Letter from the Management Board
Dear Shareholders, Customers and Business Partners,
Behind us lie another stormy twelve months and a fiscal year with mixed impulses.
Despite the ongoing corona pandemic, the economic environment brightened significantly again in 2021. We saw a pleasing recovery in demand in the customer industries of importance to us in the first half of the year. The renewed flare-up of the corona pandemic caused uncertainty in the second half of 2021, however. In addition, the global shortage of materials due to continuing disruptions in global supply chains weighed particularly heavily on the international markets. This resulted in further impacts which noticeably dominated the business for many industries in fiscal year 2021.
Like the entire industry, NORMA Group was also confronted with extensive challenges. The shortage of materials resulting from the distortions in the supply chains entailed a sharp rise in the price level for production materials, particularly in the second half of 2021. In conjunction with this, the cost of freight and transport services also rose to unprecedented levels. Against this backdrop, we had to adjust our forecast for operating profit in fiscal year 2021 in September 2021. In addition, we also felt the resulting market adversities in the erratic ordering behavior of our customers in the automotive industry, who called off lower volumes or postponed orders due to the shortage of electronic components. The challenging environment led to a situation that required not only great flexibility, but also a high degree of discipline. By implementing a series of countermeasures, we succeeded in containing the negative effects on our business as best we could.
With organic sales growth of 16.2% to EUR 1,091.9 million, we were in line with the assumption of low double-digit organic Group sales growth published in March 2021, despite the difficult and uncertain environment. In the Americas and Asia-Pacific regions, sales in fiscal year 2021 even noticeably exceeded the level of the pre-crisis year 2019. Our water business once again grew strongly, accounting for around 24% of total sales. Thanks to the good development of our sales, our operating result, adjusted EBIT, at EUR 113.8 million also significantly exceeded the figure for the corona-laden previous year, but the earnings development was burdened by the ongoing bottlenecks in the supply and logistics chains, particularly in the fourth quarter of 2021. The adjusted EBIT margin was 10.4%, developing in line with our revised expectations in September 2021. These successes are the achievement of our dedicated employees and evidence of well-coordinated teamwork.
The year 2021 thus showed once again that we are solidly positioned with our broadly diversified setup and our two sales channels Engineered Joining Technology and Standardized Joining Technology. At the same time, it became clear that agility is one of the key prerequisites for success. We are focusing on this with our “Get on track” change program, which we launched in 2019. Three key steps were achieved in this regard in fiscal year 2021. Firstly, we successfully consolidated our sites in the Asia-Pacific region by integrating Fengfan’s production from the Shaoxing site into a plant in Changzhou. This means that local business activities can now be even better aligned to the strategic business fields of Mobility and New Energy as well as Industrial Applications. Secondly, in connection with the closure of the Gerbershausen site by the end of 2022 that we announced in June 2020, the first product groups have already been successfully transferred to the Czech Republic and Sweden. Thirdly, we have once again further expanded our digital commerce activities. This includes in particular the expansion of the NORMA Group web shop, which was newly opened in the previous year, to include distribution customers in the Benelux countries, thus creating new sales potential in the EMEA region.
The topics of digitalization and smart innovations are moving the globe. This is happening with increasing momentum. NORMA Group is focusing in particular on the specific requirements of its customers. We not only focus on this in sales, but also in our own production and increasingly also in our products. With our excellent team of developers and product engineers, we also focus on constantly strengthening our innovative capacity and offering our customers intelligent solutions. One example is the recently launched SR QR Code quick connector. With it, we enable our customers to further digitalize their manufacturing processes. In all our activities, proximity to the customer is an equally essential factor for us. As part of NORMA Group’s growth and localization strategy, we successfully completed the expansion of production capacities at our site in Wuxi, China, in March 2021, nearly tripling our production area. Against the backdrop of increasing customer demand, this now enables us to offer a broader product range for each market segment; at the same time, it supports the local market launch of new products, especially innovative fluid components.
All of these steps are - in line with the title of our Annual Report 2021 - “Sustainable. Relevant.” for us. But these attributes can also be applied to our business model in particular. With our strategy focused on value enhancement, we have already set an important course for a successful future. We have a sustainable business model that is aligned to the relevant megatrends of climate change and resource scarcity. This enables us to address our customers’ specific requirements. Based on this, we are focusing on continuous further development in our strategic business units: Water Management, Industrial Applications, and Mobility and New Energy. Corporate responsibility and sustainability are vital to our strategy. We live up to this claim with our innovative and sustainable products and by continuously optimizing our production processes. We are continuously working to reduce our ecological footprint and in particular greenhouse gas emissions in a targeted manner by implementing measures at our global sites. One of these includes the deployment and use of climate-neutral electricity. In this way, and also with a focus on the careful use of resources, we succeeded in significantly reducing our CO2 emissions by 12.8% in the current fiscal year compared to the corona-burdened previous year.
Dear shareholders, the developments in fiscal year 2021 and the associated turbulence are also reflected in the performance of the NORMA Group share. Spurred on by the general brightening of the global economy, the NORMA Group share initially reached its highest level of the year at the beginning of June 2021. In the course of the second half of the year, the share price corrected in line with the overall market, which could not be fully compensated for by the end of the year. The NORMA Group share closed the fiscal year 2021 at a closing price of EUR 33.88, 19.1% lower than at the end of 2020.
Predictions are very difficult in an environment that continues to be characterized by major uncertainties. The year 2022 will remain challenging for the time being. Here, we are looking at the events and potential effects in connection with the military Russia-Ukraine crisis in particular. NORMA Group does not operate any production or sales sites in Ukraine or Russia and the share of business with customers in Russia and Ukraine in NORMA Group’s total sales is less than 1%. However, it is currently impossible to fully assess how the military Russia-Ukraine crisis will affect the global economy and thus NORMA Group in the long term. What is certain, however, is that the issue of discarded supply chains will definitely continue to occupy us, especially in the first half of 2022. The corona pandemic also remains present. Nevertheless, we are confident that NORMA Group will continue to develop well. Our order books are well filled and our innovative products are in demand with our customers. By implementing targeted measures, we are actively creating the conditions for further growth and successively increasing our profitability. We therefore remain committed to our mission of being the world market leader for joining and fluid handling technology in today’s and tomorrow’s markets.
We also want you, our shareholders, to participate appropriately in our company’s success. We will therefore propose a dividend of EUR 0.75 per share at this year’s virtual Annual General Meeting on May 17, 2022. This equates to a payout ratio of around 33% of our adjusted net income for the period in line with our sustainable dividend strategy.
We would like to express our sincere thanks to our more than 8,200 employees. Through their tireless commitment, flexibility and solidarity, they have all shown resilience and great stamina in these challenging times.
Let’s continue on this growth path together – “Sustainable. Relevant.”
These contents are part of the Non-financial Group Report and were subject to a separate limited assurance examination.