CIR S.p.A. - Compagnie Industriali Riunite (CIR) Earnings Call Transcript & Summary

Good afternoon. This is the chorus call conference operator. Welcome, and thank you for joining the CIR 2025 Half Year Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Rodolfo De Benedetti, Chairman of CIR. Please go ahead, sir.

Thank you, and good afternoon to everybody, and welcome to this 6-month investor call. I will go through the -- rapidly the key numbers that were approved by this morning's Board of Directors with the semiannual numbers and then leave room for your questions. Maybe I should start on Page 6 with the consolidated P&L, even though I know that it's probably not very relevant to mix the 2 different businesses, but we have to report it that way. So basically, you have revenues, which were slightly down on last year, mainly the effect of Sogefi's reduced revenues. EBITDA and EBIT are up, and we will see that both the operating businesses have an improved profitability in the first half of the year. The financial result was worse than last year. I remind you that last year, we had an exceptionally good year from a HoldCo financial asset results. And as you can see, the contribution was EUR 17 million against EUR 3.8 million this year. We'll go through that. The main negative impact has been dollar exchange rates on the private equity portfolio, which is not hedged against euros. Taxes were pretty -- sorry, on this -- on the financial results, on the other hand, we had lower net interest charges due to lower average net debt. The tax is pretty much in line, and this brings us to net operating -- net-net result from -- net results group-wise, of 14.5 against 1.4 last year. As you might recall, last year, our numbers included, as you can see in the asset held for sale, the positive contribution from the filtration business divestiture within Sogefi. As you can see on the right-hand side of the page, the contribution from the core businesses is sharply up, almost doubled from EUR 8.3 million to almost EUR 16 million. And this was negatively compensated by the lower result of shareholding, which is basically the lower return on the financial assets that I mentioned earlier, and net of the minorities, this is a decrease from EUR 19.8 million last year to EUR 14.2 million this year because we own 100% of the financial results, and we just own roughly 60% of the 2 businesses net earnings. I will skip Page 7 because there's not much to report here. Basically, on a consolidated basis, net debt is positive EUR 191 million. And you have the bridge, and you have the composition across the 2 businesses. On Page 9, you have the simplified holding company balance sheet where you have the pro rata share of book value of the 2 consolidated business, which is slightly down due to dividend that were paid out by both KOS and Sogefi in the first half of the year. The private equity portfolio reduces itself slightly. We would have had a positive return of about 3 percentage points in the 6 months, which became negative because of the currency exchange impact, 100% of this -- well, not 100%, but most of this private equity portfolio is U.S. dollar-denominated. And historically, we have not hedged this position. And so we had a negative impact from currency from the dollar devaluation in the first half. This was partly reversed since the end of the quarter. So if we did it today, it'd be a bit better. And obviously, it's a function of the end-of-period exchange rate. The other lines, nothing major to report. We had an increase in the net financial position at the holding company level from EUR 341 million to EUR 363 million. And you have basically on the right-hand side, a bridge, which with the main changes that the main positive one was dividends that we received from Sogefi and KOS during the first half. Share buyback cost us EUR 5.4 million of investment in the first half, less than what we budgeted for because trading volumes were quite low, and so we weren't able to buy more during the first half. On Page 10, you have a brief description of the components of the shareholding P&L. So you have the recurring cost, which are slightly down on last year, EUR 5.5 million. You have the income from financial assets I commented before and then you have the taxes. And net that result is negative EUR 1.5 million. I'll now go through the KOS and Sogefi numbers, which seems to be the most relevant part, starting with cost on Page 13. You have a summary P&L first half '24, first half '25. And as a reminder, first half '19, which was pre-COVID, and which was our peak result in terms of profitability from a historical standpoint. As you can see, we continued on our path of increased profitability, basically coming back on some of the negative impacts that we suffered through COVID. EBITDA was up to EUR 79 million. EBITDA pre-IFRS 16 is EUR 38 million, which is probably the most relevant number, which is up on last year, not this too distant from the '19 number. Financial result is better because of lower interest charges. And this brings a net result of almost EUR 8 million compared to EUR 5 million a year ago. I remind you the fact that there is a seasonality in the results of course, between H1 and H2. And this is mainly due to -- and we've seen this in the last few years. This is mainly due to the fact that typically, when you have cost increases, mainly salary increases, they happened from the beginning of the year, and it's only throughout the year that month after month, we get tariff increases. And so typically, we have a lower profitability first half against the higher profitability in second half. This is particularly true in Germany. It's also true in Italy. In Italy, there is a further element, which is that during the summer month, we have abnormally high occupancy rate because of seasonal demand of those services during the summer month. You have a reminder of -- on the lower end of the page of the real estate assets, no major changes here compared to last year. On Page 14, you have the numbers broken down by nursing home, Italy, we have Italian acute care, In Germany, you have the total number of beds in operation. There's been an increase because of the -- an increase on '19. There's been a slight decrease on last year. You might recall that we dismissed the contracts to run the Suzzara Hospital, which makes our numbers, the comparison, if you do it on a like-for-like basis, we had an increase in revenues about 5% that you don't see because it's flat, but the difference is mainly due to the end of the Suzzara contract, which was in the numbers of last year. The occupancy rate in Italy for nursing homes continue to creep up. At the end of June, it was 93.4%. We're about 2 points from the '19 numbers and a nice increase from last year. This was not the case in Germany where we had a very slight increase but below what we expected for some capacity issues in certain structures that we think we're going to resolve over time, but that has weighted on the performance of the first half. This, as you can see, increases revenues in nursing home Italy by close to 6%, which is good growth. The rehab business has been the most challenging part of the business because as you know, this is a 100% public tariff and public paid type of services. And tariffs are blocked since 6 or 7 years now. We expect them to adjust to the increased cost that we have experienced over the last few years starting from the beginning of next year. But this year, this has not taken place. And so this has had a negative impact on profitability we'll see later. On Page 15, you have a detailed P&L. You have, just for memory, H1 '19. And then you have the comparison broken down by Italy and Germany, '24 against '25. And as you can see, there is an increase in profitability in Italy overall by 1.5 points. There is also -- there is flat 1% in Germany in terms of percentage-wise, a slight increase in absolute numbers. If we go at the EBIT level, we had almost a 1 percentage point group-wise of better EBIT to EUR 31 million. This year, compared to EUR 28 million last year. So we are pretty much in line with our expectations for the year. We had a bit of a lower Q1. Q2 was in line with what we budgeted for, and we expect to have a better second half of the year. And so basically, the guidance that we are giving here is for the whole year for a significant increase in profitability for the whole year. Passing to Sogefi on Page 16. Sogefi has a weak first half in terms of revenues, mainly due to foreign exchange impact because of NAFTA, China and India, which are dollar-denominated. So revenues were down in H1, but profitability was up about 1 point of EBITDA margin from EUR 67 million to EUR 69.5 million despite the lower revenues. And as you can see, EBIT was significantly up from almost EUR 28 million to almost EUR 32.7 million. This brings the group results from continuing operations to almost double from the last year number before the discontinued operation, which is the filtration gain that I mentioned earlier, so we are pretty satisfied by H1 results. We think the market was a difficult one in terms of volumes. We benefited from 2 elements. One was lower raw material prices. And the second one was lower fixed cost, and this is really to the credit of the management team, which has done a great job at lowering fixed costs despite the fact that in some parts of the business, we are heavily investing on new platforms. The outlook that we gave is for a mid-single-digit decrease in revenues for the whole year. So we will continue to see the same effect as we have seen in H1, with somewhat lower stabilizing raw material prices, and this should lead to higher profitability compared to last year before any either unforeseen market developments for extraordinary impact that we cannot foresee at this stage. On Page 17, you have a breakdown of the results over the 2 divisions where we -- you can see that the main reduction in sales was in the Suspension Division. This is because Suspension is more focused on the European market, which was weaker as opposed to Air and Cooling, which is a bigger presence outside of Europe. We had a good increase in contribution in suspension. As you might recall, suspension was a loss-making business up to a couple of years ago, and we've turned around this business. And we still are not where we would like to be in terms of profitability, but on our way to it. Air and Cooling had a better performance in terms of sales, a slight decrease in margins, mainly because of the mix of products that we had slightly lower U.S. profitability in H1, which impacted those levels. But as you can see, overall, EBITDA increased nicely from last year and even from before COVID. I will pause here and leave time to your questions.

[Operator Instructions] The first question is from Martino De Ambroggi of Equita.

My first question is a general question on the operating leverage of cost. If you can help us in understanding -- because it seems to me that there are for sure explanations to be quite low compared to the increase in occupancy. Okay, there is a change in the perimeter that probably we need to understand. I clearly understand the 5% growth in like-for-like for sales. But I have some other elements are probably missing. Also taking into account that you increased prices during '24, and this should help the performance. This is my first question. The second one is just to understand what's the time frame to achieve the full capacity in Italy. It seems to be just a matter of time in Germany, more difficult? And the third question is on the visibility for the second half that you indicated as a better because of the price increases in Germany, if I remember correctly, are mid-single digit and so on. So just to understand what should we expect for the second half of the year?

Okay. So as you know, we don't give precise numeric guidance as a matter of policy. So I will not give you that indication. But on a qualitative level, so to answer your first question, we had about 5% like-for-like growth in revenues that you don't see because of the Suzzara effect. So we basically have flat revenues here. But if you take away the roughly EUR 20 million of Suzzara revenues from last year, we had about a 5% growth. So this is the result of both increased occupancy as well as the tariff increase, I would say, roughly 50-50. This brings EBIT from 20 -- EBIT. I think EBIT is probably the most relevant number because it's after everything before interest and taxes, but it's after the amortization and the real estate cost. And so there, the number goes from EUR 28 million to EUR 31 million. So you have an increased profitability percentage-wise, not only in absolute terms. Again, as I said earlier, we are slightly below what we budgeted for because Q1 was a bit weaker. Q2 was spot on line with our budget. And we hope that we can make that in the second half, some of the shortfall of first half. And so we see those levels of profitability confirmed in the second half given the seasonality that I said earlier. Now when you say that you would have expected a higher growth in revenues because of the tariff increase. As I said, you have roughly 2 points -- between 2 and 3 points of that effect in H1, and you will have more in H2. And because of the seasonality, the impact on the bottom line will be substantially greater in second half as compared to the first half. Also in terms of growth, you had some greenfields that contributed to the growth during the period. As I mentioned earlier, the impact of the cost increase versus the tariff increase was particularly bad in Germany. So in our budget, we had that we would have a weak first half because we had, I remind you, about a 10% labor cost increase from January 1 this year in Germany. And the way it works in Germany is that once you have the cost increase, you have to negotiate with the authorities to have a tariff increase. And that can take a few months. But if I just take the month of January, you have 100% of the cost increase and you have almost 0% of the tariff increase. So it's a continuous process during the year in which at the end of the year, you've done a good job. You've recovered 100% of your cost increases, but it's not retroactive from January 1. Full capacity in Italy or in general is a reflection both of the ability to fill up the capacity, but also of the greenfield because the more you have greenfields, the less you have full capacity because you are putting online beds that are not -- that are empty, and that will take some time. So we have had a number of greenfield developments, both in Italy and in Germany. And obviously, that takes away some of the occupancy numbers. I think I've answered your questions. And so again, in terms of guidance, looking at the year, we anticipate a significant improvement in the whole of '25 compared to the whole of '24.