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 2023, 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 0.4 million (H1 2022: EUR 0.6 million). Furthermore, amortization of intangible assets from purchase price allocations in the amount of EUR 10.2 million (H1 2022: EUR 10.4 million) within EBIT 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, 2023, NORMA Group’s order backlog amounted to EUR 535.3 million (Jun 30, 2022: EUR 582.8 million) and was thus 8.2% lower than on the previous year’s reporting date.

 

Earnings position

 

Sales grows by 2.7% in first half of 2023; EMEA region a key growth driver

NORMA Group generated consolidated sales of EUR 639.0 million in the first half of 2023, which is 2.7% higher than in the same period of the previous year (H1 2022: EUR 622.3 million). Organic growth in sales amounted to 3.1% and was mainly driven by an increase in selling prices, while currency effects had a slightly negative impact of 0.4%. The increase in revenue was mainly due to higher demand from the EMEA region, both in the automotive business and in the Standardized Joining Technology business. Although the Asia-Pacific region showed an increasingly dynamic trend at the end of the current reporting period, its development, like that of the Americas region, remained behind the good previous year.

In the second quarter of 2023, sales increased by 1.9% compared to the same quarter of the previous year to EUR 324.0 million (Q2 2022: EUR 317.9 million). Organic growth in the second quarter of 2023 was at 4.0%. Currency effects had a negative impact of 2.0%.

 

EJT business grows again; decline in revenue in the area of SJT partly due to external factors

In the EJT business, demand picked up again in the first half of 2023, particularly from the automotive industry. Important sales growth was achieved primarily in the EMEA region, but the Asia-Pacific and Americas regions also generated sales growth. Sales increased by 9.0% compared to the six-month period of 2022 to EUR 369.0 million (H1 2022: EUR 338.6 million). Organic sales growth in the EJT business was 9.7%, while currency effects reduced revenues by 0.7%.

In the second quarter of 2023, sales in the EJT business amounted to EUR 186.3 million (Q2 2022: EUR 167.6 million). This corresponds to a sales growth of 11.1% compared to the same quarter of the previous year. The increase resulted from an organic plus of 13.3% and negative currency effects of 2.1%.

The SJT business recorded sales of EUR 267.1 million in the period from January to June 2023, down 4.2% compared to the same period of the previous year (H1 2022: EUR 278.7 million), almost entirely resulting from an organic decline in sales revenue. The decline was mainly due to weaker sales in the US water business and delays in the award of a project in India. By contrast, business performance in EMEA was boosted by higher selling prices compared with the first half of the prior year.

In Q2 2023, SJT net sales amounted to EUR 136.4million (Q2 2022: EUR 147.2 million), falling short of the previous year's level by 7.3% and by 5.4% in organic terms. Negative currency effects reduced growth by 1.9%. In the months from April to June 2023, sales growth was also only generated in the EMEA region .

 

Cost of materials ratio declines year-on-year 

Cost of materials amounted to EUR 279.9 million in the first half of 2023 and was thus 5.5% lower than in the same period of the previous year (H1 2022: EUR 296.1 million). The cost of materials ratio in relation to sales was 43.8% in the first half of 2023 (H1 2022: 47.6%). The cost of material to total output ratio (sales plus changes in inventories and other own work capitalized) was 44.9% (H1 2022: 47.3%). This key figure reflects the reduction in inventories of finished goods and work in progress of EUR 17.0 million in the current fiscal year compared to the previous year (H1 2022: increase in inventories of EUR2.8 million), which had a positive effect on the cost of materials ratio.

In the second quarter of 2023, cost of materials amounted to EUR 138.4 million (Q2 2022: EUR 156.2 million) and the cost of materials ratio to revenue reached 42.7% (Q2 2022: 49.1%).

The cost of materials and intermediate products developed differently in the first six months of 2023. While the prices of some plastic granulates fell significantly, the prices of other (intermediate) product groups of relevance to NORMA Group, such as rubber products, remained high due to inflation. In the case of the special steel grades relevant to NORMA Group, the price level was mitigated through targeted price negotiations, although the cost prices persisted at an elevated level compared to conventional commodity steel goods that NORMA Group does not purchase. Energy costs remained at a high level, especially in the EMEA region.

 

Gross profit and gross margin 

NORMA Group generated gross profit (sales less cost of materials and changes in inventories plus other own work capitalized) of EUR 343.4 million in the first half of 2023. Compared to the six-month period of the previous year (H1 2022: 330.2 million), this represents an increase of 4.0%. In addition to the growth in sales, this is primarily due to the overall lower material expenses. These factors resulted in a slightly improved gross margin (as a percentage of sales) of 53.7% in the first half of 2023 (H1 2022: 53.1%).

NORMA Group generated gross profit of EUR 174.1 million in the second quarter of 2023, an increase of 4.4% compared to the previous year (Q2 2022: EUR 166.7 million). The gross margin in the second quarter of 2023 was thus significantly higher than in the previous year at 53.7% (Q2 2022: 52.5%). The reduction in inventories of EUR -12.2 million in the current reporting quarter (Q2 2022: increase in inventories of EUR 4.4 million) had a reducing effect on the gross margin.

 

Personnel cost ratio

As of June 30, 2023, NORMA Group employed a total of 8,529 people worldwide, 6,115 of whom are permanent employees. Compared to both June 30, 2022 (6,230 employees) and the end of 2022 (6,175 employees), the number of permanent employees has thus declined slightly. There were fewer permanent employees in the EMEA and Asia-Pacific regions as of June 30, 2023 compared to the previous year’s reporting date. In the Americas region, the core workforce remained stable in a half-year comparison.

Personnel expenses amounted to EUR 163.6 million in the first half of 2023, an increase of 3.8% compared to the same period last year (H1 2022: EUR 157.5 million). This increase is due to inflation-driven increases in wages and additional employee benefit expenses related to the reduction of production backlogs in the EMEA region. In addition, inefficiencies in personnel structure and costs in the EMEA and Americas regions also had a negative impact. Currency effects in the US dollar region further exacerbated this development. At 25.6%, the personnel cost ratio for the first half of 2023 increased only slightly overall compared to the previous year (H1 2022: 25.3%).

In the second quarter of 2023, personnel expenses amounted to EUR 81.5 million and were thus 2.5% higher than in the second quarter of 2022 (EUR 79.5 million). The personnel cost ratio in the second quarter of 2023 was 25.2% (Q2 2022: 25.0%). CONDENSED NOTES

 

Other operating income and expenses

The balance of other operating income and expenses in the first half of 2023 was EUR -101.2 million, 10.5% higher than in the same period of the previous year (H1 2022: EUR -91.6 million). The ratio of other operating expenses and income to sales increased to 15.8 in the current reporting period (H1 2022: 14.7%).

Other operating income amounted to EUR 10.1 million and was thus EUR 3.4 million or 25.3% lower than in the same period of the previous year (H1 2022: EUR 13.5 million). This mainly includes currency gains from operating activities of EUR 5.3million (H1 2022: EUR 6.4 million) and income from the reversal of liabilities and provisions (H1 2023: EUR 2.6 million; H1 2022: EUR 3.2 million). CONDENSED NOTES

Other operating expenses rose by EUR 6.2 million or 5.9% compared to the same period of the previous year (H1 2022: EUR 105.1 million) to EUR 111.3 million in the first half of 2023. Most of this amount is largely attributable to expenses for temporary staff and other personnel-related expenses (H1 2023: EUR 28.5 million; H1 2022: EUR 24.9 million) and freight costs (H1 2023: EUR 22.3 million; H1 2022: EUR 20.3 million). In addition, other operating expenses include costs for consulting and marketing ((H1 2023: EUR 11.0 million; H1 2022: EUR 10.6 million) as well as expenses for IT and telecommunications (H1 2023: EUR 12.9 million; H1 2022: EUR 16.5 million), which are related to the Group-wide implementation of a new ERP system and the associated additional need for consulting services and license fees.

In the second quarter of 2023, the balance of other operating income and expenses was EUR -50.7 million and thus 0.9% higher than in the corresponding quarter of the previous year (Q2 2022: EUR -50.2  million). The ratio to sales was 15.6% (Q2 2022: 15.8%).

 

Operating result heavily burdened by various factors

The operating result adjusted for depreciation and amortization of tangible and intangible assets from purchase price allocations – adjusted EBIT – amounted to EUR 49.7 million in the first six months of the current fiscal year and was thus 5.7% below the comparable figure for the previous year (H1 2022: EUR 52.7 million). The adjusted EBIT margin reached 7.8% in the first half of 2023 (H1 2022: 8.5%).

Adjusted EBIT for the period January to June 2023 was negatively impacted by the significantly higher other operating expenses compared to the previous year as well as the increased expenses for employee benefits.

Adjusted EBIT in the second quarter of 2023 amounted to EUR 27.1 million (Q2 2022: EUR 22.3 million). The adjusted EBIT margin was 8.4% (Q2 2022: 7.0%).

 

NORMA Value Added (NOVA)

NORMA Value Added (NOVA) was EUR -15.5 million in the first half of 2023, a significant deterioration compared to last year (H1 2022: EUR 4.2 million). This development is primarily due to the low adjusted EBIT in the first six months of 2023 compared to the same period of the previous year and an increase in the weighted average cost of capital (H1 2023: 9.25%; H1 2022: 7.03%).

 

Financial result

The financial result for the six-month period of 2023 was EUR -9.1 million, a significant deterioration compared to the previous year (H1 2022: EUR -4.5 million) CONDENSED NOTES. This was mainly due to noticeably higher net interest expense H1 2023: EUR -8.7 million; H1 2022: EUR -4.7 million), which resulted from a tangible increase in interest expense on liabilities to banks (H1 2023: EUR -9.7 million; H1 2022: EUR -4.2 million). In addition, the financial result was burdened by higher other financial expenses (H1 2023: EUR -0.9 million; H1 2022: EUR -0.4 million) and lower net currency gains compared to the previous year (H1 2023: EUR 0.5 million; H1 2022; EUR 0.7 million).

The financial result in the second quarter of 2023 amounted to EUR -5.2 million (Q2 2022: EUR -3.0 million).

 

Adjusted tax rate and adjusted earnings for the period

Based on adjusted earnings before taxes (EBT) of EUR 40.6 million in the first half of 2023 (H1 2022: EUR 48.1 million), the adjusted tax rate was 35.2% (H1 2022: 27.3%). Adjusted earnings for the period reached EUR 26.3 million (H1 2022: EUR 35.0 million). Based on an unchanged number of shares of 31,862,400, this resulted in adjusted earnings per share of EUR 0.82 in the first six months of the current fiscal year (H1 2022: EUR 1.10).

Adjusted earnings for the period in the second quarter of 2023 amounted to EUR 14.5 million (Q2 2022: EUR 14.1 million). Adjusted earnings per share for the period April to June 2023 were thus 0.45 (Q2 2022: EUR 0.44). 

 

Development of revenue and earnings in the segments

The share of Group sales generated outside Germany was around 87.7% in the period from January to June 2023 (H1 2022: 87.0%).

 

EMEA region

External sales in the EMEA region amounted to EUR 274.8 million in the first half of 2023, up 11.6% and 12.2% in organic terms compared to the same period of the previous year (H1 2022: EUR 246.1 million). Price increases during the first six months of 2023 also had a positive effect. Currency effects reduced growth by 0.6%.

In the second quarter of 2023, NORMA Group generated sales of EUR 136.6 million in the EMEA region, resulting in a year-on-year (Q2 2022: EUR 121.6 million) increase in sales of 12.4% and 12.7% in organic terms, respectively, with currency effects impacting revenue by -0.3%.

The positive development of sales in the EMEA region compared to the weak prior-year period was primarily driven by an increase in volume business in the European automotive market. In total, revenue in the EJT segment reached EUR 205.8 million in the first half of 2023 (H1 2022: EUR 179.8 million). The revenue generated is divided roughly equally between the first and second quarters of 2023. NORMA Group also generated strong growth in Standardized Joining Technology in the EMEA region in the first half of 2023 (H1 2023: EUR 67.1 million; H1 2022: EUR 64.0 million), although growth in the second quarter of 2023 showed slightly less momentum. Both the industrial and the water business developed positively. Taken together, the EMEA region’s share of Group sales increased to 43% in the six-month period of 2023 (H1 2022: 40%).

Adjusted EBIT in the EMEA region reached EUR 14.2 million in the current reporting period (H1 2022: EUR 12.3 million). The adjusted EBIT margin was 4.9% (H1 2022: 4.7%). The improvement in the operating margin mainly resulted from the increase in revenue in the first half of 2023, while the higher level of personnel costs related to the reduction of production backlogs weighed on the margin in the first half of 2023. In addition, higher special freight costs had a negative impact on the EMEA region’s operating profit.

Investments in the EMEA region amounted to EUR 10.0 million in the first half of 2023 (H1 2022: EUR 8.3 million). The focus of investments was on the sites in Germany and Serbia.

 

Americas region

Sales (external revenue) in the Americas region amounted to EUR 282.2 million in the first half of 2023 and was thus 2.6% (in organic terms: 3.7% below the previous year’s figure (H1 2022: EUR 289.6  million). Currency effects, especially in connection with the US dollar, had a positive impact of 1.2% on revenue in the Americas region in the first six months.

Sales in the second quarter of 2023 totaled EUR 144.5 million, a decline of 6.9% compared to the same quarter of last year (Q2 2022: EUR 155.3  million). Organic growth declined by 5.2%, while currency effects also had a negative impact of -1.8%.

The main driver of the decline in revenue was the weak water business of the US subsidiary NDS. Following the extremely good development in the same period of the previous year that brought enormous growth rates (H1 2022: in organic terms: +20.7%), this business recorded a decline in organic sales (-6.7%) in the first half of 2023. This was mainly due to a weather-related special effect that had an impact on the ordering behavior of. customers in the first six months of 2023. In light of this situation, SJT revenue declined to EUR 174.2 million in the current reporting period (H1 2022: EUR 182.9 million). The EJT business also developed modestly. Revenue was slightly above the previous year’s level (H1 2023: EUR 107.3 million; H1 2022: EUR 104.4 million). In particular, further price increases were successfully passed on to customers. In the second quarter of 2023, business performance was impacted not only by weaker organic growth but also by negative currency effects. Against this backdrop, the Americas region accounted for 44% of Group revenue in the current reporting period (H1 2022: 46%).

Adjusted EBIT in the Americas region fell to EUR 34.7 million in the first half of 2023, compared to EUR 39.4 million in the same period of the previous year. In relation to the lower sales, this resulted in an EBIT margin for the Americas region of 12.1% (H1 2022: 13.4%). The adjusted EBIT margin in the first half of 2023 was negatively impacted primarily by inflation-related higher personnel costs and, in some cases, inefficiencies within the personnel structures. Currency effects in the US dollar region further intensified this development. In contrast, the lower price level for key raw materials had a positive effect.

In the period from January to June 2023, investments in the Americas region amounted to EUR 16.7 million (H1 2022: EUR 7.3 million) and related in particular to the plants in the US.

 

Asia-Pacific region

In the Asia-Pacific region, sales in the first half of 2023 amounted to EUR 82.0 million (H1 2022: EUR 86.6 million). Compared to the same period of the previous year, this resulted in a 5.2% decline in sales, which was mainly caused by negative currency effects (-5.0%). Organic sales growth was also slightly negative at -0.2%.

Sales of EUR 42.9 million was generated in the Asia-Pacific region in the second quarter of 2023. Compared to the same quarter of the previous year (Q2 2022: EUR 41.1 million), sales increased by 4.5%. Strong organic sales growth of 12.5% was offset by currency effects of -8.1%.

The SJT business in particular declined sharply in the current reporting period (H1 2023: EUR 25.8 million; H1 2022: EUR 31.9 million). The decline in the SJT business affected the industrial and the water business in equal measure. This was triggered by the ongoing negative after-effects of the pandemic, which had a negative impact mainly in the first quarter, as well as delays in a government project in India. By contrast, slight sales impulses came from the EJT segment in the first half of 2023. There, demand from the Chinese automotive industry recovered noticeably after a weak opening quarter of 2023. Moreover, very strong organic growth in the double-digit range became visible in the second quarter of 2023. Nevertheless, the positive development was partly offset by negative currency effects. In total, sales of the EJT segment reached EUR 55.9 million in the period January to June (H1 2022: EUR 54.3 million). The Asia-Pacific region accounted for around 13% of Group sales in the first half of 2023 (H1 2022: 14%).

Adjusted EBIT in Asia-Pacific was EUR 7.0 million in the first half of 2023 (H1 2022: EUR  9.4 million). The adjusted EBIT margin reached 7.9% (H1 2022: 10.4%). The decline in the margin in the first six months of 2023 was mainly due to the lower level of sales and higher operating expenses related to the expansion of production in China, whereas the more relaxed price situation for key raw materials and supplies supported the adjusted EBIT margin in Asia-Pacific.

Capital expenditure in the Asia-Pacific region amounted to EUR 5.3 million in the period from January to June 2023 (H1 2022: EUR 4.0 million). The investments were made at the plants in China in particular.

 

Asset position

 

Total assets

Total assets as of June 30, 2023, amounted to EUR 1,510.1 million, 3.2% lower than at the end of 2022 (Dec 31, 2022: EUR 1,560.7 million).

 

Assets

Non-current assets amounted to EUR 914.8 million as of June 30, 2023, a slight decrease of 1.0% compared to December 31, 2022 (EUR 924.5 million). Depreciation and amortization within other intangible assets as well as currency effects on goodwill had a reducing effect. In contrast, property, plant and equipment recorded an increase, which can be attributed in particular to the area of assets under construction. Non-current assets accounted for 60.6% of total assets as of June 30, 2023 (Dec 31, 2022: 59.2%).

In the period from January to June 2023, a total of EUR 32.2 million was invested in fixed assets (H1 2022: EUR 19.8 million). The share of own work capitalized within investments amounted to EUR 1.3 million (H1 2022: EUR 1.2 million). The focus of investment activities in the first half of 2023 was on the expansion of production capacities in the US and China. SIGNIFICANT EVENTS IN THE FIRST HALF OF 2023

Current assets amounted to EUR 595.2 million as of June 30, 2023, a decrease of 6.4% compared to December 31, 2022 (EUR 636.2 million). This was mainly due to the reduction in inventories (-9.0%) and the significant decrease in cash and cash equivalents (-41.1%) to EUR 99.3 million compared to the reporting date at the end of 2022 (Dec 31, 2022: EUR 168.7 million). One of the contributing factors was the dividend payment of EUR 17.5 million to the shareholders of NORMA Group in May 2023. A detailed reconciliation of the change in cash and cash equivalents can be found in the Consolidated Statement of Cash Flows. CONDENSED NOTES On the other hand, the increase in the items other financial and non-financial assets as well as trade receivables (+20.7%) had an increasing effect on current assets. The higher trade receivables can be attributed to the seasonal increase and to the reduction in receivables sold under the ABS and factoring program compared to December 31, 2022. Current assets accounted for 39.4% of total assets at the end of June 2023 (Dec 31, 2022: 40.8%). 

 

Equity ratio

Equity amounted to EUR 690.9 million as of June 30, 2023 (Dec 31, 2022: EUR 705.4 million) and was thus 2.0% below the figure at the end of 2022. The main reason for this is the reduction in other reserves due to negative currency translation differences and the dividend payment in the first half of 2023. The positive result for the period in the first six months of 2023 in the amount of EUR 18.3 million had the opposite effect. It was thus once again at a high level and slightly above the figure as of December 31, 2022 (45.2%). 

 

Financial liabilities

NORMA Group’s financial liabilities increased by 1.5% to EUR 526.3 million as of June 30, 2023, compared to the end of 2022 (Dec 31, 2022: EUR 518.4 million). This change was primarily driven by an increase in current loans payable. An increase in liabilities from leases also led to an increase in financial liabilities. The reason for this is that newly concluded leasing contracts in the area of rights of use more than compensated for the changes through repayments (payment of leasing instalments). On the other hand, decreases in the item of other financial liabilities in connection with the repayment of liabilities from ABS and factoring had a reducing effect.

Non-current liabilities amounted to EUR 436.2 million as of June 30, 2023, and had decreased minimally by 0.1% compared to the end of 2022 (Dec 31, 2022: EUR 436.8 million).

Current liabilities amounted to EUR 382.9 million as of June 30, 2023, a decrease of 8.5% compared to the end of 2022 (Dec 31, 2022: EUR 418.5 million).

As of the balance sheet date, non-current liabilities accounted for 28.9% of total assets (Dec 31, 2022: 28.0%), while current liabilities accounted for 25.4% (Dec 31, 2022: 26.8%).

 

Net debt

Net debt increased from EUR 349.8 million at the end of 2022 to EUR 427.0 million on June 30, 2023, an increase of 22.1%, or EUR 77.2 million, mainly due to the decrease in cash and cash equivalents by EUR 69.4 million compared to the end of 2022. This was due to net cash outflows from the sum of cash outflows from operating activities, from the procurement and sale of non-current assets and from the payment of the dividend to the shareholders of NORMA Group SE. In the period from January to June 2023, higher current interest expenses and the increase in leasing liabilities also had a negative impact on net debt.

Gearing (net debt in relation to equity) as of June 30, 2023, was 0.6 (Dec 31, 2022: 0.5). Leverage (net debt excluding hedging instruments in relation to the EBITDA of the last twelve months) increased to 2.7 as of June 30, 2023 (Dec 31, 2022: 2.2).

 

Financial position

 

Group-wide financial management

A detailed overview of NORMA Group’s general financial management can be found in the 2022 ANNUAL REPORT.

 

Net operating cash flow

Net operating cash flow was negative in the current reporting period. It amounted to EUR -12.9 million and thus decreased significantly compared to the same period of the previous year (H1 2022: EUR 9.8 million). This was due to the decline in EBITDA on the one hand (H1 2023: EUR 78.6 million; H1 2022: EUR 81.1 million). On the other hand, a higher build-up of (trade) working capital (H1 2023: EUR 60.5 million; H1 2022: EUR 53.4 million) compared to the end of 2022 also had a negative impact on net operating cash flow in the current reporting period. Significantly higher investments from the operating business (H1 2023: EUR 31.0 million; H1 2022: EUR 17.9 million) also had a negative effect on net operating cash flow in the current reporting period.

 

Cash flow from operating, investing and financing activities

Cash flow from operating activities was EUR -7.1 million in the first half of 2023 (H1 2022: +7.1 million). Cash flow from investing activities reached EUR -31.3 million in the first half of 2023 (H1 2022: EUR -14.6 million) and includes net cash outflows from the procurement and disposal of non-current assets. Cash flow from financing activities amounted to EUR -28.2 million in the first half of 2023 (H1 2022: EUR -30.1 million). CONDENSED NOTES