Ladies and gentlemen, welcome to our Analyst Conference Call, Quarter 2, 2021. The overall economy situation, if you look in the daily press, is still in a certain crisis mode. We can read off corona logistics capacities, shortages of materials, semiconductor steel, etcetera. In view of all that in view of that overall economic situation, we had a very good Q2 2021 as normal grew. Sales were up by 47%, so that we reached a sales level of EUR 281,700,000.
And this also means that we are only slightly below the pre crisis level of quarter 2 2019. We generated an adjusted EBITA out of these €200,000,000 nearly €82,000,000 or 13.6 percent, which is €38,000,000 And in terms of EBIT, we generated an EBIT margin of 12.8%, meaning €36,000,000 of EBIT. We had also a strong cash situation. We generated a strong net operating cash flow, €36,800,000 And we also improved our balance sheet further with an equity ratio of 42.7 percent, net debt going to €352,000,000 and leverage of €2,000,000 instead of €3,400,000,000 end of 2020. We had our Annual General Meeting in May this year, and all agenda items were approved by the Annual General Meeting, including a dividend of €0.70 per share.
We confirm on our guidance for the fiscal year 2021. And if you look on the different topics of normal group top line development, Q2 2021, which is on Page 3 of our presentation. We see on that Page 3 that we generated sales of EUR 568,000,000 in H1 twenty 21. This is a change of 27.6 percent and organically of 33%. But we all know that we have very low comps in 2020 because of the corona situation.
So maybe the comps are not so meaningful as it was in the last years, but a good sales development on pre crisis level. The organic growth in terms of EJT and Standard Products increases were overall very good. We had EJT sales. We had HAT sales with very good recovery of 88.7% in Q2 2021 and overall for the first half year of 43%. For the standard joining technology products, we also showed a very good recovery, 23.3% in Q2 and overall slightly above 20% in H1 2021.
We had some currency effects, negative translation effects of around €11,300,000 or 5.9%. If you look on the absolute figures in terms of growth, we organically grew €147,000,000 in the first half year. And you see also the regional split on that chart. We had 45% of our sales in EMEA, 40% in Americas and 15% in APAC. The regional split we see on the next page, on Page 4, where we show the segment reporting in Q2 H1 on a regional level.
And we can see that EMEA generated sales in Q2 of EUR 123,000,000, which is an organic growth. You see that on the right hand side of 79%, which is driven by EJT and also our standardized joining technology products with a very strong growth. But as mentioned, this growth is mathematically impacted by the low comps COVID-nineteen related comps in 2020. So we have quite high increases versus Q2 2020 because Q2 2020 was the, let's say, high season of corona in 2020. So very high increases versus that crisis quarter in 2020, 79.4% in EMEA.
Americas also grew nicely based on EJT and standard shortening technology. EJT sales were more than doubled organically in the first excuse me, in the second quarter. And the standard joining technology had a strong double digit organic growth of 21.2%. Interesting here is also the Water Management business. Water Management grew 12.9% in the 2nd quarter and overall slightly above 20% in the first half year 2021.
APAC growth, quarter 2, 16%. First half year, around 30%. Here, we see that the corona situation in APAC normalized earlier than in the other regions, which means that Q2 2020 was on a that's a more normal level and not so in a critical phase like in other regions. And so far, the growth in APAC around 30% for the first half year, growth of 17.9% in Q2 for each AT business, 40.5% for the full half year and Standardized Joint Technology with a double digit growth 12.4% in Q2. So that we are overall on a quite good level in relation to last year and even in relation to 2019.
Looking on the margin situation on Page 5. Q222 EBIT and EBITA margin development, we had an EBITA of 13.6% in Q2 this year and EBIT of 12.8%. So the positive impacts came from the economic recovery and a strict cost control management that we had, which results in a strong Q2 2021 margin, which is almost on the level as Q1 2021 and only 60 bps lower than the Q2 of 2019. And then so far, this also leads to our confirmation of the guidance for fiscal year 2021, despite we have some headwinds in our volatile economic situation. With that, I hand over to Annette, our CFO.
Thank you, Michael. Yes, so let's have a look a bit closer look to the ratios, in particular of the P and L. If we concentrate here firstly on our gross profit, we can see that the gross profit ratio increased by 100 BPs in H1 due to a strict cost discipline and the successful Check measures. Material cost ratio increased technically a little bit. This is mostly due to the fact that we are running the P and L by nature, which is a bit special.
So therefore, for me, at the end, gross profit margin is the real measure where we can follow-up that our measures are, at the end, very active and successful. Personal expenses, there we can see that we significantly improved in H1 to 25.8% in Q2 to 25.7%. The reason for that is majorly that last year in Q2, we booked the restructuring reserve, a major part of our Get on Track program of the downsizing and closure of 2 plants. And there, we booked last year with a provision of roughly €20,000,000 So that is the major reason for the significant improvement here. In terms of OpEx, OpEx cost or OpEx ratio improved in Q2.
Here, we always want to point out in Q2, we booked last year again get on track cost also related to this different efficiency programs of €1,600,000 Therefore, we already have here a significant improvement. OpEx in the first half of the year is stable. That is majorly due to the higher number of temp employees or workers, which we have here, and that is mostly due to the reason that our business is starting again and that we take, 1st of all, in order to get back to normal and to restart temporary people on board, in particular in APAC, that is the major reason here. Looking let's have a look to our adjusted EBITA margin. There you can see that in Q2, we achieved there a 13.6% and in Q in H1, 13.7%, which is under the headwinds in the market, I think, a very remarkable result.
So we stay with our guidance. I think Michael already pointed that out. We feel comfortable by that and are very positive that we might reach that and we'll reach that. Having a look to our earnings per shares, our operational adjustments, the major message is, as I think already beginning of last year, that on EBITDA level, we have no adjustments anymore. Our Get on Track program, we don't adjust in terms of cost.
Therefore, our adjustments are mostly driven by prior M and A activities, so classical things like depreciation, amortization and the effective tax out of that. Having said that, we have reported EPS of €1.29 adjustments of €0.35 and an adjusted EPS of €1.54. EPS development then in Q2 and H1, we could achieve in Q2 an adjusted EPS of $0.78 in H1 and adjusted EPS of €1.54 and the respective net income of €24,900,000 in Q2 and €49,100,000 in H1. Looking to the reported EPS, we have an EPS in Q2 of €0.66 and in H1 of EUR 1.29. And this corresponds with the net income of EUR 20,900,000 in Q2 and €41,100,000 in H1.
Our net debt and equity ratio show a very strong and solid development and improvement. So majorly, we get now rid of the I always call it the bad Q3 of 2020 where Corona had his peak. So therefore, looking to the mix, we could deduct our net debt a bit. Our cash, yes, it increased a little bit, but the reason for that is for sure and only the financing of this remarkable growth, and we still have a very, very solid cash position of €169,000,000 In terms of supply chain financing, we kept that nearly stable. So we had, by the end of last year, EUR 52,300,000 there.
We increased that by EUR 1,200,000 for June 30, 2021. Looking to the equity 21. Looking to the equity ratio, we could improve that to a remarkable 42.7%, and we strongly improved our leverage to 2.0. So there you can see that in the last considering the last 12 month EBITDA, we really got now back to, I would say, very, very comfortable and good leverage ratio there. Considering our cash flow development, for sure, our higher EBITDA is due to economic recovery and a strict cost control.
In terms of trade working capital outflow, this minimized for sure because we have to finance higher accounts receivable. This is not due to overdue. That is really the growing business of the recent 2 months. So I think that is all like it should be when a business grows. We increased our investment activities back to old ratios roughly 5%.
So this is reflecting also the higher business activities and the needs in order to support that. Coming to the normal value added, which is normal's group long term strategic target. So we count there or determine there the annual value creation of normal. In Q2, we could achieve there an €8,600,000 and for H1, we could achieve €17,900,000 Yes, having said that and with a closer look through the balance sheet ratios, Michael, I give over to you again for getting on track. Yes.
Thanks, Vanessa. We put in a slide here to also show our Get On Track activities. The most important message here is that we are on track with our Get On Track program. So we are well underway with major savings in 2021. We achieved savings so far accumulated of €10,800,000 We have until end of first half year twenty twenty one minor costs for implementing these measures of EUR 1,400,000 so that we also expect that we will reach our target for the Get On Track program in 2021 and also the next couple of years.
So Get On Track program well underway. If I summarize the situation and the figure so far, Q2 and with the Q2 also H1 for normal proved strong. We had good top line development, a good margin development, a good level of cash flow and a further reduced leverage. And so far, H1 is a good basis for reaching our targets for the full year 2021. We still have a very volatile situation.
As you all know, I mentioned it in the beginning. So in the whole industry, there is a couple of headwinds. Nevertheless, we stick to our company guidance for 2021, which means we will have organic sales growth for 2021 full year double digit, low double digit. We will see a adjusted EBITA margin of more than 13% and respectively, an adjusted EBIT margin of more than 12%. Net operating cash flow, EUR 110,000,000 plus and a value creation, which we measure as normal value added between EUR 10,000,000 EUR 25,000,000.
With that, I would like to hand over to you. And of course, we are very happy to go in Q and As together with you. Thanks a lot.
Thank you.
Thank you. Now we will begin a question and answer session.
Session.
You.
The first question is by Ingo Stachal of Commerzbank. Yes,
thanks very much. And my first question would be on your water management growth rates. Obviously, again, a surprisingly strong quarter. Just curious whether you already have any, let's say, indications based on July trading or your internal budget that growth in the second half is necessarily weaker? Or could we maybe even hope to see another, let's say, round of double digit growth even in the second
half? Well, Ingo, thank you very much for that question. I think Water Management develops excellently based on the market developments and based on the need for these products. We had that strong growth in the first half year. I would be a little bit cautious in taking the same growth rates for the second half year because we also have to keep in mind for the water management if people are at home because they can't go to work.
They have the chance to go into the garden and implement an irrigation system, implement drainage systems, etcetera. And maybe if the structure changes, people can travel again, go to work. That also changes a little bit in terms of having time to implement all these products. So I would be a little bit cautious in taking the same growth rates in the second half year. But overall, water management will develop very well in 2021.
Okay. And then on the adjusted material cost ratio, which I think you said is a good indicator also on whether Get On Track is delivering the desired results. Can you also tell us here what you expect in the second half? Because clearly Get On Track should be favorable, but then you probably also have a few adverse effects such as lower work in progress and finished goods and potentially also impacted by some of the force majeure and supply bottlenecks for certain steel grades and specialty steels. So just wondering whether you can keep the gross margin at this very good level or near this very good level in the second half.
Maybe I start with the material cost ratio. And Michael, you maybe comment a bit on the flood and so on. So in terms of material cost ratio, all in all, I think we did a healthy step up in terms of having an increase in finished goods and in work in process. At the end, we were last year on a very low level. We needed there a bit to put that on shelf.
That's pretty normal. The most important for us is that this is always dependent on growth. For sure, we have we observed the material costs in total really with a lot of respect. So far, I think we did a very good job in order to balance that excellently. So we could countermeasure this rapid increase in material prices pretty well, even though knowing that this material price spiral, I call it, nobody knows when this is stopping.
So therefore, we observe that. We go with every countermeasure. But mostly, this technically here is now our P and L by nature. With the P and L by sales, you would see something different. Therefore, gross profit is showing for me more the reality.
And in terms of the other topics that you mentioned, Ingo, we have a, let's say, diverse set of topics for the second half year. First of all, we are very happy that we started to get on track early and intensively, and this runs very well. So this is a positive impact. On the other side, of course, we are facing a couple of adverse aspects and headwinds. If it's corona, we all don't know how corona situation will go on.
We have steel shortages and higher steel prices. We have resin prices and shortages of resins partly. We have some other topics in terms of higher freight costs, which is going through the press and through the newspapers. And so far, this is a volatile situation. We have some force majeure topics where steel producers located in the western part of Germany where we have these terrible floodings mentioned force majeure.
Part of that is in being resolved. So we have partly a second supplier. They are recovering. So this is going on. Nevertheless, we have a whole set of pluses and minuses for the second half year.
Overall, we are very optimistic that we will keep our margin and will reach our 13 plus percent overall for 2021.
Okay. Thanks for the very clear answer.
Thank you.
The next question is by Nikolay Kemp of Deutsche Bank.
Yes. Nikolay Kemp here from Deutsche Bank. Thanks for taking my questions. My question would also be on the guidance. And can you just remind us on the headwinds in the second half of the year?
You mentioned the raw material, FX supply chain, the semiconductors. Would you think they're going to improve versus the first half? Or would you think they will become incrementally more serious in the second half of the year?
Nikolai, of course, we're happy to take your question, and thanks for that. If I would have a crystal ball, I could answer your question more detailed. But our expectation is and it is our expectation that the second half here will be impacted by these topics. We will see material shortages. We will see some logistics stuff.
And so far, it's important, as Annette pointed out, to have all these countermeasures in place. And we figured part of that, most of that into our guidance and into our expectation. We will see these aspects in the second half here. And if one takes, for example, the 100 plus of today, now we expect, at least in the press and in the newspapers, that the semiconductor shortage might take until Q1 2022. So I think we have to adapt to that situation and have to take it into our measures and activities in the second half year and maybe probably in 2022.
At the end, I would say the positive thing out of that is that the OEMs give the semiconductors, which mostly don't have they have no direct impact on us, but they give the priority to the premium cars, which means there is a higher content and higher profit margin in the car for the OEMs and fortunately for us in general as well. So that is a bit, I would say, buffering this impact.
Yes, I understand. And I think, obviously, the mix towards the hybrid vehicles should also help you because of higher content per vehicle. But let me just rephrase the question. What aspects are going to improve maybe in the second half? Is it a bit higher volume?
Is it the Get on Track program? Or what measures do you have to maybe keep this current level of profitability?
That's our internal measures, as you mentioned, Nikolay, the Get on Track program, which will generate in the second half year the expected savings.
Okay.
As the finance guys always coming with the I would say, with the lower end of it, so I think one headwind we still have and we will keep, that is what we expect is COVID. COVID has not left us. We got, I think, masters in managing that. But however, if we see COVID is running around the globe with the autumn bad weather months. And this we see also nowadays.
Also nowadays, I think it's very much intact in the APAC region. And we achieve all these high volumes, but always with higher costs. And this type of cost accompany us a little bit. So that is, I think, the truth we have to take into account, and this is reflected also in our guidance as well.
Yes, very clear. Thank you.
The next question is by Richard Schramm of HSBC.
Yes, good afternoon. I'm sorry, but I would like to come back to this not really development in H2, but just what happened in Q2. I remember that you said that in Q1, you were more or less unaffected by these production reductions of automotive OEMs as this obviously did not hit you at that time. But we all know that the situation since then has clearly deteriorated and more and more OEMs extend their holiday here or make interruptions temporary wise for their production. So how was the development for Q2 in your automotive related business?
And what are the current calls you get from the automotive volume wise? Are they already in a downtrend versus the previous quarter? Or are they still holding up here?
Thanks. Thanks, Richard. We stick to our sales guidance 2021, which is a double digit growth. We will also see in Q3 and Q4 good sales. If we see the same growth rates that depends a little bit and also the comps are changing.
But we will see that we will reach our guidance to get to these low single digit excuse me, double digit growth organically in 2021. So there might be the one or other effect. But I would like to repeat what Annette mentioned. Our OEMs are also shifting their production to, let's say, their premium segments, etcetera. So it's also a question of portfolio in the OEMs and within the OEMs and platforms.
So we see a good development in the second half of twenty twenty one so that we will stick to our double digit growth in this year.
On top of
that, I think that the tailwind comes for us also that for sure the Water Management gave us a very, very good boost and the industry business as well. So I think that is a bit our chance of business mix to level that's a bit better than maybe others.
Yes. I mean, we have heard that this shift towards the premium cars is positive for you. But on the other hand, I mean, what we heard from Audi, for example, is that, of course, they also are now affected even with our premium models. And if there are no chips, then there are no chips and they cannot even manufacture then the S Class here. So we see also that this effect is spiking also into the whole product ranges across all car classes.
So you think you have built up enough buffer in your guidance that you can face even further deterioration of the situation?
Exactly. We have headwinds as every participant in the industry from shortages in steel indirectly in semiconductors, but we saw that development beginning of the year and maybe we have included buffers. And so far, we were cautious in our guidance. And so far, we stick to our guidance that we will reach our guidance 2021, double digit growth this year.
Okay. Thank you very much.
Thank you.
The next question is by Anjibagwani of Bank of America.
Hi, thank you very much for taking my question as well. This is Anjeeb Agwani from Bank of America. My question is more of a follow-up to the previous question. So in terms of the semi shortage, are you getting a different message from the truck OEMs versus the light vehicle OEMs? And also if you could please remind us your content per vehicle, how that differs in the truck versus the car?
That's my first question.
Yes. If I understood your question correctly and if you look into light and heavy vehicles, we saw a good development in both areas. We especially in China had a very good development in the heavy vehicle development first half year twenty twenty one because of the China ZICS regulations, where a couple of new and high-tech heavy vehicles were required and produced. And so far, we saw also within China a very good development in heavy vehicles. So there's a good development where we had in the past a significantly lower level of heavy vehicles.
If you look into the content per vehicle discussion, there we have a good development in terms of plug in hybrids and more premium cars. So the content per vehicle in a premium car is higher than if you have a budget car, for example. When we are talking about an average range of, for example, a very broad range, but if you take an average of €15, so a premium car can go to, I don't know, €150 to €200 maybe. So there's a broad spread of content per vehicles, but a, let's say, average of around €15 per car if you take the European market. Where we have a good development is the plug in hybrid development in the first half twenty twenty one.
And we have to keep in mind that the content per vehicle for a plug in hybrid is 30% to 40% higher than for a diesel or pure gasoline car. And so far, there is a spread. And also, the portfolio that we currently have supports our development.
Thank you. That is super helpful. And sorry, what is the content difference between a truck and a car? Is there some major difference or it's the average is around the same?
Yes. It's totally different. If you take a truck, you can have content per vehicle depending on the truck you take, €200,000,000 300, euros 350, euros 50, euros while you have in an average car, euros 15, maybe €20, but you have a significant higher content per vehicle in the truck business comparing to a live vehicle.
Thank you. That is super helpful. Thank you.
Welcome.
The next question is by Hans Joachim Heinberger of Kepler Cheuvreux.
Yes, good afternoon. Two questions from my side. First of all, on the strong margin development in Asia Pacific. Is this sustainable, this 17 plus percent margin? And secondly, maybe a short comment on your M and A pipeline.
Is it now getting more likely in the rest of the year? Thank you.
So maybe I refer first to the margin. So Asia Pacific, I think it's very sustainable because Asia Pacific has the luck also. They are growing. Even they can compensate a bit there, I would say, the rough delay of light vehicles due to ship shortage by a higher number of heavy vehicles due to this regulation of China VI and so on. So I think there are a lot of positive impacts, which bring us to this assumption.
So this margin is really sustainable and a very good one, and we hope even to improve it.
Thank you. Taking your second question, M and A pipeline. Of course, there were limited M and A activities in 2020 2021 because of the corona crisis situation. Nobody did travel and visit companies, but we have an intensive M and A pipeline. We have interesting targets that we are analyzing.
And as soon as traveling back and forth and doing due diligence, visiting companies, we will go in more, let's say, interactive activities. But we have a clearly defined M and A pipeline, and we have the clear target to grow intensively via M and A activities. Thank you. Very helpful. Thank you.
The next question is by Philippe Leurhin of Berenberg.
Yes, thanks for taking my question. Just a follow-up quickly on the M and A. Would you mind reminding us about your targets in terms of net financial leverage then, if you expect clearly to grow via M and A in the future years. I believe your leverage now stands at 2x net debt to EBITDA. But I was hoping to get like some sense on to which extent you could basically expand that ratio post M and A?
And what's the, let's say, normalized kind of ratio that you expect after that? Yes.
If you take the leverage development, we typically leverage per quarter 0.1%, 0.15%, so we have a very good cash generation and with that cash generation a good deleveraging. So we also expect that leverage is going down. We typically would like to keep a leverage off average 2.5 on a long term perspective to be still in the investment grade. And so far, we keep these 2.5 leverage as a long term average. Taking that into account, nevertheless, we have additional potential to have firepower for M and A activities.
And so far, we are very confident that we can finance our potential M and A activities that we have in our pipeline.
Okay, perfect. But I understand the 2.5% would be like kind of the normalized level from where you start basically.
Absolutely, to stay investment grade. But I think also this leverage now gives us already a debt capacity, which is really giving us a lot of opportunity even out of our own means. And then I would say banks like to make businesses as well and they are a lot of other measures.
And we would not have a problem, Filip, to go to 2.678 for a few quarters, for example. But on a long term perspective, in average, we want to keep this 2.5x.
Okay. I understand. And then how quickly do you aim to deleverage back to about like these 2.5x to 2.8x, let's say, post M and A? So I guess like the question that is related to that is how far up can you go in case of a big deal without to raise equity?
Well, that depends, of course, on the concrete target. Without having defined that, but we all would not be very happy to see a 3.0 or so. So take this 2.5 on the long term average, we are deleveraging very quickly to be able to have additional M and A activities in our structure.
Okay, understand. Now the next topic was more, let's say, on volume growth and price and so on. So do I understand correctly that your top line growth guidance is quite safe because even if volumes are slightly disappointing and lower than expected, you have still the price part of the equation that helps because you have the pass through closes allowing you to offset the effects of rising input costs on your earnings?
Yes. Jussi, in this pricing discussion, one of the big advantages of NORMAN Group, where we have a broad, let's say, end market portfolio, where we have distribution services business, standardized product by wholesalers and retailers and the OEM business. And in this part of our business where we say to wholesalers and distributors, we typically raise prices once, twice a year and also in these years, discuss it maybe even often. And so far, pricing for us and volume, of course, is a very important balance to keep, but we will keep our double digit growth.
At the end there, again, with our industry products, it is a bit easier to let the prices. We are already in the 4th price increase for water, for example, and the market is taking it. So that gives us a bit, I would say, the flexibility also to balance it a little bit better.
Perfect. That's exactly the kind of answer I was expecting. And in the EJT business, how easily do you manage to pass through the cost inflation right now to your customers? Because I believe versus 2018, what's changed is that you have now closest to pass through as well the increase in steel price, which was not the case before. So I was just wondering whether the situation is relatively simple for you.
And it's just basically a question of time before the price rises become effective or whether there's a little more reluctance from your clients to take that?
Well, Philippe, believe me, I would love it to have it that easy, but it's not that easy. Of course, it's a lot of pressure in the market. It's a really extraordinary situation where you have shortages in steel, in semiconductors where you have higher steel prices. You have to take steel where you get it. And so far, you go you have very good arguments to go in negotiations with our customers, but it's not that easy.
Of course, it's negotiation on an individual basis. We have very good arguments because it's an extraordinary situation, but it's not easy, of course.
No, I understand that. Of course, it's at the end of the day, it's like the automotive and extended kind of industry, so never easy. But you agree on the fact that you can theoretically now pass on as well the steep price inflation to them?
So we are daily discussing with our customers, and we go every way. We even had in a few new contracts a bit clause where we could adapt. We have this LOA surcharge what we normally pass through, but that is always also with a little time delay. So therefore, I would say the timing delay, everybody has to absorb as good as you can.
Yes. Okay. That would be it from my side. Thank you very much.
Thanks,
There are no further questions at this time, so I hand back to Doctor. Schneider for closing remarks.
Yes. Thank you very much once again also for this intensive discussion. And thank you very much for your participation. Please keep in mind, as a summary, strong H1 for normal group, very good basis for H2. We will reach our guidance and are prepared for the strategic growth path.
And we also will manage all these headwinds that we see. Thank you very much.