Risk and opportunity profile of NORMA Group

As part of the preparation and monitoring of its risk and opportunities profile, NORMA Group assesses risks and opportunities based on their financial impact and their probability of occurrence. The financial impact of opportunities and risks is assessed based on the effect on the Group’s earnings or liquidity. The following four categories are used to determine the potential maximum average annual impact in the period under review of the risk management system.

•Low: up to EUR 5 million effect on earnings or liquidity

•Moderate: more than EUR 5 million and up to EUR 15 million effect on earnings and or liquidity

•Significant: more than EUR 15 million and up to EUR 30 million effect on earnings or liquidity

•High: more than EUR 30 million effect on earnings or liquidity

The probability of individual risks and opportunities occurring is quantified based on the following four categories. In order to make the assessment of probabilities of occurrence easier to understand, the names of the categories used have been revised compared to the last Annual Report:

•Very unlikely: up to 5% probability of occurrence (previously: “unlikely”)

•Unlikely: more than 5% and up to 25% probability of occurrence (previously: “possible”)

•Possible: more than 25% and up to 50% probability of occurrence (previously: “probable”)

•Probable: more than 50% probability of occurrence (previously: “very probable”)

The main areas of risk and opportunity related to NORMA Group’s business model are described below. Unless stated otherwise, the risk and opportunity profile represents the assessment of the management of NORMA Group as of the reporting date December 31, 2024. The financial effects and probabilities of occurrence are presented as net effects, i. e. taking countermeasures already initiated into account.

 

Financial risks and opportunities

NORMA Group is exposed to various financial risks, including default, liquidity and market risks. The Group’s financial risk management strategy concentrates on the identification, assessment and mitigation of risks, focusing on minimizing the potential negative impact on the Company’s earnings, assets and financial position. Derivative financial instruments are also used to hedge certain risk items. Financial risk management is performed by the Group Treasury & Insurance department (Group Treasury). Group Management defines the areas of responsibility and necessary controls related to the risk management strategy. Group Treasury is responsible for identifying, assessing and hedging financial risks in close consultation with the Group’s operating units. In this context, various processes and organizational structures work together to measure and assess opportunities and risks on a regular basis and to initiate appropriate measures if necessary. Group Treasury regularly conducts analyses of default, interest rate, currency and liquidity risks. The results are then discussed internally, and actions are defined. Group Treasury also informs the senior managers of the relevant departments of significant risks in a committee that meets twice a month and discusses how to deal with these risks and their potential impact on NORMA Group. NOTES

 

Capital risk management

NORMA Group’s objective when it comes to managing its capital is primarily the long-term servicing of its debts and remaining financially stable. As of December 31, 2024, NORMA Group is not subject to the obligation to comply with a financial covenant in any of its financing agreements. Only the financing costs of the individual financing agreements depend on the level of the financial covenant total net debt cover (debt in relation to adjusted Group EBITDA). The level of this key figure is continuously monitored, as is the level of net debt and the maturity structure of financial liabilities. Changes in the value of the parameters included in this financial indicator are limited by employing long-term hedging strategies. Other financial covenants exist only as part of a syndicated bank loan negotiated in 2019 and are tested only in advance of possible M&A transactions without providing the creditor banks with grounds to terminate the loan.

 

Default risks

Default risks are risks that contractual partners of NORMA Group fail to meet their obligations arising from business activities and financial transactions. Due to the nature of the respective assets and business relationships as well as the soundness of its current banking partners, default risks with respect to deposits and other transactions concluded with credit and financial institutions currently do not represent a major risk category for NORMA Group. Nevertheless, the creditworthiness of the contract partners is continuously monitored and discussed at regular senior management meetings.

Relevant default risks can arise, however, with respect to business relationships with customers and relate to outstanding receivables and committed transactions. NORMA Group reviews the creditworthiness of new customers to minimize the risk of default on trade receivables. In addition, the Company generally only supplies to customers whose creditworthiness does not meet the Group’s requirements or who have defaulted on payment if

they pay in advance. In addition, a diversified customer portfolio reduces the financial repercussions of default risks. Despite the above-mentioned measures, the probability of occurrence of default risks is estimated to be “possible”, especially since it is still not possible to fully assess the future effects of economic and economic developments on potential insolvencies of individual customers ECONOMIC AND ECONOMIC RISKS.However, the potential financial effects of default risks is classified as “low”, as in the previous year, in view of the relevant factors, such as bad debt losses experienced in the past, and due to the countermeasures taken.

 

Liquidity risks and opportunities

Prudent liquidity risk management requires holding sufficient cash funds or marketable securities, having sufficient financing from committed lines of credit and being able to close out market positions. Due to the dynamic nature of NORMA Group’s business, Group Treasury seeks to ensure flexibility in financing by keeping committed credit lines available. Therefore, NORMA Group’s primary objective is to ensure the uninterrupted solvency of all Group companies. Group Treasury is responsible for liquidity management and thus for minimizing liquidity risks. As at December 31, 2024, cash and cash equivalents amounted to EUR 127.1 million (2023: EUR 165.2 million). In addition, NORMA Group has a high level of financial flexibility thanks to a committed revolving credit line with national and international credit institutions in the amount of EUR 100 million. As at December 31, 2024, the committed credit line was not drawn (previous year: EUR 0 million). In addition, NORMA Group launched a commercial paper program with a total volume of EUR 300 million in 2019, which can be used flexibly to cover short-term liquidity requirements. These money market papers, which are equivalent to bearer bonds, are issued on a revolving basis for a short-term period of 1 to 52 weeks and thus allow for the Group’s own liquidity to be managed in line with requirements. As at 31 December 2024, the commercial paper program with a volume of EUR 0 million (2023: EUR 0 million) was used as a source of refinancing.

NORMA Group sees financial opportunities, among other areas, in its good creditworthiness as well as its solid asset, financial and earnings positions, which will facilitate capital costs in line with the market. Accordingly, the financing concluded in 2019 is characterized by an increase in the committed degrees of freedom and lower interest costs. This bank loan of EUR 250 million also includes a sustainability component linked to an external rating. In 2024, as in the previous year, NORMA Group achieved a corresponding sustainability scoring, which enabled savings in the external credit margin to be realized. The liquidity-based opportunities are still regarded as “possible” despite the current uncertain global economic and business situation (cf. ECONOMIC AND CYCLICAL RISKS AND OPPORTUNITIES), in particular due to the stable business relationship with banking partners and the resulting reputation on the capital markets. After a phase of rising interest rates, which peaked in 2023, monetary policy began to be eased in mid-2024, leading to interest rate cuts. The opportunities of this interest rate turnaround for more favorable financing options are considered “possible”, although the financial impact is assessed as “low”.  FINANCIAL POSITION

The Group’s financing agreements do not currently contain any standard market credit terms (financial covenants). Although these are part of the financing agreements, they are only due to a link to the amount of the financing costs. As a result, compliance with financial covenants due to a possible increase in interest rates has only a minor financial impact and the risk is still considered very unlikely due to the current profitability and Cash flow from operating activities. Irrespective of the scope of financial covenants, compliance with them is continuously monitored in order to be able to take appropriate measures at an early stage if necessary and to avoid any worsening of the conditions. NORMA Group uses rolling hedging transactions if necessary to hedge balance sheet items in foreign currencies whose valuation leads to fluctuations in the profit and loss account. Group Treasury ensures that sufficient liquidity or granted credit lines are available at all times to cover any possible cash outflows related to these hedging measures. This is continuously monitored by means of risk simulation and discussed in senior management meetings. The probability of liquidity risks having a negative impact on NORMA Group’s activities is considered unlikely due to the high financial flexibility provided by committed and not yet fully utilized bank credit lines. In the event of (short-term) increased liquidity requirements that exceed currently negotiated lines, the possibilities of raising funds at market conditions, by issuing new bonds on the commercial paper market, for example, are considered to be good, as in the previous year.

 

Exchange rate developments

As an internationally operating company, NORMA Group is active in more than 100 countries and therefore exposed to foreign currency risks. The US dollar, British pound, Swiss franc, Chinese renminbi, Polish złoty, Swedish krona, Czech koruna, Singapore dollar, Indian rupee, Serbian dinar and the Mexican peso are considered to be the main risk prone currency positions.

Foreign currency risks that cannot be offset against each other are hedged if necessary by using futures contracts. The high volatility of many major currencies and the particular influence of the US dollar on the Group’s earnings, assets and financial position represent a considerable risk that can only be hedged in part and only for a short period of time. In the medium term, NORMA Group will strive to counteract currency risk by increasingly producing locally. PRODUCTION AND LOGISTICS

Because the Group’s subsidiaries operate in key countries with currencies other than the euro, it has sufficient cash-in and cash-out capabilities to absorb short-term exchange rate fluctuations via targeted income and expenditure management. Existing financing arrangements also provide for utilization in different currencies (e.g. US dollar and euro tranches). The remaining foreign currency risks are continuously monitored in the Group and, in the event that risk limits are exceeded, transferred to the euro on a rolling basis using derivative hedging instruments. Translation risks are continuously monitored by Group Treasury. Nevertheless, items in the Statement of Financial Position and the Statement of Comprehensive Income of subsidiaries in foreign currency areas inevitably result in translation effects when they are translated into euros.

As in the previous year, the potential financial effects of opportunities and risks related to exchange rate changes are considered to be “low” based on the sensitivity analyses that have been performed. As in the previous year, the probability of these opportunities and risks occurring is considered to be “likely” with regard to the further development of the relevant exchange rates.

 

Changes in interest rates

Changes in global market interest rates affect future interest payments for variable interest liabilities and can therefore have an adverse effect on the Group’s earnings, assets and financial position. NORMA Group’s interest change risk arises in particular from long-term loans.

Some of the current loans have fixed interest rates and are therefore not subject to interest rate risk. FINANCIAL AND LIQUITDITY MANAGEMENT GOALS AND STRATEGIES

Loans that initially had variable interest rates were partly synthetically converted into fixed interest rate positions using derivative instruments. NORMA Group has hedged around 60% of its variable interest rate loans in USD valued at USD 67 million in total. The remaining USD floating rate loans are unsecured and continuously monitored by Group Treasury. On the other hand, variable rate loans denominated in euros in the amount of EUR 169 million are unhedged. Due to the Group’s internal interest rate expectations, this item is deliberately not hedged. In the event of an increase in interest rates, Group Treasury would limit the interest rate risk by using appropriate hedging measures.

After the interest rate turnaround in summer 2024, NORMA Group classifies the risk of interest rate hikes in the eurozone as “very unlikely” in the short term (previous year: “unlikely”) and “very unlikely” in the medium term, as in the previous year. In view of the current interest rate level in the eurozone, the chances of an interest rate cut are assessed as “possible” in the short term (previous year: “probable”) and “unlikely” in the medium term (previous year: “probable”). In the US dollar area, interest rate cuts are considered possible (previous year: “probable”), which could lead to corresponding opportunities for NORMA Group. As in the previous year, NORMA Group considers the risk of rising US interest rates to be “unlikely”. In light of the measures already implemented to optimize the financing structures, the financial effects associated with these risks and opportunities are assessed as “low”.

In summary, NORMA Group assesses the opportunities from interest rate changes as “possible” (previous year: “probable”), while risks from interest rate changes are “very unlikely” (previous year: “unlikely”). The possible effects are classified as “moderate”, as in the previous year, in all scenarios.

 

Economic and cyclical risks and opportunities

NORMA Group’s success largely depends on the macroeconomic trends on its sales markets and its customers’ sales markets. Therefore, important indicators of economic development worldwide are taken into account both in planning and in risk and opportunity management. In order to gauge the macroeconomic trend, NORMA Group relies, among other sources, on the forecasts of widely regarded institutions such as the IMF, the Bundesbank and reputable economic research institutes.

In the past fiscal year, economic development was significantly influenced by the Russia-Ukraine war, inflationary trends and global tendencies towards political and economic fragmentation. According to the IMF, global growth in 2024 amounted to 3.2%.

For the current fiscal year, the overall economic development continues to be regarded as a significant risk factor for NORMA Group’s business activities, with future interest rate developments and the level of inflation in conjunction with the development of demand acting as key influencing factors. Existing and potentially new geopolitical conflicts and trends towards economic fragmentation and their potential impact on global value chains act as significant risk factors. In particular, economic policy measures by the US government, such as punitive tariffs on goods imports for individual countries or selected product groups (e.g. steel and aluminum), could have a significant impact on overall economic development. Although renowned economic research institutes do not expect a global recession in the 2025 fiscal year, they do expect economic growth to remain weak overall at 3.3% due to the tense economic situation.

In its assessment of the possible macroeconomic consequences of these developments, NORMA Group has come to the conclusion that a negative development of the global economy compared to the planning assumptions is currently classified as “possible” (previous year: “unlikely”), taking these risks into account. Should these factors lead to an impairment of global demand, the financial deviations compared to the planning are estimated to be “moderate”. A positive development of the global economy that extends beyond the planning assumptions would represent an opportunity for NORMA Group. The Company still considers it “unlikely” that the global economic situation and thus NORMA Group’s earnings will improve beyond the planning assumptions. In the overall view of the current macroeconomic climate and the prospects based on it, the potential financial impact of these opportunities is also considered “moderate”, as in the previous year.

 

Industry-specific and technological risks and opportunities

Industry-specific and technological risks and opportunities for NORMA Group are closely linked to the conditions and developments in the respective customer industries. PRODUCTS AND END MARKETS It should be borne in mind, however, that the customer industries in the regions relevant to NORMA Group, EMEA, the Americas and Asia-Pacific, have partly specific characteristics and challenges.

Industry Applications and Water Management are important sectors for NORMA Group. In particular, the current global megatrends in many fields and areas of application and the resulting potential for opening up new sales markets present entrepreneurial opportunities. In the Industry Applications segment, NORMA Group sees significant opportunities in the development of additional markets and industries, the establishment of additional, customer-specific product solutions and the use of new sales channels. With regard to new sales channels, NORMA Group sees particular opportunities in the expansion of project business with original equipment manufacturers (direct business). Furthermore, new approaches, such as the planned establishment of a comprehensive service business, offer very good growth opportunities from the Group’s perspective. NORMA Group also continues to see further opportunities in the area of Water Management due to the need for responsible use of the important resource of water on the one hand and the increasing number of heavy rainfall events in the various regions of the world and the associated rise in demand for corresponding product solutions on the other. From NORMA Group’s perspective, there are growth opportunities here, especially in the APAC and EMEA regions, not least supported by stricter regulation due to the effects of climate change.

Business activities with OEMs for passenger cars and commercial vehicles as well as customers in the aftermarket segment continue to represent the most important end markets for NORMA Group in terms of sales. In this area, the increasingly strict emission standards worldwide and the growing use of more environmentally friendly drive technologies in particular represent a development that is associated with various opportunities and risks for NORMA Group. NORMA Group’s current product portfolio includes a wide variety of product solutions that help reduce emissions from passenger cars and commercial vehicles with combustion engines, including hybrid vehicles, and thus help customers meet ever-stricter emission requirements.

NORMA Group is also well positioned for the growth market of electromobility thanks to its future-oriented product portfolio. Accordingly, research and development activities relating to purely battery-powered electric vehicles and hybrid vehicles represent a strategic focus, as part of which new product solutions are being developed and current products constantly enhanced. Regulatory measures such as stricter exhaust gas standards and the resulting increased demand for environmentally-friendly products and technologies therefore open up a variety of opportunities for NORMA Group in the fields of Mobility & New Energy. NORMA Group continues to systematically analyze market developments in the area of future technologies and consistently develops new products based on these. Products have been successfully placed on the market since 2018, particularly in the area of fuel cell-powered vehicles. NORMA Group will continue to focus part of its development capacities on the area of fuel cell-powered commercial vehicles in the future, as high demand is expected in all regions. RESEARCH AND DEVELOPMENT

On the other hand, the ongoing discussion about compliance with emission standards for vehicles with combustion engines poses risks for NORMA Group in the Mobility & New Energy business unit. In particular, high volatility in demand can still be observed in the market due to the uncertainties surrounding new regulations and technologies. Furthermore, declines in vehicle production due to the market environment could lead to lower sales for NORMA Group. Last but not least, increased competition among manufacturers can be observed in the Mobility & New Energy unit, especially in the APAC region, which could lead to an overall reduction in production and sales for established automotive manufacturers – and the associated reduction in sales for NORMA Group customers. 

NORMA Group’s strong customer diversification in various customer industries is a significant risk-reducing factor with regard to the existing risks. NORMA Group counters long-term industry-specific opportunities and risks through a consistent innovation policy and regular market analyses, which provide the best possible support for the targeted identification of and focus on high-growth future markets.

In summary, the sector-specific and technological opportunities and risks are assessed as “possible” (previous year: “unlikely”) with a “moderate” financial impact.²¹

 

21    This takes into account corporate strategy risks and opportunities of ongoing business operations based on the Group structure valid as at December 31, 2024. Effects from potential company acquisitions or disposals - as one-off effects - will be successively sharpened in the course of the planned sale of the water business

 

Risks and opportunities associated with company strategy

NORMA Group’s strategic goal is to achieve a sustained increase in the Company’s value. In view of this goal, NORMA Group is pursuing the strategy of profitably expanding its business activities through organic growth as well as selective value-enhancing acquisitions and achieving broad diversification with respect to its products, regions and end markets, in order to become less dependent on individual products, regions and end markets. This goes hand in hand with NORMA Group’s aspiration to grow in current end markets and tap into new end markets with innovations, superior product quality and strong brands, as well as to continuously improve the efficiency of its business processes in all functional areas and regions STRATEGY AND GOALS Furthermore, NORMA Group addresses sustainability issues such as climate change as well as water and resource scarcity with its strategic orientation and pursues corresponding activities as part of the company-wide CSR program. The resulting opportunities and risks are evaluated on a regular basis. CLIMATE CHANGE

Besides the Company’s strategic activities aimed at continuing to develop the business organically, NORMA Group sees considerable opportunities to sustainably increase the Group’s financial result, particularly through its strategy of profitably expanding its business activities by making selective, value-adding acquisitions. Based on this strategy, NORMA Group has repeatedly made acquisitions in the past. If, however, in individual cases, the development of the acquired companies falls behind the expectations at the time of acquisition or if integration progresses more difficultly than assumed, risks could also arise from acquisitions for NORMA Group. However, NORMA Group believes that the Company’s goals for the profitability of potential acquisitions, careful due diligence measures in advance of the acquisition, and well-coordinated integration plans form the basis for mitigating these risks accordingly. At the same time, the management continuously reviews all strategic options with an open mind in order to increase the value of the Company. In addition to acquisitions, this also includes the possibility of (partial) sales of active business units. The structural adjustment of the global production and distribution network is also being examined on an ongoing basis as one of the optional measures. Against this background, the Management Board decided and announced on November 28, 2024 that it would initiate a process to sell the global business activities of the Water Management strategic business unit. The concentration of business activities on NORMA Group’s core industrial business associated with the spin-off of the international water business is intended to make considerable financial and human resources and capacities available to expand the market position in the Industry Applications strategic business unit and to strengthen the Mobility & New Energy business unit. Overall, NORMA Group therefore expects significant opportunities for the profitable expansion of its core business in the medium term. At the same time, the process is associated with risks, which could include transaction, integration and possible restructuring costs, for example.

In addition, opportunities for NORMA Group to achieve its financial targets arise from the broad diversification with regard to its products, regions and end markets. Should demand in individual regions and end markets or demand for individual products temporarily lag behind planning, NORMA Group still has the chance to compensate for this by turning to other regions, end markets or products. Nevertheless, such broad diversification with regard to products, regions and end markets also implies a certain degree of complexity, which can be associated with risks for NORMA Group. Because NORMA Group’s diversification efforts are being carried out step by step with regard to the regions and end markets as well as its products, these risks can be limited appropriately by adapting the organization to the changed circumstances. Accordingly, NORMA Group is continuously addressing the reduction of complexity and streamlining of its current product portfolio.

With respect to the efficiency of its business processes, NORMA Group’s global orientation enables the Company to set up production processes that require more manual assembly work in countries with lower labor costs and thus secure or further increase its profitability. However, these types of decisions on the locations for sites and the related investments are inevitably associated with risks if key assumptions made at the time of the investment decision prove to be incorrect. This relates, for example, to additional costs due to operational delays in the implementation of relocations or efficiency increases or cost reductions that have not been fully realized. NORMA Group addresses the respective risks by conducting careful analyses in advance of investment decisions and uses graded approval procedures. Risks from site decisions already made are evaluated across all regions and taken into account when taking decisions to optimize site capacities.

Due to the operational problems of the past, NORMA Group also introduced and implemented extensive measures in the past fiscal year to further stabilize and increase efficiency. These are aimed at both minimizing avoidable additional costs and further optimizing productivity. Despite the established activities, a residual risk remains, but this is continuously addressed by implemented measures – for example as part of the “Step Up” program initiated in spring 2023. GROWTH AND EFFICIENCY PROGRAM “STEP UP"

In the context of NORMA Group’s corporate strategy initiatives – and in particular taking into account the sharpening of the strategic focus with the initiated sale of the water business and the focus on expanding the market position in Industry Applications while strengthening the Mobility & New Energy business unit – the financial impact of the opportunities associated with NORMA Group’s corporate strategy is assessed as “high” (previous year: “moderate”) and a positive deviation from the plan as “probable” (previous year: “unlikely”). The probability of strategic risks occurring is assessed as “possible” (previous year: “very unlikely”), while the potential financial impact of corporate strategy risks is classified as “high” (previous year: “moderate”)²².

²²    This takes into account corporate strategy risks and opportunities of ongoing business operations based on the Group structure valid as at December 31, 2024. Effects from potential company acquisitions or disposals – as one-off effects – will be successively sharpened in the course of the planned sale of the water business. In view of the planned sale of the global Water Management business, considerable cash inflows are expected, which will significantly exceed EUR 30 million. At the same time, the process is associated with risks that are classified as “high”, which could include transaction, integration and possible restructuring costs, for example.

 

Operational risks and opportunities

 

Commodity prices

The materials NORMA Group uses, in particular the raw materials steel and plastics, are subject to the risk of price fluctuations. The price trend is also influenced indirectly by the further development of the global economic situation as well as by institutional investors. NORMA Group limits the risk of rising purchase prices through systematic material and supplier risk management. Thanks to a powerful global Group purchasing structure, economies of scale are being used to purchase the most important commodity groups as competitively as possible. This Group purchasing structure also enables NORMA Group to balance out the risks of individual segments with each other. NORMA Group also constantly strives to secure permanently competitive procurement prices by continuously optimizing its selection of suppliers and applying the best-landed-cost approach. The Company also tries to reduce dependency on individual materials through constant technological advances and testing of alternative materials. NORMA Group protects itself against commodity price volatility by concluding procurement contracts with a term of up to 24 months, depending on the market situation, whereby material supply risks are minimized and price fluctuations can be calculated more accurately.

NORMA Group was able to achieve price reductions in many areas in fiscal year 2024. Details on the individual areas are provided in the PURCHASING AND SUPPLIER MANAGEMENT section.

Taking into account NORMA Group’s procurement portfolio and the current global market situation, price increases or material price fluctuations for raw materials are considered “probable” overall (previous year: “possible”). Due to implemented measures, such as medium-term framework agreements and regular price monitoring, the associated financial impact beyond NORMA Group’s planning assumptions is estimated to be “moderate” (previous year: “low”). The opportunities arising from potentially falling commodity prices are classified as “moderate” in terms of their financial impact beyond the planning assumptions. Against the backdrop of the complete procurement spectrum and taking into account the prevailing volatility on the commodity markets, price reductions are considered “unlikely” overall.

 

Suppliers and dependencies on key suppliers

The loss of suppliers and dependencies on individual suppliers can lead to material bottlenecks and thus have negative effects on the Group’s business activities. In order to minimize this risk, NORMA Group works exclusively with reliable, progressive suppliers who meet its high-quality requirements. All main and strategically important suppliers are visited regularly and assessed as part of quality management. If there are any indications of supplier defaults, alternative options are evaluated immediately. Risks arising from the insolvency of key suppliers, lack of delivery reliability and quality problems are also addressed by the established supplier monitoring system. In addition, the existing sourcing strategies and regular material risk analyses help reduce risks. In addition, NORMA Group has opportunities to reduce risks through the use of the operational risk management tool. This is based on artificial intelligence, which provides continuous information about external events and risks relating to suppliers, NORMA Group locations and the associated supply chains and enables immediate action to be taken. Risks from supplier dependencies are considered “possible” (previous year: “unlikely”), particularly as a result of the continued global increase and relevance of unforeseeable external events (e.g. geopolitical conflicts). Taking into account the measures taken, the potential financial impact is estimated to be “moderate” (previous year: “low”).

However, NORMA Group also sees opportunities in this area as a result of its proactive approach both in terms of current supplier relationships as well as identification of new suppliers and raw materials. As in the previous year, the resulting positive effects in comparison to planning are considered “unlikely” with a low financial impact.

 

Quality and processes

NORMA Group’s products are often mission critical with respect to the quality, performance and reliability of the final product. Quality defects can lead to legal disputes, liability for damages or the loss of a customer. Therefore, the reliable guarantee of product quality is a key factor to ensuring NORMA Group’s long-term success, so that its products provide crucial added value for its customers. Maintaining the right balance between cost leadership and quality assurance is a constant challenge. To reduce this risk, far-reaching quality assurance measures and uniform Group-wide quality standards are used-Furthermore, NORMA Group focuses on innovative and value-added joining solutions tailored to meet customer requirements. The probability of occurrence of significant quality risks is therefore assessed as “unlikely”, while the potential financial impact is classified as “low” due to existing insurance against loss events.

NORMA Group always strives to realize cost advantages and thereby strengthen its competitive position, and generally expects positive impulses from the relevant activities. In particular, this includes the continuous development and implementation of initiatives relating to cost discipline, the improvement of processes in all functions and regions and, in particular, the optimization of supply chain management and manufacturing processes . PRODUCTION AND LOGISTICS. As NORMA Group pursues a continuous improvement process, this creates opportunities for positive deviations beyond the planning stage. The overall probability of cost reductions and efficiency improvements is assessed as “possible” (previous year: “unlikely”). Since planning already allows for continuous optimization of production processes, and NORMA Group’s processes are already extremely efficient, the short-term financial impact of a deviation from the plan as a result of improved production processes is estimated as “low”. Due to extensive, Group-wide activities to track planned cost savings and process improvements, the probability that these will not be achieved is assessed as “possible” (previous year: “unlikely”) and with a low financial impact.

 

Customers

Customer risks result from being overly dependent on important customers with whom the Group generates a rather significant share of its sales. These customers could take advantage of their bargaining power, which could lead to increased pressure on the Company’s margins. Declines in demand or the loss of these customers could also have a negative impact on NORMA Group’s earnings, with significant risks arising in particular from order fluctuation or reductions among customers in the automotive sector. For this reason, NORMA Group continuously monitors incoming orders and customer behavior so as to identify customer risks early. The financial repercussions of customer risks are reduced by its diversified customer portfolio. Accordingly, no single customer accounted for more than 4% of direct sales in fiscal year 2024. Overall, the risk of customer risks having a negative impact on business activities is assessed as “possible” (previous year: “unlikely”). The potential financial impact is still considered to be “moderate”, particularly in light of volatile demand in the Industry Applications and Mobility & New Energy sectors.

Based on the strategy and the objective to further expand the relevant markets as well as through an attractive product range and innovative solutions, new business could be won for NORMA Group products in all regions. The opportunities for positive deviations from plan resulting from this new business are therefore assessed overall as “possible” (previous year: “unlikely”), but with a “low” effect on earnings.

 

Risks and opportunities of personnel management

NORMA Group’s success is largely dependent on its employees’ enthusiasm, commitment to innovation, expertise and integrity. The Group’s human resources work is therefore aimed at developing and expanding these core competencies, among other skills. The departures of employees with vital skills as well as a shortage of trained workers could have a negative impact on NORMA Group’s operations. Furthermore, competition for the most talented employees as a result of demographic developments and the shortage of skilled labor in Western industrial nations of particular importance to NORMA Group is becoming more and more intense.

NORMA Group counters these risks with far-reaching programs and activities aimed at increasing its attractiveness as an employer. Besides establishing and expanding further education, training and support programs as well as competitive remuneration systems, variable remuneration systems in particular are aimed at promoting the alignment of the workforce with the Company’s success. In return, NORMA Group’s employees contribute to its continuous further development by participating in employee surveys and improvement initiatives. Extensive personnel planning activities as well as a distribution of tasks that is geared towards interdisciplinary cooperation protect NORMA Group against risks that could arise if an employee leaves despite an efficient organizational structure. When identifying potential new employees who can make a crucial contribution to performance, NORMA Group also seeks the advice of external human relations advisors.

The probability of occurrence of personnel risks for NORMA Group is assessed overall as “possible” (previous year: “unlikely”), while the potential financial impact is considered “low” due to a sustainable personnel policy.

In addition, opportunities arise from the consistent further development of employees. NORMA Group fosters its employees and offers them incentives to develop their personal expertise even further through educational and training opportunities as well as the targeted search for talent within the Group. NORMA Group also offers its employees flexible and family-friendly working time models. Through the above-mentioned measures, NORMA Group actively supports the retention of knowledge and thus also ensures the development of knowledge within the Company, which will thus offer opportunities for the future development of NORMA Group. The occurrence of these opportunities is considered possible, whereby the associated financial success is considered to be low.

 

IT-related risks and opportunities

The use of functional and high-performance IT systems is of key importance for an innovative and global company like NORMA Group with regard to the effectiveness and efficiency of its business processes. In this context, it is critical for the Company’s success to support NORMA Group’s business processes, some of which are organized across company and national borders, along the value chain with stable and high-performance IT systems that provide the management at all levels of the Company with the necessary information in a timely manner and allow for workflows to be organized efficiently. IT solutions that are precisely tailored and linked to the respective ERP systems are also of immense importance for the exchange of information with NORMA Group’s customers and suppliers. With regard to this business-critical IT infrastructure, there is a risk that a widespread failure of these systems, for example due to technical malfunctions of the systems or cyberattacks, could lead to serious disruptions to business operations. In particular, there continues to be a general increase in the threat of potential cyberattacks.

In addition, NORMA Group sees the risk that external parties could gain unauthorized access to sensitive Company information and make improper use of it. In this context, unauthorized access to information on production processes, financial, customer and employee data in particular could have negative consequences for the Company.

In response to these risks, NORMA Group has implemented a number of measures that are embedded in the IT risk management process and are continuously adapted to changing conditions. For example, NORMA Group counters the IT risks that are identified by arranging for redundant provision of business-critical applications and databases via physically separated data center areas, using decentralized data storage and outsourced data archiving to a certified external provider, and by using state-of-the-art firewalls and e-mail filters and security monitoring by the dedicated Security Operations Center (SOC). Employee access to sensitive information is controlled by using authorization systems customized for the respective positions, taking into account the principle of segregation of duties. Finally, training courses for employees and awareness campaigns on aspects of information security are held on a regular basis. Furthermore, strategic cybersecurity models to protect the digital company infrastructure and digital services (e. g., private and public clouds, SaaS applications) are being gradually implemented. The gradual transfer of old ERP systems to new, uniform Group systems, which was continued in 2024, also harbors risks. During the necessary process changes at the respective plants and distribution centers, adjustment problems could arise at the process level that could result in additional shifts or special freight requirements, for example. Redundant internal and external resources are kept available to mitigate these risks, if necessary. Furthermore, delays in the individual implementation projects can possibly lead to higher implementation costs.

The probability of IT-related risks occurring is still assessed as “possible” in all regions and the potential financial impact is still considered to be “moderate”, despite the countermeasures in place and in particular against the backdrop of a generally high threat level for cyber risks.

The risks arising from the migration from the old ERP systems to uniform new systems for the entire Group are also likely to be offset in the medium term by opportunities arising primarily from the potential for process standardization and optimization across all companies in NORMA Group. The opportunities that could result from this standardization are considered “possible”. The related financial effects are expected to be “low”.

 

Legal risks and opportunities

 

Risks related to standards and contracts

Future changes in laws and regulations, especially in liability law, environmental law, tax law and labor law, but also increasing requirements in the area of ESG and EU taxonomy as well as all associated changes in standards may have a negative impact on NORMA Group's development. Violations of laws and regulations, but also of contractual agreements, can lead to penalties, regulatory requirements or claims from injured parties. Conversely, NORMA Group can be adversely affected by legal or contractual breaches by third parties. In addition, defective products could result in legal disputes and liability for damages. Likewise, the results of tax audits can lead to tax payments, including penalties and interest.

As in the previous year, most of the legal disputes related to labor law issues. Other focal points were disputes with customers regarding purchase price claims or alleged product defects and with suppliers. In addition, NORMA Group conducted administrative legal proceedings due to the infringement of its own or third-party IP rights and customs proceedings, among other things.

The compliance and risk management systems in place are used to monitor adherence to the continuously changing laws and regulations. In addition, it is ensured that contractual obligations are complied with. In particular, compliance with sanctions in connection with the war in Ukraine is ensured through continuous training and information measures as well as ongoing monitoring. NORMA Group counters the risk of product defects with its Group-wide quality assurance program. In addition, NORMA Group is also insured against claims arising from certain defective products.

NORMA Group is exposed to tax risks in particular due to the significant changes in international tax law currently being observed (e. g. the OECD BEPS initiatives), which in some cases give rise to unresolved legal issues, and due to the increased intensity of tax audits in many countries.

Overall, the probability of occurrence of risks in connection with standards and contracts is still assessed as “unlikely”. The extent of the potential financial impact of these risks is assessed as “moderate”, however, due to the risk management measures in place.

Known legal risks to which NORMA Group is exposed and whose occurrence is sufficiently specified are adequately taken into account by provisions in the Consolidated Financial Statements.

 

Social and environmental standards

Violating social and environmental standards could damage the reputation of NORMA Group and result in restrictions, claims for damages or disposal obligations. NORMA Group has therefore implemented Corporate Responsibility as an integral part of the Group strategy. In this context, a systematic Environmental Management System was introduced at NORMA Group so that company decisions can always be evaluated also considering the goal of avoiding emissions and conserving resources. The Company also invests in the area of occupational health and safety for its continuous improvement. WORKFORCE

The probability of occurrence of negative developments due to social and environmental risks continues to be assessed as “unlikely” and their potential financial impact as “low”.

Investments in the area of Corporate Responsibility serve not only to ward off risks, however. The measures and initiatives are also seen as having the potential to positively impact both the business environment as well as NORMA Group and its stakeholders. Nevertheless, the opportunities in this area are still classified as “unlikely”. Overall, the measures and initiatives are expected to have a minor impact on planning.

 

Intellectual property

Violations of intellectual property rights could lead to lost sales and reputation. For this reason, the Company ensures that its technologies and innovations are legally protected. NORMA Group also minimizes the potential impact by developing customer-specific solutions and through its speed of innovation. At the same time, it is also possible for NORMA Group to violate the intellectual property of third parties. Therefore, developments are reviewed for potential patent violations at an early stage. Despite these measures, there is still a risk of using third-party intellectual property. The probability of infringements of intellectual property is therefore assessed as “possible”. However, the potential impact of IP-related disputes and other possible infringements is considered to be “low” as in the previous year. In addition, the consistent protection of intellectual property and the development of legally unique selling points are also seen as unlikely opportunities that could lead to a minor deviation compared to planning.