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CIR Group : results for first half 2012

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07/30/2012 | 01:14pm CEST
CIR group: results for first half 2012

Board of Directors approves results as of June 30 2012


The group closes the first half in profit (0.7 million euro) despite the repercussions of the deep recession in Italy on the domestic businesses, especially energy (Sorgenia) and the media (Espresso).
Higher earnings for the parent company CIR SpA (19.8 million euro versus 14.2 million in 2011)

Global growth continues in the automotive components sector (Sogefi). Positive in the first half the contribution of the financial investments of the group.
Financial surplus at holding level of 25.6 million euro

Consolidated results of first half 2012

Revenues: € 2,406.9 million (+9.1% from € 2,205.6 million in H1 2011)

  • EBITDA: € 175.8 million (-22.3% from € 226.3 million in H1 2011)
  • Net income: € 0.7 million (from € 19.4 million in H1 2011)
  • Aggregate net financial surplus: € 25.6 million (€ 24.6 million at 31/3/2012)
    Consolidated net debt: € 2,551.5 million (€ 2,437.9 million at 31/3/2012
  • Milan, July 30 2012 - The Board of Directors of CIR-Compagnie Industriali Riunite SpA met today under the chairmanship of Stefano Micossi and approved the Semi-Annual Financial Report of the group as of June 30 2012.
  • The CIR group operates in five business sectors: energy (Sorgenia), media (Espresso), automotive components (Sogefi), healthcare (KOS) and non-core investments (private equity and minority interests, venture capital and other investments).

Performance of operations

Despite the repercussions of the deep recession in Italy on its businesses most exposed to the domestic market (especially Sorgenia in energy and Espresso in the media), the CIR group closed the first half with a positive net result of almost 1 million euro, although it was down on the result for 2011. Consolidated revenues rose by 9.1% to over 2.4 billion while EBITDA fell by 22.3% to 175.8 million euro. Espresso and especially Sorgenia reported a considerable reduction in their profitability compared to last year while in the automotive parts sector Sogefi's global growth is continuing. In healthcare the business of KOS remains stable. All the main operating subsidiaries of the group, apart from Sorgenia, closed the first half with a profit. The contribution of financial investments in the first half was a positive one.
  • Consolidated results

    The revenues of the CIR group in the first half of 2012 totalled 2,406.9 million euro, and were up by 9.1% from 2,205.6 million euro in the same period of 2011 thanks mainly to the higher sales reported by Sorgenia, Sogefi and KOS.
EBITDA came in at 175.8 million euro (7.3% of revenues), down by 22.3% compared to the figure of 226.3 million euro (10.3% of revenues) in the first half of 2011. The operating margin (EBIT) was 55.6 million euro versus 128.6 million euro in 2011. The contraction in margins, despite the significant increase reported by Sogefi, was due especially to the lower profitability of Sorgenia and Espresso as a result of the negative economic situation in Italy.  

The net result of financial management was a negative figure of 45.3 million euro (a negative 52.3 million euro in the first half of 2011) and came from net financial expense of 60.8 million euro partly offset by dividends and net gains from trading and valuing securities of 15.5 million euro.

The net result of the CIR group in the first half of  the year was a positive 0.7 million euro, although it was down on the figure of 19.4 million euro for the same period of 2011. The change from last year, despite the higher net income of Sogefi, was due mainly to the lower contribution of the other operating subsidiaries particularly Sorgenia, which closed the first half of the year with a net loss of approximately 54 million euro. The result for the first half benefited from a positive adjustment of the fair value of the securities portfolio (8 million euro) and from income on private equity investments (4.2 million euro).

The net debt of the CIR group stood at 2,551.5 million euro at June 30 2012, up from 2,437.9 million euro at March 31 2012 (2,335.1 million euro at December 31 2011). The consolidated net debt figure is the result of the following factors:
-          An aggregate net financial surplus at holding level of 25.6 million euro (24.6 million euro at March 31 2012). The rise from 10.8 million euro at December 31 2011 was due essentially to the positive fair value adjustment of the securities portfolio;
-          Total net debt in the operating companies of 2,577.1 million euro (2,462.5 million euro at March 31 2012). The increase from 2,345.9 million euro at December 31 2011 was due mainly to the investments made in production capacity and to the rise in the working capital of Sorgenia.

Total consolidated equity came to 2,427 million euro at June 30 2012 versus 2,479 million euro at December 31 2011. The group's equity amounted to 1,417.6 million euro compared to 1,437.7 million euro at December 31 2011. The change was due mainly to the payment of dividends.

At June 30 2012 the CIR group had 14,271 employees (14,072 at December 31 2011).

Results of the parent company CIR SpA

The parent company of the group CIR SpA closed the first half of 2012 with net income of 19.8 million euro, up from 14.2 million euro in the same period of 2011 thanks to lower operating costs. Shareholders' equity stood at 948.6 million euro at June 30 2012 (946 million euro at December 31 2011).

Industrial businesses

Energy: Sorgenia

The revenues of the Sorgenia group came in at 1,119.3 million euro in the first half of 2012 and were up by 7.3% on the figure for the same period of 2011 (1,043.1 million euro). Adjusted EBITDA was 33.6 million euro, down by 56.8% on the figure for the first half of 2011 (77.7 million euro). EBITDA came to 32.2 million euro versus 76.3 million euro in 2011.

The considerable decline in operating results compared to last year was due mainly to the following factors: the contraction in thermoelectric generating margins mainly because of the high price of gas for the power plants; the lower contribution of the investee Tirreno Power;  higher congestion charges on the electricity grid in the Southern region; a reduction in the contribution of the renewable source businesses due to the changes in the consolidation; a decline in natural gas sales volumes and the margins thereon.

The net result of the group was a loss of 54.1 million euro which compares with a substantial breakeven  in the first half of 2011 (0.3 million euro). Apart from the lower EBITDA, the result for the first half was also affected by the higher financial expense and by the writedown of assets for 13 million euro mainly in hydrocarbon exploration and production.

To counter the deep recession in Italy and the difficulties in the national energy market, Sorgenia has launched a series of actions (renegotiating its gas sourcing contract, cutting operating costs and the possible sale of non-strategic businesses) which should generate the first benefits in economic and financial terms in the second part of this year and in 2013.

Media: Espresso

The revenues of the Espresso group in the first half of 2012 came in at 419.8 million euro, down by 8.2% on the figure for the same period of 2011 (457.4 million euro) given the performance of add-on products, which had been extraordinary favourable last year, and the contraction of advertising revenues due to the trend of the market. Circulation revenues, excluding add-ons, came to 127.1 million euro, substantially unchanged on the figure of the previous year (129.2 million euro), thanks partly to the gradual adjustment of the cover prices of the daily newspapers. Advertising revenues, totalling 251.1 million euro, declined by 8.5% compared to 2011 while the whole market, in the first five months of the year, went down by 9.5% (Nielsen Media Research figures). Performance was very positive for internet advertising (+13.2%) which confirmed the brilliant dynamics of the last few years, despite the particularly unfavourable climate. Revenues from add-ons, which came in at 25.6 million euro, posted a significant fall (-37.3%) compared to the first half of 2011, while sundry revenues, which came to 16 million euro, rose by over 20% thanks to the growth of the business of renting out digital terrestrial TV bandwidth to third parties and to the positive performance of subscriptions to digital products.

EBITDA came to 60.8 million euro, and was down by 25.4% from 81.5 million euro in the first half of 2011. About half of this decline was due to the reduced margin on add-on products while the remaining part came from the press and radio businesses, which were hit by the contraction in advertising revenues, while internet and television results showed an improvement. Net income was 21.2 million euro versus 31.5 million euro in 2011.

Automotive components: Sogefi

The revenues of Sogefi in the first half of 2012 came in at 686.8 million euro and were up by 30.4% from the figure of 526.6 million euro reported in the same period of 2011 thanks to the consolidation of the businesses of Systèmes Moteurs as from August 1 of last year. The highest rise was in the original equipment segment (+44.5%). The original spares aftermarket rose by 4.3% while the independent market declined by 5.8%. In geographical terms, the highest growth in revenues in the first half was in the United States (+277.9% to approximately 52 million euro), India (+69.9%) and China (+12.9%). By contrast, sales in Mercosur fell by 7.9% in the first half while Europe's percentage of the group's total revenues further declined to 69%. With the same consolidation as last year revenues would have been 504.9 million euro, down slightly (-4.1%) from the same period of 2011 because of the decline in the European market (new registrations -6.8%) and the slowdown in Brazil.

First half EBITDA came in at 68.1 million euro (9.9% of revenues) and was up by 28.9% on the figure of 52.8 million euro in 2011 (10% of revenues). With the same consolidation EBITDA would have been 47.7 million euro (9.5% of revenues). Net income came to 16.1 million euro, posting a rise of 4.8% on the figure for the previous year (15.3 million euro). The lower growth in net earnings compared to operating results was due to the rise in financial expense (totalling 8.4 million euro versus 4.7 million euro in the same period of 2011) as a result of the higher average level of debt in the period following the acquisition of Systèmes Moteurs.

Healthcare: KOS

The revenues of KOS in the first half of 2012 came to 178.7 million euro and were up by 1% on the figure for the same period of 2011 (176.9 million euro), thanks to the development of the three business sectors (Nursing homes, rehabilitation units and hospital management). EBITDA was 25 million euro, down from the figure for first half 2011 (27.5 million euro) partly because of the higher leasing costs resulting from the sale of three instrumental properties in the third quarter of last year.
Net income came in at 4.6 million euro versus 6.2 million euro in the previous year. Net debt stood at 151.7 million euro at June 30 2012, down from 171.5 million euro at March 31 2012 (165.1 million euro at December 31 2011).

During the second quarter the shareholder AXA Private Equity subscribed a capital increase of 17.5 million euro. This deal which was needed for the development of the business was part of the agreement signed by the shareholders of the KOS group at the end of 2010. Following this capital increase CIR remains the majority shareholder of KOS with 51.26% of its capital, AXA Private Equity has risen to 46.70% while 2.04% is in the hands of management and other shareholders.

The KOS group today manages some 60 facilities, mainly in the centre and north of Italy with a total of over 5,700 beds plus more than 900 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 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 June 30 2012 of 105.6 million euro) and the venture capital fund CIR Ventures (with a fair value at June 30 of 14 million dollars). Among the other investments, it should be noted that there is a 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 June 30 2012 was 63.4 million euro.

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 of which cannot at the moment be predicted, and by the performance of the financial markets. In this scenario the main operating subsidiaries of the group will continue the strategy of taking action to improve their operating efficiency while at the same time engaging in business development initiatives.

Securities maturing in the 24 months following June 30 2012

The company, which has a BB rating with a stable outlook issued by Standard&Poor's and confirmed on July 20 2012, has no bonds maturing in the 24 months following June 30 2012.

Significant events which have occurred since June 30 2012

On July 19 2012 the Rome Regional Tax Commission ("Commissione Tributaria Regionale - CTR") suspended the enforceability of ruling no. 64/9/2012, filed on May 18 2012, which had ruled partly against the Espresso group regarding the tax assessments issued by the Inland Revenue ("Agenzia delle Entrate") for events going back to financial year 1991. More specifically, the Regional Tax Commission had pronounced as legitimate the application of ITL 440,824,125,000 tax on capital gains which, according to the Commission, had been made but not declared and ITL 13,972,000,000 for costs indicated as non-deductible for dividends and tax credits, with the application of penalties set at the legal minimum and payment of court costs. The Espresso group considers the ruling to be patently unfounded as well as clearly unlawful for various aspects of form and merit and therefore filed a petition to the Court of Cassation on June 27 2012 and requested suspension from the Regional Tax Commission on June 28 2012.

Conference call
The results of the first half of 2012 will be illustrated today at 14.00 hours CEST 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.
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Financials (€)
Sales 2017 2 793 M
EBIT 2017 161 M
Net income 2017 53,0 M
Debt 2017 -
Yield 2017 3,40%
P/E ratio 2017 20,38
P/E ratio 2018 17,67
Capi. / Sales 2017 0,38x
Capi. / Sales 2018 0,37x
Capitalization 1 052 M
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Mean consensus HOLD
Number of Analysts 3
Average target price 1,47 €
Spread / Average Target 11%
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Monica Mondardini Chief Executive Officer & Executive Director
Rodolfo de Benedetti Chairman
Michele Cavigioli Director-Group Finance & Investor Relations
Stefano Micossi Independent Non-Executive Director
Franco Debenedetti Non-Executive Director
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