect of the appreciation of the Euro versus other currencies, particularly the U.S. dollar. Specifically, consolidated revenues totaled million Euros in the first nine months of 2007, or 10.6% more than the million Euros booked in the same period last year. When the data are restated on a comparable exchange rate basis, the revenues increase is 12.8%. 14

17 Third quarter 2007 All profitability indicators improved compared with the first nine months of 2006, particularly when the impact of extraordinary items, which had opposite effects in 2006 and 2007, is eliminated. The gross profit earned in the third quarter of 2007 was higher than in the same period last year but decreased by 2.5 percentage points when compared with the first six months of the current year. As mentioned earlier in this report, this negative change is due to an increase in the percentage of revenues generated by sales of systems to distributors and a lower coverage of fixed production costs caused by the seasonal patterns that affect the manufacturing operations. The cumulative gross profit for the first nine months of 2009 totaled 96.3 million Euros, or 16.0% more than in the same period last year. Consolidated EBIT and EBITDA totaled 34.7 million Euros and 45.1 million Euros, respectively, in the first nine months of If the data for the first nine months of the year are restated to eliminate the impact of these items, consolidated EBIT amount to 38.6 million Euros, or 22.5% more than the previous year, and EBITDA total 49.1 million Euros, for a gain of 16.6% compared with In the first nine months of 2007, extraordinary items included charges of 4.5 million Euros incurred to list the Company s shares and a gain of 0.5 million Euros generated by the impact of legislative changes on the Parent Company s provision for employee severance indemnities. Lastly, the Group reported a net result of 19.1 million Euros (21.6 million Euros, restated to eliminate the impact of nonrecurring items, net of the applicable tax effect), compared with 19 million Euros at September 30, 2006 (17.8 million Euros, restated to eliminate the impact of nonrecurring items, net of the applicable tax effect). 15

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19 Third quarter Transactions with related parties In the normal course of business, Diasorin S.p.A. engages on a regular basis in commercial and financial transactions with its subsidiaries, which are also Group companies. These transactions, which are executed on standard market terms, consist of the supply of goods and services, including administrative, information technology, personnel management, technical support and consulting services, which produce receivables and payables at the end of the year, and financing and cash management transactions, which produce income and expenses. These transactions are eliminated in the consolidation process and, consequently, are not discussed in this section of the Report. Transactions with Diasorin LTD, an unconsolidated Chinese subsidiary, at September 30, 2007 are summarized below: payables of 58,000 Euros; receivables of 21,000 Euros; costs totaling 494,000 Euros for sales and technical support services provided to local distributors. The Group provides additional benefits to a certain number of eligible employees of Diasorin S.p.A. and other Group companies through a stock option plan. Due to the listing of the Company s shares on the online stock market, the options granted under the Stock Option Plan became exercisable. The costs recognized in the income statement for the first nine months of 2007 in connection with this stock option plan amounted to 1,200,000 Euros. At September 30, 2007, the share capital increase reserved for the exercise of stock options had been fully subscribed. Moreover, within the context of the Stock Option Plan approved by the Ordinary Shareholders Meeting of March 26, 2007, the Board of Directors designated a first batch of beneficiaries that includes key executives and employees of Diasorin S.p.A. and its subsidiaries, awarding a total of 745,000 options (out of a maximum 1,000,000 available options). These options can be exercised to purchase an equal number of newly issued Diasorin S.p.A. common shares, par value 1.00 euro each. The exercise price of the options was set at Euros, which is equal to the simple average of the closing prices for the shares of Diasorin S.p.A. on the online stock market for the period between the date of award of the options and the same day in the previous calendar month (fair value). The compensation payable to senior managers and eligible employees (key management) is consistent with standard market terms for compensation offered to employees with a similar status. Employees are also awarded incentive payments tied to the achievement of corporate or personal targets and bonuses predicated on the achievement of a predetermined length of service. 17

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21 Third quarter Significant events occurring after september 30, 2007 and business outlook Subsequent to the end of the third quarter of 2007, the Diasorin Group continued to generate positive operating results. No other significant events occurred after September 30, Saluggia (VC), November 12, 2007 The Board of Directors By: Carlo Rosa Chief Executive Officer 19

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23 Third quarter Consolidated financial statements of the Diasorin Group at september 30, 2007 INCOME STATEMENT (*) (in thousands of Euros) Notes Third Quarter First nine months Net revenues (1) 49,003 43, , ,656 Cost of sales (2) (18,623) (16,749) (54,856) (53,625) Gross Profit 30,380 26,765 96,307 83, % 61.5% 63.7% 60.8% Sales and marketing expenses (3) (10,269) (9,273) (31,769) (29,401) Research and development costs (4) (2,736) (2,164) (8,144) (6,691) General and administrative expenses (5) (6,166) (5,151) (17,691) (14,596) -39.1% -38.1% -38.1% -37.1% Other operating income (expenses) (6) (1,175) 1,819 (4,050) 1,127 out of which nonrecurring (1,855) 1,932 (4,508) 1,932 Operating result (EBIT) 10,034 11,996 34,653 33, % 27.6% 22.9% 24.5% Net financial income (expense) (7) (750) (854) (2,864) (2,807) Result before taxes 9,284 11,142 31,789 30,663 Income taxes (8) (3,966) (4,382) (12,735) (11,684) Net Result 5,318 6,760 19,054 18,979 Earnings per share (basic) (in Euros) (9) Earnings per share (diluted) (in Euros) (9) (*) Unaudited data. 21

24 BALANCE SHEET (*) (in thousands of Euros) Notes 9/30/07 12/31/06 ASSETS Non-current assets Property, plant and equipment (10) 34,370 35,502 Goodwill 48,055 48,055 Other intangibles (11) 16,397 14,750 Equity investments Deferred-tax assets 8,791 8,357 Other non-current assets Total non-current assets 108, ,032 Current assets Inventories (12) 34,027 30,891 Trade receivables (13) 51,010 44,671 Accounts receivable from Group companies 21 Other current assets 4,292 2,769 Cash and cash equivalents 22,483 8,718 Total current assets 111,833 87,049 TOTAL ASSETS 219, ,081 (*) Unaudited data. 22

25 Third quarter 2007 BALANCE SHEET (*) (continue) (in thousands of Euros) Notes 9/30/07 12/31/06 LIABILITIES AND SHAREHOLDERS EQUITY Shareholders equity Share capital 55,000 50,000 Additional paid-in capital 5,925 4,425 Statutory reserve Other reserves 2,072 2,854 Retained earnings (Accumulated deficit) 29,819 7,957 Net result for the year 19,054 22,294 Total shareholders equity (14) 112,509 87,737 Non-current liabilities Long-term borrowings (15) 29,406 33,556 Provisions for employee severance indemnities and other employee benefits (16) 19,011 19,154 Deferred-tax liabilities Other non-current liabilities (17) 2,024 3,047 Total non-current liabilities 51,082 56,429 Current liabilities Trade payables 24,260 22,854 Accounts payable to Group companies 58 Other current liabilities 14,123 12,508 Income taxes payable 8,968 4,633 Current portion of long-term debt (15) 8,961 9,920 Total current liabilities 56,370 49,915 Total liabilities 107, ,344 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 219, ,081 (*) Unaudited data. 23

26 CASH FLOW STATEMENT (*) (in thousands of Euros) Third quarter First nine months Cash flow from operating activities Net result for the period 5,318 6,760 19,054 18,979 Adjustments for: - Income taxes 3,966 4,382 12,735 11,684 - Depreciation and amortization 3,418 3,484 10,440 10,544 - Financial expense ,864 2,807 - Additions to/utilizations of provisions and reserves (290) 117 (214) (Gains)/Losses on sales of non-current assets (36) (7) (111) (14) - Contributions to/utilizations of provisions for employee severance indemnities and other employee benefits 367 (162) (77) 677 out of which nonrecurring - - (515) - - Changes in shareholders equity reserves: - Stock option reserve Cumulative translation adjustment from operating activities (284) 19 (459) (141) - Change in other non-current assets/liabilities (1,390) (1,230) (1,368) (721) Cash flow from operating activities before changes in working capital 12,419 14,417 44,064 44,976 (Increase) Decrease in current receivables 2,382 3,820 (6,577) (5,587) (Increase) Decrease in inventories (520) (1,635) (3,673) (3,128) Increase (Decrease) in trade payables (3,192) (505) 1,499 2,558 (Increase) Decrease in other current items 1,387 1,533 (185) 914 Cash from operating activities 12,476 17,630 35,128 39,733 Income taxes paid (271) (1,503) (8,844) (10,833) Interest paid (763) (174) (2,525) (2,137) Net cash from operating activities 11,442 15,953 23,759 26,763 Investments in intangibles (652) (726) (3,060) (2,401) Investments in property, plant and equipment (3,051) (2,944) (9,155) (10,304) Proceeds from the sale of non-current assets , Cash used in investing activities (3,150) (3,420) (11,207) (12,233) Repayment of loans (223) (270) (3,248) (5,640) Repayment of other financial obligations (900) (711) (2,920) (1,919) Proceeds from new borrowings 53 2,059 1,559 4,228 Share capital increase 6,500-6,500 - Foreign exchange translation differences (813) 126 (678) (862) Cash used in financing activities 4,617 1,204 1,213 (4,193) Change in net cash and cash equivalents 12,909 13,737 13,765 10,337 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,574 2,716 8,718 6,116 CASH AND CASH EQUIVALENTS AT END OF PERIOD 22,483 16,453 22,483 16,453 (*) Unaudited data. 24

27 Third quarter 2007 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (in thousands of Euros) Share Additional Statutory Cumulative Stock Retained Net Group capital paid-in reserve translation option earnings result for interest in capital reserve reserve (Accumulated the year share-holders deficit) equity Shareholders equity at 12/31/05 50,000 4, ,175 1,402 (2,270) 10,355 67,166 Appropriation of previous year s profit ,227 (10,355) - Stock options Translation adjustment (1,491) (1,491) Net result for the period 18,979 18,979 Shareholders equity at 9/30/06 (*) 50,000 4, ,684 2,002 7,957 18,979 85,254 Shareholders equity at 12/31/06 50,000 4, ,202 7,957 22,294 87,737 Appropriation of previous year s profit ,862 (22,294) - Share capital increase ,500 6,500 Stock options 1,200 1,200 Translation adjustment (1,982) (1,982) Net result for the period 19,054 19,054 Shareholders equity at 9/30/07 (*) 55,000 5, (1,330) 3, , ,509 (*) Unaudited data. 25

28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 2007 ACCOUNTING PRINCIPLES AND SCOPE OF CONSOLIDATION General information The Diasorin Group is specialized in the development, manufacture and distribution of products in the immunochemistry and infectious immunology product groups. These product classes can also be grouped into a single family called immunodiagnostics. Diasorin S.p.A., the Group s Parent Company, has its headquarters at Via Crescentino, in Saluggia (VC) Principles for the preparation of the quarterly report Pursuant to Article 3 of Legislative Decree No. 38 of February 28, 2005, which governs the selection of options available under Article 5 of EC Regulation No. 1606/2002, issued by the European Parliament and Council on July 19, 2002 in connection with the adoption of the International Financial Reporting Standards, the Company has chosen to adopt voluntarily the International Financial Reporting Standards (hereinafter also referred to as the IFRS ), as issued by the International Accounting Standards Board ( IASB ) and adopted by the European Union, for the preparation of its consolidated financial statements beginning with the year ended December 31, Consequently, the consolidated quarterly report of the Diasorin Group at September 30, 2007 was prepared in accordance with the requirements of the relevant international accounting standard (IAS 34 Interim Financial Reporting). In order to provide a comparison between homogeneous data, the amounts at September 30, 2006 have been restated in accordance with IFRS rules. These notes provide information in summary form, in order to avoid duplicating information published previously, as required by IAS 34. Specifically, these notes discuss only those components of the income statement and balance sheet the composition or change in amount of which require comment (due to the amount involved or the type of transaction or because an unusual transaction is involved) in order to understand the Group s operating performance, financial performance and financial position. The accounting principles applied to prepare the consolidated quarterly report are consistent with those used for the annual consolidated financial statements at December 31, 2006, since it has been determined that the revisions and interpretations published by the IASB and applicable as of January 1, 2007 did not require any material changes in the accounting principles adopted by the Group the previous year. When preparing interim financial statements, management is required to develop estimates and assumptions that affect the amounts shown for revenues, expenses, assets and liabilities in the financial statements and the disclosures provided with regard to contingent assets and liabilities on the date of the interim financial statements. If such estimates and assumptions, which were based on management s best projections, should differ from actual events, they will be modified appropriately when the relevant events produce the abovementioned differences. Certain evaluation processes, particularly the more complex processes such as determining whether the value of non-current assets has been impaired, are carried out fully only in connection with the preparation of the annual financial statements, when all the necessary information is available, except when there are impairment indicators that require an immediate evaluation of any impairment losses that may have occurred. Some of the data in the balance sheet at December 31, 2006, which is included in this report for comparison purposes, have been reclassified to make them consistent with the data at September 30, These reclassifications did not have an impact on the shareholders equity and the 2006 result. With regard to the composition of gross profit, some of the items that were included in last year s computation have been reclassified in accordance with the presentation criteria adopted this year, which reflect a more accurate allocation of such items, consistent with sound management criteria. 26

29 Third quarter 2007 The Group engages in activities that, taken as a whole, are not subject to significant seasonal or cyclical shifts in revenue generation during the year. The income tax liability is recognized using the best estimate of the weighted average tax rate projected for the entire year. In the consolidated quarterly report, all amounts are in thousands of Euros unless otherwise stated. This quarterly report was not audited. Scope of consolidation The consolidated quarterly report includes the financial statements of Diasorin S.p.A., the Group s Parent Company, and those of its subsidiaries. The scope of consolidation did not change compared with December 31, Subsidiaries are companies over which the Group is able to exercise control, i.e., it has the power to, directly or indirectly, govern their operating and financial powers so as to obtain benefits from the results of their operations. Subsidiaries are consolidated line by line from the date the Group obtains control until the moment when control ceases to exist. Dormant subsidiaries and subsidiaries that generate an insignificant volume of business are not consolidated. Their impact on the Group s total assets and liabilities, financial position and bottom-line result is not material. A list of the subsidiaries included in the scope of consolidation, complete with information about head office locations and the percentage interest held by the Group, is provided in Annex I. Other information Information about significant events occurring after September 30, 2007, the Group s business outlook and its transactions with related parties is provided in separate sections of this Report. The table below shows the exchange rates used to translate amounts reported by companies that operate outside the euro zone: First nine months of 2007 At December 31, 2006 First nine months of 2006 Average At 9/30 At 9/30 Average At 9/30 U.S. dollar British pound Brazilian real Swedish kronor Mexican peso Israeli shekel

30 SEGMENT INFORMATION (in thousands of euros) ITALY EUROPE UNITED STATES REST OF THE WORLD ELIMINATIONS CONSOLIDATED 9/30/06 9/30/07 9/30/06 9/30/07 9/30/06 9/30/07 9/30/06 9/30/07 9/30/06 9/30/07 9/30/06 9/30/07 INCOME STATEMENT Revenues from outsiders 48,914 53,064 43,303 47,579 34,687 37, ,019 (3,069) (1,417) 136, ,163 Inter-segment revenues 32,920 34,566 6,589 6,678 6,211 6, (45,720) (47,508) - - Total revenues 81,834 87,630 49,892 54,257 40,898 44, ,019 (48,789) (48,925) 136, ,163 Segment result 16,870 15,540 5,090 6,200 10,967 13, (1,501) (1,417) 33,470 34,653 Unallocated common costs EBIT ,470 34,653 Other income (expense), net Financial income (expense) (2,807) (2,864) Result before taxes ,663 31,789 Income taxes (11,684) (12,735) Net result ,979 19,054 OTHER INFORMATION Amortization (844) (963) (124) (136) (148) (158) (58) (70) - - (1,174) (1,327) Depreciation (4,054) (3,856) (3,242) (3,173) (1,134) (1,148) (1,476) (1,758) (9,370) (9,113) Total amortization and depreciation (4,898) (4,819) (3,366) (3,309) (1,282) (1,306) (1,534) (1,828) (10,544) (10,440) (in thousands of euros) ITALY EUROPE UNITED STATES REST OF THE WORLD ELIMINATIONS CONSOLIDATED 12/31/06 9/30/07 12/31/06 9/30/07 12/31/06 9/30/07 12/31/06 9/30/07 12/31/06 9/30/07 12/31/06 9/30/07 BALANCE SHEET Segment assets (39.949) (47.466) Unallocated assets Total assets (39.949) (47.466) Segment liabilities (32.294) (40.652) Unallocated liabilities Shareholders equity Total liabilities and shareholders equity (32.294) (40.652)

31 Third quarter 2007 DESCRIPTION AND MAIN CHANGES Consolidated income statement The notes to the consolidated income statement are provided below. More detailed information about the components of the income statement is provided in the Report on Operations. (1) Net revenues In the third quarter of 2007, net revenues, which are generated mainly through the sale of diagnostic kits, totaled 49,003,000 Euros, or 12.6% more than in the same period last year, boosting revenues for the first nine months of 2007 to 151,163,000 Euros (136,656,000 Euros at September 30, 2006). Revenues for the third quarter of 2007 include equipment rentals and technical support revenues totaling 1,111,000 Euros, compared with 596,000 Euros in the same period last year. (2) Cost of sales In the third quarter of 2007, the cost of sales amounted to 18,623,000 Euros, compared with 16,749,000 Euros in the three months ended September 30, The cost of sales for the first nine months of 2007 amounted to 54,856,000 Euros (53,625,000 Euros in 2006). The cost of sales for the third quarter of 2007 includes 1,070,000 Euros paid for royalties (958,000 Euros in 2006) and 900,000 Euros in costs incurred to distribute products to end customers (822,000 Euros in 2006). (3) Sales and marketing expenses Sales and marketing expenses increased to 10,269,000 Euros in the third quarter of 2007, up from 9,273,000 Euros in the same period last year, bringing the total for the first nine months of the year to 31,769,000 Euros (29,401,000 Euros in 2006). This item consists mainly of marketing costs incurred to promote and distribute Diasorin products, costs attributable to the direct and indirect sales force and the cost of the technical support offered together with the Group-owned equipment provided to customers in accordance with gratuitous loan contracts. (4) Research and development costs In the third quarter of 2007, research and development costs, which totaled 2,736,000 Euros (2,164,000 Euros in the same period in 2006), included all of the research and development outlays (including the costs incurred to register the products offered for sale and meet quality requirements) that were not capitalized. This item also includes the amortization of capitalized development costs (136,000 Euros, compared with 115,000 Euros in the third quarter of 2006). During the third quarter of 2007, the Group capitalized new development costs amounting to 559,000 Euros, compared with 653,000 Euros in the same period last year. (5) General and administrative expenses General and administrative expenses, which totaled 6,166,000 Euros in the third quarter of 2007 (5,151,000 Euros in 2006) and 17,691,000 Euros in the first nine months of 2007 (14,596,000 Euros in 2006), include expenses incurred for corporate management activities, Group administration, finance and control, information technology, corporate organization, and insurance. Due to the listing of the Company s shares on the online stock market, all of the options granted under the Stock Option Plan were exercised. As a result, general and administrative expenses include the entire remaining cost of the plan (600,000 Euros). 29

32 (6) Other operating income (expenses) Net other operating expense totaled 1,175,000 Euros, compared with net other operating income of 1,819,000 Euros in the third quarter of This item includes operating income and expenses that cannot be allocated to specific functional areas, as well as the pro rata portion of the costs incurred in connection with an ongoing effort to list the Company s shares on the online stock market attributable to the third quarter of 2007, which amounted to 1,855,000 Euros (4,508,000 Euros in the first nine months of the year). (7) Net financial income (expense) The table below provides a breakdown of financial income and expense: (in thousands of Euros) Third quarter 2007 Third quarter 2006 First nine months 2007 First nine months 2006 Interest and other financial expense (1,336) (1,078) (4,028) (3,633) Interest and other financial income Net translation adjustment Net financial income (expense) (750) (854) (2,864) (2,807) In the third quarter of 2007, net financial expense totaled 750,000 Euros, compared with net financial expense of 854,000 Euros in the same period last year. Interest and other financial expense includes 516,000 Euros in interest on loans (755,000 Euros in the third quarter of 2006), 474,000 Euros in fees on factoring transactions (361,000 Euros in the third quarter of 2006) and 203,000 Euros in finance charges related to employee benefit plans (188,000 Euros in the third quarter of 2006). (8) Income taxes The income tax expense recognized in the consolidated income statement for the third quarter of 2007 amounted to 3,966,000 Euros, compared with 4,382,000 Euros in the same period last year, as the tax rate increased from 39.3% to 42.7%. The income taxes recognized in the income statement for the first nine months of 2007 amounted to 12,735,000 Euros (11,684,000 Euros in 2006). (9) Earnings per share Basic and diluted earnings per share, which were computed by dividing the net result attributable to shareholders by the average number of shares outstanding, amounted to 0.10 Euros in the third quarter of 2007, compared with 0.14 Euros in the same period last year. The corresponding figures for the first nine months of the year are 0.35 Euros in 2007 and 0.38 Euros in

33 Third quarter 2007 Consolidated balance sheet (10) Property, plant and equipment The table below shows the changes that occurred in this account as of September 30, 2007: Net carrying Translation Retirements and Net carrying (in thousands of Euros) value at 12/31/06 Additions Depreciation adjustment other changes value at 9/30/07 Land and buildings 9, (527) (131) (4) 9,509 Plant and machinery 6,948 2,489 (1,671) (172) (240) 7,354 Equipment held by outsiders 18,799 6,250 (6,916) 27 (653) 17,507 Total prop., plant and equipment 35,502 9,155 (9,114) (276) (897) 34,370 (11) Intangible assets A breakdown of intangible assets at September 30, 2007 is as follows: Translation Net carrying adjustment and Net carrying (in thousands of Euros) value at 12/31/06 Additions Amortization other changes value at 9/30/07 Goodwill 48, ,055 Development costs 6,517 2,030 (386) (23) 8,138 Other intangibles 8,233 1,030 (940) (64) 8,259 Total intangible assets 62,805 3,060 (1,326) (87) 64,452 Additions to development costs reflect the investments made in the project for the new analyzer, Liaison XL, which amounted to 566,000 Euros in the third quarter of 2007 and 1,658,000 Euros in the first nine months of the year. The increase in other intangibles refers primarily to the costs incurred to expand the SAP R/3 information system used by the Group and to purchase licenses. Intangible assets with an intangible useful life were not tested for impairment, as no indicators of potential impairment were detected. 31

34 (12) Inventories A breakdown of inventories at September 30, 2007 and a comparison with the data at December 31, 2006 is as follows: at 9/30/07 at 12/31/06 (in thousands of Euros) Gross amount Provisions for Net amount Gross amount Provisions for Net amount writedowns writedowns Raw materials and supplies 9,958 (1,204) 8,754 8,290 (1,162) 7,128 Work in progress 15,406 (1,416) 13,990 13,262 (1,375) 11,887 Finished goods 12,336 (1,053) 11,283 12,846 (970) 11,876 Total inventories 37,700 (3,673) 34,027 34,398 (3,507) 30,891 (13) Trade receivables Trade receivables totaled 51,010,000 Euros at September 30, As of the same date, the allowance for doubtful accounts amounted to 5,902,000 Euros. The table below shows the changes that occurred in the allowance during the period: (in thousands of Euros) at 9/30/07 at 12/31/06 Opening balance 5,934 5,644 Additions for the period Utilizations/Reversals during the period (604) (175) Currency translation differences and other changes 199 (67) Closing balance 5,902 5,934 32

35 Third quarter 2007 (14) Shareholders equity Shareholders equity totaled 112,509,000 Euros at September 30, The table below shows the changes that occurred in the first nine months of 2007: (in thousands of Euros) Share Additional Statutory Cumulative Stock Retained Net result Group capital paid-in reserve translation option earnings for the year interest in capital reserve reserve (Accumulated share-holders deficit) equity Shareholders equity at 12/31/06 50,000 4, ,202 7,957 22,294 87,737 Appropriation of previous year s profit ,862 (22,294) - Share capital increase 5,000 1,500 6,500 Stock options 1,200 1,200 Translation adjustment (1,982) (1,982) Net result for the period 19,054 19,054 Shareholders equity at 9/30/07 (*) 55,000 5, (1,330) 3,402 29,819 19, ,509 (*) Unaudited data. On July 19, 2007, pursuant to a resolution issued by Borsa Italiana S.p.A. on June 24, 2007 accepting the Company s shares for stock market listing and the approval issued by the CONSOB on June 28, 2007, trading in the common shares of Diasorin S.p.A. began on the STAR Segment of the Online Stock Market organized and operated by Borsa Italiana S.p.A. As a result of the abovementioned listing of the Company s shares, the options awarded under the Stock Option Plan approved by the Board of Directors on March 25, 2004, which covered up to 5,000,000 shares awarded to 17 Group Directors and employees, became exercisable. The exercise price was 1.30 Euros. At September 30, 2007, the share capital increase reserved for the exercise of options had been fully subscribed. 33