Comparison of target and actual values

NORMA Group issued a forecast on the development of the Group’s key performance indicators in fiscal year 2022 when it published its Annual Report 2021 on March 24, 2022.  ANNUAL REPORT 2021

Since then, the development of NORMA Group’s operating earnings figures in the course of fiscal year 2022 was affected by the occurrence of a number of obstacles. The main reason for this was the unexpected further increase in the cost of materials due to the sharp rise in gas and energy prices, which could not be fully compensated for by increasing selling prices. Other negative factors included a further rise in inflation, the continuing effects of the war in Ukraine, the risk of further lockdowns in China, and higher logistics and other operating costs. The latter also included IT implementation costs. The Management Board did not expect the challenging situation to ease significantly in the second half of 2022. Management therefore felt compelled to reassess the situation due to the significantly changed environment and the challenges referred to above and adjusted the forecast for the adjusted EBIT margin and net operating cash flow on July 21, 2022.

Taking the aforementioned macroeconomic factors into account and on the basis of the then current figures for the second quarter of 2022 and the expected sales development for the remainder of fiscal year 2022, Management since then forecasted an adjusted EBIT margin of around 8% (previous forecast: “around 11%”). For net operating cash flow, the expectations for fiscal year 2022 have since been a target of around EUR 60 million (previous forecast: “around EUR 100 million”).

With regard to the development of organic Group sales, the Management Board maintained the forecast that was published in the Annual Report 2021 and confirmed in the interim statement for the first quarter of 2022 (“mid to high single-digit organic Group sales growth”).

When the interim report for the second quarter of 2022 was published, management specified its expectations for the development of the sales channels on August 10, 2022. This was merely a specification in the direction of the lower and upper end of the ranges already stated in the forecast: Thus, the Management Board expected mid-single-digit organic sales growth for the EJT business in the full year 2022 (previous forecast: “mid to high single-digit organic sales growth”), while management had since assumed high single-digit organic sales growth for the SJT business (previously: “mid to high single-digit organic sales growth”).

Taking the reasons and factors outlined above and the associated ongoing profound change in the environment into account, the development of the cost of materials ratio was also defined more precisely for fiscal year 2022 when the interim report 2022 for the second quarter was published. The Management Board anticipated a higher cost of materials ratio than in the previous year (previously: “stable cost of materials ratio”). By contrast, the Management Board anticipated an improvement in the personnel cost ratio compared to the previous year (previously: “stable personnel cost ratio”), assuming that sales would continue to develop positively.

With regard to NORMA Value Added (NOVA), the Management Board expected it to reach a value in the corridor between EUR -20 million and EUR 10 million in the full year 2022 (previously: “between EUR 20 million and EUR 40 million”) based on the information available at that time.

TABLE T027 “COMPARISON OF TARGET AND ACTUAL VALUES” 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 7.1% in NORMA Group’s sales is in line with the assumption of mid to high single-digit organic Group sales growth published in March 2022 and confirmed in July 2022. In the Americas and EMEA regions, the development of organic sales growth was realized as forecasted, whereas organic sales in Asia-Pacific declined due to a subdued EJT business. This can mainly be attributed to the corona restrictions set in China in 2022 and an associated lower industrial production.

The cost ratios also developed as most recently assumed in the forecast for 2022: The Group achieved a significant improvement in the personnel cost ratio compared to the previous year (2022: 24.9%; 2021: 26.1%). By contrast, the cost of materials ratio was higher than expected at 48.0% (2021: 45.8% due to the persistently high prices on the global procurement markets.

The adjusted EBIT margin was 8.0% in fiscal year 2022 and thus developed in line with the in July 2022 adjusted and expected target of “around 8%” .

Net operating cash flow reached EUR 65.3 million, exceeding the target of around EUR 60 million expected for fiscal year 2022. This was achieved despite a stronger change in working capital and higher investments from operating activities compared to the previous year.

NORMA Value Added (NOVA) was negative at EUR -27.1 million in fiscal year 2022 and fell short of the forecast range of “between EUR -20 million and EUR 10 million.” The reason for this development was the significantly lower adjusted EBIT compared to the previous year as well as the noticeable increase in the weighted average cost of capital (WACC).

The financial result in fiscal year 2022 was burdened by the increase in interest expenses compared to the previous year and therefore, at EUR -12.6 million, exceeded the forecast target value of “up to EUR -10 million.”

Due to the decline in adjusted EBIT, the adjusted tax rate in fiscal year 2022 was 35.2% and considerably higher than assumed in the forecast for fiscal year 2022 (“between 27% and 29%”). The reasons for the increase include non-creditable withholding taxes and non-deductible expenses as well as unrecognized deferred tax assets on losses in fiscal year 2022.

The investment ratio in fiscal year 2022 was 4.3% and, as in the previous year, below the forecast range of between 5% and 6% of Group sales. Although investments made in the past fiscal year increased once again, investment activity from operating activities was impacted by high input costs, global material availability and logistical challenges in fiscal year 2022.

The number of defective parts per million parts (PPM) was at 2.9, pleasingly below the specified value of 5.5 .

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