Norma Group Ag Name Akt

Well, thank you very much for the introduction. Ladies and gentlemen, a warm welcome to our conference call and Q&A session for the Q1 2020. And I'm personally very happy to be back in the team here at Norma Group after my COVID-19 infection. And I hope that you and your families all are healthy and protected against that virus. Today in that conference, we will lead you through the presentation and the Q&A. We mean Andreas Tresch and myself. Andreas is Head of Investor Relations, Group Communications and Corporate Responsibility of Norma Group. And together with Andreas, we will lead you through that presentation and the Q&A session. I started with a remark on the coronavirus, and this is also a very important topic for the development, of course, at Norma Group. And so far, we put together on the first page of the presentation, and I go to page two, facts and figures in the Q1 regarding COVID-19 and market update before we come to some to some figures. And if you look on that page, too, we have a very challenging market situation, as you all know, as we are all in that market environment. COVID-19 uncertainties, depending on the shutdowns due to the pandemic. What about the changes? What about second wave? And so on. So there is a lot of uncertainty based on that pandemic. This also means that the automotive market was very weak. The whole sector was weak due to the global economic situation, as well as upcoming powertrain technologies and also the impacts of the coronavirus, of course. In the distribution services business, we have some positive impacts. due to critical infrastructure products and products for medical use. So that's a certain advantage of Norma Group's broad product portfolio in different end markets. And especially in the U.S., the NDS business is defined as critical infrastructure products. And so far, we also had a nice growth in the water management business in the U.S. but overall an extremely challenging market situation based on the described aspects. The COVID-19 actions, of course, as probably every company has started regarding the market situation. Of course, we have an ongoing monitoring of COVID-19 developments and the situation of the demands in the market. We have to monitor our supply chain very closely for potential impacts, and we have to screen our customer situation. We have to screen our suppliers in that market phase. Of course, we have to focus on the health and health situation of our employees with preventive measures and guidelines home office regulations, et cetera, travel restrictions. Probably you all know that in that COVID-19 period. This led us to short-term actions and also mid- and long-term actions that we started and realized in the past. Regarding our temp workers, we have and we make use of flexibility in our workforce to in the temp workers area where we decreased in the Q1 2020. We have seen that we in the last few days and week or few weeks have first factory reopenings in EMEA and Americas following early factory shutdowns. And we also took care of the cash situations that we have a good cash situation also due to a strict capital management and less capital spending. Mid- and long-term actions, you all know that we started and put in place our right-sizing program with the target to optimize production landscape, structures, processes, and systems. We published our Get on Track program in November last year, where we see additional changes focusing on operational excellence, structural improvements, also regarding plants, even our product portfolio and the purchasing processes especially. And we also have to see that the COVID-19 phase has its implications, but we also have to prepare for the post-COVID-19 phase, so that we have to prepare the organization for the recovery past COVID-19 crisis, and hopefully this will be in the second half of that year. So that's an overall overview on the market situation, COVID-19 situation, and going from that to our Q1 financials on March, page three of the presentation, we see the concrete impacts of these market situations. Regarding sales, we have sales down by 8% in the first quarter, excuse me, in the first quarter 2020. That means that we had generated $253.6 million in the first quarter, and from an organic perspective, it's a reduction versus Q1 2019 of 8.9%. We generated an EBITDA margin of 10.7% out of these versus pre-year reduced sales amount, that means 27.1 million, which is a reduction of 31.6%. As mentioned, we have a good cash situation. We had a positive net operating cash flow in the first quarter 2020 of 6.7 million, while we had in the first quarter 2019 minus 0.3 million, so a nicely improved cash flow situation based on the operating measures. Balance sheet, we have an equity ratio of 40.8%, which is slightly increased versus the December 2019 amount, while we have a net debt of $437 million and of Q1 2020. The Guidance 2020, based on the effect of the Corona crisis, we cannot yet define a reliable Guidance 2020 for the full year at this time because of that whole uncertainty of the whole market situation and Corona. I think we are in line with a couple of companies on the market But based on that extremely high volatility, from today's perspective, there's no chance to get a reliable and more detailed forecast for the year. If you look at the top line development on page four, we see the sales Q1 2020, as mentioned, $253.6 million, $22 million below Q1 2020. 2019, which is an overall change of 8% and a organic downturn of 8.9%, which means organically we are 25 million below Q1 last year. We had a slight positive impact from the currencies, around 3 million, so that we ended up Q1 at nearly 254 million. And we see the split of the sales of our global business EMEA 46%, Americas 41%, and APIC 13% as sales contributors. If you look on the organic decline of 8.9% in Q1, the reasons for that development is a very weak EJT business in all regions in the first quarter due to that COVID-19 related shutdowns. While we saw a slight organic growth of the U.S. water business at NDS, so that we again here see the positive impact from a broad end market portfolio. And as mentioned, 2.5 million positive currency impacts. If we have a look on the segments on the regions on page 5, we see these developments in the regions, EMEA, Americas, APEC. And we see in all regions a downturn in organic sales. It's in EMEA minus 8.3%. It's in Americas minus 9.8% and in APEC minus 8.6%. And all three regions suffer from that negative impact from the COVID-19 pandemic. Once again, America is slightly positively impacted by the organic growth of the water management business. If you go to page 6, we see the, let's say, historic development of our margin. 10.7% in Q1 2019, which is Significantly lower than in the last years. We see the impact of the shutdowns and market implications from that special phase. And so far, a better Q1 2020 than Q4 2019, but still on a very low level. 10.7% EBITDA and 15.1% in EBITDA as a margin in Q1. If you look at a couple of details on page 7 in the adjusted EBIT-A and the EBIT development, we have material cost ratios and cross-profit nearly on the same level as we had last year in Q1 2019. We see that we could reduce the personal cost. from 79 million to 76.8 million. Nevertheless, it's too high for that sales level so that we have personal costs of 30.3%. So the 100% flexibility is not given. And we have to see that this significant lower level of sales volume caused by that COVID-19 effects also drives the percentage rate of personal costs up higher than last year, while the absolute figures went down. It shows that we have some personal measures, but not a 100% flexibility of personal costs. The other operating income and expenses are up by 110 basis points. Also due to higher freight costs and expenses for expected losses from trade receivables, where we did evaluation of our receivables in connection with the COVID-19 pandemic and even some positive adjustments effects in prior years. But the main impact also here coming from COVID-19 aspects. We have to keep in mind, that's what I mentioned earlier, that we strictly have to focus our customer and even our supplier situation where there might be some insolvent customers where we have to be very careful in assessing the receivables what we did. Looking into the operating adjustments that we show on page 8 of that presentation, We have no adjustments from the Get on Track program. As we mentioned to you last year, we do not adjust for costs in the course of the Get on Track program. So that on the EBITDA level, we have the same figure for reported EBITDA and adjusted EBITDA, 38.2 million and no adjustments in the EBITDA. The other adjustments being an EBIT-A depreciation and an EBIT amortization is coming from earlier acquisitions so that we have PPA adjustments of 6.5 million on the EBIT level coming from past acquisitions and total adjustments earnings per share after tax of 15 cents and overall 4.8 million, once again, coming from past acquisitions from depreciation and amortization. So earnings per shares reported Q1 2020, 0.34 euros and adjusted 0.49 euros. In relation to the last year, that's on page nine. This means a negative impact caused by that or impacted by that COVID-19 development in adjusted earnings per share and reported earnings per share by 37% and around 43% in the Q1 2020. If you look on the debt and net debt ratios, which is shown on page 10, we have that equity ratio of 40.8%. We have a leverage that increased to 2.5 times EBITDA due to the lower EBITDA, while net debt increased by 3.9% to 437 million compared to year-end 2019. And we also have to mention on that chart that Looking into the debt situation, which increases from 601 December versus 649 in March, we increased our debt by 48 million. We just took the chance in March to produce some, let's say, liquidity reserves to be on the safe side by taking our revolver facilities in March. so that we have a good, let's say, overall liquidity position in that risky times and in these volatile times when nobody really knows what is going on with COVID and with the market situation to be on the safe side. And we have 211 million end of March in cash, so that we are in a good position regarding cash development and cash basis for the next month. Gearing is on the net on the same level as December at 0.7. And we also see on page 11 that we have a quite solid maturity profile that gives us also a good position from a treasury perspective in 2020, where we have some amounts that we have to pay. It's $29 million due end of July, and we have $15 million in CP program, commercial paper program that we extended. We included here in that slide chart a new information on the covenants in the presentation because it's a very important metrics in these days when companies are in such a let's say market and COVID crisis we are showing the covenants for bank borrowings and also for our promissory notes and we see that in the bank borrowings we do not have any let's say running covenants We only have in the bank borrowings a topic where we have a margin step-up of 50 basis points if the leverage would go higher than 3.75. Once again, we are at 2.5 currently. And we also put in the information for the promissory notes where we have two... to borderline, which is below 3.25. If you have leverage higher than 3.25, we have a margin step up of 75 basis points. And here we have, with a leverage higher than 3.75, a possibility that there might be a repayment review of these promissory notes, but this first date would be March 2021, so that we also are on a quite comfortable position in terms of um covenants maturity profile and even by the amount of cash that we have for the next month so solid long-term maturity profile only minor repayments scheduled um in uh in 2020 and no covenant breach possible at least until march 2021 um in that current Q1 figures. Looking on the cash development, which was quite strong in Q1 on page 12, we see that we have a net operating cash flow in the Q1 2020 of 6.7 million, while we had a net operating cash flow Q1 2019 of minus 0.3. So although we have a lower EBITDA in the first quarter. We compensated this cash impact by a strict working capital management and also by a strict management of capex and investments, which are lower than in the Q1 2019. And overall, the cash flow, the net operating cash flow Q1 2020 is significantly better than Q1-19. So that overall, from a cash perspective, we are on a quite, once again, quite comfortable position. In these market situations, in these crisis situations with COVID, it's important to have a solid cash development. As you all know, cash is king in these crisis periods and in so far we took care of these cash positions, which worked out very well in the last couple of weeks. On page 13, we show to you normal value added. Normal value added is from a strategic point of view, from a value creation point of view, our long-term strategic target to work on value creation for normal group. We see that in Q1 2019, we had a value creation normal value added of 10.9 million. Q1 2020, based on these negative impacts, is negative, minus 2.5 million in the first quarter. We also have to see that this contains partly exogenous impacts. For example, we have A market risk premium that was defined by the Institute of Public Accountants to take a higher market risk premium, which increased our weighted average cost of capital to around 8% instead of 7.1% in the past, which also has an impact of more than 2 million. If you would exclude that, we would be around zero. But currently, Q1 2020, including all these impacts, minus 2.5 million. And of course, we are working to improve that figure and to generate value as we did in the past. Another very important aspect for us in 2020 is, and this is shown on page 14, our Get on Track program. We are well underway with the activities of our Get on Track program. We saw already minor benefits and costs in Q1 2020. And once again, just to remember, these costs are not adjusted. And these first benefits quickly after having it published are in purchasing and in the product portfolio. And we also have defined the first, finally defined the first activities for a product group that we will transfer from a German production location to Czech Republic. This was already discussed with the Works Council and with the employees, so I can publicly talk about that. And this will be performed in the next week. So Get on Track program, well underway. And we show the Get on Track program effects for the next year and for the full year 2020 and the next years with the one-time costs, once again, not adjusted, fully shown in the EBITDA, plus benefits that we expect and the net impact. Get on Track, well underway. If you look on the Outlook 2020, on page 15, on page 15, Due to the ongoing COVID pandemic, as I mentioned, it does not make any sense and it is not possible to give a reliable forecast and guidance from today's view. But as previously stated and also published via an ad hoc announcement, we continue to believe that the forecast originally published in the year 2019 presentations and year-end report for the fiscal year 2020 is no longer maintainable because the effects of the corona crisis and their implications from a customer perspective on customer demand and the whole supply chain cannot be estimated at this time and therefore No detailed forecast for fiscal year 2020 currently possible. Besides that, and based on the latest assessments of economic research institutes, industry associations, IHS, LMC, and so on, we assume that the consequences of the corona crisis also for the full year, of course, will result in a significantly negative deviation From the forecast that we originally published in the 2019 year-end report, we all know that the complete market is impacted by Corona and COVID-19 implications. We believe that Norma Group is very well positioned in that crisis situation. And so far, we also see some chances for the future coming out of that crisis situation. But for the time being, there's no reliable guidance that could be published. So far, I would like to thank you very much for listening. And now Andreas and myself are, of course, happy to get your questions and discuss with you.

The first question is from Ingo Schacher, Commerzbank. Your line is now open.

Thank you. My first question would be on your personnel costs, and you spoke about the time lag in reducing personnel costs. Can you tell us a bit more about what we should expect in the second quarter? By how much can you reduce the number of temps? And should we see a lower number of core staff in EMEA and APEC at the end of the second quarter? And then how many people are currently on short-term work?