The procurement costs of materials, goods and services have a significant impact on NORMA Group’s earnings situation. By managing all procurement activities efficiently and selecting the proper suppliers, Purchasing can make a significant contribution to the success of the Group. The main task here is to optimize the services purchased 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 (Europe, Middle East and Africa), APAC (East Asia, Southeast Asia, Australia and Oceania) and the 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. Digital procurement solutions support the global organization in its work and thereby enable efficient reporting.


Development of material prices

Cost of materials amounted to EUR 597.0 million (2021: EUR 500.0 million) or 48.0% (2021: 45.8%) of sales in fiscal year 2022. 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 EUR 538.9 million (2021: EUR 481.5 million). Of this amount, EUR 417.8 million, or 78%, was attributable to sales of production materials.


Steel and metal components

In purchasing and supplier management, the top priority in the first half of 2022 in particular was to secure supplies to the global production sites and fend off price increase demands on a scale that had never been seen before. Geopolitical crises – in particular the war in Ukraine – partially disrupted existing supply chains. The resulting shortage of materials in various product groups (e.g. wire) and the resulting massive rise in energy costs led to sharp price increases. In many cases, these could only be mitigated by conducting intensive negotiations. Despite established multi-sourcing strategies (purchasing from several different suppliers), substantial price increases had to be accepted during the year, particularly when supply contracts expired. Various training sessions and information events were held during the year to prepare the sales staff for customer negotiations and to inform them about the ongoing procurement and price risks as well as possible.

For the stainless-steel product group, the most important product group for NORMA Group, demand for stainless steel slit strip in the EMEA and Americas regions at the turn of the year 2021/2022 and during the first quarter of 2022 was significantly higher than the quantities available. The significant increase in spot market prices also led to a massive rise in contract prices for calendar year 2022 (base purchase price for stainless steel excluding alloy surcharges). In particular, the bright annealed products NORMA Group makes use of in Europe were virtually sold out due to the high demand from other industries (e.g. white goods). The necessary quantities could only be secured by holding intensive talks and based on many years of cooperation with our suppliers in a spirit of partnership. As the economy weakened in the second half of 2022, materials became more readily available and prices on the spot markets began to fall.

Important supply contracts in the Americas region expired in the fourth quarter of 2021 and significant price increases had to be accepted in the negotiations for 2022. Further price increases for the special goods used by NORMA Group were demanded by the local suppliers during the year, so that even higher material prices had to be accepted in some cases for the second half of 2022. In addition, the manufacturers issued strict delivery quotas for special products. A slight improvement in material availability at unchanged price levels was not seen in the Americas until the fourth quarter.

By contrast, the procurement market in Asia-Pacific, and there above all in China, was characterized by significantly better availability of materials. Here, too, higher purchase prices for stainless steel had to be accepted initially. This was due to the fact that alloy surcharges are already included in the price agreements there and not charged separately at the end. Since the main components and the cost drivers nickel (the highest price was reached at the end of the first quarter of 2022) and ferrochrome were trading at extremely high prices, input costs initially increased in the first half of 2022 before leveling off at a high level.

The prices of the new monthly fixed alloy surcharges (price components include nickel, scrap and ferrochrome prices) rose rapidly in the course of the fiscal year – as illustrated by the example of the material 1.4301 – to unprecedented levels of over EUR 3,800 per ton. Prices dropped again slightly from September 2022. Overall, however, alloy surcharges in 2022 were significantly higher than the year before.

With regard to the metal components used, NORMA Group was able to keep the purchase prices stable in fiscal year 2022 only in a few cases. When contracts expired, double-digit percentage price increases often had to be accepted in the EMEA region and the US despite intensive negotiations in order to lower the risk of experiencing a supply stoppage. By contrast, price negotiations were more successful, in China in particular, where slight price reductions were negotiated in many product groups at the beginning of the year.

In the product group of surface-refined non-stainless steel and cold-rolled strip, the purchase costs also increased in the first nine months. The high energy costs and limited availability due to the Ukraine crisis (particularly for long products / wires) supported the pricing policy of the manufacturers. Prices for standard materials remained stable or even decreased slightly in the fourth quarter, accompanied by a decline in prices on the spot markets. Over the year as a whole, procurement prices were significantly higher than a year earlier.


Technical granulates, plastic and rubber products

In the product group technical granulates, plastics and rubber products, fiscal year 2022 was characterized by considerable volatility, uncertainty and volume shortages. As early as the third quarter of 2021, there were clear signs of a shortage of important input raw materials, such as glass fiber for plastic granulates. This, coupled with a sharp rise in freight costs due to reduced transport capacities, resulted in a significant price increase for granulates and plastic components in the first quarter of 2022.

The extremely sharp rise in energy and gas prices caused by the Ukraine conflict, coupled with continued high demand, resulted in a further price increase for technical granulates from the second quarter of 2022 on, that continued until the fourth quarter of 2022. The commodity group of rubber products was also negatively impacted by the Ukraine crisis. For example, the conflict led to a massive shortage of volumes and consequently to high price pressure, as important primary raw materials for rubber are largely produced in the two countries involved in the conflict. As a result, several major suppliers of primary raw materials, granulates and components issued force

majeure declarations. Despite these circumstances, NORMA Group was able to ensure sufficient volume supplies through targeted supplier management, but at significantly higher input costs.

The improved situation of transport capacities from the third quarter of 2022 on resulted in only a slight easing on the cost side. This was more than offset by high energy costs in the third and fourth quarters, particularly in the EMEA region, as European manufacturers of engineering plastics in particular demanded significant energy surcharges. This also had a negative impact on the other regions. As energy price levels are expected to remain very high for the duration of the Ukraine conflict, particularly in the winter months, the situation is not expected to improve until the second or third quarter of 2023.  FORECAST REPORT


Standard plastics, components and commodities

Although the economy was originally expected to stabilize starting in the first quarter of 2022, Russia’s unexpected attack on Ukraine led to disruptions in supply and logistics chains and pervasive uncertainty. As a result, raw material prices remained at a higher level in the first half of the year than had been forecast for 2022 by the major market research institutes. The key factor here was an imbalance in supply and demand combined with a spike in commodity prices. With the weakening of the global economy at the end of the second quarter of 2022, raw material prices finally weakened as well. This trend started in Asia and spread to all other continents. Despite relatively high natural gas and crude oil prices, which are influential to plastics commodity costs, rates of major commodity materials began to decline in the middle of the third quarter of 2022.

The decline in global demand led to an enormous build-up of inventories. This forced many manufacturers to cut back their production. A more moderate pricing structure for sea freight compared to 2021 also had a relieving effect. Sea freight charges had risen sharply in 2021 due to a number of special factors (a typhoon in China, the blockade of the Suez Canal, the effects of the COVID-19 pandemic).

In the second half of 2022, NORMA Group managed to negotiate purchase prices for synthetic resins, which in nearly all cases returned to pre-pandemic levels. Domestic prices for PVC in the US alone remained 30 – 40% above pre-2020 levels at the end of the reporting year, mainly due to the high material costs for the ingredients used to manufacture specialty PVC, but also to the higher market power of certain manufacturers in the highly consolidated US market.

The market for standard plastics, components and merchandise is expected to stabilize in 2023, particularly in light of the weakening economic situation forecast for the current year. However, this assumes that no more major disruptions to the global economy take place.


High energy and freight costs in 2022

Rising energy costs were the dominant topic in fiscal year 2022. In Europe in particular, geopolitical tensions, sanctions against Russia and a corresponding shortage of supply resulted in significantly higher energy prices compared to last year. Replacement purchases covered the need for energy, but at a significantly higher price compared to the previous year.

Global supply chains continued to pose a challenge for both industry and transport companies in fiscal year 2022. In the sea freight sector, the situation remained tense in the first half of 2022 as well. High demand for transport capacity continued from 2021 and resulted in significant price increases on transpacific and transatlantic routes. Besides capacity bottlenecks, the price increase for marine diesel also played a key role in the significant rise in transport costs.

Port congestion due to disrupted goods traffic in 2021 continued to cause delays in ship handling at all major ports in Asia, Europe and the US in 2022. Lock-downs in Asia in connection with COVID-19 and strikes at ports in Europe and the United States noticeably exacerbated what was already a tense situation at the ports. The first signs of relief on the transpacific routes were not discernible until the end of the third quarter of 2022.

These capacity constraints and additional increases in bunker prices resulted in an increase in ocean freight costs of up to 300% in the first half of 2022 compared to the same period of the previous year.

The transport of goods by land was also affected by the rising price trend in 2022. Diesel prices of over EUR 2 per liter, or USD 5 per gallon, contributed significantly to the increase in transport costs of up to 30%.

In addition to the continuing shortage of truck drivers in the US, the Ukraine conflict also exacerbated the transport situation in Europe. In the first half of the year in particular, the massive shortage of personnel in the transport sector meant that the required capacity in Eastern Europe could not be made available to the extent necessary to fully maintain the supply chains at all times.


Supplier management and structure

The purchasing organization continuously monitors the performance of suppliers. Annual evaluations of suppliers are a key instrument in this respect. 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. Besides the annual supplier performance evaluation, supplier risks are monitored continuously using automated risk management software. This helps the purchasing organization to maintain a constant overview of resilience in the supply chain and to initiate the necessary measures early on.  RESPONSIBLE PROCUREMENT

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 36.5% of the total purchasing volume in fiscal year 2022. The top 50 suppliers accounted for around 65.9% (EUR 275.3 million) of the total purchasing volume of production material, amounting to EUR 417.8 million.


These contents are part of the Non-financial Group Report and were subject to a separate limited assurance examination.