Thank you very much, Maria. Welcome to our conference call regarding NORMA Group's Quarter One 2024 results, and thank you for joining us today. I'm Guido Grandi, and together with my colleague, Annette Stieve, we will guide you through the following slides. We will answer your questions after the presentation. Let us start with some key figures. Our net sales total to EUR 308.5 million, a slight decrease against the previous year. Nevertheless, we were able to significantly lift our adjusted EBIT to EUR 25.7 million. The margin is up by 110 basis points to 8.3%. Also, our net operating cash flow shows a strong increase by more than EUR 42 million to a total of -EUR 2.3 million.
As for our CO₂ emissions, we can report a decrease of 11.2% against last year's Quarter One results. Looking at the bottom line, both the adjusted and the reported earnings per share slightly increased compared to last year. Coming to the balance sheet, our equity ratio further improved and reached 47% at the end of March. The net debt increased to EUR 378.2 million compared to the year-end 2023, and the leverage ended at 2.4x EBITDA at the end of March. Just as a reminder, we will propose a dividend of EUR 0.45 to the AGM on May sixteenth. Let us move on to the next slide, where we show our top-line development in more detail. When looking at our top line, we see that NORMA Group net sales came in at -2%.
Besides other things, March this year had 3 working days less, compared to 2023. This effect had a negative impact on our sales performance. While we recorded further positive pricing effects of 1.3%, the volume decreased by -2.3%, mainly driven by a weak demand of our industrial customers. Furthermore, currency effects affected the top line negatively by -1.1%, mainly related to the US dollar and the APAC region. Looking at the sales split by region, we see that the Americas and EMEA sales developed more or less equally, whilst APAC reports a decrease of -6.4%. Let's take a closer look at the sales development by region and SBU on the next slide.
In the Americas region, the Industrial Applications business showed weaker demand, while Water Management contributed positively with a solid increase of 4.3%. The Mobility and New Energy business in the Americas registered only a slight decrease. Overall, positive growth in Water Management was outperformed by the development in IA and M&E businesses. On top, negative currency effects impacted top-line development. In the EMEA region, the Industrial Applications business was affected by an overall weak economic environment. The Water Management business showed a strong increase of EUR 0.9 million, while the Teco acquisition contributed round about EUR 400,000 in March only, as the closing of the deal was at February twenty-ninth. So in Water Management, we're highly satisfied with the current development. The EMEA M&E business showed about the same performance as the previous year.
In the APAC region, the IA and the Water Management business showed a weaker demand, while the M&E business only showed slightly lower sales. Likewise to the Americas, negative currency effects impacted top-line development also in the APAC region. In the next slide, we will report on our sales per SBU. As announced in our last call, for the first time, we are reporting on our sales development by strategic business unit starting Quarter One this year. This is a very important step to foster our SBU structure and to increase transparency on our progress. Let us start with Industrial Applications. The net sales decreased by 10.8%, mainly due to a global soft economic environment and the weak demand, especially in the APAC region. On the flip side, Water Management posted a growth in net sales of 4.2%, predominantly by volume.
Our Teco acquisition contributed with about 0.6% to the positive development. Our Mobility and New Energy business reported a minimal decline in volume, but positive pricing effects could almost offset these. Due to negative currency effects and three working days less in March compared to last year, net sales declined by 1.5%. Overall, the top line development is currently challenging in our IA business, while Water Management is doing very well. As our Step Up efficiency measures are now gaining traction, our focus for 2024 will be more on the growth initiatives. I will elaborate further on our Step Up progress at the end of the presentation. Let me now hand over to Annette Stieve, who will give you more details on our financials in the first quarter.
Hello, everyone, and welcome also from my side. Let's start with an overview on the P&L and the development of our P&L there. Material cost prices have further eased, and our Step Up purchasing initiatives become more and more effective. Accordingly, the material cost ratio declined by 60 basis points to 44.3%. On the other hand, personnel expense ratio was up by 180 basis points due to inflation-related wage increases, but also temporary inefficiencies. Other expenses have decreased, especially due to lower freight costs and in particular, special freights. Very pleasing is the development of our adjusted EBITDA and adjusted EBIT margin. Both were up significantly on a year-over-year, but also quarter-over-quarter comparison. With an adjusted EBIT margin of 8.3%, we have exceeded the previous year by 110 basis points.
The reason for this very good performance is based on the decent recovery of our EMEA region. After the margin stabilization in Q3 and the improvement in Q4 last year, our Step Up efficiency measures are now evidently increasing our margin profile in the EMEA region. With an uptick of 190 basis points in the first quarter, from 5.5% to 7.4%, the EMEA region is on its way of a solid margin improvement in the current year. Guido Grandi will give you more details on our recovery track in the Step Up part at the end of this presentation. But also the US and APAC region, we made a very good progress and slightly lifted our adjusted EBIT margin for Q1. Overall, the margin development is very promising, and we are on a right way to deliver strong results.
At the next slide, we show our operational adjustments in the P&L. In 2024, as well as in the coming years, we do have predominantly our PPE, PPA effects from our acquisitions. Just as an additional information for you, the Teco Water acquisition will contribute with EUR 0.6 million per annum to our PPA effects. Concluding our P&L, let's have a quick look to on our EPS. The adjusted EPS, as well as the reported EPS, have increased by 5.1% and with 8.3%, respectively. While our adjusted EBIT margin has increased by 13.9%, the lower financial result compared to the previous year, had a dampening effect on our EPS. As a reminder, again, we will propose a dividend of EUR 0.45 per share to our AGM on the sixteenth of May.
This would be a payout ratio of 32.7%, so well in line with our dividend policy of 30%-35%. Let's move over to our balance sheet figures. Our net financial debt is up by 9.5% against year-end 2023. Main reason is the net cash outflows from the acquisition and investing activities of EUR 19.8 million, which also include the increase in lease liabilities and the net payout for the Teco acquisition. Our leverage at the end of March stood at 2.4 times adjusted EBITDA, and thus significantly below the leverage of 2.7 at the end of Q1 last year. Our equity ratio has further improved and reached a healthy 47% at the end of March.
In addition to the very decent improvement of our adjusted EBIT, also, our net operating cash flow has increased significantly. Overall, our net operating cash flow has increased by more than EUR 42 million compared to Q1 2023. This is owed predominantly to a lower increase in trade working capital. On top, we have lowered our factoring programs, also by the end of Q1, by about EUR 2.5 million compared to the end of 2023. This very sound development in our earnings and cash flow let me look quite optimistic towards our further recovery progress. And with this positive news, I hand over again to Guido Grandi.
Thank you very much, Annette. Ladies and gentlemen, our solid Q1 results underline our success in safely navigating the NORMA Group through a challenging economic environment. We are well on track on delivering what we promised with our guidance. Currently, we remain absolutely confident that we reach our targets in the current year. Thus, we confirm our full year guidance as set out with our financial report at the end of March. In the remaining slides, I would like to give you a quick overview of our Step Up progress, and in addition, the recovery path of the EMEA region. By the end of March, we have identified and worked on more than 1,300 Step Up initiatives. This is an increase of about 200 initiatives compared to the end of 2023.
By the end of last year, about 53% of the initiatives were in the validation or implementation phase. In the end of March, we have already implemented or even finalized about 55% of these measures. In the first glance, we were focusing on implementing efficiency measures, especially in the EMEA region. The effects are now becoming visible in our P&L, as well as in our cash flow. Now, in a second wave, we will put more attention on our growth initiatives. In Industrial Applications, we will focus our sales resources towards the top five industries and their respective OE customers in the three regions. In Water Management, we will foster growth by addressing additional markets like the US East Coast and the EMEA region. Moreover, we will bring our core competence in Stormwater Management with product offenses, offensives to growing markets like Australia.
Additionally, by shifting engineering capacities from M&E towards the other two SBUs, we will enable a faster adoption of product initiatives and speed up product innovations. Overall, our growth initiatives are focusing on a higher growth in our Industrial Applications and Water Management SBUs in order to achieve our midterm sales mix target. In addition to improvement of margins based on our efficiency measures, the shift in our SBU sales mix will contribute to our margin quality overall. In the midterm, we're targeting a solid double-digit margin at group level. Please let me give you a deeper overview on the building blocks that will enable a further improvement in the EMEA region in the current year in the next slide. Over the last couple of weeks, we have been frequently asked to give more transparency on the building blocks for a margin recovery in the EMEA region.
Please let me give you a better understanding with this slide. We're expecting positive impacts of about EUR 3 million on our EMEA EBIT by pricing and volume effects. While pricing is expected to be slightly negative due to easing material costs, volume is expected to contribute positively to our margin. A significant building block in the current year are the expected Step Up purchasing efficiency measures. As I have mentioned in the last call, several hundred purchasing initiatives have been included in our Step Up program by the end of last year. The positive effects will become visible in our gross margin. As our production efficiency has already improved a lot, we do not expect any significant special freight in 2024. As the cost for special freight last year amounted to about EUR 4 million, we do not expect these costs to occur in the current year and ongoing.
The fourth building block are the personnel efficiency measures, especially in our focus plants in the Czech Republic and Germany. We expect a positive contribution of EUR 4 million-EUR 6 million in the current year. An adverse effect of about EUR 5.5 million is expected by the continued elevated wage inflation. And finally, as we're currently building up our EMEA Water Management business in a strongly organic approach, we expect some upfront costs, for example, for sales force and marketing, et cetera, in a range of EUR 3 million-EUR 5 million. In contrast to an acquisition, these costs cannot be adjusted, and thus will have a negative impact on our margin. Overall, the EMEA adjusted EBIT in 2024 is expected in a range of EUR 34 million-EUR 40 million.
This would be a margin of about 6.5%-7.6% if you consider the midpoint of our EMEA sales guidance, and thus a significant improvement compared to our 4.4% margin in 2023. Further efficiency measures, but especially our growth initiatives in industrial applications and Water Management, as well as an improved margin profile in our M&E contracts, will bring us towards a double-digit margin in EMEA in the midterm.... Ladies and gentlemen, with our Q1 results, we have delivered on our promise. Our margin profile and our cash flow has significantly improved. The positive effects of our Step Up program are becoming visible in our financial performance.
Although the current year continues to bear various economic and political challenges in all regions, we remain absolutely convinced that we will continue to gradually improve the overall performance of our company in 2024 and onwards. Thank you very much for joining our call today. We're now looking forward to answer your questions.
We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only hands while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Marc-René Tonn, Warburg Research. Please go ahead. Mr. Tonn, your line is open. We cannot hear you. Mr. Marc-René Tonn, your line is open. The next question comes from Yasmin Steilen, Berenberg. Please go ahead.
Yeah, many thanks for taking my questions, and I have two if I may. So I joined the call a little bit late, so please apologize in advance, as some topics have been already addressed. So first of all, on Water Management in APAC, I mean, sales was down by some 8%. Was there a particular reason behind this, besides FX, such as product shifts, or can you elaborate on the development here in terms of volume, price? And also, what are your expectations for the remainder year? And the second one is on water, on US water. So overall, it was very quite encouraging sales growth we have seen, also in terms of volume, price, effect.
Was there already an impact from the plant in Georgia reflected in the 4% or was three percent sales growth in the first quarter? And again, what are your expectations for, in particular, the second quarter this year? Thank you very much.
Sure. Thank you very much, Yasmin. Concerning the first question, our performance with Water Management in APAC. Yes, you're correct. The performance of Water Management in APAC wasn't to our expectation in the first quarter. There are two main reasons for this. One reason is on the market side, relative to the Australian market. As a matter of fact, the Australian market is a significant market for us, for Water Management in Asia. Of course, we have to remember that, we're currently looking at the fall and winter season in Australia, and we had a very wet season over there at the moment, which means that sales were kind of dampened by the overall weather conditions.
Nevertheless, we are positive that this will come back and return to the historic levels of last year for the second half of the year. Just to remind everybody, we actually had record sales in Australia in the second half of 2023. So we're very confident that the business will also come back in the second half of this year. We had another effect that dampened our sales in the APAC region a little bit, which is more on our flow side. We build flow components also for community applications, and especially in Indonesia is a significant market for us.
Over there, because of the local elections, contracts and sales of these products have been hindered or dampened for a couple of weeks and months here. We're also expecting that to rebound in the second half of the year. Long story short, we do have a positive outlook to the second half for Water Management in APAC. For water US, you're absolutely correct. We had a good start into the year, especially in comparison to last year. As you might recall, we had a difficult time or a more difficult time here with Water Management in the Americas last year, as the weather conditions over there were hindering us. Whilst this year, the pre-season sale going into the spring turned out very well.
We expect to keep up this momentum also for the second half. The plant in Georgia is contributing to this in two ways. Number one, it helps us to reach the East Coast customers a little bit better, and also it gives us some logistics cost savings, as we don't have to ship all of our products from the west to the east coast, and that will be an ongoing effect going forward.
Perfect. Thanks very much. I'll step back into the line.
Thank you.
The next question comes from Christian Glowa, HAIB. Please go ahead.
Yeah. Hi, good afternoon. Two questions, please. My first question is on your Industrial Applications business, which was down by about 11% in the first quarter. With regards to the conversations you have with your customers and your visibility, can you give a bit of an idea, big picture, what you would expect for the full year? Do you expect basically a recovery in the remainder of the year? That would be my first question, please.
... Yes, you're correct. I guess the industrial applications sales for the first quarter are a little bit of the Achilles' heel in all of our numbers. We were a little bit disappointed there. The background is, nevertheless, fairly clear. It is basically the European region. It's where basically across the globe where we have the issue that investment is low due to high interest rates, where also new construction is low, especially in core markets like China. And therefore, we do see that the environment is the most challenging in this strategic business unit for us.
Nevertheless, we hold our revenue expectation for the year for the second, third, and fourth quarter, and we do expect to recover there to a certain degree.
Okay, thanks. That's very clear. My second question would be on your streamlining of operations in EMEA, and thanks for providing that EMEA EBIT improvement building block bridge. I think that's very helpful. And specifically, I want to talk about the Step Up personnel efficiency program, where you're targeting EUR 4 million-EUR 6 million personnel cost improvements. At the same time, if I look at the number of temps year-over-year, that remained very flat, basically. And I thought one of the ideas is still that you are carrying an inflated number of temps, especially in EMEA, Czech Republic, and that you are reducing that number in the course of the year. Can you basically confirm that is still the case and that you are on track on really realizing that efficiency improvements?
Yes, I think you need to separate those two effects. Number one, we are very satisfied with our progress relative to efficiency effects for the Czech Republic, but also for the German plant, which is really good. What we're doing, I don't want to say. Struggle is the wrong word, but what the challenge is is to find a good labor in most locations. And therefore, as we have to address a fluctuation, meaning new labor requirements, we're looking at temp agencies to help us with that. So I guess we're in a more overall stable economic environment, especially in Eastern Europe, in earlier years, where the supply of new employees was not an issue.
I guess we would have seen this temp number come down, but right now it's really more of an effect, based on the availability of labor.
Okay, thanks. Very clear. Just one last question, if I may, before I step back into the queue. On your Mobility and New Energy business segment, I understand that you are basically have concluded or contracted a few contracts here from the past, which are essentially diluting your profitability. Is it possible to quantify the dilution effect this year? And at what point do you expect these contracts to be washed out?
Unfortunately, I cannot give you that number right now, because I don't know it from the top of my head, but I can explain the effect. What we're doing here is, over the last, I'd say, 5-10 years, the company acquired or got into a lot of programs with fluid lines and connectors, and especially the margin opportunities based on the market environment for our fluid lines is more difficult than it is on connectors. And we're trying to shift our focus here a little bit away from fluid lines and more towards connectors, which offers a much better margin opportunity for us.
As we progress with that approach, we will see more and more fluid line business going out and more and more connector business coming in, which should help our margin mix.
Cool. Thank you very much.
The next question comes from Marc-René Tonn, Warburg Research. Please go ahead.
Yes, good afternoon, and apologies for the technical problems at the beginning. Yeah, thank you very much, also, Marcel, for the building blocks on the EMEA business. Just if you can give us some indication regarding the build-up cost for the Water Management business in Europe, whether the figure you are, let's say, providing for this year, should also be seen as a potential run rate for the years ahead, let's say, on an annual basis, not as an, let's say, deterioration year after year. Secondly, also with regard to Europe, I think with regard to further improvements in the margins, you were also alluding on, let's say, mixed improvements with, let's say, the Industrial Applications business, regaining in this market.
But if you can give us some insight on whether, let's say, the current market weakness is, let's say, perhaps more an opportunity because it is easier to get into, let's say, the wholesalers again, or whether this is potentially delaying the mix improvement because they need longer to sell stuff from competitors from your side. And thirdly, when looking at the earnings expectation you have for EMEA overall, and now squaring this all up with the guidance you have for the full year, this kind of implies, let's say, no earnings improvement in the other regions. Is this how we should look at it, or is it just being cautious?
Perhaps you could give some indication at least what the, let's say, the potential, let's say, positive influencing factors for profitability in Americas and APAC in the remaining three quarters, and what may be potential threats on profitability in these regions. Thank you.
Thank you, Mark, for those questions. Starting with the build-up cost for Water Management. Our Water Management strategy is, in a few words, to bring the success of our business model from the US to Europe and then also into Asia Pacific. We have done so in markets like Australia quite successfully, and we are now venturing with more effort into Europe. The Teco acquisition in the end of last year, beginning of this year, was a very important but small step for us in the right direction. With the Teco acquisition, it opened us doors to wholesalers and other sales channels in the south of Europe, and it also gave us some more horsepower relative to sales force and engineering capabilities here in Europe.
But at the same time, let's be honest, it was a fairly small acquisition. So this acquisition goes along with our efforts to improve our organic growth in Europe, leveraging our engineering resources, leveraging our also production resources. And that means that we have to, number one, add additional employees. It also means that we have to add marketing efforts, and first and foremost, we have to add tooling to produce these products in Europe. For those of you who have maybe spent some time investigating the Teco acquisition, Teco is not a manufacturer. Teco basically purchased its components from the outside.
That's a business model that we also want to pursue, but it also means that we need to purchase and build tools for our own production and for our suppliers. So long story short, yes, it's an effort to kickstart this business in Europe. We will see some of this also in the coming years, as we're obviously still on a very low level in the moment. And as we increase our portfolio in Europe, we will add more tooling and more resources going forward. But we're very confident that we're investing in a very profitable business here, especially when you compare that to other companies in the market and the multiples that these companies can achieve in the marketplace. The second question was around our industrial applications business in EMEA and also the other areas.
As I mentioned before, yes, that's basically the Achilles heel of the first quarter, as it refers to our numbers. Nevertheless, we're very confident that we're gonna come back and regain momentum here, because what we see is that this is basically driven by a very tough economic environment. As I said before, construction is down, therefore investment is down. Interest rates are still fairly high. So right now, in APAC and Europe and also in the Americas, this is a challenging playing field for industrial applications. But nevertheless, it remains to be one of our strategic business units for the future. Traditionally, we have relied on wholesalers, as you were already indicating. Going forward, we're looking to change this business model.
Building on our success with wholesalers, we also wanna address OEMs, for example, for power lines, for heat and cooling systems, and for other areas where our products can be applied. And last but not least, we also wanna open other sales channels, like do-it-yourself opportunities in the future. So long story short, we're expecting the current market to rebound in the second half, but on top of that, we're working on initiatives to outgrow our business also in other areas. Last question you had was concerning our earnings expectation. And yes, we see some significant improvements in Europe, and we're very happy about this. The team has been working very hard on this, and it's good to see the success here.
At the same time, yes, we're cautious about the other markets, not because we don't believe in these other markets. It's just because the economic environment is difficult. That's also what we explained with our guidance, and we stick to that direction, and it has proved to be successful in the first quarter.
Perhaps coming back to Industrial Applications and Europe in specific. I think when I look at this building bridge, not too much positive impact, let's say, backed into the EMEA outlook from mixed improvement this year. So this will be something which will be more, let's say, a story for 2025 and beyond, once this business picks up.
Correct.
So strongly today.
Yes. Yes.
Thank you.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Peter Rothenaicher, Baader Bank. Please go ahead.
Yes, good afternoon from my side. One question regarding your personnel cost development. So, you had an explanation of the strong increase in the personnel cost ratio. One argument was inefficiencies. Can you comment a little bit what was behind that?
So we, Peter, said this time, temporary inefficiencies, but I think this is all along the story worked on all the time. So I think since last year, and that is a tremendous part of our improvement, we really structuredly worked on this. I think you remember that we had this, problems, the self-made problems out of our restructuring, and we were, with our focus plants, not on track. So this has now been nearly overcome, but at the end, we started last year by saying, "Let's concentrate on delivery, on quality, bring out extra costs like freight, special freight." All this has been done, and we are aware that we still have too much people on board.
This is visible in our records since the beginning of the year, and we are now consequently working on that, which means, first of all, we secure our risky things we had in the past, and now we can step by step go down with this headcount to the decent and excellent ratio what we have in other regions. But this is a safeguarding issue what we tackle down more and more, and by saying that, that is just ongoing there. So therefore, we said temporarily that is still in the Q1 a bit the phases, and then the more we go ahead in this year, you will not read much about it anymore.
Do I understand it correctly? So this was something which was also in Q1, 2023. So inefficiencies are ongoing as a cost base, do I understand correctly?
Well, Peter, we talked a lot about that-
Yeah.
That at the end, we had these issues in restructuring. We had to bring three big factories back on track, back to efficiency. And therefore, that is this little remaining part of it, but we are transparent, therefore, we are still pointing that out here, but it is vanishing and vanishing. So yes, we had a bigger problem one and a half year ago. We had a smaller problem at the end of last year. Otherwise, we could have not shown this overperformance already in Q3 and four, and now I would say that's the last part of it. But that's the residual part staying with us, and we are bringing that out this year.
Okay. Then, regarding the wage inflation, though, if I look at your personnel cost per employee, it looks as if there is an increase of between 6%-7% from Q1 2023 to Q1 2024. Is this something you are now also able to pass on to your automotive customers, or is this still a problem?
The approach that we're taking—I mean, number one, yes, we're facing labor costs, personnel cost increases across the globe. I guess that is something that is not specific to Norma Group. It is the inflationary environment that we're working with in the moment. At first, we saw the material prices go up, and now we see inflationary effects on the personnel costs. Our approach here is that we were very successful to have price increases for material costs over the last two years. In a lot of cases, those sales prices, our sales prices, are still on a good level. You also see that in the gross margin development, and our goal is to keep those steady.
While material prices are coming down, though, we're gonna try to keep these sales prices steady, and we have been successful over the last three months to do so, to then basically take this price quality to compensate for higher personnel costs. So long story short, I don't think we're gonna see additional increases based on the personnel costs, but we see a compensation as material prices are coming down, that we can use these higher sales prices to compensate for the personnel costs going forward.
Okay, thank you.
Well, thank you very much, everybody, for joining our call today. As Norma Group, we're very proud of our results here in the first quarter, in a very difficult, market environment. We were able to deliver on our guidance and also on our commitments. We're looking forward to the remainder of the year, and of course, as everybody hope for a little bit, more tailwind on the sales side for the rest of the year, and we're gonna keep you posted. So thank you again for taking part in the call today, and we'll meet soon.