Norma Group Ag Name Akt

Ladies and gentlemen, welcome to Norma Group's Analyst Conference Q1 2022. What about Norma Group's start in 2022? And I refer to our presentation page 2, where we give an overview about the key figures. In Q2, we generated sales of 304 million, which is an increase of 6.3%. and an organic growth of 2.2% versus Q1 2021. We generated out of these 304 million an adjusted EBIT of 30 million, which is a decrease of 17.8%. And we see in that decrease also the impact of supply shortages and higher raw material costs. With these 30 million, EBIT margin was at 10%. And out of that double-digit EBIT margin, we had a net operating cash flow of $16.7 million negative, which is part of the seasonal development of our cash flow in 2022 and according to our expectation. Benefit issues, we have an equity ratio of 44.6% and a net debt at $361 million. In terms of dividend, we will propose a dividend of 75 euro cents for the fiscal year 2021 to the annual general meeting, which will take place on May 17. I go to page 3 to give some more information on the top line development. As mentioned, we have an increase in net sales by 6.3% year-on-year in Q1 compared to $286 million in Q1 last year, and this is mainly due to our Americas business and some positive currency effects. Looking into the organic growth of 2.2%, we see a strong performance of our America's business, EJT sales decreased to 171 million, where we see an organic decline of 5.2%, mainly due to a weak automotive business in EMEA and a high comp space in APEC. The standard joining technology business showed a strong organic growth of 13.5%, which then led to 131.6 million in the first quarter. And this is mainly referring to the excellently developing US water business and even to the APEC region. As mentioned, we have some currency effects with a positive translation effect of 11.5 million, or in terms of percentage, 4% in Q1 2022. And you also can see the regional split of our sales. On the left-hand side, there we see 44% of our Q1 sales in Americas, 41% in EMEA, and 15% in APEC region. Going to our segment reporting on page four, in the first quarter 2022 in EMEA, we saw for EJT, an organic decline of 6.3% in comparison to a quite strong Q1 2021. Weaker automotive business, partly related to economic sanction measures in connection with the Russia and Ukraine war. And in the SJT business, standard joining technology, we saw 3.5% organic decline in the first quarter versus last year, while we had in the first quarter, 2021, a high positive impact from restocking sales in prior year. Americas, we saw in the EJT business an organic growth of 2.4% in the first quarter, which is also very positively impacted by the heavy duty business in the US. SJT business, standard joining technology, had a strong double-digit organic growth of more than 28%, 23%, 23.8%. In the first quarter, there we see the good contribution of the U.S. water business, which grew slightly more than 28%. The APIC region, an organic decline for the EJT business of 12.8%. where we see the difficult China business currently related to the COVID-19 restrictions and the lockdown situations in China. While we saw a good organic growth in the SJT business, 8% organic growth, also due to a quite positive business in Australia. Based on these sales developments, we had a margin development in the first quarter, which showed a good upswing versus Q3 and Q4 last year. So we are showing a double-digit EBIT margin, 10%, and an adjusted EBITDA margin of 14.5%. Looking into some margin details and cost information, I hand over to Annette, Thank you, Michael.

Well, then let's have a look to the profit and loss development of Q1 2022, which is, I would say for everybody for the time being, really in this volatile times, a challenge. Our material cost ratio increased by 300 basic points. and our gross profit ratio decreased by 430 basis points, mainly due to higher costs related to either global supply chain shortages or higher raw material costs. All in all, Q1 is dedicated to manage and countermeasure inflation, and we should not forget the permanent COVID impacts all over the world there. We achieved an improvement in our personnel cost ratio by 30 basic points, amounting to 25.6% due to the reduction in workforce of roughly 250 people. This is mainly shown in Germany and Serbia, where we downsized plants significantly, and that is an important achievement of our Get on Track transformation program. Focusing on OPEX, we can see that OPEX decreased by 400k euro to 41.4 million, leading to an improved ratio of 13.6% in relation to higher sales. This is also impacted by, on the one hand, a strict cost management and relatively lower temps compared to the sales. EBITDA decreased by 300 basic points to 14.5%, and our EBIT margin decreased by 219 basic points to 10%. Despite all the headwinds, everybody focuses for the time being in the market of global supply shortages, raw material costs, and the Ukraine-Russia crisis, to mention just the most important ones. Looking to slide seven and focusing on our operational adjustments, the message is always there. Norma doesn't adjust anything operational anymore. Our adjustments are purely dedicated to prior acquisition activities and therefore are PPA related. There we show a reported earning per share of 53 cents. The adjustment is out of that 13 cents and the adjusted earning per share is then 66 cents. On the next page we see the development of the EPS where we just looked to amounting in Q1 22 to 66 cents, the reported EPS to 53 cents and we see there a net income of 20.9 million and the reported net income of 16.7 million. We will propose a dividend of 75 cents to our AGM in May the 17th, which represents 33% of our adjusted group net profit, which is fully in line with our general dividend policy. Page 9 shows the evolution of our equity ratio, net debt, and debt ratio. Our net debt increased by 13.4% majorly due to increased business systemality, which is driven by the increase of our water business. The leverage shows a moderate increase by 2.2 due to higher net debt and lower EBITDA in this moment. And finally, we could stabilize our equity ratio of 44.6%. On page 10, we show the development of our cash flow. This is impacted majorly by, on the one hand, for sure, a lower EBITDA as ancients figure. We reduced our factoring programs by roughly 9 million euro to 53 million euro. Our working capital outflow of 54.7 million euro is majorly triggered by, on the one hand, higher business activities and And the growth, and there the major figure is accounts receivable in this moment due to higher growth majorly. CapEx, we realized 6.1 million compared to 9.2 million. That is the impact on our, this is a reduced CapEx compared to Q1 last year. This is resulting to a net operating cash flow of minus 16.7 million compared to 2.5 million in our Q1 21, where you can see that this is a typical picture of what we expected, normal seasonality in Q1. Page 11 shows the normal value added, which is normal for long-term strategic value. And there we decreased or declined from 9.3 million to 5.1 million. Having said that, I give over again to Michael Schneider in order to summarize.

Yes, thanks, Annette. Based on this development of the first quarter, we see the outlook for this year 2022 as we showed in our guidance and we confirmed the guidance. which means we expect organic sales in the medium to high single-digit organic group sales and increase, as mentioned, an adjusted EBIT margin based on that medium to high single-digit organic growth of around 11%. And based on that, sales and EBIT development, a net operating cash flow in the area of $100 million. And as Annette mentioned, normal value added is our strategic indicator. And we expect a normal value added between 20 and 40 million for 2022. That's the overview on the first quarter of this year. And of course, as every time, we are happy to go in Q&A with you.

We have a first question. It's from Ingo Schache of BNP Paribas Exxon. The line is now open for you.

Yes, thanks very much. My first question would be on your sequential margin development. The first quarter margin I think was pretty good in light of the input cost inflation. Now I think the second quarter we'll see even more input cost headwinds and probably peak raw material cost inflation. Can you already tell us whether your second quarter margins should be better because of the price increases you have implemented or worse because of higher cost inflation? Just to understand the path that you will take to get to the 11% full-year target. And maybe you can also shed a bit more light on how positive pricing should develop in the second quarter, whether you already have an estimate of what percentage of incremental price increase you expect to implement in the second quarter, etc. compared to the first.

Yes, Ingo, thanks a lot for these questions. First part, margin development. Overall, we expect around 11% EBIT margin first quarter at 10%. So we expect sequentially an increase in our margin. We will see that the positive measures will increase and impact the next quarters positively. Of course, we see the input cost area and inflation. On the other side, we see that our pricing initiatives are very successful, and we overall expect also in the next quarter a good seasonality of that pricing. Looking into that pricing, we have to see that in the standard joining technology, we have from the first quarter a quite steep increase in pricing. This is also the case for the EJT business, but there we have it sequentially with the increasing volume of, let's say, increasing amount of pricing for Q2, Q3 and Q4. So we are very optimistic to get to our 11% of EBIT margin sequentially increasing in the course of this year.

And maybe on a similar topic on the net debt and networking capital increase, I think you pointed to normal seasonality and Q1 networking capital build-up. I think normal seasonality would tell us that networking capital should rather be stable in the second and third quarter. Is that a pattern we should also expect this year as normal seasonality or will we expect more networking capital build-up, for example, because in EJT probably activity levels would hopefully... improve further, at least in the third quarter, so that you need to build up more networking capital also in the next quarter? So how do you see it from here?

At the end, that's a question of, or at the end, that shows a bit the transformation of the business. As our portion of water business strategically gets higher, what we are very happy about, that is exactly like we would like to have it, that means that we will have in certain things, higher inventories on that because we have project business there and we have seasonality. So water business stops more or less the season by October, September, October, and ramps up the season by March. And in the meantime, we need to produce inventories. And this, as our portion of business increases there, so our, I would say, optimal mix of trade work and capital is changing.

And we also should keep in mind, Dingo, looking on supply chains in these days, lockdowns in China, Ukraine-Russia war, we also try to have maybe a little bit more on stock as we normally should have to make sure that we can keep our internal supply chain.

Of course, that makes sense. Just quickly go on the leverage ratio. Can you remind us at which level of leverage you would expect a step-up of your interest costs?

It's two steps, 325 and 375. So at leverage 325, it's an increase of costs, and 375, we have the covenants.

Well, at the end, this increase in leverage for Q1 is pretty heavily impacted by the relatively high level of supply chain financing, which we reduced there, and therefore we have this impact which should phase out. We expect under this condition again a decrease in leverage.

Okay, thank you.

The next question is by Nicolai Kemp of Deutsche Bank. The line is now open for you.

Yeah, thank you for taking my question. As long-term opportunities look so promising, so please allow me to come back to a short term. And this is kind of a follow-up question. So if you look on the second quarter, another auto supplier just kind of mentioned that the second quarter probability could be likely below the one in the first quarter. given the cost inflation, but also given lockdowns in China. So maybe just come back to that. Is the lockdown in China impacting you on this, or do you feel that pricing could compensate this?

Well, of course, we see a lockdown in China. Shanghai closes via lockdown. Of course, an automotive supply business and an import industry business The impacts, we are in a quite good situation because we are buying, producing and selling within China. But even within China, the supply chain is impacted by the lockdowns. So we see these impacts, but we also have measures and pricing initiatives to try to compensate that.

Our current pricing activities, in particular against inflation, are at the end valid up from the 1st of April. So I think we will get a better countermeasurement, what we see in the figures there. For sure, China and so on, that is not an easy story. And for sure, everybody has to observe that with respect. That's no question. Okay.

Maybe at this point, do you see that wages are starting to increase, both in Germany as well as in the US, given the high inflation?

Well, this is a story what is, up to my understanding, is accompanying us since two, two and a half years already. So we don't see higher increases there, what we expect and what is baked in our guidance. well, that's regionally a bit different, but at the end we have there also countermeasurement by shifting our workforce due to our transformation program get on track from high-cost countries to best-cost countries. That should countermeasure as well.

Okay, thank you.

As a reminder, If you want to ask a question, please press 0 and 1. Our next question is by Ingo Schache of BNP Paribas Exxon. The line is now open for you.

Thanks. Just a quick follow-up question regarding your question workforce and personal expenses. I think over the last two years or so we've rather seen an increase of the share of temporary workers. Just curious to understand how we should interpret this. Is it, let's say, in the old business that you are making your workforce more flexible and relying more on temporary workers or is it also a function of growth in areas like water where you might have more and more temps? I would like to understand a bit better how your flexibilization of the workforce has evolved over the last years and which business areas were affected.

So at the end, for sure, that is for each and everybody a portion to breathe. After COVID, we try to breathe with this, in particular in regions where this is pretty easy. On the other hand, I always point out, The mixture will nevertheless, for us, go in this direction. As we are shifting for the American business, our business from America to Mexico, there we anyway, 100% of our workforce is there at TEMP because we are working in so-called maquiladora structures. This is our permanent headcount, but at the end, that's legal-wise TEMP. So therefore, the portion of TEMP should steadily increase.

And, Ingo, we try to have around 20% of our workforce in the direct labor area as temps. And looking into 2020 and 2021, even 2022 first quarter, the number of temps still is also somehow a function of corona. If you take 2021, for example, we had an average 150 people in quarantine. So we worked heavily with additional temp people to breathe. And in fact, it's more a function of corona. And we also will keep a slightly high level of temps to be flexible also for the future.

Okay, understood. Thanks for the very clear explanation also regarding the Mexico situation.

The next question is by Philippe Laurent of Bernberg. The line is now open for you.

Thanks for taking my question. A couple of topics related to pricing. The first one is, if I understand that correctly, you probably accelerate the price increases starting in April. Is that correct? And also, perhaps, you can tell us, out of the plus 2% roughly increase, organic growth that we've seen in Q1, how much was pricing versus actual volume?

Yes, pricing is accelerating in Q2, that's right. And if you take the first quarter of this year out of that organic growth of 2.2 million, we see a sales price increase or a price increase of 6% and a volume decrease of around... 3.8% to 4%.

Okay, that's interesting. So that means that the price increases will be well above the 6% mark, so to say, from Q2 onwards?

Yes, exactly.

Okay, great. And also with regard to your backlog, because the backlog is pretty high anyway. Is that backlog fully priced already with upcoming price increases that we see since the beginning of April or is it just like basically the plus 6% that we had in Q1?

Well, if we have a backlog for let's say old products or products from the last month, we also have the prices from the last month using for the backlog.

Okay, I guess the related question was as well, is there any chance that the 565 million of backlog could be repriced further, let's say, by another couple of percentage points?

Well, maybe that has to be in discussion, but first of all, the target must be to reduce backlog from an operating perspective.

Yeah, fair point. Okay, thanks. I'm back in the queue.

Thank you.

Anyhow, we split there a little bit between, I would say, normal pricing, where we are more aggressive, and countermeasurement of inflation. And what I spoke about is the countermeasurement of inflation. This gets valid by the 1st of April. The rest of the story already started step by step last year.

Overall, we had in the first quarter a challenging environment. But in these challenging environments, we were very successful in adjusting our prices and in reaching our double-digit EBIT margin. And seasonality will be that we will further increase over the next quarters in 2022 to come to our EBIT margin of around 11%. Okay.

And if I get Annette's remarks correctly, with the base effects that we had from Q2, Q3 and Q4 last year with prices already starting to increase and I'm just speaking about the normal dynamics of the business and not the special countermeasures. Could we still speak about more than 6% price increase on that basis already or is it going to fade because of the base effect?

I think these 6% are a good basis for 2022. But of course, we also have to be flexible in this area because we want to cover inflation of materials as far as possible in sales prices. And of course, we also have to keep our system flexible. We have extremely volatile times. We do not know which raw material costs we will have in two or three months. So we have to be flexible and have to act quickly to make sure we can cover most of these inflationary aspects in the pricing.

Okay. Thank you very much.

Welcome. There are no further questions, and so I hand back.

Yes, thank you very much for participating. Thank you very much for the good questions. Once again, we had a good start into 2022 with a double digit EBIT margin. We are on the way to our around 11% EBIT margin for the full year and our medium to high single digit organic rope sales increase. We are on the way for both. And so far, let's meet in the next quarter. Stay healthy. And once again, thanks for participating.