Norma Group Ag Name Akt

Ladies and gentlemen, welcome to our Q2 2020 call. Together with me today is Andreas Dresch. Hello. Q2 and even the whole first half year of 2020 is a very exceptional half year. It's characterized by a crisis, by an infection, by corona. with a lot of negative implications on social life and also on economy. But we also see from the business side some positive signals, and I'm sure we will touch it later on. If I start with an overview on page two of our presentation that we send out and put on our homepage, we see that in Q2 2020, we have 191.5 million in sales versus 289 million last year, which means we are 33.8% down versus last year. And out of these 191 million of sales, we have an adjusted EBITDA of negative um minus 22.5 million versus last year 40.9 million we have to see that these 22.9 million miners also include the costs for our get on track program so that these costs of the change program of 21.5 million are included in that negative eva day so without that we would have been nearly flat in the second quarter 2020. Adjusted EBIT of minus 24.6 million also impacted by the get on track and by the COVID implications. Net operating cash flow was positive at 1.9 million. Last year we had 28.8 million. And we also have to see here in that definition of operating cash flow, it also includes the 21.5 million costs related to the change program get on track. If we would exclude that, we would have been at 23.4 million in terms of net operating cash flow. Balance sheet, we have an equity ratio of 40.9%. A slight decline versus last year, December, which was at 41.6%. Net debt went down versus December, $414 million versus $421 million. We had our annual general meeting this year in June. We changed the date based on corona implications as well. all agenda items were approved by the AGM, including the dividend reduction to 4 cent minimum dividend that we paid. The guidance for 2020 is based on the impact and the coming developments of the COVID-19 pandemic. From today's perspective, still not possible. It cannot be reliably estimated by the time of our publication. And so far, guidance for fiscal year 2020 due to that current market volatilities, insecurities, what is going on with COVID wave X is not yet possible. If we move on to page three, our top line development, You see that the 191.5 million of Q2 sales in 2020 show a organic reduction of 33.9%. And for the full half year, with the sales of 445 million, we see an organic decline of 21.7 million based on the based on the COVID-19 related shutdowns. We have a weak EJT NDS business in all regions. But we also have to keep in mind a good topic, a good signal that we have a nice growth, a nice organic growth in the US water business with our subsidiary NDS. Euro 0.4 million. 0.1% positive currency effect in Q2. You see the regional split in increase in Asia Pacific to 15% of our sales in Asia Pacific. America's at 43% in EMEA, 42% as an overview on the sales development. And we go in a couple of details on the next page, page four. We see the organic development of our sales in the different regions for Q2 and even for the first half year. And there we see that the second quarter organic growth in EMEA is at 45.5% negative. The EJT business was heavily impacted by the production reductions in the consequence of the COVID-19 shutdowns, which led to that organic decline. And in the first half here, an organic decline of 29.4% versus last quarter 2020, 52.6%. We had in Americas an organic decline of 30% in the quarter, 20.6%. What we see in Americas is what I mentioned regarding the water management business growing at 4.4% in the first half year 2020, which is a very good development. The water management in US was defined as critical infrastructure. as important business for the global infrastructure. So we see a very good development in our water management business, Americas. APEC region, we have an organic decline of 7.2%, already showing some growth in Q2 2020 for the EJT business, where we see that after the COVID-19 shutdowns, a nice recovery meanwhile. So that we have overall for H1, 0.7% decline for the EJT business. But in Q2, an EJT related growth of 5.4%. So that's the With the view on water management business in the U.S. and already starting automotive business in APEC, especially in China, we see some positive impacts. EMEA and America's automotive are still extremely weak. If you have a look on the margin development on page 5, we see that EBITDA margin was, of course, highly influenced by the costs related to the change program get on track, which we do not adjust. So these costs of 22 million are included in the second quarter and in the first half here. EBITDA margin excluding these costs related to the change program, 22 million, is at 5.9% in the first half here. And EBITDA, if we exclude the get on track, one-off cost is at nearly 11% for the first half of 2020. So this gives an overall overview in the first glance. And if you go into some details of the margin on page six, we see that Cross-profit margin decreased in the second quarter if you compare it to the second quarter 2019. We have some destocking and a quite stable material cost ratio. Personal costs in Q2 are at 44.6%. We have to keep in mind that the far most portion of our get on track restructuring measures and also costs are related to personal aspect and so far a quite high personal cost ratio in relation to sales. As mentioned, mainly related to our change program get on track. OPEX operating income and expenses ratio only decreased to 15.4% in Q2 2020 mainly based also or mainly due to the reduction of temp workers which reduced the increase of OPEX in that area. We had a significant reduction of employees mainly also temp workers in Q2 so that Other operating income and expenses only increased to 15.4%. Adjusted EBITDA margin in H1 then decreased 1%. Adjusted EBITDA margin by 0.1% in H1. And once again, this includes 22 million costs related to our change program, Get on Tracks. On page seven, where we show the operational adjustments, you see what we mentioned meanwhile, a couple of times, we do not adjust these costs for get on track. So in the EBITDA line, you see no adjustments, zero. So reported EBITDA and adjusted EBITDA is the same. You see in the EBIT A area, depreciation from PPA, 1.5 million. And you also see in the EBIT area amortization PPA of 11.3 million. So overall EBIT impact at 12.8 million. So we only adjust for M&A related costs, no other costs anymore in 2020. The net profit impact out of these Purely PPA-driven adjustments is 9.6 million. So earnings per share adjustments, 0.31 euros. So that adjusted earnings per share is minus 0.22 euros per share. This is also reflected on page 8 when we are showing the earnings per share. Adjusted and reported EPS are as also the profit lines negatively impacted by the COVID-19 pandemic and costs related to the change program get on track. And we paid, you see it on the right-hand side, 4 cents per share as dividend, which is the minimum dividend we have to pay. which was approved by the annual general meeting, which was held virtually. On a debt and liquidity side, which starts on page nine, we see that the cash increased versus December last year to now $193 million cash. And the net debt overall was reduced to $414 million, coming from $421. So that we have a reduced net debt and an improved cash position, which is an important basis for these volatile and unsecure months and weeks. So from a liquidity perspective, we believe we are well positioned. we have to see that leverage is at 3.7. And we also have to regard that regarding the contract definition of the leverage, we can exclude for the leverage calculation based on the financing contracts, the costs related to the change program get on track. So that the relevant leverage for the financing contracts amount to 3.1 end of June 2020. The covenant for the financing contracts, and this is what we see on page 10, which we included to see the solid liquidity profile. The covenant is at 3.75. Once again, 3.1. is our leverage in comparison to these contracts currently. We showed on page 10 the maturity profile of our financial instruments, which shows a very solid development and solid situation so that we have a solid financial position currently based on 193 million of cash and a credit line that we have of around 130 million. So we also are prepared if there are some volatilities, whatever COVID wave X, we feel that from a liquidity perspective, we are very well positioned. A solid long-term maturity profile, no covenant breach possible at least until March 2021. Repayments scheduled for 2020 are already repaid or prolonged. This is what we showed in our graph. And once again, overall available committed credit lines, 130 million, besides our cash of 193 million. The cash flow development on page 11 shows that we have a Solid cash flow development in the course of 2020. We start in the definition of that net operating cash flow with the EBITDA. And we have to keep in mind that this EBITDA degrees due to COVID-19 related shutdowns and costs that are related to the change program get on track. In the first half year, 22 million. We performed a strict working capital management, which led to an inflow of 20 million in Q2. We further reduced our factoring program from an overall perspective to 51 million on June 30, coming from 70 million in 2019 December. So we reduced that supply chain financing by 19 million. CapEx, of course, were monitored very strictly. We have CapEx spending that decreased to $7 million in the second quarter and $14 million in the first half year. So we have significantly reduced these CapEx spending also in H1. And so far, we have a positive net operating cash flow despite significant decrease in EBITDA. And once again, this EBITDA includes the 22 million for measures for the Get on Track program. As you all know, page 12, we have a strategic performance indicator, which is normal value added with the decreasing EBIT Also, the normal value added is impacted negatively, so that it goes to minus 40 million in the first half here, 2020. On page 13, we showed the actual information on our Get on Track program, costs and benefits in the timeline. We accelerated the Get on Track program also in the course of the COVID-19 pandemic. We did some activities earlier. We have additional activities. So overall, we accelerated this program. We had 21.5 million costs in Q2 and 22 million in H1 related to location projects. led to increased costs in 2020, full year of around 30 million. We mentioned in the former presentation an amount of 10 million. So we have accelerated and speed up in this program. First benefits include improvements in purchasing and product portfolios so that we Already in 2020, we'll see first benefits out of that program, so that we expect the net impact for the full year 2020 out of that program costs minus first benefits of around $25 million. And we see that the positive impact of that program will amount to roughly $50 million. We see the positive impact starting in 2021-22 and going up to 50 million in 2023, so that we, on the long-term perspective, will see a positive impact per year of around 50 million from that get-on-track program, which is shown here as costs and benefits and timeline in the net impact. As I mentioned earlier, the current situation driven by the corona pandemic is extremely volatile as an exceptional half year. And so far, the impact of the COVID-19 pandemic from today's perspective cannot be reliably estimated, which leads us to not guiding currently for the full year 2020. Guidance for fiscal year 2020 is due to that conditions, market, pandemic, not yet possible from today's perspective. Overall, we see a lot of negative impacts in H1, but also positive, very positive signals. If you look into our business, once again, water management business in the US, automotive business, China, very well prepared from a liquidity perspective. And if you would not have had $22 million or $21.5 million of get-on-track costs, our EBITDA margin would have been at 5.9%. So that's the current situation, tough situation, but we expect for the second half here more positive development for the next coming months. Thanks for listening, and of course, we are happy to get your questions and discuss with you.

We've received the first question. It is from Ingo Schachel of Commerzbank. Please go ahead. Your line is now open.

Thank you. My first question would be on your free cash flow performance. benefited from a very strong network and capital release and on top of that you've been able to reduce factoring quite notably in the second quarter on both aspects, network and capital and factoring. Just wanted to get a sense of what you expect for the rest of the year. Is it just a short-term effect relating to lower activity levels and we should expect a complete reversal in the second half or do you think some of those effects should be sustainable in the mid-term?

Thanks a lot for that question. It also will have a positive impact mid-term. Of course, we will see some impact when we expect, and hopefully this will come, higher sales in the second half year. So with that higher and growing business development, we probably also will see some cash needs. Nevertheless, we expect that over the full year, we will have a strong cash flow development.

Okay, on the factoring volumes, that's in principle going to be at the same level, or would you deliberately rather go for lower volumes in the future?

Well, we reduced the factoring, if you look on the couple of last two, three years, coming from 80 million, we reduced it the year before to 70 million, are now going to 50. Some level between 50 and 60 million should be a more or less normal level, and we would use it flexibly. but we would not increase it significantly. A normal level, 50 to 60 million, we would assume is a good level.

And on your Get on Track program, of course, you've reiterated the cost savings. You've even accelerated the timeline. I think there's currently probably a phase where you've got a lot of discussions and noise from some of the unions, especially in Maintal and Gerberhausen. Given that there's at this point at least it looks like there's still a lot of resistance from employee representatives and maybe also a slight complication in the process with the local workers' councils being involved. I mean, is there any risk that unions might still be a stumbling block on the achievement of those cost savings or is there a risk that maybe the cost that they are reducing on the get-on-track pop up elsewhere by building up headcounts in other areas where where you have to transfer employees to? Or do you think the cost savings, as you've communicated, are basically set in stone and the current discussions are not an obstacle?

No, I think, well, first of all, I think if we in Germany reduce headcount, unfortunately have to reduce headcount. And if we join locations, this, of course, will cause resistance of the Works Council. So that's their function. And of course, this has to be kept in mind starting such a program, which was done. I think there's a lot of noise currently also regarding the clarification of who is the negotiation partner. So there's a lot of noise, but I think that's a more or less normal development. We only want to have clarification who is the negotiation partner for the management of the normal Germany. So this is baked in and so far of course it's a difficult project as we expected from the beginning touching these topics but it's going its way. Okay, thanks very much. Welcome.

Thank you. The next question is from Andre Finke of HSBC. The line is now open. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. I may take them one by one. The first one is related to the restructuring in terms of the provisions you have built and will build. How much of that will be cash effective this year already and how much will be cash effective overall?

We would expect from the The structuring amount, the cash impact of around 3 million in the course of 2020.

And from the full amount of one-time costs, how much of that will be cash effective over the years?

Well, over time, it all will have a cash impact. It depends on the timing. So if you take 22 million currently and 30 million for the full year, you will have a cash impact of 30 million. Out of that, 3 million will be this year.

Okay, thank you. The second question relates to the performance in APEC, which was very strong on the bottom line. I think the highest Q2 margins in APEC on records. So I'm just wondering, I mean, you talked about government grants that supported that. I just wondered whether there are any other one-offs in there and what kind of sustainability we have also with regard to those grants given the recovery in revenues in APEC.

Well, the grants that were given is not so significant amount. What we see is that the development, especially in China, is very well developing, especially already in May and June. And so far, this China business is driving that development in APEC region.

So that means that the margin profitability is there. mostly sustainable, that's what you say?

This is what we are discussing with the APEC management. Besides that governance support, the margins should develop positively.

Okay, very good to hear. The next question is on capacity utilization. I think you mentioned a number of 65 to 70% currently. Can you maybe remind us what kind of capacity... utilization levels you look at on a sort of sustainable level and to what kind of level we went down in the financial crisis?

Well, in the financial crisis, if you shut down and don't produce, so it depends on the single locations. It's partly zero for the time being, but this is an exception. Probably we are currently at a level of around 60-65%, okay, but with with increasing business in the second half, we would see a normal level of around 75, 70, 75, maybe 80% in the one other company.

Okay, thank you. And last question on covenants. First of all, just to confirm that the view on covenants excluding restructuring is true for all kinds of financial instruments where you have covenants on?

This is exactly true, yes, for the promissory notes. We do not have covenants in the SFA.

I thought there's a covenant with regard to interest rates increase at some stage.

Well, if we have, as you pointed out, if we have a leverage of 3.25 and higher, we have an interest rate increase in the promissory notes, but we have a hard leverage in terms of repayment review at 3.75. Okay. And in the bank borrowings, we do not have a hard leverage in terms of repayment, but a margin step-up of 50 bps.

And that is also excluding restructuring costs, that margin step-up, so the view on that. Exactly, yeah. Okay, thank you. And the second question is also on covenants related to that. I mean, when we look at the current leverage, it's based on the last 12 months. And as you said, the next review date will be in March. So just wondering what kind of periods under consideration we and your lenders will look at and whether there's a way to exclude maybe the second quarter or to have a sort of a non-COVID underlying everyday. So that will be appreciated.

Yeah, Andre, we are currently discussing with our promissory note investors so that the covenants might be cancelled or even, let's say, or at least cancelled for an interim period. So let's do the covenant testing, for example, end of end of 2021 or mid of 2021, but not in March. We have a more normal period. And this is what we are currently discussing with our promissory note investors.

Okay. And there's positive feedback on that so far?

Yes, we already have positive feedback for half of them, roughly. And we are in discussions.

Perfect. Many thanks.

Welcome.

Thank you. The next question is from Werner Friedman of Ace and Ice. Your line is now open. Please go ahead.

Oh, no, I'm sorry. I did not have a question.

Okay, then we go to the next one. It is from Kai Muller of Bank of America. Your line is now open. Please go ahead.

Hi, thank you very much for taking my question. The first one is really on sort of your market outlook. You obviously mentioned there's some improvement in all areas going into the second half. Can you give us a little bit more detail in terms of what you're seeing from your auto customers as well going into the third quarter? Do you think the summer holidays are as normal or have there been shutdowns that have been prolonged or even maybe cut short? If you could give us a bit of color by region. And as a second question, your trucking area obviously has been a big part of your business. That's clearly under pressure. There have been now positive signs when we look at the truck manufacturing around the order intakes. What do they communicate to you in terms of the volume flow going into the next half and then also into 2021?

Yeah. Kai, thanks a lot for that question regarding the market outlook. Automotive business Q3, taking the LMC figures published 4th of August, what we overall see after we had a light vehicle organic decline versus last year, 43%, the decline in Q3 will be reduced to 8%, and in Q4 to around 2%. So the decline is is a lot less sharper than what we saw in Q2. If we split that per region, we expect for Asia Pacific, which was in Q2, minus 20, minus 21%. In Q3, 8.8%. And in Q4, minus 3.5%. So it's less... heavy declining than what we saw in the second quarter. And this is also the case in Europe for light vehicles, where we had in Europe, according to LMC, 60.7% downturn versus last year. This goes to 7%, minus 7% Q3 versus last year, and around last year's level in Q4. So these aspects, America is still, let's say, more critical. In Q2, we saw that the LMC figures versus last year market figures was nearly 70%, 70%, 70% below last year. That goes to minus seven and around zero growth rate in Q4. So what we saw in Q2 in the regions and overall was a extreme decline, which we at least had never before. In Q3, Q4, this will This will not revert from a market perspective, but will be significantly reduced. If we look into the Asia-Pacific region, what we are seeing currently in China, besides these LMC figures, is that we have significant advantages from the contracts that we acquired during 2019 and partly in 2018, where we have a couple of new contracts with especially also local customers in new contracts, even in new energy vehicles. So this helps us a lot so that we are performing very well against market already in the last month. And this is also what we expect for the next month and even years. Truck business, you're absolutely right, sharp decline as well, especially also in the U.S., minus 60% versus last year. And there we do not expect for the truck business that this will be reverted quickly. So also for Q3 and Q4, if you take truck business in the U.S., we expect 50, 45, 50% decline versus last year. So this will take longer. to be reverted for the truck business, which is more under pressure in the U.S. than what we see for the light vehicles.

Thank you. And does that match the communication by your customers when they talk about which capacities you need to have in place? Because often, obviously, we see IGS, LMC forecasts, but then the companies talk very differently.

Yes, it's a little bit challenging, put it in that way. Of course, also our customers do not know when that volatility will end and when the, let's say, increase phase will start again. So, of course, they want to have their quantities and our delivering service increased. if they have some doubts with higher quantities. So the communication, of course, is sensitive. It's not critical, but it's sensitive because also our customers are heavily impacted by that high level of uncertainty and volatility. But I would not see critical topics. But, of course, they also don't know what is coming. And if they have some doubts, they, of course, keep some higher quantities to be prepared than lower quantities.

Okay, very clear. Thanks a lot. Thank you.

Thank you. The next question is from Philippe Laurent of Bernberg. Please go ahead. Your line is now open. We can't hear you at the moment. Maybe you put yourself on mute.

Oh, excuse me. Hi. Thank you for taking my question. So the first one is on the tracks. It's a follow-up on Kai's question. You mentioned something like 40%, 45% that you expect in a production volume decline. Is that in H2?

Yes. If we look in the LMC figures, US for Q3 and Q4, They are still downturns organically versus last year, Q3, minus 52%, Q4, minus 46%.

Okay, great. Do you have any view on Europe then? Because that's basically the other half of the truck business, if I'm not mistaken.

Yeah, Europe is in Q2, it was at 57.5%. And this will go down in, let's say, lower declining rates in Q3 to 27% and Q4 to 18%.

Okay, perfect. Then I've got one question on your EBITDA margin sensitivity. Could you provide us with some scenarios for, let's say, 15% sales decline, 20% sales decline, and perhaps 25% sales decline on a full-year basis, especially after you've stepped up the expenses for the Get on Track program.

Yeah, if, for example, we can use the first half here as a sensitivity basis and can also transfer that to the full year, if you look on the first half here, around minus 20% sales down, and if we would exclude the Get on Track costs, we are at roughly 6% of EBITDA margin. And so far, this sensitivity, minus 20% in terms of sales, around 6% of EBITDA margin is a basis that we use.

So if I get that correctly, it hasn't really changed from what you were saying in Q1.

Exactly. This is what we are discussing, I think, since February.

Okay, that's great. And then another point, just like on the new setup regarding the Get On Track program, what I see is that you've stepped up your costs by about 5 million, but it seems like you are changing slightly your view on the benefits that you're going to generate out of that by 5 to 10 million. So what's the I mean put it differently perhaps? What has changed between this version now on the of the of the get on track program and the previous one? Are there any kind of areas where you see? Further improvement or let's say so on the savings possibilities.

So yeah, that's that's basically the question here Well, if the if you look into the costs overall Of course, we had in the past 45 to 50 million. We have increased these costs. If you take that amount, 10, 20, 55 million that we currently have and the benefits of around 50 million formerly was 40 to 45 million. So we see significantly more savings based on these activities, so that we see per year 50 million. Where does it come from? We have that part of closing one location and joining functions. We have a very important impact in the purchasing area, so that we, with these main two topics will generate these plus 50 million in benefits.

Thank you very much. Welcome.

Thank you. The next question is from Christian Ludwig of Bankhaus Lampe. Please go ahead. Your line is now open.

Yes, good afternoon. Just one question left from my side. Just from my understanding, as most of your get-on-track provisions this year is not going to be cash effective, is there kind of a risk that if it comes all early next year, that could be a real hit to your covenants because then obviously your net debt would increase significantly? So do you have a timing issue that you need to push out those payments basically in the second half of the year, or do you believe that's all going to be covered by your discussions with your debtors anyway?

Well, first of all, this will not come all in, let's say, in 2021. We are planning, I have to be cautious in the concrete phrasing, we are planning to have these activities until mid of 2022. So we will have around two years to go for these projects in Germany slash Czech Republic. So it will be covered over the next two or three years. And so far we baked it in and I would not see a risk on that cash development then for the next year. Once again, assuming that there is no COVID wave X, Again, but we see a growing business in the future.

Maybe that's a slightly different question. Could you give us, basically similar to what you gave us with the P&L effect, also a cash effect of your one-time cost? Because I would assume if we see the big jump in basically net benefits next year, that also a major chunk of the cash would have to be spent because these pieces will basically have to leave. So you must pay the severance costs.

Well, that's still part of the negotiations, of course. And, of course, we put it in our cash flow planning for the next years. But I would not see a huge one-time impact. That would then hurt us on the governance discussion. Okay. Thank you.

Welcome.

Thank you. The next question is from Nikolai Kempf of Deutsche Bank. Please go ahead. Your line is now open.

Yes, good afternoon. Nikolai Kempf here from Deutsche Bank. Thanks for taking my question. So my first one would be, again, on the underlying market. You already mentioned the AMC forecast, and I think also the IHS forecast is kind of the same level, so minus 11% for Q3. But from Conti, we heard this morning that they're a bit more negative, more like minus 20% to minus 20%. What do you expect? Do you think you can be more like in the range of IHS, LMC, or more like quantity going to minus 20% for Q3?

Well, it's a good question. If we have the assumption there is no Wave 2, I would currently take the LMC figures for the global market development. It depends a little bit which special aspects Conti can see and how there is a portfolio impact. What we take currently is the LMC impact and based on the LMC impact, we would assume for the next quarters, as mentioned Q3, LMC shows worldwide minus 8% for light vehicles and minus 20% for truck business. This is what we would take as a market assumption.

Okay, thanks. That's clear. And maybe a bit also for the longer term. I mean, Norma has been famous for showing duplicated margins. When do you think you can come back to those levels?

Of course, Niklas, that's a very good question. Well, we do not have a guidance, meanwhile, for 2020 because the situation is so volatile and so unsecure. And of course, it's even more difficult to give a clear assumption for the longer future. So that I cannot give a clear figure or year, but we will catch up quickly. We have a good program in place. And we see also already for 2021, once again, assuming there is no second wave. a very good increase versus this year. But we will catch up very quickly and significantly, but it's hard to say concrete year. And it's even harder to say concrete month.

Yeah, yeah, sure. I mean, understood. But that's helpful. I may just, on my last question, would be on electric vehicles and new electric vehicle startups, especially in China. Can you give us some indication how much that can contribute, maybe this year or next year? Is it a rough number like a low double-digit million number or is it less than that?

Well, we see significant development in that area, but it's hard to put it only on electric vehicles. As you may recall, we announced that we have a very nice contract PS3 quick connector with a huge French customer. And this quick connector, for example, is used for all powertrain applications on that platform. So if it's a battery electric vehicle, if it's a hybrid engine or even a combustion engine, these products mostly go in all of these powertrain components. What I can say is that a huge number, meanwhile, of our new contracts, even in China, is related to new energy vehicles, even with a mild hybrid, a plug-in hybrid, or even electric vehicles. Okay. Yeah, that's very clear.

Thank you.

Thank you very much.

Thank you. The next question is from Peter Rutenalcher of Baader Bank. Please go ahead. Your line is now open.

Yes, hello, Michael. First, let's start. What was the performance in July? Have you already seen here sequential improvement versus June?

Well, we are just closing the month of July. What we see is that the positive development of June is still a little bit more positive in July.

And you had good reduction in costs for personnel in the second quarter if we strip out the Get on Track program. What is your expectation for the third quarter? To what extent are you still proceeding short-term work? And if you compare the personal costs of the first and the second quarter, What is the expectation then for Q3? Are we somewhere in between here?

Well, it can be a good assumption. The Q2 was an exceptional year in cost relations and overall. So taking an average or let's say some in between of Q1 and Q2 can be an assumption. Of course, if we... if we increase our business volume in Q3 further, what we would assume from today's perspective, we also will see that we need the one or other additional headcount in the direct labor area. But on the other hand, we have reductions in fixed cost areas, which we will not increase. So there will be a positive impact in Q3. Nevertheless, in the direct area, we probably also will have some some higher numbers.

And short-term work, to what extent are you still proceeding it?

Well, short-term work we have in July and also in August, but we probably will reduce it further in September. But we still have short-time work. Currently, we use short-time work of I think 50% and 40% in July and August.

Okay, then this regards to the margin quality of new project, is there any change? Or are you still able to keep your overall, let's say margin quality of orders?

The margin quality of orders is okay. The orders structure did not change. We have a volume impact that we see. When I get some new contracts, even in the EV area, and look on the margin profile, this is quite fine.

And in this environment, I think some of your competitors have definitely much, much bigger problems. Do you see here already some impact perhaps in the new project activities of OEMs? Do you see here the opportunity for a sign that you are able to gain market share?

Yes, we see that. A couple of smaller projects Partly competitors are having some problems, so we partly see some positive impact for us out of that scenario. But it's hard to predict and hard to quantify it in millions. But overall, Norma Group's position in the market, although of course currently we have a critical overall situation, but Norma Group's position is is from my point of view, very good. We are very well prepared and have a good position also from the liquidity perspective. So there are chances for us. There also might be chances in terms of M&A views, maybe also next year, but we have to see what this will mean. In principle, yes, but hard to quantify.

And in the DS area, Is the same trend true what you're talking about EJT that you see also sequential improvement and then also a much slower decline in Q3 and Q4?

Yes, it's also the case in the DS business, which was hurt by the overall GDP development. As soon as the overall GDP situation will improve, we also expect the same for the DS business. For water, we have it already significantly as growth, but also for the broad industry business as DS business, we expect that for the next month with a growing GDP and better overall economic situation, also that type of business will improve further.

Okay. And then my last question on NDS, you mentioned a really excellent performance. Is this also true for the margin? Has the margin, which you in the past mentioned, at least on the level of the group at times where you had 17% margin, is this also at a stable level then?

Yes, our water management business, our NDS business is a great business, growing and very good margin profile. And even in these difficult times, it grew. Imagine if people are quarantined, they sit at home, they can meanwhile order significantly via Amazon and e-commerce channels and can do some some work in the garden. So the overall situation helps NDS also in that development. So clear yes on your question.

Okay. Thank you.

Welcome.

Thank you. We now receive the follow-up question of Andre Finke, HSBC. Your line is now open. Please go ahead.

Yes, many thanks. Two short follow-up questions. The first one is also related on NDS. I think you cite market intelligence in your report seeing further growth in 2020 and a stagnation in 2021. I think one year ago that was rather suggesting flat markets already in 2020, so the impact from COVID was positive, as you said. But do you see a risk with regard to 2021 that the water business can fall off a cliff or at least meaningfully lose momentum. That's my first question.

From today's perspective, I would not see that risk because all long-term drivers support our NDS business. Put water at its place. Water is a scarce resource. Water has to be handled efficiently. We have the stormwater drainage systems with the number of storms and the size or Let's say significance of storms, this will further grow. Landscape irrigation systems having drought periods shows the necessity of safe water. A drip irrigation system of NDS saves around 60% of water consumption versus an old sprinkler solution. So all megatrends are supporting the NDS business. And I would not see after this situation 2020 to have such a risk in 2021. But of course, it's probably too early to give a concrete idea on the sales development.

Okay. And my second question just relates to investments. And you mentioned that CapEx has been reduced significantly in H1. Maybe you can give some sort of indication for the full year and also beyond with regard to CapEx spending.

Well, capex spending in the first half here was monitored very strictly, and we also will follow that strict capex monitoring in the second half here until we see that we have and we prove that we have additional volumes and capacities and we need these capex. So a strict capex monitoring will go on. You know, André, that in the past we had around 5% of our... of our sales in capex. Currently, we have a lower range of around 4%. So this is what we will do also in the second half here. And as long as we do not see a significant improvement in 2021, we also will keep that strict monitoring in 2021.

Eric, thank you very much.

Welcome.

Thank you. The next question is from Andres Guyan of Gartner Capital Zurich. Your line is now open. Please go ahead.

Thank you. I have two questions with regard to the cost structures. First, about material costs. Was there a positive mix effect in H1, and how much was the effect from the destocking, the negative effect from destocking?

Well, if you look into the destocking effect, I think we had 1.7 million. If I look into the half-year report, 1.7 million last year and 8.2 million this year. So this indicates the destocking impact, 1.7 versus 8.2 in H1 2020. This characterizes the situation, and material costs are quite stable. We would not see a structural change.

Okay. Now, raw material costs have decreased. First off, would you expect a slight decrease of material costs in the second half of the year?

Well, we will see some positive impacts from our purchasing projects. Over the next years, from these 41% material costs, as we show on page six, I would not expect a percentage of sales to have significant changes coming from these 41 million.

Thank you. And maybe a question about personnel costs. What was the P&L effect, the positive P&L effect from the governmental aid in H1?

Government late in H1 was around, I would assume, 3.5 to 4 million.

Okay. All right. So what would be a reasonable estimate for personnel cost in H2? Is that 145 million or so? Or will that be higher?

That depends, of course, a little bit on the business development. Of course, Fixed costs should be fixed, but we also will see, based on the variable costs development, probably if sales are increasing, although, of course, we have some efficiency impacts, we would assume if business is going up again, also an impact on personal costs that we would assume. And, of course, direct labor somehow Variable part of the indirect labor, salary costs are fixed.

Okay, thank you. You're welcome.

Thank you. There are no further questions at this time, so as a reminder to ask a question, you have to press 0 and 1 on your telephone keypad. We haven't received any further questions. I would like to come back to you.

Yes, thank you very much for your participation and your excellent questions. Once again, of course, Norma hit in the first half here by the critical market situation. Nevertheless, very well prepared for the next steps, good liquidity situation. and within long-term a clear growth scenario based on water, industry, business, and even mobility and new energy solutions. This is what we will drive on a long-term perspective, and for that we are excellently prepared. Thanks a lot, and see and hear you next time, and stay healthy.