Hello, everybody. My name is Guido Grandi, since June first, CEO of the NORMA Group, and first time I'm to present here in this meeting. Welcome, everybody. As communicated, we have a newly set up management board. I'm very confident that we established a good team. It is a nice mix of different professional backgrounds, personalities, and chemistry. We're looking forward to meet you in the near future. Let's talk about our key figures for the second quarter this year. The sales increase of net 1.9%, and leads to a total sales of EUR 324 million for the quarter. This includes an organic growth of 4%. On this basis, the Adjusted EBIT increased by 21.2% to a total of EUR 27.1 million for the quarter.
This represents an Adjusted EBIT margin of 8.4% and compares to 7% at the same period last year. As a result, the net operating cash flow stands at EUR 31.9 million, leading to a strong balance sheet with an equity ratio of 45.8% and a net debt at EUR 420 million. Supporting these good figures is our newly set up STEP UP program, which now carries more than 100 initiatives, we're already earning the benefits of this program. We will talk more about this a little bit later. We will take another look at our top-line development for the second quarter and the first half of 2023. For our top line, we had an increase in net sales by 2.7% to EUR 639 million for the first half.
This represents an organic growth of 3.1%. In total, the organic growth relates to a decline of 1.7% in volume and an increase of 4.8% in pricing for the first half. Drilling a little deeper, our organic growth of 4% in the second quarter is due to a strong development in the EMEA region and also in the APAC region. For engineered joining technologies, our Mobility & New Energy business, sales are showing an organic growth of 13.3%, mainly due to good developments in the APAC and EMEA region. For the standardized joining technologies, which includes the Water Management as well as industry applications business, sales are showing an organic decline of 5.4% in the second quarter, with a challenging development in the Americas and the APAC region.
For currency effects, we have a negative translation effect of EUR 2.4 million, or 0.4% in the first half, or EUR 6.4 million, 2% for the second quarter. Overall, the sales growth is driven by price increases, overcompensating currency effects. We will now drill a little bit deeper into our segments. For the EMEA, EMEA region, the EJT business showed a good recovery with a strong double-digit organic growth. For the SJT, we had a positive pricing effect, leading to a solid organic growth of 3.5%. Looking at the Americas, EJT, we faced an organic decline of 0.6% in the second quarter, relative to high comparables from last year.
On the SJT, we had lower volumes, leading to an organic decline of 7.7%, despite positive pricing effects that we had in the U.S. and somewhat declining water business due to seasonal influences. For the APAC region, EJT had a very positive recovery, relative-- leading to a double-digit organic growth of 28.2%, which was also due to the COVID-19 lockdowns last year, and therefore, low comparables. SJT and APAC, organic decline of 12.7%, mainly due to negative volume developments, which could not be offset by positive pricing effects. Overall, we see a strong sales performance in a difficult market environment. Industrial markets were under pressure due to lower construction activity in some regions, while vehicle sales were up. I now hand over to my colleague, Annette Stiebel.
Well, let's have a look to the EBIT margin. We show on this slide mostly the EBIT margin development, there we can see that I think we were able to deliver quite a solid Q2, where we can see that our EBIT margin for Q1 was at 7.2%, while we can show here a sequential improvement to an EBIT margin of 8.4%. Let's have a look now together to the profit and loss development of Q1 and H1 2023.
Our material cost ratio decreased by 640 basic points in Q2 2023, and by 380 basic points in H1 2023, due to mostly lower inventories of finished goods and work in progress, while our gross profit ratio increased by 120 points in Q2, and by 60 basic points in H1 2023. Our personnel cost ratio increased by 20 basis points to 25.2% in Q2. This is mainly due to labor cost inflation. OpEx ratio decreased by 20 basic points to 15.6 in Q2 2023, mainly due to lower freight costs and due to lower IT implementation costs compared to the previous year.
EBITDAR margin increased by 130 basis points to 12.9% in Q2 2023. Our Adjusted EBIT margin increased by 140 basis points to 8.4% in Q2 2023. This leads to an adjusted EBIT margin of 7.8% in H1. All in all, all over, we can say that an efficient material cost management, our contingent cost containment initiatives, and on top, our pricing initiatives and our tailwind out of alloys is now showing the full effect in the P&L. This is what we promised to the capital market before. Shortly looking to our operational adjustments in H1, most of you know that we are not adjusting on operational levels.
Our adjustments refer only to prior acquisitions, that's mostly the PPA on these projects. Our earnings per share reported of EUR 0.57 and adjustments of EUR 0.25 is shown as an adjusted EPS of EUR 0.82. Looking to Q2, we can see there the earnings per share of Q2 of EUR 0.45, and of EUR 0.33 in Q2 for the reported earnings per share. On the presentation, on the lower part of the page, we see the development of our dividend policy and our dividend paid. Our policy is that our payout ratio of approximately 30%-35% of our adjusted group annual earnings.
On the AGM in 2023, the dividend of EUR 0.55, which is corresponding to 31.3% of our adjusted group net profit for the fiscal year 2022, has been approved, and it is already paid out, which is a dividend of roughly EUR 80 million. Looking now to our net debt and debt ratios, we see that our net debt increased by 21.1%, mainly due to seasonal cash outflow from operating activities, from the procurement and disposal of non-current assets, and for sure, our dividend payment. We can provide there a stable leverage of 2.7 compared to Q1 2023, despite of this dividend payment of EUR 80 million. Our equity ratio improved further to 45.8%.
Net operating cash flow for Q2 and H1 is showing that our working capital outflow of EUR 60.5 million in H1 decreased. Yeah, or shows an impact of EUR 65, EUR 60.5 million, due to decrease in particular, of our factoring programs of EUR 77 million by the end of December to EUR 64 million by the end of June, which is a decrease of roughly EUR 13 million. Our CapEx increased mainly due to the opening of new locations. On the one hand, for our NDS Water business, we built up there and opened a new factory in Lithia Springs, close to Atlanta, and we extended our plant in Zhengzhou, in China, nearly to the double volume.
This results in a net operating cash flow of EUR 31.9 million in Q2, compared to EUR 26.4 million in Q2 2022. Looking to our NORMA Value Added, the NOVA shows the group's long-term strategic target. The NOVA is calculated on the basis of, on the one hand, adjusted EBIT, on the other hand, by tax rates and cost of capital. The development was in Q2 2023 -6.2, and in H1 2023, it amounts to -15.5. Here for sure, besides the lower EBIT, we can see here the increase of cost of capital, in particular. Having said that, I give back to Guido Grandi to show us or walk us through the summary of the step up activities.
Yes, thank you, Annette. As communicated before, a STEP UP or our efficiency program is gonna be a core process for us going forward. STEP UP has two fields of attack. One is growth, the other one is efficiency. I can tell you that all the teams have been set up, resources and processes are established and working. We have over 100 projects running, and these initiatives are already showing some results. First successes include, for example, a significant reduction of our backlogs and our transportation costs. Going forward, we are looking at selected growth focus areas, which are, for example, in Water Management, new products, product fields, and geographic expansion. For Industry Applications, we're looking at new additional sales channels. In our Mobility & New Energy business, we're looking at ongoing performance optimization. This program is going to be, for us, a way of life.
It is not a one single project that can be measured by a start date and by a finish date, but it's gonna be a continuous improvement program going forward. In summary, we feel that we showed a strong second quarter with an 8.4% EBIT margin. This leads us to confirm our guidance of approximately 8% for the year. We're confident that our diversified product and market portfolio, technological, technological advantage, and performance initiatives help us in the second half of this year. Thank you very much.
Our first question today is from Mark René Tönn from Warburg Research. Please go ahead with your question.
Yes, good afternoon. Thank you for, for taking my question. I hope you can understand me well. 1st question would be on the EMEA region in, in specific in the, in the, in the second quarter. What striking a bit is when I look at it, not, not that much in the year-on-year comparison, but on a quarter-on-quarter comparison, we see that the, the margin even deteriorating a bit, from, from the level in Q1. Please excuse me, I was a bit later to the call if you have said anything with regard to that already previously. But what is behind that? Is it, let's say, specific things which is for, for the second quarter, is it the, the slightly lower sales, which would have an impact here, business mix effect?
That would be the first question. Secondly, also a bit with regard to the margin development, I think we, we, we see, and I think it's good that you show this 1.2 percentage points improvement in the gross profit on a year-on-year comparison compared to the previous quarter. When we break it down, I think a bit more the quarter-on-quarter comparison, so looking at Q2 compared to Q1, I think if, if my numbers are right, I put them into my, my model correctly, I think the gross margin was even down slightly, 0.1 percentage point, and the improvement of the margin was more a reflection of lower personnel costs and a bit lower operating, other operating result ratio compared to the first quarter.
This is the second question, so if you could elaborate a bit, what is, what is behind that? Then thirdly, I think as personnel costs, let's say, compared to the first quarter, had been, let's say, a factor of, let's say, a bit of a relief. I think also the, the lower number of employees, you could give us an indication on how you are on the way with the structural measures to improve profitability. Thank you.
First of all, thank you very much for your question, which obviously was a number of questions. Unfortunately, the connection, at least on our end, was not very well. I will try to start answer those questions, but please feel free to reiterate or come back with additional questions if we're not hitting all the answers, so to say. If I understood you correctly, at least, the first part of your question was concerning our performance in the EMEA region. There's a couple of things to say about that, especially about our EJT business, which is the Engineered Joining Technology or our Mobility & New Energy business. Obviously, this includes the traditional automotive business as well. As you recall from prior conversations, we had some challenges here in the past, especially relative to the performance of our plants.
We can tell you here today that this performance is improving, is significantly improving, which we also see in the results reflected in the second quarter and to a certain degree, also for the first half of this year. We're expecting this process to continue and to improve further in the course of this year. Also, for the EMEA region, revenues have been increasing, especially in the automotive business. We saw some strong demand in the first half, and we're continuing to see a strong demand in the outlook. Of course, this is limited to the forecast we receive from our customers, which don't reach to the end of the year, but only reach into the third quarter. So far, these demands look good, despite the news that are currently in the market, that auto demand is softening.
So far, we see a strong demand, which is also driven by the fact that we have some new project launches, in EMEA, but also in the other regions, that will help us carry us through the second half of the year.
Then more to that, when we're looking at the margin quarter-on-quarter, the weaker result in Q2 compared to Q1?
Are we talking about the quarter to quarter performance in Europe specifically, or for the company?
In Europe specifically.
Well, as, as I mentioned before, the, the performance overall is, I mean, the Q1 and the Q2, when you look at them separately, there's a couple of changes in our business. One, of course, is the, the changing volumes. The other one is our increasing performance. The third one is, of course, the raw material impacts that we have. All these, of course, are kind of changing in the course of this year. For example, for raw materials, we see that coming out of 2022, raw material prices were increasing, while at the same time, the discussions and negotiations and also internal optimizations to reduce material costs had to get hold.
Obviously, there is a little bit of a delay, and we're now experiencing a healthier situation. The same is true for our performance measures in our plants. Also, those had a little bit of a delayed effect, which is kind of normal as you implement technical changes also on the production sites. We have a little bit of a delay effect there, which explains some of the differences between the two quarters.
Okay. Yeah.
Our next question comes from Peter Rotheneicher from Baader Bank. Please go ahead.
Yes, hello. Good afternoon. Firstly, on NDS, so you had in the first half of the year, a significant volume decline. Can you explain about the situation? Is this improving? What are you expecting here for the upcoming quarters? Looking then also into 2024, can we expect here the return to growth again?
Yes, absolutely. Yes, we are expecting the return to growth because we feel that the effects we're seeing here for the first half and also for the second quarter of this year, with our water business in North America, are mainly driven by special effects. One special effect is the weather situation in California in the beginning of this year. You have to remember that for our water businesses, it is important, especially for new construction, that the weather in the first half of the year is stable, so that these construction projects can be completed. Unfortunately, this year, especially in the western states of North America, we had a very wet first half of the year, a very wet first quarter, which led to the fact that some of these construction projects were delayed.
Another somewhat special effect that we see in North America in the moment is that, especially for our water business, a lot of the revenue that we do in this area is going through intermediaries. Meaning there are, for example, construction shops and shops where you purchase this equipment. These intermediaries were also reducing their stock levels due to the fact that obviously interest rates in North America have been rising and are at a certain fairly high level at the moment. They had initiatives to decrease their stock levels, not because of demand, but because of cash availability and a higher interest rate.
Both of these effects led to the situation that our call-offs for water management products were lower, especially in the first quarter, but also to a certain degree in the second quarter. We're definitely expecting that to improve for the second half of the year and definitely going into 2024.
Okay. You also had problems in the Water business in APAC. I've read about some delays in an Indian project. When do you expect this to come? How are prospects here in APAC for Water?
Yes, we have two subjects that we're tackling in the Asia Pacific region in the moment. One is in India, and also another one is in Malaysia. In Malaysia, we had to change the material due to availability of material, the resin, the plastic resin that we're using there, and that brought some production delays for us. In India, we are in discussions also with the local authorities, as some of our projects are done with local customers, local authorities, and those had some delay. For both subjects, we're expecting improvement for the second half of the year.
Regarding your production efficiency, in 2022, I think also in the first quarter, you had still some problems following the relocation of production with extra shifts. Is this now already improving? How was the effect here in Q2 compared to Q1, what can we expect here for the second half?
Yes, exactly. Those are the efficiency issues I was referring to earlier. Yes, we definitely saw an improvement already in, in Q2. We're still not quite where we want to be. We still have some customer backlogs. We're confident that we will fill these customer backlogs within the third quarter. We're definitely gonna see some further improvements here in the next quarter, and then hopefully going forward.
Okay, then the last point on pricing, I think this is particularly important for the EJT business. I think to some extent, you have now automated clauses to pass on price increases and energy increases. Does this also refer to personnel costs? Because particularly in the personnel area, we have now strong inflation effects. On the other hand, as we now see some decline on the material front, does this already now kick in, that you have to lower your selling prices due to lower material costs?
Well, the truth is in the middle, so to say. I mean, the problem is or the challenge is that we have a very diversified product portfolio. As you are already indicating on the EJT side, which is, of course, significantly influenced by the automotive business. We have long-term contracts with our customers that made a price adjustment, at least in the beginning, of this inflation, inflationary effect in 2020, 2021. Difficult, the team was successful to implement those. In some areas of this business, we now have floating agreements, meaning that they're adjusted up and they're adjusted down based on clear indicators. That's just a certain amount.
That's, for example, on special steels or on, on special steel grades, as well as some resin grades. For the rest of the portfolio, we're still in, I guess, discussions on how to move forward. We're currently in a situation where most of these adjustments have been made, meaning we received price increases over the last year, and we're now, you can say, enjoying these price increases. Nevertheless, the level on the purchasing side, the level for steel, for resin, et cetera, is still on fairly high levels. Maybe not on historic levels anymore, but definitely well above the levels we experienced in the past. Unfortunately, I have to say for our customers, we're not in a position right now to decrease pricing yet, and we have arguments to do so.
Because again, on the purchasing side, we also see higher prices. You are referring to personnel costs. Of course, personnel costs is addressed separately. For this year, we were already aware of what tariff increases, especially in Germany, were coming our way. These are part of our budget, and we will have to see how this continues going forward.
On top, Peter, we, we are still not on the, on the level that we say we stop with pricing. You can see that a reasonable part of our organic growth is pricing, and this year, that is the year of energy pricing. This we could achieve with a lot of customers, and we are still finalizing that with the last ones. We are still over budget in terms of pricing, but for sure, you are right, the window will close, close sooner or later. Therefore, we aggressively, I think, we negotiate each and everything, and even this pass-through clauses would have been not enough in the past.
Okay, thank you.
The next question comes from Yasmin Steilen from Berenberg. Please go ahead, ma'am.
Thank you, my questions. I have also a few, if I may. The first one, again, on US water. You mentioned the weather conditions and destocking as the main reasons for the decline in US water, also in the second quarter. Can you elaborate a bit on the mixes at 50/50, and where are we regarding the inventory levels with your distributors? The last one on US water, can you also provide color on the current trading with US housing starts being at very low levels? Also follow up on APAC and SJT there. You mentioned some headwinds on APAC water from material bottlenecks, as you have to change the resins. Is this a one-time issue, or could this also happen going forward? The last one on the separate program.
In the last presentations, growth measures in Mobility & New Energy did not reflect any M&A. In today's presentation on slide 14, M&A is shown as a growth measure. Is it a change of the former strategy, or will M&A be focused on water industrial only? Thanks very much.
Okay, I'll try to, to recollect your questions. For water, especially in North America, you asked for the split between what is the inventory effect and what is the weather effect, so to say. I would say that in the first quarter, it was definitely a stronger weather effect, due to the situation that we just had a couple of months that were basically rained out. And for the second quarter, it is now more of the inventory effect, as now construction is picking up again. You also asked about the US housing market. Yes, obviously, it is true. We can all read that in the papers, that US housing is, is down, due to the higher interest rates in the moment.
When you look at our portfolio, though, a lot of our products are in stormwater and also in irrigation, which in a lot of cases is not for new construction, but to refit existing housing. While, of course, we're enjoying a good demand for new houses as well, the majority of our portfolio of our revenue is actually with existing construction, therefore, this doesn't hinder us too much. Your third question, if I recall correctly, was concerning our water business in Asia Pacific and the specific situation in Malaysia. We expect this change of raw material to be a one-time occurrence.
I mean, of course, we-- we're never sure how the materials market will, will, continue to develop over the next, let's say, five or 10 years, so there might be another change in, in the long term. For a short-term change, we now feel that we have a new, satisfying supply situation there, which will also bring us back into a competitive situation with our Malaysia business. Your last question, if I recall, was concerning, concerning the STEP UP program. The STEP UP program, at its, in, in its core, is a, as I said, efficiency and growth initiative, which, on the growth side, is focused on organic growth. Nevertheless, as you very well know, we have some, well, some opportunities in our portfolio.
We have some, markets and segments where maybe, some, M&A activity could help us to move forward more quickly. There are no, targets in sight in the moment, but we definitely wanna consider this, if appropriate.
Okay, sorry, just the last one, just to clarify, because in the former presentation, looking at the presentation from Q1, Mobility & New Energy was just focusing on organic growth and not M&A. This has changed now? This is correct, because based on slide 14 now of your Q2 presentation, sorry.
Yeah.
It also includes M&A.
Yeah, as, as an idea, to be honest with you.
Okay.
There is no, there is no clear target here in the moment, and there is no anything in sight that we want to do there. What we are thinking about, to be very open and honest, is we're looking at ways to diversify our products in all areas, and also to add additional technology to our products to differentiate ourselves from competitors. And that's true for all three segments, and it's also true for the automotive segment, so to say, but there are no clear targets in sight.
Okay, but the targeted shift in the mix, so 60% industrial and water is unchanged?
Yes, absolutely.
Okay, perfect. Thanks very much.
Yeah. Therefore, the preference lays for sure on M&A of water and industry. That is our clear preference. If we would catch a good target for, for APAC or China in e-mobility, okay, that's another story for M&A, but priority would always be water and industry first.
Perfect. That's very helpful. Thanks very much for the clarification.
Our next question is from Nikolai Kempf from Deutsche Bank. Please go ahead.
Yes, good afternoon. It's Nikolai Kempf speaking from Deutsche Bank. My first question would be on the material costs, where you did see a nice improvement, year-over-year, but also sequentially. Looking at the second quarter, you're at 43%. Is that a run rate we can assume for the second half? Let me stop here.
If, if we can expect, that this... Well, for sure. At the end, I would say that's, that's pretty much, the way how the market is development, developing for the time being, for sure. I think that is, the inflation coming down and the price increase coming down. We expect something like this, because, again, in the next half, quarters, because as Guido already said, our special steels, the more, specialized material we take, the more expensive they are currently. So our, stainless steels, our solid steels, and so on, with a lot of work in it, energy, they are still on a high level.
For the time being, in particular in Europe, where we have the biggest automotive exposure in terms of %, there, due to the high energy costs, we still have high costs there. It got better, but not at all to a level where it was before. Therefore, we expect there, from the market, the same development.
Okay. Thank you. Maybe just, a follow-up on the questions around price hikes. You just mentioned that there will be more, more products coming to the market in the third quarter. Will these start of productions of the new products will have better pricing or similar-ish to the existing ones?
Well, we see, basically, it's, it's, it's our way of life, right? Because especially in the new energy and mobility business, we have products running out, and we have products coming on stream, as we are acquiring business from our customers, then we have a lead time for the development, of course, industrialization, and then they come on stream. It just so happens that we now have a couple of new projects run, starting in the second half, which is good, which is a positive for us. Yes, we have been successful in acquiring also some business with decent or good margin. We're very proud of that and happy about that, so we're looking forward to that business.
The improvement out of that, in terms of volumes, comes very concretely. We know that we have two ramping ups of products, on the one hand, in Poland with a, with a customer, uncertain, and on the other hand, in, U.K., with a customer, if I remember correctly, VW.
Yeah.
There we had the SOP by the end of last year, beginning of this year, and now we are ramping up together with the customer on higher volumes, so that's pretty precise for us.
Okay. Thank you.
There are no further questions at this time, and I hand back to Mr. Grandi for closing comments.
Well, thank you very much for your questions, and for the dynamic exchange. Again, we are fairly proud about a successful second quarter for the NORMA Group. As we discussed here over the last 30 minutes, we feel like we put some initiatives in place that will help us through the rest of this year. That's why we stand by our guidance, we're looking forward to stay in contact and communication with all of you. Thank you very much for your time and attention.