Board of Directors approves results for the year 2012
CIR GROUP: REVENUES 5 BLN (+11.9%), NET RESULT AFTER WRITE-DOWNS -33.1 MLN
In a climate of severe recession three of the four main subsidiaries of the group (Espresso, Sogefi and KOS) closed the year with a profit. The loss was due mainly to write-downs made by Sorgenia.
Earnings of the parent company CIR SpA were up (7.9 million euro)
Group sales were up but operating results were down due to the lower contributions of the companies most active in the domestic market (Sorgenia and Espresso). Global growth continues in automotive components (Sogefi). Positive contribution from financial investments. Financial surplus at holding level of over 30 million euro
The Board of Directors will propose to the Shareholders’ Meeting that no dividends be distributed.
Moreover, at the initiative of the chief executive, it will propose that the value of the incentive plan for top management and executives be cut by over 50%
Consolidated results for the year 2012
Revenues: € 5,063 million (+11.9% from € 4,522.7 million in 2011)
EBITDA: € 308.1 million (-34.3% from € 468.6 million in 2011)
Net result: -€ 33.1 million (€ 9.7 million in 2011)
Aggregate net financial surplus: € 33.2 million (€ 20.3 million at 30/09/2012)
Consolidated net financial debt: € 2,504.4 million (€ 2,593.6 million at 30/09/2012)
Milan, March 11 2013 – The Board of Directors of CIR-Compagnie Industriali Riunite SpA, which met today under the chairmanship of Stefano Micossi, approved the proposed statutory financial statements and the consolidated financial statements of the group for financial year 2012. The CIR group operates in five business sectors: energy (Sorgenia), media (Espresso), automotive components (Sogefi), healthcare (KOS) and non-core investments (private equity, minority shareholding interests, venture capital).
Performance of operations
The CIR group, in a scenario of slowdown of the world economy and a deep recession in Italy, closed 2012 with revenues up by almost 12% at over 5 million euro and a gross operating margin of over 300 million euro, but lower than in 2011 on account of the lower contribution of the companies most active in the domestic market, particularly Sorgenia and Espresso. The net result, despite the earnings reported by three of the four main operating subsidiaries of the group (Espresso, Sogefi and KOS) in a difficult environment, was negative because of the loss reported by Sorgenia, due mainly to the write-down of assets. The contribution of the financial investments of the group was positive. The parent company of the group, CIR SpA, reported net income of 7.9 million euro in 2012, showing strong growth on 2011.
Rodolfo De Benedetti, Chief Executive of CIR, made the following comment:: “In 2012 our group suffered the consequences of the recession that hit various European countries, including Italy, and of the difficulties being experienced by some of the sectors we operate in, first and foremost energy and then the media. The net result was affected by non-recurring charges. All of our companies continue however to have a good competitive positioning, in many cases better than that of their competitors, especially Sogefi, where we are continuing to expand internationally, and Espresso, despite the severe crisis in publishing.
Our strategic priorities for 2013 will be to focus on the four main businesses of the group, devoting particular attention to energy and the media, financial discipline and reaching maximum efficiency, without however sacrificing development actions in the business areas and in the markets with the highest growth. Despite the difficult climate at the moment, we continue to have confidence in the ability of the group to generate value in the medium-long term.”
Consolidated results
The revenues of the CIR group in 2012 amounted to 5,063 million euro, and were up by 11.9% from 4,522.7 million euro in 2011 thanks mainly to the higher sales of Sorgenia, Sogefi and KOS.
EBITDA was 308.1 million euro (6.1% of revenues) down from 468.6 million euro (10.4% of revenues) in 2011 (-34.3%). The operating result (EBIT) came to 60.3 million euro compared to 255.2 million euro in 2011. The reduction in margins, despite the increases reported by Sogefi and KOS, was caused by the lower profitability of Sorgenia and Espresso as a result of the negative economic climate in Italy. The operating results of Sorgenia were also negatively impacted by the write-down of the shareholdings consolidated at equity.
The net result of financial management, a negative 105.5 million euro (a negative 134.9 million euro in 2011), was the result of net financial expense of 125.1 million euro, partly offset by dividends and net gains from trading and valuing securities of 10.7 million euro and positive adjustments to the value of financial assets of 8.9 million euro.
The net result of the group was a loss of 33.1 million euro, which compares with net income of 9.7 million euro in 2011. The change from last year, despite the higher earnings of Sogefi and KOS, was due mainly to the lower contribution of the other operating subsidiaries and particularly to that of Sorgenia, which closed the year with a significant loss (196.8 million euro) due essentially to the write-down of assets (particularly in renewables and thermoelectric) and to a lesser extent to the difficulties in the electricity market caused by the recession. The impact of the Sorgenia loss on the result of CIR was a negative 70.3 million euro and does not include the write-down of renewable assets because the impairment test carried out on the total value of Sorgenia (as a cash generating unit) in the group consolidation was positive. The net result at holding level benefited from the good result from the management of financial assets (45.2 million euro, versus financial expense of 31.5 million euro) and from gains on private equity investments (9.6 million euro).
The net financial debt of the CIR group stood at 2,504.4 million euro at December 31 2012, compared to 2,593,6 million euro at September 30 2012 and 2,335.1 million euro at December 31 2011. The consolidated net debt figure was the result of the following:
– An aggregate net financial surplus at holding level of 33.2 million euro (20.3 million euro at September 30 2012). The increase from 10.8 million euro at December 31 2011 was due essentially to the positive fair value adjustment of the securities portfolio;
– The total net debt of the operating companies of 2,537.6 million euro (2,613.9 million euro at September 30 2012). The change compared to the figure of 2,345.9 million euro at December 31 2011 was mainly due to the investments made by Sogefi and Sorgenia and to the increase in the working capital of the latter.
Total consolidated equity stood at 2,332 million euro at December 31 2012 down from 2,479 million euro at December 31 2011. The group’s equity came to 1,373 million euro, down from 1,437.7 million euro at December 31 2011. At December 31 2012 the CIR had 13,940 employees (14,072 at December 31 2011).
Industrial businesses
Energy: Sorgenia
Sorgenia is the main private operator in the electricity sector in Italy with around 500 thousand clients and generating facilities of approximately 5 thousand Megawatts. The company is controlled by CIR (52.9%) and the main Austrian utility VERBUND also has an interest.
The revenues of the Sorgenia group totalled 2,572.3 million euro in 2012, posting growth of 21.3% compared to 2011 (2,120.3 million euro) thanks to the higher volumes of electricity sold. Pre write-down EBITDA for the year came to 101.4 million euro, down from 192.2 million euro in 2011 (-47.3%).
The considerable decline in EBITDA compared to last year was due to various factors, including the lower margins on thermoelectric generation, the result of the investee Tirreno Power, the lower contribution from the renewable businesses and the high cost of gas under the Libyan contract. During the fourth quarter, however, the company reported a significant recovery in its margins thanks to the reduction in the price of gas as from October 1, achieving more than 50% of the pre write-down EBITDA of the whole year. Post write-down EBITDA, inclusive of the value adjustment of 44.3 million euro following the impairment carried out on the equity investments consolidated at equity, came to 57.1 million euro.
The net result was a loss of 196.8 million euro (net income of 15.6 million euro in 2011). The loss was due mainly to the write-down of assets (134.3 million euro), in line with what many other important Italian and European utilities did in 2012 and in previous years, particularly as a result of the negative economic climate and the changes in the regulatory environments. In detail, following application of the impairment test, Sorgenia wrote down assets as follows: in renewable sources, especially as an effect of the revision of the incentives in the wind sector (64 million euro); in hydrocarbon exploration and production (E&P) because of activities that did not have a good outcome (16 million euro); in its conventional generating business (44.3 million euro, of which 36.7 million euro relating to the group); other assets (8.2 million euro); other tax assets (9.4 million euro). The net result at year end was also affected by the reduction in EBITDA and by higher amortization. In the last quarter, net of extraordinary write-downs and fair value, the group reported net income of 2 million euro.
The actions undertaken by Sorgenia in recent months to counter the deep recession affecting Italy and the difficulties in the Italian energy market will be continuing. More specifically, the company is engaged in meeting two priority objectives: reducing its debt and recovering profit margins. To reach these objectives, the company will continue along the road it has already taken, selling off non-strategic assets, cutting costs and renegotiating its gas contract. As far as commercial development is concerned, moreover, Sorgenia aims to grow further in the residential sector.
Media: Espresso
Gruppo Editoriale L’Espresso is one of the most important publishing companies in Italy. It operates in all sectors of communication: the daily and periodical press, radio, internet, television and the collection of advertising. The group is 55.8% controlled by CIR and is listed on the Stock Exchange.
The revenues of the Espresso group, in a sector in deep crisis and in an extremely recessive environment, came in at 812.7 million euro in 2012 and were down by 8.7% compared to the figure for 2011 (890.1 million euro). Circulation revenues came to 261.5 million euro, down by 3.7% on 2011 (271.4 million euro), in a market where the overall decline in copies sold was 8.7%. La Repubblica confirmed its ranking as the top Italian daily newspaper both in terms of number of copies sold on the news-stands (ADS December 2012) and of average number of readers per day (Audipress). In December 2012 the digital products of the daily paper (Repubblica+ and Repubblica Mobile) topped 66 thousand active subscribers. Advertising revenues, totalling 476.3 million euro, posted a decline of 10.9% compared to 2011 in a market that fell by 14.3%. Advertising in the printed publications of the group declined by 16.5% (-17.9% for the market), while the performance of internet advertising was positive (+14%), despite the slower growth of the market (+5.3%). Repubblica.it confirmed its position as number one news site in Italian with an average of 2 million unique users per day. Revenues from add-on products, amounting to 49.4 million euro, were down by 21.5% while sundry income (25.6 million euro), rose by 21.3% compared to 2011 thanks to the growth of the business of leasing digital terrestrial TV bandwidth to third parties.
EBITDA came in at 102.4 million euro, and was down by 35.9% from 159.8 million euro in 2011. All the traditional businesses were down because of the generalized fall in revenues; however the businesses that reported particularly critical trends were the daily newspaper Repubblica, the periodicals and the optional add-ons, while the local dailies and the radio stations held up better.
Net income was 21.8 million euro versus 60.6 million euro in 2011 (-64%). During the year the company set aside 11.9 million euro for the tax dispute pending.
Automotive components: Sogefi
Sogefi is one of the main world producers in the sectors of filters, engine air systems and suspension components with 44 production plants in 16 countries. The company is controlled by CIR (58.3%) and is listed on the Stock Exchange.
The revenues of Sogefi for 2012 came in at 1,319.2 million euro, and were up by 13.9% from the figure of 1,158.4 million euro in 2011, reaching the highest level ever in the thirty-year history of Sogefi.
The rise on the previous year was due to the group’s growth in non-European markets and to the contribution of the Systèmes Moteurs businesses, which in 2011 were in the consolidation perimeter only in the last five months of the year.
The revenues obtained by Sogefi outside Europe rose in 2012 to 33.5% of the total from 30.5% in 2011. This rise was the result of strong growth achieved in North America (+107.6% ) and Asia (+35.4%), which more than compensated for the slight downturn reported in Mercosur (-3.8%) due to the slowdown of the Brazilian market in the central part of the year. As far as the main clients are concerned, business with German and American constructors showed an improvement. Ford, in particular, became the number two client of the group in terms of revenues.
EBITDA was 126 million euro and was up by 12.7% from 111.9 million euro in 2011. Net income came in at 29.3 million euro, and was up by 22% on the figure for last year (24 million euro).
Healthcare: KOS
KOS is one of the most important Italian groups in the long term care sector (managing nursing homes and rehabilitation centres, and hospital facilities). Controlled by CIR (with 51.3%), KOS also has the AXA Private Equity group as a shareholder.
The revenues of KOS came in at 355.4 million euro in 2012, posting growth of 1.7% on the figure for the year 2011 (349.6 million euro), thanks to the development of the three business sectors (nursing homes, rehabilitation centres and hospital facilities). EBITDA was 53.4 million euro, up by 2.3% from the figure for 2011 (52.2 million euro) partly because of the change in the consolidation perimeter and business developments that took place in 2012 for around 1 million euro. The net income came to 12.1 million euro, up from 8.9 million euro in the previous year and includes a non-recurring item (approximately 4 million) due to the IRES recouped as a result of higher IRAP deductibility for the period 2007-2011 (as per DL no.201/2011). The net financial debt at December 31 2012 amounted to 163.4 million euro versus 152.8 million euro at September 30 2012 (165.1 million euro at December 31 2011).
The KOS group today manages 64 facilities, mainly in the centre and north of Italy with a total of around 5,950 beds in operation plus another 900 or so under construction. The activities in the start-up stage are continuing in India, where in the second half of 2011 the KOS group set up the joint venture ClearMedi Healthcare LTD, 51% controlled by the KOS group and 49% by a local operator. The company is active in the sector of supplying diagnostic and therapeutic technologies in outsourcing to Indian hospitals.
Non-core investments
The non-core investments of the group consist of private equity initiatives and minority shareholdings, venture capital and other investments. More specifically, CIR has a diversified portfolio of funds and direct minority shareholdings in the private equity sector (with a fair value at December 31 2012 of 97 million euro) and the venture capital fund CIR Ventures (with a fair value at December 31 of 13.4 million dollars). Among the other investments, it should be noted that there is an approximately 20% interest in the company Swiss Education Group, a world leader in managerial training in the hospitality sector. Lastly, the CIR group has a portfolio of non-performing loans. The net value of the investment in this business at December 31 2012 was 63.8 million euro.
Results of the parent company CIR SpA
The parent company of the group CIR SpA reported net income of 7.9 million euro in 2012, showing significant growth on the result of 0.3 million euro in 2011. Equity stood at 938.8 million euro at December 31 2012, compared to 946 million euro at December 31 2011.
Outlook for the year 2013
The performance of the CIR group in 2013 will be affected by the evolution of the macroeconomic environment, especially the performance of the Italian economy, which is currently characterized by a continuing recession the intensity of which cannot at the moment be predicted. In this scenario all the main operating subsidiaries of the group will continue their actions to improve operating efficiency without however neglecting business development initiatives.
Shareholders’ Meeting
The Board of Directors will propose to the Shareholders’ Meeting that no dividends be distributed for 2012 in order to preserve the financial solidity of the company. The Shareholders’ Meeting (AGM) has been convened for April 26 at the first call and for April 29 if a second call is necessary. The Board has approved the following resolutions:
To put before the Shareholders’ Meeting a motion to cancel and renew the Board’s authorization for a period of 18 months to buy back a maximum of 30 million own shares, with a maximum disbursement limit of 50 million euro, 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.
The main reasons why this authorization is being renewed are, on the one hand, the possibility of investing in shares of the company at prices below their actual value based on the real economic value of its equity and its income generating prospects, and on the other hand, the possibility of reducing the company’s average cost of capital. As of today CIR is holding 49,989,000 ordinary shares as treasury stock, corresponding to 6.3% of its share capital.
To put before the Shareholders’ Meeting a stock grant plan for 2013 aimed at directors and/or executives of the company, its subsidiaries and its parent company for a maximum of 4,800,000 conditional units, each of which will give the beneficiaries the right to be assigned free of charge 1 CIR share. The potential economic value of the incentive plan, at the proposal of the Chief Executive Officer, has been more than halved compared to 2012 and is subject to the future performance of the CIR stock, in view of the negative result reported by the group. The shares thus assigned will be made available from the own shares that the company is holding as treasury stock.
To put before the Shareholders’ Meeting the proposal that the number of members of the Board of Directors be re-determined and that Ms Monica Mondardini be appointed (by list vote).
To put forward a proposal for the appointment of an alternate auditor.
In addition to the “Annual Report on Corporate Governance” for 2012, the Board of Directors has approved the “Code of Conduct CIR SpA”, which contains a description of the main duties and functions of the corporate bodies of the Company, and the internal control and risk management system of the Company. The document will be available on the website www.cirgroup.com.
Bonds maturing in the 24 months following December 31 2012
The company, which has a BB rating with a stable outlook issued by Standard&Poor’s, has no bonds maturing in the 24 months following December 31 2012.
Conference call
The results of financial year 2012 will be illustrated today at 18.30 hours CET by the Chief Executive Officer of CIR, Rodolfo De Benedetti, in a conference call.
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.
