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.
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.