Dear Shareholders,
In 2008 the CIR Group reported consolidated net income of € 95.5 million, up from € 82.6 million in 2007, with a rise of € 12.9 million (+15.6%). Consolidated revenues totalled € 4,728.7 million and were up by 12.2% from € 4,214.9 million in the previous year.
The consolidated net result for the year included net non-recurring income of € 64.2 million, consisting of gains of € 117.8 million resulting from the subscription of capital increases in the company Sorgenia (a capital increase of € 200 million by Verbund) and in HSS (€ 20 million by Morgan Stanley) and expense of € 53.6 million from the write-down of the investment in the Oakwood group.
The year was affected by the international financial crisis which in the second part of the year had serious repercussions on the real economy, hitting the sectors in which the Group operates with a varying degree of intensity, which was particularly strong in the automotive and media sectors which are most exposed to fluctuations in demand. During 2008 CIR pursued its industrial vocation, strengthening its presence in the sectors in which it operates and taking the necessary action to counter the economic and financial effects of the current crisis.
The present configuration of the CIR Group includes five business sectors: utilities (electricity and gas), media (publishing, radio and television), automotive components (filters and suspension components), healthcare (residences for the elderly, rehabilitation and hospitals) and financial services (non-performing loans and personal loans secured on workers' income).
For a better assessment of the profitability of the Group, the performance in 2008 is presented below showing a breakdown of the economic contribution and the balance sheet figures of the operating groups and of the holding, which is an aggregate of the figures of CIR and of its financial holding subsidiaries.
The contribution of the operating groups to consolidated net income, € 63.6 million down from € 119.9 million in 2007, declined mainly to the lower profitability of the Espresso and Sogefi groups, which were particularly affected by economic crisis.
The contribution of the financial subsidiaries was a positive € 48.5 million (€ 20.1 million in 2007) and included the capital gains on the sale of shares of hedge funds by Medinvest, following redemptions for a total of € 120 million. In February 2009 a further € 35 million dollars were received, leaving the remaining investment in Medinvest at approximately € 130 million. This disinvestment was designed to meet the objective of rebalancing the portfolio in order to optimize the financial structure of the Group.
The result in 2008 of CIR and the financial holdings, a negative € 80.8 million (€ 23.1 million in 2007), was generated mainly by net financial expense of € 30.7 million (€ 29.6 million in 2007) and net losses from trading and valuing securities of € 43.9 million (net gains of € 0.3 million in 2007), to the fair value adjustment of the part of the assets invested in bonds, which were penalized by the world financial market crisis. This valuation, which included bonds issued by banks with a high credit rating, was carried out on the basis of the fair value determined prudentially taking into account the worsening credit default risk, the lack of liquidity in the market and the fact that it was impossible to find dealing prices. The Group did not adopt the waiver provided by IAS 39 which would have given lower expense charged to the income statement of around € 28 million, had it been applied.
The result of the operating groups for the year 2008 are shown below for each of the main business sectors.
In the utilities sector the Sorgenia group consolidated its position in the Italian electricity and gas market, approaching its target of 500,000 clients. The group continued to roll out its plan to increase its thermoelectric generating capacity and grew further in energy from renewable sources. In a difficult economic environment, the group reported revenues of € 2,433.7 million, posting a rise of 30.7% from € 1,861.7 million in 2007, an EBITDA of € 189.7 million (+24.7%) and a net income of € 66.7 million, up from € 65.2 million in 2007, despite the negative impact of the Robin Hood Tax and higher interest expense.
In the media sector in 2008 the Espresso group was affected by the crisis in the publishing sector with a drastic fall in advertising investment in the second half of the year. This phenomenon had a significant impact on the results of the group: revenues fell by 6.6% to € 1,025.5 million and gross operating profitability declined to € 142.5 million (-36.2%.). Despite the negative environment, the Espresso group did however post a positive net result of € 20.6 million.
The Sogefi group, the important producer of automotive components, confirmed its leadership in Europe in the two sectors in which it operates (filters and suspension components). In a year of global crisis in the automotive sector, the group achieved a positive net result of € 28.5 million (€ 52.2 million in 2007) with sales revenues of € 1,017.5 million (€ 1,071.8 million in 2007) and EBITDA of € 104.9 million, taking action to reorganize the business and cut costs to counter the economic crisis.
In 2008 the HSS - Holding Sanità e Servizi group continued its growth trend which in just five years of business has enabled the group to become one of the main operators in private healthcare in Italy. The group reported consolidated revenues of € 246.3 million (+34.7%) and EBITDA of € 28.7 million, up from € 20.2 million in 2007 (+42.3%). The consolidated net result was a negative € 1.5 million compared to net income of € 0.3 million in 2007, due to negative adjustments of € 2 million on assets relating to acquisitions completed at the end of 2007. These provisions were considered appropriate in the light of the current economic and financial environment.
In the financial services sector CIR is present with the company Jupiter Finance and the company Ktesios belonging to the Oakwood group. The company Jupiter Finance operates in the non-performing loan segment and since it started business it has acquired portfolios of loans with a gross book value of € 1.3 billion for a price of € 157 million. Receipts have actually been higher than the objectives set at the time the portfolios were acquired. CIR's remaining investment in the Oakwood Global Finance group stood € 20 million at December 31 2008. The further write-down of the investment during the year, for € 54 million, was the result of the change in the business plan of Ktesios because of the worsening of the world economic situation. The company operates in the sector of loans to people in employment secured on one fifth of their salaries and in 2008 it made loans of approximately € 690 million.
The charts on the following pages show a breakdown by business sector of the economic results and the balance sheets of the Group, a breakdown of the contribution of the main subsidiaries and the aggregate results of the CIR holding and its financial holding company subsidiaries (CIR International, Cirfund, CIGA Luxembourg and CIR Investment Affiliates).