CIR: results for first half 2020

Revenues 856.7 million (€ 1.059,1 million in first half 2019)

EBITDA: € 103.8 million (€ 140.0 million in first half 2019)

EBIT: -€ 8.3 million (€ 46.0 million in first half 2019)

Net result: -€ 30.4 million

Net financial position of the parent company at € 397.1 million, higher than at December 31 2019 (€ 295.7 million)

Milan, July 31 2020 – The Board of Directors of CIR S.p.A., which met today under the chairmanship of Rodolfo De Benedetti, has approved the Semi-Annual Financial Report as of June 30 2020 presented by Chief Executive Officer Monica Mondardini.

Consolidated results

CIR’s results for the first half of 2020 were affected significantly by the strong impact that the spread of the Covid-19 pandemic has had on all the businesses of the group, i.e. social and healthcare services (KOS), the production of components for the automotive sector (Sogefi), and the management of the financial investments of the CIR holding company and its non-industrial subsidiaries.

KOS’s business was affected by the public health emergency in all sectors, with a significant impact on economic performance: in the care homes, activity was concentrated on the complex management of the public health emergency with new admissions on hold; the rehabilitation facilities reported a decline in the number of patients following the slowdown of normal activity with the health system under stress and activity focused on the emergency; outpatient services were suspended or severely limited as was diagnostic activity; meanwhile the company focused on putting in place the necessary measures for protection of staff and patients.

Sogefi’s business was seriously affected, as indeed was the case for all of the automotive sector, by the effects of the pandemic; production was suspended first in China and then, in the second half of March, in almost all of its plants. Currently, production in China has returned to monthly levels in line with the forecasts made before the crisis; in the remaining geographical areas, production resumed gradually as from May after the main customers returned to production, but volumes were still significantly lower than those pre- Covid. The situation remains particularly critical in Mercosur and India.

In the first half of 2020, the consolidated revenues of the CIR group came in at € 856.7 million and were down by 19.1% on 2019. After the first two months which saw growth of 9.7% on the corresponding period of 2019, the public health emergency caused an immediate and drastic contraction of revenues due mainly to the suspension of Sogefi’s production activity.

The consolidated gross operating margin (EBITDA) came to € 103.8 million and was down by 25.8% from the figure for the first half of 2019 (€ 140.0 million), following the trend of revenues; the consolidated operating result (EBIT) was a negative € 8.3 million versus a positive result of € 46.0 million in the first half of 2019.

The net result was a loss of € 30.4 million after earnings of € 1.6 million in the first half of 2019.

The consolidated net financial debt before IFRS 16 amounted to € 285.7 million at June 30 2020 and was down by € 42.0 million compared to the figure at December 31 2019 (€ 327.6 million). The financial payables for rights of use according to IFRS 16 totalled € 787.8 million at June 30 2020 and thus the total consolidated debt stood at € 1,073.5 million. The payables as per IFRS 16 refer mainly to the subsidiary KOS (€ 731.8 million), which operates mostly in leased premises.

The net financial position of the Parent Company (including the non-industrial subsidiaries) was a positive € 397.1 million at June 30 2020, higher than at December 31 2019 (€ 295.7 million), following the cash inflow from the sale of CIR’s entire interest in GEDI Gruppo Editoriale S.p.A. to EXOR (€ 102.4 million), completed on April 23 2020.

The equity of the Group stood at € 728.5 million at June 30 2020 versus € 770.7 million at December 31 2019 and the decline mainly reflects the loss for the period.

As regards KOS, its revenues came in at € 337.2 million, with a rise of 19.9% on the same period of 2019 thanks to the significant contribution of Charleston (the group acquired in October 2019, which operates in Germany in the care-home sector): on a like-for-like basis revenues fell by 10.6%.

EBIT was € 18.1 million, down from € 31.6 million in 2019, due not only to the decline in the number of guests and patients in Italy because of the Covid-19 emergency, as illustrated above, but also to the higher costs incurred for protection measures to counter and limit the effects of the pandemic. The first half closed with a loss of € 2.1 million compared to earnings of € 14.4 million in the first half of 2019.

Cash flow was positive for € 11.8 million and the net financial debt before IFRS 16 declined from € 368.0 million at December 31 2019 to € 356.2 million at June 30 2020.

As for Sogefi, automotive production worldwide fell by 33% in the first half of 2020 compared to the first half of 2019, with Europe and NAFTA, Sogefi’s main areas of activity, reporting -40%. In this scenario Sogefi’s revenues came in at € 519.5 million, posting a decline of 33.2% on 2019. In the main geographical areas the group reported a distinctly better performance than the market and, thanks to the cost cutting action taken, profitability (EBITDA/revenues %) declined by just two percentage points, from 11% to 9%. Despite this, EBIT came to -€ 18.8 million, after non-recurring charges of
approximately € 18.0 million, compared to +€ 24.4 million in the first half of 2019. The first half closed with a loss of € 28.8 million, which compares with net income for the first half of 2019 of € 6.9 million.

Net financial debt at June 30 2020 before IFRS 16 rose to € 327.0 million from € 256.2 million at the end of 2019, and the increase was due mainly to the rise in working capital caused by the drastic reduction in sales, which had an immediate effect on cash inflows; this increase should be reabsorbed gradually as business recovers.

Regarding the financial investments of the holding company and the subsidiaries devoted to financial management, given the turbulence and sell-offs in the financial markets, in the first half a loss of € 5.6 million was reported, which meant a negative return of -1.4%; the portfolio of bonds and hedge funds obtained an overall positive return of 0.7%, while losses of € 7.9 million were posted for fair value adjustments made to the investments in private equity and other equity investments.

Events that have occurred since June 30 2020

On July 13 2020, as was stipulated in the agreement of December 2 2019, CIR acquired a shareholding interest in the capital of Giano Holding S.p.A., which represents transparently 5% of the share capital of GEDI. The acquisition involved a disbursement of € 11.7 million, equivalent to a price of € 0.46 for each GEDI share.

Outlook for the year

The degree of uncertainty as to the evolution of the business and the results of the second half remains extremely high.

As far as KOS is concerned, towards the end of the first half there was an inversion of the trend with a recovery in rehabilitation activity, the acute sector and in diagnostics and oncology services; the care-home sector has stabilized but is not yet at the recovery stage. As things are at present, provided there is no second wave of contagion in the autumn, it is expected that the diagnostic areas, oncology treatments, psychiatrics and the acute sector could return to levels of pre-Covid activity during this year. For rehabilitation and the care-homes, the return to normal levels of activity is expected to take place in 2021. Moreover with reference to the care-home sector in Germany, it should be noted that the impact of Covid-19 was limited and the return to normality is expected to be by the end of this year.

In this scenario, it is therefore plausible that the reduction in revenues and results of the business reported in the first half will be less in the second half of the year.

As regards Sogefi, visibility as to the evolution of the market in the coming months remains limited both in terms of the uncertainty as to the evolution of the pandemic and of the difficulty in forecasting the impact of macro-economic circumstances caused by the same on demand in the automotive sector. For the second half of 2020, IHS Markit, a source commonly used by the sector, expects that, without a second outbreak of Covid-19 and resulting measures to restrict production and adverse effects of the latter on the market, world production could be at -10% compared to the second half of 2019, while market analyst forecasts tend to be more cautious, expecting a world market contraction in a range between -15% and -30%, the latter in the event of a second wave of Covid-19.

In this uncertain scenario, Sogefi has incorporated into its expectations for the second half of the year a world market scenario hypothesis of around -20%, against which it expects to achieve an EBIT, excluding restructuring costs, that is slightly positive, a significant reduction in the net loss compared to the first half and a slightly positive free cash flow.

Both companies, in the light of the totally exceptional circumstances that arose in the first half of the year, despite today having financial resources in excess of their current needs and not foreseeing any increase in their debt compared to the levels at the end of June 2020, given the uncertainty as to the evolution of the market and anticipating the natural expiry of their existing loans, have begun negotiations with their financial partners, with whom they have consolidated relationships, to ensure that they have sufficient funding available in the medium term.

In the light of the above, the CIR group expects the second half of the year to still be difficult but provided there is no second wave of Covid-19 it should be much better than the first half.

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Sogefi: results of first half 2020

Revenues: € 519.5 million, -31.2% at constant exchange rates (car market -33.2%)

Performance of revenues much better than that of the market in the main geographical areas in which the group is present

EBITDA: € 47.0 million, 9.1% of revenues (11.1% in first half 2019)

Fixed costs down by 27%

EBIT: -€ 18.8 million due to lower volumes and to non-recurring charges

EBIT and free cash flow expected to be positive in second half of 2020 provided there is no second lockdown

Milan, July 27 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, has approved the Semi-Annual Financial Report of the group as of June 30 2020. Sogefi, a company of the CIR group, is one of the main global producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions.

KEY RESULTS FOR THE FIRST HALF OF THE YEAR

In the first half of 2020 the world car market suffered an unprecedented decline following the spread of the Covid-19 pandemic throughout the world and the resulting necessary restrictive measures adopted by local governments or applied independently by businesses with a view to protecting their workers and the population at large. These measures led to an almost total suspension of non-essential production activities and in particular of automotive production. This shutdown took place first of all in China and then in March and April in the remaining geographical areas. The current situation is that business has resumed everywhere, in China with volumes even greater than those of last year and in Europe and NAFTA with significantly reduced volumes. The most critical areas in terms of production are currently South America and India.

In the first half of the year world car production reported a decline of 33.2% compared to the same period of 2019: -41.7% in Europe, -39.9% in North America, -24.9% in Asia and -50.6% in South America. In June 2020 the market partly recovered (but with a shortfall vis-à-vis global volumes for 2019 reduced to -21.2%), driven mainly by the Chinese market (+14.1%); the performance of Europe and NAFTA also improved but still with very weak volumes (-31.2% and -24.3%, respectively). The situation in Mercosur still remains critical (-56%).

During the first half of the year the company’s top priority was the safety of its workforce. From the moment when news of the Covid-19 phenomenon in China was received, action was taken immediately to reduce the risk of contagion, starting with an increase in working from home. Subsequently all the health and safety precautions defined and required by the various local authorities or by the company were put in place in the factories and workplaces. In this context the company has revised its production procedures in all geographical areas to implement the safety protocols with regard to social distancing and the use of personal protection equipment.

Secondly, Sogefi has done all it can to mitigate the impact of the crisis and the resulting contraction in sales on results and on the company’s financial solidity; a plan was rapidly adopted to variabilize costs and limit cash consumption, and more specifically:

Lastly, the group has reformulated its medium-long term plan (2020-2024), with the aim of preserving profitability and cash generation despite the uncertain prospects regarding the recovery of the market. 

REVENUES

In the first half of 2020, Sogefi’s revenues came in at € 519.5 million and were down by 33.2% on the first half of 2019 at historical exchange rates and by 31.2% at constant exchange rates.

After the first two months of the year when revenues at constant exchange rates were up by 1%, as from March the effects of the Covid-19 pandemic were evident and became particularly serious in April (-79.5%) and May (-64.5%), while June saw a significant recovery with a considerably lower decline than in the same period of 2019 (-24.9%).

The performance of revenues at constant exchange rates was distinctly better than that of the market in the main geographical areas in which the group is present: -32.2% in Europe versus -41.7% for the market, -30.5% in North America versus -39.9% for the market, +4% in China versus -19.7% for the market. The overall decline in revenues was, however, in line with that reported by the world market because of the concentration of the group’s businesses in markets that have reported the greatest contractions (Europe and NAFTA), whereas it has a less significant presence in China, where the market decline was far more limited. 

Of the various business sectors, Filtration (where revenues declined by 25.7% at constant exchange rates) and Air and Cooling (-29.1% at constant exchange rates) reported a performance that was much less negative than that of the market thanks, for Filtration, to the fact that the OES and Aftermarket channels held up better and for Air and Cooling to the development of the portfolio of contracts particularly in North America. For Suspensions the crisis had a greater impact, with a fall in revenues of 38.2% at constant exchange rates, which reflects the greater concentration of business in Europe and Mercosur and the performance of the sector in these areas.

The dramatic reduction in volumes caused by the evolution of the market following the Covid-19 pandemic has had a very significant effect on the economic results of the group, despite the incisive mitigation measures adopted.

Indeed, EBITDA came to € 47.0 million versus € 86.4 million in the same period of 2019, mainly due to the collapse in volumes; profitability (EBITDA / Revenues %) was 9.1% and was only 2 percentage points lower than the figure for the same period of 2019 (11.1%), thanks to the cost variabilization measures put in place.

More specifically, the contribution margin improved slightly compared to the first half of 2019, from 29.4% to 29.8%, because of the favourable evolution of the relative cost of raw materials, which was due partly to market phenomena and partly to the plans implemented last year to reduce the relative impact of the purchase prices of steel needed for the production of suspension parts, which offset the impact of the inevitable production inefficiencies caused by the suspension and the resumption of production and by the low volumes.  

The relative impact of fixed costs rose by approximately 2 percentage points, an increase that was relatively limited considering the size of the collapse in revenues. This was thanks to the limitation measures adopted, some of which were temporary while others are destined to be become structural.

EBIT was a negative € 18.8 million versus a positive result of € 24.4 million in the first half of 2019. The reduction in EBIT reflects the reduction in EBITDA resulting from plummeting revenues but also includes the negative effect of the evolution of exchange rates for € 4 million (€ 1.8 million in the first half of 2019) reported by the group’s businesses in North and South America, restructuring charges for a total of € 7.3 million (€ 4.3 million in the first half of 2019) and the write-down of assets for € 6.4 million (€ 1.9 million in the previous year).

In terms of net result, the group reported a loss of € 28.8 million compared to earnings of € 6.9 million in the first half of 2019, after financial expense substantially in line with that of the previous year and tax gains of € 1 million versus tax charges of € 8.3 million in the previous year.

DEBT AND EQUITY

Regarding Free Cash Flow, in the first half of 2020 € 64.0 million were consumed compared to € 8.8 million in the first half of 2019. The reduction in business activity and thus in EBITDA led to a contraction of operating cash flow that was only partly offset by the lower outflow for investments. It should also be noted that around 80% of the amount consumed was due to the increase in working capital caused by the particular circumstances that occurred in the second quarter of the year. Indeed, as is generally the case in the sector, customer receivables are received more quickly than the timing of payment to suppliers, partly because of factoring. As sales plummeted in the second quarter, sums received from customers were lower, while disbursements to suppliers continued. This imbalance should gradually be absorbed as business recovers.

Net debt at June 30 2020 before IFRS 16 rose to € 327.0 million from € 256.2 million at the end of 2019 and € 267.3 million at the end of June 2019. Including the financial payables for rights of use, in accordance with IFRS 16, net financial debt stood at € 382.9 million at June 30 2020 compared to € 318.9 million at December 31 2019.

At June 30 2020 the group had committed credit facilities of € 194.2 million in excess of its debt and the covenants contained in the loan agreements were all being complied with.

At June 30 2020 shareholders’ equity, excluding minority interests, amounted to € 144.9 million (€ 188.7 million at December 31 2019).

RESULTS OF THE PARENT COMPANY SOGEFI S.P.A.

In the first half of 2020 the parent company Sogefi S.p.A. reported a net loss of € 5.8 million compared to net income of € 32.7 million in the same period of last year. In a particularly uncertain scenario in all of the countries in which the group operates, the distribution of dividends by the subsidiaries to Sogefi S.p.A. has been suspended.

IMPACT OF COVID-19 ON BUSINESS

Following the spread of the Covid-19 pandemic, Sogefi first suspended production in China and then in the second half of March suspended production in almost all of its facilities. At the present time, production in China has returned to monthly levels in line with the Company’s estimates made before the crisis. In the other factories production has gradually resumed since May, after their main customers started up again. However volumes are still significantly lower than forecast at the start of the year.

As regards the impact of the pandemic on the group, the pre Covid-19 forecasts had envisaged a performance of revenues in 2020 substantially in line with 2019. In the first two months of the year the Company achieved volumes higher than expected, followed by an extremely significant fall with a gradual recovery in June. Because of this, Sogefi reported revenues of € 519.5 million, down by 33.2% on the same period of the previous year; this reduction was almost entirely attributable to the effects of the crisis. The contraction in volumes, even though partly offset by the reduction in fixed costs, had a negative impact of around € 50 million on EBIT and € 39 million on the Net Result, and also led to a significant increase in debt.  

As well as reacting to reduce the impact of the crisis between March and today, the company also strove to adapt to the changed circumstances in the market and to quickly find a new economic and financial equilibrium, despite the scenario of reduced volumes such as today and which is also likely to be the case in the second half of the year and in 2021. 

OUTLOOK FOR THE YEAR

Visibility as to the evolution of the market in the coming months remains limited. With regard to the pandemic, if its containment in Europe would appear to be consolidated, its spread in North and South America has not yet reached the containment phase. There is also the risk of a second outbreak of Covid-19 and, lastly, at present it remains difficult to predict the impact of the macroeconomic conditions caused by the pandemic on demand in the automotive sector.

For the second half of 2020, IHS expects that, without a second outbreak of Covid-19 and resulting measures to restrict production and adverse effects of the latter on the market, world production could be at -10% compared to the second half of 2019, while market analyst forecasts tend to be more cautious, expecting a world market reduction in a range between -15% and -30%, the latter being the case in the event of a second wave of Covid-19.

In this uncertain scenario, Sogefi has incorporated into its expectations for the second half of the year a world market scenario of around -20%, against which it expects to achieve an EBIT, excluding restructuring costs, slightly positive, a significant reduction in the net loss compared to the first half and a slightly positive free cash flow.

Furthermore, in the light of the market outlook which is uncertain and is likely to remain so in the next few years, Sogefi has launched a plan for a significant reduction of fixed costs, which will be completed by the end of the first half of 2021, as well as actions to rationalize footprint and manage suppliers.

Even if today the Company has financial resources in excess of its current needs and although it does not foresee an increase in its debt compared to the end of June 2020.  In view of the uncertainty as to the evolution of the market and anticipating the natural expiry of existing loans, it has started negotiations with its financial partners, with whom consolidated relationships are in place, to renew existing loans and enter into new medium-term loans for a total value in the region of € 100 million.

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CIR: results for first quarter 2020

  • After first two months of growth, the quarterly results were impacted by the shutdown in March of Sogefi’s production activities, by higher costs incurred by KOS to respond to the public health emergency, and by financial market turbulence, all due to the Covid-19 pandemic  
  • Revenues stable at € 531.5 million (€ 530.2 million in 1Q 2019), thanks to the extension of the perimeter in 2019 with the acquisition made in Germany in the healthcare sector 
  • EBITDA: € 66.2 million (€ 69.5 million in 1Q 2019) 
  • EBIT: € 12 million (€ 23.6 million in 1Q 2019) 
  • Net result: -€ 12.1 million
  • Net financial position of the parent company is extremely solid: € 280.7 million (approximately € 380 million expected by end of April)

Milan, April 24 2020 – The Board of Directors of CIR S.p.A. – Compagnie Industriali Riunite, which met today under the chairmanship of Rodolfo De Benedetti, has approved the Financial Report as of March 31 2020 presented by Chief Executive Officer Monica Mondardini. 

Impact of Covid-19 on the group 

At the beginning of January 2020, the WHO published news of the spread of coronavirus in China, particularly in the Wuhan district, and on January 30 declared a public health emergency at international level. During February, the virus was reported to have spread to Europe and America and by March a situation of substantial lockdown had been put in place. Italy was the first country in Europe to be invaded by the pandemic, and today is still one of the hardest hit countries, and the one that has adopted the most stringent measures to contain the spread of the virus. These measures have led to a declining trend of the phenomenon, but the conditions and the timing of the return to social interaction and economic activity are still uncertain and the country is awaiting the beginning of May for information on possible developments. Even in the other countries in which the group operates, the prospects for a return to normality are still uncertain. 

In this context, the companies of the CIR group took immediate action to protect the health of their employees, in compliance with the instructions issued by the governments of the various countries in which they operate, and implemented all the activities necessary and appropriate to manage the Covid-19 crisis and protect their sustainability.

The impact of the crisis on the businesses of the group was and continues to be significant: KOS, whose businesses are all operational except for outpatient facilities, has been operating in entirely exceptional conditions, dealing with the consequences of the exposure to the virus of individuals at whom its services are specifically directed; Sogefi, like the whole of the automotive sector, had to suspend its production activity first in China (which is today starting up again) and then in the second half of March in all regions of the world where it has a presence. Lastly, turbulence in the financial markets has led to adjustments to the value of the financial investments managed by the CIR holding company and its non-operating subsidiaries, despite the prudent profile of their investment portfolio.  

Consolidated results

In the first quarter of 2020, the CIR group reported consolidated revenues of € 531.5 million, substantially unchanged from € 530.2 million in the same period of 2019. In the first quarter, KOS increased its revenues thanks to the acquisition of Charleston in Germany in 2019, while Sogefi reported a decline in revenues due to the almost total shutdown of its production activities in the second half of March. 

The consolidated gross operating margin (EBITDA) came to € 66.2 million (12.5% of revenues) and was down by 5% from € 69.5 million (13.1% of revenues) in the first three months of 2019. The gross operating margin of the first two months showed an improvement in Sogefi’s profitability and the Italian businesses of KOS also held up well, while in March, because of the shutdown of Sogefi’s businesses and the impact of the public health emergency on the KOS group, EBITDA was lower. 

The consolidated operating result (EBIT) was € 12.0 million (2.3% of revenues), down from € 23.7 million in the first quarter of 2019; the reduction reflects the trend of EBITDA and the higher level of amortization in KOS after the incorporation of Charleston. 

The financial management result was affected by the generalized fall in the markets, giving rise to a negative return on the portfolio of the holding company of € 7.5 million, compared to a positive result of € 3.7 million in first quarter 2019. 

From the second half of February onwards, the financial markets experienced sharp declines both in the equity sector (between the start of the year and March 31 the S&P 500 index lost 20% and the Eurostoxx 50 index was down by 26%) and in the bond sector (with negative returns of between -5% and -15% in the various asset classes). The loss of € 7.5 million on the financial investment portfolio of the parent company CIR and its non-industrial subsidiaries was due mainly to the adjustment to fair value of the positions held in the Equity, Hedge Fund and High Yield bond segments. The average size of the portfolio was € 383 million with a negative performance in the quarter of 1.9%, which confirms the fact that it was less volatile than the markets. 

The net result was a loss of € 12.1 million versus earnings of € 4.1 million in the first quarter of 2019 (€ 5.7 million including the result of the assets held for disposal). 

Consolidated net debt before IFRS 16 amounted to € 367.7 million at March 31 2020, up by € 40.1 million compared to December 31 2019 (€ 327.6 million). KOS made investments for approximately € 25 million in acquisitions and greenfield developments and Sogefi made investments in a new plant in Romania for € 4.3 million.

The net financial position of the Parent Company (including the non-industrial subsidiaries) at March 31 2020 was positive for € 280.7 million, lower than at December 31 2019 (€ 295.7 million) mainly because of the above-mentioned adjustments to the fair value of assets (€ 8.8 million), and new capitalized assets (€ 0.9 million).

Financial payables for rights of use as per IFRS 16 totalled € 789.9 million at March 31 2020 leading to overall consolidated net financial debt of € 1,157.6 million. The IFRS 16 payables refer mainly to the subsidiary KOS (€ 733.0 million) which operates mostly in leased premises (it should be noted that Charleston operates exclusively in leased properties).

The equity of the group stood at € 757.7 million at March 31 2020 versus € 770.7 million (pro-forma) at December 31 2019 and the reduction reflects the loss for the period. 

Healthcare

KOS, which is controlled by CIR (59.5%) and in which F2i Healthcare has an interest, is the principal operator in Italy in the long-term care sector. The group manages 137 facilities, mainly in the centre and north of Italy and in Germany, with a total of more than 12,500 beds, and is active not only in Italy but also in India and the United Kingdom in the sector of diagnostics and oncology treatments. 

In the first three months of 2020, KOS reported revenues of € 181.3 million, posting a rise of 29.2%, due to the enlargement of its perimeter thanks to the acquisition of Charleston, compared to € 140.3 million in the same period of 2019. Revenues of the businesses in Italy, the UK and India declined overall by 1.5% compared to 2019; Charleston’s revenues came to € 43.1 million. 

Consolidated EBITDA came in at € 35.6 million, up from € 33.1 million in 2019, with Charleston contributing € 7.7 million in the quarter. The rest of the perimeter showed a decline due to the effects of the Covid-19 pandemic on the group.

Consolidated EBIT came to € 12.3 million versus € 16.8 million reported in the first quarter of 2019. The reduction was due to a rise of € 6.8 million in amortization resulting from the change in the perimeter compared to the first quarter of 2019.

Consolidated net income was € 2.0 million compared to € 7.8 million in 2019.

At March 31 2020, KOS had net debt before IFRS16 of € 392.5 million, up from € 368.0 million at December 31 2019, after investments of € 24.7 million made in acquisitions and greenfield developments. Operating cash flow was lower than that normally generated by business activity because of the circumstances caused by the pandemic. 

At March 31 2020, consolidated equity stood at € 287.8 million versus € 285.9 million at December 31 2019.

Automotive components

Sogefi is one of the main producers worldwide in the sectors of suspension, filtration, and air and cooling systems for motor vehicles, with 41 production plants in four continents. The company is controlled by CIR (56.6%) and is listed on the Stock Exchange.

Sogefi reported revenues of € 350.2 million, down by 10.2% compared to the same period of 2019. The overall decline was more limited than that reported by the market (-24.7%) thanks to the good performance of all geographical areas except China in the first two months of the year. 

EBITDA for first quarter 2020 came in at € 34.9 million, compared to € 41.3 million in the same period of 2019; profitability (EBITDA / Revenues %) was 10% and was down from 10.6% in the same period of the previous year. 

EBIT came to € 3.7 million versus € 11.3 million in the first quarter of 2019. The reduction in EBIT took place in March because of the collapse in volumes, and includes the negative effect of exchange rates for € 5.3 million, mainly referring to South America. 

The first quarter closed with a net loss of € 5.6 million, which compares with a net result for first quarter 2019 of € 0.2 million (€ 1.6 million including the result of businesses held for disposal).  

Free Cash Flow for the first quarter of 2020 was a positive € 5.4 million versus -€ 9.1 million in 2019, thanks to a decidedly more favourable performance of working capital. 

Net financial debt before IFRS 16 stood at € 256.7 million at March 31 2020 and was substantially unchanged from € 256.2 million at the end of 2019 but lower than the figure of € 262.1 million reported at March 31 2019. Including the amount of € 56.7 million resulting from the application of IFRS 16, net debt amounted to € 313.4 million at March 31 2020, down from € 318.9 million at December 31 2019. At March 31 2020, Sogefi had credit lines of € 298 million in excess of its net debt figure, for which all the conditions have been respected and which are thus available for drawdown at a simple request. 

At March 31 2020, consolidated equity, excluding minority interests, amounted to € 181.1 million (€ 188.7 million at December 31 2019).

Non-core investments

The non-core investments of the group totalled € 76.9 million at March 31 2020 (€ 74.5 million at December 31 2019).

They consisted of a diversified portfolio of funds in the private equity sector, the fair value of which was € 59.2 million at March 31 2020, and a diversified portfolio of direct minority shareholdings worth € 17.7 million at March 31 2020.  

Events that have taken place since March 31 2020

In order not to prevent the operating companies of the group from accessing bank loans guaranteed by SACE, as per the terms of D.L. no. 23 of April 8 2020, to counter the effects of Covid 19, on April 20 2020 the Board of Directors of CIR decided to withdraw both the proposal to distribute a dividend of € 0.02 per share for the year 2019 and the proposal to authorize the buyback and disposal of own shares and then to postpone the ordinary and extraordinary Annual General Meeting of the Shareholders, scheduled for April 24 2020, until June 8 2020. The Board in any case reserves the right to evaluate the possibility of submitting the proposals withdrawn to a General Meeting of the Shareholders in the second half of the year, should the evolution of the current crisis permit it. 

On April 23 2020 the sale was completed of CIR’s 43.78% shareholding in GEDI Gruppo Editoriale to EXOR N.V.. More specifically, the sale was completed of GEDI to Giano Holding S.p.A., a newly established company wholly owned by EXOR, at a price per share of € 0.46, which corresponds to a total amount of € 102.4 million. An investment agreement was also signed by CIR, EXOR and Giano Holding, regulating the purchase by CIR, on completion of the mandatory public offer to buy GEDI shares and at the same price as that of the offer  (€ 0.46), of a shareholding interest in Giano Holding representing, transparently, 5% of the issued share capital of GEDI.

Outlook for the year

In the current state of uncertainty about the evolution of the pandemic at global level and of the measures that the governments of the various countries will adopt for the recovery phase, it is impossible to make any reliable forecasts of the impact of the Covid-19 phenomenon on the CIR group. 

The evolution of Sogefi’s business is particularly uncertain, given that the repercussions of the pandemic on the automotive sector have been particularly significant. The group is focused on doing all it can to manage the crisis: it has put in place actions to reduce costs and limit as far as possible outlays for current costs and investments that are not strictly necessary, it regularly assesses liquidity positions, liaising with its financial partners, and is preparing to start operating again, introducing higher safety standards for personnel and cost flexibility, in relation to volumes that will be negatively affected by circumstances for a certain period of time. Despite this, both the period of closure and the first months after business resumes will see economic losses that will also be reflected in an increase in net debt.

As for KOS, the coming months will be devoted to limiting the negative impact of the spread of the Covid-19 virus and to defending the health of guests, patients and workers. After a phase of intense development activity, during the rest of the year the company will focus on the integration of the numerous acquisitions that it has made in recent times. 

Regarding the investments of the parent company, the management of its financial assets remains based on prudential long-term policies. The parent company of the CIR group (together with the other non-industrial subsidiaries) has a very solid capital position with net cash and cash equivalents of € 280.7 million, which are not restricted and are not subject to any obligations. This position increased in April by € 102.4 million from the sale of the investment in GEDI.  

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Sogefi: results for first quarter 2020

Revenues at € 350.2 million, -8.8% (market -24.4%)

Revenues +1% in first 2 months and -30% in March, due to Covid-19

EBITDA at € 34.9 million, 10% of sales (10.6% in first quarter 2019)

Net debt at € 256.7 million (€ 262.1 million at 31/03/2019)

Milan, April 20 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, approved the Interim Financial Report of the group as of March 31 2020 as presented by Chief Executive Officer Mauro Fenzi.   

Sogefi, a company of the CIR Group, is one of the main world producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions.

SUMMARY OF RESULTS OF FIRST QUARTER

In the first quarter of 2020, the world car market has reported rates of decline previously seen only during the crisis of 2009. World production fell by 24.4% compared to the first quarter of 2019: -21.3% in Europe, -10.8% in North America, -44.7% in Asia and -16.3% in South America. In March the decline was -38.2%, with Europe posting -48.3%.

The exceptional performance described reflects the impact of the spread, first in China and then in the rest of the world, of the Covid-19 pandemic and the consequent and necessary restrictive measures adopted by local governments or independently by businesses with the aim of protecting their workers and the population at large. These measures led to an almost total suspension of non-essential production activities and in particular of automotive production. This shutdown took place first of all in China and subsequently in the remaining geographical areas during the month of March. Currently, business resumed in China in the middle of March, with reduced volumes, while shutdown continues in the remaining areas with the timing and methods of reopening remaining totally uncertain. It should also be noted that the automotive market, even before the spread of the pandemic, had already proved to be in a period of weakness after the inversion of the trend that took place in mid-2018, with world production decreasing by 5.8% in 2019 and still declining at the beginning of 2020.

In this context Sogefi suspended production first in China and then, in the second half of March, in all of its facilities except for those in the USA, which remained partially active. At the present time production in China has started up again, after almost all of its main customers had also opened up for business.

During the first quarter, the priority of the company was the safety of its workforce. From the moment in which news of the Covid-19 phenomenon in China was received, action was taken immediately to reduce the risk of contagion from relations with China, and to encourage smart-working. Subsequently all the health and safety precautions defined and required by the various local authorities were implemented. 

Moreover, the company is doing all it can to manage the crisis and protect the company, focusing on continuing operations, through an assessment of liquidity, disbursement-reducing plans, cost cutting and reducing investments that are not strictly necessary.

REVENUES

In the first quarter of 2020 Sogefi reported revenues of € 350.2 million, which were down by 10.2% at historical exchange rates and by 8.8% at constant exchange rates compared to the first quarter of 2019. In the first two months of the year revenues at constant exchange rates had shown growth of 1% thanks to the good performance of all geographical areas except for China. In March, given the situation caused by the Covid-19 pandemic, sales contracted by 30% and the decline affected all geographical areas and all divisions.

The decline in the quarter (-8.8% at constant exchange rates) was overall much less than that reported by the market (-24.4%).

Performance of revenues by geographical area

By geographical area, revenues at constant exchange rates were down by 9% in Europe, versus the market’s 21.3%, thanks partly to the resilience of After Market sales, and by 4% in North America, compared to the market’s -10.8%, thanks to the new production sites started up in the first two months of the year.

Performance of revenues by Business Unit

By business sector, Filtration reported growth of 1.8% at constant exchange rates, bucking the market trend thanks to the contribution of the new production site in Morocco and the fact that Aftermarket and OES sales held up until March. Air and Cooling reported a more modest decline than the market (-8.2% at current exchange rates and -8.7% at constant rates), with revenues underpinned by the new contracts acquired in North America, while the revenues of Suspensions reported a decline of 18.5% (-20.9% at constant exchange rates), affected mainly by the market difficulties in China and the suspension of production in Europe a few days earlier than suspension of the production of engine components.

OPERATING RESULTS AND NET RESULT

EBITDA for the first quarter of 2020 came in at € 34.9 million, versus € 41.3 million in the corresponding period of 2019; profitability (EBITDA/Revenues %) was 10% and was lower than the 10.6% reported in the same period of the previous year. The performance of the first two months showed an improvement in profitability but the dramatic fall in volumes in March, following suspension of production activities, had a significant impact partly due to the time required to implement the cost-cutting measures. The evolution of EBITDA in the first quarter included an overall result that held up well in Europe thanks to the first two months of the year whereas evolution was negative in China due to the collapse of business, in South America due to the economic situation particularly in Argentina and the impact of exchange rates against the local currencies, and in North America mainly because of exchange rates.

EBIT came to € 3.7 million, down from € 11.3 million in the first quarter of 2019. The reduction in EBIT came in March with the collapse of volumes, and included the negative effect of exchange rates for € 5.3 million reported by the group’s businesses in North and South America.

The net result was a negative € 5.6 million versus net income of € 1.6 million in the first quarter of 2019, after tax expense of € 2.5 million, compared to € 3.6 million in the previous year.

DEBT AND EQUITY

Free Cash Flow was positive for € 5.4 million in the first quarter of 2020 compared to -€ 9.1 million in the first quarter of 2019, thanks to a decidedly more favourable performance of working capital.

Net financial debt before IFRS 16 stood at € 256.7 million at March 31 2020 and was substantially unchanged from € 256.2 million at the end of 2019 and lower than the € 262.1 million reported at March 31 2019. Including the amount of € 56.7 million resulting from the application of IFRS 16, the net debt figure at March 31 2020 amounted to € 313.4 million, down from € 318.9 million at December 31 2019.

At March 31 2020 the Group had committed credit lines of € 298.0 million in excess of its net debt figure.

Equity, excluding minority shareholder interests, amounted to € 181.1 million at March 31 2020 (€ 188.7 million at December 31 2019).

RESULTS OF THE PARENT COMPANY SOGEFI S.P.A.

The parent company Sogefi S.p.A. reported a net loss of € 2.8 million in the first quarter of 2020 (-€ 3.2 million in the same period of the previous year).

OUTLOOK FOR THE YEAR

In an environment with extremely limited visibility, the most recent sector sources are estimating that world car production may fall by between 20% and 25% in 2020 according to different scenarios as to the effects of Covid-19.

Indeed at present all the elements that contribute to the formulation of forecasts for the year remain totally uncertain: the evolution of the pandemic, the decisions to be made by the authorities on the subject of resuming production activity, today in lockdown, and lastly, following the possible startup of activity, the reaction of parts of the world. At present the circumstances described above make any forecast that the company could make highly uncertain.

The group is focused on doing all it can to manage the crisis: it has put in place actions to reduce costs and limit as far as possible current costs and investments that are not strictly necessary, it regularly assesses liquidity positions, keeping the Board of Directors informed, liaising with its financial partners, and is preparing to start operating again, introducing higher safety standards for personnel and cost flexibility in relation to volumes that will be affected by circumstances for a certain period of time.

However, both for the period of closure and the first months after business starts up again there will be significant economic losses that will also be reflected in an increase in net debt.

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Consolidated results for 2019

  • Merger CIR-COFIDE: received a positive reaction from the market
  • Agreement reached on December 2 2019 for the sale to EXOR N.V. of the holding in GEDI (43.7%) for € 0.46 per share, which includes a premium of approximately 70%
  • Revenues at € 2,114.4 million, in line with 2018 (€ 2,115.6 million)
  • Revenues of the subsidiary KOS continue to grow (€ 595.2 million, +9.2%). Start of development of core activities abroad with the acquisition of Charleston
  • EBITDA: € 290.3 million 
  • EBIT: € 85.5 million 
  • Net result excluding GEDI positive for € 14.3 million 
  • Loss reported on the interest in GEDI of € 136.7 million, of which € 58.6 million as the share pro rata of the losses of the subsidiary and € 78.1 million as the adjustment of the carrying value to the sale price agreed on
  • Net financial position of the parent company solid at € 295.7 million (€ 299.6 million in 2018)
  • Proposed dividend of € 0.02 per share, in line with 2018, considering the share exchange rate

Milan, March 9 2020 – On February 19 2020 the merger by incorporation of CIR S.p.A. – Compagnie Industriali Riunite into COFIDE – Gruppo De Benedetti S.p.A. became effective; the name of the Company post-merger is CIR. 

The Board of Directors, which met today under the chairmanship of Rodolfo De Benedetti, approved the statutory and consolidated Financial Statements for the year ended December 31 2019 of CIR and COFIDE, as the merger took place in 2020, and examined the pro-forma results of the group – as if the merger had taken place last year – as presented by Chief Executive Officer Monica Mondardini. The information below refers to the pro-forma results, but also gives the results of CIR and COFIDE pre-merger in a concise form. 

The Board voted to propose that the Annual General Meeting of the Shareholders approve the distribution of a dividend of € 0.02 per share.

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During 2019 important deals were concluded, deals that redesigned the structure and perimeter of the group. 

The merger was initiated between CIR and its parent company COFIDE, after being approved by their respective Boards of Directors on March 11 2019. The merger took effect on February 19 2020. It has shortened the control chain and reduced unproductive costs, making the shares more liquid thanks to the greater float.  The market reacted positively. 

An agreement was reached with EXOR N.V. for the sale of CIR’s holding in GEDI Gruppo Editoriale. The sale of GEDI, the group that CIR had controlled for over thirty years, was part of CIR’s strategy of focusing its managerial commitment and its resources on sectors in which it is present where there is greater potential for the creation of value. The transfer of control to the EXOR holding guarantees that GEDI, which operates in a highly challenging market, will be able to count on a strong shareholder with experience in the sector and a long-term plan. The agreement includes a price per share that incorporates a premium of approximately 70% of stock exchange prices prior to the announcement: the market reacted positively to the deal to the benefit of CIR. In spite of this, CIR reported a significant loss as the sale price was lower than the carrying value. 

A first step was taken to expand abroad the core business of the subsidiary KOS through the acquisition of the German company Charleston, which operates in the nursing home sector with 47 facilities with a total of 4,050 beds, and is forecasting 2020 revenues of € 175 million. For KOS Charleston represents a 30% increase in size and the start of a path of international growth in addition to its intense consolidation activity in Italy.

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The Financial Statements for 2019, as was already commented on in detail in the interim financial reports, were formulated with the application of the new accounting standard IFRS 16 which produced changes in all the main financial indicators, EBITDA in particular, and involved the recognition as debt of the present value of future lease payments. 

Moreover, following the deal announced on December 2 2019, the interest in GEDI was classified as an “asset held for disposal” in accordance with IFRS 5. 

The consolidated results for 2019 were affected by the loss resulting from the pro-forma net result for the year 2019 of GEDI, burdened by the write-down of goodwill and the value of its newspaper titles (la Repubblica and La Stampa), and by the adjustment of the carrying value of the asset to the price agreed upon for the sale. 

The financial figures presented below, relating to the consolidated Financial Statements for 2019, in application of IFRS 5, do not include GEDI, except for in the net result and shareholders’ equity numbers.

Consolidated results

The group reported consolidated revenues of € 2,114.4 million, substantially unchanged from 2018, with KOS posting growth of 9.2% and Sogefi declining by 3.3%.

The consolidated gross operating margin (EBITDA) came in at € 290.3 million (13.7% of revenues); before the application of IFRS 16, EBITDA was € 238.6 million, down by 7.4% compared to the figure for 2018 (€ 257.7 million), because of the unfavourable performance of the automotive market in which Sogefi operates and the significant non-recurring charges incurred for the completion of extraordinary transactions, particularly the acquisition of  Charleston by KOS and the CIR-COFIDE merger.

The consolidated operating result (EBIT) came to € 85.5 million (4% of revenues) versus       € 109.6 million in 2018 and the decline was due to the factors mentioned above. 

The net result before the effects relating to GEDI was a positive € 14.3 million (€ 22.6 million excluding non-recurring elements and the change in accounting standards, in line with € 21.8 million, the comparable figure for the year 2018); including GEDI, the group reported a loss of € 122.4 million.

The portfolio of financial investments of the parent company and the non-industrial subsidiaries recorded a return of 4.5% (excluding private equity and other equity investments), which was slightly higher than the market benchmark in all asset classes. 

The consolidated net debt before IFRS 16 amounted to € 327.6 million at December 31 2019, up by € 107.8 million from December 31 2018 (€ 219.8 million). With consolidated free cash flow of around € 66 million, KOS invested in acquisitions and greenfield projects for € 117.7 million, Sogefi invested in new plants for an amount of € 10.5 million, dividends were distributed for a total of € 40.9 million and own shares were bought back for € 4.7 million. 

Financial payables for rights of use as per IFRS 16 came to a total of € 800.1 million at December 31 2019 leading to overall consolidated net financial debt of € 1,127.7 million. The payables as per IFRS16 mainly refer to the subsidiary KOS (€ 737.3 million), which operates principally in leased facilities (it should be noted that Charleston operates only in leased properties).

The equity of the group stood at € 770.7 million at December 31 2019 versus € 923.3 million at December 31 2018 and the reduction was due mainly to the loss reported on GEDI, the distribution of dividends and the buyback of own shares. 

At December 31 2019 the group had 18,648 employees, up from 14,006 at December 31 2018. The increase was due to the acquisition of Charleston, which employs 3,981 people.

Healthcare

KOS, which is controlled by CIR (59.5%) and in which F2i Healthcare has an interest, is the principle operator in Italy in the long-term care sector. The group manages 135 facilities, mainly in the north of Italy and in Germany, with a total of 12,464 beds, and is active not only in Italy but also in India and the United Kingdom in the sector of diagnostics and oncology treatments. 

In 2019 the consolidated revenues of KOS were up by 9.2% at € 595.2 million. The Long-Term Care sector reported growth in revenues of 9.5%, thanks to organic growth and to the contribution of the acquisitions made in 2018 and 2019; the Diagnostics and Oncology Treatment area also grew significantly (+11.7%), thanks to the evolution of its contract portfolio. 

Consolidated EBITDA came in at € 141.3 million (€ 102.0 million excluding the effect of IFRS16, in line with the amount reported in the previous year). The benefits deriving from the new acquisitions, especially Charleston, will already be seen in 2020 and will reach full potential over the next three years. 

Consolidated EBIT came to € 67.7 million and was slightly higher than the figure reported in 2018 (€ 66.3 million).

Consolidated net income was € 30.3 million, down from € 35.2 million reported in 2018, due to higher financial charges (€ 1.9 million), the negative impact of IFRS16 (€ 2.5 million) and the extraordinary charges incurred for the acquisitions. 

At December 31 2019 the KOS group had net debt before IFRS16 of € 368.0 million versus € 259.4 million at December 31 2018; cash flow was a positive € 44 million, acquisitions were made for € 99 million and greenfield developments for € 18.7 million; lastly, dividends of € 35.9 million were distributed.

At December 31 2019 consolidated equity stood at € 292.2 million, compared to € 297.7 million at December 31 2018.

During 2019 KOS’s growth trajectory in long-term care continued with the acquisition of Charleston Holding GmbH, a German company active in the supply of residential services for the non self-sufficient elderly and ancillary services for elderly people with a high level of disability, Villa Pineta S.r.l., a private hospital in Modena, and Casa Serena S.r.l., a care home situated in Carasco (GE). KOS also acquired SELEMAR S.r.l., which manages a pathology laboratory in Urbino, and Laboratorio Gamma S.r.l. based in Grosseto.

Automotive components

Sogefi is one of the main producers worldwide in the sectors of suspension, filtration, and air and cooling systems for motor vehicles, with 41 production plants in four continents. The company is controlled by CIR (56.7%) and is listed on the Stock Exchange.

In 2019 Sogefi reported revenues of € 1,519.2 million, down by 3.3% compared to 2018. The decline was overall more limited than that reported by the market (-5.8%) thanks to the better performance of revenues in Italy. By business sector, compared to the performance of the market, Filtration bucked the trend with growth of 1.7%, Air and Cooling showed a more limited decline (-1.7%), while Suspensions reported a decline of 5.6%, in line with the market. 

EBITDA came in at € 174.3 million (of which € 12.4 million from the application of IFRS 16), and profitability (EBITDA / Revenues %), despite the fall in volumes, came to 11.5%, a figure in line with that of the previous year with the same accounting standards and excluding in 2018 the non-recurring income of € 6.6 million resulting from the close of the quality claims of  Systèmes Moteurs S.A.S.. 

EBIT came to € 39.6 million (€ 43 million excluding the write-off of certain projects) versus € 60.1 million in 2018 (€ 53.5 million without considering the above-mentioned non-recurring gain of € 6.6 million). The operating result showed good growth in Europe thanks to the actions taken in the period while a negative impact was caused by critical factors which affected the North American businesses of the group, the unfavourable performance of the Chinese and South American markets and the start-up costs of the new plants in Morocco (Filtration) and Romania (Suspensions). 

Net income came to € 3.2 million compared to € 14.0 million in 2018.   

The net financial debt before IFRS stood at € 256.2 million at December 31 2019 and was down slightly from € 260.5 million at the end of 2018. Including the amount of € 62.7 million from the application of IFRS 16, the net debt at December 31 2019 totalled € 318.9 million.

At December 31 2019 consolidated Shareholders’ equity amounted to € 207.8 million (€ 213.8 million at December 31 2018).

Operations held for disposal

In 2019 GEDI obtained consolidated revenues of € 603.5 million, with a decline of 7% compared to 2018, because of the contraction of the advertising market and the continuing decline in copies of newspapers and magazines sold. 

The adjusted operating result, before non-recurring charges and IFRS16, was € 26.9 million, down from € 33.1 million in 2018. 

In 2019 the newspaper and magazine titles were written down significantly from their carrying values against the backdrop of a market scenario that has worsened beyond expectations. More specifically, GEDI wrote down the value of the titles la Repubblica and La Stampa by an amount of € 105.6 million net of the deferred taxes recognized in the balance sheet for these assets. Moreover, the interest in Persidera was sold, giving a capital loss of € 16.5 million. Lastly, a provision of € 25.1 million was set up for corporate restructuring. GEDI therefore reported a net loss of € 129.0 million.

Non-core investments

The non-core investments of the group totalled € 74.5 million at December 31 2019 (€ 86.0 million at December 31 2018).

They consisted of a diversified portfolio of funds in the private equity sector, the fair value of which was € 56.6 million at December 31 2019, and a diversified portfolio of direct minority shareholdings worth € 17.9 million at December 31 2019.

Outlook for the year

The evolution of the group’s results will depend on that of the sectors in which its strategic equity investments operate, as well as on the performance of the financial markets to which the return on financial assets managed by the non-industrial companies of the group are linked.  

For 2020, KOS expects to see a rise in revenues of some 30%, thanks to the growth in its Italian businesses (around 5%) and to the consolidation of Charleston over the whole year. The profitability of the more recent investments will be fully evident in the next 3-5 years. 

In the automotive sector, the uncertainty as to the market prospects has been accentuated by the unpredictable evolution of the Covid-19 virus and its effects on the world economy and on international trade. The group has limited direct exposure to the Chinese market (China accounts for just 5% of revenues), but there is undoubtedly a risk of the Coronavirus having a global impact on a market that is already in a weak situation. Before factoring in the Coronavirus phenomenon, the effects of which are for the moment unpredictable, based on its portfolio of contracts and the forecast evolution of the market, Sogefi would expect revenues to be in line with those of 2019, which was in fact confirmed for the first two months of 2020, profitability in Europe to hold up and an improvement of profitability in North America, thanks to the new contracts acquired by the Air and Cooling business unit.  

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Results of the CIR group

In 2019 the CIR group reported consolidated revenues of € 2,114.4 million, substantially in line with 2018, with KOS showing growth of 9.2% and Sogefi reporting a decline of 3.3%.

The consolidated gross operating margin (EBITDA) came in at € 292.6 million (13.8% of revenues); before the application of IFRS 16, EBITDA for 2019 would be € 240.9 million, down by 7% compared to the figure for 2018 (€ 259.0 million) because of the unfavourable performance of the automotive market, in which Sogefi operates, and the significant non-recurring charges incurred for the extraordinary transactions, particularly the acquisition of Charleston by KOS and the CIR-COFIDE merger.

The consolidated operating result (EBIT) was € 87.8 million (4.1% of revenues), versus € 111.0 million in 2018 with the decline due to the factors described above. 

The net result before the effects relating to GEDI was a positive € 15.0 million; including GEDI, the group reported a loss of € 121.7 million.

Results of the COFIDE group 

The group reported consolidated revenues of € 2,114.4 million, substantially unchanged from 2018, with KOS showing growth of 9.2% and Sogefi reporting a decline of 3.3%.

The consolidated gross operating margin (EBITDA) came in at € 290.3 million (13.7% of revenues); before the application of IFRS 16, EBITDA for 2019 would be € 238.6 million, down by 7.4% compared to the figure for 2018 (€ 257.7 million) because of the unfavourable performance of the automotive market in which Sogefi operates, and the significant non-recurring charges incurred for the extraordinary transactions, particularly the acquisition of Charleston by KOS and the CIR-COFIDE merger.

The consolidated operating result (EBIT) was € 85.5 million (4% of revenues), versus € 109.6 million in 2018 with the decline due to the factors described above. 

The net result before the effects relating to GEDI was a positive € 7.8 million; including GEDI, the group reported a loss of € 69.8 million.

The parent company COFIDE S.p.A. closed 2019 with net income of € 13.4 million versus net earnings of € 11.1 million in 2018. 

Proposed dividend

The Board of Directors has decided to propose that the Annual General Meeting of the Shareholders approve the distribution of a dividend of € 0.02 per share. The value per share is in line with level of remuneration given in 2018 to the Shareholders of the former CIR. The dividend will be paid on May 20 2020 with the detachment of coupon no. 35 on May 18 and record date May 19.  

Annual General Meeting of the Shareholders

The Annual General Meeting has been convened at a single calling for April 24 2020. At today’s meeting, the Board of Directors resolved:  

  • To put before the Shareholders’ Meeting a motion to cancel and renew the authorization of the same Board of Directors for a period of 18 months to buy back a maximum of 200,000,000 of its own shares and in any case up to 20% of the share capital at a unit price that cannot be more than 10% higher or lower than the benchmark price recorded by the shares on regulated markets on the trading day preceding each single buyback transaction or the date on which the price is fixed. In any case, when the shares are bought back in the regulated market, the price must not be higher than the higher of the price of the last independent transaction and the highest current independent bid price on the same market, in compliance with what is set out in EU Delegated Regulation no. 2016/1052. The main reasons why this authorization is being renewed are: to fulfil the obligations resulting from possible stock option plans or other awards of shares of the Company to employees or members of the Board of Directors of CIR, its subsidiaries or its parent company; to fulfil any obligations resulting from debt instruments that are convertible into or exchangeable with equity instruments; to have a portfolio of own shares to use as consideration for any possible extraordinary transactions, even those involving an exchange of equity holdings with other entities within the scope of transactions of interest to the Company (a so-called “stock of securities”); to support market liquidity of the shares; to take advantage of opportunities for creating value, as well as investing liquidity efficiently in relation to the market trend; for any other purpose qualified by the competent Authorities as admitted market practice in accordance with applicable European or domestic rules, and with the procedures established therein; 
  • To put before the Shareholders’ Meeting for approval a stock grant plan for 2020 aimed at directors and/or executives of the company and its subsidiaries for a maximum of 4,500,000 conditional rights, each of which will give the beneficiaries the right to be assigned free of charge 1 CIR share. The shares thus assigned will be made available from the own shares that the company is holding as treasury stock;
  • To propose the renewal of the Board of Directors, as stipulated in the merger agreement;
  • To propose the renewal of the Board of Statutory Auditors the mandate of which comes to an end with the approval of the Financial Statements for the year ended December 31 2019; 
  • To propose, in an extraordinary session, that the authorization of the Board of Directors be renewed to effect capital increases up to a maximum of € 500 million, capital increases in favour of directors and employees of the company and its subsidiaries for a maximum amount of € 11 million, and to issue convertible bonds and bonds with warrants attached, even without the option right and in this case in favour of institutional investors. 

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The Executive responsible for the preparation of the Company’s Financial Statements, Giuseppe Gianoglio, hereby declares, in compliance with the terms of paragraph 2 Article 154 bis of the Finance Consolidation Act (TUF), that the figures contained in this press release correspond to the results documented in the Company’s accounts and general ledger. 

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Alternative performance indicators

Below the meaning and content are given of the “alternative performance indicators”, not envisaged by IFRS accounting standards but used in this press release to provide a better evaluation of the economic and financial performance of the group: 

– EBITDA (gross operating margin): an indicator of operating performance calculated by adding “amortization, depreciation and write-downs” to the “operating result”; 
– Consolidated net financial debt: an indicator of the financial structure of the group; it is the algebraic sum of financial receivables, securities, other financial assets and cash and cash equivalents in current assets, of bonds, other borrowings and financial payables for rights of use in non-current liabilities, of bank borrowings, bonds, other financial payables and financial payables for rights of use in current liabilities. 

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Sogefi: 2019 revenues € 1,519.2m, -2.2% at constant exchange rates (market -5.8%)

SOGEFI (CIR GROUP): 2019 REVENUES € 1,519.2M, -2.2% AT CONSTANT EXCHANGE RATES (MARKET -5.8%)

EBITDA at € 174.3 million, 11.5% of revenues

Profitability in line with 2018 but improved during 2019 

EBIT at € 39.6 million after significant start-up costs for new production sites and write-down of assets

Milan, February 24 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, has approved the proposed financial statements for the year 2019. Sogefi, a company of the CIR Group, is one of the main global producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions. 

Mauro Fenzi, Chief Executive of Sogefi, made the following statement:

“Sogefi in a difficult year succeeded in outperforming the market and keeping its margins substantially stable. Indeed margins improved in the fourth quarter and in Europe they improved over the whole year. The management team and the employees of a company with a great tradition like Sogefi, which has a consolidated relationship with its customers, will continue in their effort to meet the challenges of a market that is profoundly evolving”.

Revenues

In 2019, the world car market reported a decline in production of 5.8% compared to 2018: -4.7% in Europe, -3.9% in North America, -8.9% in Asia and -4% in South America. In the fourth quarter the decline was 5.4%, with Europe and NAFTA very weak (-6.3% and -8.9% respectively).

Sogefi reported revenues of € 1,519.2 million, down by 3.3% from 2018 at historical exchange rates and down by 2.2% at constant exchange rates.

Revenues at constant exchange rates were down by 1.7% in Europe, by 6.3% in North America and by 8.2% in Asia, while in South America they were up by 8.1%. The overall decline was more limited than that reported by the market (-5.8%) thanks to the performance of revenues in Europe which held up compared to the market (-1.7%, versus -4.7% for the market).

Even in the last quarter of the year Sogefi confirmed a sales performance that was better than the market (-3.5% at current exchange rates and 2.2% at constant exchange rates compared to the market’s -5.4%), with Europe at -1.8% and growth in China and India.  

By business sector, Filtration with growth of 2.7% (+1.7% at current exchange rates) bucked the market trend, Air and Cooling reported a more limited decline that the market (-3.5% at constant exchange rates and -1.7% at current exchange rates) while the revenues of Suspensions reported a decline of 5.6% (-8.8% at current exchange rates).

Operating results and net income

EBITDA for 2019 came in at € 174.3 million (of which € 12.4 million from the application of IFRS 16), and profitability (EBITDA / Revenues %), despite the lower volumes, came to 11.5%, a value in line with that of the previous year on a like-for-like basis and excluding in 2018 the non-recurring income of € 6.6 million from the settlement of the quality claims in Systèmes Moteurs S.A.S..

In the fourth quarter, profitability (11.8%) was in line with the number for the third quarter of the year and confirms the recovery that took place in the year (10.6% and 11.6% in the first and second quarters respectively). Moreover, profitability in the fourth quarter was higher than the figure reported in fourth quarter 2018 and was 9.7% with the same accounting standards.

EBIT was € 39.6 million versus € 60.1 million in 2018 (€ 53.5 million without considering the above-mentioned item of non-recurring income of € 6.6 million); profitability (EBIT / Revenues %) came to 2.6%, compared to 3.4% in 2018. The decline in EBIT was due partly to the lower EBITDA in absolute terms, linked to the fall in revenues, and partly to the start-up costs of the plants in Morocco and Romania and lastly to a write-off of business activities for € 10.7 million.

Operating results showed healthy growth in Europe, thanks to the action taken in the period, while a negative impact came from various circumstances affecting the North American businesses of the group and from the unfavourable performance of the Chinese and South American markets.

Income before taxes came to € 15.9 million (€ 36.2 million in 2018) after financial expenses of € 23.7 million (€ 19.5 million before application of IFRS 16), versus € 23.9 million in 2018. 

Net income came in at € 3.2 million compared to € 14.0 million in 2018, after tax charges of € 13.7 million, down from € 20.0 million in the previous year. The greater impact of taxes reflects the composition of the result, with some geographical area posting significant earnings and others where the decision was made not to recognize deferred tax assets offsetting losses linked to the start-up of business activities or continuing critical market conditions. The net result includes income of € 4.0 million from the sale of the Fraize plant (included in the item “Discontinued operations”), which compares with net income of € 1.1 million from the same business in 2018.

Net debt

Free Cash Flow for 2019 was a positive € 8.4 million, up from € 2.9 million in 2018, which included the disbursement for the acquisition of minority interests in the Indian subsidiary (€ 16.7 million). 

Net debt before IFRS 16 stood at € 256.2 million at December 31 2019, which was slightly lower than the figure of € 260.5 million at the close 2018. Including the sum of € 62.7 million from the application of IFRS 16, the net debt figure at December 31 2019 would have been € 318.9 million.

Equity

At December 31 2019 Shareholders’ equity, excluding minority interests, stood at € 188.7 million (€ 192.9 million at December 31 2018).

Employees

The Sogefi Group had 6,818 employees at December 31 2019 versus 6,967 at December 31 2018. The reduction was due both to the decline in business activity and to the sale in 2019 of the Fraize plant (127 employees at December 31 2018).

Results of the parent company Sogefi S.p.A.

The parent company Sogefi S.p.A. reported net income of € 7.7 million in 2019 compared to a net loss of € 13.7 million in the same period of the previous year. The increase was due mainly to the greater flow of dividends distributed by the subsidiaries and to lower financial expense.

Outlook for the year 2020

Sector sources expect 2020 global car production to decline slightly, with Europe at -1.4%; for the first quarter of 2020, the trend should be a major decline, mainly in China, with a recovery in the following quarters.  It should be highlighted that the market outlook remains highly uncertain and the visibility low.

Taking into account its contracts portfolio, Sogefi expects sales substantially in line with 2019 and slightly better than the market.

A stable profitability in Europe is expected, thanks to the actions taken particularly in the Suspensions business, and a margin recovery is expected in North America, thanks to the new Air & Cooling contracts acquired. 

The current year will be key for the development of the new Suspensions plant in Romania which will contribute to strengthen the EMEA business from 2022 onwards.

These perspectives do not incorporate the effects of Coronavirus; considering the relatively limited exposure of Sogefi to the Chinese market, the main risk is represented by the impact on the world economy and on the car production worldwide.

Proposed dividend

The Board of Directors will propose to the Annual General Meeting of the Shareholders that no dividend be distributed.

Annual General Meeting of the Shareholders

The Annual General Meeting of the Shareholders of Sogefi has been called for April 20 2020 at the first call and for April 21 2020 at the second call.

  • The Board of Directors has voted to put the following proposals before the ordinary session of the AGM: The cancellation and renewal of the power assigned to the same Board of Directors, taking into account current legislation and regulations in force, Consob Resolution no. 20876 of April 3 2019 and Consob Guidelines of July 2019, for a period of 18 months to buy back a maximum of 10 million own shares (including 2,212,478 own shares held today, corresponding to 1.8419% of the share capital) at a unit price that must not be more than 10% higher or lower than the benchmark price recorded by the shares in the stock exchange trading session preceding each single buyback transaction or the date on which the price is fixed and in any case, when the purchases are made on a regulated market, at a price that is no higher than the higher of the price of the last independent transaction and the current independent bid price in the same market, in accordance with what is stipulated in EU Delegated Regulation no. 2016/1052. The main reasons for renewing this authorization are the following: to fulfil obligations resulting from any stock option plans or other forms of assignation of the Company’s shares to employees or members of the Board of Directors of Sogefi or its affiliated companies; to fulfil obligations that may derive from debt instruments that can be converted into or exchanged for shares;  to have a portfolio of own shares to use as consideration in any extraordinary transactions, possibly involving an exchange of shareholding interests, with other parties within the scope of transactions of interest to the Company (a so-called “stock of shares”); to be able to increase the liquidity of the shares in the market; to be able to take any opportunities for creating value as well as investing liquidity efficiently in relation to the trend of the market; for any other purpose that the competent Authorities should qualify as permitted market practice as per the terms of the European and domestic rules applicable, and following the procedures established therein;
  • The approval of a stock grant plan for 2020 aimed at employees of the Company and its subsidiaries for a maximum of 1,000,000 conditional rights, each of which will give the beneficiaries the right to be assigned 1 Sogefi share free of charge. The shares thus assigned will be made available from the stock of own shares held by the company. The plan has the aim of rewarding loyalty in the relationship between the beneficiaries and the companies of the Group, giving them an incentive to increase their commitment to improving the performance of the companies.

The Annual General Meeting will also be called upon to pass a resolution for the appointment of a Director and the proposal is that Mr Mauro Fenzi (Chief Executive Officer and General Manager of the Company) should be confirmed after being co-opted by the Board as per the terms of Art. 2386 of the Civil Code on December 9 2019.

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