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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