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Edited Transcript of NOEJ.DE earnings conference call or presentation 6-Nov-19 1:00pm GMT

Q3 2019 Norma Group SE Earnings Call

Maintal Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of NORMA Group SE earnings conference call or presentation Wednesday, November 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Schneider

NORMA Group SE - CEO, CFO & Chairman of the Management Board

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Conference Call Participants

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* Ingo-Martin Schachel

Commerzbank AG, Research Division - Head of Equity Reseach

* Peter Rothenaicher

Baader-Helvea Equity Research - Analyst

* Philippe Lorrain

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Sebastian Ubert

Societe Generale Cross Asset Research - Equity Analyst

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Presentation

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [1]

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Yes. So thank you very much for that kind introduction. Ladies and gentlemen, warm welcome also from my side to the Q3 call NORMA Group. And let me start with the presentation on Page 2, highlighting the whole development of the third quarter 2019.

We had sales up by 2.2% going to EUR 274 million sales, Q3. We will have a look on the organic growth development in the following pages. But staying at the overview, out of these EUR 274 million of sales, we made an adjusted EBITA of EUR 38.7 million, which is a margin of 14.1% and a decrease versus last year of 9.5% year-on-year basis to Q3 2018.

The net operating cash flow developed well, going to EUR 37.4 million in Q3 2019 versus EUR 23 million last year. As we announced, we had a further decrease in our factoring program so that we are, let's say, back from EUR 80 million end of last year to EUR 60 million factoring and ABS program this year, end of September.

In terms of balance sheet, we have an equity ratio end of September of 40.9%, while net debt as of September increased by 15.9% to EUR 463 million. Earnings per share decreased by nearly 22% to EUR 0.52. And adjusted earnings per share decreased by 12% to EUR 0.73.

The guidance, we mentioned 17th of October that we reduced our sales guidance coming from minus 1% to plus 1%, and we reduced our organic sales growth expectations to minus 4 -- to minus 2%, which was published 17th of October. On top of that, organic growth, we see around EUR 13 million from acquisitions, and we expect an adjusted EBITA margin of more than 13%. The EBITA margin was not adjusted why we took the sales expectations slightly down. And we published and had to publish our Get on Track program yesterday. We defined an improvement program for additional optimization activities, which we named Get on Track. We will come later on that.

This program started focusing on some operational excellence and structural improvements, which we will see later.

On Page 3, I give a short overview on the organic growth in Q3 2019. Q3 2019, on an organic basis, was flat, minus 0.1% versus last year. So we see the sequence of the quarters developing. Q1 was down 4.2% versus last year. Q2, 0.4% and Q3 more or less flat, so that we have Q1 to Q3 accumulated at minus 1.6% from a group perspective.

We have some negative organic development, especially driven by a weak automotive business, weak EJT business in all regions, especially in Americas in Q3. While we have in Americas a very strong water business, which developed nicely in the high single-digit growth area. While we have around 10 million sales contribution from the acquisition of Kimplas plus $2.9 million STARTEK, and we also had a good currency effect, more than EUR 20 million, EUR 21.1 million in the first quarters.

Jumping from that into the sales by region on Page 4. We see that -- and they go directly to the organic growth, we see that we had minus 1.6% organic growth percent in EMEA. Americas was down by 0.8% and APAC by minus 4.1%. And we see that the decline in EMEA, looking on organic growth, is due to lower production and sales in the automotive business, plus negative currency effects and a few positive impacts from acquisitions, so that all that in total led to a sales decline of 0.9%.

Americas organic decline at 0.8%. We had a weak EJT business. As mentioned, while we had good growth in water management NDS products and in APAC, an organic decline of 4.1% due to a weak automotive sector. China, mainly driven by that impact.

Coming from sales into margin development on Page 5. We had an EBITA margin in Q3 of 14.1%. So that for the full year-to-date range, Q1 to Q3, we have 14.2% EBITA for the NORMA Group. And looking into a couple of details of that margin on Page 6, we saw that we have a lower material cost ratio in Q3 due to a buildup of finished goods and work in process. We have to see that we have the P&L in the total cost method here in Germany. So it's more important to look directly on the gross profit.

And on the gross profit, we see that the gross profit margin goes down in the third quarter versus last year by 90 bps, what we saw is that we have some higher tooling sales, which has a lower margin and a couple of freight issues in terms of the ERP introduction in Mexico.

The adjusted personnel expenses are at 27.5%. We had here some severance payments and also impacts from our Mexican company, so that 27.5% personnel costs in percentage of sales in Q3 resulted where we are at 27.7% in the first 3 quarters.

If you look into the net expenses from other operating income and expenses going down to 12.6% coming from 14.3% and in the year-to-date picture to 12.5%. Nevertheless, we have to keep in mind that IFRS 16 accounting rules had a positive impact of EUR 8.5 million here. So this is something we have to take into account as well as we have to take into account this at the depreciation level.

So overall, we end up with an adjusted EBITA of 14.1% in the third quarter 2019 versus 16% in 2018 third quarter. If you would take out the management costs for Mexico, let's say, AX introduction and process issues that we already discussed in a couple of meetings, which is around EUR 5 million in severance payments. So overall, we would be around 16% in that third quarter 2019 if you would exclude these exceptional aspects. But of course, it hurt our profit in Q3.

Going to Page 7, we show the operational adjustments for the first 3 quarters, which is mainly related to the rightsizing program, which we show as EBITDA adjustments in the range of EUR 11.7 million and EUR 0.4 million integration costs. Besides that, we have in the EBITA, EUR 2.6 million depreciation purchase price accounting and as well as EUR 16.8 million of amortization purchase price accounting. So overall, net profit was or had adjustments of EUR 8.5 million post-tax impact.

With these developments, I go to Page 8, looking into the earnings per share development in the first 3 quarters. And the adjusted earnings per share and reported earnings per share went down according to the profit development in the third quarter and also in the year-to-date figures.

Year-to-date, adjusted earnings per share, which is the basis for paying our dividends, adjusted earnings per share went down by 10.8% versus last year. The net debt development, which we show on Page 9, we have net debt of EUR 463 million, which was on June level, EUR 478 million. That increased versus December 31, 2018, by EUR 63 million or 15.9% to that amount of EUR 463 million. We have to keep in mind that EUR 40 million of that are due to the IFRS accounting changes, which has an impact with these EUR 40 million and EUR 35 million dividend payment that we paid in May.

Leverage, we have at 2.2. Leverage was in Q2 at 2.4., so slightly down versus the last quarter. But if you compare it to 2018, it went up according to the higher net debt that we have in 2019. And as mentioned, equity ratio, 40.9%, although we have the dividend payment in May of EUR 35 million.

And to complete that overview, a gearing net debt versus equity, which is at 0.7%. Looking on the cash flow, which we show on Page 10, we saw a nice development versus last year. So in Q3, we are showing EUR 37.4 million net operating cash flow versus Q3 last year of EUR 23 million. And in the first 3 quarters, the net operating cash flow of nearly EUR 66 million versus EUR 39.4 million last year. So we have some positive impacts included in the adjusted EBITDA from the first-time adoption of the IFRS 16, which is around EUR 8.5 million in the year-to-date figures. We also have to keep in mind that our cash flow was impacted by our reduction of the factoring program, which we communicated, we decreased by roughly EUR 20 million the factoring program so that we currently are at EUR 60 million factory program overall coming from EUR 80 million December last year.

We also have CapEx spendings which are lower than 2018. CapEx spendings in the area of EUR 35 million, EUR 34.7 million in 2018 -- in '19. If we compare the cash flow to last year, we took out to have that apples-to-apples comparison, the IFRS, it changes EUR 8.5 million, and the factoring reduction of EUR 20 million. So without these aspects that influence the comparable basis to last year, taking out that, we would have a net operating cash flow at EUR 77.8 million versus EUR 39.4 million in the prior year, which is then an increase of roughly EUR 38 million.

Looking into NORMA value added, our long-term strategic target figure we see in Q3 2019 and value increase of EUR 8.1 million versus EUR 13.9 million Q3 2018 driven by lower adjusted EBIT after taxes and also, the capital cost based on capital employed of first of January. So we have that NORMA value-added Q3 2019, EUR 8 million and in the cumulative -- on the cumulative basis, EUR 29.2 million value increase in the first 9 months of 2019.

As mentioned, we have launched a change program, Get on Track, which we show on Pages 12 to 14. And commenting on that program, we clearly have the goal to -- that performance program, the basis for further strategic development and, of course, also for our long-term profitable growth. And key objective clearly is to return to historic profit margin levels of 17-plus percent?

We start the execution of a holistic performance program to increase efficiency and achieve our full profit potential across NORMA Group and to get an alignment of the organization along profitability and cash generation.

The benefits out of that program are expected to result in positive earnings contribution per year of around EUR 40 million to EUR 45 million in 2023. Of course, we have some setup costs, implementation costs for this program so that we see total one-off costs for the implementation on an accumulated basis of around EUR 45 million to EUR 50 million in 2023. So starting with 2020, we will see the first savings. It will get -- or it will increase year-by-year and having a run rate of EUR 40 million to EUR 45 million in 2023 and the ongoing years.

What does that program mean? We give some examples on Page 13. The scope of the Get on Track program is mainly in 5 areas. The first area is our structure of locations and locations processes, where we, for example, intend to increase our share of locations in best-cost country production. We aim for a reduction of complexity and for every of these 5 modules, we have a concrete action plan behind.

So first topic is locations. Second topic is product portfolio. We have a product portfolio of more than 47,000 different SKUs, and we intend to have a streamlining of that product portfolio based on an active portfolio management, where we can see that we have a couple of solutions to our customers, which we address with the same products. And we can focus that and bundle that as well as we will bundle and transfer a couple of low-volume products and businesses to wholesalers, which will also reduce complexity and generate additional profit.

On a structural basis, where we also include processes and purchasing. In the purchasing area, we strengthen our commodity strategies. We also had -- also aim for technical advancement. We focus on best cross country purchasing, and we also will see a couple of improvements in our structures and processes across the key support functions.

On the other side, we have also a topic called market intelligence. Based on the volatility in the markets, it's important from our point of view to have a sound, strong basis for all end markets NORMA is in, so that we'd strengthen that, let's say, market information basis by profound information and transparency on products and markets with a reliable basis for active portfolio activities in structured and transparent systems. And of course, we also have a focus and a module. The fifth module in that program, people and culture, which is important to have the right qualification of personnel according to the adjusted processes and structures, so that qualification is a key issue here. Training and development of employees to sustain best-in-class performance culture across the regions is very important and to get that long-term mindset that also supports the other modules of that Get on Track program.

Looking into the impact of that program on Page 14. We see savings, as mentioned, of EUR 40 million to EUR 45 million run rate per year starting in 2023, but already starting with savings in 2020. And if you look the 3 drivers for that improvement, it's the area of locations, improvement of location, processes and location structures, which is around EUR 20 million, EUR 19 million to EUR 21 million based on the defined activities and programs. We see in the area of processes, structures, where we also include purchasing, EUR 16 million to EUR 18 million positive contribution to the long-term profit development. And on a product portfolio side, some EUR 5 million to EUR 6 million based on the examples of activities that I mentioned earlier.

Implementation costs, accumulated total one-off cost volume for the implementation of EUR 45 million to EUR 50 million until 2023 accumulated. And we show these costs on an unadjusted basis. Of course, we will show the profits and the implementation costs, so that every, let's say, user, every party can analyze and see transparency of these costs, but we will handle it on an unadjusted basis.

This program, Get on Track, comes on top of what we launched in November 2018. November 2018, we launched the rightsizing program, which has a clear small set of 5 projects in the mainly production area. We see the first benefits out of that program, once again, launched November 2018, so that we have the first successes, the successful relocation of production activities from Russia to Serbia and for example, also the closing of a distribution center in Netherlands and the transfer to an existing distribution center.

As mentioned, the cost for that program, total cost of around EUR 10 million to EUR 15 million. Sale of EUR 2.2 million in 2018 and in the first 3 quarters, '19, EUR 11.7 million --

Once again, Get on Track comes on top of the rightsizing program that we launched 2018 November.

Coming then to the company guidance on Page 16. We expect a moderate organic decline of minus 4% to 2% mentioned on 17th of October and, additionally, EUR 30 million from acquisitions, an EBITA margin of more than 13%.

We see that strong decrease of adjusted EPS, earnings per share, also for 2019 and the NORMA value-added based on a lower EBIT of EUR 20 million to EUR 30 million value increase. Net operating cash flow in the area of EUR 90 million. And the dividend, of course, as was paid in the past, between 30% and 35% of adjusted net profit for the period. So this gives, in a nutshell and overview on Q3 and the year-to-date development of NORMA Group.

And with that, I would end and what leads to the Q&A session, and we are happy to get your questions.

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Questions and Answers

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Operator [1]

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And we received the first question from Ingo Schachel, Commerzbank. So Ingo Schachel is not in the queue anymore. The next question is from Philippe Lorrain from Berenberg.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

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Philippe Lorrain from Berenberg. I've got a few questions, and the first one would be on the Get on Track program. The savings of EUR 40 million to EUR 45 million that you announced on an annual basis, is that based on the company's cost base as of 2019? Meaning that it does not take any revenue and cost growth further down the road into account or does this take a low to mid-single-digit revenue growth over the coming years into account? That's the first question.

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [3]

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Yes, Philippe, thanks a lot for your first question. We base our cost and saving activities on 2019 without taking into account growth of sales. So it's a clear program based on 2019 actual situation.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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Okay, perfect. Then a follow-up just on the Get on Track program and also the rightsizing program. Why is this that the company only implements the rightsizing and the Get on Track program now that the margins have come under pressure and not before in more of a preventive manner than a reactive manner? And will the company, going forward, work on implementing those sets of measures more on a regular basis?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [5]

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First question -- excuse me, second question first. Of course, we will do that on a, let's say, more regular basis as also the markets are getting more volatile and also, from our point of view, in more difficult situations. So of course, we do that more regular. Your first question, why didn't you start earlier? Well, we started the rightsizing project November 2018. And please be remembered, Q1 2019, we still expected that we have a good growth for 2019. So we were in the clear expectation of a good sales development 2019, which we saw in Q2 that this will not happen. And so far, we started in Q2 to have some measures and cost reduction on the headcount area. We reduced headcount in Q2 by 175 people in the context of that cost reduction program. We had launched that rightsizing program, and when we saw that this growth of sales 2019 will not come, we reacted quite quickly based on that new expectation. But the reason for that, we expected Q1 2019, going sales up directly in Q2, which did not happen and then we acted quickly.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [6]

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Okay. But just to follow up on that. I mean it's more of a reactive approach than really a preventive approach that you follow here, which means if the market conditions are deteriorating, you will try to adjust the cost base. But if you see that things are progressing as expecting, basically, you will not have to implement those set of measures just for the sake of making the business more efficient.

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [7]

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We will implement these measures, which will make us more efficient for the future. We see tremendous potential for NORMA Group in increasing our profitability and our basis for strategic growth. So we will implement these measures based on the program Get on Track.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [8]

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Okay. Then I've got a question on the Nova definition. I mean taking the capital employed as of the 1st of January is pretty backward looking, and that will lead to overly biased metrics, especially in case of big M&A. Will that be fixed, over time, to include more of an average capital employed definition perhaps?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [9]

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Well, Philippe, I totally agree with you. It's a more or less philosophic discussion, if you take capital employed from the date last year, which is a basis for the value creation of the following year. If you had acquisition, probably it makes sense to have an average value. It's a discussion that you can have on the definition. Internally, we use both definitions. But I think you can choose both. It depends a little bit on the phase of a company you are in. If we have a very, let's say, intensive M&A activity, you have to be sure that you use the right definition. But for the time being, we are using that. And once again for internal purposes to use both.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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Okay, great. And then the third question is on the restocking that happened, actually, in Q3 and the whole of last year. I mean that line that you have in the P&L changing inventories of finished goods and working [book], it's not really reversed so far. So how should we think about this? I mean these inventories have been actually built up for the sake of generating future revenues. I understand that. But generally speaking, one could expect that when you have like such a big increase in the double-digit amount and not just like the kind of low single-digit million euro amount that you show also year-to-date or in Q3 and, historically speaking, that might lead to a reverse at some point that feeds also through the P&L. So going forward, should we expect, actually, to see more of a destocking on that line? Or are you happy with actually what you've built up over the course of last year?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [11]

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We constantly will improve our working capital situation in terms of inventories and even receivables. We see that in terms of Brexit, in terms of rightsizing with a couple of relocations, between locations, in times of having shortages of materials as we had last year, we also need probably some inventories to get these projects realized. And in that extent, there's a, let's say, maybe some other security buffer, if you look on Brexit or relocations and even introduction of new ERPs. But for sure, there's the constant program to optimize inventory and working capital.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [12]

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Okay. So it's fair to assume that, that's going to reverse at some point?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [13]

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Yes.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [14]

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Okay. And then perhaps just to finish on the cash flow and the working capital. Why is it that the ABS and factoring program volume was up so massively last year and is now being reduced?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [15]

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Well, we used last year the program of ABS and factoring because we wanted to increase our flexibility also for potential financings of acquisitions. So it was a flexibility issue. It was low cost. But in the course of this year, we aligned our financing contracts because we have some repayments end of the year. And with the alignment of our financing contracts, we can put in that flexibility in our financing contracts, which we did. And in so far, we reduced the factoring level again.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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Okay, great. Would you indicate just, I mean, the thoughts in my head just right now, what kind of covenant levels you have, if there are any?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [17]

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Well, we have covenant levels in the promissory notes of 3.25 and 3.75. And we will, in the financing contracts, we only will have event-driven covenants, but no regular covenant.

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Operator [18]

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The next question we received is from Ingo Schachel, Commerzbank.

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Ingo-Martin Schachel, Commerzbank AG, Research Division - Head of Equity Reseach [19]

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Okay. And I hope you can hear me now. My question would be on the Get on Track program as well and the production footprint. That seems to be an important part of the program. Can you give us a little bit of indications already maybe in terms of what percentage of headcount you ultimately want to have in the best cost countries, or what percentage of production footprint is to be relocated from developed markets, best cost countries? And also maybe whether you're looking for new greenfield plants in any emerging market or whether it's more about strengthening the existing locations?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [20]

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Well, in your first question, yes, we can hear you. It was a bit a little bit difficult before, but now it is clearly and loudly. We have a clear program for these production facilities. It's an extremely sensitive topic, going out with the information yesterday evening. I will have a discussion with our couple of employees and unions later. So we have defined some production relocations. We also will discuss the number of locations. And this is what we first discussed in detail, and then we can publish it in detail. But there is a clear program on a couple of locations.

We also will see, if you look until -- on the current structure, we have 30 production locations. We reduced the production location in Russia, and we also will reduce the number further. But I first have to discuss in the public with the employees and the works councils.

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Ingo-Martin Schachel, Commerzbank AG, Research Division - Head of Equity Reseach [21]

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Yes. That's fully understood. I think this morning, your company was already saying that forced redundancies are not ruled out in terms of this process. I mean yesterday, it was discussed with employee representatives on the Supervisory Board. Can you really give us an indication as to whether employee representatives on the Supervisory Board yesterday were generally, let's say, supportive or understanding of the measures that have to be taken or whether the vote was rather controversial yesterday?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [22]

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Well, we do not have employee representatives in the Supervisory Board. Independent from that, I'm absolutely sure that we will have a good common understanding for our program to develop NORMA into that direction. I'm absolutely sure.

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Ingo-Martin Schachel, Commerzbank AG, Research Division - Head of Equity Reseach [23]

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Okay. And then maybe just a follow-up housekeeping question on your factoring program. So of course, we've had this decrease of around EUR 5 million per quarter during the last quarters. And if I understood your last answer correctly, I would guess that once you've done those refinancing-related aspects, that you mentioned the decrease of the factoring volume might no longer continue to next year? Or is it more and more structural decrease that you want to continue then also going forward? Are there specific target volume that you have in mind for factoring in the long run?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [24]

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Well, we believe that's something between EUR 50 million and EUR 60 million. It's quite a good range of factoring level for us. But we use that as a chance if we can increase flexibility and can use that flexibility that might be fine. But taking a normal level, I think, somewhere between EUR 50 million and EUR 60 million is a good level for us.

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Operator [25]

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And the next question we received is from Sebastian Ubert.

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [26]

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It's just on the regional margin development, which seems to be quite good in the context in Asia Pacific compared to the past. Can you shed some light on what has driven this margin progress we have seen there?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [27]

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Well, thanks a lot for that question. Well, that's nice. There's always room for improvement. But I think we see some impacts in Asia Pacific, where we have an adjusted EBITDA margin of 15% for Asia Pacific coming from 14.2%. We've also see that the portion of sales, APAC increased by 40 -- excuse me, from 13% to 14% of our sales of the group sales. And what we see in the margin development, Q1 to Q3 is 15% in EBITDA, where we have an EBITA margin, a slight decrease from 11.2% to 10.1%. So there's also an impact in EBITDA coming from IFRS 16 between lease costs and depreciation that we have to take into account.

So if you would exclude that, there's only a minor impact in EBITA margin of that program. And there, we see that, unfortunately, the Asia Pacific margin is in line with the downturn coming from 11.2% to 10.1%.

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [28]

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Yes, I was rather referring to the third quarter where the EBITA margin was up from 7.6% and the second quarter to 13.1%, which is quite a substantial improvement. I share your view on 9% months, it's down, but especially the strong sequential improvement.

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [29]

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Yes. Yes. What we also see is that in Q3, we had a nice growth in Asia Pacific. Again, so if you look into Asia Pacific, the whole year is down by minus 4.1% while the organic growth in Q3 was around 4.5% in Q3. So based on that organic growth, we also saw a slightly better development of the margin.

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Operator [30]

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We have currently no further questions. (Operator Instructions) And the next question we received is from Andreas (inaudible), (inaudible).

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Unidentified Analyst, [31]

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Yes, hello. Can you describe who initiated this new program, and who is in charge for managing it?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [32]

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Well, I assume you mean the Get on Track program.

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Unidentified Analyst, [33]

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Yes.

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [34]

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It's a clear team effort that we initiated together as a team. And of course, the impact has -- also comes from the Board, but it is a joint, very intensive work of a big team. We included in that program all the local teams in the regions in corporate functions, so that it is a definition by regional teams, by corporate teams, and we also included some external views. So this program is driven by an intensive teamwork, and this is very important because it's also -- it's also covered by the team, driven by the team because the success of such a program is in the execution and the execution of the local teams. And so far that's the structure of the program. And we win the game on the field, and this is what we are doing with these decentralized team-oriented spirit.

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Operator [35]

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And the next question we received is from Peter Rothenaicher, Baader Bank.

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [36]

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One question regarding the expenses for the new program. Do you have already some guidance for the payout of this program? When can we expect here the costs to arise? And then we said, is -- do you expect already some costs occurring in the fourth quarter? And is this also then considered in your unchanged guidance of more than 13% margin?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [37]

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Yes. Thanks for the question. I'll take the second part first. There will be -- if there are maybe some minor costs in 2019, this is covered in our EBITA. So including these minor portion of these costs, EBITDA will be 13% plus. This is 2019. Looking into the development, 2020 to 2023, we have a cost development of these EUR 45 million to EUR 50 million, which is 2020, 2021, somewhere slightly below EUR 10 million; 2022, 2023, I would say EUR 15 million plus in that extent. This is especially also addressed to the structure of the program. If you look into the locations issues, you typically have long term -- or in terms of preparation for these issues, and so far, it will start 2020 and 2021 somewhere slightly below EUR 10 million; and 2022, 2023, EUR 15 million plus is cost. And we will see savings in these years 2020, around EUR 5 million; 2021, 2022, EUR 20 million plus, EUR 30 million plus and to EUR 40 million plus in 2023.

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Operator [38]

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And we received a follow-up question from Philippe Lorrain, Berenberg.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [39]

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I mean the question is pretty simple. Why is that, that there seems to be a change of heart with regard to adjusting for the restructuring costs? I mean in the press release for Get on Track, you indicate that earnings are not going to be adjusted for the cost of the implementation of the program, while for the rightsizing program, you were adjusting actually these costs. So what's the reason behind that?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [40]

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Well, of course, one could adjust and then we show a nice adjusted EBITDA, excluding the costs and having the positive impacts, we believe it's a clearer structure to show the profit bottom line or without these adjustments. We will show both. We will show the costs in transparent -- in a transparent way. We will show the savings in a transparent way so that everybody can make up his own, let's say, structure of adjusting or not adjusting. From our point of view, it is a clearer way to show the profits of NORMA Group.

But, of course, Philippe, we will show both areas, cost and savings, transparently and separately, but we'll show it in the EBITA.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [41]

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Okay. And then perhaps, like a correlated question is, does that mean that going forward, when we look at the adjusted EBITA metric, it's going to be only adjusted from PPA and, really, like obvious integration costs for M&A?

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [42]

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This is the target to base the acquisitions -- excuse me, the adjustments on M&A costs -- M&A costs and their consequences to have that clear view.

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Operator [43]

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We have currently no further questions. I hand back to the speakers.

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Michael Schneider, NORMA Group SE - CEO, CFO & Chairman of the Management Board [44]

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So if there are no further questions, I would like to thank you all very much for participating in our Q3 call of NORMA Group. I appreciated the high number of participants and the questions. Thank you very much. And have a good day.