2019 was a strong year for Juventus both on and off the pitch.
The team once again strengthened its leading position in Italian Football by winning its eighth consecutive Championship title, while the Juventus Women’s team won its second league title and their first Italian Cup.
On the commercial side, Juventus’ revenues grew to €621 million (€505 million in 2018, +23%) and its diversification strategy continued with the opening of the J-Hotel (the first hotel structure in Italy built in collaboration with a football club) and the opening of a branch in Hong Kong to increase its exposure to the Asian market. The club now has 420 million supporters worldwide. This number is strengthened by its digital audience, with 41 million on Facebook, 38 million on Instagram,11 million on Twitter, 2.6 million on YouTube and 2.6 million on SinaWeibo.
We invested in Juventus this year by underwriting our entire portion, equal to €191 million (63.8% of the share capital) of the fully subscribed capital increase of €300 million.
This year the club also issued a €175 million bond, the first unsecured senior bond issued by a football club. With its newly-strengthened balance sheet we believe that Juventus is well positioned for a more sustainable future in an industry in which the extraordinary revenue growth of the last decade has not been translated into sufficient profitability. Juventus also starts the next stage of its journey with a strong position in European football. For the fourth year in the row it has been the fifth club in UEFA’s official ranking and it is the only Italian club to have been consistently placed in the top 10 for the last 5 years. It will continue to work with other teams and institutions under the strong leadership of its Chairman, Andrea Agnelli, who also chairs the European Club Association, to secure a sustainable future for the most popular sport in the world.
In 2019 we also agreed to increase our stake in GEDI Gruppo Editoriale. GEDI is a market leader in the Italian media landscape, owning a set of first tier media brands well-known for their high quality journalism. The company owns two of the leading Italian newspapers:
La Repubblica (founded in 1976) and La Stampa (founded in 1867). These are the second and third largest daily newspapers in Italy by circulation. They also both have a strong digital presence. La Repubblica runs the most popular online news website in Italy and has the strongest social media engagement, while La Stampa holds the 3rd position. In the radio media space, GEDI is the second largest private player, with properties like Radio DEEJAY being followed by ~5 million daily listeners. In 2019 the company generated ~€603 million in revenues and ~€59 million in EBITDA. With its growing digital media activities now representing close to 13% of revenues, it is ideally positioned to profit from market transformation.
We are very familiar with GEDI since it was formed in 2016 through the combination of CIR and our traditional media interests, after which we remained a minority shareholder with a 5.99% interest. In 2019 we agreed to buy from CIR its 43.78% stake in GEDI at a price of €0.46 per share (an implied market capitalization for the whole company of ~€234 million). This represents a total purchase price for the stake of €102.4 million and we will subsequently launch a tender offer to acquire the remainder of the shares at the same price.
We are conscious that this is a contrarian acquisition given the headwinds facing the newspaper industry. However, we believe that, despite these challenges, news organizations providing quality journalism will continue to attract and grow digital paying readers. This was demonstrated in these difficult and uncertain times by the 60% growth in digital subscriptions that GEDI saw in March 2020, taking it from 130k at the end of February to 210k. At the same time its website traffic increased by 220% with video and audio also growing strongly. This subscription model will underpin a business that provides an important service within society, giving readers responsible news coverage and independent opinions on both local and world events.
The value of high quality journalism has also been apparent at The Economist where, during the last couple of weeks of March 2020, traffic to its digital products increased by more than 80% while there was a 250%+ increase in daily registrations and a doubling of its average new subscriber numbers. We were delighted to welcome Lara Boro as the new CEO of The Economist. Lara brings with her both a wealth of experience in B2C and B2B media and strong leadership skills, which she is putting to good use in these difficult times.
Finally, we continued to invest in all our companies by buying back 3,646,822 Exor shares for €207mn at an average price of €56.7.
We have been active in extending our maturities, reducing our cost of funding and increasing our overall liquidity levels from €267 million cash, cash equivalents and financial assets at the end of 2018 to €789 million at the end of 2019. We know the importance of having started this year with close to 3 times more liquidity than when we began the last one, having learned the meaning of “cash is king” in other crises.
In October 2019, we accessed long maturities at all-time-low rates. We issued a 15-year bond for an amount of €300 million with a fixed annual coupon of 1.75%, due in 2034. This issuance enabled a further extension of Exor’s credit curve at attractive prices. We also reimbursed a €150 million private bond maturing in November with available cash. We will continue to assess opportunities in the private placement market as a way to diversify our capital structure, complementing public issuances, and to continue building long-term relationships with our institutional credit investors.
As of the 31 December 2019, all of Exor’s Gross Debt was made up of bonds (35% private placements and 65% public bonds) with average maturity ~7 years and average cost ~2.6%. In addition, we had available committed lines for €435 million and uncommitted credit lines for €587 million, all of which were undrawn. Our focus on managing our debt effectively and prudently, in addition to the announced transactions, were recognized when Standard & Poor’s decided to improve Exor’s outlook from stable to positive at the end of 2019.
Exor in 2020
This year began with a $9 billion unsolicited offer from Covéa, the French mutual insurance company, for PartnerRe. We thought carefully about our response to this since we were very focused on building a great company for the long-term and we were pleased with the progress that had been made since we acquired PartnerRe in 2016. This included strengthening the Board of Directors and the leadership team, which benefited from new talent from both internal promotions and recruitment from within the industry. We had also accelerated the development of the Life & Health business organically and via the acquisition of Aurigen. Life & Health offers attractive returns due to high barriers to entry (driven by balance sheet size, long-term capital commitment and the service level required by clients) and it complements Non-Life reinsurance because of the uncorrelated nature of the underlying risks. This results in significant earnings and capital diversification benefits.
By the time we received Covéa's offer, PartnerRe had become a much leaner company with its expense base improved by approximately 25 percent compared to the pre-EXOR acquisition levels, a more robust balance sheet and stronger underwriting and investment skills. Its book value grew by 13% (16% dividend adjusted) from $5.8 billion in 2018 to $6.6 billion in 2019.
The decision to move ahead with the sale was therefore a difficult one. But, in the end, we concluded that Covéa would provide a good home for PartnerRe and its employees and that having access to Covéa’s balance sheet would be competitively advantageous. The welcome the transaction received from clients, brokers and rating agencies, with Standard & Poor’s and Fitch improving PartnerRe's rating outlook to positive, endorsed this decision. Covéa's commitment to entering the re-insurance industry as an attractive adjacent and complementary business and as a way to diversify globally its strong French domestic presence, makes it a good fit with PartnerRe and the first interactions between the Covéa and PartnerRe teams have been very positive.
In the early weeks of 2020, we became aware from our colleagues and partners in China of the spread of a new coronavirus and the nature and impact of the containment measures being taken. However, we had little idea at that time of the profound consequences that Covid-19 would soon have on the rest of the world.
Italy was the first country outside of Asia to be badly hit by the virus, which has made those of us who live and work here feel like we have been experiencing other countries’ potential futures for the past six weeks. The nation’s health has become the priority for all of us during this period and the government’s strong lockdown measures have been matched by an extraordinary and inspiring demonstration of responsibility and community from those living here.
Despite the difficulties and discomfort that social distancing creates, we have seen people provide psychological, practical and financial support to those at risk and in greatest need while families, friends and colleagues have all been confronted, sometimes in the most tragic of ways, with the realities of this pandemic.
My sincere condolences go to all those who have lost loved ones to this cruel disease. I would also like to pay tribute to the countless heroic acts of the doctors, nurses and other medical staff who are protecting us all and saving countless lives. The dedication and selflessness shown by everyone working in essential services has been just as inspiring. These measures are beginning to show some results, with Italy seeing signs of a reduced level of contagion.
These glimmers of hope suggest that we will eventually be able to start a return to some kind of normality. But there can be no arbitrage between people’s health and the health of the economy. Without the former we can never have the latter. During this crisis we have been doing all we can to protect our companies, conscious that when our economies reopen, they will be in the front line of ensuring that our communities and countries can begin to recover. We have been doing this in a number of ways:
- We have ensured that each company has established a clear and effective pocess for managing the crisis, with increased board interaction and frequent internal communication.
- We have made the protection of people’s health, their employment and their livelihoods the primary concern for all our companies. The issues they face are very different – for example FCA, Ferrari and CNHI have all had to temporarily close their plants while our media companies
have been grappling with the challenges of providing high quality reporting while working remotely – but this does not change the priority that they are all placing on protecting their people.
- We have ensured that all of our companies are focused on business continuity.
This has included detailed assessments of their liquidity positions, taking actions to reduce cash outflows and ensuring effective access to financing through debt markets and banking partners, with the crisis being a good reminder of who these partners really are. Each company has also looked at ways to reschedule its investments and reduce costs. However, mindful of the businesses’ longterm health, we have emphasised the need to maintain essential investments and to support our partner companies, including critical suppliers and dealers.
These have been challenging days and weeks for us all and we know the ripples from this crisis will likely continue for some time. But we have been impressed by the spirit and resolve of our people in making sure our companies emerge stronger when this all passes.
In addition to addressing the consequences of the crisis for our companies, we have taken immediate actions to support the healthcare response in the communities where they operate, and will continue to look for ways of providing this support. Some of these actions have included:
- Purchasing and donating ventilators and Personal Protective Equipment (PPE) for frontline healthcare providers such as the 500.000 surgical masks donated on April 1st to first responders and hospitals throughout Michigan.
- Applying pro-bono our technical and engineering skills to significantly increase production at Siare, Italy’s only producer of ventilators. Similar projects are under way with GE Healthcare and Hillrom in the US and with the latter we are also working to help increase their production of hospital beds.
- Repurposing 3D printers in different European plants to produce face shields for local health authorities and converting a plant in China to produce and donate face masks.
- Providing five fully-equipped bio-ambulances and 500 others vehicles to be used in the medical relief efforts in Italy and in Brazil helping to create a field hospital and fund initiatives to provide basic hospital care to low income families.
We are conscious that this crisis requires more than a healthcare response so we have also supported our companies in undertaking wider community initiatives. These have included FCA’s provision of a million meals in the US for children who rely on school meals; Ferrari’s support for children and their families in its hometown of Maranello; and Juventus’ fundraising initiative #DistantiMaUniti.
La Stampa, through the Specchio dei Tempi Foundation, has also gathered over 10,000 donations, including from our family, that have been used to provide food and medicine to vulnerable people in Torino and Piedmont including to the elderly and to single mothers.
The importance of Exor’s values has become very evident during the last few weeks, with the leaders and directors of our companies adding to our corporate actions by personally sacrificing some or all of their compensation for this year. At Exor we have done the same and will work with the Agnelli foundation to channel these resources into an education initiative to help address the Covid-19 learning challenges faced by schools and students both today and as the current restrictions are lifted.