Ladies and gentlemen, warm welcome to NORMA Group's Analyst Conference Call Q1 2021. I will give together with my colleague, Annette Steve, our CFO, an overview on the development in the Q1. And of course, we then are happy to take your questions. Overall, looking on the Page 2 of the distributed presentation, facts and figures. Overall, in view of the still critical crisis situation, we had a good Q1 2021.
We are overall well on track, and we will give a couple of comments on that. If you look on the sales growth in the Q1, we grew our sales by 13% to a level of EUR 286,000,000, which is an organic growth of 17.8 percent and a organic or excuse me, a currency effect of 4.9%. We generated out of these EUR 286,000,000 of sales an adjusted EBITA of nearly EUR 40,000,000 EUR 39,500,000, which is an increase of more than 45% and an EBITA margin, EBITA margin adjusted of 13.8%. We steadily go to a more, let's say, common figure adjusted EBIT. Adjusted EBIT is at nearly €37,000,000 which is an increase of 47 percent and the margin of nearly 13%, 12.9% in the Q1 2021.
The net operating cash flow, typically weak in the Q1 of a year, is at EUR 2,500,000 in Q1. The balance sheet ratios, equity ratio further improved to more than 42% 42.5%, which is a slight increase also versus December 31. And our net debt is at EUR 352,000,000 which is a slight increase versus the status in December last year. Regarding dividends, we will propose a dividend of EUR 0.70 per share, which will be confirmed has to be confirmed at the Annual General Meeting, which takes place on May 20 in a couple of days. Going a bit more in detail to the top line on Page 3.
We see once again these EUR 286,000,000 that we reached in Q1, overall an increase of EUR 32,900,000 plus 13%. And the organic growth of 13.8% that I mentioned is due to a significant contribution by all regions in all areas. The EJT sales, Engineered Joining Technology, showed a good recovery versus last year Q1 and increased by 17.5%. And also the standardized products, standardized joining technology also shows a very good development, a very good recovery, meaning an increase of 18.3% in the Q1. While we have, as mentioned, negative currency effects of minus €12,300,000 which is 4.9% minus 4.9% of sales.
You see on that Page 3 also the regional split where we see an increase in regional sales in percentage of the group sales in Asia Pacific and a slight reduction in Americas, while the stake of the EMEA business is quite stable. If you look on Page 4, a little bit more detailed in the sales per segment, sales per region, we see for EMEA that we have net sales in the Q1 of €132,000,000 which is an increase of 12.4% and an organic growth of 12.2%. Both HIT and standardized products showed a double digit growth due to an increase in production in both business areas, which is a very good development to the overall group level. In Americas, on the right hand side, we saw €109,000,000 in the Q1 in sales, an increase of 5.1 percent organically 15.6%. So we have a significant negative currency effect in Americas and a very good high single digit growth in demand in the EJT business and a very strong double digit standard joining technology growth, which includes especially the NDS Water Management sales that increased versus last year by nearly 30%, 29.9%.
APAC region, we have especially strong recovery of APEC region after the Q1 2020, which was in APEC already impacted by the COVID-nineteen related lockdown. And so far, we saw a steep increase in the 1st quarter, 40.3% sales increase, which is on an organic basis more than 45%. 45.4%. In terms of margin, just a general overview before I hand over to Annette. The margin in Q1, EBITA margin, 13.8 percent EBIT margin, 12.9%, which is a good development versus last year, which shows we are, together with the sales increase, well on track for the Q1.
And the economic recovery and a strict cost control, resulting in a relatively strong Q1 margin and a confirming of our guidance for the full year is on a very good track. And so far, with that, I will hand over to Annette, our CFO, who will now give a more detailed view on some financial figures. Annette?
Thank you, Mikael. Thank you. So let's have a look a bit closer look to our P and L development and to the ratios. So first of all, concentrating on the material cost, we could achieve to keep the material cost ratio absolutely stable and the gross profit ratio almost stable despite an increasing material price environment and really a tough market environment in general, which shows at the end that our sales and purchase departments did all a tremendous job in the recent months, but also years in order to prepare a position like this. Personal expenses, we could improve the personal cost ratio there, mainly due to less full time workers and personnel.
In this case, having a look to the OpEx to our OpEx ratio, you could see that we here slightly increased. This is mainly due to a higher number of temp workers and extraordinary costs like, for example, extra shifts, mainly due to, on the one hand, the higher growth and on the other hand, we are in an ongoing restructuring activity. Well, all in all, this economic recovery and also in particular, the strict cost management brought us in a position to really deliver for Q1 relatively strong EBIT margin of 13.8% and strong EBIT margin of 12.9%. Our operational adjustments show now that on EBITDA level, we at EBITDA level, we don't have any adjustments anymore, which means we have really because our Get on Track change program is not adjusted anymore or we don't adjust that. So this brings us to the position that we have in the adjustments we are showing here.
This is all referring to prior M and As and classical ones like depreciation, amortization or tax effects. When I look now to the earnings per share, you could see that we stepped up in the adjusted earnings per share in Q1 2021 compared to the prior period from EUR 0.49 to EUR 0.76 in terms of our reported EPS from EUR 0.34 to EUR 0.63 And Michael already spoke about our dividend. In the last year, we issued this minimum dividend of EUR 0.04 and we propose now a dividend of 70% to our AGM, which means this is 92% of the adjusted group net profit income. But at the end, it's also an average of both of the years roughly something around 47%. Our net debt and equity ratio shows a very strong and solid position.
Our net debt slightly increased, mainly due to a decreased cash, which is seasonal for the Q1. So therefore, we can see here anyway that we still have a very strong cash position on the balance sheet of EUR 177,000,000 This is so in this case, really due to a financing of a remarkable growth. Looking to our equity ratio, we could improve the equity ratio from 41.7% to 42.5%. Our leverages improved in this moment from 3.4% to 3.1%. And the most important leverage for us is, in this case, the financing leverage where we, in this case, adjust our Get on Track cost, and this brings us in a position that we show now a leverage for financing contracts and covenants of 2.5.
All in all, in a nutshell, we can say here, I think we are very well prepared for any kind of future operating business, and the motto can be all eyes on 2021 and beyond. The cash flow development of Q1 shows we are starting with a EUR 15,100,000 higher EBITDA. Our trade working capital outflow increased due to a strong growth, and this is mainly at the end the step up in accounts receivables due to higher sales in the months before and not at all due to higher overdues, which is very important for us. Our investment initiatives increased as well. So increased investments from operating business reflect that we go higher in business activities, and this is showing our CapEx, which already started in Q4 2020.
This is impacted by a very slight increase in supply chain financing of €900,000 so €900,000 increase. So we kept supply chain financing nearly stable compared with the year end. Concentrating on our normal value added, which is normal's long term strategic target, we could improve from minus 2.5 to 9.3. These are the main financial figures, and I'm happy to give over to Michael to bring you through.
Thanks, Annette. Ladies and gentlemen, as I mentioned earlier, Q1 2021 shows that we are well on track, and we also show that in the company guidance that we confirm. And so far, overall, we see organic sales for the full year in the low double digit area and adjusted EBITA margin of more than 13% and referring to the EBIT margin more than 12%. Net operating cash flow of EUR 110,000,000 plus and the normal value added between EUR 10,000,000 to EUR 25,000,000. And after the Q1, we are very confident that we will go back that way to be on track, and the Q1 confirms that we are on a good way to reach our guidance and our targets.
Thank you very much so far. An overview on our situation in Q1 2021. And of course, happy to get your questions and discuss with you.
Thank you. We will now begin our question and answer session. The first question is by Ingo Schachel of Commerzbank.
Hi, yes. Thanks very much for taking my question. My first one would be on the very impressive growth rate of NDS in the quarter. I think you must have done a very strong effort in selling your products. I was just wondering whether you could give us a bit more detail, for example, on how much of the growth would be volume driven versus price driven?
And whether you think that you are, let's say, selling efforts in the quarter have more or less triggered a pre buying and we should expect a weaker second quarter? Or whether you think that you have successfully just increased the business volume of the segment sustainable for the next quarters. And yes, I'm not sure that you have a view on the reopening impact on this business. It's certainly hard to predict, but maybe you already have done some market research, have already, let's say, made some observations in certain U. S.
States that have already opened up a bit. How strongly you would expect such a growth rate to decline in the scenario of reopening in the next quarters?
Yes. Thanks, Ingo, for that question. NDS indeed has a very strong development, and NDS goes that growth path as it did in the last years. If we when we look on the Q1 2021 figures of 29.9 percent organic growth, we must see 2 aspects. The first aspect is we had a couple of sales volume and pricing activities in Q1 that we started, where we typically see price increases over the year of maybe 2%, 2.5%, around 2% in that extent.
So that's roughly the pricing impact for the year. Let's take something around 2%. We have a second and some volume activities. We have a second topic, which is a, let's say, pre year comparison impact. The Q1 2020 was not too strong for NDS because they had a very strong development in Q4 2019 with a weaker Q1 2020.
And this is also the basis impact if you compare to Q1 last year. So these two topics, we have to keep in mind, interpreting the NDS growth rate of nearly 30%. I would love to see that rate for the full year, but you have to be very cautious. Please do not take these 30% for the full year. Of course, we have these 2 special impacts.
But looking on the full year for NDS and Water Management business, we see a very good growth overall.
And with the now, I think, very strong growth for several years. And of course, the revenue level is much higher than at the time of the acquisition. Can you comment a bit on how much production optimization or also CapEx requirements you see for the business? I think we've never been able to do a Capital Markets Day or site visit to the production side. I was just wondering whether it's starting to reach capacity limits where you have to step up investments and efficiency improvements there or is it still running rather smoothly there?
And how do you see it from a profitability and performance perspective?
It's running very smoothly. We also started to produce NDS products meanwhile in Mexico. So we have a, let's say, flexibility and production capacity in Mexico as well, so that we have the right reserves, the right overall CapEx and capacities for handling that growth. We do not see a structural need for a structural shift in CapEx. This is what we prepared over the last couple of years with also production facilities in Mexico additionally.
And so far, we are very well prepared on that area as well.
Okay. Thanks very much. And just a very quick one on your net working capital. Can you give us any indication as to how much net working capital build up, especially inventory build up in light of the higher activity and higher metal prices we should expect in the Q2?
I wouldn't see a significant impact currently from the metal prices. If you look on the working capital side, it's volume driven. If you look into our sales growth in the Q1, it's mostly volume driven.
Okay. Thanks very much.
Welcome.
The next question is by Philippe Lorraine of Berenberg.
Yes, good afternoon. A couple of questions from my side on the raw mats mainly. You mentioned in your remarks on the slides that the material cost ratio was almost stable despite increased material prices in a tough market environment. If I'm not mistaken, you should be well protected currently by the fact that volume growth is on par with your budget and probably with supply volumes you agreed on with your suppliers at the end of 2023. Is that correct?
And perhaps as a related question, how are your contracts structured? Are you going to be able to be, as long as you're not out of your budget range, going to be protected completely in terms of the prices that you get from your suppliers? Or is there any kind of, let's say, room for them to increase prices as well?
So all in all, I think we have to look to the different businesses. All in all, we are well protected by long term contracts, which are mostly lasting between 9 to 12 months, something like that. So therefore, for the time being, I think we told you already we are well protected. But with this material cost ratio, I think we proved already the 1st 3 months that we are. On top, we did some homework also in our sales contracts where we put in newer sales contracts the phrase that we can give the step up in pricing further to the customer.
However, that is at the end the Automotive business. And when we look to DS business and here in Water business, the market is for the time being absorbing our price increases pretty well. What has been shown already in the Water business in the Q1, there we increased prices. And I think it brought us really added value and not only and no impact on the quantity.
And Filip, you see the big one of the big advantages of normal growth, if you look into our business structure, where we have 45 around 45% of automotive business. And the whole standardized joining technology business, we use once, twice a year for increasing our prices as we did for NDS, which is overall for the business a huge advantage that we can use and this is what we did.
Okay. And just another quick question on your NOVA calculation. I mean, since you've shown that a bit more precisely in the presentations, it really appeared that you're always using the previous year's capital employed calculation for measuring your NOVA, would you think about perhaps at some point also taking an average capital employed calculation, especially if you start doing some M and A again? Because one could criticize the fact that earnings go up if you are consolidating other companies. But in the case of the Nova calculation, you would be still using the capital employed at your end of the previous year.
Well, if you look on the Nova calculation, we take equity plus net debt at the end of the year before. Well, when I worked still at the university, which is a few years ago, there can be a philosophy in discussing if you take average capital employed or if you take capital employed of the year before. There's a discussion you can use. We decided to have the capital employed of the 31 December, the year before. It doesn't move the needle too much if you do not have some structural changes in capital employed.
And if we have some M and A activities again, we for sure have to think about the right definition of capital employed. For the time being in these, let's say, normal times, we feel quite well with that definition.
Okay. Thank you very much. I'm back in the queue. The
next question is by Peter Roten Eicher of Baader Bank.
Yes, hello. Firstly, one question on the employees. So if I look at segment reporting in EMEA, the number of employees increased relatively strong, while on the other hand, in Asia Pacific, this was down despite the very strong growth. Can you explain what is behind that? And how does it fit in general to your Get and Track program to have now a considerably higher number of employees in Europe?
Peter, thanks a lot for that question. Two aspects looking into Europe. First of all, we mentioned that we will transfer business from a location in Germany, Gerber 1,000 to check and to Meinta. This is in preparation. And in such a preparation phase, you have some employees that you have in the old location and in the new location to build up.
So this is one topic. On the other side, we have a significant increase in the volume side as well as we showed for other regions, but especially in EMEA. So volume increase and the preparation of shift of locations and closing of the Gaba1000 location end of 2022 as we prepared as we communicated and with the preparation of Czech and the Main tile location.
Okay.
Then can you perhaps comment a little bit on your single target market? On the one hand, how is the trend in the trucks business? So in North America, have you already experienced here in the Q1 significant growth? May this be a driver for the rest of the year?
Well, the truck business, heavy vehicles business in the U. S. If you look on this on the LMC figures, according to LMC figures, it went up around 4% excuse me, 9%, nearly no, 4% in Q1 2021, where we saw that development, if you take the full in Americas, if you take the full picture on the U. S. Purely, it's nearly 9% in Q1.
And overall, 26.7% increase versus 2021. So what we see currently from a volume side as well is that we expect, especially Q3, Q4, volumes increasing to 110,000 115,000 units in quarter 3, 4, currently coming from nearly 98,000 units. So more related growth to Q3, Q4.
Okay. And then in your automotive business, what do you currently experience in terms of e mobility demand, hybrid cars? To what extent has this driven your sales growth in the Q1?
Well, in the Q1, well, overall, we see a very good development in the e mobility area. When we are looking into our book business, there is a significant portion, meanwhile, in e mobility areas, which we define as plug in hybrid, battery electric vehicles and maybe some prototypes for fuel cells. So there's a good development overall in the book business. We had also in the Q1 2021 a significant increase in e mobility in the Q1 where we have, for example, if you take China, Asia Pacific, mainly driven Asia Pacific by China, where our e mobility portion went up from 3% to 9% in the Q1 2021. So we see a significant increase in Cereal business and a significant increase also in future book business.
Okay. And in terms of content you deliver per car, can you give us here rough figure what this trend towards hybrid car had an impact?
Well, what we see in our sales development are these two aspects. It's a volume aspect and a content per vehicle part, the higher number of plug in hybrids that we sell. We also see this positive impact of hybrid cars having a higher content per vehicle of around 30%, 40% versus a combustion engine. This is what we are seeing positively in the sales development. And what we also are seeing is that our products for e mobility applications increased.
The number of product is increasing. The number of applications is increasing for different customers, for different battery types. And so far, we also expect regarding the share of e mobility in our sales, a very good development this year and the next years based on content per vehicle and on volumes that go into e mobility applications.
And my last question is on the first hand competitive situation and M and A opportunities. So now I think as you have the major demand or measures taken in terms of Get On Track, I think you have now also more time to focus on M and A. What is currently the situation? Is there an opportunity that we will see in the course of 2021 some acquisitions? And on the other hand, in terms the competitive situation, do you see here that some of your competitors are struggling and you may have the opportunity to take over projects and to increase your market share?
Well, Peter, that's a very important aspect for us. We increased our intensity looking into M and A targets. We have a clear shortlist and a longlist. And the most important is after an excellent crisis management and the measures of Get On Track that are efficiently put in place. We have a excellent financial basis for doing these M and A activities.
But and that's important, we want to focus on the right strategic M and A activities. There are a couple of competitive or competitors, as you mentioned, in their situation that may be struggling, but we have to see if they are struggling, are these the right strategic targets for us? And so far, there might be some chances out of this more difficult competitive situation where NORMA Group significantly improved in terms of competitive advantages. But we would be very cautious in buying a target that is struggling because of a tough situation. We are focusing on our strategic business units, which is water in the first place, which is industry applications and mobility and new energy.
On these targets that bring us forward on our strategic journey, this is what we do and this is where we have the basis for.
Okay. Thank you very much, Michael.
Welcome, Peter.
The next question is by Nikolaj Kemp of Deutsche Bank.
Yes. Hi, good afternoon. My first question would be on the semiconductor shortage. I mean Ford has made some big cuts here and also other OEMs versus the truck OEMs. And I think also the VDA has just lowered its forecast today.
Can you just highlight how you can impact in the Q1 and what your expectation is for the remainder of the year?
Yes. Nikolay, surely a question that is every day in the press and where we are also sensitive for the topic. Nevertheless, what we see so far that in the area of our customers, there is a very broad range of customers. There are customers that have some problems out of that semiconductor shortage. There are other customers maybe with a different purchasing strategy and with a different supply chain that are not so heavily impacted.
Overall, we see a minor impact from our point of view, which is less than around 1% of our forecasted expectation in sales. And so far, we see the impact. It's a minor impact for us. And we expect in the second half year that we have a shift into the second half year of sales. So overall, for the full year, no major impact for us.
Yes, thanks. I mean, I had to ask this question since it's a bit early.
Short term somehow, we even profited a little bit out of it because at the end, all the OEMs who have the stock of chips, they prefer to sell premium cars where we have a bigger content. So this is even boosting our sales a bit in terms of hybrid, but also in terms of you have to buy the bigger navigation system, not the small one. So we participate all of that.
Yes. That's actually my second question. I mean, I understand your mix is good because brands are rather producing the premium models. But would that then be a risk in the second half? I mean, you have more volumes, but maybe less content per vehicle because rather an entry model or volume model?
No, I wouldn't see that risk at all in the second half here because of the content per vehicle. What we see is that content per vehicle with a higher number of hybrids and even in the e mobility applications is fine for us. This risk, I wouldn't see for the second half here.
Okay, understood. Thank you. Welcome.
The next question is by Sandeep Agwani of Bank of America.
Hi, thank you very much for taking my question as well. I think you briefly answered my question, just the previous question with Nicola. So I guess my question is that given that now let's say all the OEMs are prioritizing higher value in the premium products and given that Noma has much higher content in the premium car versus the mass market car. So has this mix actually surprised you in quarter 1 versus what you had expected at the beginning of the year?
Well, we are very well in our expectations that we expected for 2021 and even for the Q1. And so far, I think what we saw is a consequent development within our expectation. And so far, we also stick to our overall guidance for 2021.
On top, I would say the basis the basic message that there is a shortage in semiconductors reached us before we guided. So there is a certain impact already. We took already a certain impact in our guidance where we protected ourselves and took that into account.
Okay. So let's say, if this mix effect continues for the rest of the year, would that be a positive surprise for your guidance? Or you already have quite a positive assumptions for that baked in your guidance?
It wouldn't change the structure overall. So if you look into the sales structure, what we expect and what we will have, we do not see a significant shift in that sales structure. And so far, we are in the range of our expectations for the full year.
Thank you. Thank you very much. And just a follow-up on the semis. Given that the visibility is very low, to what extent, let's say, have you accounted for the worst scenario in your, let's say, light vehicle production forecast? For example, let's say, IHS was expecting around 13%, 14% at the beginning of the year.
Now it has gone down to 11%. So to what extent is the worst scenario also you have captured, let's say, even if the production is down another 3% or 4% than expected, then would you be still be able to meet the margin guidance?
Well, I think at the end, Michael already answered that. So at the end, I think we had a certain assumption for our guidance. And for the time being, what we expect is shown in our guidance. I think much more we can't say for the
time being without doing that. Sure. Thank you very much.
The next question is by Richard Schramm of HSBC.
Yes, good afternoon. My first question would be in how far would you estimate have some restocking effects influenced your Q1 performance here on the customer side?
Well, there might be a certain restocking effect, but that's not the major driver. Of course, there is some restocking if you go in such a growth period, but that's not the major driver for us.
This is mostly the driver in the SGT business, and this we see for the time being. As they destock last year, we are happy that they take sufficient stock on board in order to offer our products.
Okay. So in fact, it was not material, so maybe 1 or 2 percentage points, but not more. Would that be a fair assumption?
Well, it's hard to calculate that in terms of 1%, 2%. It's of course, for sure, it's not material overall, the impact from the restocking effect. If you take 1%, 2%, 3%, that probably is nearly the same figure.
At the end, it shows the current recovery of the SGT or what we called in prior years DDS business. This is the current recovery. At the end, the distributors put stocks in order to offer our products by the assumption that they will sell them better for sure.
Yes. Okay. And then a question on Asia Pacific. So here, I was surprised about the strong earnings contribution from this area, which led to a margin, yes, which as far as I see was a record one for the last couple of quarters. So was there any special effect involved there besides the clear volume recovery?
No, Richard, there's no special effect. What we see is what Andreas and myself communicated over the last years, what we see is that as long as we have the volumes coming in that reach, we also will get better margins. This is the communication in the last years. And what we currently see is that we have a very good volume development already last year and even this year, so that we are happy to have that higher business volume in Asia Pacific with the right structures, with the right products, with the right customers overall, increasingly local customers. And this all is reflected in the further improved situation of our business in Asia Pacific.
Okay. And also related to Asia Pacific, the strong starting Q1 was quite obviously also driven by this basis effect. But your full year guidance is only for single digits organic growth, if I have seen it correctly, which would mean just calculating forward, that we would see no growth at all in the coming quarters. Isn't that too conservative assumption? What's wrong with the market there?
I don't think that the market there is wrong. I think we will have a good development in Asia Pacific. We must be aware that we cannot take the growth rates of Q1. Asia Pacific was hit very much in Q1 2020 by this corona crisis. And so far, the growth rates versus Q1 in Asia Pacific might mislead a little bit because of that impact in Q1 2020 in that region.
Overall, we have a very good development in Asia Pacific based on the product and customer structure. But I would not take the Q1 growth rates and linearly expect that for the full year because we have that structural effect versus last year, overall independent from the growth rate versus last year's Q1, an excellent development also in APAC.
Their recovery came already immediately in Q2 already last year. So we are comparing then a higher basis already for prior figures in the future.
Okay. Thank you.
Welcome.
Currently, there are no further questions. So I head back to you.
Yes. Thank you very much for participating our Q1 2021 analyst call. Thanks for your participation. Thanks for your questions. Thanks for the discussion.
Please keep in mind, we are well on track. The figures in Q1 2021 show that. And of course, we confirm our guidance and are very optimistic in the short term and long term development. And so far, Happy to talk to you next time. And the most important issue is stay healthy.
Thank you very much for participating.