Business development

The business performance of Norma Group SE essentially corresponds to that of the Group and is described in detail in the chapter  ECONOMIC REPORT.

The result of NORMA Group SE determined in accordance with the German Commercial Code (HGB) is mainly influenced by the business development and the results of the affiliated companies. These are mainly reflected in the income from profit and loss transfer as well as the currency effects, the allocations and the interest result.

Key financial control parameters with regard to the individual company NORMA Group SE are earnings before taxes and retained earnings to ensure the ability to pay dividends on an ongoing basis. For this reason, NORMA Group monitors and optimizes the ability of its subsidiaries to pay dividends. This is of particular relevance as the adjusted consolidated net income is the decisive factor for the amount of the dividend distribution to the shareholders. NORMA Group aims for a payout ratio of 30% to 35% of the adjusted consolidated net income.

Earnings before taxes amounted to EUR 17,503 thousand in the reporting year (2021: EUR 29,065 thousand). Earnings before taxes developed significantly weaker than forecast, mainly due to the lower income from profit and loss transfer agreements.

 

Earnings

NORMA Group SE reports earnings after taxes of EUR 13,763 thousand in 2022 (2021: EUR 28,228 thousand).

At EUR 5,690 thousand, the company generated EUR 604 thousand more in sales from license fees for the NORMA Group brand (2021: EUR 5,086 thousand).

Other operating income amounted to EUR 20,156 thousand in 2022 (2021: EUR 15,432 thousand). This included higher income from currency translation of EUR 4,259 thousand (2021: EUR 2,839 thousand) and income relating to other periods of EUR 376 thousand (2021: EUR 386 thousand), mainly resulting from the reversal of provisions. Furthermore, this item included income of EUR 14,132 thousand (2021: EUR 12,047 thousand) for licenses used by subsidiaries but held by other Group companies. In this case, the company assumed the distribution of the license income.

Compared to the previous year, personnel expenses increased by EUR -860 thousand from EUR -6,605 thousand to EUR -7,465 thousand. The change resulted mainly from the severance payment to a former member of the Management Board. The average number of employees in the reporting year was 26 (2021: 25 employees). In addition, reference is made to the separate disclosure of Management Board remuneration in the Group’s Remuneration Report.

Other operating expenses in the amount of EUR -31,028 thousand (2021: EUR -23,513 thousand) included in particular expenses for license fees in the amount of EUR -14,132 thousand (2021: EUR -12,047 thousand), which are distributed by the company to the subsidiaries as license holders. In addition, there were expenses for consulting services (M&A consulting, services of NORMA Group Holding GmbH, legal advice) as well as the increased expenses from currency translation compared to the previous year in the amount of EUR -5,736 thousand (2021: EUR -3,126 thousand).

In the reporting year income from investments resulting from a dividend distribution of NORMA Pennsylvania, Inc. amounted to USD 10,000 thousand (EUR 9,502 thousand; 2021: EUR 0 thousand). Due to the current profit and loss transfer agreement with the subsidiary NORMA Group Holding GmbH, corresponding income in the amount of EUR 22,377 thousand (2021: EUR 41,587 thousand) was received. This amount was lower in particular due to the weaker earnings situation of NORMA Germany GmbH. For more details, please refer to the earnings development in the Group Management Report.  SEGMENT DEVELOPMENT EMEA

In the reporting year 2022, income from loans of financial assets amounted to EUR 1,416 thousand (2021: EUR 2,168 thousand). Other interest and similar income increased by EUR 809 thousand to EUR 822 thousand (2021: EUR 13 thousand). Interest and similar expenses decreased by EUR -1,124 thousand from EUR -5,036 thousand to EUR -3,912 thousand .

Earnings before taxes decreased by EUR 11,562 thousand to EUR 17,503 thousand (2021: EUR 29,065 thousand). Income taxes for NORMA Group SE amounted to EUR -3,740 thousand (2021: EUR -836 thousand). and mainly

relate to tax expenses for previous years, in particular due to transfer pricing adjustments in the Group. The result after taxes amounted to EUR 13,763 thousand in the reporting year (2021: EUR 28,228 thousand).

The Annual Financial Statements as of December 31, 2022, show retained earnings of EUR 36,768 thousand (2021: EUR 46,901 thousand). The proposal to distribute EUR 17,524 thousand for fiscal year 2022 and to carry forward EUR 19,244 thousand forward to new account will be made to the Annual General Meeting on May 11, 2023. This would mean that a cash dividend of EUR 0.55 per share will be paid.

 

Profit and loss account

 

Asset and financial positions

The asset and capital structure of NORMA Group SE is strongly influenced by the holding function of the company within the Group. The cash inflows of NORMA Group SE mainly result from direct or indirect distributions of the subsidiaries. There has been a profit and loss transfer agreement with NORMA Group Holding GmbH since 2015. Due to the solid financial position of NORMA Group SE and its direct and indirect subsidiaries, the company was able to meet its due obligations at all times during the fiscal year.

Of the assets side of the balance sheet, 86.3% or EUR 458,292 thousand (2021: 85.0% or EUR 484,311 thousand) consists of financial assets, including shares in affiliated companies and loans. Shares in affiliated companies remained unchanged at EUR 425,487 thousand. Total loans to affiliated companies declined by EUR 26,019 thousand to EUR 32,805 thousand (2021: decrease of EUR 18,568 thousand to EUR 58,824 thousand).

On the assets side, at 13.0% or EUR 69,194 thousand, receivables from affiliated companies are lower than in the previous year (2021: 14.2% or EUR 80,853 thousand) as of December 31, 2022. These include in particular receivables in the amount of EUR 22,377 thousand (2021: EUR 41,587 thousand) from NORMA Group Holding

GmbH from the profit and loss transfer agreement. In addition, the company has receivables of EUR 31,248 thousand (2021: EUR 25,162 thousand) from the cash pool agreement with NORMA Group Holding GmbH.

In addition to cash and cash equivalents in the amount of EUR 596 thousand (2021: EUR 566 thousand), NORMA Group SE holds the cash pool balances mentioned above with the subsidiary NORMA Group Holding GmbH in the amount of EUR 31,248 thousand (2021: EUR 25,162 thousand).

Compared to the previous year, total assets declined by EUR 38,896 thousand to EUR 530,863 thousand (2021: EUR 569,759 thousand). Liabilities to banks fell by EUR 33,575 thousand to EUR 183,406 thousand (2021: EUR 216,981 thousand), in particular due to the repayment of the commercial papers (EUR -40,000 thousand) and the two external loans (EUR -8,500 thousand; 2021: EUR -70,281 thousand) and, in contrast, the first-time inclusion of the revolving credit facility (EUR +15,000 thousand).

Liabilities to affiliated companies increased by EUR 1,971 thousand to EUR 5,822 thousand in the reporting year (2021: EUR 3,851 thousand), mainly due to the increase in trade payables.

Equity fell from EUR 340,364 thousand to EUR 330,231 thousand in the reporting year. The decrease of EUR 10,133 thousand is due to the net income of EUR 13,763 thousand generated in fiscal year 2022 and, in the opposite direction, the dividend distribution of EUR -23,897 thousand. At 62.2%, the equity ratio is above the level of the previous year (2021: 59.74%), mainly due to the changes in liabilities to banks and the associated lower total assets. Retained earnings remained unchanged from the previous year at EUR 45,000 thousand.

Pension provisions decreased to EUR 4,320 thousand in the reporting year (2021: EUR 5,755 thousand) due to the first-time funding of the reinsurance policy and the updated actuarial assumptions. At EUR 3,546 thousand, other provisions are EUR 1,015 thousand higher than in the previous year (2021: EUR 2,531 thousand).

 

Total assets as of December 31, 2022

 

Financial position

The cash inflows of NORMA Group SE mainly result from direct or indirect distributions of the subsidiaries. A profit and loss transfer agreement has been in place with NORMA Group Holding GmbH since 2015.

Due to its function as the ultimate holding company of NORMA Group, the financial position of NORMA Group SE is significantly dependent on the financial position of its direct and indirect subsidiaries. In this context, NORMA Group SE’s financial requirements for the performance of its Group-wide functions and the maintenance of its ability to pay dividends are mainly covered by the funds received in the course of the IPO, the promissory note loans raised, revolving credit lines and commercial papers, ongoing profit transfers and distributions as well as royalties from its subsidiaries.

The external financing of NORMA Group as well as the intra-Group financing of the Group companies were primarily carried out via NORMA Group Holding GmbH as well as other foreign Group companies.

NORMA Group Holding GmbH has passed on the promissory note loans taken up by NORMA Group SE for the most part as long-term intercompany loans. NORMA Group SE made an unscheduled repayment in the amount of EUR 5,000 thousand in fiscal year 2022. As of the reporting date in 2022, NORMA Group has complied with all key figures contained in the loan agreements (financial covenants: net debt in relation to adjusted Group EBITDA).

In addition, NORMA Group SE together with NORMA Group Holding GmbH has a Senior Facilities Agreement with a bank consortium including comprehensive credit lines. NORMA Group had already successfully refinanced its

bank credit lines in fiscal year 2019, thereby creating further financial security and even greater flexibility for the future. The credit agreement has a total volume of initially EUR 300,000 thousand, including a revolving facility of EUR 50,000 thousand and a flexible accordion facility.

In October 2021, an additional revolving facility of EUR 50,000 thousand was agreed under the existing credit agreement. The additional credit facility of up to EUR 80,000 thousand, which was concluded in 2020 in response to the corona pandemic and installed for one year, was not extended further after this period expired in the summer of 2021.

As of December 31, 2022, the committed credit line of NORMA Group SE had been drawn in the amount of EUR 15,000 thousand (2021: EUR 0).

The commercial paper program introduced in 2019 is used for short-term liquidity management and was utilized to the tune of EUR 25,000 thousand as of December 31, 2022 (2021: 65,000 thousand).

The primary objective of NORMA Group SE’s financial management is to ensure liquidity for current business transactions at all times. Cash and cash equivalents amounted to EUR 596 thousand at the end of 2022 (2021: EUR 566 thousand). In addition, NORMA Group SE has assets from the cash pool with the subsidiary NORMA Group Holding GmbH in the amount of EUR 31,246 thousand (2021: EUR 25,162 thousand). Due to the solid financial position of NORMA Group SE and its direct and indirect subsidiaries, the company was able to meet its due obligations at all times during the fiscal year.

 

Overall statement of the Management Board

In the year under review, NORMA Group SE achieved net profit of EUR 36,768 thousand (2021: EUR 46,901 thousand), taking the net profit of EUR 13,763 thousand (2021: EUR 28,228 thousand) into account. As expected, it was thus possible to ensure the ability to distribute the profit.

NORMA Group SE continues to pursue a sustainable dividend policy with a payout ratio of approximately 30% to 35% of the adjusted consolidated net income, provided that the economic situation permits this.

 

Opportunities and risks

NORMA Group SE acts as the holding company that manages NORMA Group. Its development as well as its risks and opportunities therefore mainly depend on the business development of the companies affiliated with the Group. NORMA Group SE is integrated into the Group-wide opportunity and risk management system. For detailed information, please refer to the chapter Group Opportunity and Risk Management. The description of the internal control system for NORMA Group required under Section 289 (4) of the German Commercial Code (HGB) is also provided there.

NORMA Group SE generates its income mainly from license, profit and loss transfer and investment income of its direct and indirect subsidiaries. Due to its holding function, NORMA Group SE is therefore exposed to the risk of receiving lower investment income as a result of declining profits of the subsidiaries or lower royalty income as a result of lower sales of the NORMA Group companies. In case of increasing profits or higher sales revenues of the subsidiaries, NORMA Group SE will receive higher investment income or higher license income.

In the coming fiscal year as well, military activities as well as economic sanction measures in connection with the Russia-Ukraine crisis could continue to have a negative impact on the global economy and – directly or indirectly –

on NORMA Group’s business activities. This could have a major impact on global supply chains, which could lead to a reduction in sales in the affected markets and to increased energy and raw material prices.

Due to the solid financial position of the NORMA Group companies and the possibility to control distributions of the subsidiaries, the opportunities and risks in connection with investment and license income are assessed as possible with a moderate effect on earnings.

 

Forecast / Outlook

For fiscal year 2023, NORMA Group SE expects a moderate increase in license income for the subsidiaries’ brands and the NORMA Group brand compared to 2022. The expenses from licenses for the Group subsidiaries as license holders are also expected to be slightly higher accordingly. The Management Board of NORMA Group assumes that personnel expenses and other cost factors will also increase moderately compared to previous years.

However, this forecast is made under the assumption that no significant negative effects will occur in connection with the Russia-Ukraine crisis or other influencing factors in 2023 that could lead to a strong weakening of the global economy and to significant pressure on the business development of NORMA Group. The potential influencing factors in connection with the Russia-Ukraine crisis are discussed in the Group’s  FORECAST REPORT.

Taking into account the expected profit transfer from NORMA Group Holding GmbH as well as the interest result for the year 2023, earnings before taxes are expected to be slightly higher than in 2022. In this context, it is assumed that the retained earnings and the company’s ability to pay dividends will continue to be secured.