Economic Report

General Economic and Industry-Specific Conditions

Global economy significantly impacted by Ukraine war, Corona pandemic and inflation

In the first half of 2022, the global economic situation deteriorated significantly as a result of the war in Ukraine. On the other hand, China’s no-COVID policy had a noticeable negative impact on the global economy. These factors resulted in an intensification of the ongoing supply chain problems. At the same time, inflation, already high, rose to new levels. Central banks reacted by tightening their monetary policy, in some cases significantly. In addition, against the backdrop of the war in Ukraine, scenarios of an imminent deterioration in energy supplies emerged in many European countries. In the United States, industrial production developed dynamically despite the burdens in the first half of 2022 (Q1 2022: +5.1%, Q2 2022: +6.1%), and capacity utilization was correspondingly high (Q1 2022: 79.5%, Q2 2022: 80.3%). Nevertheless, GDP in the US declined by an annualized total of 0.9% in the second quarter of 2022 (Q1 2022: – 1.6%). In China, industrial production increased by 3.4% in the first half of 2022, but dampened due to the corona lockdowns. Capacity utilization was 75.4% (H1 2021: 77.9%). At the same time, Chinese GDP grew slightly by 2.5% (Q1 2022: +4.8%, Q2 2022: +0.4%). In the euro zone, the pace of economic activity slowed only slightly after the start of the war in Ukraine. GDP grew by 4.0% in the second quarter of 2022 (Q1 2022: +5.4%). European industrial production was also subdued (Q1 2022: – 0.3%, April 2022: – 2.5%, May 2022: +1.6%). The capital goods and energy sectors were hit particularly hard, but capacity utilization in industry was nevertheless high at 82.6% in the second quarter.

German economy with low momentum due to environmental factors

Although the upswing in many service sectors in Germany continued noticeably in the first half of 2022, the order situation in industry also showed a positive trend. Nevertheless, the German economy was noticeably slowed by the start of the war in Ukraine. This was caused by a sharp drop in purchasing power due to inflation, ongoing supply chain problems and geopolitical uncertainties in general. GDP rose by just 1.5% in the second quarter of 2022 (Q1 2022: +3.9%) – and adjusted for calendar effects, the economy stagnated compared with the 1st quarter of 2022. Industrial production also trended noticeably downward (March: – 5.1%, April: – 3.0%, May: – 1.5%) as a result of the burdening environmental factors, and capacity utilization fell slightly to 85.2% in the second quarter of 2022.

Challenge in mechanical engineering production caused by external factors

In the area of engineering, the industrial upswing has slowed sharply due to the challenging global economic In the area of engineering, the industrial upswing has slowed sharply due to the challenging global economic environment and the resulting immediate burdens from disrupted supply chains and increased energy and transportation costs. As a result, global industrial production growth, excluding construction, was 3.8% in the first five months of 2022. Subsequently, production growth fell to 1.4% in April and 3.4% in May. Despite the current burdens and known risks in the market environment, the underlying trend in the global machinery sector has remained positive thus far. This is supported by the fact that order backlogs remain high and customers’ willingness to invest is stable. Ongoing government stimulus and infrastructure programs and high investment in climate protection are also having a positive effect. Nevertheless, according to ECB data, the production of capital goods in the euro zone has initially slumped due to the current supply chain problems and the lockdowns in China (Q1 2022: – 5.0%; April: 2022: –0.6%; May 2022: +2,5%). In Germany, production in the mechanical engineering sector fell sharply with a time lag following the outbreak of the war in Ukraine: While the first quarter of 2022 still showed growth of 0.8% overall, a downward trend could already be seen by March (– 3.5%), which intensified significantly again in April (– 5.8%). In May, the decline was still 2.2%.

Automotive production burdened by bottlenecks - commercial vehicles even down by double digits

Due to its globally networked supply chains, the automotive industry was hit particularly hard by the disruptions in the first half of 2022. In particular, the limited availability of intermediate products and massive cost increases had a negative impact on the industry. For this reason, automakers were unable to adequately meet demand in most regions in the six-month period of 2022, according to LMC Automotive (LMCA). According to LMCA, sales of light vehicles (LV, up to 6 t) slumped by 8.5% by the end of June 2022, with the second quarter (-14.8%) proving to be particularly weak. In contrast, the decline in LV production was milder (Q1 2022: -3.3%, Q2 2022: -0.8%). Nevertheless, volumes fell to 18.6 million light vehicles in the second quarter, moving even further away from the peak years of 2018 and 2019, with then-record levels of 25 million LV per quarter. In terms of drive types, an accelerated shift toward electric drives is quite evident. The share of light vehicles with internal combustion engines was 77.7% in the first quarter of 2022, according to LMCA data, down from 83.1% in 2021 as a whole. The commercial vehicle market also failed to maintain its high year-earlier base: Global commercial vehicle production contracted by a significant double-digit percentage (Q1 2022: – 26.5%, Q2 2022: – 30.9%).

Construction industry in China and Europe facing increasing headwinds

The Chinese construction industry was impacted by a number of factors, with a significant slowdown in the second quarter of 2022 in particular. These included the liquidity crisis among Chinese construction financiers, government measures to curb debt in the real estate sector and strict lockdowns to contain the COVID- 19 pandemic on the part of the government. According to the NBS statistics office, building investment contracted 5.4% cumulatively through the end of June 2022 (Q1 2022: +0.7%), with residential construction down 4.5% (Q1 2022: +0.7%). By comparison, the construction industry in the euro zone got off to a strong start in 2022, although material shortages and high inflation are having an increasingly negative impact. In the euro zone, following a 5.3% increase in the first quarter of 2022, construction output subsequently grew more moderately overall (April 2022: +2.8%; May 2022: +2.9%). By contrast, Poland and Italy recorded a very dynamic development with double-digit growth rates in each case. By comparison, growth was more moderate in France, Portugal and the Netherlands, and declined in Spain. In Germany, construction output stalled with the outbreak of the Ukraine war. Material bottlenecks and sharp price increases dampened sentiment, revealing a decline in German construction output (March 2022: – 3.1%; April 2022: – 1.7%; May 2022: – 2.0%).

Growth trend for the US construction industry weakens

A gradually weakening trend can be observed in the construction industry in the US. According to expert estimates, this is due among other factors to the sharp rise in the cost of materials and higher interest rates. Both factors led to a reduced willingness to invest compared to the strong growth in 2021. While the number of new buildings completed increased again in the first half of 2022, construction starts in May 2022 fell by 8.0% as a result of the increase in negative environmental factors. Similarly, building permits for new buildings were down 8.0% from the start of 2022 to June.

NORMA Group’s water business in the United States correlates very strongly with the maintenance, conversion and renovation of properties in addition to new construction. These market drivers weakened in the first half of 2022. According to the Zonda Residential Remodeling Index (RRI), remodeling in the US increased by 13% in the period January to June 2022, boosted by high available funds and low interest rates, but at a significantly lower rate than previously assumed. Besides the aforementioned growth drivers, extreme weather conditions – such as the current drought in the western United States and heavy rainfall - are also important factors influencing the development of the water business.

Significant Events in the First Half of 2022

New distribution partnership with Thai water management company

NORMA Group entered into a distribution partnership with Kanok Products Co., Ltd. (“Kanok”), a Thai company that specializes in agricultural irrigation systems, in the second quarter of 2022. Kanok has been serving NORMA Group customers in Thailand with compression fittings for agricultural applications since March 2022. This cooperation enables NORMA Group to strengthen its water management business in the Asia-Pacific region.

General Statement by the Management Board on the Course of Business and the Economic Situation

NORMA Group’s sales developed positively in the first half of 2022 despite the challenging market environment. At EUR 622.3 million, the Group’s sales were 9.5% higher than in the previous year (H1 2021: EUR 568.1 million). This includes positive currency effects to a large extent in the first six months of the current fiscal year. Organic growth in sales amounted to 3.8%, but was primarily also driven by an increase in selling prices. The main driver of sales here was the Americas region in particular, which recorded a marked year-on-year increase in sales driven by positive price effects in both the Water Management sector and in the areas of Mobility and New Energy. In the Asia-Pacific region, sales also developed positively overall due to strong growth in Standardized Joining Technology, whereas sales in the EMEA region fell short of the disproportionately good first half of the previous year, as expected, due to weaker demand from the European automotive industry.

The operating earnings figures fell short of the Management Board’s expectations in some cases. Adjusted EBIT amounted to EUR 52.7 million in the first half of 2022 (H1 2021: EUR 73.0 million). The adjusted EBIT margin was 8.5% (H1 2021: 12.8%). The main reasons for this were unexpected further increases in material costs due to sharply rising gas and energy prices, which could not be fully offset by an increase in selling prices. In addition, a further increase in high inflation, continuing effects from the Ukraine crisis, the risk of further lockdowns in China, and higher logistics and other operating costs, including IT implementation costs, had a negative impact on the development of operating profit. Net operating cash flow also decreased significantly year-on-year to EUR 9.8 million in the first six months of 2022 (H1 2021: EUR 39.3 million). In addition to the noticeably lower EBITDA in the current reporting period, this development is attributable to a higher build-up of (trade) working capital compared to the end of 2021.

The Management Board does not expect the challenging situation to ease significantly in the second half of 2022 either and has therefore adjusted its forecast for the adjusted EBIT margin and net operating cash flow for the remainder of fiscal year 2022 on July 21, 2022, taking the above-mentioned factors and expected sales performance into account. Accordingly, the management now expects an adjusted EBIT margin for fiscal year 2022 of around 8% (previous forecast: “around 11%”). For net operating cash flow, the management expects a figure of around EUR 60 million in fiscal year 2022 (previous forecast: “around EUR 100 million”). With regard to the development of organic Group sales, the Management Board is sticking to the forecast published in the 2021 Annual Report and confirmed in the interim announcement on the first quarter of 2022 (“mid to high single-digit organic Group growth in sales”). Detailed information on all other components of the forecast can be found in the forecast report.

Earnings, Assets and Financial Position

NORMA Group adjusts certain expenses for the operational management of the company. The adjusted results presented in the following reflect the management’s view.

Adjustments

In the period from January to June 2022, as in the previous year, no adjustments were made for expenses within EBITDA (earnings before interest, taxes, depreciation of property, plant and equipment and amortization of intangible assets). Within EBITA (earnings before interest, taxes, depreciation and amortization of intangible assets), adjustments for depreciation of property, plant and equipment from purchase price allocations were made in the amount of EUR 0.6 million (H1 2021: EUR 0.7 million). Furthermore, amortization of intangible assets from purchase price allocations in the amount of EUR 10.4 million (H1 2021: EUR 10.0 million) is also presented on an adjusted basis.

Notional income taxes resulting from the adjustments are calculated using the tax rates of the respective local companies concerned and included in adjusted earnings after taxes.

The adjusted figures are presented below. More detailed information on the unadjusted figures is provided in the Condensed notes.

Order backlog

As of June 30, 2022, NORMA Group’s order backlog amounted to EUR 582.8 million (June 30, 2021: EUR 496.9 million) and was thus 17.3% higher than on the previous year’s reporting date.

Earnings position

Sales rise by 9.5% in first half of 2022; Americas region a key growth driver

NORMA Group generated consolidated sales of EUR 622.3 million in the first half of 2022, which is 9.5% higher than in the same period of the previous year (H1 2021: EUR 568.1 million). Currency effects, especially related to the US dollar, had a positive impact of 5.8%, while organic sales growth amounted to 3.8%. The positive development resulted mainly from positive price effects from the Americas region and there from both strong growth in the Water Management business and additional revenue in the Mobility and New Energy business.

In the second quarter of 2022, net sales increased by 12.9% compared to the same quarter of the previous year (Q2 2022: EUR 317.9 million; Q2 2021: EUR 281.7 million). Organic growth in the second quarter of 2022 was 5.3% and partly driven by an increase in selling prices. Currency effects had a positive impact of 7.5%.

Double-digit organic growth in sales in the SJT business; EJT business grows slightly, driven by currency effects

The SJT business posted sales of EUR 278.7 million in the period from January to June 2022, 19.8% higher than in the same period of the previous year (H1 2021: 232.7 million). This includes organic growth in sales of 11.9%. In addition, currency effects impacted SJT sales positively by 7.9%. Growth was again driven by the strong water business at the US subsidiary NDS and good business in industrial applications in Asia-Pacific.

In the second quarter of 2022, net sales in the SJT segment totaled EUR 147.2 million, exceeding the previous year’s level by 20.5% and by 10.5% organically. Both the Americas and the Asia-Pacific region made significant contributions to the organic growth in sales. Currency effects contributed 10.0% to sales growth.

In the area of EJT, demand from the European automotive industry in particular was subdued, as expected. The reason for this was the increased and far-reaching market challenges since the beginning of 2022, as a result of which automotive manufacturers were unable to fully exploit production potential. Although organic sales growth in the EJT business was negative (– 2.4%), this was more than offset by positive currency effects, primarily in connection with the US dollar (4.3%). As a result, the EJT business generated sales of EUR 338.6 million in the period from January to June 2022 and a slight increase of 1.9% compared to the six-month period of 2021 (H1 2021: EUR 332.3 million).

Net sales in the EJT segment amounted to EUR 167.6 million (Q2 2021: EUR 157.7 million) in the second quarter of 2022. This equates to sales growth of 6.3% compared to the same quarter of the previous year. The increase was mainly currency-driven (+5.6%), while organic growth in sales amounted to 0.7%. There was a jump in sales in the Americas region in the Mobility and New Energy sector in particular in the second quarter of 2022. By contrast, the development in the EMEA and Asia-Pacific regions was down.

Significant increase in cost of materials ratio as a result of persistently high raw material, energy and logistics costs

Cost of materials amounted to EUR 296.1 million in the first half of 2022, exceeding the level of the prior-year period (H1 2021: EUR 249.5 million) by 18.7%. The cost of material ratio in relation to sales was 47.6% in the first half of 2022 (H1 2021: 43.9%). The cost of material to total output ratio (sales plus changes in inventories and other own work capitalized) was 47.3% (H1 2021: 43.4%). In the second quarter of 2022, cost of materials amounted to EUR 156.2 million (Q2 2021: EUR 126.3 million) and the cost of materials ratio to sales reached a level of 49.1% (Q2 2021: 44.8%).

The cost of materials ratio was negatively impacted by the persistently high price level of raw materials (mainly steel, alloy surcharges and engineering plastics) and production materials relevant for NORMA Group. As expected, these increased further in the first half of 2022 compared to the end of 2021 and significantly exceeded the level of the prior-year period for nearly all raw materials and materials. Increased logistics costs and the development of the US dollar compared to the first six months of the previous year also had an increasing effect on the cost of materials in this connection.

Gross profit and gross margin

Despite the good development of sales, NORMA Group generated gross profit (sales less cost of materials and changes in inventories plus other own work capitalized) of only EUR 330.2 million in the first half of 2022, which represents a slight increase of 1.3% compared to the six-month period of the previous year (H1 2021: 325.9 million). Gross profit was strongly impacted by higher material costs as a result of increased raw material prices and logistics costs. Despite the increase in sales, these factors resulted in a lower gross margin (as a percentage of sales) of 53.1% in the first half of 2022 (H1 2021: 57.4%).

NORMA Group generated gross profit of EUR 166.7 million in the second quarter of 2022, exceeding the same quarter of the previous year (Q2 2021: EUR 159.9 million) by 4.3%. Thus, the gross margin in the second quarter of 2022 was 52.5% (Q2 2021: 56.8%). As in the prior-year quarter, the increase in inventories in the current reporting quarter (Q2 2022: EUR 4.4 million; Q2 2021: EUR 4.1 million) had an increasing effect on the gross margin.

Personnel cost ratio

As of June 30, 2022, NORMA Group employed a total of 8,682 people worldwide, 6,230 of whom are permanent employees. Compared to June 30, 2021 (6,481), the number of permanent employees has thus declined by 3.9%, while it has increased only slightly compared to the end of 2021 (6,191). In the EMEA region in particular, there were significantly fewer permanent employees as of June 30, 2022, compared to the prior-year reporting date in connection with a reduction in the workforce in Serbia. By contrast, the number of employees in the Americas and Asia-Pacific regions increased slightly by half-year comparison.

Personnel expenses amounted to EUR 157.5 million in the first half of 2022. Despite the lower number of permanent employees, this represents an increase of 7.6% compared to the same period of the previous year (H1 2021: EUR 146.4 million). On the one hand, currency effects – in particular the development of the US dollar against the euro – contributed to this. On the other hand, the increase in personnel expenses in Asia-Pacific with a higher number of employees compared to the previous year also had an increasing effect on personnel costs in the first half of 2022. At 25.3%, the personnel cost ratio for the first half of 2022 decreased compared to the previous year (H1 2021: 25.8%), also due to inflation-related price increases and the related increase in sales.

In the second quarter of 2022, personnel expenses totaled EUR 79.5 million and were thus 10.0% higher than in the second quarter of 2021 (EUR 72.3 million). The personnel cost ratio was 25.0% in the second quarter of 2022 (Q2 2021: 25.7%) Condensed Notes

Other operating income and expenses

At EUR – 91.6 million, the balance of other operating income and expenses in the first half of 2022 was 14.5% higher than in the same period of the previous year (H1 2021: EUR – 80.0 million). The ratio of other operating expenses and income to sales increased to 14.7% in the current reporting period (H1 2021: 14.1%).

Other operating income amounted to EUR 13.5 million and thus exceeded the figure from the prior-year period (H1 2021: EUR 9.8 million) by EUR 3.6 million or 37.0%. This mainly includes currency gains from operating activities of EUR 6.4 million (H1 2021: EUR 3.7 million), income from the reversal of liabilities of EUR 3.2 million (H1 2021: EUR 2.8 million) and other income from the disposal of non-current assets of EUR 2.0 million (H1 2021: EUR 0.5 million).

Other operating expenses increased by EUR 15.2 million compared to the previous year (H1 2021: EUR – 89.9 million) to EUR – 105.1 million in the first half of 2022. The increase is mainly due to higher expenses for IT and telecommunications (H1 2022: EUR 16.5 million; H1 2021: EUR 10.7 million) as well as an increased need for temporary workers (H1 2022: EUR 24.9 million; H1 2021: EUR 22.0 million). In addition, increased travel and entertainment expenses (H1 2022: EUR 3.2 million; H1 2021: EUR 1.2 million), expenses for consulting and marketing (H1 2022: EUR 10.6 million; H1 2021: EUR 8.7 million) as well as other administrative expenses (H1 2022: EUR 6.0 million; H1 2021: EUR 4.2 million) had an increasing effect on other operating expenses. Other operating expenses also include freight costs of EUR 20.3 million (H1 2021: EUR 21.8 million) and costs from the ongoing “Get on track” change program of EUR 0.7 million (H1 2021: 0.9 million). The latter are not adjusted.

In the second quarter of 2022, the balance of other operating income and expenses was EUR – 50.2 million, 31.2% higher than in the same quarter of the previous year (Q2 2021: EUR – 38.3 million). The ratio in relation to sales amounted to 15.8% (Q2 2021: 13.6%).

Operating result heavily impacted by various factors

The operating result adjusted for amortization of tangible and intangible assets from purchase price allocations, adjusted EBIT, amounted to EUR 52.7 million in the first six months of the current fiscal year, 27.9% below the comparative figure for the previous year (H1 2021: EUR 73.0 million). The adjusted EBIT margin reached a value of 8.5% in the first half of 2022 (H1 2021: 12.8%).

This development was mainly due to unexpected further increases in material costs as a result of sharply rising gas and energy prices, which could not be fully offset by increasing selling prices. In addition, continuing high inflation, the ongoing effects of the Ukraine crisis, the risk of further lockdowns in China, and higher logistics and other operating costs - including IT implementation costs - had a negative impact on the development of operating profit in the first half of 2022. The resulting negative impact on the operating profit was partly offset by positive effects from the “Get on track” change program.

In the second quarter of 2022, adjusted EBIT amounted to EUR 22.3 million (Q2 2021: EUR 36.1 million), while the adjusted EBIT margin was at 7.0% (Q2 2021: 12.8%).

NORMA Value Added (NOVA)

NORMA Value Added (NOVA) amounted to EUR 4.2 million in the first half of 2022 and thus decreased significantly compared to the previous year (H1 2021: EUR 17.9 million). This development is primarily due to the decline in adjusted EBIT in the first six months of 2022.

Financial result

The financial result improved by 26.4% to EUR -4.5 million in the six-month period of 2022 (H1 2021: EUR -6.2 million). CONDENSED Notes This was mainly due to an increased currency result from financing activities (H1 2022: EUR 3.0 million; H1 2021: EUR -0.4 million) and lower net interest expense compared to the same period of the previous year (H1 2022: EUR 3.9 million; H1 2021: EUR 4.4 million). The financial result in the first half of 2022 also includes, among other items, interest expenses from leases of EUR – 0.5 million (H1 2021: EUR – 0.4 million) and other financial expenses of EUR – 0.7 million (H1 2021: EUR – 0.8 million).

The financial result in the second quarter of 2022 amounted to EUR -3.0 million (Q2 2021: EUR -2.4 million).

Tax rate and adjusted earnings after taxes

Based on adjusted earnings before taxes (EBT) of EUR 48.1 million in the first half of 2022 (H1 2021: EUR 66.8 million), the adjusted tax rate was 27.3% (H1 2021: 26.5%). Adjusted net income after taxes for the period reached EUR 35.0 million (H1 2021: EUR 49.1 million). Based on an unchanged number of shares of 31,862,400, this resulted in adjusted earnings per share of EUR 1.10 in the first six months of the current fiscal year (H1 2021: EUR 1.54).

Adjusted net income for the period in the second quarter of 2022 was EUR 14.1 million (Q2 2021: EUR 24.9 million). Adjusted earnings per share in the period from April to June 2022 thus amounted to EUR 0.44 (Q2 2021: EUR 0.78).

Development of sales and earnings in the segments

The share of Group sales generated outside Germany was around 87.0% in the period from January to June 2022 (H1 2021: 83.7%).

EMEA region

External sales in the EMEA region amounted to EUR 246.1 million in the first half of 2022, down 3.7% (in organic terms: -3.5%) on the same period of the previous year (H1 2021: EUR 255.5 million).

NORMA Group generated sales of EUR 121.6 million in the EMEA region in the second quarter of 2022. This represents a decline of 1.3% compared to the same quarter of the previous year (Q2 2021: EUR 123.1 million) and 1.5% in organic terms.

The decline in sales in the EMEA region is mainly attributable to a continued decline in customer demand in the European automotive market, which was expected (H1 2022 in organic terms: – 3.8%; Q2 2022 in organic terms: – 1.1%). Business with Standardized Joining Technology also developed weakly in the first half of 2022 (H1 2022 in organic terms: – 3.4%; Q2 2022 in organic terms: – 3.3%). By contrast, the prior-year period had been characterized by a disproportionate recovery in both areas. The EMEA region’s share of Group sales fell to 40% in the six-month period of 2022 (H1 2021: 45%).

Adjusted EBIT in the EMEA region amounted to EUR 12.3 million in the current reporting period (H1 2021: EUR 34.1 million). The adjusted EBIT margin was 4.7% (Q1 2021: 12.3%). The main reason for the significantly lower operating profit was the decline in sales in the first half of 2022. The margin was also burdened by the increased cost level in the areas of materials and personnel. The former was driven by inflation. In addition, continuing effects from the Ukraine crisis and other operating costs, including IT implementation costs, and logistics costs had a negative impact on the development of the operating result in the first six months of 2022.

Capital expenditures in the EMEA region amounted to EUR 8.3 million in the first half of 2022 (H1 2021: EUR 7.9 million). The focus of investments was on the sites in Germany, the Czech Republic, Poland and Serbia.

Americas region

Sales (external sales) in the Americas region amounted to EUR 289.6 million in the first half of the year, up 26.8% on the previous year (H1 2021: EUR 228.4 million). The main share of the growth was due to an increase in organic sales (+14.9%). These were largely influenced by positive price effects. In addition, currency effects, particularly in connection with the US dollar, had a positive impact of 11.8% on sales in the Americas region compared to the same period of last year.

Sales in the second quarter of 2022 totaled EUR 155.3 million, representing an increase of 29.7% compared to the same quarter of the previous year (Q2 2021: EUR 119.7 million). This positive development is attributable in roughly equal parts to organic growth (+15.0%) and positive currency effects (+14.7%).

The main driver of the successful development of sales in the first six months of 2022 was once again a very good performance by the SJT business – in both the first and second quarters of 2022. Overall, the water business of the US subsidiary achieved organic sales growth of 20.7% in the first half of 2022. The Automotive business also developed positively and made important contributions to sales growth in the Americas region (H1 2022: +7.7%). The second quarter of 2022 in particular was characterized by a noticeable jump in sales (organic: +13.4%). In light of this development, the share of Group sales generated in the Americas region rose to 46% in the current reporting period (H1 2021: 40%).

Adjusted EBIT in the Americas region increased to EUR 39.4 million in the first half of 2022, compared to EUR 30.7 million in the same period of the previous year. As a percentage of sales, this resulted in a slightly improved adjusted EBIT margin for the Americas region of 13.4% (H1 2021: 13.2%). Besides the significant, price-driven increase in sales, the sale of a plot of land and building in the United States and improved efficiency in terms of personnel costs in particular had an increasing impact on adjusted EBIT in the Americas region. By contrast, the high price level for raw materials and freight costs had a noticeable negative impact on the operating result in the first six months of 2022.

In the period from January to June 2022, investments in the Americas region amounted to EUR 7.3 million (H1 2021: EUR 8.6 million) and related in particular to the plants in the United States and Mexico.

Asia-Pacific region

In the first half of 2021, external sales in the Asia-Pacific region totaled EUR 86.6 million (H1 2021: EUR 84.2 million) - a year-on-year increase of 2.9%. Positive currency effects in particular contributed 7.4% to this, whereas organic sales growth was negative (– 4.6%).

In the second quarter of 2022, net sales of EUR 41.1 million were generated in the Asia-Pacific region, representing a 5.8% higher level compared to the same quarter of the previous year (Q2 2021: EUR 38.8 million). While positive currency effects increased sales by 8.6%, organic sales growth was negative at 2.8%.

Although the SJT business developed noticeably positively in organic terms (H1 2022: +13.5%; Q2 2022: +20.1%), the EJT business showed a clear downward trend due to subdued demand from the Chinese automotive industry (H1 2022 organic: – 13.1%: Q2 2022: – 13.4%). By contrast, the first half of 2021 in the Mobility and New Energy sectors had been characterized by a noticeable recovery in the prior-year period. The Asia-Pacific region thus accounted for around 14% of Group sales in the first half of 2022 (H1 2021: 15%).

Adjusted EBIT in the Asia-Pacific region amounted to EUR 9.4 million in the first half of 2022 (H1 2021: EUR 14.8 million). The adjusted EBIT margin reached 10.4% (H1 2021: 16.9%). The margin decline is mainly attributable to higher material costs coupled with increased costs for inbound freight. Higher personnel costs also had a negative impact on the margin in the Asia-Pacific region.

Capital expenditure in the Asia-Pacific region amounted to EUR 4.0 million in the first six months of 2022 (H1 2021: EUR 4.8 million) and was mainly related to the plants in China.

Asset position

Total assets

Total assets amounted to EUR 1,600.0 million as of June 30, 2022 and were thus 6.8% higher than at the end of 2021 (Dec 31, 2020: EUR 1,498.2 million).

Assets

Non-current assets amounted to EUR 952.5 million as of June 30, 2022, an increase of 5.2% compared to December 31, 2021 (EUR 905.6 million). Among other factors, this was due to an increase in property, plant and equipment, particularly in the area of capitalized rights of use for leased land and buildings. In this context, EUR 19.4 million (H1 2021: EUR 3.4 million) was recognized as additions to non-current assets in the first half of the year. Furthermore, positive currency effects, especially from the US dollar region, increased non-current assets.

A total of EUR 19.8 million was invested in fixed assets (H1 2021: EUR 21.9 million) in the first six months of 2022. The share of own work capitalized within investments amounted to EUR 1.2 million (H1 2021: EUR 1.3 million). The main focus of investing activities in the first half of 2022 was on the United States, China, the Czech Republic, Serbia, Poland and Germany. As a result, non-current assets accounted for 59.5% of total assets as of June 30, 2022 (Dec 31, 2021: 60.4%).

Current assets amounted to EUR 647.6 million as of June 30, 2022, up 9.3% compared to December 31, 2021 (EUR 592.6 million). One key driver here was the strong increase in trade receivables (+36.7%), which, in addition to a seasonal increase, can also be attributed to the reduction in receivables sold as part of the ABS and factoring programs compared to the end of the previous year. In addition, higher inventories (+10.8%) compared to the end of 2021 contributed to the increase in current assets on the current reporting date. Besides seasonal developments, the increase in inventories also resulted from currency effects and price increases on the procurement market. A further increase in inventory reserves was also arranged to counteract previously announced price increases. By contrast, cash and cash equivalents decreased by 16.5% to EUR 155.1 million, mainly due to the dividend payment of EUR 23.9 million to the shareholders of NORMA Group in May 2022. Current assets accounted for 40.5% of total assets as of the end of June (Dec 31, 2021: 39.6%).

Higher equity ratio

Equity amounted to EUR 715.0 million as of June 30, 2022 (December 30, 2021: EUR 668.6 million). This corresponds to an increase of 6.9%. In relation to total assets, this resulted in an equity ratio of 44.7%. This was slightly above the level as of December 31, 2021 (44.6%).

Financial liabilities

NORMA Group’s financial liabilities increased by 6.7% to EUR 537.9 million as of June 30, 2022, compared to the end of 2021 (EUR 504.2 million). Currency effects related to the US dollar and interest deferrals led to an increase in loans. The increase in liabilities from leases resulted from additions in the area of rights of use due to newly concluded leases, which more than offset the changes due to repayments (payment of lease installments).

Non-current liabilities amounted to EUR 516.4 million as of June 30, 2022, an increase of 4.0% compared to the end of 2021 (Dec 31, 2021: EUR 496.4 million).

Current liabilities amounted to EUR 368.6 million as of June 30, 2022, an increase of 10.6% compared to the end of 2021 (Dec 31, 2021: EUR 333.3 million).

On the balance sheet date, non-current liabilities accounted for 32.3% of total assets (Dec 31, 2021: 33.1%), while current liabilities accounted for 23.0% (Dec 31, 2021: 22.3%).

Net debt increased

Net debt increased from EUR 318.5 million at the end of 2021 to EUR 382.8 million on June 30, 2022, an increase of 20.2% or EUR 64.3 million. This was mainly due to the significant decrease in cash and cash equivalents as a result of the dividend paid to NORMA Group shareholders in May 2022. In addition, the increase in lease liabilities, current interest expenses and cash-neutral currency effects had a negative impact on net debt.

Gearing (net debt in relation to equity) as of June 30, 2022, was 0.5, exactly the same as at the end of 2021 (Dec 31, 2021: 0.5). Leverage (net debt excluding hedging instruments in relation to EBITDA for the last twelve months) increased to 2.5 as of June 30, 2022 (Dec 31, 2021: 1.9).

Financial position

Group-wide financial management

A detailed overview of NORMA Group’s general financial management can be found in the 2021 Annual Report.

Net operating cash flow

Net operating cash flow amounted to EUR 9.8 million in the current reporting period, a significant decrease compared to the same period of the previous year (H1 2021: EUR 39.3 million). On the one hand, this is due to the decline in EBITDA (H1 2022: EUR 81.1 million; H1 2021: EUR 99.5 million). On the other hand, a higher build-up of (trade) working capital compared to the end of 2021 also had a negative impact on net operating cash flow in the current reporting period. Lower capital expenditures from operations (H1 2022: EUR 17.9 million; H1 2021: EUR 19.8 million) had a slightly mitigating effect.

Cash flows from operating, investing and financing activities

Cash flow from operating activities was EUR 7.1 million in the first half of 2022 (H1 2021: EUR 41.8 million). Cash flow from investing activities totaled EUR – 14.6 million in the first half of 2022 (H1 2021: EUR – 22.8 million) and includes net cash outflows from the procurement and disposal of non-current assets. Cash flow from financing activities amounted to EUR – 30.1 million in the first half of 2022 (H1 2021: EUR – 38.3 million). Condensed notes

Development of non-financial performance indicators

NORMA Group’s most important non-financial performance indicators include CO₂ emissions, the Group’s innovative capability, the problem-solving behavior of its employees and the sustainable overall development of NORMA Group.

Other non-financial performance indicators include personnel and environmental indicators as well as key figures on occupational safety and health protection in the Group. Information on these can be found in the 2021 CR REPORT.

Carbon dioxide emissions

Compliance with applicable environmental protection requirements and the avoidance of environmental risks have a high priority for NORMA Group. The company is guided by international standards and guidelines in this regard. A significant non-financial performance indicator in the area of the environment, which has also been part of the Management Board’s remuneration system since January 2020, is climate-relevant CO₂ emissions. NORMA Group records the greenhouse gas emissions of all production sites resulting from gas consumption (Scope 1) and the purchase of electricity and district heating (Scope 2) and strives to continuously reduce these emissions. With regard to its own production processes, NORMA Group has set itself the target of reducing CO₂ emissions by around 19.5% by 2024 (reference year 2017). This target is based, among other aspects, on calculations of the Science Based Targets initiative. In the first half of 2022, CO₂ emissions amounted to 2,783 kg/t CO2e due to the purchase of electricity from renewable energies initiated in January 2022. As a result, CO₂ emissions in the first six months can only be compared with the prior-year period to a limited extent (H1 2021: 23,536).

Invention applications

Securing the ability to innovate on a sustainable basis is a key driver for NORMA Group’s future growth. To this end, the development of new products that are oriented towards the changing requirements of end markets, customers and legal regulations is essential. NORMA Group therefore promotes the inventive spirit of its employees through targeted incentive systems and records, manages and reports the number of annual invention applications in the Group. 10 invention applications were filed in the first half of 2022 (H1 2021: 10).

Quality indicator

NORMA Group stands for the highest reliability and service quality. The reputation of its brands and the reliability of its products are a key factor in the company’s success. The Group therefore relies on the highest quality standards in the development and manufacture of its products. In order to minimize faulty production and maximize customer satisfaction, NORMA Group measures and monitors the problem-solving behavior of its employees on the basis of the key figure of defective parts per million produced (parts per million/PPM). This key figure is recorded and aggregated on a monthly basis throughout the Group. The number of defective parts (PPM) in the first half of 2022 was 4.0 (H1 2021: 4.7).

Acting responsibly at all levels of the company

NORMA Group considers it its main responsibility to reconcile the effects of its business activities with the expectations and needs of society. The company therefore bases its operational decisions on the principles of responsible corporate governance and sustainable action. NORMA Group’s strategy and objectives in the area of corporate responsibility (CR) are continuously evaluated and updated. Further information on this can be found in the 2021 CR Report.