- The rise in net income was due principally to the recovery of the financial markets. Financial structure strengthened at holding level: aggregate net financial surplus up to 111.1 million euro
Revenues and margins lower due to repercussions of current economic scenario on main subsidiaries, except for healthcare businesses. Recovery of profitability continues in media and automotive component sectors thanks to management action undertaken
Consolidated results at September 30 2009 - Revenues: € 3,152 million (-10.8% from € 3,532.9 million in 9M 2008
- EBITDA: € 205.8 million (-42.4% from € 357.1 million in 9M 2008)
- Net income: € 138 million (+17.8% from € 117.1 million in 9M 2008) Aggregate net financial surplus: € 111.1 million (€ 93.8 million at June 30 2009)
- Consolidated net debt: € 1,728.1 million (€ 1,678.1 million at June 30 2009)
Milan, October 26 2009 – The Board of Directors of CIR-Compagnie Industriali Riunite SpA, which met today under the chairmanship of Stefano Micossi, examined and approved the Interim Financial Report for the group as of September 30 2009.
Performance of operations
The CIR group closed the first nine months of 2009 with consolidated net income of 138 million euro, up by 17.8% on the figure for 2008 (117.1 million euro) in spite of the deep economic recession which is still continuing. The rise was due principally to the significant improvement in financial activities (a positive 55.5 million euro versus a negative figure of 10.8 million in 2008) which benefited from the recovery of the markets.
The net result of the group also includes the positive contribution of the operating companies (5.8 million euro) and non-recurring gains of 76.7 million euro from the subscription by the shareholder Verbund of a capital increase in Sorgenia (in the first nine months of 2008 the non-recurring gains of the group came to 65.2 million euro). Consolidated revenues and margins, however, were down. This trend reflects the repercussions of the negative economic scenario on the main operating subsidiaries, with the significant exception of the healthcare businesses which continue their double-digit growth.
During the period the group continued to strengthen the management action undertaken in the last few months of 2008 to counter the impact of the global crisis. In particular, in the media and automotive component sector, which have been the hardest hit by the crisis, significant measures have been taken to improve efficiency and cut costs, and this action led to a gradual, albeit partial, recovery of profitability over the nine months. The aim of this strategy, which also involves maintaining investment in new initiatives, is to enable all the companies of the group to face the coming economic cycles with a more solid, efficient and competitive structure.
At September 30 2009 the financial structure of CIR was even stronger: the aggregate net financial surplus at holding level rose to 111.1 million euro (44.2 million euro at December 31 2008).
Consolidated results
The consolidated revenues of the CIR group came to 3,152 million euro in the first nine months of 2009, down from 3,532.9 million euro in the same period of 2008 (-10.8%). The change, despite the significant rise in the revenues of HSS, was due to the decline in the revenues of the other main subsidiaries.
The consolidated gross operating margin (EBITDA) was 205.8 million euro (6.5% of revenues), down from 357.1 million euro in the first nine months of 2008 (-42.4%). The consolidated operating result (EBIT) was 104.8 million euro, down from 254.2 million euro in 2008. The change compared to last year was due to the contraction in the operating results of the main subsidiaries.
The consolidated net income of the CIR group in the first nine months of 2009 was 138 million euro, up from 117.1 million in the same period of the previous year (+17.8%). The rise in earnings was principally due to the significant improvement in the result of financial activity (55.5 million euro versus a negative balance of 10.8 million in the first nine months of 2008) and to the posting of non-recurring gains of 76.7 million euro (65.2 million in the first nine months of 2008).
The contribution of financial activities was positively affected by the recovery of the markets, which led to a rise of approximately 40 million euro in the value of the securities portfolio, and to the further disinvestment made from Medinvest, which led to the recognition of capital gains of approximately 44 million euro. The net result of the group also included the positive contribution of the operating companies of 5.8 million euro.
Consolidated net invested capital stood at 3,994.7 million euro at September 30 2009, compared to 3,764.3 million at the end of 2008, posting a rise of 230.4 million euro due essentially to the investments made by Sorgenia in production capacity.
The net financial debt of the CIR group at September 30 stood at 1,728.1 million euro, up from 1,678.1 million euro at June 30 2009 and 1,685.4 million euro at December 31 2008. The consolidated net debt figure was made up of the following:
– An aggregate net financial surplus at holding level of 111.1 million euro (93.8 million euro at June 30 2009). The change from 44.2 million euro at December 31 2008 was due mainly to tax credits from prior periods received from Inland Revenue (29.9 million euro), the receipt of dividends of 9.3 million euro and the positive fair value adjustment of the securities portfolio of approximately 40 million euro;
– Total net debt of the operating companies of 1,839.2 million euro (1,771.9 million euro at June 30 2009). The rise from 1,729.6 million euro at December 31 2008 was mainly due to the investments made by Sorgenia in new production capacity.
The net financial position includes the pertinent part of CIR’s investment in Medinvest, which amounted to 81.3 million euro at September 30 2009. In the first nine months of the year the partial disinvestment from Medinvest generated realized net gains of 44 million euro (62.6 million euro in the first nine months of 2008). This disinvestment strategy has the aim of rebalancing the portfolio with a view to optimizing the financial structure of the group. The performance of Medinvest since its inception (April 1994) until December 31 2008 gave a weighted annual return on the portfolio of 7.7%. In the first nine months of 2009 performance was positive (+8.9%).
Total consolidated equity at September 30 2009 stood at 2,266.6 million euro, up from 2,078.9 million euro at December 31 2008. The group’s equity amounted to 1,367.6 million euro, up from 1,264.9 million euro at December 31 2008.
At September 30 2009 the CIR group had 12,777 employees (12,969 at December 31 2008).
Industrial businesses
Energy: Sorgenia
In the first nine months of 2009, in an extremely difficult market environment because of the economic recession and the consequent decline in demand for energy, Sorgenia reported revenues substantially unchanged from last year. The company benefited in particular from the good result of the electricity business, due to the rise in the number of clients (which now stand at 560 thousand) and in sales volumes (+10%), while gas sales were significantly down, in line with the market. The repercussions of the negative trend of the economy particularly affected margins, especially in the third quarter.
As far as the business plan is concerned, the San Gregorio Magno wind park (SA), Sorgenia’s largest in terms of output (39 MW), has now started operating. The new plant in Campania has strengthened the presence of the company in the Italian wind sector, where it has an installed capacity of approximately 70 MW. The combined cycle CCGT plant at Modugno (BA), currently at the testing stage, will also be starting operations soon.
Sorgenia closed the first nine months with sales revenues of 1,733.7 million euro, down slightly (-2.4%) from the same period of 2008 (1,777.3 million euro). The revenues from the electricity business, however, were up by 5.5%. The gross operating margin (EBITDA) came to 96.4 million euro, 18.8% down from 118.7 million euro in the same period of 2008. Despite the fact that the electricity business held up well especially with the contribution of generation from renewable sources, the result was negatively affected by three factors: the contraction of natural gas sales margins on account of lower volumes sold and lower prices; the higher provisions set aside for client receivables, given the difficult economic situation that has developed during the year; the negative effect of the fair value adjustment of contracts entered into during the previous year. During the third quarter the contraction of margins was determined above all by the decline in the gas business and the lower contribution of the investee Tirreno Power.
Consolidated net income came in at 21.1 million euro, down from 39.8 million in the same period of 2008. The change in this figure was affected not only by the reasons given above but also by the higher tax burden due to the rise in the Ires surtax rate (Robin Hood Tax) from 5.5% to 6.5%.
Media: Espresso
The results of the Espresso group in the first nine months of 2009 should be seen in the light of the context of profound crisis which has been affecting the economy and the media sector in particular. The continuing recession has in fact caused a significant contraction in advertising investment (-16.4% in the first eight months of 2009) which has affected practically all of the media, albeit with different degrees of intensity. Publishing, which has gone down by 23.9%, is one of the sectors hardest hit. Even radio has declined significantly (-15.8%), while performance remains positive for the internet sector where advertising rose by 6.2%. At the same time, in a context of declining consumption, there was also a slowdown in the circulation of daily newspapers and periodicals. The revenues of the group in the first nine months of 2009 totalled 640.9 million euro and were down by 15.9% on the same period of the previous year (762.3 million euro). Circulation revenues, with the exclusion of optional extras, came to 206.9 million euro, holding up well (-0.8%) in an extremely critical market environment. Circulation revenues of la Repubblica showed a slightly positive trend, thanks to the significant rise in sales on the news-stands during the year. By contrast, total circulation figures were down as a result of the elimination or reduction of distribution initiatives with a high advertising content, the contribution of which to revenues was only marginal. The circulation revenues of the local newspapers, and also circulation in terms of number of copies, were in line with 2008, while the periodicals declined by 8.1% in line with market trends.
The decline for L’espresso was more limited thanks, in this case too, to the good trend of sales on the news-stands in the last quarter. Advertising revenues, which totalled 344.7 million euro, went down by 22.3%.
EBITDA came in at 60.7 million euro, down by 51.8% on the first nine months of 2008 (125.9 million euro). The impact on margins of the drastic reduction in advertising collected has already been partly offset by the significant structural reduction in operating costs (-12.1%), made possible by the reorganization program in progress which, when fully implemented, will give a cost reduction of 17% (140 million euro) compared to 2008. This program involves extraordinary expense which has already had an effect on the income statement for the first nine months of 23.8 million euro. The consolidated net result was a positive 1.2 million euro (43.3 million euro in the first nine months of 2008).
Automotive components: Sogefi
In the first nine months of 2009 the results of the Sogefi group were affected by the contraction in car production worldwide. During the period the company continued to implement its strategy to counter the negative effects of the crisis in the sector, in four different ways: the reduction of structural cost factors, the further rationalization of production facilities, the improvement of the financial position, and the extension of development initiatives in emerging markets (Brazil, China, India). The positive effects of management action taken together with the first signs of rising demand enabled Sogefi to close the third quarter with a significant improvement in its main economic indicators, compared to the two previous quarters.
Consolidated revenues came in at 573.8 million euro at 30 September 2009, down by 29.4% from the figure of 813.3 million for the same period of 2008 (-27.4% at the same exchange rates).
The operating result for the first nine months of 2009 was a positive 22.4 million euro (3.9% of revenues) versus an operating result at September 30 2008 of 79.4 million euro (9.8% of revenues). The gross operating margin (EBITDA) for the period, after non-recurring restructuring charges of 12.6 million euro (+42.5% from 8.8 million in the first nine months of 2008), was a positive figure of 32.2 million euro (5.6% of revenues), down from 91.2 million euro (11.2% of revenues) at September 30 2008. The consolidated net result for the nine months was a negative 8.6 million euro. In the first nine months of 2008 net income came to 29.6 million euro.
Healthcare: HSS – Holding Sanità e Servizi
The HSS group closed the first nine months of 2009 with double-digit growth in revenues and gross operating margin compared to the same period of 2008, despite the difficult general economic environment. During the period the group continued in its strategy aimed at strengthening its operating subsidiaries and seeking new development opportunities to consolidate its presence in the Italian private healthcare sector. Following the recent acquisition of two residences, in Ancona and in the province of Cuneo, HSS now has more than 5,000 beds in operation and has further strengthened its position in the business of managing residences for the elderly.
In the first nine months of 2009 the HSS group reported consolidated revenues of 203.5 million euro, up by 13.1% on the same period of 2008 (179.9 million euro), thanks to the development of all areas of the business. The gross operating margin (EBITDA) came in at 24.6 million euro, with a rise of 16% on the first nine months of 2008 (21.2 million euro). The group’s share of the consolidated net result was a positive 0.2 million euro, down from 1.1 million euro in the same period of 2008. This reduction was due to non-recurring costs of 1.9 million euro incurred in the third quarter. These costs were due partly to provisions made for risks and write-downs but also to a reorganization of the company which will in the near future make it possible to further improve its efficiency.
Financial services: Jupiter and KTP Finance
In the financial services sector the CIR group is present with the company Jupiter Finance and other minor businesses. Jupiter Finance operates in the segment of non-performing loans. The company is managing non-performing loans for approximately 2.3 billion euro. 1.3 billion of this portfolio comes from acquisitions managed and promoted by Jupiter Finance, while the remaining figure of one billion relates to a management contract on behalf of a prime financial investor which was finalized in July. CIR is also a shareholder of Ktesios and Pepper, companies of the KTP Finance group (formerly Oakwood) active respectively in loans secured on one fifth of employees’ salaries and in servicing on behalf of mortgage originators. In the first nine months of 2009 Ktesios made loans for 450 million euro. CIR’s remaining investment in the KTP group stood at 20 million euro at September 30 2009.
Outlook for the year
In the fourth quarter of 2009 too, the companies of the CIR group will continue to pursue the efficiency actions put in place at the first signs of the current economic recession. These actions will involve all sectors, especially the media and automotive components businesses. The measures taken should produce their positive effects in the coming quarters and further strengthen the competitive positioning of all the main subsidiaries of the group.
Significant events since September 30 2009
On October 3 the ruling of the Milan Law Court was recorded in the civil action filed by CIR against Fininvest for damages caused by the corruption of a judge in the Mondadori affair (“Lodo Mondadori”). The judgement, which is enforceable, rules that:
· CIR has the right to receive compensation from Fininvest for the patrimonial damage from the “missed opportunity” of an impartial verdict, which can be quantified in the sum of euro 749,955,611.93;
· CIR also has the right to receive compensation from Fininvest for the damage of a non-patrimonial nature suffered in the same affair. The settlement of these damages will be made in a separate ruling. CIR is also entitled to interest at the legal interest rate on the amount of the compensation from October 3 until the actual payment date, and to recover its legal costs.
The counterparty appealed against this sentence, and has petitioned for suspension of the same.
Bonds maturing in the 24 months following September 30 2009 - The company, which has a BB rating with a stable outlook issued by Standard&Poor’s, has the following bond, issued by the subsidiary CIR International SA and guaranteed by CIR SpA, maturing in the 24 months following September 30 2009:
– January 10 2011, maturity of the bond with a residual principal of 148 million euro (originally 300 million euro). The bond (ISIN code XS0169896817), listed on the Luxembourg stock exchange, pays an annual coupon of 6.375%.
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