CIR Group: net income up to 19.5 million (+12.7%)

Turin, April 30 2009 – The Board of Directors of CIR (Compagnie Industriali Riunite) SpA met today in Turin under the chairmanship of Mr Carlo De Benedetti to examine the interim financial report of the group as of March 31 2009.
Performance of operations
CIR closed the  first quarter of 2009 with a double digit rise  in consolidated net  income compared to the first  three  months  of  2008  (+12.7%  to  19.5  million  euro),  despite  the  repercussions  that  the  grave economic  crisis  has  been  having  on  the  main  business  sectors  of  the  group,  especially  automotive components  and  the  media.  The  figure  benefited  essentially  from  three  factors:  the  positive  result achieved at holding level thanks to the positive contribution of financial management, the earnings of the main subsidiary Sorgenia (energy) and the capital gains resulting from the strategy of partial disinvestment from Medinvest. The revenues and margins of the group were down, affected in particular by the decline in  the  results  of  the  subsidiaries  Sogefi  (automotive  components)  and  Espresso  (media),  which  were penalized  by  the  crises  in  their  respective  businesses.  In  the  healthcare  business  (HSS-Holding  Sanità  e Servizi) the activity of the CIR group continues to grow.
Consolidated results
The consolidated revenues of the CIR group in the first quarter came in at 1,138.3 million euro, down from 1,202.8 million euro in the first three months of 2008 (-5.4%). The change, despite the growth of Sorgenia and HSS, was due to the decline in the sales of Sogefi and Espresso. 
The consolidated gross operating margin  (EBITDA) was 59.3 million euro  (5.2% of  revenues), down  from 116 million euro in the first quarter of 2008 (-48.9%). The consolidated operating income (EBIT) figure was   27.3 million  euro,  down  from  84.6 million  euro  in  2008.  The  contraction  in  operating  income was  due essentially  to  the decline  in  the profitability of  Sogefi  and Espresso, which were  affected by  the difficult situation in their respective business sectors and by the decline in margins of Sorgenia, which was penalized by higher sourcing costs, mainly of a temporary nature, and by the lower earnings of the gas business.  
The  financial management  result was  a  positive  6.9 million  euro,  compared with  net  expense  of  21.7 million  euro  in  2008.  The  improvement  was  mainly  the  result  of  lower  net  financial  expense  and  a significant rise in net gains from trading and valuing securities. 
The consolidated net  income of  the CIR group  in  first quarter 2009 was 19.5 million euro, up  from 17.3 million  in  the  same  period  of  the  previous  year  (+12.7%).  This  figure  benefited  from  the  positive  result posted at holding level (3.1 million euro), from the net income of Sorgenia and HSS (7.1 million euro for the part attributable to CIR) and from capital gains from the partial disinvestment from Medinvest (16.3 million euro). These  items more  than compensated  for  the negative  impact  (-7 million euro) of  the  losses of  the
other subsidiaries, especially Sogefi and Espresso. 
Consolidated net invested capital stood at 3,907.5 million euro at March 31 2009, up from 3,764.3 million at the end of 2008, with a rise of 143.2 million euro. 
The net financial debt of the CIR group at March 31 2009 stood at 1,837 million euro (1,685.4 million euro at December 31 2008), resulting from the following:
–  An aggregate net  financial  surplus at holding  level of 72.1 million euro. The  improvement  from 44.2 million euro at December 31 2008 was due mainly to tax rebates from previous periods paid out by Inland Revenue and received in the first few days of April;
–  Total net debt of the operating companies of 1,909.1 million euro, up from 1,729.6 million euro at December  31  2008.  This  rise  was  mainly  due  to  the  change  in  working  capital  and  to  the investments made by Sorgenia in new production capacity. 
The  net  financial  position  includes CIR’s  share  of  the  investment  in Medinvest, which  at March  31 2009 stood at 137.3 million euro. In first quarter 2009 the partial disinvestment from Medinvest meant that net gains of 16.3 million euro were realized. The strategy of disinvestment has the objective of rebalancing the portfolio  in  order  to  optimize  the  financial  structure  of  the  group.  The  performance  of Medinvest  since inception (April 1994) until December 31 2008 gave a weighted average annual return on the portfolio of
7.7%. In the first three months of 2009 performance was positive (+0.6%).
Total  consolidated  equity  at  March  31  2009  was  2,070.5  million  euro  versus  2,078.9  million  euro  at December  31  2008.  The  shareholders’  equity  of  the  group  stood  at  1,258.7  million  euro  down  from 1,264.9 million euro at December 31 2008.
At March 31 2009 the CIR group had 12,912 employees (12,969 at December 31 2008).
Industrial businesses 
Energy (Sorgenia)
In  the  first  quarter  of  2009  the  Sorgenia  group  reported  revenues  up  to  682 million  euro  and  a  gross operating margin on  the electricity business  in  line with  the  first quarter of 2008, despite a  scenario of deep economic crisis which caused a decline in demand for electricity (-7.9%), especially in thermoelectric generation (-19%), and a sharp fall in electricity prices on the exchange.
During the period Sorgenia continued to roll out  its business plan.  In particular, work has almost  finished on the combined cycle power plant at Modugno (BA), which is scheduled to start operating by the summer of 2009, and work continued on  the construction of the Bertonico-Turano Lodigiano power plant  (LO).  In the  field of  renewable sources,  the  two new wind parks with a  total output of 28 MW  in Campania and   3 Puglia went fully up and running and construction work began on a biomass plant of around 1 MW in the local district of Gallina  (SI).  In  the  sector of hydrocarbon production and exploration,  the activity of  the subsidiary  Sorgenia  E&P  SpA  continued  and  at  the  beginning  of  April  a  first  agreement  was  signed  in relation to two petroleum licenses in Bulgaria.   
In the first quarter of 2009, the Sorgenia group reported revenues of 682 million euro, up by 11.7% from 610.3 million euro in the same period of 2008. EBITDA was 35.8 million euro, down from 46.5 million euro in  first quarter 2008  (-23%). Despite the  fact that the profit margin on the electricity business was  in  line with  2008,  this  indicator was  negatively  affected  by  the  lower  result  of  the  gas  business  and  by  a  less favourable  euro/dollar  exchange  rate  for  sourcing  natural  gas.  EBITDA  was  also  weighed  down  by
temporary  factors  such  as  the  time  lag  for  the  adjustment  of  gas  prices  compared  to  oil  prices  and  a negative  fair  value  measurement  (-2  million  euro)  of  supply  contracts.  The  fact  that  margins  in  the electricity business held up was mainly because Sorgenia’s production all goes for sale to end-user clients and not  for sale on  the electricity exchange. Consolidated net  income was 12.9 million euro, down  from 17.2 million in 2008 due to lower margins. 
Media (Espresso group)
The results of the Espresso group in the first three months of 2009 felt the effect of the further worsening of the macroeconomic scenario, which caused a contraction in advertising investment that was even more marked  than  the one experienced  in  the  second half of 2008. According  to  figures published by Nielsen Media Research,  the advertising market as a whole posted a decline of 19.5%  in  the  first  two months of 2009 compared to 2008. At the same time, in a context of falling consumption, the circulation of the daily newspaper and periodical titles also reported a further decline: specifically in the first two months of 2009 overall circulation figures for daily newspapers fell by 5.3% (source FIEG). 
The  revenues  of  the  group  came  in  at  215 million  euro  in  first  quarter  2009,  posting  a  decline  of  18% compared to the same period of last year (262.3 million euro). Advertising revenues, totalling 109.3 million euro, showed an overall decline of 26.8%: the daily press, down by 22.4%, fell less than the market thanks to the fact that sales of  local papers held up better. EBITDA came  in at 16.7 million euro, down by 53.2% from  first  quarter 2008  (35.6 million  euro).  The  impact  on  the  income  statement  of  the  dramatic  fall  in
advertising was  partly  offset  by  the  12%  reduction  in  operating  costs,  resulting mainly  from  the  cost-cutting action already put in place. The net result was a loss of 2.5 million euro, compared to net income of 10.5 million euro in first quarter 2008. 
Automotive components (Sogefi)
The results of the Sogefi group in the first quarter of 2009 were negatively affected by the further decline in world  vehicle  production  compared  to  the  already  critical  situation  in  the  last  quarter  of  2008.  This phenomenon was due to lower demand by individual consumers and to the need on the part of producers to reduce stocks of unsold vehicles. The revenues and margins of the company were therefore affected by the  sharp  contraction  in  sales volumes  in  the original market, but also by  lower  levels of activity  in  the European  after  market,  where  operators  are  suffering  the  effects  of  the  credit  crunch.  In  such  an extraordinarily  difficult  situation,  the  company  has  taken  further  action  to  counter  the  impact  of  thegeneral crisis in the sector, starting with a structural reduction of all cost factors.
During  the quarter  the Sogefi group  reported  revenues of 174.9 million euro, down by 35.6%  from 271.7 million in the same period of 2008. Consolidated EBITDA was a positive 2.2 million euro (29.1 million euro in first quarter 2008). The consolidated net result was a negative 8.8 million euro (net income of 9 million euro in the first three months of last year).
Healthcare (HSS) The HSS group closed the first quarter of 2009 with revenues and operating margin up and a positive net result.  During  the  period,  the  group  continued  to  strengthen  its  operating  subsidiaries  and  seek  new opportunities for development to consolidate its presence in the private healthcare sector in Italy. In April  4 2009 a  residence  for  the elderly  in Ancona was acquired  from Orpea  Italia. After  this deal, HSS now has over 5,000 beds  in operation and has  further strengthened  its position  in the management of residences
for the elderly. 
In  first  quarter  2009  the HSS  group  reported  consolidated  revenues  of  66.5 million  euro,  up  by  13.6% compared  to  the  first  three months of 2008  (58.5 million),  thanks  to  the development of all areas of  the business.  EBITDA  came  in  at  7.5  million  euro,  up  by  5.6%  from  first  quarter  2008  (7.1  million).  The consolidated net result attributable to the group was a positive 0.1 million euro, compared to 0.4 million euro in the same period of 2008. The change was due to the higher impact of amortization and taxation. 
Financial services (Jupiter and other businesses)
In  the  financial  services  sector,  the CIR group  is present  through  the company  Jupiter Finance and other lesser  businesses.  Jupiter  Finance  operates  in  the  segment  of  non-performing  loans.  Receipts  obtained
since 2005, when the company was founded, until March 31 2009 amount to 69 million euro and are 22% above  the  targets  forecast  on  acquisition  of  the  portfolios.  CIR  is  also  a  shareholder  of  Ktesios,  the company of  the Oakwood group active  in  the  sector of personal  loans  secured on one  fifth of employee salaries. In the first quarter of 2009 Ktesios made loans for approximately 190 million euro. CIR’s remaining investment in the Oakwood group as of March 31 2009 was 20 million euro.
Outlook for the rest of this year
In 2009 the results of the CIR group will inevitably be affected by the current phase of deep recession, with a different degree of intensity in the various business sectors, especially in the auto and media businesses.
In the coming quarters the group will continue to concentrate on improving efficiency and repositioning its subsidiaries  operating  in  the  sectors  in  greatest  difficulty  and on  the  further  development  of  businesses which are better able to resist the crisis and have a higher growth potential. 
Bonds and notes maturing in the 24 months following March 31 2009 
The company, which has a BB+  rating  from Standard & Poor’s with a negative outlook,  in  the 24 months following March  31  2009 has  the maturity of  the  following  note  issued  by  the CIR  International  SA  and guaranteed by CIR SpA: –  January 10 2011, maturity of the note with a  residual principal of 148 million euro  (originally 300 million euro). The note (ISIN code XS0169896817), listed on the Luxembourg Stock Exchange, pays an annual coupon of 6.375%.
The  officer  responsible  for  the  preparation  of  the  company’s  financial  statements,  Mr  Alberto  Piaser,  attests  in accordance with the terms of paragraph 1 of Art. 154 bis of the Finance Consolidation Act that the accounting figures given in this press release correspond to documented results and to the entries in the company’s books.

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