Economic Report

External factors of influence

Economic factors

NORMA Group is active in many different industries and regions. Seasonal and economic fluctuations in individual countries or industries can have varying effects on customer demand and the order situation of NORMA Group. At the same time, NORMA Group is less vulnerable to temporary declines in demand in individual industries or countries thanks to its diversified product portfolio and broad customer base. Temporary production peaks can be absorbed due to the flexible production structures and the use of temporary workers.

Global economy recovers strongly in 2021 despite the pandemic, supply bottlenecks slow the upswing

The global economy continued to be affected by the coronavirus pandemic in 2021. With the expansion of vaccination campaigns and falling infection figures, there was initially a significant recovery in private consumption in the first half of 2021, which, together with positive signals from the industrial economy, led to a dynamic upturn. The positive trend weakened visibly, however, after the summer. Besides a renewed rise in the number of infections, global economic development was clouded above all by major disruptions in global supply chains. This resulted in both supply bottlenecks and a sharp rise in the price levels for raw materials, energy and logistics. In this environment, some industries worldwide were forced to temporarily shut down their production facilities. Further pressure was exerted towards the end of the year, mainly by the emergence of the new pandemic wave triggered by the Omicron virus. In addition, the sharp rise in inflation worldwide had a negative impact. While the European Central Bank nevertheless remained on its expansionary monetary policy course, the US Federal Reserve announced an interest rate turnaround in the US in December 2021 in response to the high level of inflation, as had previously been the case in several industrialized emerging countries, some of which had significantly raised their key interest rates. Despite these challenges, the global economy recovered strongly overall from the slump in the previous year in 2021 and recorded growth of +5.9%, according to the International Monetary Fund (IMF).

The Chinese economy was characterized by a strict “Zero-COVID policy” accompanied by regional lockdowns. Significant burdens also resulted from bottlenecks in coal-based power supply and increasing tensions in the real estate sector, which caused the economy’s development to lose momentum after a very strong start to the year. Against this backdrop, Chinese industrial production rose only moderately in the second half of 2021, with capacity well utilized at over 77%. In contrast, the economy in Southeast Asia (ASEAN-5) benefited from good international demand, although growth remained at a moderate level of 3.1%. By posting an increase of +9.0%, the economy in India in particular recovered very strongly. Brazil (+4.7%) and Russia (+4.5%) also showed a lively upturn. Overall, the growth rate of developing and emerging countries was +6.5%, according to the IMF.

The US economy recovered strongly in 2021. The main drivers were private consumption and increased investment activity. Industrial production grew strongly again (+5.6%) compared to the previous year, which was heavily impacted by the pandemic. Capacity utilization improved by 38 basis points on average over the year to 75.4%, but still remained below the pre-crisis level in 2019. The good performance is specifically attributable to higher production in the energy sector and growth in the manufacture of computers and electronic components. Nevertheless, negative effects resulting from supply chain issues also caused uncertainty in the second half of 2021.

Eurozone records noticeable recovery despite strong fluctuations in industrial activity

While the eurozone economy shrunk at the beginning of 2021 as a result of the strict lockdowns, the easing measures at the end of the first quarter encouraged a further economic recovery. The trend was positive in all countries, but particularly in France, Italy and Spain. The upswing in the eurozone was driven by lively exports. Private consumption also played a key role, especially as purchasing power also increased strongly as the economy picked up again from the pandemic-hit previous year.

As demand picked up, industrial production in the eurozone increased significantly, with growth rates particularly strong in April and May compared to the deep slump of the previous year and remaining at a double-digit level through June. In the second half of the year, however, increasingly severe material bottlenecks and higher transport and energy costs had a negative impact. The result was lower production output and investment propensity. Rising infection rates, combined with new lockdowns, further restricted economic activity at the end of the year. Irrespective of this, production capacity utilization rose to 82.7% at the end of the year, compared to 78.1% at the end of 2020.

Germany: Material bottlenecks and supply chain problems dampen economic recovery

The German economy also initially recovered very strongly in 2021 in the wake of the easing measures and the start of the vaccination campaigns on a broad basis. Other key growth drivers were government consumer spending, strong export activity (+9.4%) and solid investment in machinery and equipment (+3.2%). However, the upswing increasingly stalled in line with global developments in the second half of the year. Due to the fourth wave of the pandemic and the resulting restrictions, additional pressure built up toward the end of the year, whereupon private consumption stagnated. In this environment, the German economy was not yet able to reach its pre-crisis levels despite GDP growth of +2.7%, according to the Federal Statistical Office (Destatis).

Buoyed by brisk demand, German industry largely recovered from its slump in the previous year. Particularly high annual growth rates in April and May contrasted with a negative trend in September in particular. Due to the supply bottlenecks for intermediates and the resulting disrupted production processes, the order backlog reached a record level that could not be sufficiently filled due to the aforementioned challenges. Nevertheless, according to Eurostat, capacity utilization increased to 85.2% in the final quarter of 2021 (Q4 2020: 80.8%). This represents an improvement of 149 basis points compared to the coronavirus low in the second quarter of 2020.

Exchange rate fluctuations

Due to its international operations, exchange rate fluctuations have an impact on NORMA Group's business. RISK AND OPPORTUNITY REPORT

In the fiscal year 2021, NORMA Group generated approximately 27% of its sales in US dollars. The development of the US dollar against the euro led to a negative effect on sales in the fiscal year 2021. In contrast, there were positive effects from the Chinese renminbi.

Industry-specific influencing factors

Global mechanical engineering recovers more strongly than expected in 2021 despite setbacks due to bottlenecks

As a result of the recovery in the global economy, industrial production initially picked up significantly in 2021. In the second quarter alone, growth was 15.1% (+8.2% cumulatively for eleven months). This was partly due to better utilization of production capacities. In addition, corporate investment activity picked up again, giving the mechanical engineering industry a powerful boost. This sector also came under increasing pressure in the further course of the year, however, as a result of supply bottlenecks for key intermediates and temporary shutdowns in important customer industries. Investment projects were also delayed as a result of the disrupted supply chains. Despite the aforementioned adversities, global machinery sales in 2021 were significantly higher than the original forecast of +7%, at +13% in real terms, according to estimates by the VDMA industry association. The increase was even higher than expected in China and the US, in particular. Dynamic development was also recorded in Canada (+12%), Mexico (+15%) and Japan (+17%). In addition, demand for machinery developed very positively in key emerging markets, including India (+21%), Brazil (+23%) and Turkey (+28%).

Although the export-oriented European machinery sector performed slightly better overall than expected, the picture was heterogeneous. The sector’s performance was very buoyant in Switzerland (+16%) and the UK (+19%) following the deep slumps of the previous year. By comparison, the VDMA estimates real growth of 11% for the eurozone in 2021. The mechanical engineering sector grew strongly in the Netherlands, driven by its key role in machinery production for the semiconductor industry, and achieved growth of 34%. Machinery sales also increased significantly in Italy (+14%), France (+12%) and Spain (+12%). In Germany, despite an excellent order situation, growth was in the single digits at +6%, with German machine production rising by +7% in real terms.

Semiconductor shortage manifests itself in massive pressure on the automotive industry

Despite difficult conditions, the global automotive industry recovered visibly in 2021 from the pandemic-related losses in the previous year. Further pressure arose with shortages of microchips and other intermediates, however, leading to production stops and delivery delays. According to LMC Automotive (LMCA), global sales of light vehicles (LVs, up to 6 t) in 2021 rose by 3.9% year-on-year to 80.8 million LVs. Production increased by +2.2% to 76.2 million. Although conventional powertrains continued to dominate by a wide margin in terms of total car production worldwide, 2021 saw a sharp rise in demand for plug-in hybrids (PHEVs) and pure battery-powered electric vehicles (BEVs) in the area of electromobility. Production volumes climbed to around 6.0 million units worldwide. The market for commercial vehicles (commercial vehicles, trucks and buses) also developed very positively in 2021 in Europe and North America, with production growth of +11% in each case, whereas production in China shrank drastically (-20.3%).

In Europe (EU + EFTA + UK), demand for passenger cars fell by 1.5% to 11.8 million units in 2021, according to the ACEA (Association des Constructeurs Européens d'Automobiles). The decline was -1.9% in Western Europe. While Italy recorded a significant increase of +5.5%, sales also rose in Spain and the UK by 1.0% each, and in France by +0.5%. This contrasted with heavy losses in Germany (-10.1%), Belgium (-11.2%) and the Netherlands (-9.2%). Material shortages, which caused enormous production cutbacks at European manufacturers, were a major influencing factor. The industry experts at LMC Automotive expect an even greater decline in production levels in Europe. They put the decline at 3.4% with a total of 16.0 million units produced. Germany is said to have recorded a decline of 9.1%. The German industry association VDA (Verband der Automobilindustrie) even estimates the slump in the number of passenger cars produced at -12%. In contrast, according to experts from the ACEA, the European commercial vehicle market recovered strongly in 2021 by posting an increase in demand of 10.9%. LMC Automotive announced an increase of 18.1% for 2021. While European production rose significantly by 11.6%, German commercial vehicle manufacturers achieved a moderate increase in production of 2.9%.

International construction industry on the upswing in 2021 despite headwinds

Construction activities in Asia were again impacted by the pandemic in 2021. The resulting negative effects were particularly noticeable in India. By contrast, the picture was different in China. Here, development was negatively impacted primarily by the crisis in the real estate market. Nevertheless, the construction industry developed positively. According to data from the NBS (National Building Specification) statistics office, construction investment in China rose by +8.9% in real terms. Growth within the water industry was +1.3%. Investment in buildings recorded growth of 4.4% in nominal terms, and residential construction rose by 6.4%. European construction activity also recovered significantly as a result of the low interest rate environment, compensating for the previous year’s slump. According to the Euroconstruct industry network (including the ifo Institute), real construction output rose by 5.6%. The main impetus came from residential construction. Construction output in Italy, Belgium and the UK showed double-digit growth. In France and Spain, as well, the recovery following the weak previous year was strong.

Construction activity in Germany remained robust in 2021 despite existing obstacles triggered by supply bottlenecks, significant cost increases for building materials and the shortage of skilled labor. Although real construction investment increased only slightly by 0.5% in 2021 in economic terms, the nominal construction volume rose strongly by 10.1% (2020: +3.8%) according to the DIW (German Institute for Economic Research) – taking into account the sharp price increases. Adjusted, the increase was 1.6% (2020: +2.0%). Both residential and commercial construction continued to increase by 2.2% and 1.4% respectively (both adjusted for prices). Construction work on existing buildings, which relates in particular to additions, conversions, modernization and maintenance and represents more than two thirds of the nominal construction volume in Germany, again showed robust growth of 11.8% in the residential sector. In the area of new construction, the increase was only marginally smaller at 10.5%.

US construction industry and water management experience continued upswing in 2021, pandemic driving maintenance and remodeling activities

Despite the difficult environment caused by the pandemic, the US construction industry once again recorded strong growth in 2021, although the shortage of materials limited the strongly consumption-driven economic growth. Ongoing problems in global supply chains led to significant bottlenecks. Against this headwind, the number of housing unit starts rose by around 14% overall over the year, while sales of existing homes increased by 6%. Spending on repairs and renovations, a key driver of NDS’s sales, increased by around 4% over 2021. In contrast, construction levels in the commercial sector, which includes office, retail and lodging buildings, declined by 5%. In general, NORMA Group’s (NDS) water business correlates strongly not only with the development of new buildings, but also with maintenance and conversion activities. These areas benefited enormously in fiscal year 2021 during the coronavirus pandemic and were also boosted by a low interest rate environment. According to industry experts at JBREC (John Burns Real Estate Consulting), total spending on building materials in this sector rose by an estimated 10% last year. The total market volume thus grew by a total of 8.6%.

Legal and regulatory influencing factors

Due to the international focus of its business and against the backdrop of its acquisition strategy, NORMA Group is obliged to observe various legal and tax-related regulations, which include product safety and product liability laws, construction, environmental and employment-related regulations as well as foreign trade and patent laws. RISK AND OPPORTUNITY REPORT

In addition, NORMA Group’s product strategy is influenced by the increasing density of regulations in environmental law and ongoing discussion on emission-reducing drive technologies and the resulting structural change in the automotive industry. New regulations on emissions and fleet management provisions as well as the strong trend towards hybrid and fully electric drive models have a positive impact on NORMA Group’s business. After all, the increasing complexity of systems in vehicles – due to downsizing or hybrid vehicles, for example – also increases the number of interfaces and thus the demand for reliable joining technology. In addition, the increasing electrification of the automotive industry presents OEMs with new challenges and opens up new opportunities and business fields for NORMA Group, especially in the area of thermal management. RESEARCH AND DEVELOPMENT

Due to NORMA Group’s growing water business and the increasing strategic importance of this business, the various regulatory initiatives in the area of water management as well as public measures to improve the supply of water to the population have also gained considerable influence for NORMA Group.

Significant developments in fiscal year 2021

Personnel changes on the Supervisory Board

In fiscal year 2021, the vacant position on the Supervisory Board of NORMA Group, which arose with the resignation of Lars Berg in August 2020, was filled by Miguel Ángel López Borrego. The application for the court appointment of Mr. López to the Supervisory Board of NORMA Group had already been filed on March 3, 2021. On May 20, 2021, the Annual General Meeting elected Mr. Lopez to the Supervisory Board of NORMA Group SE. Mr. López has also been a member of the Audit Committee since April 1, 2021. CORPORATE GOVERNANCE REPORT

New plant opened in China

NORMA Group has expanded the production capacities at its site in Wuxi, China, due to increasing demand and nearly tripled the production area. The new plant was completed at the end of March 2021 and the production equipment and materials were moved to the new location, followed by the start of production at the end of April 2021. The expansion of production capacities in Wuxi is part of NORMA Group’s growth and localization strategy. This means a broader product range can now be offered for each market segment. At the same time, this will support the local market launch of new products. For example, the company has already managed to launch pipeline systems for the areas of fuel application, urea transport and cooling water systems, among others.

Further strategic measures from the “Get on track” program successfully implemented

With its “Get on track,” change program, NORMA Group is responding to the increasingly difficult environment in the automotive industry, which has been characterized in particular by increased cost and competitive pressure for several years now. One focus of the measures defined in the program is on bundling production activities and optimizing the Group’s production landscape. This contributes to the medium-term goal of gradually increasing NORMA Group’s efficiency and competitiveness.

The measures from the “Get on track” program were implemented as planned in fiscal year 2021. The integration of production at Fengfan, formerly at the Shaoxing site, into a plant in Changzhou contributed to the further strategic consolidation of the sites in the Asia-Pacific region. This step means that local business activities can now be aligned even better to the strategic business units of Mobility and New Energy as well as Industrial Applications.

In connection with the closure of the site in Gerbershausen, Germany, by the end of 2022, a move that was announced in June 2020, further steps were also taken in fiscal year 2021. This mainly involved the relocation of product groups. Three of the product groups manufactured in Gerbershausen were successfully transferred to Hustopeče in the Czech Republic. In addition, another product group was relocated to the Swedish production site in Anderstorp. Production of the relocated production groups has already started successfully in each case.

NORMA Group focuses closely on its customers’ specific requirements and at the same time on proximity to the customer. The expansion of digital commerce activities is an important driver in this area. NORMA Group is therefore steadily expanding its digital retail channels in addition to the established sales channels. The new web shop opened last year was expanded in fiscal year 2021 to include distribution customers in the Benelux countries, setting the course for enabling new sales potential in the EMEA region. Building on the activities to date in all business regions, steps are currently being taken toward a harmonized global digital retail offering. Besides meeting specific customer requirements, the focus is always on the particular market characteristics.

Comparison of target and actual values

NORMA Group issued a forecast on the development of the Group’s key performance indicators in fiscal year 2021 when it published its Annual Report 2020 on March 24, 2021. 2020 ANNUAL REPORT Due to the good sales development in the Americas and Asia-Pacific regions, which was better than expected in the first half of 2021, the Management Board increased the sales forecast slightly for the regions mentioned based on new planning figures in the course of the publication of the 2021 half-year report on August 4, 2021. The management has since expected strong organic sales growth in the low double-digit range for the Americas region (previously: “high single-digit organic sales growth”) and high single-digit organic sales growth for the Asia-Pacific region (previously: “slight organic sales growth”). All other components of the forecast were left unchanged at this time compared to the forecast issued in March.

On September 14, 2021, the Management Board was forced to adjust the forecast for the adjusted EBIT margin and adjusted EBITA margin due to changed conditions. The main reason for this was the continuing limited availability of materials, particularly steel and plastics, and the resulting price increases. Expenses in connection with the coronavirus pandemic, which has lasted longer than expected also had a negative impact on costs. Based on a current forecast, NORMA Group therefore expected significantly lower production capacities in relevant industries as well as higher material and freight costs in all regions. Since then, the Management Board has assumed an adjusted EBIT margin of more than 10% for fiscal year 2021 (previous forecast: “more than 12%”) and an adjusted EBITA margin of more than 11% (previous forecast: “more than 13%”), taking the aforementioned macroeconomic influencing factors into account. With regard to the development of organic Group sales, the Management Board maintained its forecast (low double-digit organic Group sales growth).

Against the backdrop of the increasingly severe disruptions to the global supply chains, which intensified in the course of the second half of the year and led to a sharp rise in price levels, the Management Board elaborated on its expectations regarding the cost of materials ratio on November 3, 2021, when the interim statement for the third quarter of 2021 was published. Since then, the management has assumed a cost of materials ratio for the full year 2021 at a comparable level as in the past year (previously: “Significantly improved cost of materials ratio”). In addition, from this point on, the Management Board expected strong organic sales growth in the low double-digit range for the SJT segment in fiscal year 2021 (previously: “Significant organic sales growth in the high single-digit range”).

Table T019 “Actual Business Development Compared to the forecast” provides an overview of the target and actual values as well as the forecast adjustments during the year.

Deviations from the target values

The organic sales increase of 16.2% in NORMA Group’s sales is in line with the assumption of low double-digit organic Group sales growth published in March 2021.

There was a divergent trend in the cost ratios. While the personnel cost ratio improved significantly compared to the previous year, as expected (2021: 26.1%; 2020: 31.3%), the cost of materials ratio rose to 45.8% (2020: 43.8%) due to the challenging conditions on the global procurement markets and was thus above the assumption made in November 2021 ("At a comparable level to the previous year").

The adjusted EBIT margin reached 10.4% in fiscal year 2021, in line with the expected target of more than 10%, as revised in September 2021. Similarly, at 11.2%, the EBITA margin was also in line with the revised September expectation of more than 11%.

Net operating cash flow amounted to EUR 99.8 million, which was below the expected figure of EUR 110 million. This is primarily due to the change in working capital.

NORMA Value Added (NOVA) amounted to EUR 16.0 million in fiscal year 2021 and also developed in line with the forecast range of between EUR 10 million and EUR 25 million due to the significantly improved EBIT.

The investment ratio in fiscal 2021 was 4.3% and thus below the forecast range of between 5% and 6% of Group sales. Although investments made in the past fiscal year increased significantly compared to the previous year, which was impacted by the pandemic, as a result of the positive business recovery, investment activity from operating activities in fiscal 2021 was influenced by the continuing global availability of materials.

All other key figures developed in line with NORMA Group’s forecast.

Earnings, asset and financial position

General statement by the Management Board on the course of business and economic situation

NORMA Group’s business development was characterized by a variety of different trends in the current reporting year. Despite the ongoing coronavirus pandemic, the economic environment brightened considerably in the past fiscal year. This was reflected in particular in increased customer demand in all of NORMA Group’s regions and businesses in the first half of 2021. Due to the continued strong water business, the revival of demand in the Mobility and New Energy segments as well as generally good business in the Industrial Applications segment, NORMA Group’s consolidated sales in fiscal year 2021 reached nearly the level of the pre-crisis year 2019 (EUR 1,100.1 million) again at EUR 1,091.9 million (2020: EUR 952.2 million).

At the same time, new challenges arose in fiscal year 2021 with the global disruptions in supply chains, which remained a major influencing factor for many different industries during the year. The resulting shortage of materials led to a sharp increase in raw material prices, especially in the second half of the year. In this context, NORMA Group observed very volatile ordering behavior on the part of its customers, including automotive manufacturers in particular. At EUR 113.8 million, the operating result – adjusted EBIT – significantly exceeded the figure for the corona-burdened previous year (2020: EUR 45.3 million). The EBIT margin was 10.4%, compared to 4.8% in the previous year. This is attributable on the one hand to the very good sales performance in fiscal year 2021. On the other hand, the operating result in the previous year was burdened by expenses in connection with the “Get on track” program in the amount of EUR 29.1 million, which were not adjusted.

Assuming that the good development of the general conditions, which contributed to the significant sales growth in 2021, will continue in fiscal year 2022 and that demand in NORMA Group’s key customer industries will continue to increase in connection with this, the Management Board is confident about fiscal year 2022. Taking into account the influencing factors cited by economic research institutes, the Management Board expects medium to high single-digit organic Group sales growth compared to the previous year. Furthermore, the Management Board expects an EBIT margin adjusted for acquisition effects of around 11%. FORECAST REPORT

Adjustments

The management of NORMA Group adjusts certain expenses and income for the purpose of managing the Group’s operations. The adjusted results presented below correspond to the management view.

In fiscal year 2021, as in the previous year, no adjustments were made for expenses within EBITDA (earnings before interest, taxes, depreciation of property, plant and equipment and amortization of intangible assets). Within EBITA, depreciation of property, plant and equipment from purchase price allocations amounted to EUR 1.5 million in fiscal year 2021 (2020: EUR 3.5 million). In addition, amortization of intangible assets from purchase price allocations in the amount of EUR 20.1 million (2020: EUR 21.7 million) was adjusted within EBIT. Expenses from the “Get on track” change program, which totaled EUR 1.5 million in fiscal year 2021 and were recognized within employee benefit expenses and other operating income and expenses, are not adjusted and are included in the result, as in the previous year (2020: EUR 29.1 million). Notional income taxes resulting from the adjustments are calculated using the tax rates of the respective local companies concerned and included in the adjusted profit after tax.

The following table T020 shows earnings adjusted for these effects in fiscal year 2021. More detailed information on the unadjusted figures can be found in the NOTES.

Earnings position

Development of sales

Group sales nearly at pre-crisis level of 2019

NORMA Group posted sales of EUR 1,091.9 million in fiscal year 2021. This represents a 14.7% increase compared to the previous year (2020: EUR 952.2 million). It includes organic sales growth of 16.2%. Currency effects, particularly in connection with the US dollar, had a negative impact of 1.5%. Overall, sales in the past fiscal year were nearly at the level of the pre-crisis year 2019 (EUR 1,100.1 million).

The good development of sales is mainly attributable to a noticeable recovery in the economic environment. The positive impetus from this was once again reflected in a significant increase in demand in all of NORMA Group’s business units compared to the pandemic-burdened previous year: Water Management, Mobility and New Energy as well as Industry Applications. In the Americas and Asia-Pacific regions, Group sales even exceeded the pre-crisis level in 2019.

Development potential in EJT business slowed by shortage of semiconductors, SJT business continues to grow solidly

Sales in the EJT business totaled EUR 620.7 million in fiscal year 2021. Compared to the previous year (2020: EUR 552.6 million), this represents an increase in sales of 12.3% (organic: 13.2%). Currency effects had a diminishing effect in the amount of 0.9%. The main driver of sales growth in EJT was in particular the sharp increase in production figures for light vehicles and heavy vehicles, especially in the first half of 2021. By contrast, development in the second half of 2021 was impacted by the global shortage of materials and semiconductors and, as a result, by increasingly stagnating production figures in the automotive industry since the third quarter of 2021. Influenced by the global challenges, automotive manufacturers were unable to fully exploit production potential in the full year 2021 in this environment. Despite the global supply bottlenecks for semiconductors, positive impetus for the development of the EJT business came primarily from the Americas region, whereas the development in Asia-Pacific and EMEA declined noticeably in the third and especially in the fourth quarter of 2021.

NORMA Group generated sales of EUR 464.3 million in the Standardized Joining Technology (SJT) business in fiscal year 2021, thus significantly exceeding both the previous year’s figure by 17.4% and the pre-crisis level of 2019 (2020: EUR 395.5 million; 2019: EUR 430.2 million). Organic sales growth amounted to 19.9%, whereas currency effects reduced sales by 2.5%. Significant additional sales were generated in fiscal year 2021, especially in the Americas and EMEA regions. There, the SJT business showed very good development in the course of the general economic recovery. The US subsidiary NDS’s water business recorded a significant increase in every quarter of 2021 and grew organically by a total of 20.9% over the year as a whole.

Development of earnings

The developments described below relate to the key figures adjusted for special effects for operational management purposes. Where adjustments have been made to the figures reported in accordance with IFRS, this is indicated in the text. Where the figures are not stated as “adjusted,” they correspond to those reported in accordance with IFRS. Since fiscal year 2020, the adjustments relate exclusively to adjustments of depreciation and amortization of tangible and intangible assets from purchase price allocations.

EBIT, EBITA und ROCE

The operating result (earnings before interest and taxes, EBIT) amounted to EUR 92.1 million in fiscal year 2021 and was thus significantly above the previous year’s figure (2020: EUR 20.1 million). The EBIT margin was 8.4% (2020: 2.1%). The increase in EBIT is mainly due to the noticeably higher volume of sales compared to the pandemic-affected period of the previous year. In addition, fiscal year 2021 included lower additional expenses from the “Get on track” change program compared to the previous year (2021: EUR 1.5 million; 2020: EUR 29.1 million). EBIT adjusted exclusively for depreciation and amortization from purchase price allocations totaled EUR 113.8 million. This compares to EUR 45.3 million in the previous year and represents an increase of 151.2%. The adjusted EBIT margin for the reporting period amounted to 10.4% (2020: 4.8%).

Earnings before interest, taxes and amortization of intangible assets (EBITA) of EUR 121.0 million were also significantly higher than in the previous year (2020: EUR 51.1 million). The EBITA margin was 11.1% (2020: 5.4%). Adjusted EBITA of EUR 122.5 million was 124.3% higher than in the previous year (2020: EUR 54.6 million). The adjusted EBITA margin was 11.2% (2020: 5.7%).

Return on capital employed (ROCE) as a ratio of adjusted EBIT to average capital employed was 11.9% in fiscal year 2021 (2020: 4.6%). The significant year-on-year improvement in ROCE was mainly due to the strong increase in adjusted EBIT. At the same time, ROCE was positively impacted by the slight decrease in average capital employed.

Key factors influencing the development of earnings

Cost of materials ratio and gross margin

The international raw material markets were characterized by strong volatility in fiscal year 2021. The main reason for this was the ongoing distortions in the global supply chains, which resulted in a noticeable shortage of materials and, consequently, a significant increase in the general price level on the international commodity markets. Although NORMA Group succeeded in keeping the prices of important product groups stable over the course of the year by contractually fixing them, it was not possible to fully compensate for the negative cost effects in connection with increased raw material prices, for surface-finishing materials, among other items.

In the current reporting year, cost of materials amounted to EUR 500.0 million and thus increased by 19.8% compared to the previous year (2020: EUR 417.5 million). Due to the disproportionately higher cost of materials compared to sales growth in combination with increased logistics costs for material procurement and influenced by the inventory build-up in fiscal year 2021, the cost of materials ratio (cost of materials as a percentage of sales) amounted to 45.8% in the current reporting period (2020: 43.8%). The cost of materials ratio in relation to the total operating performance (sales plus changes in inventories and other own work capitalized) was 44.9% (2020: 43.8%).

Gross profit in fiscal year 2021 amounted to EUR 612.4 million, an increase of 14.1% compared to the previous year (2020: EUR 536.7 million). While the higher cost of materials had a negative impact on gross profit, the increase in inventories (2021: EUR 17.5 million) had a slightly increasing effect on gross profit in fiscal year 2021. Due to the effects described above, the gross margin of 56.1% was 30 basis points below the previous year (2020: 56.4%).

Personnel cost ratio

At EUR 284.9 million, personnel expenses in fiscal year 2021 were 4.5% below the level of the previous year (2020: EUR 298.2 million). This development was primarily due to additional personnel expenses of EUR 25.2 million incurred in the same period of the previous year in connection with the “Get on track” program, which were not adjusted and had a significant impact on personnel expenses in the previous year. By contrast, additional personnel expenses of only EUR 0.1 million were incurred in the current reporting period in connection with the “Get on track” program. In combination with the significantly higher sales volume, this led to a noticeable improvement in the personnel cost ratio of 26.1%, both compared to the pandemic-laden previous year (2020: 31.3%) and to the pre-crisis year (2019: 27.5%). In absolute terms, however, comparable employee benefit expenses increased compared to the previous year as a result of the countermeasures used to reduce the impact of the coronavirus pandemic in the previous year. For example, the reduction in overtime, the use of government-sponsored reduced working hours, the temporary release of employees and other government support measures resulted in a lower comparative base.

Other operating income and expenses

The balance of other operating income and expenses amounted to EUR -159,9 million in fiscal year 2021 (2020 EUR -139.2 million). This represents an increase of 14.9% compared to the previous year. As a percentage of sales, the balance of other operating income and expenses was 14.6% and thus corresponded to the level of the previous year (2020: 14.6%).

The year-on-year increase in other operating expenses was mainly driven by the higher level of business activity compared to the same period of the previous year and the resulting increase in the need for temporary workers. Other operating expenses also increased due to freight costs in connection with the higher volume of business and the temporary backlog of deliveries, as well as expenses for IT and telecommunications. The increase in IT and telecommunications expenses, which also include division-specific consulting expenses, is attributable to the Group-wide implementation of a new ERP system and the associated additional need for consulting services and license fees. In the current reporting period, expenses from the devaluation of trade receivables decreased to nearly EUR 0.0 million, whereas the previous year’s figure included higher write-downs on trade receivables (2020: EUR 4.6 million) due to the special corona situation. Furthermore, other operating expenses in the current reporting period include additional costs from the ongoing “Get on track” program in the amount of EUR 1.5 million (2020: EUR 3.9 million) that are not adjusted.

Other operating income includes currency gains from operating activities, income from the reversal of liabilities for personnel-related obligations and provisions, and government grants. The latter mainly result from grants utilized in fiscal year 2021 in connection with temporary employment guarantees at Eastern European sites, as well as positive effects from government incentives for wage support in the Asia-Pacific and Americas region. NOTES

NORMA Value Added (NOVA)

NORMA Value Added (NOVA), which also serves as the relevant benchmark for the long-term remuneration of the Management Board, improved significantly year-on-year to EUR 16.0 million in fiscal year 2021 (2020: EUR - 46.4 million). The significant increase in operating profit (adjusted EBIT) was the main driver of the positive development.

Financial result

The financial result amounted to EUR -12,4 million in fiscal year 2021, compared to EUR -14.8 million the previous year. The significant improvement was mainly due to lower net interest expense compared to the previous year as a result of reduced gross debt. NOTES The increased use of low-interest commercial paper programs also contributed to the improvement in the financial result.

Income taxes

The tax expense at Group level amounted to EUR 23.6 million in fiscal year 2021 (2020: tax income of EUR 0.1 million). Based on a pre-tax result of EUR 79.7 million (2020: EUR 5.4 million), this resulted in a tax rate of -29.6% (2020: 1.8%). The tax rate of the previous year was positively influenced by a one-time effect realized in the US that exceeded the tax expenses. The adjusted tax rate in fiscal year 2021 was -28.6% (2020: -20.3%).

Profit for the period and appropriation of profit

Net profit for the period amounted to EUR 56.1 million in fiscal year 2021, thus significantly exceeding the figure for the same period of the previous year (2020: EUR 5.5 million). Based on an unchanged number of 31,862,400 shares compared to the previous year, this results in earnings per share of EUR 1.76 (2020: EUR 0.18) after deduction of the profit for the period attributable to non-controlling interests.

Adjusted profit for the period amounted to EUR 72.3 million in fiscal year 2021 (2020: EUR 24.3 million). This results in adjusted earnings per share of EUR 2.27 after deduction of the profit for the period attributable to non-controlling interests (2020: EUR 0.77).

The Management Board and Supervisory Board will propose to the Annual General Meeting on May 17, 2022, the distribution of a dividend totaling EUR 23.9 million from the unappropriated profit of EUR 46.9 million; this is equivalent to a dividend of EUR 0.75 per no-par value share entitled to a dividend. The proposed payout ratio amounts to approximately 33.0% and is thus in the corridor between 30% and 35% in line with NORMA Group’s sustainable dividend strategy.

Development of sales and earnings in the segments

EMEA

External sales in the EMEA region increased by 12.9% to EUR 462.4 million in fiscal year 2021 (2020: EUR 409.5 million). This includes organic sales growth of 12.6%. The increase in sales is a result of the rebound effects in key customer industries following the corona-related declines in 2020, with the Standardized Joining Technology (SJT) business making the main contribution with strong growth of 21.9% (organic: 20.3%) to EUR 126.6 million (2020: EUR 103.9 million). Its sales thus exceeded the level of the pre-crisis year 2019 (EUR 123.1 million) by 2.9%. NORMA Group’s European automotive business also showed significant year-on-year growth of 9.5% (organic: 9.7%) over the full year (2021: EUR 332.0 million; 2020: 303.1 million), which was due in particular to a clearly positive development in the first half of 2021. By contrast, the sales of the EJT business declined from the third quarter of 2021 on. The main causes here were the effects of the production backlog at automotive manufacturers triggered by the semiconductor shortage. Overall, the EMEA region accounted for around 42% of total sales in fiscal year 2021 (2020: 43%).

Adjusted EBIT in the EMEA region increased significantly in fiscal year 2021, reaching EUR 43.9 million (2020: EUR 9.3 million). The adjusted EBIT margin was 8.8% (2020: 2.1%). This was primarily due to the significant business recovery and the related recovery of sales in the first half of 2021. In fiscal year 2021, the operating result in the EMEA region was also supported by positive contributions from the measures of the “Get on track” program. By contrast, the previous year was burdened primarily by additional personnel expenses of EUR 23.1 million in connection with the “Get on track” program. These were mainly related to provisions in the area of personnel expenses.

Americas

In the Americas region, external sales in the reporting year 2021 amounted to EUR 456.8 million, exceeding the previous year’s figure (2020: EUR 385.5 million) by 18.5%. Compared to the pre-crisis year 2019, a 1.3% higher sales level was achieved. This includes a 22.9% increase in organic sales, whereas currency effects, mainly from the devaluation of the US dollar, had a significant negative impact on sales of - 4.4%. The sales growth in the region is based on a very good business development in the area of SJT: At EUR 282.4 million (2020: EUR 238.8 million), an 18.3% (organic: 22.6%) higher sales level was achieved here compared to the same period of the previous year. On the one hand, this positive development resulted from the general economic recovery. On the other hand, however, the US subsidiary NDS once again performed very well, enabling the US water business to achieve organic growth of 20.9% over the year as a whole (2020: 6.7%). The EJT business also contributed to the positive sales development as a result of the significant recovery in production figures in the light and heavy vehicles sector despite the global semiconductor shortage. The automotive business, however, showed flatter sales growth, particularly from the third quarter of 2021 on, with slightly negative growth in the fourth quarter. Overall, sales of the automotive business in the Americas region reached EUR 171.7 million in 2021 (2020: EUR 146.0 million), representing 17.7% growth in sales (organic: 22.3%). The share of Group sales accounted for by the Americas region increased to 42% (2020: 40%) in fiscal year 2021.

Adjusted EBIT in the Americas region improved significantly year-on-year to EUR 52.7 million (2020: EUR 31.0 million). The adjusted EBIT margin for the Americas region was thus 11.3% (2020: 7.9%). This is primarily attributable to the very good sales performance. Effects from government incentives for wage support also had a positive impact. By contrast, operating earnings in the Americas region in fiscal year 2021 were impacted by the high price level for raw materials, including mainly steel, while in the previous year operating earnings were mainly impacted by the consequences of the corona pandemic.

Asia-Pacific

External sales in the Asia-Pacific region amounted to EUR 172.8 million in fiscal year 2021 and thus exceeded not only the figure for the pandemic-ridden previous year by 9.9% (2020: EUR 157.2 million), but also the level of the pre-crisis year 2019 (EUR 163.4 million) by 5.8%. Organic sales growth totaled 9.1% in fiscal year 2021, and currency effects had a positive impact of 1.9%. The positive development is mainly attributable to strong demand from the Chinese automotive industry, especially in the first half of 2021, which resulted in EJT sales growth of 12.9% (organic: 10.6%) to EUR 116.9 million (2020: EUR 103.5 million), thus exceeding the sales level of the pre-crisis year 2019 by 16.1%. Nevertheless, the global shortage of semiconductors and the resulting production backlog in the automotive industry had a negative impact in the past fiscal year, which was reflected in declining EJT sales in the third and fourth quarters of 2021. By comparison, SJT sales amounted to EUR 55.3 million (2020: EUR 52.9 million), resulting in a 4.6% increase and in organic terms by 6.7%, respectively, compared to the corona year 2020. The Asia-Pacific region accounted for 16% of Group sales (2020: 17%) in fiscal year 2021.

The Asia-Pacific region recorded adjusted EBIT of EUR 25.0 million in fiscal year 2021, significantly exceeding not only the comparative figure for the previous year (2020: EUR 20.0 million) but also the pre-crisis level (2019: EUR 19.7 million). The adjusted EBIT margin amounted to 14.0% and thus improved again compared to the previous year (2020: 12.6%; 2019: 11.8%). The main reason for the positive development in the Asia-Pacific region was primarily the strong sales growth in the region coupled with strict cost discipline. In addition, there were further positive effects from government incentives to support wages.

Asset position

Assets

Total Assets

Total assets amounted to EUR 1,498.3 million as of December 31, 2021, an increase of 5.9% compared to the previous year (Dec 31, 2020: EUR 1,414.7 million).

Non-current assets

Non-current assets amounted to EUR 905.6 million as of December 31, 2021, an increase of 1.6% compared to the previous year’s reporting date (Dec 31, 2020: EUR 891.7 million). While the goodwill included in this figure increased by 4.0% to EUR 392.7 million (Dec 31, 2020: EUR 377.6 million) due to currency effects, other intangible assets decreased by 4.4% to EUR 212.8 million (Dec 31, 2020: EUR 222.6 million) as a result of scheduled amortization during the year. By contrast, property, plant and equipment increased by 2.8% to EUR 277.7 million (Dec 31, 2020: EUR 270.0 million). In fiscal year 2021, a total of EUR 47.4 million was invested in fixed assets (property, plant and equipment and intangible assets, excluding leasing) (Dec 2020: EUR 41.2 million). Thus, NORMA Group’s investment activities in fiscal year 2021 resulted in a constant investment ratio of 4.3% compared to the previous year (2020: 4.3%). PRODUCTION AND LOGISTICS The investments mainly related to the construction of the new production site in Wuxi, China, investments in capacity expansions for the water management business in the US, and investments in manufacturing equipment, tools, and testing capacities with a regional focus on Poland, Serbia, the UK, Mexico and Malaysia.

Non-current assets accounted for 60.4% of total assets as of the reporting date (Dec 31, 2020: 63.0%). NOTES

Current assets

Current assets amounted to EUR 592.6 million as of the balance sheet date and were thus 13.3% above the level of the previous year’s reporting date (Dec 31, 2020: EUR 523.0 million). The main reason for this was the strong increase in inventories by 36.7% to a value of EUR 208.0 million (2020: EUR 152.2 million). On the one hand, the increase resulted from the strong recovery of the business and, on the other hand, was due to the price increases in material procurement during the year as well as the increase in inventories during the year. The increase in current assets was also due to an exchange rate effect relating to the reporting date in connection with the US dollar. Trade and other receivables increased by 3.0% to EUR 162.0 million as of December 31, 2021 (Dec 31, 2020: EUR 157.3 million). In addition, EUR 6.0 million was reclassified from property, plant and equipment to assets held for sale in fiscal year 2021.

At EUR 185.7 million, cash and cash equivalents were nearly at the level of the previous year (Dec 31, 2020: EUR 185.1 million). At 39.6%, current assets as a percentage of total assets increased slightly compared to the previous year’s reporting date (Dec 31, 2020: 37.0%).

(Trade) Working capital

(Trade) working capital (inventories plus receivables less payables, in each case mainly trade payables) amounted to EUR 189.5 million as of December 31, 2021, and thus increased by 17.9% compared to the previous year (Dec 31, 2020: EUR 160.8 million). The increase can be attributed in particular to the disproportionate increase within inventories, which resulted from a targeted build-up of reserves in advance of the announced price increases for raw materials in fiscal year 2021 in response to challenges on the procurement side. This was partly offset by an increase in trade payables. The working capital ratio (trade working capital in relation to sales) was 17.4% as of December 31, 2021 (Dec 31, 2020: 16.9%).

Liabilities

Equity ratio

Group equity amounted to EUR 668.6 million as of December 31, 2021, and was thus 13.4% higher than in the previous year (Dec 31, 2020: EUR 589.5 million). The consolidated equity ratio increased significantly to 44.6% as of the reporting date of fiscal year 2021 (Dec 31, 2020: 41.7%). The increase in equity mainly resulted from the net profit for the period of EUR 56.1 million, as well as positive currency effects from the translation of foreign operations amounting to EUR 42.9 million. On the other hand, equity was reduced by a total of EUR 22.3 million (2020: EUR 1.3 million) due to the dividend payment (dividend of EUR 0.70 per share) following the 2021 Annual General Meeting.

Net debt

Net debt (financial liabilities, including derivative hedging instruments of EUR 1.7 million, less cash and cash equivalents) amounted to EUR 318.5 million at the end of December 2021. The main reason for the 5.9% year-on-year decrease (Dec 31, 2020: EUR 338.4 million) was net cash inflows from the sum of cash inflows from operating activities, net cash outflows from the procurement and disposal of non-current assets, and from the dividend payment. This was offset by current interest expenses in fiscal year 2021, the increase in lease liabilities due to additions in the area of rights of use, and the valuation-related increase in liabilities from derivatives. In addition, cash-neutral negative net currency effects from foreign currency loans, cash and cash equivalents, lease liabilities, and other financial liabilities had a negative impact on net debt.

Financial liabilities

NORMA Group’s financial liabilities decreased by 3.7% to EUR 504.2 million as of the reporting date in 2021 (Dec 31, 2020: 523.5 million). The main reason for this was the decrease in current loans payable, which mainly resulted from the net repayment of loans in fiscal year 2021. In addition to the scheduled repayment in the area of promissory note loans (EUR 70.3 million), borrowing took place from the commercial paper program in the amount of EUR 45.0 million. Exchange rate effects in connection with the US dollar had an increasing effect on loan liabilities.

Lease liabilities declined by 9.0% compared to the end of 2020. This was due to the fact that the change resulting from repayments (payment of lease installments), the increase resulting from additions in the area of rights of use and interest effects led to a net reduction. By contrast, exchange rate effects, especially on the US dollar liabilities of subsidiaries in the US, had an increasing effect on lease liabilities. Conversely, lease liabilities declined due to reassessments of renewal options.

The decline in other financial liabilities mainly resulted from the repayment of ABS and factoring liabilities and the repayment of liabilities in connection with the minority interests in Fengfan acquired in fiscal year 2020. NOTES

Gearing (net debt in relation to equity) was 0.5 as of the reporting date in 2021 (2020: 0.6).

Leverage (net debt excluding hedging derivatives in relation to adjusted EBITDA for the past twelve months) decreased considerably to 1.9 compared to the previous year (Dec 31, 2020: 3.4). The high level of leverage in the previous year was also influenced in particular by the additional expenses incurred as part of the “Get on track” program. The leverage relevant for the financing agreements (excluding expenses under the change program) was also 1.9 as of the reporting date December 31, 2021 (December 31, 2020: 2.6).

Assets not recognized in the balance sheet

NORMA Group’s trademark rights and patents to the brands it holds as well as customer relationships, if acquired externally, are recognized in the balance sheet under intangible assets. However, important influencing factors for a successful business are also the awareness and reputation of these brands among customers and their trust in NORMA Group products. The trustful customer relationships based on NORMA Group’s long-established distribution network are equally important. In addition, NORMA Group’s workforce makes an important contribution to the company’s success with its extensive experience and specific expertise, so that the knowledge gained over many years in the areas of research and development and project management is also seen as a competitive advantage. The values listed are not recognized individually in the balance sheet, but are partly reflected in goodwill.

Financial position

Financing measures

NORMA Group monitors risks from changes in exchange and interest rates on a regular basis and seeks to limit them by using derivative hedging instruments among other tools. Furthermore, NORMA Group generally strives to achieve a diversification of its financing instruments in order to reduce risks. These also include prolongation of repayment obligations and an even distribution of the maturity profile. Most of the supply and service relationships between individual currencies are simultaneously hedged over the course of the year.

NORMA Group had already successfully refinanced its bank credit lines in fiscal year 2019, thus creating further financial security and even greater flexibility for the future. The credit agreement has a total volume of initially EUR 300 million, including a revolving facility of EUR 50 million and a flexible accordion facility. An additional EUR 50 million revolving facility was agreed under the existing credit agreement in October 2021. The refinancing was concluded with a banking syndicate consisting of ten international banks. In addition, a sustainability component links the financing conditions to NORMA Group’s commitment in the area of corporate responsibility. In 2021, as in the previous year, NORMA Group was able to achieve an improvement in its sustainability scoring, which enabled further savings to be realized. After exercising the first of two extension options from the syndicated loan agreement in fiscal years 2020 and 2021, all components of the loan agreement will be available to NORMA Group through at least 2026. This ensures maximum financing flexibility.

The additional credit line of up to EUR 80 million taken out in 2020 in response to the coronavirus pandemic and installed for one year was not extended further after this period expired in the summer of 2021.

The commercial paper program introduced in 2019 is used for short-term liquidity management and was utilized in the amount of EUR 65 million as of December 31, 2021. NORMA Group’s gross debt (liabilities to banks) was reduced again from EUR 478 million to EUR 463 million in 2021. As of December 31, 2021, none of the additional available credit lines totaling EUR 100 million had been utilized.

NORMA Group uses interest rate hedges to hedge interest rate risks that could arise from the external financing components. As of December 31, 2021, the average interest rate of the gross debt (excluding derivatives) was 1.30%. NORMA Group’s maturity profile, based on the utilization of the short-term CP program and the promissory note loans I (2013), II (2014) and III (2016), as well as the syndicated bank loan (2019), was shown in the Graphics G029 and G030: “Maturity profile by financial instrument” and “Maturity profile by currency” as of December 31, 2021.

As of the balance sheet date in 2021, NORMA Group complied with all key figures contained in the credit agreements (financial covenants: net debt in relation to adjusted Group EBITDA).

Concrete future financing steps depend on the current changes in the financing markets and acquisition potentials.

Cash flow

Net operating cash flow

In fiscal year 2021, NORMA Group generated net operating cash flow (adjusted EBITDA less changes in working capital and investments from operations) of EUR 99.8 million (2020: EUR 78.3 million). Positive effects were realized here primarily through the significantly improved EBITDA compared to the pandemic-ridden previous year. On the other hand, the cash outflow from (trade) working capital and the renewed increase in capital expenditure compared to the previous year due to the higher level of business activity had a diminishing effect on net operating cash flow. Net operating cash flow in the same period of the previous year was impacted by the partly non-cash expenses for the “Get on track” program.

Cash flow from operating activities

Cash flow from operating activities decreased significantly to EUR 108.4 million in fiscal year 2021 (2020: EUR 133.5 million). While net profit for the period had an increasing effect in the current reporting period, cash flow from operating activities was primarily impacted by the cash outflow for trade working capital. Cash outflows from the restructuring provisions recognized in the previous year also had a reducing effect. Notes

Cash flow from investing activities

The cash outflow from investing activities increased to EUR 45.2 million in fiscal year 2021 (2020: EUR 39.1 million). This is due to the significant business recovery in 2021 and the related increase in the company’s investing activities. By contrast, the focus of investment activities was prioritized and placed on selected areas in the previous year due to COVID-19. In addition, ongoing customer and strategic projects, as part of the “Get on track” program, for example, were prioritized.

Investments in the EMEA region included the expansion of production capacities for electromobility applications in Poland, capacity expansions in the fluid systems business in Serbia and investments in a new mold concept in the UK. Investments in the Americas region included capacity expansions in the water management field and investments in testing capacities in the fluid components and systems area, including for electromobility applications. In the Asia-Pacific region, construction of the new production site in Wuxi continued and was completed in March 2021. In addition, investments were made in capacity expansions in the Fasten and Fluid businesses and in the manufacture of products for the US water market.

Cash flow from financing activities

The cash flow from financing activities decreased to EUR -71,1 million in fiscal year 2021 (2020: EUR -81,0 million). This was mainly due to significantly lower net payments for loans of EUR -27,9 million (2020: EUR -56,2 million) and the lower interest payments (2021: EUR 10.1 million; 2020: EUR 12.9 million). By contrast, the cash flow from financing activities in fiscal year 2021 includes increased payments for dividends to the shareholders of NORMA Group SE in the amount of EUR -22,3 million (2020: EUR -1.3 million).

Production and logistics

NORMA Group manufactures and markets more than 40,000 different products and operates 26 production sites all over the world. In addition, the company has a broad network of distribution, sales and competence centers through which it ensures timely delivery to its customers in the respective regions.

Production and capacity utilization

The degree of utilization of NORMA Group’s production and distribution sites varies between the global sites. In the emerging markets, where NORMA Group’s business is still being established, the capacity utilization of the production plants in terms of floor space is still relatively low. Forward-looking investment decisions there ensure that sufficient space is available for the flexible expansion of production. In industrialized countries and markets where NORMA Group already has a long-standing market position and production space is largely utilized, investments in additional space are avoided wherever possible. NORMA Group’s goal here is to optimize production processes by increasing efficiency in such a way that additional capacities are created within the existing area.

The capacity utilization of the production facilities can be varied according to customer demand and the order situation. Several different products with various specifications can be manufactured using the current production lines within the individual product categories by performing minor retooling measures. This allows production to be optimally aligned with current customer demand.

In fiscal year 2021, NORMA Group’s production activities were affected in particular by the disruption of supply chains worldwide due to the corona pandemic. In this context, the occurrence of extraordinary weather events also had a negative impact, which further impaired the closely interlinked global supply chains. In the Americas region, for example, the severe onset of winter in Texas in March 2021 led to considerable restrictions in the area of transport logistics. Furthermore, the flood disaster in western Germany in July 2021 resulted in dramatic production losses at NORMA Group suppliers. In the context of these events, both the production activities and the deliveries of NORMA Group were noticeably affected, especially in the third quarter of 2021 and partly in the fourth quarter.

Measures to bundle production activities under the “Get on track” change program further implemented

In fiscal year 2021, NORMA Group continued to implement the “Get on track” change program initiated back in November 2019 to increase efficiency and competitiveness.

In connection with the closure of the Gerbershausen, Germany, site by the end of 2022, which was announced in June 2020, three product groups were successfully relocated from Gerbershausen to Hustopeče, Czech Republic, in the reporting year. In addition, one product group was integrated into the production site in Anderstorp, Sweden. Production of the relocated product groups has already started.

In addition, the integration of Fengfan’s production at the Shaoxing site in China into the existing plant in Changzhou in the first quarter of 2021 also contributed to the further consolidation of NORMA Group’s production landscape. As a result, business activities can now be even better aligned with the strategic business units Mobility and New Energies as well as Industry Applications. SIGNIFICANT DEVELOPMENTS IN FISCAL YEAR 2021

New plant opened in China

Due to the increase in demand, especially for connectors and plastic connectors, NORMA Group has expanded its production capacities at its site in Wuxi, China, and almost tripled the total production area. The new plant not only enables an expansion of the product range for each market segment, but also a local market launch of new products. At the same time, it was possible to introduce pipeline systems, including for fuel application, urea transport and cooling water systems.

The new plant in Wuxi was completed in March 2021. In mid-April, the production facilities and materials were transferred from the previous site, also in Wuxi, to the new plant, whereupon production commenced at the end of April 2021. The previous site was closed as part of the transfer of activities to the new production plant.

The expansion of production capacities in Wuxi is part of NORMA Group’s growth and localization strategy.

Investments in capacity expansion

NORMA Group invested in the expansion of its capacities in fiscal year 2021. The focus of investment activities was mainly on the areas of water management and electromobility. The following table provides an overview of the most significant strategic investments in the current reporting year.

Continuous optimization of the entire value chain

At NORMA Group, all internal process steps in the value chain are continuously examined for optimization potential. The Global Operational Excellence Management System is an important tool that helps to analyze existing processes, identify potential for improvements, introduce the appropriate measures for implementation and realize cost saving projects. As a result, many processes have already been automated and standardized in recent years, so that significant economies of scale have been achieved.

NORMA Group has been implementing the NORMA Group Production System (NPS) at all of its production plants worldwide since 2014. The goal of the NPS is to increase operational performance, safety, delivery reliability and quality in the plants and to identify and realize further cost savings. NORMA Group uses a “toolbox” of lean methods for this purpose. These include the 5S methodology, the daily Gemba walk, setup time optimization using SMED (Single Minute Exchange of Die) and TPM (Total Productive Maintenance). Furthermore, a standardized problem-solving process ensures that internal and external customer complaints are processed more quickly and effectively.

Customer proximity and a secure supply chain

In order to optimize its supply chain costs, NORMA Group always strives to keep the geographical distances of the value chain as short as possible and avoid intermediate steps that do not add value via other NORMA Group sites. The goal is therefore to manufacture close to the customer, which not only leads to an optimization of working capital and supply chain costs, but also minimizes delivery risks, reduces negative effects on the environment and ensures the higher flexibility that is increasingly being demanded. The corona pandemic and the related short-term fluctuations in demand once again underscored the importance of short and direct delivery routes in fiscal year 2021. Due to capacity bottlenecks in ports and the resulting shortage of sea containers, sea transports in particular pose new challenges for the logistics of internationally operating companies, including NORMA Group. The main challenge is to be able to react flexibly to fluctuating demand at all times despite longer transit times.

Despite these efforts, cross-border deliveries are indispensable for NORMA Group in many places in order to be able to react flexibly to customer requirements. Optimized and secure customs processes are therefore essential. For this reason, NORMA Group participates in various customs trade partnership programs in the US, China and the EU, for example. Through the supply chain security programs, in particular the Authorized Economic Operator (AEO) and the Customs Trade Partnership against Terrorism (C-TPAT), which are part of the global Compliance Program, NORMA Group strives to ensure a legally compliant supply chain. By regularly reviewing all its business partners, NORMA Group is able to rule out the supply of legally sanctioned third parties. In addition, internal organizational instructions and regular reviews ensure compliance with the relevant statutory export control regulations.

Quality management

NORMA Group’s products are usually “mission-critical” in its customers’ end products. This means that any quality defects or functional failures can have a significant direct impact on customers or end users. In this context, product safety and the health of end users correlate strongly with the quality of NORMA Group products. Ensuring that products meet all customer expectations and quality requirements is therefore of the highest priority for NORMA Group. PRODUCT QUALITY AND SAFETY

In order to ensure a global and standardized quality approach, all NORMA Group production sites are certified according to international quality standards. Currently, all production sites are certified according to ISO 9001, EN 9100 or IATF 16949. In addition to the production sites, NORMA Group Holding GmbH is certified according to ISO 9001. This certification helps ensure that NORMA Group as a whole – i.e. including all relevant specialist departments at Group level – complies with high quality standards. The extensive requirements of the quality standards also ensure the safety of the end products through measures such as risk assessments, training, incident assessments and appropriate corrective actions.

NORMA Group’s Quality Management is responsible for the introduction, certification and continuous implementation of the quality management system. To this end, local quality management officers have been appointed at each NORMA Group production site, who report to the respective regional quality managers and global Quality Management.

NORMA Group operates globally. Therefore, a key challenge here is to recognize and understand the various customer requirements as well as the many different standards and market conditions. NORMA Group meets this challenge by localizing its production and using standardized tools.

NORMA Group uses a variety of key performance indicators to measure quality, customer satisfaction and delivery performance. The most important indicator is the number of defective parts rejected by customers – so-called parts per million (PPM). This key figure is recorded continuously and reported to the Management Board on a monthly basis. At the same time, root cause analyses are carried out at plant level and countermeasures defined and initiated.

The number of defective parts per million (PPM) was 4,9 (2020: 5.1) in fiscal year 2021. This development shows that the improvement trend is clearly continuing, which is at the same time an expression of increasingly demanding customer requirements. NON-FINANCIAL KEY PERFORMANCE INDICATORS

Purchasing and supplier management

The procurement costs of materials, goods and services have a significant impact on NORMA Group’s earnings situation. By managing all procurement activities and selecting suppliers, Purchasing can make a significant contribution to the success of the Group. The main task here is to optimize purchased services and minimize costs by taking Group-wide economies of scale into account.

Global purchasing organization

NORMA Group’s purchasing activities are divided into four superordinate product groups based on the strategic product categories:

• Steel and metal components (Fasten)

• Technical granulates, plastic and rubber products (Fluid)

• Standard plastics, components and commodities (Water)

• Capital goods, non-production materials and services (indirect goods and services)

In addition to this central structure, there is a subdivision into the regional segments EMEA, Asia-Pacific and Americas. This organizational structure enables centralized control by the respective experts of the product groups and the integration of the knowledge of the regional or local purchasing teams concerning specific local market conditions. NORMA Group thus ensures professional purchasing management and the achievement of competitive prices for goods and services. E-procurement solutions support the global organization in its work and enable efficient reporting.

Development of material prices

The costs of materials amounted to EUR 500.0 million (2020: EUR 417.5 million) or 45.8% (2020: 43.8%) of sales revenue in fiscal year 2021. As a result, the cost of materials ratio was thus once again higher than in the previous year. EARNINGS POSITION The purchasing volume, which is used for internal management purposes and adjusted for currency effects, amounted to around EUR 481.5 million (2020: EUR 404.1 million). Of this amount, EUR 372.2 million (77%) was attributable to sales of production materials.

Steel and metal components Fiscal year 2021 was characterized by a highly challenging environment. Among other things, this was due to the effects of the ongoing coronavirus pandemic and the resulting continued congestion of certain supply chains. Another major negative factor was the continuing shortage of raw materials, which led to severely limited material availability and a tense procurement price situation. Against this backdrop, ensuring security of supply for NORMA Group’s production sites worldwide was the top priority of purchasing and supplier management in the past fiscal year. Although the negative effects of the tense market environment were successfully minimized by the multi-sourcing strategy that has been in place for years, in some cases not all materials were available in the desired quantities at all times. Force majeure declarations in the aftermath of the July 2021 floods in Germany temporarily exacerbated the situation.

For the stainless-steel product group, the most important product group for NORMA Group, slight reductions in the base prices (basic purchase price for stainless steel excluding alloy surcharges) were achieved in the annual price negotiations for the EMEA region despite the market conditions described above. In the Americas region, price stability was achieved until the fourth quarter of 2021. In contrast, the procurement market in Asia-Pacific, in China in particular, was already characterized by significant increases in procurement prices at the beginning of 2021. In the further course of the year, NORMA Group was confronted with a noticeable increase in the price of goods purchased, in some cases on a quarterly basis. This is due in particular to the fact that alloy surcharges are already included in the price agreements in the Asia-Pacific region.

In many cases, NORMA Group succeeded in slightly reducing the purchase prices for the metal components used in fiscal year 2021. However, in the case of expiring contracts, double-digit percentage price increases usually had to be accepted.

In the product group of surface-refined non-stainless steel, massive price increases were recorded both in the first half of 2021 and in particular in the second half of 2021, resulting in significantly higher procurement prices overall compared to the previous year. This was further exacerbated by the price development of the new monthly fixed alloy surcharges (price components include nickel, scrap and ferrochrome prices), especially as procurement costs for nearly all grades increased nearly every month and thus recorded their highest level in December 2021.

Technical granulates, plastic and rubber products

In the product group of engineering granulates, plastics and rubber products, fiscal year 2021 was characterized by considerable volatility and uncertainty. The surge in demand that had already taken place at the end of 2020 continued in the first three quarters of 2021. This led to sustained high price pressure and material shortages on the global procurement markets. This development was exacerbated by extreme weather events, such as the unpredictable onset of winter in Texas and the hurricane season in the US. As a result of these extreme weather events, several major suppliers issued force majeure declarations. Despite this environment, NORMA Group was able to ensure sufficient volume supplies through targeted supplier management, albeit at increased input costs in some cases. The global shortage of glass fibers as well as limited transport capacities also had a negative impact on the price development of the engineering plastics product group. This effect was partially mitigated by the many long-term price agreements that NORMA Group had concluded with its suppliers for 2021.

The noticeable decline in demand in the fourth quarter of 2021 – particularly from the automotive sector – led to a significant improvement in the supply situation, although the majority of force majeure cases had not been lifted by the end of 2021. In contrast, prices for engineering plastics did not decline despite reduced demand. The reason for this was that in some cases falling prices for intermediates were more than offset by suppliers’ demands for increases in energy, transportation and fiberglass surcharges. It can be assumed that the situation will not improve before the second half of 2022. FORECAST REPORT

Standard plastics, components and commodities

The market for granulates was affected by significant market turbulence in 2021. In February 2021, the unexpected onset of winter in the US state of Texas caused around 90% of the country’s plastics production to be down for several weeks in many cases. The resulting direct capacity shortage combined with a persistently high level of demand, caused prices to rise to unprecedented levels. Global logistical challenges also had a negative impact in this context. The overall tight availability of materials triggered an extreme wave of demand throughout the industry that caused prices to remain at a very high level throughout 2021.

With the decline in demand and rising inventories, the first signs of a weakening in price levels became visible again in the fourth quarter of 2021. However, this did not affect the PVC sector, whose capacities were hit above all by the negative effects of hurricane “Ida” in the US in the third quarter of 2021. This is justified by the situation that the industry was still busy securing necessary raw materials for the production of the resin on the one hand, and on the other hand by the fact that at the same time the industry started to rebuild the stocks after removing the damage caused by the hurricane.

High freight costs and special transport conditions for sourced goods in 2021

Global supply chains faced a challenging situation in fiscal year 2021 for various reasons. In the area of sea freight, extreme weather conditions and the typhoon in China at the beginning of 2021 led to the closure of major container ports. The prolonged blockade of the Suez Canal also had a dramatic impact on global shipping. Against this backdrop, freight costs rose to extreme heights, especially as shipping companies, logistics firms and ports struggled to keep pace with the surge in trade volumes, while at the same time the resurgence of the coronavirus pandemic in parts of Asia threatened the supply of goods in early 2021. To make matters worse, bottlenecks at ports on the US West Coast had tied up container capacity, driving up transpacific ocean freight prices. As a result, sea freight costs in fiscal year 2021 peaked at up to 400% higher than in the previous year.

Increased costs were also observed for the transport of goods by land due to the strong price increases for diesel fuels in 2021. Significant price differences could be seen between countries, due to various taxes on and subsidies for gasoline. In addition, a significant shortage of drivers continues to be felt in some countries, including the US in particular, further exacerbating existing supply chain disruptions.

Supplier management and structure

The purchasing organization continuously monitors the performance of suppliers. A key instrument in this respect is the annual implementation of detailed supplier evaluations. This involves the use of globally uniform criteria from the areas of quality, logistics, sustainability and commercial aspects. The relevant departments are involved in the assessments at the local level. The evaluation process is mapped using e-procurement software. SUSTAINABILITY IN PURCHASING

The focus of NORMA Group’s supplier selection is a balance of supplier consolidation to reduce complexity and avoiding strong dependencies. This balance is continuously optimized by the purchasing department. The current supplier base is structured as follows: The share of the top 10 suppliers of NORMA Group accounted for 30.6% of the total purchasing volume in fiscal year 2021. The top 50 suppliers accounted for around 63.2% of the total purchasing volume of production material, amounting to EUR 372.2 million.

Workforce

Decentralized organization, jointly lived company culture

The employees of NORMA Group make a significant contribution to the success of the Group. For this reason, personnel management and development play an important role.

NORMA Group’s personnel management is organized on a decentralized basis. This reflects the international nature of the business and the rapid growth of the company. The decentralized organization allows the individual sites to adapt flexibly to local conditions at any time and to contribute their specifications in a targeted manner, particularly with regard to regional expertise in human resources development and recruiting. One of the main tasks of human resources management is to ensure the availability of specialist and managerial staff on an ongoing basis. The aim here is also to recruit as many of the specialist staff required as possible from our own junior staff and thus to become less dependent on the external labor market. The targeted training and development of its own workforce is therefore an integral part of NORMA Group’s human resources strategy.

To promote a uniform company culture, NORMA Group has formulated central guiding principles and standardized company values that reflect the fundamental convictions of the company. These guiding principles are communicated and lived at all sites.

Development of the workforce figures

As of December 31, 2021, NORMA Group employed 8,203 people across the Group (core workforce including temporary workers). Compared to the previous year’s reporting date (December 31, 2020: 8,790), this represents a 6.7% decline. 2,012 temporary workers were employed at the end of December 2021 (December 31, 2020: 2,155) and thus accounted for around 25% of the total workforce, unchanged from the previous year (2020: 25%).

The lower number of employees compared to the previous year is mainly due to a decrease in the EMEA region (-10.8%). This was primarily due to the restructuring measures carried out at the Maintal site as part of the “Get on track” program, as well as the closure of the Gerbershausen site by the end of 2022 announced in the previous year and the associated staff reductions. The number of employees also fell slightly year-on-year in the Americas (-1.1%) and Asia-Pacific (-2.7%) regions.

The total number of employees (core workforce and temporary workers) in the current reporting year comprises 4,572 direct employees (2020: 5,124) and 1,449 indirect employees (2020: 1,516) and 2,182 salaried employees (2020: 2,150). While direct employees are people involved in the manufacturing process, indirect employees are people from production-related areas, such as the quality department. The group of salaried employees is primarily assigned to administrative functions.

Coping with the corona pandemic

The health and safety of its employees is a top priority for NORMA Group. Therefore, NORMA Group introduced measures to protect its workforce and to contain the spread of the virus right at the beginning of the corona pandemic. The measures are controlled by a global COVID-19 task force, which is responsible for implementing safety measures in accordance with the recommendations of the World Health Organization (WHO) and regulatory requirements at the local and regional levels, as well as for their central control and monitoring. The measures range from standardized emergency plans and internal COVID-19 guidelines, which regulate behavior in the workplace and are regularly adapted in line with current local conditions, to conducting vaccination campaigns. Regular reporting provides the necessary transparency on current cases of infection or quarantine and allows for rapid intervention.

Further information on employee satisfaction, occupational safety and health, training and education and diversity and equal opportunities can be found in the chapter CR REPORT.

Environmental protection and ecological management

As a manufacturing company, NORMA Group is well aware of its environmental, economic, and social responsibility. Environmentally compatible and sustainable economic activity is therefore a main element of the Group strategy. For this reason, the company considers it important to systematically include environmental aspects in its business decisions. Therefore, NORMA Group has implemented a Group-wide environmental management system and certifies its production sites in accordance with ISO 14001.

NORMA Group’s goal is to increase the efficiency of its production processes, continuously lower its energy consumption. In addition, the generation of waste is to be reduced wherever possible. The long-term cost savings associated with this contribute to the economic efficiency of the Group.

NORMA Group quantifies its targets for the reduction of greenhouse gases, water consumption and waste generation at its production sites and publishes them in its CR Roadmap. Moreover, NORMA Group includes the environmental impact resulting from the supply chain as well as from the application of its products in its environmental strategy. Progress towards climate, water and waste targets is reviewed at the local level through regular management assessments and at the global level through the reporting of aggregated data to the Management Board.

Climate-relevant CO₂ emissions (Scope 1 and 2) are considered an important non-financial performance indicator in the area of the environment and have also been part of the Management Board’s remuneration system since January 2020. NORMA Group aims to reduce CO₂ emissions generated during its production processes by around 19.5% by 2024 compared to the reference year 2017. CLIMATE PROTECTION

Detailed information on the environmental strategy can be found in the CR REPORT.

Marketing

In order to further increase awareness of NORMA Group’s products all over the world, boost product sales, strengthen customer relationships and thereby contribute to the Group’s growth, NORMA Group’s long-term marketing strategy is based on the following objectives:

• Building a strong NORMA Group brand image

• Focusing on marketing activities

• Optimizing the brand portfolio

• Optimizing the marketing tools used

• Achieving a better understanding of market needs

In order to be able to focus on its end markets and customers as much as possible, NORMA Group aligns all of its marketing activities to address local market conditions and consumer habits in its respective regions and markets. The regional marketing units are responsible for executing the various activities and synchronizing them with NORMA Group’s operational objectives.

Marketing focus in 2021

The main marketing activities in fiscal year 2021 included the following:

• Launch of a global brand project for the targeted revision of the brand architecture and the optimal positioning of key brands in the market.

• Definition of a digital commerce strategy with a time horizon of five years for important sales-related areas: NORMA Group's presence on Market Places, support for customers in digital activities and development of a NORMA portal with a wide range of information and interaction options for customers

• Further development of existing websites for special customer groups (e.g. Automotive Aftermarket, Water Management, EMEA SJT industry)

• Further expansion of the Product Information Management (PIM) platform as a basis for further digitalization activities

After being able to participate in only a few trade show activities in 2020 due to corona, this marketing tool was used more intensively again in 2021 to gain new customers and strengthen existing customer relationships.

Marketing expenses in 2021

Marketing expenses amounted to a total of EUR 4.1 million in fiscal year 2021 and were thus significantly below the level of the previous year (2020: EUR 4.0 million). Marketing expenses as a percentage of sales amounted to 0.4% in fiscal year 2021 (2020: 0.4%).