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CIR Group : FY 2011 results

03/12/2012 | 09:50am US/Eastern
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Board of Directors approves results for financial year 2011

CIR GROUP: REVENUES AT 4.5 BILLION (-2.8%), MARGINS HIGHER (EBITDA +17.1%)
NET INCOME LOWER AT 10.1 MILLION, DIVIDEND CONFIRMED AT 0.025 EURO

EBITDA and EBIT sharply higher thanks to the higher margins of Sorgenia, Espresso, Sogefi and KOS.
The reduction in net income is due mainly to two factors: the lower contribution of Sorgenia,which had benefited in 2010 from higher extraordinary income, and the impact of the crisis in the markets on the securities portfolio, which has however posted a significant recovery in the early months of 2012

The Board of Directors will propose that the Shareholders' Meeting confirm a dividend of 0.025 euro per share, even in consideration of the solid result of the operating companies.The parent company CIR SpA returns to profit after two negative years

Consolidated results for the year 2011

Revenues: € 4,522.7 million (-2.8% from € 4,650.8 million in 2010
EBITDA: € 468.4 million (+17.1% from € 400.1 million in 2010)
Net income: € 10.1 million (€ 56.9 million in 2010)
Aggregate net financial surplus: € 10.8 million (€ 38.7 million at 30/09/2011)
Consolidated net debt 2,335.1 million (€ 2,308.1 million at 30/09/2011)

Milan, March 12 2012 - 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 andthe consolidated financial statements of the group for financial year 2011. The CIR group operates in five business sectors: energy (Sorgenia), media (Espresso), automotive components (Sogefi), healthcare (KOS) and non-core investments (private equity, venture capital and other investments).

Performance of operations

In a gradually worsening economic environment, the group closed 2011 with significant growth in its operating results compared to 2010 thanks to the higher margins obtained by its four main operating subsidiaries - Sorgenia, Espresso, Sogefi and KOS. More specifically, consolidated EBITDA rose by 17.1% while EBIT was up by 18.7%. Revenues remained substantially unchanged while the decline in net income was caused mainly by the lower contribution of Sorgenia, which had benefited in 2010 from higher extraordinary income, and by the impact of the sharp fall in the financial markets, which in the second half of the year led to a negative adjustment to the fair value of the securities portfolio compared to the previous year. In the early months of this year, however, the recovery in the markets has meant that a substantial amount of these adjustment losses have been made up again.

Rodolfo De Benedetti, Chief Executive of CIR, made the following comment: "In an extremely complex year for the economy and the financial markets, especially in the second half, our group obtained solid operating results in the four business sectors in which it operates. In automotive components, in particular, with Sogefi we made an important foreign acquisition that will enable us to consolidate our position among the world leaders in the sector of filter systems. Precisely because of the good results achieved by our subsidiaries, we have decided to propose to the Shareholders' Meeting that they confirm CIR's dividend in spite of the decline in the net income of the Group, which was also negatively impacted by the extraordinarily negative performance of the markets.In 2012, in a recessionary economic environment, our commitment will be to achieve maximum operating efficiency while still focusing on every possible opportunity to develop our companies".

Consolidated results

The revenues of the CIR group in 2011 amounted to 4,522.7 million euro, down slightly (-2.8%) from 4,650.8 million euro in 2010. The change was due to the lower sales of Sorgenia, only partly offset by the higher revenues reported by Espresso, Sogefi and KOS.

EBITDA was 468.4 million euro (10.4% of revenues), posting strong growth (+17.1%) compared to the figure of 400.1 million euro (8.6% of revenues) in 2010. This change was due to the rise in the EBITDA of all the main operating subsidiaries. The operating result (EBIT) came to 256.2 million euro and was up by 18.7% from 215.8 million euro in 2010.

The financial management result, a negative 134.9 million euro (a negative 79.8 million euro in 2010), was the result of net financial expense of 119.2 million euro, dividends and net gains from trading and valuing securities of 9.2 million euro and negative adjustments to the value of financial assets of 24.9 million euro.

The net income of the CIR group in 2011 was 10.1 million euro, down from 56.9 million euro in 2010. The reduction from last year was due mainly to two factors: the lower earnings of Sorgenia, which in 2010 had benefited from higher extraordinary income, and the negative adjustment to the fair value of the securities portfolio of the group following the turbulence in the financial markets in the second half of the year. In the early months of this year, however, the recovery of the markets has meant that a significant amount of these adjustment losses have now reversed out.

Following the ruling of the Court of Appeal of Milan filed on July 9 2011, which sentenced Fininvest to pay damages caused by the corruption of a judge in the Lodo Mondadori case, on July 26 2011 CIR received from Fininvest payment of 564.2 million euro, inclusive of legal costs and interest. In accordance with international accounting standards (IAS 37), this amount has not had and will not have any impact on the income statement and the net financial position of the group (as it is offset in the balance sheet by a payable of the same amount) until the final level of justice. At December 31 2011, the income from the investment of this sum was substantially in line with the legal interest set aside in a provision.

The net financial debt of the CIR group stood 2,335.1 million euro at December 31 2011, up from 2,308.1 million euro at September 30 2011 and 2,178.5 million euro at December 31 2010. The consolidated net debt figure was the result of the following:

- An aggregate net financial surplus at holding level of 10.8 million euro (38.7 million euro at September 30 2011). The reduction from the figure of 123.6 million euro at December 31 2010 was due mainly to the equity investments made and to the own shares bought back during the year, to disbursements made for operating costs and financial expense and to the negative adjustments made to the fair value of the securities portfolio;

- The total net debt of the operating companies of 2,345.9 million euro (2,346.8 million euro at September 30 2011). The change from 2,302.1 million euro at December 31 2010 came principally from the rise in the debt of Sogefi following its acquisition of Systèmes Moteurs, partly offset by the reduction in the net financial position of the other main operating subsidiaries.

Total consolidated equity stood at 2,479.7 million euro at December 31 2011, down from 2,522.9 million euro at December 31 2010. The group's equity totalled 1,438.1 million euro versus 1,487 million euro at December 31 2010.

At December 31 2011 the CIR group had 14,072employees (12,911 at December 31 2010). The increase was due essentially to the acquisition of Systèmes Moteurs by Sogefi.

Industrial businesses

Energia: Sorgenia

The revenues of the Sorgenia group totalled 2,120.3 million euro in 2011, posting a decline of15.7% on 2010 (2,513.8 million euro) which was substantially attributable to the reduction in sales volumes of natural gas and to a different client mix. AdjustedEBITDA for the year came to 193.5 million euro, and was up by18.1% on the figure for 2010 (163.9 million euro).EBITDA came in at 192.2 million euro, up by 27.2% from 151.1 million euro in 2010.

Sorgenia's EBITDA benefited in particular from the start of commercial operations at the Bertonico-Turano Lodigiano combined-cycle power plant (Lodi), from the development, construction and sale of photovoltaic plants by Sorgenia Solar, the joint venture in the wind sector in France with KKR and the sale of the small hydroelectric plants. These effects made it possible to compensate for the narrower electricity production margins caused by a substantial rise in the price of gas for the plants, the lower contribution of the investee Tirreno Power and the congestion charges on the electricity grid, which negatively affected the Modugno (Bari) and Termoli (Campobasso) power plants. Adjusted net income came in at 22.3 million euro (62.8 million euro in 2010). The difference was essentially due to an extraordinary item in the form of a tax credit on the investments in new production capacity made by the company. The net income of the group came to 15.6 million euro, down from 50.4 million euro in 2010.

In the fourth quarter of 2011 Sorgenia announced the launch of new commercial offers for the residential market. The company aims to reach 1.5 million new customers by the end of 2016, bringing its total number of customer to around 2 million.

Media: Espresso

The revenues of the Espresso group totalled 890.1 million euro  in 2011, up slightly (+0.6%) from the figure for 2010 (885 million euro) thanks to the advertising collected and to revenues from the digital business. Circulation revenues came in at 326.9 million euro versus 334.2 million euro in the previous year (-2.2%). La Repubblica confirmed its ranking as the top Italian newspaper both in terms of number of copies sold on the news-stands (ADS November 2011) and in terms of number of readers per day (Audipress). Advertising revenues, which came in at 534.7 million euro, posted growth of 1.2% compared to 2010, bucking the negative trend of the market. Advertising in the group's printed titles declined slightly (-1.9%) in a market that recorded a much more significant decline (-6.3%), while advertising on the internet showed a positive evolution, rising by 14.4%, supported by the dynamic growth of the audience of the group's websites. Sundry revenues came to 28.5 million euro and were up by 27% on 2010 thanks to growth in the digital terrestrial bandwidth leasing business.

EBITDA came in at 157 million euro and was up by6.6% from 147.2 million euro in 2010. The results of the press segment held up well despite the unfavourable context thanks in part to further cost cutting. The digital business, which is incurring rising costs for the development and promotion of its products, still managed to achieve positive results thanks to the strong rise in revenues while radio, although maintaining a high level of profitability, reported a slightly lower operating result because of the decline in sales. Net income was 58.6 million euro, up from 50.1 million euro in 2010 (+17%).

Automotive components: Sogefi

Sogefi's revenues for2011 came in at 1,158.4 million euro, posting a rise of25.3% on the figure of924.7 million euro for 2010, reaching an all-time high for the thirty years of the group's history. This result was obtained thanks to the acquisition of the businesses of Systèmes Moteurs, which was consolidated as from August 1 2011, and to the organic growth of the businesses of the group. Pro-forma revenues, including the businesses of Systèmes Moteurs in the consolidation as from January 1 2011, would be 1,335 million euro.

In 2011 Sogefi continued its process of growth in extra-European markets, making significant progress in Mercosur (+9.6%), North America (+266.1% thanks to the contribution of Systèmes Moteurs; +46.1% with the same consolidation as last year), China (+36.4%) and India (+37.6%).

EBITDA for the year was 108.3 million euro (9.3% of sales revenues), up by24.9%  from 86.7 million euro in 2010 (9.4% of sales). Pro-forma EBITDA for 2011, including the businesses of Systèmes Moteurs from January 1 2011, would be 123.1 million euro (9.2% of pro-forma revenues).Net income came in at 24.7 million euro and was up 31.4% on the figure for the previous year (18.8 million euro).

The acquisition of Systèmes Moteurs has enabled Sogefi to achieve three important industrial objectives: the extension of its product lines into engine air and cooling systems; higher penetration in North America, China and India; a greater presence among German prestige car manufacturers.

Healthcare: KOS

The revenues of KOS came in at 349.6 million euro, with a rise of 7.4% on the figure for 2010 (325.4 million euro) thanks to the development of the three business areas (care-homes, rehabilitation centres, hospital management) and to the acquisitions made during the previous year.

EBITDA was 52.2 million euro (including a non-recurring item of 3 million euro relating to the sale of real estate properties), up by24% from 42.1 million euro in 2010. Net income came in at 8.9 million euro compared to 4 million in the previous year. Net debt stood at 165.1 million euro at December 31 2011. The improvement from the figure at December 31 2010 (189.3 million euro) was due to the deconsolidation of properties put into a fund and to the subscription of a capital increase of 20 million euro made in June by the shareholder Axa Private Equity. The KOS group today manages some 60 facilities, mainly in the centre and north of Italy, with a total of over 5,700 beds in operation, plus more than 1,000 under construction.

Non-core investments

The non-core investments of the group consist of venture capital and private equity initiatives and other investments. CIR has a diversified portfolio of funds and minority shareholdings in the private equity sector (with a fair value at December 31 2011 of 87.8 million euro) and the venture capital fund CIR Ventures (with a fair value at December 31 of 15,8 million dollars). Among the other investments, it should be noted that in August 2011 a 20% interest was acquired in the company Swiss Education Group, a world leader in managerial training in the hospitality sector, for an amount of approximately 28 million euro. Lastly, the CIR group has a portfolio of non-performing loans. The net value of the investment in this business at December 31 2011 was 64.2 million euro.

Results of the parent company CIR SpA

The parent company CIR SpA returned to profit in the year 2011 after two years of losses. The net result was in fact a positive figure of 0.3 million euro, versus a loss of 14.7 million euro in 2010. The change was due mainly to the higher dividends received from subsidiaries during the year. Shareholders' equity stood at 946 million euro at December 31 2011, down from 968.5 million euro at December 31 2010.

Outlook for the year 2012

The performance of the CIR group in 2012 will be affected by the evolution of the macroeconomic environment, which is currently characterized by a recessionary scenario the intensity and duration of which cannot at the moment be predicted. In this scenario the main operating subsidiaries of the group will continue the strategy of honing their operating efficiency while at the same time engaging in business development initiatives, a strategy that proved successful in 2009.

Proposed dividend

The Board of Directors has decided to propose to the Shareholders' Meeting the distribution of a dividend of 0.025 euro, unchanged from last year, in view of the solid results of the main operating subsidiaries and particularly of the distribution of dividends by Espresso and Sogefi. The dividend will be paid out as from May 24 2012 against coupon no. 21 of May 21 2012.

Shareholders' Meeting

The Shareholders' Meeting (AGM) has been convened for April 26 at the first call and for April 27 if a second call is necessary. The Board 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, corresponding to 6.3% of share capital.

- To put before the Shareholders' Meeting a stock grant plan for 2012 aimed at directors and/or executives of the company, its subsidiaries and its parent company for a maximum of 6,000,000 conditional rights, each of which will give the beneficiaries the right to be assigned free of charge 1 CIR share. The shares thus assigned will be made available from the own shares that the company holds as treasury stock.

Bonds maturing in the 24 months following December 31 2011

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 2011.

Significant events which have occurred since December 31 2011

As part of the action taken to optimize its financial management, in January the Espresso group carried out a partial buyback of bonds for a total nominal amount  of 28.8 million euro at a price of 99.85% of nominal value.

In line with its tradition for innovation, in March Sogefi launched on the market the first suspension springs made from composite materials, patented by the group, which can contribute to a reduction in the weight and consumption of cars. This innovation also guarantees a significant improvement in the environmental impact of the production process compared to the traditional one.

Conference call

The results of financial year 2011 will be illustrated today at 17.30 hours CET by the Chief Executive Officer of CIR, Rodolfo De Benedetti, in a conference call. Journalists can follow the presentation on the phone, in listen-only mode by dialling +39 02 805 88 27, or in a webcast on the website www.cirgroup.com.

The executive responsible for the preparation of the company's financial statements, Gerardo Benuzzi, 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.
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