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July

29

2019

CIR Group: 2019 first half results

Board of Directors approves results of first half 2019

CIR GROUP: 2019 FIRST HALF RESULTS

REVENUES AT € 1.36 BLN

EBITDA AT € 161.3 MLN


Normalized net result (before write-downs of Persidera, effect of IFRS 16 and costs of the merger plan) at € 13.5 million, despite unfavourable performance of automotive and publishing markets

Net financial position of the parent company at 30/6 positive for € 324.7 million



Milan, July 29 2019
– The Board of Directors of CIR-Compagnie Industriali Riunite S.p.A., which met today under the chairmanship of Rodolfo De Benedetti, has approved the Semi-Annual Financial Report for 2019 presented by Chief Executive Officer Monica Mondardini.

The CIR group operates mainly in three sectors: healthcare (KOS), automotive components (Sogefi) and media (GEDI Gruppo Editoriale).


Foreword

The Semi-Annual Financial Report for first half 2019 was drawn up with application of IFRS 16, which establishes a new way of accounting for leasing contracts, with significant effects particularly on the net debt figure and the EBITDA of the Group, which will be indicated further on in this press release.


Consolidated results

The consolidated results of the CIR group in the first half of 2019 were affected by the unfavourable performance of two of the three markets in which the group operates: automotive and publishing. The automotive sector reported a decline in production of 7% at world level while publishing in Italy suffered the effects of a slowdown in advertising investment, which fell by 4% overall. These factors affected both the revenues and the results of the subsidiaries Sogefi and GEDI.

The revenues of the CIR group came in at € 1,362.0 million and were down by 3% on the first half of 2018 (€ 1,404.6 million); KOS reported a 4.4% rise in revenues, Sogefi a decline of 4.3% (-3% at constant exchange rates, a better performance than that of the market) and GEDI a decline of 6.1%.

The consolidated gross operating margin (EBITDA) came to € 161.3 million (11.8% of revenues), € 158.8 million (11.3% of revenues) in the first half of 2018; excluding the effect of accounting standard IFRS 16, 2019 EBITDA would be € 131.0 million (9.6% of revenues) and the decline compared to the first half of 2018 was because of the lower margins reported by Sogefi and GEDI.

The consolidated operating result (EBIT) came to € 51.5 million (€ 76 million in the first half of 2018).

The result of financial asset management by CIR and the non-industrial subsidiaries was positive with an annualized return of 5% versus 2.7% for the first half of 2018. However, no realized gains were reported on the portfolio of non-strategic equity holdings and lower results were posted on the private equity portfolio.

Consolidated net income was € 2.0 million, € 13.5 million excluding the impact on the group of the write-down by GEDI of its interest in Persidera with the prospect of its disposal (€ -7.9 million), excluding also the effect of the new accounting standards (€ -1.6 million) and the costs incurred by the parent company for the merger by incorporation of CIR into COFIDE. For the first half of 2018 the net result amounted to € 24.1 million and the decline to € 13.5 million was due to the lower results of the subsidiaries Sogefi and GEDI, caused by the unfavourable performance of their respective markets, and by lower income from the financial management activity of the parent company and the non-industrial subsidiaries.

Consolidated net debt, excluding the financial payables for rights of use introduced by IFRS 16, stood at € 357.4 million at June 30 2019, up from € 297.1 million at December 31 2018 and € 320.6 million at June 30 2018.
The total net debt before IFRS 16 of the industrial subsidiaries totalled € 682.7 million at June 30 2019 (€ 622.6 million at the end of December 2018), with an increase in the debt of GEDI of € 19.9 million as an effect of the disbursements made for company restructuring, and an increase for KOS of € 33.3 million for the payment of dividends and the investment in development made in the first quarter, offset by a significantly positive cash flow from operations.

The net financial position of the parent company (including the non-industrial subsidiaries) at June 30 2019 was a positive € 324.7 million, stable compared to € 325.5 million at the end of 2018 and € 329.4 million at June 30 2018. In first half 2019 the cash flow from operations was a positive € 28.0 million, dividends of € 25 million were distributed and own shares were bought back for € 3.2 million. The application of accounting standard IFRS 16 led to the recognition of financial payables for rights of use at June 30 2019 for an amount of € 443.2 million and therefore the overall consolidated net debt after IFRS 16 came to € 800.6 million. The increase linked to IFRS 16 refers mainly to the subsidiary KOS (€ 317 million), because of the type of activity it is engaged in, which involves considerable use of residential facilities that are mostly leased.

The equity of the group stood at € 908.5 million at June 30 2019 compared to € 936.2 million at December 31 2018.

At June 30 2019 the CIR group had 16,709 employees (16,365 at December 31 2018).


Results of the industrial subsidiaries of the CIR group

Healthcare: KOS


KOS, which is controlled by CIR (59.5%) and in which F2i Healthcare has an interest, is one of the largest groups in Italy in the sector of healthcare and care homes (long-term care, diagnostics and oncology treatments, management of hospital facilities). The group manages 85 facilities, mainly in the centre and north of Italy, for a total of 8,113 beds, and is also active in India and the United Kingdom.

In the first six months of 2019 KOS reported revenues of € 281.3 million, showing an increase of 4.4% compared to the same period of 2018. The Long Term Care area posted a rise thanks to organic growth and the contribution of the acquisitions made in 2018; the Diagnostics, oncology treatments and acute area reported growth after new services were introduced in 2018.

EBITDA came to € 65.9 million; excluding the effect of IFRS 16, it would be € 48.8 million (17.3% of revenues) in line with the first half of 2018 (€ 49.1 million).

EBIT was € 31.6 million (€ 32.0 million in 2018).

Net income came in at € 14.4 million (€ 16.5 million in the same period of 2018) with a negative impact from the application of IFRS 16 of € -1.1 million. At June 30 2019, KOS showed net debt before IFRS 16 of € 292.7 million, up by € 33.3 million from € 259.4 million at December 31 2018; a significantly positive cash flow from operations was offset by the distribution in the period of dividends of € 35.1 million, and investments of € 21 million in greenfield developments, acquisitions and new projects in the Diagnostics and oncology treatments area. The application of IFRS 16 meant recognizing at June 30 2019 financial payables for leasing and rights of use for an amount of € 317.0 million and thus the total debt figure came to € 609.8 million.

In March KOS acquired the company Selemar which manages a clinical pathology laboratory in Urbino (PU).


Automotive components: Sogefi

Sogefi is one of the main producers worldwide in the sectors of suspension, filtration, and air and cooling systems for motor vehicles, with 42 production plants in four continents. The company is controlled by CIR (56.8%) and is listed on the Stock Exchange.

In the first half of 2019, the world car market reported a decline in production of 6.7%, (source IHS - July 2019), with Europe down by 6.1%, Asia down by 12.4%, North America down by 2.7% and South America down by 3.2% (-33% in Argentina).

In this context, Sogefi’s revenues totalled € 777.8 million and were down by 3% at constant exchange rates and by 4.3% at historical exchange rates compared to the same period of 2018, but performance was still better than that of the market thanks to the resiliency of business in Europe. By geographical area, revenues at constant exchange rates fell by 3.3% in Europe, by 3.7% in North America and by 14% in Asia, while South America reported growth of 11%. By business sector, at constant exchange rates, Suspensions reported a fall in revenues of 4.3%, Filtration was down by 0.6% and Air and Cooling declined by 4.2%.

EBITDA came in at € 86.4 million; excluding the IFRS 16 effect, the figure would be € 80.3 million compared to € 95.3 million in the first half of 2018. The reduction mainly reflects the lower volumes.

EBIT came to € 24.4 million compared to € 38.1 million in the first half of 2018. Profitability (EBIT/Revenues %) was 3.1% versus 4.7% in the first half 2018, this decline also deriving mainly from the reduction in volumes. The quarterly trend shows a slight improvement in the profitability of the second quarter compared to the first (from 2.9% to 3.4%), as well as a tendency to realign towards the values ​​of the same period of 2018 (3.8% in the second half).

Net income came to € 6.9 million versus € 14.8 million in the first half of 2018.

Net debt before IFRS 16 stood at € 267.3 million at June 30 2019, in line with the net debt figures at June and December 2018. The new IFRS 16 standard led to the recognition of a further debt of € 64.8 million, giving rise to an overall debt figure of € 332.1 million.

For further information on the results of Sogefi, see the press release issued by the company on July 22 2018.


Media: GEDI Gruppo Editoriale

GEDI Gruppo Editoriale, is the leading company in Italy in daily and multimedia news and one of the most important in Europe. It operates mainly in the following sectors: newspapers and magazines, radio, the internet and the collection of advertising. The company is controlled by CIR (45.8%) and is listed on the Stock Exchange.

As regards the market, in the first five months of 2019 advertising investments were down by 4% compared to the same period of last year (Nielsen Media Research figures). Of the main media only radio and the internet (excluding search engines and social media) reported a positive performance but posting only moderate growth of 2.2% and 2.0% respectively. The printed press was the medium that suffered the most, reporting a fall of 12.6%. As for circulation, in the first five months of 2019 daily newspapers reported a decline in sales on the newsstands and by subscription of 7.7% (ADS-Accertamento Diffusione Stampa figures).
In this context, GEDI’s revenues came in at € 302.9 million, down by 6.1% on the first half of 2018. Circulation revenues declined by 5.2% compared to the same period of last year and advertising revenues were down by 7.4%, due to the evolution of the market.

EBITDA came to € 20.2 million; excluding the effect of IFRS 16 it would be € 13.0 (€ 22.1 million in first half 2018), after restructuring charges of € 3.3 million.

EBIT was € 4.3 million (€ 12.6 million in the first half of 2018). The quarterly performance shows that the trend is moving towards a realignment with values of the same period of 2018 with an operating result for the second quarter, before extraordinary charges, in line with the previous year.

The net result, before the assets held for disposal, was a negative € 1.7 million. Given the plan to sell the interest in Persidera, the company aligned its carrying value to the expected sale price, with a negative impact of € 16.9 million and a loss for the period of € 19.1 million (€ +4.3 million in the first half of 2018). An agreement for the sale of the interest in Persidera was reached on June 5 and involves consideration of € 74.5 million for GEDI, from which at closing the dividends distributed in 2019 (€ 4.3 million received in April) will be deducted but to which interest accruing from August 1 until the date on which the sale completes will be added.

Net financial debt at June 30 2019, before the application of IFRS 16, amounted to € 123.1 million (€ 103.2 million at December 31 2018), after significant disbursements relating to the restructuring plan in progress (€ 23 million). The application of IFRS 16 led to the recognition at June 30 2019 of financial payables for leasing and rights of use of € 61.2 million and thus the net debt figure after IFRS came to € 184.4 million.

For further information on the results of GEDI, see the press release issued by the company on July 26 2019.


Non-core investments

At June 30 2019 the non-core investments of the CIR group totalled € 63.5 million (€ 72.5 million at December 31 2018) and consisted of the following: a diversified portfolio of private equity funds managed by CIR International, the fair value of which, calculated based on the NAVs produced by the funds involved, was € 42.8 million at June 30 2019, investments in non-strategic equity interests worth € 10.7 million and a portfolio of non-performing loans with a total value of € 10.0 million.


Results of the parent company of the group CIR S.p.A.


The parent company CIR S.p.A. closed the first half of 2019 with net income of € 16.6 million (€ 18.2 million in the first half of 2018).

Equity, which includes the net income for the period, declined from € 869.1 million at December 31 2018 to € 858.5 million at June 30 2019, due to the distribution of € 25 million in dividends and to the buyback of own shares for € 3.2 million.


Outlook for the year

As far as KOS is concerned, revenues are expected to grow in line with the development strategy.
As regards Sogefi and GEDI, performance in the remaining part of the year will depend on developments in the automotive market and those in the publishing market in Italy, both of which are currently characterized by an unfavourable performance and an outlook of substantial uncertainty.
For Sogefi in particular, if the evolution of the market confirms the current forecasts for the sector (a more limited decline in vehicle production in the second half of 2019 than in the first half, -0.4%), sales could be substantially in line with the previous period and the EBIT margin could be slightly better than that of the first half.
For GEDI, no change in the current market trends is expected; as an effect of the action taken and on the basis of the trend observed in the results of the second quarter, it can however be predicted that for the remaining part of the year there will be an improvement in profitability compared to the first half.


Significant events that have taken place since June 30 2019

On July 19 2019, Extraordinary General Meetings of the shareholders of CIR and COFIDE approved the proposed merger by incorporation of CIR into its parent company COFIDE. The merger will be legally and fiscally effective as from the beginning of January 2020, subject to completion of the company procedure and the signing of the merger agreement.


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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.
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29 July 2019 | 12:43 CEST

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