NORMA Group
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 Fina ncial Figure s 2 01 9 Order situation Order book (Dec 31) Income statement Revenue Adjusted gross profit 2 Adjusted EBITA 2 Adjusted EBITA margin 2 EBITA EBITA margin Adjusted profit for the period 2 Adjusted earnings per share 2 Profit for the period Earnings per share NORMA Value Added (NOVA) Return on Capital Employed (ROCE) Cash flow Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net operating cash flow Balance sheet Total assets Equity Equity ratio Net debt Employees Core workforce Share data IPO Stock exchange & market segment ISIN Security identification number / Ticker symbol Highest price / Lowest price 2019 3 Year-end share price as of Dec 31, 2019 3 Market capitalization as of Dec 31, 2019 3 Number of shares 1_Including the effects of the first-time application of IFRS 16. 2_The adjustments are described in the Notes to the Consolidated Financial Statements. 3_Xetra price. NOTES, P. 148 EUR million EUR million EUR million EUR million % EUR million EUR million EUR million EUR EUR million EUR EUR million % EUR million EUR million EUR million EUR million EUR million EUR million % EUR million 20191 358.3 1,100.1 630.6 144.8 13.2 127.9 11.6 87.8 2.76 58.4 1.83 17.3 13.4 137.1 – 57.6 – 92.7 122.9 Dec 31, 2019 1,514.3 629.5 41.6 420.8 6,523 2018 379.2 1,084.1 626.6 173.2 16.0 164.8 15.2 114.8 3.61 91.8 2.88 60.8 17.5 130.8 – 129.5 31.3 124.4 Dec 31, 2018 1,471.7 602.4 40.9 400.3 6,901 T001 Change in % – 5.5 1.5 0.6 – 16.4 n/a – 22.4 n/a – 23.5 – 23.6 – 36.3 – 36.5 – 71.5 n/a 4.8 – 55.5 n/a – 1.2 Change in % 2.9 4.5 n/a 5.1 – 5.5 April 2011 Frankfurt Stock Exchange, Regulated Market (Prime Standard), SDAX DE000A1H8BV3 A1H8BV / NOEJ EUR 49.26 / 26.36 EUR 38.00 EUR million 1,211 31,862,400 2 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATIONNORMA Group SE – Annual Report 20191 INTRODUCTION2 TIMES ARE CHANGINGTable of Con tents 1 2 3 Introduction Times are Changing To Our Shareholders Financial Figures 2019 Table of Contents NORMA Group 2 3 4 Guiding Theme 2019 6 The Management Board Our Answers to the Questions of Our Time 7 Letter from the Management Board NORMA Group on the capital market Supervisory Board Report Corporate Governance Report 25 26 28 33 37 4Consolidated Management Report Principles of the Group Economic Report Forecast Report Risk and Opportunity Report Remuneration Report Other Legally Required Disclosures Report on Transactions with Related Parties 46 58 82 89 102 110 112 5Consolidated Financial Statements Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position 114 115 Consolidated Statement of Cash Flows 116 Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 117 118 203 205 206 6 Further Information Glossary List of Graphics List of Tables Overview by Quarter Multi-Year Overview 212 216 217 220 221 Financial Calendar, Contact and Imprint 223 3 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATIONNORMA Group SE – Annual Report 20191 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group Two strong distr i- b ut ion ch ann els NORMA Group is an international market and technology leader in Engineered Joining Technology (joining, connecting and fluid handling technology) and offers more than 40,000 high-quality products and solutions to around 10,000 customers in more than 100 countries. NORMA Group’s joining products are used in various industries and can be found in vehicles, ships, trains, aircraft, domestic appliances, engines and plumbing systems as well as in applications for the pharmaceutical and biotechnology industry. From its headquarters in Maintal near Frankfurt, Germany, the Company coordinates a global network consisting of 29 production facilities as well as numerous sales and distribution sites across Europe, the Americas, and Asia Pacific. 61% EJT Engineered Joining Technology (EJT) The business area of EJT focuses on customized, engineered solutions which meet the specific requirements of original equip- ment manufacturers (OEM). For these customers, NORMA Group develops innovative, value-adding solutions for a wide range of application areas and various industries in the area of mobility and new energy. No matter whether it’s a single component, a multi-component unit or a complex system, all products are indi- vidually tailored to the exact requirements of the industrial cus- tomers while simultaneously guaranteeing the highest quality standards, efficiency and assembly safety. NORMA Group’s EJT products are built on the Company’s extensive engineering exper- tise and proven leadership in this field. Distribution Services (DS) In the area of DS, NORMA Group sells a wide range of high- quality, standardized joining technology products for various applications through different distribution channels. Among its customers are distributors, OEM aftermarket customers, technical wholesalers and hardware stores. In the DS business area, NORMA Group benefits not only from its extensive geographic presence and global manufacturing, distribution and sales capacities, but also from its well-known brands, its customized packaging and the high availability of its products at the point of sale. NORMA Group markets its joining technology products under its well-known brand names: 39% DS B R A N D 4 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATIONNORMA Group SE – Annual Report 20191 INTRODUCTION2 TIMES ARE CHANGINGMARKET LEADER IN CONNECTING AND FLUID HANDLING TECHNOLOGY FOR EXISTING AND FUTURE MARKETS INCREASE IN VALUE Ove ral l ob je c ti ves PROFITABLE GROWTH SELECTIVE VALUE-ADDING ACQUISITIONS TO SUPPLEMENT ORGANIC GROWTH Stra tegi c me asure s to ac h ieve ob je c ti ves INCREASE OF MARKET SHARE THROUGH FURTHER LOCALIZATION SELECTIVE PRODUCT PORTFOLIO SUSTAINABLE ACTIONS IN ALL BUSINESS AREAS NEW PRODUCT DEVELOPMENTS FOR STRONG FUTURE MARKETS STRONG PERFORMANCE AND CONTINUOUS EFFICIENCY IMPROVEMENTS HIGHEST QUALITY REQUIREMENTS AND STRONG BRAND IMAGE CLIMATE CHANGE AND SCARCITY OF RESOURCES ARE GLOBAL MEGATRENDS WHICH FORM THE BASIS FOR NORMA GROUP’S BUSINESS MODEL 5 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATIONNORMA Group SE – Annual Report 20191 INTRODUCTION2 TIMES ARE CHANGINGThe market environment in which NORMA Group operates is undergoing radical change. We recognized this early on and subsequently began to adapt to the changed conditions. Every change is driven by a multitude of different factors, which in turn have a profound impact on patterns of action and decision-making. On the following pages, you will learn what significance the changed framework conditions have for NORMA Group. We present an overview of the main drivers and factors behind the developments in fiscal year 2019 in a significantly changing environment. “Times are changing” – we have the answers to the questions of our time. 6 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING8 Questions Q 01 Q 02 Q 03 Q 04 The 2019 Annual Report is entitled “Times are changing.” What does this mean? Which developments affected NORMA Group’s business in 2019? How can NORMA Group increase its profitability? What does the new “Get on Track” change program include? P A G E 8 P A G E 1 0 P A G E 1 2 Q 05 Q 06 Q 07 Q 08 What were the positive developments in fiscal year 2019? How will the key markets for NORMA Group develop in 2020? What growth areas does NORMA Group see in the coming years? How does NORMA Group ensure its ability to innovate? 7 PAGE 14PAGE 16PAGE 18PAGE 20PAGE 22NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 01 The 2019 Annual Report is entitled “Times are changing.” What does this mean? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGMarkets and technologies are changing – and NORMA Group is right in the middle of it. The title of our 2019 Annual Report describes the current situation very appropriately: We are experiencing challenging times – times of change. Looking back on 2019, we can conclude that change is ever-present. This is exemplified by how the automotive industry is developing. The industry is experiencing profound techno logical upheaval. Electromobility, including hybrid drives, and autonomous driving are the key factors here. At the same time, we are repeatedly confronted with geopolitical issues such as the never-ending discussion about Brexit and the trade disputes between the two superpowers US and China. This difficult and changing market environment presents us with additional challenges. We started to tackle the hurdles early on and are responding consistently to the changing conditions. For example, we announced our rightsizing program in February 2019 and began optimizing our production landscape and organizational structures, which had grown rapidly in recent years, and we are harmonizing our processes and systems worldwide. We also started to align our business model even more closely with the requirements of our strategic growth fields – water management and electromobility. We see an opportunity for NORMA Group in this changing environment. We want to seize the opportunity and open our eyes to the essentials. For this reason, we are systematically analyzing how current developments affect us and are making adjustments where necessary. We are adapting to the new framework conditions, becoming more agile, more structured and even more efficient in terms of our processes. In doing so, we are clearly relying on our strengths: As an expert on joining technology, we are further expanding our position as one of the market leaders in the area of engineered and standardized joining technology (connecting, fastening and fluid handling technology) for current and future markets. 9 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 02 What develop- ments affected NORMA Group’s business in 2019? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe US market for passen- ger vehicles and trucks collapsed significantly in fiscal year 2019. We have clearly felt the market weaknesses and changes. The continued weakness of the global automotive market played a major role in our difficult fiscal year 2019. Technological upheav- als, geopolitical risks and the global impact of the trade dispute between the US and China and related sanctions have severely impacted the global automotive industry. The reluctance to invest that this has caused was reflected in significant market weakness, especially in the EMEA and Asia-Pacific regions and China and India, in particular. Demand from important customer segments dropped, and business continued to decline. In addition, the US market, among others, has experienced a sharp decline. Against this backdrop, we realized that we would not be able to achieve the targets we had set for ourselves at the beginning of 2019. For this reason, we revised our forecast for the adjusted EBITA margin in April 2019. After the first half of the year, it also became apparent that the situation on the international automotive markets would not ease significantly in the second half of the year either. In view of the global development in the automotive market and on the basis of the expected sales development for the second half of 2019, we revised both the sales forecast at Group level and the forecast for the adjusted EBITA margin and operating net cash flow for the full year 2019 in July 2019. The slump in the US automotive business at the beginning of the fourth quarter of 2019, due to strikes at key customers in the passenger car and truck sectors, among other factors, led to yet another revision of the sales forecast in all regions in October. 11 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 03 How can NORMA Group increase its profitability? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGWe are identifying potentials for optimization. Rihard Sörös and Nemanja Stanisic have been partici- pating in the dual training program in Serbia since September 2019 Times are changing – in times of change, it is extremely import- ant to set up structures and processes within the Company in such a way that they allow the greatest possible flexibility in order to be able to adapt quickly to changing market conditions. The starting point here is a comprehensive review of the initial situation, in particular an analysis that enables internal processes and Company structures to be optimized. We know that we can only improve if we take a holistic view of every element of the Company and analyze the underlying structures for optimization potential. This must include both fundamental aspects and details. In previous years, we have grown very strongly and rapidly worldwide, not least through several acquisitions. This has also resulted in structures and processes that now have to be adapted and optimized to take future developments into account. The harmonization and integration of these processes and structures plays a key role. One first step in this direction was the announcement of the rightsizing program in February 2019, when we approved a package of measures. Since then, we have continuously worked to optimize our production landscape and organizational structures in a targeted manner and to harmonize processes and systems worldwide. In order to identify further potential, we continuously take a critical look at all internal processes. In addition, we concentrate on bundling and sharing processes and important existing know-how across regions and locations. The first successes of the measures implemented could already be seen in fiscal year 2019. At the end of September, we closed a production site in Russia and relocated activities to our plant in Subotica, Serbia. Furthermore, a distribution center in the Netherlands was integrated into an existing distribution center. In addition to the rightsizing program, we publicly announced the “Get on Track” change program in November 2019. The program goes beyond the measures of the rightsizing program. The measures included in this program optimize site capacities in all regions and streamline the product portfolio, in particular through active portfolio management and improvement of the purchasing processes. “Get on Track” will make us more flexible and profitable. This will enable us to respond to market changes even better and faster in the future. We are actively implementing the defined measures so that we can increase our profitability and achieve sustainable growth. 13 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 04 What does the new change program “Get on Track” include? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThere is always potential for improvement. In order to make the best possible use of this potential, the Supervisory Board of NORMA Group approved the “Get on Track” change program pro- posed by the Management Board at the beginning of November 2019. This program is intended to lay the foundations for the fur- ther strategic development and profitable growth of NORMA Group. “Get on Track” comprises three overarching fields of action. Our strategy focuses on increasing value, growth, profitability and generating cash flow. OBJECTIVE OF “GET ON TRACK” FIELDS OF ACTION EXAMPLES I G N N O T S O P I I LOCATIONS Optimization of locational capacities in all regions PRODUCT PORTFOLIO Streamlining of product portfolio through active portfolio management STRUCTURES Improvement of structures and processes along the entire value chain MARKET INTELLIGENCE Comprehensive information on products and markets as the basis for active portfolio management PEOPLE AND CULTURE Qualification and training of personnel The objective is initially to design the production landscape as efficiently as possible and at the same time to reduce complexity. Here, we are also taking a close look at our many products and improving and bundling our structures and processes. In short: All internal processes and structures are being comprehensively put to the test. By implementing targeted measures, we are focusing on increasing the efficiency of NORMA Group in the defined fields of action and aligning the entire organization along the lines of profitability and cash flow generation. In summary, “Get on Track” can thus be described as a comprehensive performance program. From 2020 on, it is expected to lead to cost savings that will rise to between EUR 40 million and EUR 45 million annually by 2023. Once the programs have been successfully implemented, NORMA Group is to emerge from the change process in a stron- ger, leaner and more effective position – as a Company that is ideally adapted to the economic environment and able to act in an agile manner. Intensive work on operational improvement is a major feat of strength that will require our full concentration. We will succeed in this if we work together because a company is only as good as the entirety of its employees. We therefore attach great importance to our employees’ qualifications and motivation through targeted “on-the-job” training and education. This is how we are implementing the “Get on Track” program together with our employees and gradually preparing NORMA Group for the future. In spite of all this change, we cannot afford to lose sight of what makes us what we are: a technology leader in the field of advanced joining technology and we will continue to build on this strength. 15 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 05 What were the positive develop- ments in fiscal year 2019? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGSuccesses in our future markets water management and electro mobility as well as improved financing terms and conditions. The eM compact quick connector has been developed especially for use in electric and hybrid cars. Despite the many challenges in the past fiscal year, we were also able to achieve important successes in our future markets water management and electromobility. In light of the increasing water scarcity worldwide, there is a growing need for efficient, environmentally friendly water management and infrastructure solutions. NORMA Group is taking advantage of this trend by continuously developing and improving its water management portfolio to meet the growing global demand for an efficient water supply. NORMA Group’s comprehensive product portfolio and joining technology ensure that water is transported to where it is needed without any leakages. The product portfolio includes products and solutions in the fields of gardening and landscaping. This also includes durable and efficient drip irrigation systems that use up to 60 percent less water than conventional systems on the market. NORMA Group’s many efficient products are also widely used in the construction industry. These include, for example, the “Pro-Span Repair Coupling” product that enables private homeowners to repair damaged water pipes quickly and cost- effectively. 2019 repeatedly showed that leading automotive manufacturers rely on NORMA Group’s development expertise for challenging projects in the field of electromobility. For instance, we won major new orders in the past fiscal year. These included a large order that we received in May 2019 to equip around 1.8 million vehicles from a British carmaker with cooling water pipe systems for cars with combustion engines and electric motors. In addition, NORMA Group won two further major orders for thermal management pipeline systems for electric and hybrid vehicles. NORMA Group’s pipeline systems are known for their optimal compactness and efficient line routing, which means that they can be installed inside the battery in a very space-saving manner. The temperature sensors integrated into them ensure that the battery cells have the correct operating temperature and thus make a significant contribution to increasing the range of the vehicles – still one of the key challenges in the field of electro- mobility. We also came up with new innovations in this area of electromobility, which is becoming increasingly important for us, in 2019. A new quick connector that has been developed especially for use in electric and hybrid vehicles is only one example. NORMA Group’s new E-mobility connector provides more space in the vehicle battery, allowing more battery cells to be installed per battery pack and increasing the performance per battery. The fact that automotive manufacturers appreciate the quality and reliability of our products is also demonstrated by the awards we have received from our customers, such as the Jaguar Land Rover Quality (JLRQ) Award, which we received in China last year. But we are not only successful in the area of product develop- ment. We also made further progress in the area of our financial and liquidity management in fiscal year 2019: Group financing was successfully restructured at even more attractive terms. In addition, a “green” financing component was included for the first time, thus reflecting our sustainability strategy in the area of financing as well. We are very proud of this. We want to build on this success and continue to improve. 17 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 06 How will NORMA Group’s key markets develop in 2020? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDr. Michael Schneider, CEO of NORMA Group since November 2019, and Dr. Friedrich Klein (COO) holding a discussion We do not expect the situation on the international automotive markets to improve significantly in 2020 following an already difficult previous year. According to LMC Automotive, one of the world’s leading providers of market information for the automotive industry, the automotive market will decline in the Asia-Pacific, EMEA and, above all, Americas regions. A noticeable decline can be expected in the commercial vehicle sector, in particular, in 2020. This is a market in which NORMA Group is strongly represented, particularly in the US. On the other hand, the Water Management division is expected to continue to perform well, albeit at a somewhat slower pace compared to last year. This means the situation in some of NORMA Group’s key sales markets will remain challenging. We will focus above all on careful planning in light of these expected developments: Comprehensive market analysis that tracks all conceivable developments is indispensable in times of high market uncertainty. This will enable us to evaluate possible opportunities and risks for our business in a targeted manner in order to be able to react promptly and appropriately to any changes that arise. The water manage ment market is growing, the automotive market is changing. We focus on the opportunities and risks. 19 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 07 What growth areas does NORMA Group see in the coming years? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGClimate change and scarcity of resources are global megatrends for which we have innovative solutions. The technological requirements placed on our customers and thus also on our products are changing ever more rapidly. This development is being driven by two global megatrends: climate change and scarcity of resources. They will play a decisive role in shaping the field in which NORMA Group operates in the coming decades. For this reason, they form the foundation of our business model and our corporate strategy. Consistent protection of the environment, more efficient use of energy and the economical use of vital raw materials such as water are becoming increasingly important. Our two key future markets are water management and electromobility. We have solutions for these areas and view the changes as an opportunity. As a technology leader, we will play a key role in shaping these areas. We are making our contribution here in particular by reducing emissions from combustion engines and hybrid drives and by optimizing the performance of electric drives. And our potential is far from being exhausted. Water management Water is a valuable commodity. NORMA Group’s product portfolio in the field of water management focuses on the targeted control and optimization of water volumes. Due to the increasing scarcity of water, the demand for tailor-made, reliable joining products and solutions that enable our customers to enjoy an efficient, sustainable water supply, and thus to use water resources sparingly, is increasing. The focus here is on preventing leaks at tapping points and thus making an important contribution to the efficient water supply of households. With our products, we also support the implementation of statutory regulations aimed at sustainably reducing water consumption. In this context, we also understand how efficient systems for landscape irrigation work. Drip irrigation systems in particular are becoming increasingly important. The focus here is on innovative technologies that aim to reduce water consumption in general. For example, intelligent drip irrigation systems can reduce water consumption by up to 60 percent compared to conventional sprinkler systems. On the other hand, the management of larger volumes of water, which can arise due to extreme weather conditions, is also becoming increasingly important. Our expertise in this area goes beyond classic piping and joining technology. An important starting point here is the collection of rainwater and the discharge of wastewater into the urban sewage system. We are very well positioned in these areas and are able to offer our customers reliable products for effective storm water and wastewater management. We have steadily expanded our water management business in recent years through targeted acquisitions, thus contributing to the diversification of our business. In fiscal year 2019, water management accounted for around 20 percent of our annual sales. By comparison, this figure was only four percent in fiscal year 2013, prior to the acquisition of NDS. E-mobility Electromobility is NORMA Group’s second key market of the future and an important focus of its research and development activities. NORMA Group already has plenty of solutions and key products in its portfolio to address the future trend of e-mobility in a targeted manner. Most of these products are manufactured using existing technical equipment and on our existing machines. The product range comprises both optimized and particularly lightweight connectors as well as complete line systems for the thermal management of battery packs in electric vehicles. These products ensure a correct operating temperature of the battery cells and thus an increased range and an extended service life of the battery. Thanks to our broad product portfolio, we believe we are optimally positioned to benefit from the positive developments forecast in the field of e-mobility. 21 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGQ 08 How does NORMA Group ensure its ability to innovate? 3 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING5% of EJT sales is planned for investments in R&D annually. For us, innovation is an ambition shared by all employees. In doing so, we always keep an eye on the concrete application. Times are changing. New issues require new solutions. To ensure that we can continue to be pioneers and knowledge carriers in our markets in the future, we are constantly expanding our technological leadership and invest around five percent of the sales of our Engineered Joining Technology division in research and development each year. After all, innovations are a decisive success factor. Due to our close cooperation with OEMs, we always develop and work at the pulse of time. We solve the challenges our customers face, due to the ever-stricter legal requirements, for example. These force automotive manufacturers to adapt their current systems, but also necessitate the development of new technologies and innovative solutions. This is where we come into play. We accompany these developments intensively: Some of our employees work as resident engineers on site on the customer’s premises and are therefore very familiar with the problems and challenges facing the industry. As a partner to our customers, we have been developing sustainable solutions on this basis for several decades. At NORMA Group, we do not consider innovations to be solely a task for the Research and Development department, however. Rather, a company’s success is defined by the totality of its employees’ ideas. For this reason, we cultivate an open company culture and stand for a cross-functional and constructive exchange. Each of our employees is thus given the opportunity to submit invention reports to the Research and Development department and to incorporate ideas into our innovation process. Particularly good ideas are recognized every year by the Man- agement Board. 23 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGTo O ur Shareh ol de rs 25 26 28 33 37 The Management Board Letter from the Management Board NORMA Group on the capital market Supervisory Board Report Corporate Governance Report To Our Shareholders The Management Board Dr. Friedrich Klein Chief Operating Officer (COO) Dr. Michael Schneider Chief Executive Officer (CEO) 25 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGLetter from the Management Board “Times are changing” is the title of this year’s Annual Report, and this title describes the current situation for NORMA Group quite well in many ways. We live in a constantly changing world and only those who are able to adapt to the changing conditions will be successful in the long run. Change is currently omnipresent for NORMA Group: Some of the markets we are active in are affected by extensive technological changes. This is particularly evident in the automotive industry, which is currently undergoing enormous technological and structural upheaval against the backdrop of climate change and the ongoing demand for lower-emission drive technologies. For car manufacturers, this means having to rethink everything and prepare for the future. OEMs are therefore increasingly focusing on alternative drive technologies. In some cases, these require a high level of advance development work, however. Combined with the growing pressure on margins and declining production and sales figures, the pressure on the automotive industry is increasing considerably. We also clearly felt this in fiscal year 2019. Our automotive business was hit hard by the global decline in production figures and the unexpectedly severe slump in the US car and truck business as a result of strikes at key customers. In addition, geopolitical factors such as the ongoing discussion over Brexit as well as the trade disputes between the super powers US and China further exacerbated the situation and created a challenging environment in the past fiscal year. Like many other companies in the industry, we too unfortunately had no choice but to revise our sales and earnings expectations downwards over the course of the year. Despite this environment, we managed to generate sales of EUR 1,100.1 million in fiscal year 2019. This represents a slight increase of 1.5 percent over the previous year. Positive sales contributions mainly came from our DS business – particularly the water busi- ness in the US – and from Kimplas and Statek, the two companies we acquired in fiscal year 2018. This shows, that we have taken the right path in the past years by systematically building up our DS business. Currency effects also provided tailwind. On the other hand, organic sales declined by 2.0 percent, mainly due to the difficult conditions in the automotive sector and the resulting losses in our EJT business. Our operating result (adjusted EBITA) and the adjusted EBITA margin also declined sharply in fiscal year 2019. Adjusted EBITA fell by 16.4 percent to EUR 144. 8 million and the adjusted EBITA margin was at 13.2 percent and thus significantly below our own target figure. At EUR 87.8 million and EUR 2.76, respectively, adjusted net profit for the period and adjusted earnings per share also declined year-on-year and we thus also failed to meet the expectations we had communicated at the beginning of 2019. year in which the course for the future will be set, for a sustainable improvement in profitability, in particular. Despite all the changes that lie ahead of us, we are sticking to our long-term strategy that emphasizes value enhancement, profitable growth and strong cash flow generation. By focusing on future markets such as water management and electromobility and by concentrating on a selective product portfolio and targeted acquisitions, we intend to secure and further increase our market share and grow more profitably in the future. The highest standards of quality, efficiency and sustainability determine our actions, as does our focus on innovations. After all, only those who think and act innovatively will be able to gain long-term competitive advantages. The development of product and system solutions for water management and electromobility is a particular focus of our R&D activities. The area of thermal management plays a particularly important role in the latter. This involves reg- ulating the temperature of batteries in hybrid and electric vehicles so that they can deliver their best possible performance. Here, we are already delivering individual solutions for various OEMs. The experience gained over the past year has shown that it is also time for additional changes to be made throughout NORMA Group. We must improve our flexibility in order to be able to react more quickly and more efficiently to changing conditions in the future. This is why we launched the “Get on Track” change program in November 2019, which includes further far-reaching measures aimed at optimizing internal Group processes and structures. The program is aimed at increasing NORMA Group’s profitability and earnings, but also our flexibility and agility. The focus of these activities is on optimizing our site capacities in all regions, streamlining the product portfolio and improving our processes. We have already implemented the first measures from the “Get on Track” program, and more will follow this fiscal year. In light of this, we basically consider 2020 an important transition This is how we make an important contribution to greater sustainability with our product portfolio, but our sustainability strategy is much more diverse than this. We report on our understanding of doing business sustainably and our Corporate Responsibility and objectives in various areas of the Company in more detail in our CR Report, which was published together with this Annual Report. Dear shareholders, fiscal year 2019 was a turbulent year indeed and the NORMA Group share price was adversely affected by the developments of the past year. Consequently, the NORMA Group share was quoted at EUR 38.00 at the close of the year, 12 percent lower than at the beginning of the year. Despite the weaker fiscal year 2019, we will propose an 26 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGunchanged dividend compared to the previous year of EUR 1.10 per share at this year’s Annual General Meeting in Frankfurt / Main on May 14, 2020, and will thus pay out around 40% of our adjusted net profit for the period. In doing so, we want to express the continuity of our dividend strategy and, at the same time, strengthen our shareholders’ trust in NORMA Group. We are currently facing difficult times and the implementation of the measures planned from the “Get on Track” program will also have a major impact on developments in the current fiscal year. We will use 2020 to position ourselves more flexibly and to improve our processes and structures even further so that we can shape our growth path from a much stronger position. We are confident that we can achieve this if we all work together. With this in mind, we would like to conclude by thanking our nearly 8,500 employees worldwide for their tireless efforts even in these challenging times. We would also like to thank our long-standing customers and business partners as well as you, our shareholders, for your trust. “Times are changing” – and the year 2020 is pre- senting us with new challenges. Let’s tackle them together! Sincerely yours, Dr. Michael Schneider Chief Executive Officer (CEO) Dr. Friedrich Klein Chief Operating Officer (COO) 27 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group on the capital market • Dividend of EUR 1.10 resolved at the Annual General Meeting 2019 Successful stock market year 2019 – indices worldwide reach new historic highs • 2018 Annual Report and Investor Relations work receive awards again • NORMA Group share price falls 12.0% in fiscal year 2019 Following a difficult stock market year in 2018, the global indices were able to gain momentum at the beginning of the year and also ended the year 2019 with a strong rally. Concerns about declining economic indicators, the weakness of the Chinese economy and the global automotive sector had only a short-term impact on share prices. By contrast, the continuing expansive policies of central banks all over the world, the phase-one trade deal between the United States and China and an increasingly unlikely “hard” Brexit had a positive effect on the uncertainty. In this environment, the majority of the international indices reached new multi-year highs and, in some cases, new all-time highs. The leading German index DAX closed the 2019 stock market year at 13,249 points, equaling an increase of 25.5%. The MDAX and SDAX also ended the year with significant gains of 31.2% and 31.6%, respectively. The U.S. indices left a similar positive impres- sion, ,with the leading U.S. Index Dow Jones ending the 2019 stock market year 22.3% higher to exceed 28,000 points for the first time. The NASDAQ Composite technology index developed even more positively, and exceeding 9,000 points and rising by 35.2% over the year. The MSCI World Index, which is regarded as a trend indicator for the global market, also showed a positive annual performance by posting an increase of 25.2%. Index-based comparison of NORMA Group’s share price performance in 2019 with DAX, MDAX, SDAX and MSCI World Automobiles G001 in % 140 120 100 80 60 40 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec NORMA Group SE DAX MDAX SDAX MSCI World Automobiles 28 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGPerformance of the NORMA Group share For the NORMA Group share, as for many other companies in the automotive industry, the 2019 stock market year was character- ized by price losses and high volatility. The share price ranged between EUR 43 and EUR 49 in the first four months of the year, reaching its all-year high of EUR 49.26 at the beginning of March. Subsequently, the share price fell as a result of the profit warnings in the spring, summer and fall, leading to the all-year low of EUR 26.36 in mid-August. The resulting decline in market capitalization led to the company’s move from the MDAX to the SDAX in September 2019. In the further course of the year, the situation for the NORMA Group share eased somewhat, whereupon the price losses of the first eight months of fiscal year 2019 were partially recovered. On December 31, 2019, the share ended the year at a closing price of EUR 38.00, or 12.0% below the closing price at the end of 2018. Market capitalization amounted to EUR 1.21 billion on December 31, 2019 (2018: EUR 1.38 billion). This is based on an unchanged number of 31,862,400 shares compared to the previous year. Measured by the market capitalization of the free float relevant for determining the index membership, which has been at 100% since 2013, the NORMA Group share ranked 12th out of 70 shares in the SDAX in December 2019 (Dec 2018: 54th out of 60 in the MDAX). Trading volume increased The average daily XETRA trading volume of the NORMA Group share rose in 2019 compared to the previous year and amounted to an average of 97,960 shares per day (2018: 95,624 shares). In December 2019, the NORMA Group share thus ranked 25th Distribution of trading activity in 2019 G002 Free float by region 34% Block trades 31% Alternative trading platforms 35% 9% Official trading France 15% USA 30% United Kingdom as of December 31, 2019 G003 19% Germany 7% Scandinavia 20% Rest of World out of 70 in terms of trading volume in the SDAX (2018: 59th out of 60 in the MDAX). The average daily trading volume in contrast decreased to EUR 3.6 million (2018: EUR 5.4 million). The total average number of shares traded per day was 277,693 (2018: 268,862) in 2019. Trading was distributed among the various trading venues as follows: Compared to the previous year, the proportion of shares traded on the official market fell slightly from 36% to 35% and the shares traded via block trades also fell to 34% (2018: 38%). By contrast, the share of trading activity on alternative platforms rose significantly from 26% in 2018 to 31%. Broadly diversified shareholder structure The NORMA Group share has gained greater international recognition in recent years due to active Investor Relations work. As a result, foreign investors have become increasingly important. Today, NORMA Group has a regionally highly diversified shareholder base with a high share of international investors mainly from the UK, Germany, the US, France and Scandinavia. At the end of the reporting year, 0.03% of NORMA Group shares were held by the Management Board in its current composition (2018: 0.6%). A further 3.9% (2018: 3.7%) is owned by private investors. The remaining shares were held by institutional investors. The number of private investors increased to 4,553 in the course of fiscal year 2019. At the end of December 2018, the number of private investors was 3,671. 29 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGVoting rights notifications in 2019 approved by a clear majority. The voting results are available on WWW.NORMAGROUP.COM/CORP/EN/INVESTORS /AGM/ the website. Analysts covering NORMA Group T003 Based on the voting rights notifications received by the end of 2019, shares of NORMA Group designated as free floating and exceeding 3% are held by the following institutional investors: Directors’ Dealings Overview of the voting rights notifications T002 in % Allianz Global Investors GmbH, Frankfurt / Main, Germany Ameriprise Financial Inc., Wilmington, DE, USA Impax Asset Management Group Plc, London, UK Mondrian Investment Partners Limited, London, UK BNP Paribas Asset Management S.A., Paris, France 14.99% 8.35% 5.08% 3.10% 4.91% Three transactions were reported as Directors’ Dealings in fiscal year 2019. These can be found in the Corporate Governance Report. CORPORATE GOVERNANCE REPORT, P. 43 Analysts covering NORMA Group 18 analysts from various banks and research firms currently fol- low NORMA Group. As of December 31, 2019, eight analysts recommended buying the share, nine advised holding the share and one recommended selling the share. The average target price was EUR 37.89 (2018: EUR 54.71) Baader Bank Peter Rothenaicher Bankhaus Lampe Christian Ludwig Bankhaus Metzler Jürgen Pieper Bank of America Merrill Lynch Kai Müller Berenberg Bank Philippe Lorrain Commerzbank AG Ingo-Martin Schachel Deutsche Bank AG Tim Rokossa DZ Bank AG Thorsten Reigber Pareto Bank ASA Tim Schuldt Hauck & Aufhäuser Christian Glowa HSBC Jörg-André Finke As of December 31, 2019. Please refer to the NOT ES ON P. 2 03 for further information on the voting rights notifications received. All voting rights notifications are published on the Company’s website. WWW.NORM AG ROUP.COM/COR P/E N/IN VESTORS / APPE NDIX TO THE 2019 Annual General Meeting The Annual General Meeting of NORMA Group SE was held on the premises of the German National Library in Frankfurt / Main on May 21, 2019. 21,788,954 of the 31,862,400 shares with voting rights, i.e. 68.4% of the share capital was represented. The participating shareholders resolved a dividend of EUR 1.10 per share. This equates to a distribution rate of 30.5% based on NORMA Group’s adjusted net profit for fiscal year 2018 of EUR 114.8 million and was therefore within the scope of the dividend strategy with an annual distribution rate of approxi- mately 30% to 35% of adjusted net profit. With the exception of the approval of the system for the remuneration of the members of the Management Board, all other items on the agenda were Analyst recommendations 8 Buy 1 Sell Kepler Cheuvreux Dr. Hans-Joachim Heimbürger G004 9 Hold MainFirst Bank AG Alexander Wahl NordLB ODDO BHF Frank Schwope Harald Eggeling Quirin Privatbank Daniel Kukalj Société Générale Sebastian Ubert Warburg Research GmbH Franz Schall as of December 31, 2019 Sustainable Investor Relations activities NORMA Group’s Investor Relations activities seek to further increase awareness of the Company on the capital market, strengthen long-term confidence in its share and achieve a realistic and fair valuation. For this reason, Management and Investor Relations hold many discussions with institutional investors, financial analysts and private shareholders over the course of the year. 30 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The Management Board and Investor Relations team of NORMA Group conducted 27 roadshows in the world’s most important financial centers in fiscal year 2019. Furthermore, NORMA Group attended the following conferences: • BAADER Investment Conference, Munich • BAADER Bank Tag der Fondmanager, Munich • BAADER Bank German Corporate Day, Toronto • Bankhaus Lampe Deutschlandkonferenz, Baden-Baden • Bankhaus Lampe German Equity Forum, London • Commerzbank German Investment Seminar, New York • Commerzbank Sector Conference, Frankfurt / Main • dbAccess Conference, Berlin • DZ BANK Equity Conference, Frankfurt / Main • KeplerCheuvreux German Corporate Conference, Frankfurt / Main • Mandarine Gestion International Investment Conference, Munich • Oddo BHF Forum, Lyon • Oddo BHF German Conference, Frankfurt / Main • Quirin Bank Conference French Family Offices, Frankfurt / Main • Quirin Champions Conference, Frankfurt / Main • Quirin Konferenz, Geneva • The Société Général Nice Conference, Nizza • Mizuho Tokyo Conference, Tokyo NORMA Group receives award for its IR work again NORMA Group’s IR activities and the 2018 Annual Report were once again honored in fiscal year 2019. In the ‘Investors’ Darling’ competition, NORMA Group came in third place in the MDAX seg- ment. In the overall ranking of all 160 companies assessed, NORMA Group ranked 5th. In addition, the annual report was recognitioned with the “Silver” award at the FOX Finance Awards. Share price development of the NORMA Group share since the IPO compared to the SDAX 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Service for shareholders The Investor Relations website contains extensive information about NORMA Group and the NORMA Group share. In addition to financial reports and presentations, which are available for download, all important financial market dates can be found there. The telephone conferences on the Quarterly and Annual Reports are recorded and offered in audio format. Shareholders and inter- ested parties can register for the distribution list by e-mail. The contact details of the IR team are also available on the website. WWW.NORMAGROUP.COM/CO RP/EN/INVESTORS / G005 80 60 40 20 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 NORMA Group SE (RHS) SDAX (LHS) 31 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGKey figures for the NORMA Group share since the IPO in 2011 T004 Closing price on Dec 31 (in EUR) Highest price (in EUR) Lowest price (in EUR) 2019 38.00 49.26 26.36 2018 2017 2016 2015 2014 2013 2012 2011 Apr. 8, 2011 1 43.18 70.15 40.44 55.97 63.79 39.95 40.55 51.54 35.20 51.15 53.30 38.82 39.64 43.59 30.76 36.09 39.95 21.00 21.00 23.10 15.85 16.00 21.58 11.41 21.00 2 n/a n/a Score of the comparison index 3 as of Dec 31 12,511.89 21,588.09 26,200.77 22,188.94 20,774.62 16,934.85 16,574.45 11,914.37 8,897.81 10,539.60 Number of unweighted shares as of Dec 31 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 Market capitalization (in EUR million) 1,211 1,376 1,783 1,292 1,630 1,263 1,150 669 510 669 Average daily Xetra volume Shares EUR million Earnings per share (in EUR) Adjusted earnings per share (in EUR) Dividend per share (in EUR) Dividend yield (in %) Distribution rate (in %) Price-earnings ratio Selected indices 97,960 95,624 96,906 73,571 88,888 73,932 86,570 54,432 46,393 3.64 1.83 2.76 0 4 0 0 4 20.8 5 5.38 2.88 3.61 1.10 2.5 30.5 15.0 4.74 3.76 3.29 1.05 1.9 31.9 14.9 3.20 2.38 2.96 0.95 2.3 32.0 17.0 4.10 2.31 2.78 0.90 1.8 32.3 22.1 2.80 1.72 2.24 0.75 1.9 33.4 23.0 2.53 1.74 1.95 0.70 1.9 35.9 20.7 1.04 1.78 1.94 0.65 3.1 33.5 11.8 1.45 1.19 1.92 0.60 3.8 33.2 13.4 n/a n/a n/a n/a n/a n/a n/a n/a SDAX, CDAX, Classic All Share, Prime All Share, DAX International 100, DAXsector Industrial, DAXsubsector Products & Services, MIDCAP MKT PR, STXE TM Automobiles & Parts Index, STXE TM Small Index, STXE Total Market Index  1_IPO and first trading day of the NORMA Group share. 2_Issuing price. 3_Until 2018 MDAX score, since 2019 SDAX score, as the move to the SDAX took place in September 2019. 4_In accordance with the Management Board’s proposal for the appropriation of adjusted net profit, subject to approval by the Annual General Meeting on June 30, 2020. 5_Related to the unadjusted earnings per share. The price-earnings ratio related to the adjusted earnings per share is 13.8. 32 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Supervisory Board Report Collaboration between the Supervisory Board and the Management Board The Supervisory Board of NORMA Group SE monitored and advised on the activities of the Management Board in fiscal year 2019 in accordance with the legal regulations, the German Corporate Governance Code and NORMA Group SE’s Articles of Association. The Management Board reports on a regular monthly basis to the Supervisory Board on how business is developing at NORMA Group SE and the Group and issues a forecast for the current fiscal year. The development of sales and earnings, incom- ing orders and the order backlog are described in detail compared to the previous year and as compared to planning. Besides monthly reporting and Supervisory Board meetings, the Chairman of the Management Board and the Chairman of the Supervisory Board engaged in regular exchanges on matters of importance in fiscal year 2019. The Management Board begins each Supervisory Board meeting by reporting on the overall economic situation and sector-specific economic expectations. It reports on business performance of NORMA Group and explains the earnings situation based on key indicators and their development compared to the previous year, the budget and guidance. The Management Board presents sales and orders by region and by the two distribution channels EJT and DS. Accidents at work and countermeasures that have been introduced to improve work safety as well as quality and delivery reliability and the status of the introduction of the Microsoft AX software are also discussed regularly. The Supervisory Board and Management Board also discussed NORMA Group’s long-term strategy. At each regular meeting of the Supervisory Board and the Audit Committee, the Management Board presents a detailed risk report in which the probability of occurrence and potential effects of all relevant risks, including any countermeasures, are assessed. This regular risk reporting provides the Supervisory Board and the Audit Committee with a clear picture of which possible risks could have a negative impact on the Company’s asset, financial and earnings positions. Moreover, compliance topics are also discussed regularly. The respective Chairmen report to the Supervisory Board at the committee meetings. In fiscal year 2019, the Supervisory Board dealt in detail with the personnel changes in the Management Board and the remuner- ation of the Management Board. Other key topics included the weakening economy and the decline in NORMA Group’s sales and profit margins that this has caused, as well as the measures introduced to counteract this as part of the “Rightsizing” and “Get on Track” programs. In addition, the Supervisory Board dealt with the following issues in particular at its four regular meetings in fiscal year 2019: Supervisory Board meeting held in Maintal on March 18, 2019 The main topics at this meeting were the 2018 Annual Financial Statements and the 2018 Group Non-financial Report, the guidance for 2019, the invitation to the 2019 Annual General Meeting and the proposal for the appropriation of profits. Furthermore, the Management Board presented its plans on an organizational adjustment, which is intended to improve collaboration at the functional level and across regions, as well as the R&D organization and foresight management. Lars Magnus Berg Chairman of the Supervisory Board 33 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGSupervisory Board meeting held in Frankfurt  /Main on May 21, 2019 topics in particular. Afterwards, the Supervisory Board and Management Board discussed the new Declaration of Compliance with the German Corporate Governance Code. Changes in the Supervisory Board, establishment of the Strategy Committee and realignment of committee memberships At the meeting that took place after the 2019 Annual General Meeting, the Supervisory Board resolved to establish a Strategy Committee and to restructure the memberships in the committees. At the meeting with the Management Board, the participants discussed the course of the Annual General Meeting and criticism of the remuneration system, which had been rejected by the Annual General Meeting. The Management Board also informed the Supervisory Board about the negative development of a pension fund in the US. Furthermore, the President of the EMEA region introduced himself to the Supervisory Board and talked about how the region is developing. In addition, the Management Board and Supervisory Board discussed personnel issues at the level below the Management Board. Supervisory Board meeting held in Maintal on September 13, 2019 In addition to the usual agenda items and detailed information on the status of the “Rightsizing” program and the introduction of a new ERP system at another plant, the Management Board explained to the Supervisory Board how inventories were developing and presented the new financing concept, among other topics. Supervisory Board meeting held in Maintal on November 29, 2019 The Supervisory Board and Management Board discussed the budget for fiscal year 2020 and the medium-term planning. Among other matters, the Management Board explained how inventories were developing. The Executive Vice President of Human Resources also presented her area of responsibility, with the Supervisory Board showing interest in the status of organizational and executive development as well as diversity Besides the four meetings, six conference calls and one closed meeting of the Supervisory Board took place in 2019. The changes in the Management Board and the “Get on Track” change program, which, in addition to the aforementioned “Rightsizing” program, are intended to improve the future viability of NORMA Group, were discussed mainly during the conference calls, while fundamental strategic issues were addressed during the closed meeting. Furthermore, the Chairman of the Supervisory Board spoke with investors and, together with Dr. Knut Michelberger and CFO Dr. Michael Schneider, with a voting rights advisor. Change on the Management Board Bernd Kleinhens stepped down from the Management Board by mutual agreement with the Supervisory Board with effect from the end of July 31, 2019, and resigned from his offices at NORMA Group. Dr. Michael Schneider initially assumed the rights and responsibilities of the CEO on an interim basis. In order to ensure an objective selection procedure for deciding on the permanent chairmanship of the Management Board, the Supervisory Board commissioned an external personnel consulting firm to search for other qualified candidates for the chairmanship of the Management Board and spoke with several individuals who were subsequently introduced. The Supervisory Board then decided to appoint Dr. Michael Schneider the permanent Chairman of the Management Board. The Supervisory Board is currently looking for a qualified candidate to serve as CFO, again with the help of external personnel consultants. In doing so, the Board is placing particular importance on presenting just as many qualified female as male candidates. At its meeting on May 21, 2019, the Supervisory Board resolved to establish a Strategy Committee and change the membership of the Audit Committee. The Strategy Committee advises the Management Board on NORMA Group’s strategy, restructuring, organic growth, mergers and divestitures, and new technologies. The focus is on the water segment, on which NORMA Group is particularly focused, NORMA Group’s applications in alternative drives in the context of the transformation of the automotive industry, and the sustainability of its products. The members of this committee are Günter Hauptmann (Chairman), Rita Forst and Erika Schulte. At the same time, Rita Forst resigned from the Audit Committee; while Mark Wilhelms was named a new member of this committee, so that the members of the Audit Committee since then have been Dr. Knut Michelberger (still the Chairman), Erika Schulte (still a member) and Mark Wilhelms (a new member). The changes took effect on May 22, 2019. There were no other changes in memberships and offices. Lars Berg continues to serve as Chairman of the Supervisory Board, while Erika Schulte remains Deputy Chairwoman of the Supervisory Board. Memberships of the General and Nomination Committee also remained unchanged. Therefore, Lars Berg (Chairman), Günter Hauptmann and Dr. Knut Michelberger continue to be its members. Mark Wilhelms, who was appointed a member of the Supervisory Board by court order on August 29, 2018, was elected to serve a five-year term by the 2019 Annual General Meeting. Main topics of the Audit Committee in 2019 The Audit Committee of NORMA Group convened three times in 2019. It also held four additional telephone conferences. Dr. Michael Schneider took part in every meeting and telephone 34 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGconference. Other participants included departmental managers of the second management level to advise on technical issues in their respective areas of responsibility, particularly Accounting & Reporting, Treasury, Compliance and Internal Auditing. The Audit Committee also discussed the quarterly reporting with the CFO. as well as the focus of the work of the Audit Committee in fiscal year 2020. Activities of the General and Nomination Committee The Audit Committee discussed the main topics, procedure and results of the audit of the individual and Consolidated Financial Statements of NORMA Group SE with the auditors and prepared recommendations for the Supervisory Board’s resolutions. At the beginning of each meeting, the Audit Committee was informed in detail about the current business situation and financial position of NORMA Group. The Audit Committee monitored the effectiveness of the internal control system, the risk management system, the internal auditing system and the compliance management system. The Audit Committee approved the audit plan for internal auditing in 2019. Other topics discussed by the Audit Committee included budget planning for 2020 and medium-term planning. Furthermore, in 2019, the Audit Committee dealt with the first-time adoption of the IFRS 16 standard, the development and assessment of inventories, personnel costs and the profit margin, prevention of money laundering and the status and implications of introducing the new ERP system Microsoft AX 2012, among other matters. The adjustment of the financing agreements was another important topic. The Audit Committee also prepared the invitation to tender for the audit of the financial statements. Furthermore, the Audit Committee approved certain individual allowable non-audit services that may be provided by the statutory auditors (at PwC). The General and Nomination Committee held four meetings and seven telephone conferences in 2019. It initially focused on the remuneration system for the Management Board, which had been criticized by voting rights advisors and was rejected by the 2019 Annual General Meeting, and the Remuneration Report. The General and Nomination Committee developed a new remuneration system together with external consultants. The General and Nomination Committee prepared the Supervisory Board’s resolution on Bernd Kleinhens’ departure and its terms as well as the interim assumption of the rights and responsibili- ties of the Chairman of the Management Board by Dr. Michael Schneider, and subsequently led the search for an alternative candidate for the position of Chairman of the Management Board and the preparations for the search for a new CFO. Activities of the Strategy Committee The newly established Strategy Committee met twice in 2019. At its first meeting, it initially defined the topics and structures of the committee. In terms of its content, the committee dealt, among other matters, with the structure of the industry segments, the markets of relevance to NORMA Group and the long-term stra- tegic planning based on an analysis of changing environmental conditions, NORMA Group’s foresight management and the effects of climate change on NORMA Group’s business Attendance of meetings, no conflicts of interest calls, Dr. Knut Michelberger and Mark Wilhelms were both excused from two calls each and Lars Berg, Rita Forst and Erika Schulte from one call each. Günter Hauptmann participated in all six con- ference calls. Members of the Supervisory Board who were unable to participate directly in a telephone conference subsequently approved the resolutions adopted or were represented in the resolution. All members of the Audit Committee, Dr. Knut Michelberger ( Chairman) and Erika Schulte as well as Rita Forst (until May 21, 2019) and Mark Wilhelms (since May 22, 2019) participated in the three meetings and four conference calls held by the Audit Committee in 2019. The four meetings and seven telephone conferences of the General and Nomination Committee in 2019 were each attended by all members, Lars Berg (Chairman), Günter Hauptmann and Dr. Knut Michelberger. All members of the Strategy Committee, Günter Hauptmann (Chairman), Rita Forst and Erika Schulte, also attended the two meetings of the Strategy Committee in 2019. There were no conflicts of interest between members of the Supervisory Board and the Company in fiscal year 2019. Dr. Knut Michelberger and Günter Hauptmann are members of an advisory board of a company that competed insignificantly with NORMA Group. The Chairman of the Supervisory Board, the two members of the Supervisory Board and the Management Board had already discussed whether conflicts of interest could arise from this activity and how they should be dealt with in such a case. No conflicts of interest arose from these positions; from today’s perspective, no competitive situation currently exists. Information on the auditor in addition to of the Audit Committee meetings, the Chairman of the Audit Committee was in regular personal and telephone contact with the CFO and the auditors to discuss possible areas of emphasis for the audit of the 2019 Annual Financial Statements All members of the Supervisory Board attended the four Supervisory Board meetings and one closed meeting in 2019. Due to the urgency of decisions, many conference calls had to be arranged at very short notice, so that not all members of the Supervisory Board were able to participate. Of the six conference The 2019 Annual Financial Statements for NORMA Group SE presented by the Management Board along with the Management Report and the corresponding Consolidated Financial Statements and Consolidated Management Report were audited by the 35 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING auditing firm PricewaterhouseCoopers GmbH Wirtschaftsprü- fungsgesellschaft. The audit mandate for the 2019 financial state- ments was issued on November 29, 2019. The auditors Thomas Tilgner and Benjamin Hessel attended the Supervisory Board meeting on the approval of the 2019 Financial Statements on March 19, 2019, and the preparatory meeting of the Audit Committee. They were succeeded by Stefan Hartwig and Richard Gudd (from March 2019), who attended two Audit Committee meetings on the respective agenda items relating to the audit. Approval of the 2019 Annual Financial Statements and the Separate Non-Financial Statement for the Group The Consolidated Financial Statements of NORMA Group SE were prepared in accordance with Section 315e of the German Commercial Code (Handelsgesetzbuch, HGB) on the basis of International Financial Reporting Standards (IFRS) as adopted in the EU. The auditor issued an unqualified opinion for the 2019 Annual Financial Statements and Management Report of NORMA Group SE as well as for the Consolidated Financial Statements and Consolidated Management Report. The documents pertaining to the financial statements, the Management Board’s proposal for the appropriation of net profit and both auditors’ reports were submitted to the Supervisory Board. The Audit Committee and the Supervisory Board in its entirety thoroughly examined the reports and discussed and scrutinized them in detail together with the auditor. The Supervisory Board accepted the auditor’s findings and had no objections. Reports at its meeting on March 24, 2020. The Supervisory Board approved the proposal on the appropriation of profits by the Management Board. NORMA Group SE’s Annual Financial Statements are thereby adopted in accordance with Section 172 of the German Law on Stock Corporations (Aktiengesetz, AktG). in fiscal year 2019. The Supervisory Board is confident that NORMA Group will continue to develop positively in fiscal year 2020 and wishes the Management Board and its employees all the best. Maintal, March 24, 2020 Lars Magnus Berg Chairman of the Supervisory Board The Audit Committee and Supervisory Board also dealt with the separate Group Non-Financial Report for NORMA Group prepared by the Management Board as of December 31, 2019. The auditing firm PricewaterhouseCoopers GmbH has conducted a limited assurance test and issued an unqualified audit opinion. The Management Board explained the documents in detail during the meetings, while the representatives of the auditor reported on the main findings of their audit and answered further questions from the members of the Supervisory Board. The Supervisory Board had no objections after reviewing these results. Declaration of Conformity with the German Corporate Governance Code The Supervisory Board and Management Board dealt with the requirements of the German Corporate Governance Code and ratified the following Declaration on December 20, 2019: “NORMA Group SE has complied with the recommendations of the German Corporate Governance Code as amended on February 7, 2017 (published on April 24, 2017), by the German Federal Ministry of Justice in the official section of the German Federal Gazette (‘Bundesanzeiger’) since its last Declaration was sub- mitted and will continue to comply with the recommendations.” The Corporate Governance Declarations made by NORMA Group SE are available on the Company’s website at WWW.NORMAGROUP.COM/CORP/EN/I NVESTORS /. The Supervisory Board then approved the 2019 Annual Financial Statements of NORMA Group SE and the 2019 Consolidated Financial Statements together with their respective Management The Supervisory Board would like to thank all employees of NORMA Group all over the world along with the Management Board for their personal efforts and successful work once again 36 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCorporate Governance Report The following is the Management Board’s and Supervisory Board’s Declaration of Conformity in accordance with Section 289f of the German Commercial Code (Handelsgesetzbuch, HGB) and the rules of the German Corporate Governance Code. The management of NORMA Group is dedicated to achieving sus- tained economic success while complying with the Company’s social responsibility. Transparency, responsibility and sustainabil- ity are the principles that determine its actions. 1. Declaration of Conformity with the German Corporate Governance Code (GCGC) The Supervisory Board and Management Board of NORMA Group SE have thoroughly examined which of the German Corporate Governance Code’s recommendations and suggestions NORMA Group SE should follow and explains deviations from the recommendations and the reasons for deviating from the Code. The current Declaration dated December 20, 2019, as well as all the other Declarations are published on NORMA Group’s website. 2. WWW. N ORM AG ROUP.COM/COR P/E N/IN VESTORS / The Declaration dated December 20, 2019, is presented below: With the following exceptions, NORMA Group SE has complied since its last declaration was submitted, and will continue to comply, with the recommendations of the German Corporate Governance Code as amended on February 7, 2017 (published on April 24, 2017, by the German Federal Ministry of Justice in the official section of the German Federal Gazette) (‘Bundesanzeiger’): With respect to the compensation of the members of the Management Board, the Supervisory Board does not take into account the compensation of the upper management or the workforce as a whole (Section 4.2.2 para. 2 GCGC). When determining the compensation of the Management Board, the Supervisory Board, advised by an external remuneration expert, also took into account the compensation structure of the Company as well as the entire NORMA Group. Due to NORMA Group’s dynamic development, the Supervisory Board has so far not explicitly defined the upper management or the workforce as a whole and, therefore, does not take these groups or their development over time into account. Under service agreements with members of the Management Board, the remuneration of the Manage- ment Board is not capped, either in total or in terms of its variable compensation elements (Section 4.2.3 para. 2 sentence 7 GCGC). The Supervisory Board may grant in its sole discretion a special bonus for extraordinary achievements that is not lim- ited by a maximum amount. The Supervisory Board does not believe such a maximum amount to be required because the Supervisory Board can ensure by specifically exercising its discretion that the requirement of adequacy under Section 87 para. 1 of the German law on stock corporations is complied with. To this day, the Supervisory Board has never granted such a special bonus before. Apart from that, the agreements with all current members of the Management Board that were entered into since 2015 comply with the recommendations pursuant to Section 4.2.3 para. 2 sentence 7 of the GCGC. In addition, the management service agreements that were entered into prior to 2015 depart from the recommendations pursuant to Section 4.2.3 para. 2 GCGC as follows: The maximum gross option profit from the Matching Stock Program (MSP) for the Management Board is limited in total to a percentage of the average annual (adjusted) EBITA during the vesting period; so, a relative maximum limit that is dependent on the Company’s success is applied rather than a maximum monetary amount. The maximum amount of the long-term variable remuneration under the Long-Term Incentive Program is limited to 250% of the amount that results based on the three-year average value of the (adjusted) annual EBITA or the free cash flow that the Company has budgeted multiplied by the respective bonus percentages set in the employment contract. Under these programs, payments are still made to former members of the Management Board. 3. Two members of the Supervisory Board have already reached the regular age limit (Section 5.4.1 para. 2 sentence 2 half sentence 4 GCGC). The tenure of a Supervisory Board member shall not be extended beyond his or her 70th birthday. Mr. Berg and Dr. Michelberger are already older than 70. The Supervisory Board is of the opinion that there is currently no reason to prematurely end these mandates prior to the end of the tenure. Membership in the Supervisory Board should mainly depend on abilities and actual capacities. 37 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGPublication of information in accordance with the Section 289f of the German Commercial Code The Remuneration Report for the last fiscal year, the auditor’s report, the applicable remuneration system and the last remu- neration resolution are publicly available on the website W W W. N O R M AG R O U P.C O M / C O R P/ E N / I N V E S TO R S / O N L I N E - A N N U A L- REPORT/ In addition, the rules of procedure of the Management Board and the website Supervisory Board are available on WWW. NORMAGROUP.COM /COR P/E N/IN VESTORS / Allocation of competences between the Management and the Supervisory Board NORMA Group SE uses a similar type of dual management system that German stock corporations use. Here, the Supervisory and Management Boards are separate bodies that have different functions and powers. The Management Board manages the Company under its own responsibility. The Supervisory Board appoints, advises, monitors and dismisses members of the Management Board. The Management Board provides the Supervisory Board with regular updates about its business policies, how the business is developing, the position of the Company and any transactions that could have a significant impact on profitability or liquidity. The Management Board reports the key figures of the Group and the current course of business to the Supervisory Board on a monthly basis, in particular with regard to the published guidance on the expected development of the Company. Based on the written documents that were submitted to the Supervisory Board in advance, the members of the Management Board report in great detail on business developments and provide an outlook on the expected future development of NORMA Group at the Supervisory Board meetings. Other recurring topics at all meetings include the monthly and quarterly figures, risk analysis and measures aimed at minimizing any risks that had been detected, reports by the respective Committee Chairmen on the previous meetings held and strategic projects. All Management Board members participate in the Supervisory Board meetings. The Supervisory Board convenes separately before or after meeting with the Management Board. The Chairman of the Supervisory Board and the Chairman of the Management Board coordinate the collaboration of the two Boards. They also remain in regular contact between Supervisory Board meetings and discuss current corporate governance issues. The Chairman of the Audit Committee and the CFO also confer on these matters. In accordance with the legal requirements, the bylaws of the Management Board and NORMA Group’s Articles of Association, the Supervisory Board must approve certain important transactions before they can be executed by the Management Board and the Company’s employees. This applies not only to measures at NORMA Group SE, but also to measures at its subsidiaries. In order to ensure that the Management Board is promptly informed of corresponding matters involving subsidiaries so that it can request the approval of the Supervisory Board, a hierarchical system of approval requirements organized by functional areas, levels of responsibility and countries applies worldwide at NORMA Group. Management Board and regional management The Management Board of NORMA Group SE is comprised of two members: Dr. Michael Schneider (Chairman of the Management Board and until further notice Chief Financial Officer) and Dr. Friedrich Klein (Chief Operating Officer). Responsibilities of the Management Board Dr. Michael Schneider, Chairman (CEO, until further notice also CFO) Dr. Friedrich Klein, Member of the Management Board (COO) T005 Legal and M&A Risk Management Compliance & Internal Auditing Corporate Responsibility Personnel Group Development Group Communications Sales Price Development Product Management Marketing Regional Organization Finance & Reporting Controlling Insurances Treasury Investor Relations Production Purchasing Supply Chain Management Global Excellence Information & Communication Technology (ICT) Quality Assurance ESG (Environment, Social, Gov- ernance) EHS (Environment, Health and Safety) Research and Development Product Development Product Management Product Design Technology Development Project Management 38 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGBernd Kleinhens was responsible for Human Resources, Group Development, Group Communications, Business Development, including Sales, Marketing, Research and Development, Product Development, Price Development and Product Management before he left the Company on July 31, 2019. The Supervisory Board must approve any transactions between NORMA Group companies on the one hand and a member of the Management Board, related parties or businesses on the other hand. No such transactions took place in 2019. engineering teams and project management primarily work together on a cross-regional basis. Supervisory Board: members, election and independence In general, Management Board resolutions are passed by simple majority. The Chairman has the deciding vote if the vote is tied. However, the members of the Management Board are obliged to make an effort to reach unanimous decisions. If a member of the Management Board cannot participate in a vote, his vote will be obtained at a later date. The entire Management Board is responsible for matters of particular importance. In accordance with the Management Board bylaws, these include the following matters: producing the Management Board reports for the purpose of informing the Supervisory Board and the quarterly and half-yearly reports, fundamental organizational measures, including the acquisition or disposal of significant parts of companies and strategic and business planning issues, measures related to the implementation and supervision of a monitoring system pursuant to Section 91 (2) of the German law on stock corporations, issuing the Declaration of Conformity pursuant to Section 161 (1) of the German law on stock corporations, preparing the Consolidated and Annual Financial Statements and similar reports, convening the Annual General Meeting and inquiries and recommendations by the Management Board that will be handled and resolved by the Annual General Meeting. In addition, every Management Board member may request that a specific issue be dealt with by the entire Management Board. The Management Board did not form any committees. Board meetings are usually held at least once a month. The Supervisory Board must also approve any secondary activities by a member of the Management Board. It had already agreed that CEO Dr. Schneider may continue to be a member of the Supervisory Boards of two German companies. Dr. Klein does not perform any secondary activities that are subject to approval. The rules of procedure of the Supervisory Board provide that the term of office of a member of the Management Board should not be extended beyond his or her 65th birthday. Both members of the Management Board are under 65 years of age and will not reach 65 years of age during the term of their contracts. The Supervisory Board has not yet decided on any long-term succession planning for the Management Board. Local Presidents in the three regions EMEA, Americas and APAC are responsible for carrying out business on a daily basis. These three Presidents report directly to the Chairman of the Management Board. The entire Management Board of NORMA Group SE meets at least once a year with the Presidents and their managers at the local headquarters – Singapore for the Asia-Pacific region, Auburn Hills, Michigan, for the Americas, and Maintal for the EMEA region. In addition, individual members of the Management Board meet regularly with the local teams. The managers at NORMA Group work in a matrix structure in which they have both a disciplinary as well as a technical supervisor. Every Board member is obliged to inform the Supervisory Board immediately, but also the other members of the Management Board, of any conflicts of interest. No such conflicts of interest arose for a Board member in 2019. In order to improve cross-regional cooperation, Product Management, Product Design, Technology Development and Project Management were created as new global functions in 2019. In this complementary structure, employees from The Supervisory Board of NORMA Group SE is comprised of the following six members: • Lars M. Berg (Chairman of the Supervisory Board) • Erika Schulte (Vice Chairwoman of the Supervisory Board) • Günter Hauptmann • Rita Forst • Dr. Knut J. Michelberger • Mark Wilhelms They are all representatives of the shareholders. NORMA Group SE is not a codetermined Company; therefore, employee representatives are not represented on its Supervisory Board. The members of the Supervisory Board are elected by the Annual General Meeting. As the Supervisory Board had only five mem- bers after the 2018 Annual General Meeting, Mark Wilhelms was appointed by the court to serve as the sixth member in August 2018. Mark Wilhelms was then elected to the Supervisory Board at the 2019 Annual General Meeting. His term of office ends at the Annual General Meeting that resolves on the discharge of the Supervisory Board for fiscal year 2023, but for no longer than six years. The appointment of the other current Supervisory Board members took place upon their election at the Annual General Meeting on May 17, 2018, and ends with the conclusion of the Annual General Meeting that resolves on the discharge of the Supervisory Board for fiscal year 2022, but for no longer than six years. All members of the Supervisory Board are independent as defined in Section C7/No. 5.4.2 of the GCGC. No member of the Supervisory Board or close family member was previously a member of the Management Board of NORMA Group SE or a member of the 39 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGmanagement of one of its predecessor companies, or had a material business relationship with NORMA Group SE or any of its dependent companies, either directly or indirectly as a shareholder or in a responsible capacity of a company outside the Group, or is a close family member of a member of the Management Board in the year preceding his or her appointment. Three of the six members, Lars Berg, Günter Hauptmann and Dr. Knut Michelberger, have been members of the Supervisory Board of NORMA Group SE (or, prior to the conversion of NORMA Group AG into NORMA Group SE in 2013, the Supervisory Board of NORMA Group AG) since 2011, Erika Schulte has been a mem- ber of the Supervisory Board since 2012, while Rita Forst and Mark Wilhelms have been members of the Supervisory Board since 2018, so that all members have been on the Supervisory Board for less than twelve years. There are no contracts for consulting or other services or work between NORMA Group companies and a member of the Supervisory Board. The rules of procedure of the Supervisory Board stipulate that the term of office of a Supervisory Board member should not extend beyond his or her 70th birthday. Lars Berg and Dr. Knut Michelberger have already exceeded this age limit. All members of the Supervisory Board are obligated to report any conflicts of interest. Significant and not merely temporary conflicts of interest for members of the Supervisory Board should lead to the termination of the mandate. No such conflicts of interest arose in 2019. The Chairman of the Supervisory Board represents the Supervisory Board externally. He organizes the work of the Supervisory Board and chairs its meetings. The Supervisory Board can pass resolutions by simple majority, whereby the Chairman has the deciding vote if a vote is tied. The Supervisory Board evaluates its work annually as part of an efficiency review, most recently in the spring of 2019. This was carried out on the basis of a questionnaire and without the involvement of other external consultants. In fiscal year 2019, four ordinary meetings were held with the Management Board and there was one closed meeting of the Supervisory Board. All members of the Supervisory Board attended these meetings. In addition, six telephone conferences were held. Many of these conference calls had to be arranged at very short notice due to the urgency of the decisions, so that not all members of the Supervisory Board were able to participate. Dr. Knut Michelberger and Mark Wilhelms were therefore excused on two calls each, Lars Berg, Rita Forst and Erika Schulte on one conference call each. Where they were unable to participate directly in telephone conferences, they subsequently approved the resolutions adopted or were represented in the resolution. Günter Hauptmann participated in all six conference calls. The Supervisory Board has three committees: the Audit Committee, the General and Nomination Committee and the Strategy Committee, which was newly established in May 2019. The Audit Committee deals in particular with monitoring the accounting process and the effectiveness of the internal control and risk management systems as well as the audit of the Annual Financial Statements, in particular through the independence of the auditor, the additional services rendered by the auditor, engaging the auditor, determining areas of audit emphasis and agreeing to the auditor’s fees. The Audit Committee accompanies the collaboration between NORMA Group SE and the auditors and ensures that opportunities for improvement identified during the audit are promptly implemented. It is responsible for preparing the accounting documents and adopting the Supervisory Board’s resolution on the consolidated and separate financial statements. Moreover, it is responsible for compliance and reviews the compliance with statutory provisions and the internal guidelines. Dr. Knut Michelberger is the Chairman of the Audit Committee. Its other members are Erika Schulte and, up until the 2019 Annual General Meeting, Rita Forst, and Mark Wilhelms since May 22, 2019. Mark Wilhelms and Dr. Knut Michelberger are inde- pendent financial experts within the meaning of Section 100 para. 5 of the German Stock Corporation Act (AktG). Due in particular to their many years of experience as a Chief Financial Officer and Managing Director, they have special knowledge and experience in the application of accounting principles and internal control procedures. Three meetings of the Audit Committee and four telephone conferences were held in fiscal year 2019. All Audit Committee members took part in the meetings and telephone conferences. The General and Nomination Committee prepares personnel- related decisions for the Supervisory Board with regard to the composition of the Management Board and the Supervisory Board. This committee has the following specific responsibilities: preparing Supervisory Board resolutions regarding the formation, amendment and termination of employment contracts with members of the Management Board in accordance with the remu- neration system approved by the Supervisory Board, preparing Supervisory Board resolutions regarding legal applications to reduce the remuneration of a Management Board member pursuant to Section 87 (2) AktG, preparing Supervisory Board resolutions regarding the structure of the remuneration system for the Management Board, acting as representatives of the Company to Management Board members who have left the Company pursuant to Section 112 AktG, approving secondary employment and external activities for Management Board members pursuant to Section 88 AktG, granting loans to the persons specified in Section 89 AktG (loans to members of the Management Board) and Section 115 AktG (loans to members of the Supervisory Board), approving contracts with members of the Supervisory Board pursuant to Section 114 AktG and proposing suitable candidates to the Annual General Meeting when there is a vote on Supervisory Board members. 40 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOther mandates of the Supervisory Board members T006 Supervisory Board member, exercised office Other mandates on Supervisory Boards and comparable committees Lars M. Berg (Chairman), Consultant Chairman of the Supervisory Board of Greater Than AB, Stockholm, Sweden (listed on the stock exchange) Erika Schulte, (Vice-Chairwoman), Managing Director of Hanau Wirtschaftsförderung GmbH No seats on other boards or comparable committees The General and Nomination Committee is comprised of the Chairman of the Supervisory Board, Lars Berg (Chairman of the General and Nomination Committee), Günter Hauptmann and Dr. Knut Michelberger. The committee held four meetings and seven telephone conferences in 2019 that all members partici- pated in. The Supervisory Board established a Strategy Committee with effect from May 22, 2019. The Strategy Committee advises the Management Board on NORMA Group SE’s strategy, restructur- ing, organic growth, mergers and divestitures and new technologies. Günter Hauptmann (Chairman), Rita Forst and Erika Schulte are the members of the Strategy Committee. This committee held two meetings in 2019, both of which were attended by all members. D&O insurance Rita Forst, Consultant The company has also taken out D&O insurance for the members of the Supervisory Board and the Management Board. The deductible amounts to 10% of the loss up to an amount of 150% of the fixed annual remuneration of the member of the Management Board or Supervisory Board. Günter Hauptmann, Consultant Dr. Knut J. Michelberger, Consultant Other mandates of the Supervisory Board members Exercised professions and other mandates on Supervisory Boards or comparable Supervisory Bodies of the members of NORMA Group’s Supervisory Board in fiscal year 2019 are shown in TA BL E 0 06. Mark Wilhelms, Chief Financial Officer at Stabilus S.A. Member of the Supervisory Board (Non-Executive Director) of AerCap Holdings N.V., Dublin, Ireland (listed on the stock exchange) – since April 2019 Member of the Advisory Board of Joh. Winklhofer Beteiligungs GmbH & Co. KG, Munich, Germany (not listed on the stock exchange) Member of the Supervisory Board of ElringKlinger AG, Dettingen an der Erms, Germany (listed on the stock exchange) Member of the Advisory Board of Westport Fuel Systems Inc., Vancouver, Canada (listed on the stock exchange) Member of the Advisory Board of Metalsa, S.A. de C.V., Monterrey, Mexico (not listed on the stock exchange) – until May 2019 Member of the Advisory Board of Moon TopCo GmbH, Poing, Germany (not listed on the stock exchange) Member of the Supervisory Board of Weener Plastics Group, Ede, The Netherlands (not listed on the stock exchange) Member of the Advisory Board (Deputy Chairman) of Racing TopCo GmbH, Troisdorf, Germany (not listed on the stock exchange) Member of the Advisory Board of Kaffee Partner Holding GmbH, Osnabrück, Germany (not listed on the stock exchange) Member of the Advisory Board of Tegimus Holding GmbH, Frankfurt, Germany (not listed on the stock exchange) Member of the Advisory Board of Moon TopCo GmbH, Poing, Germany (not listed on the stock exchange) No seats on other boards or comparable committees 41 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGTargets for the share of women As early as 2015, the Supervisory Board of NORMA Group SE had set targets for the Supervisory Board and Management Board of NORMA Group SE and the Management Board for the management level of NORMA Group SE below the Management Board as well as a time limit for implementing them. These targets were adjusted as follows in 2017: management level at at least 25%. This neither meant a reduction in the share of women nor ruled out the possibility that the share of women would rise to over 50%. In fact, the share of women rose from 50% to 60%. Among the total of five persons (previously four) who now form the first management level below the Management Board, there are now three women. The target figure of 25% was thus exceeded. NORMA Group SE does not have a second management level for which the Management Board would also have had to set targets. The target figure for the share of women on the Supervisory Board is two female members (out of a total of six). For the Management Board, the target is zero. For the top management level of NORMA Group SE, the target figure is a 25% share of women. The aforementioned new targets are expected to apply until June 30, 2022. They were all achieved or exceeded in fiscal year 2019. At NORMA Group, targets for the Management Board, the Supervisory Board and the top two levels of management were also set for another company, NORMA Germany GmbH. This company is not listed, but codetermined, and is headed by a Managing Director. The Management Board is currently comprised solely of men. The target figure for the share of women on the Management Board was set at zero in 2017 because the Supervisory Board assumed at the time that no new members would be appointed to the Management Board before 2022 and it would therefore be impossible to appoint a woman. The Board did not want to set a target figure that, from the perspective of that time, could not have been met. According to the rules of procedure of the Supervisory Board, the Supervisory Board is to pay attention to diversity in the composition of the Management Board. In the context of the current search for a new member of the Management Board, the Supervisory Board is ensuring that female candidates are also explicitly included in the selection process. The outcome of this search is still open. At NORMA Group SE, the first management level comprises all persons who are Executive Vice Presidents or Vice Presidents, report directly to the Management Board, assume management responsibilities and bear personnel responsibility. Although the share of women in the first management level was 50% when the resolution was passed in 2017 (as in 2015), the Management Board had set the target figure for the share of women in the first Competence profile, no separate diversity concept The objectives for the composition of the Supervisory Board include that all members be independent, no member works for a competitor of NORMA Group, no member who is on the Management Board of a listed company has more than two Supervisory Board mandates in listed companies, no member of the Supervisory Board has significant conflicts of interest and each member complies with a statutory limit of 15 years for the term of office. These goals have all been met. In addition, the Supervisory Board should pay attention to international activities and diversity in proposals for the election of new members. The Supervisory Board has one Swedish member while the other members are German citizens. The current members satisfy the competence profile for the Supervisory Board as a whole. Some members have special knowledge of the industry and NORMA Group’s markets, in particular the automotive industry, and NORMA Group’s business model. Several members have experience as executives or members of Supervisory Boards as well as international experience. At least one member has expertise in accounting, auditing and controlling. Other areas in which members of the Supervisory Board have special knowledge include risk management, internal control systems and compliance, capital market experience and knowledge of IT systems, including ERP systems. The members of the Supervisory Board also have sufficient time to perform their duties. No separate diversity concept within the meaning of Section 289f (2) No. 6 HGB has been prepared for the Supervisory and Management Boards of NORMA Group SE. The rules of procedure of the Supervisory Board already stipulate that certain aspects, which the law cites as an example of a concept of diversity, should be taken into consideration in the case of nominations for the elections to the Supervisory Board and the appointment of Management Board members. Diversity should be taken into account in the composition of the Management Board as well as in election proposals for the election of Supervisory Board members. Further requirements for the Supervisory Board already arise from the goals and rules of the procedure described above. The Management Board also has an age limit of 65, which is met by all members. Shareholders and Annual General Meeting The shareholders of a Societas Europaea decide on the Company’s important and fundamental matters. The shareholders exercise their voting rights at the Annual General Meeting, which takes place at least once every year. The Annual General Meeting decides on how earnings will be distributed, the discharge of the Management Board and the Supervisory Board, the election of the auditor, but also on amendments to the Articles of Association and other topics. Shareholders are entitled to vote if they are registered in the shareholders’ register of NORMA Group SE and provide NORMA Group SE or another location specified in the invitation with written notice, in German or English, at least six days before the Annual General Meeting that they will be attending. Each share entitles the bearer to one vote. 42 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING43 NORMA Group SE publishes the invitation and all documents that must be made available at the Annual General Meeting promptly on its website. Information regarding the number of attendees and the voting results are published there following the Annual General Meeting. WWW.NORMAGROUP.COM/CORP/EN/INVESTORS/AGM/Shareholdings of the Management and Supervisory Board Of the total of 31,862,400 shares in NORMA Group SE, the current members of the Management Board held together 0.03% of the shares on December 31, 2019. The current members of the Supervisory Board held no shares. Directors’ DealingsMembers of the Management Board and the Supervisory Board and related parties are obliged to disclose Directors’ Dealings in NORMA Group SE shares if the value of these transactions reaches or exceeds EUR 5,000 or EUR 20,000 from January 1, 2020, on. The following transactions were reported as Directors’ Dealings in 2019: Directors’ DealingsT007Buyer / SellerType of financial instrumentType of trans-actionDate of transactionPlace of transactionAverage price per shareVolumeTotal valueBernd Kleinhens, CEO 1Share (DE000A1H8BV3)PurchaseMay 13, 2019Tradegate ExchangeEUR 38.541,300 sharesEUR 50,102.00Dr. Michael Schneider, CEO 2Share (DE000A1H8BV3)PurchaseMay 14, 2019Tradegate ExchangeEUR 38.30722,650 sharesEUR 101,514.08Dr. Friedrich Klein, COOShare (DE000A1H8BV3)PurchaseJune 11, 2019Stuttgart Stock Exchange – Sparkasse ALKEUR 36.94500 sharesEUR 18,470.001_CEO until the end of July 31, 2019.2_CEO since November 2019, formerly CFO.Stock option plans and equity-based incentive programs The principles of management remuneration are described in the Remuneration Report which is part of the Management Report. REMUNERATION REPORT, P. 102A Long-Term Incentive Program (LTI) was introduced in fiscal year 2013 for the second management level that allows employees to participate in NORMA Group’s success over the medium term. ComplianceNORMA Group’s compliance organization seeks to prevent violations of laws and other rules, in particular through preventive measures. Nevertheless, if there is evidence of violations, these matters are investigated promptly and thoroughly and the necessary consequences are taken. Findings will be used to take steps to reduce the risk of future violations. Group-wide compliance activities are managed by the Chief Compliance Officer of NORMA Group, who reports to the CEO. In addition to the Compliance Department in place at Group level, there are compliance officers at the regional and company levels. The three regional Compliance Officers for the EMEA, Americas and Asia-Pacific regions report to the Chief Compliance Officer. In addition, each operating Group company has its own local Compliance Officer, who reports to the respective Regional Com-pliance Officer. The Supervisory Board monitors compliance with the compliance rules vis-à-vis the Management Board. The compliance organization conducts risk analyzes together with the relevant units, functions and departments in order to determine and monitor the risk profile of countries, Group companies and functions. On this basis, it identifies the need for action and initi-ates corresponding measures. Specific employee training courses are held regularly on selected risk areas and important current topics or developments. In 2019, for example, the Compliance Department coordinated a global data protection training course and conducted on-site training sessions at select locations NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING focusing on corruption prevention. Besides training on specific focus topics, all employees worldwide are trained on the basic compliance rules and important contents of the compliance guide- lines (in personal or online training sessions), and participation in these training courses is monitored. In fiscal year 2019, the global training concept was also revised and the content of the online training courses updated. The updated training courses will be available to employees in the new fiscal year 2020. In addition, employees regularly receive relevant, up-to-date compliance information on a case-by-case basis via various information channels such as the intranet site, brochures, e-mails or notices. The compliance guidelines of NORMA Group are an important means of communicating to employees the compliance understanding of NORMA Group and of demonstrating their ethical and legal obligations. All compliance documents are reviewed regularly and, if necessary, adapted to new legal or social requirements and thus always kept up to date. Such a comprehensive review and update of the guidelines was carried out in fiscal year 2019. Particular attention was paid to updating the content as well as to practice-oriented and easily understand- able presentation of the contents. The updated guidelines will be made available to employees in the coming fiscal year. Suppliers have their own ‘Supplier Code of Conduct.’ It is intended to help ensure that laws and ethical rules are observed within the NORMA Group supply chain. This was also reviewed and updated in fiscal year 2019 and will be made available in fiscal year 2020. A compliance manual also defines in detail the specific areas of responsibility and regulatory areas, describes basic compliance processes, and provides a summary of key compliance issues related to the corresponding compliance guidelines. The compli- ance manual, as well as the compliance guidelines, are reviewed regularly for changes and updated, if necessary. NORMA Group encourages its employees to report breaches of regulations and internal policies for all hierarchies. Besides directly approaching superiors, the personnel department or Compliance Officers, an Internet-based ‘whistleblower system’ is available for this purpose. With this whistleblower system, company-internal and external parties can report suspicious cases to the compliance organization of NORMA Group and, if necessary, preserve their anonymity. The electronic whistleblowing system currently in use was also subjected to a comprehensive conceptual review in fiscal year 2019. In the future, the system will be expanded to include supplementary functionalities that provide the compliance function with an integrated compliance tool. This will not only further improve the procedure of processing reports, but will also successively map additional compliance processes with system support. This is intended to increase the effectiveness and efficiency of the processes as well as the user-friendliness for employees. The members of the compliance organization always follow up on references to compliance violations. If violations of compliance rules are discovered or weaknesses in the organization are identified, management takes the necessary action promptly in cooperation with the compliance organization. Depending on the individual case, these measures range from targeted additional training and changes in organizational processes to disciplinary means, including termination of employment. Corporate Responsibility and ESG As Corporate Responsibility and ESG issues become more import- ant, the Supervisory Board, Management Board and employees are paying more attention than ever to the resulting aspects. For example, NORMA Group is focusing on water management and the transformation to more environmentally friendly drive systems. The strategy and specific goals of Corporate Responsibility are explained in particular in the separate non-financial Group Report. On the Management Board, Dr. Michael Schneider is responsible for Corporate Responsibility and Dr Friedrich Klein for ESG. Information on the auditor and internal rotation PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC), Frankfurt/Main, audited the financial statements of NORMA Group SE and its predecessor companies as well as the Consolidated Financial Statements for the fiscal years 2010 to 2019. Furthermore, PwC retroactively audited the years 2009 and 2010 for the prospectus as part of the IPO in 2011. Following the internal rotation at PwC, Mr. Stefan Hartwig acted as the auditor signing on the left and Richard Gudd as the auditor signing on the right for fiscal year 2019. Mr. Hartwig held the position of the responsible auditor for the first time in 2019, Mr. Gudd already acted as the auditor signing on the right for fiscal years 2016 and 2017. 44 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCon sol idated Man a geme nt R epor t 46 58 82 89 102 110 112 Principles of the Group Economic Report Forecast Report Risk and Opportunity Report Remuneration Report Other Legally Required Disclosures Report on Transactions with Related Parties Con solidated Ma nage me nt R ep o r t Principles of the Group Business model NORMA Group is an international market and technology leader in the area of advanced and standardized connecting technology With its 29 production sites and numerous sales offices, the Group has a global network with which it supplies more than 10,000 customers in more than 100 countries. NORMA Group’s product portfolio includes more than 40,000 high-quality joining products and solutions in the following three product categories: water management (WATER), fluid systems and connectors (FLUID) and clamps and joining elements (FASTEN). The products NORMA Group offers are used across industries in a wide range of applications, whereby the product specifications differ depending on the application and customer requirements. High customer satisfaction forms the foundation of NORMA Group’s continued success. The main factors here are the customized system solutions, the global availability of products in consistently high quality, delivery reliability and a strong brand image. Organizational structure Corporate legal structure NORMA Group SE is the parent company of NORMA Group. It has its headquarters in Maintal near Frankfurt / Main, Germany. NORMA Group SE serves as the formal legal holding of the Group. It is responsible for the strategic management of business activities. In addition, it is also responsible for communicating with the Company’s most important target audiences as well as Legal and M&A, Compliance, Risk Management and Internal Revision. Group-wide central management responsibilities such as IT, Treasury, Group Accounting and Group Controlling, for example, are all based at the 100% subsidiary NORMA Group Holding GmbH which is also located in Maintal. Three regional management teams located in Auburn Hills (USA), Maintal (Germany) and Singapore steer the specific holding activities for the three regions Americas (North, Central and South America), EMEA (Europe, Middle East and Africa) and Asia-Pacific (APAC). addition to his role as Chief Financial Officer. In November 2019, the Supervisory Board appointed Dr. Schneider as the new Chairman of the Management Board of NORMA Group. Dr. Schneider will also continue to serve as Chief Financial Officer until further notice in addition to his position as Chairman. The Management Board of NORMA Group SE thus currently consists of two members. Dr. Friedrich Klein, Chief Operating Officer (COO), is the other member of the Management Board. In November 2019, the Supervisory Board initiated the search for a suitable candidate for the position of Chief Financial Officer and will most likely decide on the position in the months to come. As of December 31, 2019, NORMA Group SE holds shares in 51 companies that belong to NORMA Group either directly or indi- rectly and are fully consolidated. In fiscal year 2019, there were NOTES, P. 139 no changes of the legal structure of the Group. Group management NORMA Group SE has a dual management system that consists of a Management Board and a Supervisory Board. The Management Board manages the Company under its own responsibility, while the Supervisory Board advises and monitors the Management Board. In fiscal year 2019, the following personnel changes took place in the Management Board: In accordance with the Articles of Association, the Supervisory Board of NORMA Group SE consists of six independent members elected by the shareholders at the Annual General Meeting. Lars Magnus Berg is the Chairman of the Supervisory Board. Erika Schulte is the Deputy Chairwoman. Mark Wilhelms was elected a member of the Supervisory Board by the Annual General Meeting on May 21, 2019. Mark Wilhelms had already been appointed a member of the Supervisory Board of NORMA Group SE by court order in August 2018 after the Supervisory Board temporarily consisted of only five members following the dismissal of Dr. Stefan Wolf, who had served as Chairman of the Supervisory Board for many years. Bernd Kleinhens, Chairman of the Management Board of NORMA Group, resigned from the Management Board by mutual agreement effective July 31, 2019. Dr. Michael Schneider then took over the duties of Chairman of the Management Board in Mark Wilhelms has been a member of management of Stabilus S.A., Luxembourg, since 2009. In 2014, he was appointed Chief Financial Officer (CFO) of Stabilus S.A. and Managing Director of Stabilus GmbH. Mark Wilhelms has many years of experience and expertise in both finance and information technology (IT), for 46 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGwhich he was responsible at management level in the interna- tional automotive industry. clamps and joining elements (FASTEN). These functions have been established globally and inter-regional in fiscal year 2019 to improve the supraregional collaboration. Detailed information on the composition of the Management Board and the Supervisory Board, as well as the distribution of responsibilities among themselves, can be found in the Corporate Governance Report, which forms part of the Annual Report. The Statement of Corporate Governance pursuant to Section 289f HGB, including the Declaration of Conformity pursuant to Section 161 AktG, a description of the procedures of the Management Board and the Supervisory Board, relevant information on corporate governance practices and a declaration regarding the concept of diversity to be disclosed under the CSR Directive Implementation Act are also part of the Corporate Governance Report. CORPORATE GOVE RN ANCE R E PO RT, P. 3 7 Operative segmentation by regions NORMA Group’s strategy is based, among other considerations, on regional growth targets. In order to achieve these, the opera- tive business is managed by the three regional segments EMEA, the Americas and Asia-Pacific. All three regions have networked regional and cross-company organizations with different functions. The internal Group reporting and control system that Management uses is also therefore quite regional in nature. Distribution Services is based on regional and local priorities. Products and end markets Product portfolio The products that NORMA Group offers can for the most part technologically be divided into the three product categories water management (WATER), fluid systems and connectors (FLUID) and The WATER product portfolio includes solutions for applications in the sectors of storm water management and landscape irrigation, but also joining components for infrastructure solutions in the area of water. The FLUID products are single or multiple layer thermoplastic plug-in connectors and fluid systems that reduce installation times, ensure reliable flow of liquids or gases and occasionally replace conventional products such as elastomer hoses. NORMA Group’s fluid products are used in thermal management systems in hybrid and electric vehicles, among other applications. The product group FASTEN includes a wide range of clamp products and connecting elements that are made from standard or stainless steel and are mainly used to clamp and seal hoses as well as to connect and to fix metal and thermoplastic pipes. NORMA Group’s advanced Engineered Joining Technology is used in all applications in which pipelines, tubes and other systems need to be connected together. Because joining technology plays a role in nearly all industries, NORMA Group serves many different end markets. Besides the automotive, commercial vehicle, and aviation industry, NORMA Group is also active in the construction and mechanical engineering industry, the pharmaceutical and biotechnology fields, agriculture and the drinking water supply and irrigation industry. NORMA Group products are also used in consumer products such as home appliances. Two complementary distribution channels NORMA Group supplies its customers via two different sales channels, Engineered Joining Technology – EJT and Distribution Services – DS. The two distribution channels differ in terms of the degree of specification of the products, while having intersections in production and development. This enables cost benefits and ensures the highest quality standards. The area of EJT includes sophisticated, individually customized joining technology and is particularly characterized by close development partnerships with OEMs (original equipment manufacturers). NORMA Group’s central development departments and resident engineers work together with the customer on developing solutions for specific industrial challenges. Due to the constant proximity to customers in the area of EJT, NORMA Group’s engineers gain comprehensive knowledge and a deep understanding of the various challenges their end markets and customers face. As a result, they generate substantial added value for the customers and contribute to their economic success. Such development partnerships result in high-technology products that are designed not only to meet the needs of customers with respect to efficiency and performance, but that also take aspects such as weight reduction and quick installation into consideration. 47 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group (simplified structure) 1 G006 NORMA Group SE NORMA Group Holding GmbH (Germany) NORMA Group Asia Pacific Pte. Ltd. (Singapore) NORMA Pennsylvania, Inc. (USA) NORMA Germany NORMA Serbia NORMA Distribution Germany NORMA Group DS Polska Groen BV (The Nether lands) NORMA Czech NORMA Turkey NORMA Sweden NORMA France NORMA UK NORMA Distribution France Connectors Verbindungs - technik AG (Switzerland) NORMA China 2 NORMA Autoline France Lifial (Portugal) NORMA Polska NORMA Italy NORMA Spain NORMA Russia Kimplas (UK) Statek (Germany) Craig Assembly (USA) NORMA Michigan (USA) NORMA EJT (Wuxi) NORMA Thailand NORMA Australia NORMA EJT (China) R. G. Ray (USA) NORMA Group Mexico National Diversified Sales (USA) NORMA Brazil NORMA DS Mexico NORMA Manufacturing (USA) Fengfan (China) NORMA Products Malaysia NORMA Korea NORMA India NORMA Japan Kimplas (India) 1_ The graph gives an overview of the operating companies of NORMA Group. The company names correspond to the internally used company names. A complete list of the Group companies and NORMA Group’s shareholdings as of December 31, 2019, can be found in the corresponding NOTES ON P. 139. 2_ NORMA China is organizationally assigned to the Asia- Pacific segment. In terms of company law, it belongs to NORMA Group Holding GmbH. 48 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGMarket and competitive environment Goals and strategy Organizational structure of NORMA Group G007 Parent company under company law Segments NORMA Group SE Asia-Pacific Distribution channels Americas Distribution Services (DS) EMEA Engineered Joining Technology (EJT) Via its Distribution Services (DS), NORMA Group markets a broad range of high-quality, standardized brand products. In addition to its own global distribution network, the Company also relies on multipliers such as sales representatives, retailers and importers. Its customers include, among others, distributors, specialized wholesalers, OEM customers in the aftermarket seg- ment, do-it-yourself stores and applications in smaller industries. The brands ABA®, Breeze®, Clamp-All®, CONNECTORS®, FISH®, Five Star®, Gemi®, NDS®, NORMA®, Raindrip®, R.G.RAY®, Serflex®, TORCA® and TRUSTLENE® exemplify technological know-how, high quality and reliability and meet the technical standards of the countries in which they are sold. NORMA Group combines its expertise in developing tailor-made solutions for industrial customers (EJT) with its global sales of high-quality standardized brand products (DS) to realize not only cross-selling effects, but also numerous synergies in production, logistics and sales. The Company also benefits from significant economies of scale and scope thanks to the diversity and high volumes of its product offerings, a clear distinction from its smaller, generally more specialized competitors. With its products, NORMA Group provides solutions for numerous industrial applications. Its expertise covers thermoplastic materials (WATER and FLUID) as well as metal-based connection solutions and products (FASTEN). Thanks to the unique combination of expertise in both metal and plastics processing and the broad diversification of its product portfolio, NORMA Group can offer its customers a wide range of solutions to different problems from a single source and thus distinguishes itself from its competitors who mainly specialize in individual product segments. In the area of Engineered Joining Technology, especially in the area of FASTEN and FLUID, NORMA Group operates in a highly fragmented market, which is characterized by a very heteroge- neous structure due to the abundance of specialized industrial companies. In this environment, NORMA Group sees itself as a provider of tailor-made, value-creating solutions that are geared to the specific needs of the customer and are the result of long- term development partnerships. With its international business alignment and its cross-industry customer base, NORMA Group distinguishes itself from its mostly regional competitors. Thanks to its strong focus on innovation, NORMA Group offers its customers especially temperature and pressure resistant products, as well as weight and assembly time optimized products that clearly stand out from the competition. In the much more standardized sales channel Distribution Services, NORMA Group operates in mass markets and competes primarily with providers of similar standardized products. It differentiates itself from them particularly through its strong brands that are the result of a deliberate brand policy that focuses on the regional needs of its customers. In addition, customers appreciate the high quality of service. NORMA Group offers its trade customers a complete range of products that meets all of their end users’ needs as well as short delivery times and permanent availability. Increase in value The long-term strategy of NORMA Group is based on the ‘Vision 2025’, which was launched by the Management Board in 2018. The Vision 2025 includes increasing the value creation of NORMA Group as its central objective, building on NORMA Group’s successful entrepreneurial development and focusing on sus- tained sales growth, profitability above the industry average and the efficient deployment of capital. On its way to achieving these goals, NORMA Group is pursuing a stakeholder-oriented approach that is geared both toward the demands of its customers for innovative and value-creating solutions and to the interests of its shareholders and suppliers. In order to achieve these goals, NORMA Group seeks to offer its employees an environment geared toward continuous improvement, thereby strengthening its position as the employer of choice. At the same time, NORMA Group regards it as a central component of its corporate responsibility to reconcile the effects of its business activities with the expectations and needs of society. For this reason, the Management Board`s goal is to base all entrepreneurial decisions on the principles of responsible corporate management and sustainable action. Corporate Responsibility (CR), NORMA Group’s responsibility towards people and the environment, is therefore regarded as an integral part of the Company strategy. 2019 CR REPORT NORMA Groups’ strategy for the long-term increase in value is based on the following key objectives and strategic measures: 49 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGProfitable growth Increasing the Company’s value is the primary objective of NORMA Group. In each regional segment and in both sales divisions (EJT and DS), the focus is on the ongoing profitable expansion of business activities and increasing market share. At the heart of NORMA Group’s growth strategy is the expansion of its product portfolio and regional presence, as well as the opening up of new end markets. The continuous expansion of application solutions for current EJT customers, the identification and acquisition of new EJT customers, the deepening of the customer base in Distribution Services (DS) and the identification of new markets with attractive growth potential will all be used to expand business activities and further strengthen the Group’s international presence. In identifying new end markets, NORMA Group places a strategic focus on niche markets with attractive margins, advanced products, strongly growing sales potential and a fragmented competitive structure. The goal is to achieve broad diversification in the end markets through the targeted transfer of knowledge to new, high-growth industries. This will strengthen the sustainable earnings profile, the independence from economic influences and the stability of the business. Global megatrends such as climate change and resource scarcity offer NORMA Group attractive growth potential. The strategic focus is therefore on future-oriented applications in the fields of water management and electromobility. PRODUCTS A ND END M ARKETS, P. 47 Sales by distribution channel 1 G008 61% (63%) EJT 39% (37%) DS 1_Previous year’s values in brackets. Selective product portfolio The technological requirements placed on the end products of NORMA Group customers are constantly changing. Increasing environmental awareness, scarcity of resources and growing cost pressures play a major role in almost every sector of industry. Furthermore, the automotive and commercial vehicle industries, in particular, are subject to stricter emission regulations and special requirements for the materials used. This is also accompanied by increasing technological change, away from conventional combustion engines towards alternative powertrain techniques such as hybrid or electromobility. REGULATORY INFLUENC ING ASPECTS, P. 60 These form the starting point for the development of new products. NORMA Group focuses on value-enhancing solutions that support its customers in reducing emissions, leaks, weight, space and assembly time. Furthermore, NORMA Group helps its customers to optimize the use of scarce resources, for example in water management. Innovations play an important role in meeting the increasing customer demands that accompany each new production cycle. This is why NORMA Group’s more than 300 engineers and developers are constantly working on developing new products and optimizing the currently used processes and systems. An L E G A L A N D important focus here is on the development of solutions for electromobility. This offers NORMA Group numerous opportunities, particularly in the field of vehicle thermal management. In order to sustainably strengthen its innovative strength, the Group plans to invest around 5% of its EJT sales in research and development activities each year. RESEARCH AND DEVELOPMENT, P. 55 Although the joining products that NORMA Group sells make up a relatively small value proportion of the final product, they are often mission-critical. Sticking to the highest quality standards and stringent quality management throughout the entire Group Q U A L I T Y M A N AG E M E N T, P. 7 5 A therefore play a crucial role. strong brand strategy geared toward regional growth targets, as well as ensuring first-class service quality and product availability at all times, are also important success parameters. NORMA Group ensures this through its worldwide sales network. Selective acquisitions to supplement organic growth By making select acquisitions, NORMA Group contributes to the diversification of its business and strengthens its growth. Acquisitions are therefore an integral part of the Company’s long- term growth strategy. NORMA Group observes the joining technology market continously and contributes to its consolida- tion through targeted acquisitions. In total, NORMA Group has acquired 14 companies since the IPO in 2011 and integrated them into the Group. The main focus of M&A activities is always on companies that help to realize the diversification objectives of NORMA Group, to strengthen its competitive position and / or to generate synergies. The preservation of growth and high profitability also play an important role. The search for suitable companies focuses on the automotive and water management sectors. Since acquiring the US water specialist National Diversified Sales (NDS) in fiscal year 2014, NORMA Group has built up an established market position in the fast-growing water industry, which is to be expanded through further acquisitions in this area. 50 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGStrategic goals of NORMA Group MARKET LEADER IN CONNECTING AND FLUID HANDLING TECHNOLOGY FOR EXISTING AND FUTURE MARKETS G009 INCREASE IN VALUE Ove ral l ob je c ti ves PROFITABLE GROWTH SELECTIVE VALUE-ADDING ACQUISITIONS TO SUPPLEMENT ORGANIC GROWTH Stra tegi c me asure s to ac h ieve ob je c ti ves INCREASE OF MARKET SHARE THROUGH FURTHER LOCALIZATION SELECTIVE PRODUCT PORTFOLIO SUSTAINABLE ACTIONS IN ALL BUSINESS AREAS NEW PRODUCT DEVELOPMENTS FOR STRONG FUTURE MARKETS STRONG PERFORMANCE AND CONTINUOUS EFFICIENCY IMPROVEMENTS HIGHEST QUALITY REQUIREMENTS AND STRONG BRAND IMAGE CLIMATE CHANGE AND SCARCITY OF RESOURCES ARE GLOBAL MEGATRENDS WHICH FORM THE BASIS FOR NORMA GROUP’S BUSINESS MODEL 51 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGControl system and control parameters The consistent focus on the Group objectives mentioned is also reflected in the internal control system at NORMA Group, which relies on both financial and non-financial control parameters. Important financial control parameters G010 Profitability Important financial control parameters Growth Liquidity The following value-based indicators, which have a direct impact on value creation at NORMA Group, are among the Company’s most important financial performance indicators: organic Group sales growth, profitability (adjusted EBITA margin) and net operating cash flow. These key figures form NORMA Value Added (NOVA), a central strategic target figure. Since NOVA is also a reference value for the long-term remuneration of the Management Board, it was added to the control system in fiscal year 2018. REM UNE RAT ION R EPORT, P. 1 0 2 Organic Group sales growth (adjusted for acquisitions and currency effects) Capital Efficiency Adjusted EBITA margin Adjusted EBITA in relation to Group sales Net operating cash flow Adjusted EBITDA + Δ working capital – investments NOVA Adjusted EBIT – Taxes – Capital costs (WACC x capital employed) Organic sales growth As a growth-oriented Company, NORMA Group attaches particular importance to profitable sales growth. The Group seeks to achieve short- and medium-term growth above the market average. This refers to internal growth excluding currency effects. In addition, sales revenues from newly acquired companies are reported separately within the first 12 months of initial consolidation (sales revenues from acquisitions). Due to the broad market structure in the area of joining technol- ogy, the Management Board is guided by internal analyses as well as studies by leading economic research institutes on the development of the gross domestic product of the respective regions and on the production and sales figures of the relevant customer industries in developing the forecast on the expected development of sales. In addition, the Management Board observes certain early indicators, such as customer order patterns in the retail business (Distribution Services) and the order book in the area of Engineered Joining Technology (EJT). Adjusted EBITA and adjusted EBITA margin The adjusted EBITA (EBITA before special influences) is the most important internal and external performance indicator for ongoing operations. In order to be able to make a long-term comparison and for a better understanding of how the business is developing, NORMA Group adjusts the operating result by certain expenses, for example those that are related to acquisitions. NOTES, P. 148 Adjusted EBITA margin (EBITA as a percentage of sales) as another key indicator for the NORMA Group provides information on the profitability of its business activities. In order to maintain the adjusted EBITA margin and thus the Group’s profitability at its high level, NORMA Group continuously works on optimizing its business processes and structures. To determine the EBITA target margin, both the historic perfor- mance and the planning of individual business units are taken into consideration. The target margin for the Group is determined as the weighted average of the divisions. Price development of the raw materials that are most important to the NORMA Group serves as an early indicator of changes in major cost items, such as material costs. For this reason, the respective markets and raw material prices are constantly monitored and the prices of key materials are contractually fixed. Net operating cash flow In order to maintain the Group’s financial independence and solvency at all times, NORMA Group is guided by net operating cash flow in addition to the aforementioned key figures. Net operating cash flow includes the most important cash-effective items that can be influenced by the individual business units and provides information on whether NORMA Group can finance its operating business out of its cash flow. It is calculated on the basis of the adjusted EBITDA plus changes in working capital minus capital expenditures. The key approaches to improving net operating cash flow are therefore to increase sales, to improve the adjusted operating result (adjusted EBITDA) and to engage in sustained value-enhancing investment activity. In addition, consistent management of working capital also has a positive effect on net operating cash flow. 52 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Value Added (NOVA) NORMA Group’s goal is to use the capital provided by its shareholders and lenders as efficiently as possible in order to secure the Group’s long-term positive development. In order to manage this, NORMA Group determines the annual value creation in the form of NORMA Value Added (NOVA), which is calculated on the basis of adjusted EBIT, the tax rate and the cost of capital. The cost of capital is defined by the weighted average cost of capital (WACC) and capital employed (equity plus net debt). NOVA = (adjusted EBIT x (1 – t)) – (WACC x capital employed) Capital employed as of beginning of the year (Jan 1) 1 Equity (in EUR million) Net debt (in EUR million) 2019 602.4 400.3 Capital employed (in EUR million) 1,002.8 T009 2018 534.3 344.9 879.2 Adjusted EBIT after taxes  1 Adjusted EBIT (in EUR million) Group tax rate (in %) Taxes (in EUR million) Adjusted EBIT after taxes (in EUR million) – WACC x capital employed NOVA (in EUR million) 2019 135.0 27.1 36.7 98.4 81.1 17.3 The cost of capital rate is calculated on the basis of the following assumptions and calculations: Assumptions for the calculation of the WACC  1 T010 in % 2019 2018 T008 2018 164.5 24.9 41.0 Risk-free interest rate Market risk premium 123.5 62.8 60.8 Beta factor of NORMA Group Cost of equity rate Borrowing cost rate after taxes WACC after taxes 0.20 7.50 1.33 11.01 1.79 8.09 0.39 6.50 1.28 9.41 1.85 7.14 The base interest rate is derived from the interest rate structure data of Deutsche Bundesbank (three-month average: October 1 to December 31). The market risk premium represents the difference between the expected return of a risky market portfolio and the risk-free interest rate. NORMA Group uses the recommendation of the Institut der Wirtschaftsprüfer (IDW) to determine this risk premium. The betafactor represents the individual risk of a share compared to a market index. It is first determined as the average value of the unindebted beta factors of the peer group and then adjusted to NORMA Group’s individ- ual capital structure. The cost of equity is calculated by adding the risk-free interest rate and the weighted country risk of NORMA Group with the product of the market risk premium and the indebted beta factor of the peer group. The credit spread used to calculate the cost of debt was determined on the basis of the terms of the current external financing of NORMA Group. Invested capital is calculated from consolidated equity plus net financial liabilities as of January 1 of the fiscal year. The financial control parameters are planned and continuously monitored in the Group, but also for the most part at the segment and Group company levels. Deviations between planned and actually achieved values are tracked in the local companies and aggregated at the regional segment level as part of the monthly analysis. Business development is regularly forecast on the basis of available monthly and quarterly results and under the assumption of various scenarios. Important non-financial control parameters The most important non-financial control parameters for NORMA Group include the extent of market penetration, the Group’s power of innovation, the problem-solving behavior of its employees and the sustainable overall development of NORMA Group as a whole. The values considered for the calculation of NOVA are shown without the effects of IFRS 16 as these are relevant for the management remuneration. 53 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Market penetration NORMA Group always pursues the objective to sustainably expand its business and achieve sales growth and profitability that are higher than average by industry comparison. Particularly by offering innovative solutions, NORMA Group is able to create value creation potential in various areas of application and numerous industries. The Group’s organic growth is thus a sign of NORMA Group’s market penetration. Invention applications The Group considers ensuring an environment of sustainable innovation a key driver of future growth. NORMA Group therefore measures the number of annual invention applications. NORMA Group employees submit invention applications as part of an internal formalized process upstream of the external process of new patent applications. By establishing targeted internal incentive systems, NORMA Group promotes its employees’ innovative thinking. Quality KPIs NORMA Group stands for the highest possible reliability and quality of service. The reputation of its brands and reliability of its products are key factors in the Company’s success. In developing and manufacturing products, the Group therefore relies on the highest quality standards. In order to minimize production losses and maximize customer satisfaction, NORMA Group measures and manages the problem solving behavior of its employees by using two performance indicators: the average number of customer complaints per month and defective parts per million of manufactured parts (parts per million / PPM). The two metrics are collected and aggregated at Group level on a QUALIT Y MANAGEME NT, P. 75 monthly basis. Other non-financial performance indicators Other non-financial performance indicators include employee and environmental indicators and indicators on occupational safety and healthcare within the Group. More information can be found in the 2019 CR REPORT. The target figures for the financial and non-financial control parameters for 2020 and the assumptions underlying the forecast are presented in the FORECAST REPORT, P. 82 Financial control parameters 2019 (excl. IFRS 16 effects)  2019 2018 2017 1,100.1 1,100.1 1,084.1 1,017.1 2016 894.9 2015 889.6 2014 694.7 T011 2013 635.5 13.2 13.1 16.0 17.2 17.6 17.6 17.5 17.7 122.9 111.6 124.4 132.9 148.5 134.7 109.2 103.9 17.3 17.3 60.8 54.9 53.1 48.3 n/a n/a Group sales (in EUR million) Adjusted EBITA margin (in %) 1 Net operating cash flow (in EUR million) NORMA Value Added (in EUR million) 1_The adjustments are shown in the NOTES, P. 148 Non-financial control parameters Number of invention applications 1 Defective parts per million (PMP) 2 Quality-related customer complaints per month 2 2019 2018 2017 2016 2015 2014 22 6 6 32 7 7 33 16 9 n/a 32 8 n/a 21 8 n/a 17 8 T012 2013 n/a 24 9 1_ The number of invention applications has served as a key control parameter for measuring the Group’s innovative ability since mid-2016, replacing the number of patent applications, a figure that had lost significance in light of changes in the patent strategy. Since the number of invention applications was recorded for the first time for fiscal year 2017, there are no comparative figures for the previous years. 2_Statek, which was acquired in 2018 and the newly established plant in Tijuana are not yet included here. 54 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Goals regarding finance and liquidity management II. Limiting financial risks NORMA Group’s objectives with respect to central finance and liquidity management have not changed since the previous year and are as follows: I. Ensuring solvency at all times The main financial objectives are maintaining the necessary liquidity for the Group’s operating business at all times, maintaining sufficient strategic liquidity reserves and thus ensuring NORMA Group’s long-term solvency. This also includes maintaining sufficient liquid funds for short- to medium-term acquisitions. Rolling, regular, currency-differentiated liquidity planning for all major Group companies, which is analyzed and aggregated by the centrally organized Group Treasury, forms the main strategic cornerstone of NORMA Group’s financial management. Financing flexibility is ensured by maintaining the appropri- ate credit lines. These are negotiated loan commitments, which can be utilized within a very short period of time and thus can compensate for liquidity peaks. NORMA Group has a revolving credit line within its syndicated bank loan. This credit lines can be used in different currencies and terms. NORMA Group uses Asset Backed Securities (ABS), factoring and reverse factoring programs to manage liquidity, optimize working capital and make its cash flows more predictable. The financing measures conducted in fiscal year 2019 are described in detail in the notes to the financial position. FIN A NCIA L POS ITION, P. 69 The Group Treasury division constantly identifies and assesses interest rate and currency risks and selects suitable hedging instruments to reduce these risks. Here, not only derivatives, but also the appropriate foreign currency financing, are used to reduce currency risks. The overall goal is to optimize the assets and liabilities side of the balance sheet with regard to currency risks. In addition, operating currency risks are reduced by using derivative financial instruments in the Group companies as of a defined threshold. Here, Group-wide, currency-differentiated liquidity planning is crucial to identifying and managing such risks. To limit interest rate risks, NORMA Group’s objective is to devise a relatively high proportion of financing measures in such a way that they are subject to interest rates on a fixed- interest basis or use interest rate swaps. On December 31, 2019, around 41% of all debt instruments had variable inter- est rates and were not hedged by interest rate swaps. In addition, existing risk positions are monitored regularly by Group Treasury and assessed for their risk-bearing capacity. Group Treasury initiates appropriate countermeasures if the defined risk parameters are exceeded. Key elements of the policy on limiting financial risks are the clear definition of process responsibilities, multi-stage approval processes and regular risk assessments. III. Optimizing the Group’s internal liquidity NORMA Group Holding GmbH assumes central liquidity man- agement and is responsible in particular for investing surplus liquidity as well as for intra-Group financing. The Group Treasury of NORMA Group constantly works on improving internal financing opportunities and bundling the Group’s liquidity in order to make it available for a wide variety of funding purposes. This is achieved by optimizing the alloca- tion of cash and cash equivalents in NORMA Group Holding and at the same time ensuring that the respective individual companies are solvent at all times. This is done by using a professional treasury management system that provides a daily overview of the cash holdings of the most important subsidiaries. Regional cash pools have been installed to enable the technical implementation of liquidity centralization. Further cash concentrations are carried out at regular intervals. Manually pooling funds makes it possible to guarantee an optimized cash balance for all Group companies, whereby the local terms for international payments must be taken into account here, in particular. Research and development Research and development activities at NORMA Group are aimed at further expanding the Group’s power of innovation and detect- ing and addressing technological trends, such as electromobility and digitalization, as early as possible. The focus is on opening up new markets, winning new customers and developing new products and system solutions. That includes evaluating new technologies, especially in terms of their ability to optimize existing processes, minimizing the use of materials and improve the functionality of end products. Research is mainly focused on finding solutions for the global industrial challenges of the respective end markets. By concentrating on the megatrends of importance to its customers, particularly reflected in increasing environmental awareness and the economical use of resources, NORMA Group is able to initiate technology developments at an early stage and serve the market by offering appropriate product solutions and services. Another strategic focus is also on water management. In the context of the implemented reorganization of the product group structure (WATER / FLUID / FASTEN) in fiscal year 2019, smaller organizational restructurings in the R&D department as well as adjustments within the idea evaluation process and the team composition were undertaken. 55 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFocus on innovations and is specifically supported by internal incentive systems such as the annual Innovation Excellence Award. Development focuses in 2019 The focus of NORMA Group’s R&D department is on strengthening the Company’s power of innovation. The focus is therefore on early identification of new technological trends and the systematic planning and implementation of product developments. The Foresight Manager is responsible for observing the relevant end markets, bundling the knowledge acquired and integrating it into the internal innovation management process. In addition, NORMA Group makes use of new methods and innovation management processes, such as ‘Innovation Roadmapping’ and employs so-called ‘Innovation Scouts.’ As part of ‘Innovation Roadmapping,’ long-term technology development schedules are drawn up that take into account the industrial megatrends that have been identified as well as their impact on the relevant markets and resulting requirements for potential new products. ‘Innovation Councils’ are driving the implementation of the projects identified. For example, the Innovation Council ‘E-Mobility’ is responsible for coordinating all information and global activities on electromobility, developing a strategy geared to all regions and business sectors, and pressing ahead with its implementation. Another Innovation Council is also working on the subject of digitalization. Innovation Scouts – dedicated NORMA Group employees who collect ideas on future trends across the Group and evaluate their feasibility – are intensively involved in the innovation process. In an effort to promote innovative thinking within the Group, NORMA Group measures the number of invention applications submitted by its employees. An invention application takes place as part of a formalized internal process in which NORMA Group employees are given the opportunity to submit their ideas to the R&D department. The process of reporting an invention is upstream of the external process of applying for a new patent Thanks to these measures, NORMA Group expects to not only be able to focus on innovations better in the years to come, but also to increase its efficiency in the areas of product and customer development. Strategic collaboration with customers and research institutes In the area of EJT, NORMA Group works closely with its end customers, but also with research and development institutes, suppliers and other external partners. This allows for customer demands to be identified immediately and seamlessly turned into new technologies and product ideas. This, in turn, allows for fast marketing of product innovations. For competitive reasons, however, the Company does not disclose the specific nature of these research partnerships. As the Distribution Services division is purely a commercial unit, the market does not demand the same level of technological research from it. Moreover, customers of NORMA Group in this business division expect a strong brand image, constant availability of products, and the most complete product range. Therefore, the focus in the DS area lies on making useful additions to the product range and targeted marketing activities. R&D activities in fiscal year 2019 were again dominated by the three major trend themes of electromobility, digitalization and water management. In electromobility, the thermal management of batteries is currently a key topic. To this end, NORMA Group is developing special fluid systems that ensure even temperature distribution inside the battery and maintain the optimal operating condition of the cells. Factors such as flow cross-sections, flow resistance and heat transfer play a key role in optimized thermal management. In fiscal year 2019, NORMA Group successfully supported several customer projects in finding individual solutions. In addition, the R&D department is currently working on concepts for the development of intelligent fluid systems that are capable of automatically and wirelessly recording, evaluating and communicating assembly conditions and operating parameters. The first concepts on this have already been developed. NORMA Group has also been active in the area of fuel cells since 2018 and is already supplying line systems for a fuel cell vehicle in series production. This activity resulted in a fundamental project as well as follow-up projects for further vehicle platforms from the same manufacturer in fiscal year 2019. In addition, a project involving a major supplier of hydrogen vehicles was also initiated in 2019. MARKETING, P. 80 Know-how protected by patents The Company’s specific know-how in the area of joining technol- ogy represents a key success factor for NORMA Group. For this reason, the Group protects its innovations with patents. As of December 31, 2019, 1,094 patents and utility models (2018: 1,038) were held. In 2019, 46 new patent rights (2018: 65) were filed. 56 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGR&D expenses R&D employees EJT research and development expenditure in 2019 amounted to EUR 31.2 million (2018: EUR 30.5 million), representing approximately 4.7% (2018: 4.5%) of EJT revenue. The capitalization ratio, which is the proportion of own work capitalized in relation to R&D expenses, during the reporting year amounted to 9.0% (EUR 2.8 million). As of December 31, 2019, 345 employees (2018: 365) worldwide worked for NORMA Group in the R&D department, which rep- resents unchanged to the prior year approximately 5.3% of all permanent employees of the Group. Most of the employees who work in R&D are engineers, technicians and technical draftsmen. R&D key figures ¹ T013 2019 2018 2017 2016 2015 2014 2013 2012 2011 Inspired by nature Number of R&D employees 345 365 344 305 271 250 205 190 174 R&D employee ratio in relation to permanent staff (in %) 5.3 5.3 5.6 5.6 5.3 5.2 5.0 5.1 5.1 R&D expenses in the area of EJT (in EUR million) R&D ratio in relation to EJT sales (in %) 31.2 4.7 30.5 29.4 28.8 25.4 25.7 21.9 22.1 16.8 4.5 4.6 5.4 4.7 5.3 4.9 5.1 4.1 1_The multi-period overview shows the development of the most important R&D indicators since NORMA Group’s IPO. No data was collected prior to the IPO. The loss in pressure inside the cooling systems that is caused by the many coils and constricted areas inside these systems poses one of the biggest challenges in the thermal management of batteries in electric vehicles. To solve this problem, NORMA Group uses the findings from the field of bionics and is oriented towards existing role models in nature, such as shark skin. Its special grooved structure with movable scales along the shark’s entire body significantly reduces flow resistance. This ‘shark skin effect’ is to be applied to thermal management systems in the future, by giving the interiors of the lines longitudinal grooves, for example. This will allow liquids to flow through them more quickly and easily to maintain the pressure and improve the battery’s performance and range. The flow shapes of rivers have also inspired us to take new approaches. Read more about it at BLOG.NORMAGROUP.COM The information in the above box is not part of the Consolidated Management Report and therefore is not subject to the audit. 57 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Economic Report External factors of influence Economic factors NORMA Group is active in many different industries and regions. Seasonal and economic fluctuations in individual countries or industries can have varying effects on customer demand and the order situation at NORMA Group. At the same time, NORMA Group is less vulnerable to temporary declines in demand in individual industries or countries thanks to its diversified product portfolio and broad customer base. Temporary production peaks can be absorbed due to flexible production structures and the use of temporary workers. Trade conflicts put the global economy under considerable pressure in 2019 After a slight downturn just a year earlier, the global economy began a sharp descent in 2019. The main negative factors were the escalation of the trade conflict between the superpowers USA and China as well as the outcome of the Brexit negotiations, which could not be predicted for a long time. As a result, both global trade and investment activity weakened noticeably. By contrast, strong domestic demand and the continued easing of monetary policy by the world’s central banks supported the economy. These measures included the turnaround in interest rates initiated by the US Federal Reserve (FED) at the end of July 2019 and the European Central Bank’s (ECB) continued zero-interest policy and related bond repurchases. Overall, according to the International Monetary Fund (IMF), the global economy grew by 2.9% in 2019 (2018: + 3.6%). At country level, growth momentum flattened further in 2019, especially in China, as a result of US restrictions and subdued international trade. Although industrial production grew relatively strongly by 5.7% (2018: 6.2%), the production of automobiles and industrial robots declined significantly overall. According to offi- cial figures, economic growth in China was 6.1% in 2019 (previous year: 6.6%). In the emerging markets of Southeast Asia (ASEAN-5), the gross domestic product fell to 4.7% (2018: 5.2%). In India as well, the economy came to a standstill due to massive liquidity problems in the financial sector and managed to grow by only 4.8%, following a strong performance the previous year (2018: + 6.8%). Brazil (+ 1.2%) and Russia (+ 1.1%) also showed only moderate growth. Against this backdrop, the expansion rate of the emerging and developing countries declined to 3.7% in 2019 (2018: 4.5%). The difficult environment also became clearly evident in the US. The domestic economy there lost momentum in 2019, although private consumption remained buoyant and government consumption increased. The main reason for this was the lack of follow-up impetus following the 2019 tax reform, even despite several key interest rate cuts by the US Federal Reserve (FED). Although US industrial production was supported by the energy sector and in particular the high-tech industries (communications equipment, semiconductors), it remained weak overall in 2019 (– 0.8%), with capacity utilization falling by an average of 90 basis points to 77.8%. Production also declined significantly in the automotive and consumer goods sectors. In contrast, the economy in Japan, for example, grew moderately by 1.0% (2018: 0.3%) according to the IMF, and economic growth in the United Kingdom also increased by another 1.3% despite the Brexit negotiations that continued throughout the year GDP growth rates (real)  in % World 1 USA 2 China 3 Euro zone 4 Germany 5 2019 2018 + 2.9 + 2.3 + 6.1 + 1.2 + 0.6 + 3.6 + 2.9 + 6.6 + 1.9 + 1.5 T014 2017 + 3.8 + 2.4 + 6.9 + 2.4 + 2.5 Sources: 1_IMF; 2_US Trade Ministry; 3_National Bureau of Statistics (NBS); 4_Eurostat, 5_German Federal Statistical Office (Destatis) Noticeable economic slowdown in the euro zone, domestic demand remained strong in 2019 The negative international environment in 2019 was also reflected in a further economic slump in Europe. This had a particularly negative impact on the export-oriented industrial sectors in the euro zone. Nevertheless, domestic demand remained stable, primarily supported by low inflation, attractive interest rates, high employment figures and, to some extent, fiscal policy stimuli. As a result, consumer-related and service sectors as well as the construction industry proved to be quite strong. According to the statistical office Eurostat, the euro zone economy grew by 1.2% overall in 2019 (2018: 1.9%). Ireland and the Eastern European countries again recorded the strongest growth. The economy also developed strongly in Scandinavia, the Netherlands and Belgium. In France and Spain, economic momentum remained largely stable, especially as industry is heavily geared towards consumer goods, whereas the economy in Italy stagnated, particularly due to structural deficits. 58 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIndustrial production in the euro zone declined in 2019, with the downward trend intensifying from June 2019 onwards and leading to a noticeable slump. This is attributable on the one hand to weak exports and subdued domestic demand in Europe and on the other to a declining willingness to invest. The effects of this were felt above all by manufacturers of intermediate goods, energy and capital goods, whereas the production of durable and non-durable goods increased. All in all, capacity utilization in the euro zone deteriorated significantly within a year. It fell by 230 basis points to 81.3% in the final quarter of 2019. German economy showed a mixed picture in 2019: lively domestic demand combined with weak industry Due to its close ties to the economies of other world markets, Germany was hit harder than other euro zone countries by the global weakness in demand and uncertainties that repeatedly flared up. Particular pressure was felt in the capital goods, intermediate goods and the automotive sector. In this environ- ment, the German economy grew only very weakly at 0.6% according to the Federal Statistical Office (Destatis) (2018: + 1.5%). Economic development was divided: On the one hand, domestic demand proved lively and resilient, so that with an average of 45.3 million people (+ 0.9%) in 2019, a new record in employment was achieved, which meant that private consumption, but also government consumption and construction investments regained momentum compared to the previous year. On the other hand, investments in equipment lost considerable momentum compared to the previous year by posting growth of only + 0.4% (2018: + 4.4%), and exports lost considerable momentum at + 0.9% (2018: + 2.1%). Industrial production also continued to decline at an accelerated pace in 2019, after a significant decline at the end of the previous year, and slid into a deep recession. Thus, production output in each month was up to 6.0% (June) below the level of the respec- tive month of the previous year. As a result, according to Eurostat, capacity utilization declined noticeably in the fourth quarter to 82.7% (Q4 2018: 87.1%). Currency rate effects Due to NORMA Group’s international activities, exchange rate fluctuations also influence its business. While fluctuations between non-euro currencies have only little impact on the operating result of the NORMA Group as a result of regional production, exchange rate fluctuations against the euro as the reporting currency may have a greater impact on its results. Due to high US dollar exposure, fluctuations in the EUR / USD exchange rate in particular affect earnings. R I S K A N D O P P O RT U N I T Y REPORT, P. 89 In fiscal year 2019, NORMA Group generated around 44% of its sales in US dollars. The development of the US dollar against the euro resulted in a positive sales effect in fiscal year 2019. Furthermore, changes in the exchange rates of the following currencies had a negative effect on sales development: British pound, Swiss franc, Indian rupee, Chinese renminbi, Malaysian ringgit, Thai baht and Russian rubel. Industry-specific factors Mechanical engineering in a recession almost worldwide, China also clearly in a downturn The global mechanical engineering industry is experiencing a cyclical downturn which, according to the German Engineering Federation (VDMA), is being exacerbated and overshadowed by a variety of obstacles and structural changes. Examples of these changes include the upheaval within the automotive industry, China’s economic reorientation and increasing protectionism. As a result, global machinery sales stagnated in 2019 (2019: + 5%; 2018: + 5%). China was also hit by global obstacles. In fact,­ industrial growth declined by half to around + 4%. Excluding China, the world market shrank by 2% in real terms in 2019 and was thus in a recession. The sales trend in the ASEAN-5 countries was weak and, in some cases, declined even further. Development was also negative in Japan (– 6%) and South Korea (– 3%). The picture in Latin America was noticeably hetero geneous: Sales in Argentina collapsed massively due to the recession, while the market in Chile grew at double-digit rates. The economies of Brazil and Mexico improved slightly. In the US, the headwind became stronger due to weak industrial growth, with industrial sales dropping by a total of 1% after two strong years. In Europe, the strongly export-oriented mechanical engineering sector also came under noticeable pressure in 2019, with indus- try sales shrinking by 1% in both Europe as a whole and the euro zone according to the VDMA. Italy (– 1%), Spain (– 2%), Portugal (– 15%) and the United Kingdom (– 4%) suffered losses, some of which were substantial. This contrasted with positive trends in Scandinavia and the EU countries in Eastern Europe. In Germany, the order situation for mechanical engineering companies was significantly worse in 2019, with orders down by around 9% (domestic – 9%, foreign – 9%). According to VDMA estimates, this resulted in a 2% decline in both German mechanical engineering output and sales in 2019. Automotive industry 2019 with massive production losses for cars and trucks in some areas The profound technological upheaval has continued at an even faster pace. The pressure on vehicle original equipment manufacturers (OEMs) and suppliers is noticeable, particularly as high development input is required in conjunction with growing pressure on margins and falling sales. In addition, the merger of PSA and FCA initiated in 2019 further drove market concentration. According to LMC Automotive (LMCA), global sales of light vehicles (LV, up to 6 t) fell by around 4.5% to just under 90.2 mil- lion vehicles in 2019. According to the Association of German Automobile Manufacturers, a total of 80.1 million passenger cars were sold in the smaller global passenger car market. The resulting market decline of 5% reached a new high and was thus more 59 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGpronounced than the decline during the financial and economic crisis ten years ago. As a result, LV production was cut by 5.0% worldwide. With the exception of Japan (+ 0.1%), all major regions recorded significant losses, including China (– 7.7%), the US (– 3.9%), Mexico (– 3.3%) and India (– 10.6%). Due to the economic situation, truck and bus manufacturers also felt the effects of headwinds in many regions, especially in Asia. According to the latest data from LMCA, 3.2% fewer trucks were manufactured worldwide than in the previous year, with the US (+ 6.7%) and Japan (+ 4.9%) increasing their truck production against the prevailing negative trend. In Europe (EU28 + EFTA), sales increased by 1.2% to 15.8 million passenger cars (West: + 0.7%, East: + 6.2%), according to the European Automobile Manufacturers Association ACEA (Association des Constructeurs Européens d’Automobiles), despite continuing market pressure. The most significant increase was recorded in Germany (+ 5.0%). Sales also rose in France (+ 1.9%) and Italy (+ 0.3%), while demand declined noticeably in the United Kingdom (– 2.4%) and Spain (– 4.8%). In contrast, according to the LMCA, production in Europe’s export-oriented automotive industry was cut back by 3.3% to just under 21.4 million LV due to global market weakness. Production of light vehicles in Ger- many dropped by as much as 7.2%. Production figures also declined in the UK, France and Italy, in some cases massively. Due to the lower export figures, the production of commercial vehicles in Europe also declined slightly by 1.7% according to the LMCA. According to the ACEA, around 2.6 million trucks were sold in the truck segment in Europe (+ 2.5%), with sales in Western Europe increasing (+ 2.8%) and stagnating in Eastern Europe. In contrast, demand was lively in Germany (+ 6.1%), France (+ 4.3%) and the UK (+ 3.0%). More trucks were also shipped in Italy (+ 1.9%) and Spain (+ 0.3%). Demand was particularly strong for light trucks (up to 3.5 t) and especially for buses, while sales of heavy trucks (>16 t) stagnated. Construction industry in Asia and Europe experiences strong tailwind in 2019, Germany booming US construction industry and water management experience tailwind in 2019 for infrastructure and renovation The construction industry in China, India and Southeast Asia is benefiting strongly from urbanization and political impulses, including infrastructure expansion. According to the statistics office NBS, China’s investments in buildings grew nominally by 9.9% (of which residential construction: + 13.9%), and investments in the water industry by 1.4%. The construction industry in Europe continued its upswing thanks to a high demand for new construction and renovation as well as the favorable financing environment. According to estimates by the industry network Euroconstruct (including the ifo Institute), construction output in Europe rose by 2.3% in real terms in 2019 (2018: 3.2%). Nearly all of the 19 key individual markets for the sector recorded growth, with construction activity in Ireland and Hungary even showing double-digit increases. Finland and Sweden were the only exceptions. Construction output in Western Europe thus increased by 2.0% in real terms (2018: 2.6%), while Eastern Europe’s construction industry even grew by 7.3% in 2019 (2018: 12.8%). In Germany, construction investments in 2019 rose by 3.8% in real terms, after an increase of 2.5% the previous year (Destatis). According to the German Institute for Economic Research (DIW), the volume of residential construction grew by a total of 7.6% to EUR 247 billion (2018: + 8.6%). The volume of new construction grew by 7.4%. Construction work on existing buildings (exten- sion /  conversion, modernization, maintenance), which accounts for roughly two-thirds of the construction volume of apartments, increased by 7.7% (2018: + 7.9%). The construction volume of other building construction (excluding dwellings) rose by 6.6% (2018: + 6.2%). In civil engineering, too, construction output grew vigorously by posting an 8.0% increase (2018: + 8.7%), driven in particular by a positive development in public civil engineering (+ 9.0%). In 2019, a total of 5.6% more private residential units were completed in the US than in the previous year. Nevertheless, the picture for the construction industry was mixed: private construction spending shrank by 2.5% in nominal terms, with a very significant decline in the sub-segment of private residential construction (– 4.7%), while public construction spending rose sharply (+ 7.1%). The increase mainly concerned the highways and roads segment (+ 8.8%) and the water supply sector (7.2%) and was mainly driven by a high demand for renovation and modernization. Investments in the infrastructure of sewage and rainwater plants also benefited from this development. Supported by lower mortgage interest rates, demand for irrigation systems for agriculture, sports facilities, parks and gardens also benefited. According to the industry experts at JBREC (John Burns Real Estate Consulting), demand in the market segments relevant to NORMA Group’s NDS activities increased by 6.5% overall. Legal and regulatory influencing aspects In the context of the international focus of its business and against the backdrop of its acquisition strategy, various legal and tax- related regulations are relevant to NORMA Group, which include product safety and product liability laws, construction, environ- mental and employment-related regulations as well as foreign trade and patent laws. RISK AND OPPORTU NIT Y REPORT, P. 89 60 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn addition, NORMA Group’s product strategy is influenced by increasing density of regulations in environmental law and ongo- ing discussion on emission-reducing drive technologies in the automotive industry. New regulations on emissions and fleet man- agement provisions, as well as the strong trend towards hybrid and fully electric drive models have a positive impact on NORMA Group’s business. After all, the increasing complexity of systems in vehicles – due to downsizing or hybrid vehicles, for example – also increases the number of interfaces and thus the demand for reliable joining technology. In addition, the increasing electrification of the automotive industry presents OEMs with new challenges and opens up new opportunities and business fields for NORMA Group, especially in the area of thermal management. RES EARC H AND DEVELOPME N T, P. 55 With the acquisition of National Diversified Sales (NDS) in 2014 and the acquisition of the Indian water company Kimplas in 2018, the various regulatory initiatives in the field of water management as well as public measures to improve the supply of water to the population have also gained considerable influence for NORMA Group. Significant developments in fiscal year 2019 Personnel changes in the Management Board Bernd Kleinhens, Chairman of the Management Board of NORMA Group, resigned from the Management Board by mutual agreement effective July 31, 2019. Dr. Michael Schneider then took over the duties of Chairman of the Management Board in addition to his role as Chief Financial Officer. The Supervisory Board appointed Dr. Schneider new Chairman of the Management Board of NORMA Group SE in November 2019. Besides serving as Chairman of the Management Board, Dr. Michael Schneider will retain his role as Chief Financial Officer until further notice. In November 2019, the Supervisory Board initiated the search for a suitable candidate for the position of Chief Financial Officer and will most likely decide on the position in the months to come. Strategic measures aimed at optimizing Group structures NORMA Group has grown rapidly in recent years, both organically and through acquisitions. This has also been accompanied by rapid growth in the production landscape and organizational structures. These will be optimized in order to enable the Company to respond promptly and flexibly to changing conditions. In order to further streamline processes and systems within the Group and thus lay the foundations for further growth levels, the Management Board of NORMA Group announced the implementation of a rightsizing program back in February 2019 aimed at the long-term optimization of Group structures. The program includes optimization measures in all regions – EMEA, the Americas and Asia-Pacific – and is designed to focus NORMA Group’s business model on the demands of the future strategic growth fields of electromobility and water management. The measures that have either already been implemented or are planned are expected to make a positive contribution to annual earnings (adjusted EBITA) of around EUR 10 million to EUR 15 million from 2021 on. Total costs of the project are currently EUR 15 million. In light of the persistently difficult market environment and as a consequence of NORMA Group’s – weaker than expected – sales and earnings performance in fiscal year 2019, the Management Board in its new composition also launched the “Get on Track” change program in November 2019 that was approved by the Supervisory Board. This program includes extensive improvement measures and addresses the following three main aspects in particular: optimizing site capacities in all regions, streamlining the product portfolio, mainly through more active portfolio management, and improving structures and processes along the entire value chain. The change program is expected to lead to cost savings from 2020 on that are expected to increase to between EUR 40 million and EUR 45 million annually by 2023. A cumulative total cost volume of around EUR 45 million to EUR 50 million is expected for the implementation and realization of the measures by 2023. The costs of this project will not be adjusted. Optimiziation of Group financing NORMA Group managed to refinance its credit lines in fiscal year 2019, thereby creating financial security and flexibility for the future. The new credit agreement has an initial volume of EUR 250 million. Furthermore, a revolving facility of EUR 50 million and an accordion facility were also concluded, whereas the accordion facility does not have a maximum threshold. In addition, for the first time, the financing agreements also include a sustainability component that links the financing terms to NORMA Group’s activities in the area of Corporate Responsibility. By further improving its sustainability rating, the Company now has the chance to reduce the interest burden of its financing. The credit agreement was concluded for a term of five years and includes the option to extend it twice for a further year each time. The financing is comprised of tranches denominated in euros and US dollars. FINANCIAL POSITIONS, P. 69 Comparison of target and actual values NORMA Group published a forecast in its 2018 Annual Report on the development of the Group’s most important financial figures in fiscal year 2019. In the course of the fiscal year under review, the Management Board was forced several times to concretize or adjust its forecast for Group sales growth, the adjusted EBITA margin and the net operating cash flow due to changes in the general economic conditions. The following explanations provide an overview of the forecast adjustments and a comparison of the projected values with the Group’s actual results. 61 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGAdjustments to the forecast during the year The Management Board of NORMA Group concretized the fore- cast for the Group’s adjusted EBITA margin in April 2019 on the basis of sales in the first quarter of 2019 and the expected results for the full year. At that time, the Management Board still expected the adjusted EBITA margin to be within the range of 15% to 17% as forecasted in March 2019, although this figure was expected to be at the lower end of the range. This was due to the difficult economic and political environment, which proved to be much more volatile than expected, especially in the EMEA and Asia- Pacific regions. The market environment in the global automotive business continued to deteriorate in the summer of 2019. The negative impact from the global trade disputes and sanctions and the resulting reluctance to invest were reflected in a continued decline in business, particularly in the EMEA and Asia-Pacific regions. In addition, the costs for the introduction of an ERP system at a site in Latin America also had a negative impact on Group earnings. These developments prompted the Management Board to revise its forecast for organic sales growth, earnings development and net operating cash flow downwards in July 2019. Instead of organic growth of around 1% to 3%, the Management Board now expected organic growth within a corridor of around – 1% to around 1%, an adjusted EBITA margin of over 13% (previous forecast: at the lower end of the corridor between 15% and 17%) and net operating cash flow of EUR 90 million (previous forecast: EUR 100 million). In the course of the reporting on the second quarter of 2019, the Management Board also revised its forecast for NOVA and adjusted earnings per share and now assumed NOVA of EUR 30 million to EUR 40 million (previous forecast: EUR 50 million to EUR 60 million) and a sharp decline in adjusted earnings per share (previous forecast: moderate increase). In October 2019, the Management Board lowered its forecast for organic sales growth for the regions and the Group and has since then expected an organic decline in Group sales of around 4% to 2%. The main reason for this was the sharp downturn in the EJT business in the US, which was partly due to strikes at key customers in the passenger car and truck industries. In addition, the EMEA and Asia-Pacific regions also fell slightly short of expectations. With regard to NORMA Value Added (NOVA), the Management Board now expected a bandwidth of between EUR 20 million and EUR 30 million for the full year 2019. TABLE 015 on P. 63 provides an overview of the target and The actual values as well as the forecast adjustments during the year. Deviations from the target values NORMA Group’s organic growth in Group sales of – 2.0% is within the range of – 4% to – 2%, which was revised downwards in October 2019, but significantly below the original forecast of around 1% to 3% published in March 2019. Development was mixed with regard to cost factors. While adjusted cost of materials ratio and adjusted other operating income and expenses as a percentage of sales improved, the adjusted personnel cost ratio deteriorated significantly due to the increased number of employees, severance payments to a former member of the Management Board and lower sales revenues. Among other factors, other operating expenses positively reflect the effects of the first-time application of IFRS 16. The adjusted EBITA margin for fiscal year 2019 was at 13.2% (excluding IFRS 16: 13.1%), which was also significantly below the initially forecast range of 15% to 17%, but within the forecast of over 13% that was revised downwards in July 2019. This development was also reflected in adjusted earnings per share, which, at EUR 2.76, were within the range of the forecast adjusted over the course of the year (sharp decline), but thus contrary to the original expectations (moderate increase). Net operating cash flow amounted to EUR 122.9 million (without IFRS 16: EUR 111.6 million) in fiscal year 2019 and was thus above the original forecast of around EUR 100 million (without IFRS 16), whereas this was also revised downwards to around EUR 90 million (without IFRS 16) in fiscal year 2019. NOVA amounted to EUR 17.3 million (without IFRS 16: EUR 17.3 million) in fiscal year 2019 and clearly failed to meet the original forecast of EUR 50 million to EUR 60 million as well as the forecast adjusted in October 2019 to EUR 20 million to EUR 30 million. One of the reasons for this was the increase in the market risk premium that was given exogenously on the recommendation of the German Institute of Public Auditors (IDW). The other key financial figures were in line with the forecast published in the 2018 Annual Report. 62 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGActual business development compared to the forecast 1 Group sales Organic growth of Group sales Organic sales growth EMEA Organic sales growth Americas Organic sales growth Asia-Pacific Sales growth EJT Sales growth DS Adjusted cost of materials ratio Adjusted personnel expense ratio Adjusted EBITA margin NOVA Financial result Adjusted tax ratio Earnings per share Results in 2018 1 March 2019 2 April 2019 July / Aug. 2019 Oct. / Nov. 2019 EUR 1,084.1 million 7.7% organic growth, additionally EUR 16.5 million from acquisitions 2.0% 12.4% 14.9% 7.3% 5.8% 43.6% 25.9% 16.0% between EUR 50 million and EUR 60 million EUR – 11.7 million 24.9% EUR 3.61 (adjusted) EUR 2.88 (reported) n/a moderate organic growth of around 1% to 3%, additionally around EUR 13 million from acquisitions moderate organic growth moderate organic growth strong organic growth moderate growth moderate growth roughly at the same level as in pre- vious years roughly at the same level as in pre- vious years between 15% and 17% n/a no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment n/a organic growth of – 1% to 1% n/a organic decline of around – 4% to – 2% moderate organic decline no adjustment moderate organic decline noticable organic decline moderate organic growth moderate organic decline noticable decline no adjustment no adjustment no adjustment no adjustment moderate decline no adjustment moderate increase noticable increase the lower end of the range of 15% to 17% moren than 13% no adjustment no adjustment no adjustment between EUR 30 million and EUR 40 million. between EUR 20 million and EUR 30 million. up to EUR – 15.0 million no adjustment no adjustment no adjustment around 25% to 27% moderate increase no adjustment no adjustment no adjustment strong decline no adjustment no adjustment Net operating cash flow EUR 124.4 million around EUR 100 million no adjustment around EUR 90 million no adjustment Investments in R&D (related to EJT sales) Investment rate (without acquisitions) 4.5% 5.8% Dividend / Payout ratio EUR 1.10 2  30.5% Number of invention applications Number of defective parts per million (PMP) Average number of quality- related customer com- plaints per month 32 7 7 around 5% of EJT sales operational investments of around 5% of Group sales approx. 30% to 35% of adjusted annual Group earnings no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment more than 20 less than 20 less than 8 no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment 1_The adjustments relate to adjustments for acquisitions as well as the initiated “Rightsizing” program announced in February 2019. 2_ Changes in key figures resulting from the first-time application of IFRS 16 were not taken into account in the forecast for the 2019 fiscal year. The deviations in the key figures due to the first application of NOTES, P. 148 IFRS 16 is shown in brackets in the table. 3_In accordance with the Management Board‘s proposal for the appropriation of net profit, subject to the approval by the Annual General Meeting on June 30, 2020. T015 Results in 2019 (without IFRS 16)  2 EUR 1,100.1 million. – 2.0% organic growth, additionally EUR 13.3 million from acquisitions – 2.3% – 3.1% 2.3% – 2.8% 9.2% 43.4% 27.5% 13.2% (13.1%) EUR 17.3 million. (EUR 17.3 million) EUR – 15.5 million (EUR – 14.2 million) 27.1% EUR 2.76 (adjusted) EUR 1.83 (reported) EUR 122.9 million (EUR 111.6 million) 4.7% 5.0% EUR 0 3 0 3 22 6 6 63 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING General statement by the Management Board on the course of business and economic situation Earnings, assets and financial position Adjustments For NORMA Group, fiscal year 2019 was a year with many unforeseeable challenges, which had a negative impact on some parts of the Group and thus a negative impact on the Group’s sales and earnings in the past year. These contrary developments affected the automotive industry in particular, which suffered significant production and sales losses worldwide in fiscal year 2019. This development had a particularly negative impact on NORMA Group’s EJT business, which consequently showed an organic decline in sales of 4.5%. Despite the relatively good development of the DS business – and in particular of the water business – this could not be compensated for by organic sales growth of 2.7%. With the additional sales revenues from the acquisitions of Kimplas and Statek, which contributed 1.2% to total sales growth and positive currency effects of 2.3%, Group sales growth in fiscal year 2019 amounted to 1.5%. In addition to this sales growth that was significantly lower than initially expected, additional cost increases in the areas of personnel and materials had a negative impact on earnings. These circumstances led to an adjusted EBITA margin of 13.2% (2018: 16.0%) and adjusted earnings per share of EUR 2.76 (2018: EUR 3.61). This development was significantly below the Management Board’s expectations and meant the forecast needed to be revised over the course of the year. The Management Board is cautious for the current year due to the continuing risks and difficult conditions in some of the industries that are important to NORMA Group and expects a noticeable decline in organic sales for fiscal year 2020. In addition, the Management Board expects an adjusted EBITA margin of more than 13% as a result of the change program that has been introduced. FORECAST R EPORT, P. 8 2 Notional income taxes resulting from the adjustments are calculated using the tax rates of the respective local companies concerned and included in adjusted earnings after taxes. The following table shows the result adjusted for these effects: NORMA Group adjusts certain expenses for the operational management of the Company. The following adjusted results shown reflect the Management Board‘s view. In fiscal year 2019, net expenses of EUR 13.4 million in total were adjusted within EBITDA (2018: EUR 4.4 million). These relate primarily to other operating expenses (EUR 2.9 million) and employee benefit expenses (EUR 9.9 million) as well as to the cost of materials (EUR 0.2 million) from the “Rightsizing” project initiated in the fourth quarter of 2018 in order to optimize the Group’s structures. The adjustments within expenses for employee benefits relate to costs for project hours of internal employees of the core workforce, costs for project employees who were hired temporarily and costs for severance payments. The adjustments in fiscal year 2018 are described in the Notes to the Consolidated Financial Statements. NOTES, P. 148 Adjustments 1 in EUR million Group sales EBITDA EBITDA margin (in %) EBITA EBITA margin (in %) EBIT Furthermore, expenses for integration in connection with the acquisitions of Kimplas and Statek were adjusted within other operating expenses (EUR 0.3 million) and within employee benefits (EUR 0.1 million). Financial income Profit for the period EPS (in EUR) 2019 adjusted Adjustments T016 2019 reported 1,100.1 187.2 0 1,100.1 13.4 173.8 17.0 144.8 13.2 136.1 – 15.5 87.8 2.76 15.8 127.9 11.6 96.7 – 15.5 58.4 1.83 16.9 39.4 0 29.4 0.93 1_Deviations may occur due to commercial rounding. In addition to the adjustments described above, depreciation on property, plant and equipment from purchase price allocations of EUR 3.4 million (2018: EUR 3.9 million) was shown as adjusted within EBITA and amortization of intangible assets from purchase price allocations of EUR 22.5 million (2018: EUR 21.1 million) was shown as adjusted within EBIT. An impairment loss of EUR 1.4 million in the area of capitalized customer relationships was adjusted in fiscal year 2018 within amortization of intangible assets. This related to the Chinese company Fengfan. 64 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGEffects from the first-time application of IFRS 16 Earnings position The effects of the first-time application of IFRS 16 on the Consolidated Statement of Financial Position as of Janu- ary 1, 2019 and the effects on the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Cash Flows for the period from January 1 to December 31, 2019 are presented in the Notes to the Consolidated Financial Statements. NOT ES, P. 119 FF. The following table shows the effects on key performance indicators of NORMA Group. Effects from the first-time adoption of IFRS 16 on key financial control parameters 1 T017 The development described below explains the changes in the main items of the income statement in the year under review, adjusted for the above-mentioned special effects. NOTES, P. 148 Sales development Slight growth in Group sales, organic sales down In fiscal year 2019, NORMA Group’s sales increased by 1.5% to EUR 1,100.1 million (2018: EUR 1,084.1 million). This figure includes a 2.0% decline in organic sales (2018: + 7.7%) and acquisition-related growth of 1.2% (2018: 1.6%). Currency effects in connection with exchange rate changes had a positive effect of 2.3% (2018: – 2.8%). in EUR million 2019 adjusted Effects of IFRS 16 Adjusted EBITA 144.8 Adjusted EBITA margin (in %) 13.2 1.0 0.1 2019 adjusted without IFRS 16 143.8 13.1 The decline in organic sales growth is mainly due to the weak development of the global automotive industry and the resulting drop in demand for joining technology. The main reasons for this were the WLTP issue in Europe, which still persisted at the beginning of the year, the ongoing trade dispute between the US and China and the restructuring in the industry caused by the technological changes. In addition, the negative development of the truck business in the US towards the end of the past fiscal year also had a dampening effect. Net operating cash flow in % related to sales NORMA Value Added (NOVA) 122.9 11.3 111.6 11.2 1.1 10.1 The Distribution Services (DS) business unit was the main growth driver in fiscal year 2019, which was positively influenced in particular by the good development of the US water business. In addition, the companies Kimplas and Statek, which were acquired in fiscal year 2018, made a positive contribution to sales growth. 17.3 0 17.3 1_ Deviations may occur due to commercial rounding. Development of sales 2019 in EUR million H1: 564.7 H2: 535.4 2019 2018 G011 1,100.1 1,084.1 H1: 549.0 H2: 535.1 200 400 600 800 1.000 Effects on Group sales 1 T018 in EUR million Share in % Group sales 2018 Organic growth Acquisitions Currency effects Group sales 2019 1,084.1 – 21.6 13.3 24.4 1,100.1 – 2.0 1.2 2.3 1.5 1_ Deviations may occur due to commercial rounding. Heterogeneous growth in the three regional segments Growth in the individual regional segments varied greatly in fiscal year 2019. The Asia-Pacific region recorded the strongest growth in fiscal year 2019, with sales of EUR 163.4 million (2018: EUR 147.8 mil- lion), an increase in sales of 10.5% and organic growth of 2.3%. This was primarily due to the strong growth in the second half of the year, which was characterized by a revival of business and obtaining new orders in China. Additional revenues from the acquisition of Kimplas (EUR 10.3 million) and positive currency effects also contributed to growth in the region. 65 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The Americas region achieved slight growth of 2.1% year-on- year by posting sales of EUR 450.8 million (2018: EUR 441.5 mil- lion). This was driven in particular by the good development of the NDS water business in the US as well as positive currency effects in connection with the development of the US dollar. The EMEA region recorded a 1.8% decline in sales to EUR 486.0 million (2018: EUR 494.8 million) in fiscal year 2019 due to the weak development in both the European automotive business and stagnation in the DS segment. SEGM ENT RE PORT ING, P. 71 EJT business affected by weakness in the automotive sector, DS business grows significantly Sales in the EJT segment amounted to EUR 665.5 million in fiscal year 2019 (2018: EUR 684.6 million), down 2.8% on the previous year. The main reason for this was the poor conditions in the automotive sector with declining production and sales figures in all three regional segments. While the EJT business in the Asia- Pacific region recovered noticeably in the second half of the year and showed organic growth for the year as a whole, the situation in the EMEA and Americas regions essentially remained unchanged in the third and fourth quarters. The collapse of the US market for commercial vehicles and strikes by key customers in the passenger car and truck sectors placed additional pressure on the business. Distribution Services revenues amounted to EUR 430.2 million in 2019, an increase of 9.2% over the previous year (2018: EUR 393.8 million). The strong US water business as well as the companies Kimplas and Statek acquired in fiscal year 2018 contributed to DS sales growth. Acquisition-related sales growth in the DS segment amounted to 3.3%. Development of sales channels T019 Adjusted cost of materials and cost of materials ratio G012 EJT DS 2019 2018 2019 2018 Group sales (in EUR million) 665.5 684.6 430.2 393.8 Growth (in %) – 2.8 7.3 9.2 Share of sales (in %) 61 63 39 5.8 37 600 400 200 473.1 477.4 43.4 43.6 100 80 60 40 20 Development of earnings Adjusted cost of materials ratio slightly improved Adjusted cost of materials amounted to EUR 477.4 million in fiscal year 2019, up 0.9% year-on-year (2018: EUR 473.1 million). The adjusted cost of materials ratio (cost of materials in relation to sales) was 43.4%, a slight improvement over the previous year (2018: 43.6%). Taking into account the change in inventories of finished goods and work in progress (2019: EUR 3.0 million; 2018: EUR 10.4 million), the cost of materials ratio was 43.1%, representing a year-on-year increase (2018: 42.7%). Adjusted gross margin decreased Adjusted gross profit amounted to EUR 630.6 million in fiscal year 2019, an increase of 0.6% from EUR 626.6 million the previous year. At 57.3%, the adjusted gross margin was 50 basis points below the level of the previous year (2018: 57.8%). 2018 2019 (Adjusted) Cost of materials (in EUR million, LHS) (Adjusted) Material cost ratio (in %, RHS) Adjusted personnel cost ratio increased Adjusted personnel expenses amounted to EUR 302.4 million in fiscal year 2019, a 7.7% increase over the previous year (2018: EUR 280.8 million). Besides an increase in the number of employees, severance payments to a former member of the Management Board also contributed to the increase in personnel expenses compared to the previous year. Furthermore, the reduced allocations to provisions for bonus payments for employ- ees in fiscal year 2018 led to a lower basis of comparison in the previous year. The adjusted personnel cost ratio resulting from the ratio of adjusted personnel expenses to sales amounted to 27.5% in fiscal year 2019 and was thus significantly higher than in the previous year (2018: 25.9%). 66 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Adjusted other operating income and expenses decreased compared to sales The balance of adjusted other operating income and expenses amounted to EUR – 141.0 million in fiscal year 2019, represent- ing a decline of 2.3% over the previous year (2018: EUR – 144.4 million). This was due in particular to the effects of the first-time application of IFRS 16. In relation to sales, the balance of adjusted other operating income and expenses fell to 12.8% (2018: 13.3%) compared to the previous year. Other operating income includes in particular currency gains from operating activities of EUR 6.1 million (2018: EUR 7.6 million) as well as income from the release of liabilities and provisions in the amount of EUR 4.0 million (2018: EUR 3.9 million). OT H E R OPERATIN G INCOM E , P. 15 2 Other operating expenses include currency losses from operating activities of EUR 6.3 million (2018: EUR 8.5 million). In addition, IT and telecommunications costs (+ 9.7%) and freight costs (+ 7.7%) in particular increased compared to the previous year, while expenses for rents and building costs fell by 57.2% due to the first-time application of IFRS 16. OT H E R O P E R AT I N G EXPENSES, P. 1 52 Adjusted operating earnings impacted by weak sales growth and a high personnel cost ratio Adjusted operating earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) amounted to EUR 187.2 mil- lion in fiscal year 2019 and were thus 7.0% below the previous year’s level of EUR 201.4 million, despite the positive effects of IFRS 16 (EUR 11.4 million). The weaker sales growth and the higher personnel cost ratio had a negative effect on the adjusted EBITDA. The adjusted EBITDA margin resulting from the ratio to sales amounted to 17.0% and was thus significantly below the level of the previous year (2018: 18.6%). Return on capital employed (ROCE) in EUR million 2019 2019 (without IFRS 16) T020 2018 Adjusted EBIT 136.1 135.0 164.5 Average capital employed 1,043.8 1,008.3 13.0% 13.4% 941.0 17.5% Adjusted EBITA amounted to EUR 144.8 million in 2019, a decrease of 16.4% compared to the previous year (2018: EUR 173.2 million). The resulting underlying EBITA margin was 13.2% (16.0%). Return on capital employed (ROCE) The return on capital employed (ROCE), which is calculated by dividing adjusted EBIT by the average capital employed during the year, amounted to 13.4% in fiscal year 2019 and thus decreased compared to the previous year (2018: 17.5%). Adjusted EBITA and adjusted EBITA margin G013 250 200 150 100 50 173.2 16.0 2018 100 80 60 40 20 144.8 13.2 2019 Adjusted EBITA (in EUR million, LHS) Adjusted EBITA margin (in %, RHS) NORMA Value Added significantly lower NORMA Value Added (NOVA), the relevant benchmark for the long-term remuneration of the Management Board, amounted to EUR 17.3 million in fiscal year 2019, a significant decrease com- pared to the previous year (2018: EUR 60.8 million). The reasons for this were the weak operating result (adjusted EBIT), higher invested capital than in the previous year due to the acquisitions of Kimplas and Statek, and a higher tax rate. In addition, the calculation of NOVA is based, among other factors, on a higher weighted average cost of capital (WACC) of 8.1% in fiscal year 2019 (2018: 7.1%) as a result of an increased market risk premium. CONTROL SYSTEM AND CONTROL PARAMETERS, P. 52 Financial result impacted by the effects of IFRS 16 The financial result was down on the previous year at EUR – 15.5 million (2018: EUR –11.7 million) in fiscal year 2019, mainly influ- enced by the first-time application of IFRS 16 and the associated increase in interest expense from leasing liabilities by EUR 1.3 million. In addition, the financial result includes net currency gains / losses (including income / expenses from the measurement 67 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGof currency hedging derivatives) of EUR – 0.2 million (2018: EUR 0.7 million), as a result of the hedging of the financial liabilities denominated in US dollars and the year-on-year development of this currency. At EUR 13.3 million, the net interest expense was at the the prior­year‘s level (2018: EUR – 13.3 million). NOTES, P. 152 Higher revised and adjusted income tax rate Revised income taxes amounted to EUR 32.7 million in fiscal year 2019 (2018: EUR 38.0 million), resulting in a revised and adjusted tax rate of 27.1% (2018: 24.9%). The increase in the tax rate compared to the previous year is mainly due to additional income taxes (“state taxes”) to be paid in some US states as well as taxes paid retroactively for previous years in the US and non-creditable withholding taxes in Singapore. Lower adjusted profit for the period Adjusted profit for the period after taxes amounted to EUR 87.8 million in fiscal year 2019 and thus decreased by 23.5% compared to the previous year (2018: EUR 114.8 million). Based on the unchanged number of shares of 31,862,400 compared to the previous year, adjusted earnings per share after deduction of the profit for the period for non-controlling interests amounted to EUR 2.76 (2018: EUR 3.61). Asset position Higher total assets Total assets as of December 31, 2019 amounted to EUR 1,514.3 million and were thus 2.9% higher compared to the previous year (Dec 31, 2018: EUR 1,471.7 million). A major reason for this was the first-time application of IFRS 16, which led to an extension of the balance sheet due to the rights of use from operating leases that had to be capitalized for the first time and the corresponding lease liability. Asset and capital structure 1 in EUR million Assets Non-current assets 2019 2018 963 928 The share of non-current assets to total assets amounted to 63.6% as of the balance sheet date (Dec 31, 2018: 63.1%). G014 NOTES, P. 157 Current assets Liquid assets 372 179 1,514 353 191 1,472 Current assets amounted to EUR 551.5 million as of the balance sheet date, up 1.5% on the previous year (Dec 31, 2018: EUR 543.4 million). Trade receivables (including other receivables) increased by EUR 19.2 million to EUR 162.4 million. This increase is partly due to the reduction of ABS and factoring programs compared to the previous year’s reporting date. 250 500 750 1,000 1,250 1,500 1,750 Liabilities Equity 2019 2018 629 603 Non-current liabilities Current liabilities 620 265 1,514 552 317 1,472 250 500 750 1,000 1,250 1,500 1,750 1_Deviations may occur due to commercial rounding. Assets increased NORMA Group’s non-current assets amounted to EUR 962.8 mil- lion as of December 31, 2019, up 3.7% on the previous year (Dec 31, 2018: EUR 928.3 million). In particular, the effect of the first-time application of IFRS 16 was reflected in an increase in property, plant and equipment. A total of EUR 54.8 million was invested in fixed assets in fiscal year 2019 (2018: EUR 63.3 million). Moreover, EUR 31.4 million were additionally recorded to fixed assets for the capitalization of the rights of use from leased assets for leased land and buildings. In contrast, cash and cash equivalents declined by EUR 10.7 mil- lion or 5.6% to EUR 179.7 million. At 36.4%, the share of current assets in total assets remained nearly unchanged from the previous year’s reporting date (Dec 31, 2018: 36.9%). Working capital increased (Trade) working capital (inventories plus receivables less liabilities, both primarily from trade payables and trade receivables) amounted to EUR 192.5 million as of December 31, 2019, which was 7.4% higher than in the previous year (Dec 31, 2018: EUR 179.2 million). It was mainly influenced by a disproportion- ately high increase in trade receivables as a result of the ABS and factoring programs that were scaled back in fiscal year 2019. The working capital ratio in relation to sales was 17.5% as of December 31, 2019 (Dec 31, 2018: 16.5%). Increased equity ratio Consolidated equity amounted to EUR 629.5 million as of December 31, 2019, an increase of 4.5% compared to the previous year (2018: EUR 602.4 million). The increase in equity was largely due to the result for the period of EUR 58.4 million, but also positive currency translation differences of EUR 9.0 million. The dividend payment of EUR 35.0 million in the second quarter of 2019 reduced equity. The first-time application of IFRS 16 resulted in a reduction of EUR 2.0 million in the opening balance sheet value 68 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGof equity. The equity ratio was 41.6% (2018: 40.9%) at the end of fiscal year 2019, an increase over the previous year. Higher net debt Net debt (financial liabilities, including derivative hedging instruments in the amount of EUR 0.9 million, less cash and cash equivalents) amounted to EUR 420.8 million at the end of the reporting period and thus rose by 5.1% compared to the previous year (Dec 31, 2018: EUR 400.3 million). This was mainly due to the first-time application of IFRS 16, while the cash neutral currency effects on foreign currency loans and current interest expenses increased net debt in the first six months of 2019. Financial liabilities Financial liabilities increased by 1.7% to EUR 600.5 million (Dec 31, 2018: EUR 590.7 million). In the area of financial liabili- ties, loan liabilities declined to EUR 541.9 million (Dec 31, 2018: EUR 569.1 million). This decline is mainly due to the net repayment in connection with the refinancing in December 2019. Leasing liabilities increased by EUR 38.6 million due to the liabilities from capitalized leases recognized for the first time in 2019 in accordance with IFRS 16. NOTES, P. 17 1 F F. Gearing (net debt in relation to equity) as of the 2019 balance sheet date was 0.7 and thus unchanged from the previous year. Leverage (net debt without hedging derivatives in relation to adjusted EBITDA of the last twelve months) increased to 2.2 compared to the previous year (Dec 31, 2018: 1.9). Unrecognized assets NORMA Group’s rights to its brands and patents on the brands it owns, but customer relationships, if acquired externally, are also recognized in the balance sheet as intangible assets. However, the reputation of these brands and how well known they are among the NORMA Group’s customers also play important roles in the success of its business. Well-established customer relationships that are based on NORMA Group’s long-standing distribution network are equally important. The know-how and experience of NORMA Group employees also play important roles in the Company’s success. The many years of research and development expertise and project management know-how are also seen as competitive advantages for NORMA Group. These values are not recognized in the balance sheet. Financial position Financing measures The refinancing was concluded with a bank consortium consisting of ten international banks. A sustainability component links the financing conditions to NORMA Group’s commitment to corporate responsibility. The new financing was used to repay maturing promissory note tranches and refinance the existing bank loan agreement, significantly reducing NORMA Group’s overall gross debt (liabilities to financial institutions). In addition, a commercial paper program was established that can be used for short-term liquidity management. As of December 31, 2019, EUR 15 million of this program had been utilized. As of the reporting date December 31, 2019, the revolving line of credit in the amount of EUR 50 million in the syndicated loan had not been used. The accordion facility that was negotiated as part of this loan agreement had also not been drawn as of the report- ing date of December 31, 2019. Both instruments are available to NORMA Group at least until 2024, which ensures a maximum of financing flexibility. NORMA Group monitors risks from changes in exchange and interest rates on a regular basis and aims to limit them by using derivative hedging instruments among other tools. Furthermore, NORMA Group generally strives to achieve a diversification of its financing instruments in order to reduce risks. These also include prolongation of repayment obligations and an even distribution of the maturity profile. Most of the supply and service relationships between individual currencies are simultaneously hedged over the course of the year. NORMA Group successfully refinanced its bank credit lines in fiscal year 2019, thereby creating additional financial security and even greater flexibility for the future. The new credit agreement has an initial total volume of EUR 300 million. This includes a revolving facility of EUR 50 million and a flexible accordion facility. NORMA Group uses interest rate hedges to reduce interest rate risks that could result from the external financing components. As of December 31, 2019, the average interest rate on total gross debt was 2.1%. NORMA Group’s maturity profile for all three promissory notes I (2013), II (2014) and III (2016) and the syndicated credit line (2019) on December 31, 2019, are shown in the GRAPHICS 015 AND 016 ON P. 70. As of the balance sheet date in 2019, NORMA Group complied with all of the conditions contained in the loan contracts (financial covenants: debt in relation to consolidated EBITA). Future concrete financing steps will depend on the current changes in the financing markets and acquisition potential. 69 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGMaturity profile by currency G015 in EUR million 300 250 200 150 100 50 0 109 184 51 49 44 11 52 41 2020 2021 2022 2023 2024 2025 2026 Euro US dollars Maturity profile by financial instrument G016 in EUR million 300 250 200 150 100 50 0 45 248 15 29 65 35 42 21 41 2020 2021 2022 2023 2024 2025 2026 Bank borrowings Promissiory Note I CP program Promissiory Note II Promissiory Note III Development of cash flow Net operating cash flow declined slightly In fiscal year 2019, NORMA Group generated net operating cash flow (adjusted EBITDA less changes in working capital and oper- ating expenses) of EUR 122.9 million (2018: EUR 124.4 million). This includes a positive effect of EUR 11.3 million from the first- time application of IFRS 16. Without this effect, net operating cash flow would have been EUR 111.6 million. In contrast, the reduction of factoring activities in the amount of EUR 10.4 million had a negative effect. Cash flow from operating activities Cash flow from operating activities, which is derived indirectly from the net profit for the period, amounted to EUR 137.1 million in fiscal year 2019 (2018: EUR 130.8 million) and is thus higher than in the previous year. Among other factors, this is due to the first-time application of IFRS 16, which resulted in a change in the presentation of the cash flows attributable to capitalized leases from cash flow from operating activities to cash flow from financing activities. The total effect of the first-time application of IFRS 16 on cash flow from operating activities amounted to EUR 11.3 million. NOTES, P. 195 NORMA Group participates in a reverse factoring program, a factoring program and an ABS program. The corresponding cash flows are presented under cash flow from operating activities as this reflects the economic substance of the transactions. Liabilities under the reverse factoring program are reported under trade payables and similar liabilities. As of December 31, 2019, liabilities of EUR 21.3 million (Dec 31, 2018: EUR 19.2 million) from reverse factoring programs were recognized. The total amount of cash flow relevant trade receivables sold under the factoring and ABS programs amounted to EUR 48.7 million as of December 31, 2019 (2018: EUR 61.2 million). NOTES, P. 169 FF. The cash inflow from operating activities also includes payments for share-based payments of EUR 1.0 million (2018: EUR 3.5 mil- lion) resulting from the cash remuneration under the Long-Term Incentive plan (LTI) for employees of NORMA Group (2018: cash remuneration of the 2014 tranche of the MSP and LTI for employees of NORMA Group). Cash flow from investing activities Net cash used in investing activities was EUR 57.0 million in 2019 (2018: EUR 129.5 million). Cash flow from investing activities in 2019 was particularly influenced by the outflow of funds for the procurement of non-current assets in the amount of EUR 57.8 million (2018: EUR 60.8 million). This includes expenses for the expansion (2019: EUR 33.0 million; 2018: EUR 42.8 million) and expenses for the maintenance and improvement of operating capacities (2019: EUR 21.8 million; 2018: EUR 20.5 million). In the previous year, the cash flow from investing activities was mainly impacted by net payments for acquisitions (Kimplas and Statek) amounting to EUR 69.8 million. NORMA Group’s investing activities in fiscal year 2019 (tangible and intangible assets) in the amount of EUR 54.8 million (2018: EUR 63.3 million) represents a reduced investment ratio of 5.0% (2018: 5.8%) of sales. 70 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group is investing the funds from the operating cash flow in further growth, among other areas. The investments made in the 2019 reporting year related to production facilities and capacity expansion, mainly in the US, Mexico, Poland, Serbia, the Czech Republic, France and China. PRODUCTION AND LOGISTICS, P. 74 Cash flow from financing activities Cash flow from financing activities was EUR – 93.2 million in 2019 (2018: EUR 31.3 million). It mainly includes net loan payments (EUR – 32.9 million), dividend payments to the shareholders of NORMA Group SE (EUR – 35.0 million) and interest payments (EUR – 15.1 million). Furthermore, due to the first­time application of IFRS 16, payments for leasing liabilities (EUR – 10.1 million) are reported under cash flow from financing activities. Breakdown of sales by segments 1 G017 15% (13%) Asia-Pacific 41% (41%) Americas 1_Previous year’s figures in brackets. 44% (46%) EMEA Segment reporting EMEA As a result of acquisitions and developing new markets in line with NORMA Group’s continuing strategy of internationalization, the share of sales realized internationally increased from 81.2% to 83.0%. Due to the fact that financing as a whole is controlled centrally and exclusively made available through approved external credit facilities by the central functions of NORMA Group, the Company forgoes publishing a separate list of financing by segment. In every segment, the aim is to achieve an investment ratio and cash generation that is in line with the Group average in the medium-term. GOALS AND STRATEGIES REGARDING FINANCE AND LI QUID IT Y MA NAGEM ENT, P. 55 Effects from the first-time application of IFRS 16 in EMEA  1 in EUR million Adjusted EBITDA Adjusted EBITDA margin (in %) Adjusted EBITA Adjusted EBITA margin (in %) Assets (Dec 31, 2019) Liabilities (Dec 31, 2019) CAPEX 2019 adjusted Effects of IFRS 16 90.8 17.4 73.6 14.1 632.0 204.6 25.0 3.8 0.7 0.2 0.1 8.3 8.8 1.6 T021 2019 adjusted without IFRS 16 87.0 16.7 73.4 14.0 623.7 195.8 23.4 External sales in the EMEA region amounted to EUR 486.0 million in 2019, down 1.8% compared to the previous year (2018: EUR 494.8 million). Organic sales decreased by 2.3%, which is mainly due to the poor conditions in the European automotive industry with declining production and sales figures. Acquisition- related revenues from the acquisition of Statek contributed 0.6% (EUR 3.0 million) to growth, while currency effects had a slightly negative impact of – 0.1% on sales growth. The EMEA region accounted for 44% of total sales in fiscal year 2019 (2018: 46%). Adjusted EBITDA in the EMEA region declined by 4.9% to EUR 90.8 million in fiscal year 2019 (2018: EUR 95.5 million). At 17.4%, the adjusted EBITDA margin was slightly below the level of the previous year (2018: 17.6%). The main reason for the decline is the higher personnel cost ratio in relation to sales, but this was nearly offset by the effect of the first-time application of IFRS 16 and is reflected negatively in adjusted EBITA only. Adjusted EBITA amounted to EUR 73.6 million (2018: EUR 82.4 million), a decrease of 10.6% compared to the previous year. The adjusted EBITA margin was 14.1% (2018: 15.2%). Assets increased slightly by 1.2% to EUR 632.0 million compared to the previous year (Dec 31, 2018: EUR 624.4 million). Capital expenditure amounted to EUR 25.0 million (Dec 31, 2018: EUR 28.3 million) and mainly related to investments in new machinery and production facilities in the Czech Republic, Serbia, Poland and France. Debt increased by 3.2% to EUR 204.6 million in 2019 (Dec 31, 2018: EUR 198.3 million). 1_Deviations may occur due to commercial rounding. 71 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGAdjusted EBITDA for the Americas region amounted to EUR 79.6 million in 2019, down 8.7% year-on-year (2018: EUR 87.2 million). The adjusted EBITDA margin amounted to 17.3% (2018: 19.3%). Adjusted EBITA declined by 18.2% to EUR 64.0 million (2018: EUR 78.3 million), while the adjusted EBITA margin was 13.9% (2018: 17.4%). The margin in the Americas region was negatively impacted, among other factors, by the unplanned additional extraordinary costs resulting from the introduction of an ERP system at a Latin American site. The effects of the first-time application of IFRS 16 had a positive impact on adjusted EBITDA (EUR 5.8 million) and adjusted EBITA (EUR 0.7 million). Assets increased by 0.9% year-on-year to EUR 655.3 million (Dec 31, 2018: EUR 649.8 million). Investments in the region amounted to EUR 18.0 million, down 14.5% on the previous year (Dec 31, 2018: EUR 21.1 million). Investment focused on the plants in the US and Mexico. PRODUCTION AND LOGISTICS, P. 74 Liabilities in the Americas region amounted to EUR 271.9 million, down 6.6% compared to the previous year (Dec 31, 2018: EUR 291.2 million). Americas Effects from the first-time application of IFRS 16 in Americas 1 in EUR million 2019 adjusted Effects of IFRS 16 T022 2019 adjusted without IFRS 16 Adjusted EBITDA 79.6 5.8 73.8 Adjusted EBITDA margin (in %) Adjusted EBITA Adjusted EBITA margin (in %) Assets (Dec 31, 2019) Liabilities (Dec 31, 2019) CAPEX 17.3 64.0 13.9 1.3 0.7 0.1 16.0 63.3 13.8 655.3 23.4 631.9 271.9 18.0 25.5 0.1 246.4 17.9 1_ Deviations may occur due to commercial rounding. External sales in the Americas segment rose by 2.1% to EUR 450.8 million in 2019 (2018: EUR 441.5 million). Organic sales declined by 3.1%. This was due to the generally weak development in the US car and truck market with declining production and sales figures and strikes at key NORMA Group customers. Growth impulses came mainly from the US water business of the subsidiary National Diversified Sales (NDS). Currency effects in connection with the development of the US dollar also had a positive effect on sales growth (5.2%). Asia-Pacific Effects from the first-time application of IFRS 16 in Asia-Pacific 1 in EUR million 2019 adjusted Effects of IFRS 16 T023 2019 adjusted without IFRS 16 Adjusted EBITDA 28.0 1.6 26.4 Adjusted EBITDA margin (in %) Adjusted EBITA Adjusted EBITA margin (in %) Assets (Dec 31, 2019) Liabilities (Dec 31, 2019) CAPEX 16.8 20.1 12.1 258.9 53.7 12.4 1.0 0.1 0.1 3.8 4.1 0.3 15.8 20.0 12.0 255.1 49.6 12.1 1_ Deviations may occur due to commercial rounding. External sales in the Asia-Pacific region amounted to EUR 163.4 million in 2019, an increase of 10.5% over the previous year (2018: EUR 147.8 million). Organic growth amounted to 2.3% and was positively influenced in particular by the resurgence of demand in China in the second half of 2019, despite continued market weakness. Reasons for this included the start of several series production runs and effects from the early introduction of the China 6a standard in some Chinese provinces. In addition, the recent acquisition of the Indian water specialist Kimplas contrib- uted 7.0% or EUR 10.3 million to sales growth. Currency effects had an additional positive impact of 1.2% on sales growth. 72 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Adjusted EBITDA in the Asia-Pacific region increased by 21.9% to EUR 28.0 million (2018: EUR 23.0 million). The adjusted EBITDA margin was 16.8% (2018: 15.2%), exceeding the previous year’s figure. Adjusted EBITA increased by 10.1% to EUR 20.1 million (2018: EUR 18.3 million), resulting in a constant adjusted EBITA margin of 12.1% compared to the previous year. The first-time application of IFRS 16 had a positive effect on adjusted EBITDA (EUR 1.6 million) and adjusted EBITA (EUR 0.1 million). Assets increased by 3.4% to EUR 258.9 million in the reporting year (Dec 31, 2018: EUR 250.4 million). Investments, which amounted to EUR 12.4 million in 2019 (Dec 31, 2018: EUR 11.7 million), were mainly used to expand the sites in China. PROD UCT ION AND LOG IST ICS, P. 74 Liabilities in the Asia-Pacific region were EUR 53.7 million, down 2.0% compared to the previous year (Dec 31, 2018: EUR 54.8 million). Development of segments T024 in EUR million 2019 3 2018 Δ in % 2019 3 2018 Δ in % 2019 3 2018 Δ in % EMEA Americas Asia-Pacific Total segment sales External sales 523.2 486.0 543.1 494.8 – 3.7 460.3 – 1.8 450.8 451.2 441.5 2.0 2.1 166.6 163.4 151.3 147.8 Contribution to consolidated sales (in %) Adjusted EBITDA 1 Adjusted EBITDA margin (in %) 2 Adjusted EBITA 1 Adjusted EBITA margin (in %) 2 44 90.8 17.4 73.6 14.1 46 95.5 17.6 82.4 15.2 41 – 4.9 79.6 – 10.6 17.3 64.0 13.9 41 87.2 19.3 78.3 17.4 15 – 8.7 28.0 – 18.2 16.8 20.1 12.1 13 23.0 15.2 18.3 12.1 10.1 10.5 21.9 10.1 1_The adjustments are described in the Notes. 2_In relation to segment sales. 3_Including the effects of the first time adoption of IFRS 16. NOTES, P. 148 73 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGProduction and logistics Strategic investment highlights 2019 T025 NORMA Group manufactures and markets more than 40,000 different products and has 29 production sites all over the world. Furthermore, the Company has a network consisting of numerous distribution, sales and competence centers that supply to its customers in the respective regions. Region EMEA Czech Republic Hustopece Serbia Subotica Country City Investment Production and capacity utilization The capacity utilization of NORMA Group’s manufacturing and distribution facilities varies from site to site. In markets such as the emerging countries, where NORMA Group’s business is still being developed, the area-related utilization of production plants is still relatively low. This can be attributed to the fact that investment decisions are planned in advance to ensure that sufficient production space is available to be able to expand production capacity in a flexible manner. In industrial nations and the markets in which NORMA Group already has a long-term market position and the plants are largely working to capacity, an attempt is made to avoid investing in additional manufactur- ing space whenever possible. Instead, the goal is to optimize the current manufacturing processes by improving efficiency in order to be able to use the existing space to create additional capacity. The capacity utilization of manufacturing plants can be ramped up flexibly to suit customer demand and the order situation. Within each product category, a wide variety of different products with different specifications can be manufactured at the existing plants by performing only minor conversion measures. Thus, production can be optimally adapted to suit customer demand. France Poland Guichen Pilica Americas USA Lindsey, California Mexico Monterrey Saltsburg, Pennsylvania Completion of the full automation of the CTH product line Investment in a new transfer press system to increase capacity for V-profile clamps Further expansion of new production capacities for a newly developed SCR system to fill additional large orders from leading European automobile manufacturers Modernization of how tools are designed in component production in the area of fluid systems Installation of manufacturing capacities to expand the product range with respect to corrugated pipes Automation in the area of connector assembly Expansion of manufacturing capacities in the area of fluid systems for the e-mobility sector to manage new customer orders Significant expansion of production capacities in the area of water management Investment in the in-house production of clamp components Setup and localization of manufacturing facilities for the production of PS3 connectors for an international customer Expansion of assembly and heat treatment capacities as a result of several major orders from major international cus- tomers Installation of a new multilayer extrusion line for the manu- facture of new products in the fluid and e-mobility sector Investment in two new transfer press systems to increase capacity for V-profile clamps Investment in capacity expansion Asia-Pacific China Changzhou NORMA Group once again invested in expanding its capacity during the reporting year. The most important strategic investments are shown in the following table. Wuxi Continuation of the structural expansion of the manufacturing site for fluid components 74 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGContinuous optimization of the entire value chain At NORMA Group, all internal processing steps in the value chain are constantly analyzed for optimization potential. The Global Operational Excellence Management System represents an essential tool here that helps to analyze existing processes, identify potential for improvements, introduce the appropriate measures for implementation and realize cost saving projects. As a result, many processes have already been automated and standardized in recent years, so that significant economies of scale have been achieved. NORMA Group is introducing the NORMA Group Production Sys- tem (NPS) in all of its plants since 2014. The goal of the NPS is to increase operational performance, safety, delivery reliability and quality in the plants and to identify and realize further cost savings. NORMA Group uses a “toolbox” of lean methods. These include the 5S methodology, the daily Gemba walk, setup time optimization using SMED (Single Minute Exchange of Die) and TPM (Total Productive Maintenance). In addition, a standardized problem-solving process ensures that internal and external customer complaints are processed faster and more effectively. As a result of the rightsizing program initiated in the first quarter of 2019 to harmonize processes and systems within the Group, production and logistics were relocated in various regions in fis- cal year 2019. Against this backdrop, the warehouse in Moscow and the production and logistics activities at the production facil- ity in Togliatti, Russia, were closed in October 2019. Customers in Russia are now supplied directly from the production plants in Europe or from the distribution center in Poland. In addition, the Groen distribution center in the Netherlands was closed and the logistics activities were transferred to the warehouse and distribution center in Marsberg, Germany. The business develop- ment and sales organization will remain in place in both the Netherlands and Russia in order to remain close to the market and customers. The measures are intended to help bundle existing structures, streamline internal processes in a targeted manner and thus increase efficiency. Customer focus and secure supply chain In order to optimize its logistics costs, NORMA Group always strives to keep the geographical distances in the value chain as short as possible and avoid non value-adding intermediate steps via other NORMA Group sites. The goal is therefore to always manufacture in the regions that its customers are based in. This not only optimizes working capital and lowers logistics costs, but also minimizes delivery risks, reduces negative impacts on the environment and ensures the higher level of flexibility that is being increasingly demanded. Despite these efforts, cross-border deliveries are indispensable for NORMA Group in many places in order to be able to respond flexibly to customer requirements. Optimized and secure customs processes are therefore indispensable. For this reason, NORMA Group participates in various customs trade partnership programs in the US, China and the EU, for example. NORMA Group ensures a fully compliant supply chain through the Supply Chain Security programs, especially Authorized Economic Operator (AEO) and Customs Trade Partnership against Terrorism (C-TPAT), which are part of the worldwide compliance program. By regularly reviewing all its business partners, NORMA Group excludes the supply of legally sanctioned third parties. In addition, internal organizational instructions and regular reviews ensure compliance with the relevant statutory export control regulations. Quality management The NORMA Group products are ‘mission-critical’ with regard to the end products of the customer. Any quality defects or functional failures could have a significant impact on customers or end users. Thus, it is a clear business imperative that NORMA Group consistently delivers products that meet and surpass all customers’ quality needs and expectations. To support this objective and ensure a global and standardized approach to quality, all NORMA Group manufacturing locations (acquisitions have a nominal 12-month target for accreditation) are accredited in accordance with either ISO 9001 or IATF 16949. In addition, two manufacturing sites that supply the aerospace industry are accredited in accordance with EN 9100. Compliance with these industry-recognized standards ensures that NORMA Group continuously strives for improvement in every aspect of business and puts its customers at the center of all its activities. NORMA Group has a global operating footprint. One key challenge refers to the recognizing and understanding customer diversity along with many different standards and market requirements. This is met by NORMA Group via localized manufacturing solutions and the application of standardized tools, such as the Quality Management software, which forms an integral part of the new Microsoft ERP system currently being rolled out across the entire Group. NORMA Group uses several metrics to measure customer qual- ity, satisfaction and delivery performance. The most important key performance indicators are the number of defective parts shipped, expressed in parts per million (PPM), and the average number of quality-related complaints reported by the customer. The number of defective parts per million (PPM) recorded in 2019 was six (2018: seven). This continues the year on year improve- ment trend and supports the customers’ ever more challenging 75 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGtargets. Additionally, the average number of quality – related customer complaints could be improved further to an average of six claims per month in fiscal year 2019 (2018: seven). Purchasing and supplier management This capable purchasing organization is to be further optimized as part of the “Get on Track” program. The goal is to leverage further savings potential through increased global cooperation within the product categories and across regional boundaries. One of the focal points is on inter-regional standardizing of local processes. The procurement costs of materials, goods and services have a significant impact on the earnings position of NORMA Group. By managing all procurement activities and the selection of suppliers, Purchasing can make an important contribution to the success of the Group. The central task here is to optimize the services purchased and minimize costs, taking into account Group-wide economies of scale. Global purchasing organization The purchasing activities of NORMA Group are divided into four main product groups: • Steel and metal components (FASTEN) • Technical granulates, plastic and rubber products (FLUID) • Standard plastics, components and commodities (WATER) • Capital goods, non-production materials and services (MRO) The global purchasing organization is set up in a matrix structure. In addition to the product groups mentioned above, there is a subdivision into the regional segments EMEA, Asia-Pacific and the Americas. This organizational structure enables centralized control by the respective experts from the product groups and the integration of the knowledge of the regional or local purchasing teams about special local market conditions. NORMA Group thus ensures professional purchasing management and the achievement of competitive prices for goods and services. E-procurement solutions support the global organization in its work and enable efficient reporting. Development of material prices Adjusted costs of materials amounted to EUR 477 million (2018: EUR 473.1 million) or 43.4% (2018: 43.6%) of sales revenue in fiscal year 2019. As a result, the adjusted cost of materials ratio is thus nearly at the previous year’s level. P. 65 The purchasing volume, which is used for internal manage- ment purposes and adjusted for currency effects, amounted to around EUR 490 million (2018: EUR 498 million). Of this amount, EUR 335 million (68%) was attributable to sales of production materials. EARNINGS POSITION, Steel and metal components For the stainless steel product group, the most important product group for NORMA Group, slight reductions in the base prices (basic purchase price for stainless steel excluding alloy surcharges) were achieved in the annual price negotiations for the EMEA and Asia-Pacific regions. The Americas region showed a different picture. The 25% penalty tariffs imposed by the US government in March 2018 on nearly all steel imports and fixed import quotas led to massive increases in the price of goods purchased in the region. In some cases, NORMA Group was confronted with price increases of up to 30% compared to the previous year. As a con- sequence, a contract term of only six months was chosen for some of the goods purchased, in order to be able to renegotiate flexibly in the event of a lifting of the tariffs. Due to the fact that the general conditions remained unchanged during the course of the year, however, high market prices had to be paid in the second half of 2019 as well. In addition, the punitive tariffs to be paid for goods purchased (steel, wire and metal components) from countries subject to the tariffs represented an additional financial burden for the entire Americas region. Besides the market distortions in the steel sector caused by US customs policy, the prices for the alloy surcharges recurrently fixed on a monthly basis (market prices for nickel, scrap metal and ferrochrome, among other metals) also increased significantly in fiscal year 2019 and reached their peak in November 2019. In particular, the alloy metal nickel, used in all austenitic steels, acted as a price driver. G 18: DEVELOPMENT OF NICKEL PRICES AND THE ALLOY SURCHARGE 1.4301 Development of nickel prices and G018 the alloy surcharge 1.4301 20,000 18,000 16,000 14,000 12,000 10,000 8,000 1,800 1,700 1,600 1,500 1,400 1,300 1,200 Jan 2019 Apr 2019 Aug 2019 Dec. 2019 Nickel LME 3M EUR (from USD, LHS) Alloy surcharges of flat products 1.4301 X5CrNi18-10 Europe (Outokumpu) Cash EUR (from EUR, RHS) 76 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Purchasing turnover in 2019 by material groups G019 chasing department. The current supplier base is structured as follows: The share of the top 10 suppliers accounted for approximately 28% in fiscal year 2019. The top 50 suppliers accounted for around 53% of the total purchasing volume of production material, amounting to EUR 335 million. 15% Employees In the product group of surface-refined non-stainless steel, lower purchase prices were agreed in the price negotiations for European needs in both the first and second half of the year. Technical granulates, plastic and rubber products NORMA Group also recorded further price increases of up to more than 10 percent in the technical plastics product group in fiscal year 2019. The reason for this was the initially sustained high global demand for technical plastics, which led to further allocations by producers at the beginning of the year. However, thanks to many years of trustful cooperation with important suppliers and internal countermeasures, impending bottlenecks were successfully averted. The market situation eased somewhat in the course of the year as the economy weakened, driven by the global automotive indus- try and other factors, so that the purchase prices of important technical plastics could be renegotiated in the fourth quarter. However, the annual average price level for this product group was significantly higher than in the previous year. 32% Indirect material (MRO) 6% Alloy surcharges 3% Electronic components 4% Others 13% Metal components Steel, wire 13% Granules 9% Plastic parts 6% Rubber moulded parts Supplier management Standard plastics, components and commodities The prices for granulates were stable in 2019 compared to the previous year, benefiting from the macro-political situation and a weaker economy. Prices for granulates used in water manage- ment were even at a historically low level in 2019 due to the ban on imports of recycled plastics to China and the resulting increased supply in the Americas region. NORMA Group was able to take advantage of this situation and recorded price reductions. The purchasing organization continuously monitors the perfor- mance of suppliers. A key instrument in this respect is the annual implementation of detailed supplier evaluations. This involves the use of globally uniform criteria from the areas of quality, logistics, sustainability and commercial aspects. The relevant departments are involved in the assessments at local level. The evaluation process is mapped using e-procurement software. 2 0 1 9 C R REPORT Supplier structure The focus of NORMA Group’s supplier selection is a balance of supplier consolidation to reduce complexity and avoid strong dependencies. This balance is continuously optimized by the pur- Decentralized organization, common corporate culture that is lived The employees of NORMA Group make an important contribution to its success. Human resource management and personnel development therefore play a major role. HR management at NORMA Group is organized in a decentralized manner to take the international nature of the business and the rapid growth of NORMA Group into account. The decentralized organization allows the individual sites to adapt flexibly to the local conditions and to contribute their specifications, particularly with regard to regional expertise in personnel development and recruiting. In order to promote a uniform corporate culture, NORMA Group has formulated key guiding principles that reflect the fundamental convictions of the Company. These guiding principles are taught and lived at all sites. 2019 CR REPORT Development of personnel figures As of December 31, 2019, NORMA Group employed 8,521 employees (core workforce including temporary staff) and thus around 4% fewer than in the previous year (December 31, 2018: 8,865). The number of temporary employees at the end of Decem- ber was 1,998 (December 31, 2018: 1,964). This corresponds to around 23% of the total workforce. 77 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGStable share of employee groups Well-trained and qualified workforce Development of personnel figures at NORMA Group G020 12,000 10,000 8,000 6,000 4,000 2,000 8,865 8,521 1,964 1,998 7,667 1,552 5,975 1,147 6,306 1,185 6,664 1,214 4,947 813 4,485 726 4,252 837 3,415 3,759 4,134 4,828 5,121 5,450 6,115 6,901 6,523 The total number of employees (permanent and temporary) in the current reporting period was 4,672 direct employees (2018: 4,951), 1,630 indirect employees (2018: 1,626) and 2,219 sala- ried employees (2018: 2,289). While direct employees are indi- viduals who are involved in the manufacturing process, indirect employees are persons who work in production-related areas such as the quality department, for example. The group of sala- ried employees is mainly assigned to administrative functions. 2011 2012 2013 2014 2015 2016 2017 2018 2019 Core workforce Temporary staff 26% Salaried employees Breakdown of employees by group G021 55% Direct employees In the Americas region in particular, the number of employees was significantly lower than in the previous year. The core workforce in this region decreased by around 13% to 1,601 employees. This corresponds, in particular, to an adjustment of personnel structres in the context of sales losses in the EJT business. In the EMEA region, the number of employees also declined by around 5% compared to the previous year, whereas the number of employees in the Asia-Pacific region rose by 4%. 19% Indirect employees Core workforce by segments 2019 In % 2018 EMEA Americas Asia-Pacific Total 3,549 1,601 1,373 6,523 54 25 21 3,744 1,842 1,315 6,901 T026 In % 54 27 19 The employees of NORMA Group are well trained and obtain their qualifications by earning school and university degrees and by participating in professional and supplementary training courses. In order to maintain the high degree of employee qualification and ensure the successful development of the Group in the future, NORMA Group believes it is important to invest in the training and further education of its employees. The goal is to recruit as many specialized employees as possible from one’s own junior staff, thereby becoming more independent of the external labor market. NORMA Group also cooperates closely with renowned universities. Focus on uniform global talent promotion In order to identify, retain and develop talents within the Group, NORMA Group set up the ‘Learning & Development’ competence center a couple of years ago. The competence center acts as an internal consultant to the local HR departments, executives and employees. The focus of the initiative is on the conception and supply of development processes and programs that can be used worldwide, which are aligned with NORMA Group’s Company values and growth targets. In order to promote learning at the workplace and the individual development of its employees in a targeted manner, direct supervisors as well as internal mentors and coaches are made available. As part of the project, various local and regional human resource development methods have been integrated into a global portfolio. This ensures uniform global talent promotion for all NORMA Group employees. 78 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Numerous training opportunities for career entrants Good performance is rewarded Besides accompanying courses of studies in the areas of business engineering, mechanical engineering, mechatronics and business administration, NORMA Group also offers internships for students in all departments and regions. Furthermore, quite a few young people are trained in various technical and commercial areas at NORMA Group each year. Exchanges of personnel: more communication, better understanding NORMA Group will seek to continue to grow internationally in the future both organically as well as through targeted acquisitions. In order to be able to integrate new parts of the Group, the individual sites need to work together efficiently. Thus, communication that functions well is essential. To encourage this, NORMA Group offers several exchange programs for its employees, from one- to three-month ‘Bubble Assignments’ ‘Long-Term-Assignments’. Expert personnel and managers who participate in this initiative bring special skills and experience to the new sites and, at the same time, benefit from the know-how of their local colleagues. Through these projects, NORMA Group promotes the internal transfer of knowledge, inter-cultural awareness, the establishment of networks and the individual development of the participants. NORMA Group strives to attract and retain qualified and committed employees. In order to encourage employee interest in a positive development of the Company’s value and permit them to participate in its economic success, the remuneration system at NORMA Group includes a fixed salary as well as a performance- related variable remuneration component. For tariff and non- tariff employees in Germany, this is based on important financial performance indicators or other factors. Moreover, the personal achievements of employees also play a role in remuneration. Feedback culture – employee opinions are always welcome In the interest of a continuous analysis and improvement process, NORMA Group conducts regular employee surveys. The focus of this central feedback tool is on the Company’s strengths and weaknesses from an employee perspective, employee satisfaction, as well as the quality of leadership and cooperation. Further information can be found in the 2019 CR REPORT. Healthy team – healthy company A productive company like NORMA Group depends on having healthy and satisfied employees. For this reason, NORMA Group supports its employees’ health by conducting various activities. Activities are offered at the site in Maintal, for example. In 2019, these included cardio scans, functional movement analyses, spinal column screenings, vein checks and nutritional advice. Internal “Train the Trainer” program launched Whether it’s on change management, communication strategies or conflict management – knowledge at the NORMA Group is quite comprehensive and already available at the Group’s various sites. In order to share its current expertise even better throughout the Com- pany, NORMA Group has launched a “Train the Trainer” program in the EMEA region that focuses on leadership skills. Representatives from various Euro- pean sites attended a training course where they learned more about the expectations of the manage- ment culture at NORMA Group and the strategies and tools for implementing it. The trained trainers then held their own workshops at their respective sites where they passed on this knowledge to the local managers. The program supports the global initiative “LeadershipCulture@NORMA” and will be expanded in the years to come. The information in the above box is not part of the Consolidated Management Report and therefore is not subject to the audit. 79 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOccupational health and safety is of the highest priority NORMA Group places great importance and emphasis on the topics of health, safety and the wellbeing of its employees. The Company complies with the existing legislative and regulatory requirements relating to health and safety, but also goes further with a number of activities and initiatives to proactively manage and minimize potential risks. NORMA Group fully endorses the industry-recognized occupational health and safety management system OHSAS 18001 and is currently in transition to the new integrated standard ISO 45001. As part of its value-based safety program, NORMA Group analyzes the actions of its employees in the workplace and identifies potentially dangerous behaviors as part of regular safety reviews and instructions. Furthermore, NORMA Group carries out regular inspections of its plants and facilities and develops action plans based on the results, the implementation of which is monitored locally and at the Group level. Incident rate improved significantly NORMA Group constantly monitors and analyzes its accident statistics. The number of work-related accidents, ranging from near miss incidents to reportable accidents, are recorded and on a Group-wide basis each month and monitored at the local, regional and Group levels. All reportable accidents are communicated to Management Board level and any findings are systematically shared throughout the Group with the goal of preventing accidents in the future. NORMA Group’s top priority is to ensure an accident-free, safe working environment in the long term. The accident rate, which is the number of reportable accidents per 1,000 employees, represents one of the most important employee indicators. This figure was four for the 2019 reporting year, a significant improvement compared to the previous year (2018: eight). G 22: INCIDENT RATE NORMA Group’s goal is to increase the efficiency of its production processes, lower its energy consumption over the long term, and reduce waste. The long-term cost savings associated with this contribute to the economic efficiency of the Group. Incident rate G022 Reportable incidents per 1,000 employees 22 14 25 20 15 10 5 11 10 10 10 Since 2018, NORMA Group has set quantitative targets for the reduction of greenhouse gases, water consumption and waste generated at its production sites. Moreover, NORMA Group inclues environmental impacts resulting from the supply chain as welll as from the application of its products in its environmental strat- egy. These targets are published in the CR roadmap. Progress towards climate, water and waste targets is reviewed at the local level through regular management assessments and at the global level through the reporting of aggregated data to the Manage- ment Board. Further information on the environmental strategy can be found in the 2019 CR REPORT. 8 8 6 5 4 Marketing 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Environmental protection and ecological management As a manufacturing Company, NORMA Group is well aware of its environmental, economic, and social responsibility. Environmentally compatible and sustainable economic activity is therefore a central element of its corporate strategy. For this reason, the Company considers it important to systematically include environmental aspects in its business decisions. Therefore, NORMA Group has implemented a Group-wide environmental management system and certifies its production sites in accordance with ISO 14001. In order to further increase awareness of NORMA Group’s products all over the world, boost product sales, strengthen its customer relationships and thus contribute to the Group’s growth, NORMA Group’s long-term marketing strategy is based on the following objectives: • Building a strong NORMA Group brand image • Focusing on marketing activities • Optimizing of the brand portfolio • Optimizing of the marketing tools • Gaining a better understanding of market needs In order to be able to focus on its end markets and customers as much as possible, NORMA Group aligns all of its marketing activities to address local market conditions and consumer habits in its respective regions and markets. The regional marketing units are responsible for executing the various activities and synchronizing them with NORMA Group’s operative objectives. 80 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Marketing focus in 2019 Marketing expenses 2019 by segment 1 Key marketing activities in fiscal year 2019 included the following: • Launch of a new corporate website and update of numerous microsites to increase user-friendliness and a better presen- tation of NORMA Group’s value proposition 13% Group 6% • Revision of the corporate identity to build a strong corporate Asia-Pacific image through various channels • Introduction of a Product Information System (PIM) platform for the management and cross-system exchange of product information • Marketing support for new product launches (among others, eM-Compact) Furthermore, in 2019 another focus was on traditional marketing activities such as organizing fairs and exhibitions in order to pro- mote NORMA Group’s product solutions to their targeted markets. Marketing expenditures 2019 Marketing expenditures amounted to a total of EUR 5.4 million in 2019 and were thus above the level of the previous year (2018: EUR 4.5 million). Marketing expenses as a percentage of sales amounted to 4.9% in fiscal year 2019 (2018: 4.2%). 1_Excluding personnel expenses. G023 24% EMEA 57% Americas 81 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGForecast Report The sources of economic institutes used to prepare this Forecast Report were assuming the following economic forecasts for the year 2020 prior to the spread of COVID-19. Although the poten- tial risk in connection with COVID-19 was addressed, the actual effects and extent of the spread of the virus could not be fully assessed at the time this report was prepared and are therefore not reflected in the original forecast prepared by the Management Board. General economic and industry-specific conditions Mixed picture in 2020: stabilization of the global economy and slight recovery possible but with high risks closures with substantial production losses are not only burdening the economy in China, but are also increasingly affecting many areas and industries in other countries due to the globally integrated value creation chains. If this epidemic cannot be halted promptly, it is increasingly unlikely that the production gaps can be closed as the year progresses. Uncertainties are also caused by the risk of a potential escalation of geopolitical tensions, espe- cially between the US and Iran. Other negative factors include social unrest and a possible deterioration in the United States of America’s relations with important trading partners, as well as the still unclear economic consequences of the Brexit in Europe. Consequently, the global economy is expected to be susceptible to disruptions in 2020, particularly in Europe. In 2020, the global economy will most likely be supported by pre- dominantly continuing loose monetary policy and, in part, expan- sive fiscal policy. According to the ifo Institute, the decline in incoming orders in the emerging markets has recently come to a halt. The decline has slowed noticeably, particularly in the indus- trialized countries. Based on this positive trend, the International Monetary Fund (IMF) expects global trade to pick up slightly (2020: + 2.9%). Furthermore, the IMF assumes that the global economy will stabilize, but will remain relatively weak for the time being, and therefore lowered its GDP growth forecasts again in January and February 2020 following the revision in the fall 2019. The global economy is now expected to grow by 3.2% in 2020 (previously 3.3%), and by 3.4% in 2021, which is in each case 20 basis points less than recently published. The IfW (Kiel) currently sees the spread of the coronavirus (COVID-19) since the beginning of 2020 as the greatest threat to the global economy and in extreme cases does not even rule out massive growth losses in China and the world. The standstill of everyday life and plant China’s economy is expected to grow by 5.6% (IMF) in 2020 and thus at a weaker rate than most recently. This takes the effects of the corona virus in the first quarter of 2020 into account, how- ever the latest forecast assumes that the Chinese economy will return to normality again starting in the second quarter of 2020. The risk associated with this forecast is therefore quite high. Expected growth could be boosted even more by a further easing of the trade conflict with the US, although there are no signs yet of a complete withdrawal of the restrictions currently in place. In the meanwhile, China is continuing its structural change towards more high technology and services and stronger domestic demand. Although this situation is dampening the rate of expansion, it is making a significant contribution to stabilizing the country’s economy. Growth of around 4.8% is also expected for the ASEAN-5 countries, particularly benefiting from high infrastructure investments and lower interest rates. For India, Brazil and Russia, the IMF even expects a higher increase in economic momentum. Thus, a noticeable economic revival can be expected for the emerging and developing countries, with an increase in economic output of 4.4% in 2020 (IMF; 2021: + 4.6%). In contrast, the economic prospects in the industrialized countries remain subdued. Due to high uncertainties and potential risks, a noticeable recovery in industrial production and investment activity in 2020 is hardly feasible. For this group of countries, the IMF expects the pace of growth to stabilize at only 1.6% in 2020 and 2021 respectively. For the US in particular, the momentum is expected to decline significantly, especially as exports and invest- ments tend to be weaker. By contrast, the Federal Reserve’s (FED) expansionary monetary policy and the robust labor market are supporting private consumption in the US. Taking into account the prevailing conditions, the IMF expects the US economy to grow by 2.0% in 2020 and by 1.7% in 2021. Canada’s economy is also growing at expected rates of 1.8% in 2020 and 2021 respectively. The UK also remains on a moderate but robust course, while very weak growth is forecast for Japan. Although the economy is stabilizing in Europe, the pace of expan- sion remains slow and subject to risk. The shape of the future trade rules of the European Union with the UK continues to be an incalculable factor. A problem that should not be underestimated could also arise from the trade agreement to be concluded with the US, especially as the US administration could impose new trade restrictions on Europe at any time. In conjunction with the structural problems Italy and France are having, the potential in Europe remains limited for the time being. On the other hand, the European Central Bank’s (ECB) loose monetary policy and a predominantly expansive fiscal policy are having a stimulating effect. Private and public consumption and the flourishing construction industry are therefore likely to remain the main pillars 82 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGof the euro zone economy in 2020. A slight recovery in exports is also expected. In this environment, while the IMF expects moderate growth for the euro zone in the next two forecast years (2020: + 1.3%, 2021: + 1.4%). The cyclical recovery in Germany is still delayed (IfW, Kiel), primarily due to continuing weak industry. In 2020, for example, investments in equipment will shrink, while private and public consumption and construction investments will continue to increase. All in all, GDP growth of 1.1% is expected in Germany in 2020. Adjusted for possible calendar effects, however, growth is again expected to be only 0.6%, according to the German Central Bank (Deutsche Bundesbank). Forecasts for GDP growth (real) in % World 1 USA 2 China 3 Euro zone 4 Germany 5 2019 + 2.9 + 2.3 + 6.1 + 1.2 + 0.6 2020e + 3.2 + 2.0 + 5.6 + 1.3 + 1.1 T027 2021e + 3.4 + 1.7 + 5.8 + 1.4 + 1.4 Sources: 1_IMF; 2_US Department of Commerce; 3_National Bureau of Statistics (NBS); 4_Eurostat, 5_German Federal Statistical Office (Destatis) Partly clouded environment for NORMA Group’s key customer industries Despite the expected stabilization of the international economy in 2020 and 2021, the prospects for NORMA Group’s key cus- tomer industries are also partly clouded in view of the restrained general growth momentum and high economic risks. Mechanical engineering In the course of a global economic stabilization in 2020, the down- turn in the global mechanical and plant engineering industry should at least slow down, but without generating any new momentum. Many economic stimuli will stimulate mainly private consumption and the construction industry. In many other industrial segments, the brightening of the outlook is still to come. This is indicated by the fact that the utilization of industrial capacities in the US and Europe has deteriorated significantly. Coupled with the high level of uncertainty with regard to crises, trade restrictions and the unpredictable consequences of Brexit, there are also no signs of a real trend reversal in favor of more lively investment. Consequently, the German Engineering Feder- ation (VDMA) expects 2020 to be a transitional year at best. Important industry drivers that are independent of cycles include automation, digitalization and, in many countries, environmental protection, but also the restructuring of the energy industry. The VDMA anticipates that real global machinery sales, excluding China, will decline by 1%. This assumption is made on the condition that no additional trade restrictions are imposed. At the level of individual countries, it should be noted that development in South East Asia and South Korea is picking up. Turkey, Russia and Latin America are also expected to recover moderately, while the outlook remains negative in Japan (– 1%), the US (– 1%), the UK (– 1%), the EU (– 1%) and the euro zone (– 2%). With regard to Germany’s mechanical engineering industry, the VDMA is cautious and forecasts a further decline in production and sales of 2% in real terms for 2020. Engineering: real change in industry sales T028 in % 2018 2019 2020e Automotive industry The automotive industry is currently undergoing a major transi- tion. The reduction of pollutant emissions, which is a political and social requirement in many countries, and the demand for climate-neutral means of transport continue to be the main drivers of the industry. This means that the next few years will be marked by an accelerated expansion of electromobility (including hybrid drives). The development of low-consumption combustion engines and additional, innovative drive technologies will also remain an important topic. No real trend reversal is expected for the global automotive market in 2020, especially as there is still a lack of demand impetus in the volume markets. For example, the German Association of Automobile Manufacturers (VDA) expects global passenger car sales to fall by 1% to 78.9 million units in 2020. For the somewhat more broadly defined market of light vehicles (LV, up to 6 t), the industry experts at LMC Automotive (LMCA) expect a stable sales level of LV 90.3 million (+ 0.1%) and are even slightly confident with regard to global production. After two weak previous years, this is expected to rise by 1.1% to close to 90.4 mil- lion LV in 2020. While recovery effects are expected in the US (+ 5.4%), India (+ 1.3%) and Germany (+ 2.5%), LMCA expects losses in Japan (– 3.4%) and stagnation in China and Europe (+ 0.5% each). A decline is forecast for the truck market in 2020. Global sales and production of trucks and buses are expected to shrink by 7.7% each. A recovery in the truck sector is then expected for 2021. China USA Euro zone World (excluding China) 81 5 4 51 4 – 1 – 1 -2 1_Revised data according to NBS (VDMA) Source: Mechanical Engineering Industry Association (VDMA). 2 – 1 – 2 -1 Automotive industry: global production and development of sales (light and commercial vehicles) T029 in % 2018 2019 2020e 2021e Production of light vehicles Sales of light vehicles Sales of commercial vehicles – 1.0 – 0.8 4.7 – 5.0 – 4.5 –2.3 1.1 0.1 – 7.7 2.6 2.4 3.8 Source: LMC Automotive 83 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGConstruction industry Asia’s construction industry (China, India, Southeast Asia) is char- acterized by a positive trend. Key drivers are the extraordinarily high demand for residential construction and the rapid expansion and reconstruction of infrastructure. In addition, investments in environmental protection and water management are also gaining importance, particularly in China. For the construction industry in Europe, the industry network Euroconstruct (including the ifo Institute) forecasts a steady upswing, which will be favored by the continuing low interest rate level and the high construction demand in the housing and infrastructure sectors. Further impetus is also coming from stricter environmental regulations and higher subsidy programs. By contrast, companies are rather reluctant to invest in construction. Real construction output is thus forecast to increase by 1.1% in 2020 (2021: + 0.9%, 2022: + 1.1%). More lively construction activity in modernization and maintenance is replacing new construction as the main driver. In Eastern Europe, construction output will grow by 3.7% in real terms in 2020, and by 1.0% in Western Europe. Germany’s construction industry remains on the upswing: construction investments in Germany are expected to increase by 2.2% in 2020 and by 2.5% in 2021 (IfW). The DIW (German Institute for Economic Research) forecasts growth of 6.8% to EUR 264 billion for the nominal residential construction volume in 2020, with the volume of new construction rising by 5.8% and construction work on existing buildings by 7.2%. Other building construction (excluding residential) is expected to grow by 6.5%, while civil engineering is expected to increase by 7.1%. In the US, construction activity in the private sector in particular had recently lost momentum. In 2019, new construction starts (+ 3.2%) and building permits (+ 3.9%) rose more slowly than building completions (+ 5.6%). However, further declining mortgage rates could lead to a renewed revival of US residential construction. In addition, public construction in the US is experiencing a strong upswing, primarily driven by brisk investment in the renovation and modernization of infrastructure, including road construction, as well as in sewage and rainwater systems. According to the industry experts at JBREC (John Burns Real Estate Consulting), this will be offset by lower new construction activity in 2020. Overall, JBREC expects that demand in the market segments relevant to NORMA Group’s NDS activities will stagnate in 2020 after a steep increase over several years, and will experience a short cyclical dip in 2021 with a decline of nearly 5%. New tailwind is then expected to set in again starting in 2022. Construction industry: development of European construction output T030 in % Western Europe Eastern Europe Europe 2018 2019 2020e 2021e 2.6 12.8 3.2 2.0 7.3 2.3 1.0 3.7 1.1 0.8 1.3 0.9 Source: Euroconstruct/ifo Institute (19 core markets in total) The extent of the negative economic impact of the coronavirus had not yet been taken into account in the sources that were used for the macroeconomic outlook for 2020 at the time that the 2019 Annual Report was prepared. Due to most recent developments, the forecast risk has increased significantly. As a result, it is assumed that the further spread of COVID-19 will lead to nega- tive deviations from the forecast for the future development of NORMA Group SE in fiscal year 2020, which is presented below. Future development of NORMA Group For NORMA Group, the main focus is on value creation. The primary objective is to achieve a sustainable increase in the value of the Company. G OA LS A N D ST RAT E GY, P, 4 9 Based on this, profitable growth and the diversification of the business with regard to end markets, regions and customers will continue to be priorities in the future as well. Business activities focus in particular on the promising areas of water management and electro mobility, which are also a main focus of NORMA Group’s development activities. RESEARCH AND DEVELOPMENT, P. 55 In addition, business activities will be selectively expanded through further acquisitions. M&A activities will focus mainly on companies that either convtribute to market consolidation or serve to enter new high-margin markets. In addition, internationalization and in particular the expansion of activities in the Asia-Pacific region will continue to be the focus. The goal is to take advantage of the opportunities in this important growth market and to use the added value to the respective regions or countries. The long-term preservation of the Company’s innovative ability continues to play an important role in research and development. The focus of development activities therefore remains focused on strengthening the Company’s innovative strength and develop- ing innovative products that help to solve customers’ industrial challenges. A particular focus is also on developing solutions for the areas of water management and electromobility (including hybrid drives). Furthermore, NORMA Group continues to work intensively on implementing the sustainability targets defined in the CR Roadmap 2020. One of the main focal points here is the quantification of environmental impacts in the supply chain. 2018 CR REPORT 84 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGGeneral statement by the Management Board on probable development EMEA region in 2020. Against this backdrop, NORMA Group’s relevant end markets in the EMEA region were expected to generate stable organic sales in the current fiscal year. Sales growth in 2020 Based on the original estimates of the relevant economic research institutes and industry associations described above and the currently tense order situation caused by the ongoing difficult conditions in several of the industries and markets relevant to NORMA Group, the Management Board had assumed a noticeable decline in organic sales in fiscal year 2020 before the current spread of COVID-19 (coronavirus). At that time, this forecast took into account the fact that the negative effects of COVID-19 (coronavirus) will be particularly evident in the first half of 2020. The assumptions made were based on the premise that there will be no global spread of the virus that could lead to a significant impairment of the global economy beyond the first half of the year. Although it could not be assumed that the negative effects that became apparent in the course of the year would be fully compensated for, the Management Board did not assume such a dramatic worsening of the situation and the resulting economic consequences when preparing the original forecast. Nevertheless, due to its global business activities and broad diversification, the Management Board believes the Group is well positioned to deal specifically with the prevailing market trends in the various end markets and regions in the long-term. Prior to the spread of COVID-19, the Management Board of NORMA Group expected solid organic growth for the DS business, whereas it anticipated a noticeable organic decline in the EJT business in 2020, particularly due to the development in the area of commercial vehicles. Based on the assumptions of a stabilizing economic environment and key interest rates that remain low and prior to the spread of COVID-19 the Management Board expected the difficult conditions in the European automotive industry to improve in the For the Americas region, the Management Board assumed prior to the spread of COVID-19 a noticeable year-on-year decline in organic sales in 2020, with the decline in the US commercial vehicle end market, which is important to the Group, expected to be particularly severe. By contrast, based on estimates by industry experts, the management expected the US passenger car market to recover in the current fiscal year. The Management Board also expects strong growth impetus in the water management segment, albeit slightly weaker than in the previous year. The Management Board saw risks for the region in the trade conflict between the US and China that has yet to be resolved and in the protectionist customs policy of the US government, in particular. In the Asia-Pacific region, the Management Board of NORMA Group anticipated prior to the spread of COVID-19 slight organic decline. The main drivers which had been included in the forecast are the extremely high demand in residential construction and the rapid expansion and reconstruction of the infrastructure. For this reason, the Management Board expected the DS business in particular to develop very positively, whereas organic sales growth in the EJT segment was still forecast to decline slightly. The main burdening factors, as already described before, still remain the negative effects of the coronavirus as well as the ongoing trade conflict between the US and China especially since a complete withdrawal of the implemented restrictions is not yet in sight. Besides the effects of the further spread of the coronavirus, the Management Board sees risks that could have a negative impact on NORMA Group’s sales and earnings primarily in the uncertain effects of geopolitical crises. These include, for example, the trade agreement to be concluded between the European Union and the US. Without considering the spread of COVID-19 and in light of the assumptions and uncertainties described, the Management Board of NORMA Group expected to see a noticeable organic decline in sales in the range of approximately – 2% to approximately – 4% for fiscal year 2020, and thus a similar sales development as in the previous year. The exact extent of the organic decline depends, in particular, on the further spread of the virus, the necessary containment measures, for example, the associated production interruptions. NORMA Group plans to present its forecast in more detail later this year, once the exact consequences of COVID-19 can be better assessed. Currency effects may have an additional positive or negative impact on growth, depending on the exchange rates against the euro. On the basis of the uncertainties described in connection with the spread of COVID-19, the originally assumed forecasts with regard to the key figures listed below will result in noticeable deviations, which cannot yet be fully assessed at the time of publication of this report. The original assumptions of the management are presented below. Development of the cost of materials ratio As a result of the continuing difficult economic conditions in certain industries, in particular the automotive sector, coupled with a significant decline in global demand, the price level for engineering plastics had eased in 2019 – before the corona crisis – and the supply situation has therefore largely stabilized. The possibility of a recovery of the global economy, which could lead to supply bottlenecks for engineering plastics and related price increases, was not foreseeable to date and therefore has been considered to be unlikely. 85 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGWith respect to procurement of steel and metal components, uncertainties remained with regard to possible further protectionist measures by the US. These were therefore considered a possible risk factor for price increases or a sustained higher price level overall. However, the resulting financial effects could have been mitigated without the corona crisis by pursuing a steady increase in the degree of professionalism in purchasing, the conclusion of long-term contracts, possibly passing on price fluctuations to the customer and achieving economies of scale within the Group. Thus, the Management Board of NORMA Group expected – prior to the spread of COVID-19 – the adjusted cost of materials ratio to remain more or less unchanged compared to the previous year. This included the initial positive effects from the “Get on Track” change program implemented in the fourth quarter of 2019. In the course of the corona crisis and the associated economic effects, supply bottlenecks can no longer be ruled out. Development of the personnel cost ratio The Management Board expected – prior to the spread of COVID- 19 – personnel costs to remain stable in 2020, although the Management also expects inflationary costs. The cost level is likely to benefit from a reduction in additional temporary staff and additional savings from ongoing efficiency programs, however. The Management therefore expects the personnel cost ratio in the current fiscal year to remain at the same level as last year. Expenses in research and development To sustain its innovation and competitiveness in the long term, NORMA Group strives to achieve an annual investment rate of 5% of EJT sales in its R&D activities. These activities will continue to focus on its strong future markets and developing innovative products that solve the industrial challenges faced by customers with a particular focus on developing applications in the area of water management and for electromobility (including hybrid drives). year in which the course would be set for a sustainable increase in profitability. As in the previous year, the Management Board therefore expected – prior to the spread of COVID-19 – the underlying EBITA margin for the current fiscal year to remain at the level of more than 13.0%. The unforeseeable consequences of the coronavirus will have a negative impact on NORMA Group’s adjusted EBITA margin as a result of the measures that have become necessary, including interruptions in production, for example, so that the adjusted EBITA margin in fiscal year 2020 will probably be below the previously assumed level of the previous year. Adjusted EBITA margin Maintaining its profitability represents an important focus for NORMA Group. Therefore, all business activities are strategically aligned to achieve this goal. In addition to the implementation of the rightsizing program adopted in the fourth quarter of 2018 and communicated in February 2019, the “Get on Track” program rolled out and publicly announced in November 2019 focuses on increasing profitability by optimizing site capacities in all regions, systematically revising structures and processes – in particular by optimizing purchasing – and streamlining the product portfolio. A cumulative total cost volume of around EUR 45 million to EUR 50 million is expected by 2023 for the implementation and execution of the change program. In contrast to the costs for the implementation of the rightsizing program, the costs incurred within the scope of this program are presented completely unadjusted. From 2020 on, the change program is expected to lead to cost savings, which will increase to EUR 40 million to EUR 45 million annually by 2023. The fact that, based on current information, no further extraordinary costs are expected in connection with the introduction of the ERP system in Latin America was assumed to have another positive effect on profitability. For this reason and taking the difficult market environment due to the uncertainties regarding economic and geopolitical conditions into account, the Management Board of NORMA Group basically viewed 2020 as an important transitional Adjusted EBIT margin Based on the development and expectations outlined with regard to the adjusted EBITA margin, the Management Board of NORMA Group assumed – prior to the spread of COVID-19 – that the adjusted EBIT would also be at the level of the previous year and therefore expected an adjusted EBIT margin of more than 12% for fiscal year 2020. Similar to the forecast for the adjusted EBITA margin, the Management Board of NORMA Group SE now also expects the adjusted EBIT margin to deviate negatively from the original assumptions. Financial result of up to EUR – 15 million expected The Management Board expected – prior to the spread of COVID- 19 – a financial result of up to EUR – 15 million in total for 2020. This includes interest charges on the Group’s gross debt with an average interest rate of approx. 2.4% as well as other expenses for currency hedges and transaction costs. 86 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGTax rate of between 26% and 28% Investment rate of around 5% Market penetration and innovation capability The Management Board expected – prior to the spread of COVID-19 – a tax rate of between 26% and 28% for fiscal year 2020. Slight decline in adjusted earnings per share Based on the developments described above, in particular triggered by the organic sales decline, the Management Board of NORMA Group expected – prior to the spread of COVID-19 – to see a slight decline in adjusted earnings per share in fiscal year 2020. Adjustments to the result In fiscal year 2020, like in the previous years, NORMA Group’s Management Board expected – prior to the spread of COVID-19 – adjustments from the allocation of purchase prices to depreciable tangible and intangible assets from the acquisitions made in past years in the amount of around EUR 25 million. However, the total costs incurred by the “Get on Track” change program will not be adjusted. Moreover, no further adjustments related to the rightsizing program are expected in fiscal year 2020. NORMA Value Added (NOVA) For fiscal year 2020, the Management Board of NORMA Group expected – prior to the spread of COVID-19 – NOVA of between EUR 10 million and EUR 20 million. For fiscal year 2020, NORMA Group’s Management Board expected – prior to the spread of COVID-19 – investments (without M&A activities) of around 5% of Group sales. This covers both maintenance investments and investments in expanding the business. A particular focus will be on the expansion of activities aimed at future growth, projects on the integration of processes and functions (insourcing) as well as the expansion of capacities to localize production. The degree of market penetration is reflected in medium-term organic growth. Ensuring the ability to innovate is essential for the future competitiveness of NORMA Group. NORMA Group records the number of invention applications per year as an indicator for measuring and managing the Company’s innovative strength. More than 20 new invention applications are targeted each year for the Group. Net operating cash flow Due to the expected noticeable decline in sales in fiscal year 2020 and the expected margin level, which is unchanged compared to the previous year, combined with an unchanged investment ratio, the payments for the “Get on Track” program as well as the optimization measures in the area of working capital and the further reduction of the factoring programs, the Management Board of NORMA Group expected – prior to the spread of COVID-19 – net operating cash flow to be around EUR 110 million. Sustainable dividend policy If the future economic situation permits, NORMA Group will pur- sue a sustainable dividend policy, which is based on a dividend ratio of approx. 30% to a maximum of 35% of the adjusted Group annual earnings. Due to the current economic developments in connection with COVID-19, the proposal will be made to the Annual General Meeting, which has been postponed from May 14 to June 30, 2020, to suspend the dividend for fiscal year 2019. Employee problem-solving behavior NORMA Group measures and manages problem-solving behavior, among other topics, based on the number of customer complaints, by using the following two performance indicators: effective parts (parts per million, PPM) rejected by the customer and the number of quality-related complaints. For the PPM indicator, a value of less than 20 is the target each year until the end of 2020 depend- ing on the product group. Customer complaints are also to be further reduced to fewer than 8 per month on an annual average. Sustainable company development NORMA Group has published its CR Roadmap 2020. The objective of the Group is to continue to achieve the goals and measures stated therein in a consistent manner and lay even more import- ant milestones for managing the Company more sustainably in the current year. 87 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThis forecast for fiscal year 2020 was made before the spread of COVID-19. The Management Board assumes that the consequences and after-effects of the further spread of the virus, which are currently still difficult to assess, will result in negative deviations from the forecast originally made here regarding the future development of NORMA Group SE in fiscal year 2020. Forecast for the fiscal year 2020  T031 Organic group sales growth Noticeable decline in organic sales of – 2% to – 4% stable organic sales EMEA: Americas: noticeable organic decline APAC: slight organic decline Adjusted cost of materials ratio Adjusted personnel cost ratio DS: EJT: solid organic growth noticeable organic decline Roughly at the same level as in previous year Roughly at the same level as in previous year Expenses in R&D (in relation to EJT sales) Around 5% of EJT sales Adjusted EBITA margin Adjusted EBIT margin More than 13% More than 12% NOVA (NORMA Value Added) Between EUR 10 million and EUR 20 million Financial result Tax rate Adjusted earnings per share Up to EUR – 15 million Between 26% to 28% Slight decline Investment rate (without acquisitions) Operative investments of around 5% of Group sales Net operating cash flow Dividend/dividend ratio Number of invention applications Number of defective parts (parts per million / PPM) Number of quality-related complaints per month Around EUR 110 million Approx. 30% to 35% of adjusted net profit for the period More than 20  Below 20  Below 8  88 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRisk and Opportunity Report NORMA Group is exposed to a wide variety of risks and opportunities, which can have a positive or negative short-term or long-term impact on its financial, assets and earnings position. For this reason, opportunity and risk management represents an integral component of corporate management for NORMA Group, at both the Group management level and at the level of the individual companies and individual functional areas. Due to the fact that all corporate activities are associated with risks and opportunities, NORMA Group considers identifying, assessing, and managing opportunities and risks to be a fundamental component of executing its strategy, securing the short and long- term success of the Company and sustainably increasing shareholder value. In order to achieve this over the long-term, NORMA Group encourages its employees in all areas of the Company to remain conscious of risks and opportunities. Risk and opportunity management system NORMA Group defines risks and opportunities as possible future developments or events that could have a positive or negative impact on the Group’s ability to meet its targets and achieve its business objectives. Analogous to the medium-term planning, the Management Board’s focus with respect to possible deviations in specific risks and opportunities covers a period of five years. Opportunities and risks that affect the Company’s success beyond this period of time are recorded and managed at the Group man- agement level and taken into consideration in the Company’s strategy. Analogous to medium-term planning, the focus with respect to the valuation of specific risks and opportunities covers a period of five years, provided that no other period is specified in the individual categories. The Management Board of NORMA Group is responsible for maintaining an effective risk and opportunity management system. The Supervisory Board is responsible for monitoring the effectiveness of the Group’s risk management system. Compliance with the Group’s risk management policy in the individual companies and functional areas is subject to the internal audit department’s periodic reviews. Risk management process The risk management process at NORMA Group includes the core elements of risk identification, risk assessment and risk controlling and monitoring. The risk management process has been fully integrated into an integrated software solution. The respective legal units record the identified and assessed risks. Subsequently, the regional risk officers and, depending on the risk category, the functional managers at Group level, check and approve the respective risks with the help of the software. The process of identifying, evaluating and controlling risks is accompanied by continuous monitoring and communication of the reported risks by the risk managers. Risk identification is carried out bottom-up by the individual companies as well as top-down by the individuals responsible for functions at the regional and Group level. Various methods that correspond to the structure of the organization are used to identify risks. Such methods include interdisciplinary workshops, interviews and checklists, but also market and competition analyses. In certain cases, analyses of the process workflows as well as results from internal and external audit reports are used. Risk management system of NORMA Group G024 onitorin g M Risk management Risk identification I d e n t i f i c a t i o n Risk reporting Risk culture Risk strategy Methods Technologies Risk assessment Risk analysis Risk aggregation Counterme a s u r e s Management Board and Supervisory Board 89 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING NORMA Group’s risk managers are responsible for verifying on a regular basis whether all material risks have been recorded. NORMA Group uses a systematic assessment procedure to evaluate the risks that were identified, both in terms of their financial impact and their probability of occurrence. All risks that can be adequately assessed and specified are reported regardless of their expected financial impact. The measurement of the gross expectation value of the risk, i.e. the expected value of the risk before considering countermeasures, must be based on the assumption of the most unfavorable outcome of the financial impact for the Company. As part of the risk controlling, the appropriate risk mitigating measures are developed, implemented and their implementation is monitored. These include, in particular, strategies to avoid, reduce and secure risks, i.e. measures that minimize the financial impact of the risks as well as their probability of occurrence. Risks are managed in accordance with the principles of the risk management system as described in the Group risk management policy. Risk reporting Group-wide recording and assessment of risks as well as their reporting to the functional managers and individual companies by functional areas, the management of the segments, the Management Board and the Supervisory Board takes place on a quarterly basis. In addition, risks that are identified within a quarter and whose expected value have a significant impact on the results of subgroups of the Group are reported ad hoc to the Management Board and, if necessary, to the Supervisory Board. In order to analyze NORMA Group’s overall risk situation and initiate appropriate countermeasures, individual risks of local business units, segments and Group-wide risks are aggregated in a risk portfolio. Here, the scope of consolidation for risk management corresponds to the scope of consolidation of the Consolidated Financial Statements. In addition, risks are catego- rized according to type and the functional area they affect. This makes it possible to aggregate individual risks into risk groups in a structured manner. This aggregation can be used not only for individual risk management but also to identify and control trends in order to sustainably influence and reduce the risk factors with certain types of risks. If not indicated otherwise, the risk assess- ment applies to all regional segments. Opportunity management process Operational opportunities are identified during monthly meetings held at the local and regional level, but also by the Management Board, and then documented and analyzed. Measures aimed at capitalizing on strategic and operational opportunities through local and regional projects are approved during these meetings. Regular forecasts are developed as part of periodic reporting to record how successfully potential opportunities are taken advantage of. Strategic opportunities are recorded and evaluated as part of annual planning. NORMA Group uses a systematic assessment procedure to evaluate the opportunities and risks that were identified, both in terms of their financial impact, i.e. gross and net impact on planned financial indicators, and their probability of occurrence. Internal control and risk management system with regard to the group accounting process NORMA Group’s internal control and risk management system with regard to the Group accounting process can be described using the following main characteristics: The purpose of this system is to identify, analyze, evaluate and manage risks as well as monitor these activities. The Management Board is responsible for ensuring that this system meets the Company’s specific requirements. Based on the allocation of responsibilities within the Company, the CFO is responsible for the Finance and Accounting divisions. These functional areas define and review the Group-wide accounting standards within the Group and compile the information used to produce the Consolidated Financial Statements. The need to provide accurate and complete information within predefined timeframes represents a significant risk to the accounting process. Because of this, requirements must be clearly communicated and the affected units must be put in a position to meet these requirements. Risks that may affect the accounting process arise, for example, from the late or incorrect recording of business transactions or non-compliance with accounting rules. The failure to enter business transactions also represents a potential risk. In order to avoid errors, the accounting process is based on the segregation of duties and functions and plausibility checks for reporting. The preparation of the financial statements of those entities to be included in the Consolidated Financial Statements as well as the consolidation measures based on this consolidated group are characterized by consistent observance of the ‘dual-control prin- ciple’ Comprehensive and detailed checklists must be completed before the respective reporting deadlines. The accounting process is fully integrated into NORMA Group’s risk management system. This ensures that accounting risks are identified at an early stage, allowing the Company to implement measures for risk prevention and risk mitigation without delay. The internal control system ensures the accuracy of NORMA Group’s financial reporting with respect to its accounting processes. The internal audit department reviews the accounting processes on a regular basis to ensure that the internal control and risk management system is effective. External specialists also support these efforts. Furthermore, the financial statement auditor conducts audit procedures during the audit of the annual financial statements based on the risk-based audit approach, whereby material errors and violations will be uncovered with reasonable assurance. 90 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe IFRS accounting standards as they are to be applied in the European Union are summarized in an accounting manual that includes an account assignment guideline (IFRS Accounting Manual). All companies in the Group must base their accounting processes on the standards described in the accounting manual. Important accounting and valuation standards, such as the recognition and measurement of fixed assets, inventories and receivables, as well as provisions and liabilities, are defined in a binding manner. The Group also has system-supported reporting mechanisms to ensure that identical situations are handled in a standardized way across the Group. The Consolidated Financial Statements and Consolidated Management Report are prepared according to a uniform time schedule for all companies. Each company in the Group prepares its separate financial statements in accordance with the appli- cable local accounting guidelines and IFRS. Intra-Group deliveries and services are recorded in separately designated accounts by the Group companies. The net balances of Intra-Group offsetting accounts are reconciled on the basis of defined guidelines and schedules by means of balance confirmations. The companies in the Group use the COGNOS reporting system for financial reporting. In accordance with NORMA Group’s regional segmentation, technical responsibility for the financial area is shared by both the financial officers in the Group companies as well as by the regional CFO for the respective segment. They are responsible for the quality assurance of the financial statements of the respective Group companies. The comprehensive quality assurance of the financial statements of the Group companies included in the Consolidated Financial Statements is carried out by Group Accounting, Tax & Reporting, which is responsible for preparing the Consolidated Financial Statements. In addition, the data and disclosures of the Group companies as well as the consolidation measures necessary for the preparation of the Consolidated Financial Statements are verified through audit procedures conducted by external auditors under consideration of the associated risks. to EBITA. The presented impact always reflects the effects of countermeasures initiated. The probability of individual risks and opportunities occurring is quantified based on the following five categories: The various IT systems that individual NORMA Group companies use to perform financial accounting are gradually standardized. Tiered user access rights are defined for all systems. The type and design of these access authorizations and authorization policies are decided on by local management in coordination with NORMA Group’s central IT department. • Very unlikely: up to 3% probability of occurrence • Unlikely: more than 3% and up to 10% probability of occurrence • Possible: more than 10% and up to 40% probability of occurrence • Likely: more than 40% and up to 80% probability of Risk and opportunity profile of NORMA Group occurrence As part of the preparation and monitoring of its risk and oppor- tunities profile, NORMA Group assesses risks and opportunities based on their financial impact and their probability of occurrence. The financial impacts of risks and opportunities are assessed based on their relation to EBITA. The following five categories are used here: • Insignificant: up to 1% of current EBITA • Minor: more than 1% and up to 5% of current EBITA • Moderate: more than 5% and up to 10% of current EBITA • Significant: more than 10% and up to 25% of current EBITA • High: more than 25% of current EBITA The impact of the risk or opportunity generally relates to the EBITA of the Group. Provided that an individual assessment relates solely to a specific segment, the EBITA of the respective segment is used instead. The assessment of opportunities and risks whose financial impact has an effect on line items in the Statement of Comprehensive Income below EBITA is also performed in relation • Very likely: more than 80% probability of occurrence Financial opportunities and risks NORMA Group is exposed to various financial risks, including default, liquidity and market risks. The Group’s financial risk management strategy concentrates on the identification, evaluation and mitigation of risks, focusing on minimizing the potential negative impact on the Company’s financial, asset and earnings position. Derivative financial instruments are used to hedge particular risk items. Financial risk management is carried out by Group Treasury. The Group Management defines the areas of responsibility and necessary controls related to the risk management strategy. Group Treasury is responsible for identi- fying, evaluating and hedging financial risks in close consultation with the Group’s operating units. In this context, various processes and organizational structures work together to measure and eval- uate opportunities and risks on a regular basis, and to initiate appropriate measures if necessary. Group Treasury regularly conducts analyses of default risks, interest rate risks, currency 91 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING risks and liquidity risks. The results are then discussed internally and actions are defined. Group Treasury also advises the management of relevant departments in monthly committee meetings and discusses how to handle these risks and the potential impact on NORMA Group NOTES, P. 14 2 Capital risk management NORMA Group’s objective when it comes to managing its capital is primarily the long-term servicing of its debts and remaining financially stable. In connection with most of its financing agreements, the Company is obliged to maintain the financial covenant total net debt cover (debt divided by adjusted consolidated EBITDA). This key figure and its maintenance, but also net debt and the maturity structure of financial debt, are continually monitored. Changes in the value of the amounts included in this financial indicator are limited by employing long- term hedging strategies. Default risks Default risks are risks of contractual partners not meeting their obligations arising from business and financial transactions. Due to the nature of the respective assets and business relationships, as well as the soundness of its current banking partners, default risks with respect to deposits and other transactions concluded with credit and financial institutions currently do not represent a major risk category for NORMA Group. Nevertheless, the credit- worthiness of contract partners is continuously monitored and discussed at regular senior management meetings. Relevant default risks can arise, however, with respect to business relationships with customers and relate to outstanding receivables and committed transactions. NORMA Group reviews the creditworthiness of new customers to minimize the risk of default on trade receivables. Customers whose credit ratings are below Group standards or who have defaulted on payment are only supplied if they pay in advance. Additionally, a diversified customer portfolio reduces the financial repercussions of default risks. Default risks are still considered to be unlikely due to the measures referred to above. The potential financial effects of default risks are judged to be insignificant considering the relevant factors, such as bad debt losses experienced in the past, and due to the countermeasures taken. Liquidity opportunities and risks Prudent liquidity risk management requires holding sufficient cash funds and marketable securities, having sufficient financing from committed lines of credit and being able to close out market posi- tions. Due to the dynamic nature of the underlying business, of NORMA Group, Group Treasury aims to maintain flexibility in financing by keeping committed credit lines available. Therefore, NORMA Group’s primary objective is to ensure the uninterrupted solvency of all Group companies. Group Treasury is responsible for liquidity management and therefore for minimizing liquidity risks. As of December 31, 2019, NORMA Group’s liquid assets (cash and cash equivalents) amounted to EUR 179.7 million (2018: EUR 190.4 million). Furthermore, NORMA Group has a high level of financial flexibility thanks to a committed revolving credit line with national and international credit institutions in the amount of EUR 50 million. This line was not drawn down at all as of December 31, 2019. In the course of the refinancing in 2019, a further flexible accordion line was negotiated, which has further increased NORMA Group’s ability to take strategic action. Furthermore, a commercial paper program with a total volume of EUR 300 million was launched in 2019, which can be used flexibly to cover short-term liquidity requirements. These money market papers, which are equivalent to bearer bonds, are issued on a revolving basis for a short-term period of 1 to 24 weeks and thus allow the Group’s own liquidity to be managed in line with requirements. Financial opportunities are seen, among other areas, in NORMA Group’s high creditworthiness as well as its solid finan- cial, assets and earnings position, which enable the Company to gradually reduce its capital costs. Against this backdrop, NORMA Group successfully refinanced the maturing promissory note tranche from 2014 and the bank loan negotiated in 2015 in full in the past fiscal year. The new financing is characterized by even more committed degrees of freedom and lower interest costs. This new bank loan of EUR 250 million also includes a sustainability component linked to an external rating. By further improving its sustainability rating, NORMA Group has the opportunity to further reduce its external interest burden. In addition to the revolving credit line, which was not used at the end of the year, a flexible accordion line was negotiated, which grows with the success of NORMA Group. The liquidity-related opportunities are considered likely, in particular due to the positive assessment by the banking partners and the resulting reputation on the capital market. In light of the refinancing measures carried out in the recent past, by which the borrowing costs have already been reduced quite considerably, the potential financial effects of liquidity-related opportunities on NORMA Group’s earnings are considered to be only minor. FINANCIAL POSITION, P. 69 92 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGMost of the Group’s financing agreements contain typical terms for credit lines (financial covenants). If NORMA Group does not adhere to these terms, the banks would be entitled to re-evaluate the agreements and demand early repayment. Failure to comply with these loan covenants would have high potential financial repercussions. For this reason, NORMA Group continuously monitors its compliance with the financial covenants in order to implement suitable measures in advance and prevent the terms from being violated. In order to hedge balance positions in foreign currencies whose valuation leads to fluctuations in the profit and loss account, NORMA Group partly uses rolling hedging transactions. Group Treasury ensures that sufficient liquidity or granted credit lines are available at all times to cover possible cash outflows related to these hedging measures. This is continuously monitored by means of risk simulation and discussed in senior management meetings. The probability of liquidity risks having a negative impact on NORMA Group’s activities is very unlikely given the high level of financial flexibility provided by committed and unused bank credit lines. The risk of non- compliance with financial covenants is still considered very unlikely due to high profitability and a strong operating cash flow. In the event of (short-term) increased liquidity requirements that exceed currently negotiated lines, the possibilities of raising funds at market conditions, by issuing new bonds on the commercial paper capital market, for example, are considered to be very good. Foreign currency trends As an internationally operating company, NORMA Group is active in more than 100 countries and is thus exposed to foreign currency risks. The US dollar, British pound, Swiss franc, Chinese renminbi, Polish zloty, Swedish krona, Czech koruna, Singapore dollar, Indian rupee and Serbian dinar are regarded to be the main risk-prone currency positions. Foreign currency risks that cannot be offset against each other are hedged using futures and options whenever reasonable. The high volatility of many major currencies and the particular influence of the US dollar on the Group’s financial, assets and earnings position represent a considerable risk that can be only partially hedged for a short-term period. In the medium term, NORMA Group reduces foreign currency risks by increasing regional production. PRODUCTION AND LOGISTICS, P. 74 Because the Group’s subsidiaries operate in the most important countries with currencies other than the euro, it has sufficient cash-in and cash-out capabilities to absorb short-term exchange rate fluctuations via targeted income and expenditure manage- ment. The syndicated bank loan refinanced in fiscal year 2019 has further increased flexibility in foreign currency management. The syndicated bank loan provides for credit lines in various cur- rencies to be utilized (e.g. US dollars and euro tranches). In addi- tion, the US dollar promissory note tranches issued lead to a bet- ter congruence of the payment profiles in US dollars. The remaining foreign currency risks are continuously monitored within the Group and, in the event of any exceedance of risk limits, are transferred to the euro on a rolling basis using derivative hedging instruments. Translation risks are constantly monitored by Group Treasury, but are not hedged using derivative hedging instruments in the current environment. As a result, items in the Statement of Financial Position and Statement of Comprehensive Income of subsidiaries in foreign currency areas are translated into euros. The potential financial effects of opportunities and risks related to exchange rate changes are considered to be moderate based on the sensitivity analyses that have been performed. The probability of the incidence of these risks and opportunities is assessed to be possible in light of recent exchange rate fluctuations and the uncertainties with regard to the further development of relevant exchange rates. Changes in interest rates Changes in global market interest rates affect future interest payments for variable interest liabilities and can therefore have an adverse effect on the Group’s asset, financial and earnings position. NORMA Group’s interest change risk arises in particular from long-term loans. Many of the current loans have fixed interest rates and are there- GOALS REGARDING FINANCE fore not subject to interest rate risk. AND LIQUIDIT Y MANAGEMENT, P. 55 Loans that initially had variable interest rates were partly synthetically converted into fixed interest rate positions using derivative instruments. NORMA Group has hedged over 60% of its variable interest rate loans in USD valued at USD 171 million in total. On the other hand, variable rate loans denominated in euros in the amount of EUR 165 million are for the most part unhedged. 93 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDue to the fact that there are currently no signs of a more restrictive monetary policy in the euro zone, NORMA Group views the risk of interest rate increases in the short term to be unlikely and in the medium term as possible. In view of the current low interest rate level in the euro zone, the chances of a further reduction in interest rates are considered unlikely in the short and medium term. In the US dollar zone, on the other hand, the probability of further interest rate cuts is considered possible in both the short and medium term, which would lead to corresponding opportunities for NORMA Group. NORMA Group considers the risk of rising US interest rates to be unlikely in the short term and possible in the medium term. Against the background of the measures already implemented to optimize the financing structures, the financial effects associated with these risks and opportunities are assessed as low. In summary, NORMA Group assesses the opportunities and risks arising from interest rate changes as possible in principle, although risks from rising interest rates are even considered to be unlikely in the short term. The possible effects are classified as low in all scenarios, both in the short and medium term. Economic and cyclical opportunities and risks The success of NORMA Group largely depends on macroeconomic trends on its sales markets and its customers’ sales markets. Therefore, important indicators of economic development worldwide are taken into account both in planning as well as in risk and opportunities management. In order to gauge the macroeconomic trend, NORMA Group mainly uses the forecasts of widely regarded institutions such as the IMF, the Bundesbank and reputable economic research institutes. Accordingly, global growth of 3.2% can be expected in 2020. In the previous year, in addition to the uncertain outcome of the Brexit process and the consequences of a continuing rise in protectionism, the resulting geopolitical risks were identified as significant risk factors with regard to economic development. In addition, a flattening of the pace of expansion of the Chinese market and the high level of government debt in Italy and France and their negative impact on economic development in Europe are seen as further potential risks. For the current fiscal year, relevant risk factors include the negotiations on the design of future trade rules with the EU following the Brexit, protectionist activities in connection with the possible conclusion of a trade agreement between the US and the EU, and other geopolitical crises. In addition, the structural problems in Italy and France, among others, could have a negative impact on how the economy in Europe develops. In addition, NORMA Group considers the coronavirus (COVID-19), which first appeared in China, to be a major burden on the development of the global economy in fiscal year 2020. The further spread of the virus and the associated containment and quarantine measures could lead to substantial production losses due to plant closures and slumps in demand, particularly in the first half of the year, and increasingly affect areas and industries in countries outside China that are initially only indirectly affected due to globally integrated value chains. In this context, the global economy is not expected to be significantly impaired beyond the first half of 2020. However, if the further spread of this epidemic is not halted promptly, it is increasingly unlikely that the negative effects, such as production and demand gaps, can be closed as the year progresses. In light of the possible overall economic impact of these developments, NORMA Group is of the opinion that a negative development of the global economy compared to the planning assumptions is currently classified as likely taking these risks into account. Should these factors lead to a deterioration in global demand, the financial deviations from planning are considered to be moderate. A positive development of the global economy that goes beyond the planning assumptions would represent an opportunity for NORMA Group. Thanks to its flexible production structures, NORMA Group is able to expand capacities in the short term and thus respond to a generally increased demand. The Company believes it is unlikely that the global economic situation and thus NORMA Group’s earnings will improve beyond the Climate change: an eye on opportunities and risks Dealing with the consequences of climate change and the increasing scarcity of resources properly is becom- ing increasingly important. NORMA Group’s main objec- tive is to identify risks and opportunities arising from the changing environment and to recognize potential. The growing electromobility market is a consequence of the ongoing demand for a reduction in greenhouse gas emissions. Opportunities have arisen for NORMA Group in this area, in the development of innovative systems in the fields of thermal management for batteries and water, for example, when it comes to landscape irriga- tion, rainwater management and infrastructure solutions. Nevertheless, NORMA Group also keeps a close eye on the risks that could arise, an increase in the cost of production processes that could result if greenhouse gas emissions were to be priced, for example. Potential losses of business in the automotive sector in connection with conventional drives are also monitored closely on an ongoing basis and appropriate steps are taken in good time as required. The information embedded in this box is not part of the Consolidated Management Report and thus not subject to audit. 94 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING planning assumptions. In the overall view of the current macroeconomic climate and the prospects based thereon, the potential financial impact of these opportunities is considered minor as in the previous year. Industry-specific and technological risks and opportunities Industry-specific and technological opportunities and risks for NORMA Group are closely linked to the conditions and develop- P RO D U CTS A N D ments in the respective customer industries. END MA RKETS, P. 4 7 It should be borne in mind, however, that the customer industries in the regions relevant to NORMA Group, EMEA, the Americas and Asia-Pacific, have partly specific char- acteristics and challenges. Business activities with OEMs for passenger cars and commercial vehicles as well as customers in the aftermarket segment still represent the most important end markets for NORMA Group. In this area, the ever-stricter emission standards as well as the increasing use of more environmentally friendly drive technologies represent a development that is associated with various opportunities and risks for NORMA Group. NORMA Group’s current product portfolio includes a variety of solutions that help reduce emissions in passenger cars and commercial vehicles equipped with an internal combustion engine, including hybrid vehicles, and thus help customers meet ever-stricter emission requirements. NORMA Group is also in a good position to meet the challenges of ever more relevant electromobility through its future-proof prod- uct portfolio. Accordingly, research and development activities relating to purely battery-powered electric vehicles as well as hybrid vehicles represent a strategic focus, within the framework of which new product solutions are being developed and existing products constantly enhanced. Regulatory measures such as stricter exhaust gas standards and the resulting increased demand for environmentally friendly products and technologies thus open up a variety of opportunities for NORMA Group. On the other hand, risks for NORMA Group may arise from the ongoing discussion of compliance with emission standards for vehicles with combustion engines. NORMA Group counters these risks through continuous initiatives aimed at securing and expanding its technological and innovative leadership and by focusing on customers and markets. Accordingly, NORMA Group systematically analyzes current market developments in the area of future technologies and consistently develops new products based on this analysis. The first products for fuel cell powered vehicles have already been successfully launched on the market. For example, NORMA Group has already been supplying a line system for a fuel cell vehicle in series production since 2018, which could lead to further research and follow-up projects. Even in the context of a steadily increasing share of purely battery-powered electric vehicles, it will be important for NORMA Group to continue to be able to offer suitable innovative product solutions in this dynamic environment. RESEARCH AND DEVELOPMENT, P. 55 The water management segment, which has been consistently strengthened by the acquisitions carried out in past years, represents another strategically important customer industry for NORMA Group. The increasing scarcity of water and the responsible handling of this important resource in this context are leading to business opportunities. NORMA Group’s strong diversification in terms of customers in different industries is another element of the Company’s risk and opportunity management. NORMA Group counters long-term, industry-specific risks and opportunities through a consistent innovation policy and regular market analyses. In summary, the industry-specific and technological opportunities and risks are assessed as possible with a moderate financial impact. Risks and opportunities associated with corporate strategy The strategic goal of NORMA Group is to achieve a sustained increase in the Company’s value. In view of this goal, NORMA Group is pursuing the strategy of profitably expanding its business activities through organic growth as well as selective value- enhancing acquisitions and achieving broad diversification with respect to its products, regions and end markets, thus becoming less dependent on individual products, regions and end markets. NORMA Group’s aim is to grow with innovations, superior product quality and strong brands in existing end markets, to open up new end markets and to continuously improve the efficiency of its business processes in all functional areas and regions. GOALS AND STRATEGY, P. 49 95 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Besides the Company’s strategic activities aimed at continuing to develop the business organically, NORMA Group sees considerable opportunities to sustainably increase the Group’s financial result, particularly through its strategy of profitably expanding its business activities by making selective, value - adding acquisitions. NORMA Group has been able to demonstrate the success of this strategy several times in the past by completing its acquisitions. If, however, in individual cases, the development of the acquired companies falls behind the expectations at the time of acquisition or if integration progresses more difficultly than assumed, risks could also arise from acquisitions for NORMA Group. However, NORMA Group believes that the Company’s goals for the profitability of potential acquisitions, careful due diligence measures in the run-up to the acquisition, and agreed integration plans form the basis for mitigating these risks accordingly. In addition, opportunities to achieve its financial targets arise for NORMA Group from the broad diversification with respect to its products, regions and end markets. Should the demand in individual regions and end markets or the demand for individual products temporarily lag behind planning, NORMA Group will have the chance to compensate for this via other regions, end markets or products. Nevertheless, the broad diversification with respect to products, regions and end markets also implies a certain complexity, which can be associated with risks for NORMA Group. Because NORMA Group’s diversification efforts are being carried out step by step with regard to the regions and end markets as well as its products, these risks can be adequately limited by means of an appropriate adaptation of the organization to the changed circumstances. Accordingly, NORMA Group is addressing the reduction of complexity and streamlining of its current product portfolio via an independent field of action as part of its “Get on Track” change program. With respect to the efficiency of its business processes, NORMA Group is able to settle production processes that require a higher degree of manual assembly effort in countries with lower labor costs, thus securing and further increasing its profitability. However, there are inevitably risks associated with making these types of decisions on locations and related investments if significant assumptions made in the investment decision are not fulfilled. NORMA Group addresses these risks by conducting careful analyses in the run-up to investment decisions and uses graded approval procedures. Future risks from the location decisions already made will be evaluated in fiscal year 2020 as part of the “Get on Track” program and be included in decisions on optimizing the capacities of Group sites. When the corporate strategy initiatives of NORMA Group are combined, the financial impact of the opportunities associated with NORMA Group’s Company strategy is assessed as moderate and a positive deviation from planning as possible. Based on the measures taken to limit the risks associated with NORMA Group’s corporate strategy, the probability of the occurrence of strategic risks is considered unlikely, while the potential financial impact of corporate strategy risks is considered moderate. The Company strategy is adapted to the individual market conditions in the individual segments. For instance, acquisitions are made particularly in those countries and regions that offer attractive growth opportunities for NORMA Group. Nevertheless, the general assessment of corporate strategy opportunities and risks in the regions is identical. Operational risks and opportunities Commodity prices The materials that NORMA Group uses, in particular the raw materials steel and plastics, are subject to the risk of price fluctuations. The price trend is also influenced indirectly by the further development of the global economic situation as well as by institutional investors. NORMA Group limits the risk of rising purchase prices through systematic material and supplier risk management. Thanks to a powerful global Group purchasing structure, economies of scale are being used to purchase the most important commodity groups FASTEN, FLUID und WATER as competitively as possible. This Group purchasing structure also enables NORMA Group to balance out the risks of individual segments with each other. NORMA Group also constantly strives to secure permanently competitive procurement prices by continuously optimizing its selection of suppliers and applying the best-landed-cost-approach. The Company also tries to reduce dependency on individual materials through constant technological advances and tests of alternative materials. Protection against commodity price volatility is done by forming procurement contracts with a term of up to 24 months, whereby material supply risks are minimized and price fluctuations can be calculated more accurately. The high price level for purchasing steel and metal components remained largely unchanged due to the increasing protectionist measures in the US. The steel procurement markets in Europe and Asia (China) showed a decline in prices due to the economic slowdown. The alloy surcharges relevant for stainless steel rose sharply during the year after the Indonesian government announced an early ban on nickel ore exports. As a result of weaker demand and high inventories, especially in China, prices declined again at the end of the year. Analysts continue to assume a risk of rising nickel prices and a volatile market in the future. This is due to the use of nickel in batteries for electromobility. 96 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn the procurement market for plastics, NORMA Group recorded rising procurement prices at the beginning of the past fiscal year. This was initially due to the continuing high demand for engineering plastics. As a result, producers in some cases initially continued to allocate material. Due to the economic downturn, particularly in the automotive sector, this led to a significant global decline in demand for engineering plastics. As a result, the supply situation has eased to a large extent. The possibility of a recovery in the global economy, which could lead to supply bottlenecks for engineering plastics and the associated price increases, is not yet foreseeable. Taking into account NORMA Group’s procurement portfolio, price increases for raw materials are considered likely overall. However, the associated financial impact is estimated to be minor. Similarly, the opportunities arising from declining raw material prices are also considered to be minor in terms of their financial impact. Against the backdrop of the complete procure- ment spectrum and taking into account the prevailing volatility on the raw material markets, potential price reductions are still considered unlikely overall. Suppliers and dependencies on key suppliers The loss of suppliers and dependencies on single suppliers can lead to material shortages and thus to negative impacts on the Group’s activities. In order to minimize this risk, NORMA Group only works with reliable and innovative suppliers who meet its high quality requirements. In the area of production material, the ten most important suppliers are responsible for approximately 28% of the purchasing volume. M A N AG E M E N T, P. 7 6 These and other key suppliers are regularly observed and assessed as part of quality management. If the loss of a supplier appears imminent, NORMA Group evaluates P U R C H A S I N G A N D S U P P L I E R alternatives immediately. As a result, the loss of suppliers is considered possible, but the potential financial impact is regarded as minor. However, NORMA Group also sees opportunities in this area as a result of its proactive approach both in terms of existing supplier relationships as well as identification of new suppliers and raw materials. Since further optimization in the area of purchasing can also be anticipated in the medium term due to the “Get on Track” change program rolled out in November, NORMA Group estimates the potential of the implemented measures for a positive deviation from planning to be possible with a minor impact. Quality and processes NORMA Group’s products are often mission-critical with respect to the quality, performance and reliability of the final product. Quality defects can lead to legal disputes, liability for damages or the loss of a customer. Therefore, the reliable guarantee of product quality is a key factor to ensuring NORMA Group’s long- term success, so that its products provide crucial added value for QUALIT Y MANAGEMENT, P. 75 Maintaining the right its customers. balance between cost leadership and quality assurance is a constant challenge. To reduce this risk, far-reaching quality assurance measures and uniform Group-wide quality standards are used. Furthermore, NORMA Group focuses on innovative and value-added joining solutions tailored to meet customer requirements. For this reason, the Company believes that it is possible for quality risks to occur, while the potential financial repercussions would be minor due to the existing insurance coverage. NORMA Group takes every opportunity to realize cost advantages to improve its competitive position. The Company develops and implements initiatives focused on cost discipline, the continuous improvement of processes in all functions and regions and the optimization of supply chain management and production processes. These initiatives are expected to have a positive impact on NORMA Group’s business. PRODUCTION AND LOGISTICS, P. 74 Since NORMA Group pursues a continuous process of improvement, there are opportunities over and above planning for positive deviations in the area of these processes. This applies for all regions in which NORMA Group is active. The Company estimates the likelihood of cost savings to be possible. Since- planning already allows for continuous optimization of production processes and NORMA Group’s processes are already extremely efficient, the short-term financial impact of a deviation from the plan as a result of improved production processes is minor. Customers Customer risks result from a company being dependent on important buyers for a significant proportion of its sales. They could take advantage of their bargaining power, which can lead to increased pressure on the Company’s margins. Decreases in demand from these customers or the loss of these customers can have a negative impact on the Company’s earnings. For this reason, NORMA Group continuously monitors incoming orders and customer behavior so as to identify customer risks early. Due to its diversified customer portfolio, financial repercussions of customer risks are reduced. Accordingly, no single customer accounted for more than 4% of sales in fiscal year 2019. Therefore, it is considered possible that customer risks could have a negative impact on NORMA Group’s business, however the financial effects would be minor due to the diversified customer structure. 97 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGBased on NORMA Group’s strategy and the goal of further expanding its markets, the Company managed to expand its customer portfolio compared to the previous year. Innovative solutions were used to gain new customers for NORMA Group products in all regions. Therefore, NORMA Group estimates the opportunities for positive deviations from planning to be possible with a minor impact on earnings based on a growing number of customers. Risks and opportunities of personnel management NORMA Group’s success is largely dependent on its employees’ enthusiasm, commitment to innovation, expertise and integrity. The Group’s personnel management serves to retain and expand this core expertise. The resignation of employees with crucial skills as well as a shortage of suitable workers can have a negative impact on operations. The competition for the most talented employees as a result of demographic developments and the shortage of skilled labor in Western industrial nations is becoming more and more intense. NORMA Group counters these risks with far-reaching basic and advanced training as well as employee development programs. NORMA Group also encourages its employees to focus on the Company’s success through variable remuneration systems. In return, the employees contribute to the continuous further development of the Company in connection with employee surveys and improvement initiatives. Comprehensive represen- tation rules and a division of responsibilities that promotes mutual exchange secure the Group from risks that can arise due to the departure of employees. When identifying potential new employees who can make a crucial contribution to performance, NORMA Group seeks the advice of external human relations advisors. While the Company regards the probability of personnel risks occurring as possible overall, the potential financial impact is considered insignificant due to its sustainable personnel policy. In addition, opportunities arise from the consistent further development of employees. NORMA Group fosters its employees and offers them incentives to further develop their personal expertise through educational and training opportunities as well as the targeted search for talent within the Group. Furthermore, NORMA Group offers its employees flexible and family-friendly working time models. Through the above-mentioned measures, NORMA Group actively supports the preservation and collection of knowledge within the Company, which will thus offer opportunities for the future development of NORMA Group. The occurrence of these opportunities is considered likely, whereby the associated financial success is considered to be minor. IT-related risks and opportunities The use of functional and high-performance IT systems is of central importance for an innovative and global Company such as NORMA Group with regard to the efficiency of its business processes. In this context, it is critical for the Company’s success to support the business processes of NORMA Group, which are partly organized across corporate and national boundaries along the value chain with stable and powerful IT systems that provide the management at all levels with the necessary information in a timely manner and allow for efficient organization of workflows. For the exchange of information with customers and suppliers of NORMA Group, tailor-made IT solutions connected to the respec- tive ERP systems are likewise of great importance. With regard to this business-critical IT infrastructure, there is a risk that an extensive computer system failure, e.g. due to technical malfunctions of the systems or attacks by hackers, could seriously disrupt the Company’s operations. In addition, NORMA Group sees the risk that external users could gain unauthorized access to sensitive Company information and misuse it. In this context, unauthorized access to information about production processes as well as financial, customer and employee data could have a negative impact on the Company. For this reasons, NORMA Group has implemented appropriate measures to avoid and reduce this type of risk. These measures are embedded in the IT risk management process and are adjusted continously in this context to changing conditions. For example, NORMA Group manages the IT risks it identifies by arranging for redundant provision of business-critical applications and databases via physically separated data center areas, using decentralized data storage and outsourced data archiving to a certified external provider, and by using up-to-date firewalls and e-mail filters, including permanent network monitoring. The access of employees to sensitive information is ensured by means of authorization systems customized for the respective positions, taking into account the principle of segregation of duties. Finally, employees are trained to be more aware of data security aspects. The gradual transfer of old ERP systems into new, uniform Group systems, which will be further advanced in 2019, also harbors risks. During the necessary process changes in the respective plants and distribution centers, adjustment problems may arise at the process level that could result in additional shifts or special freight requirements, for example. If necessary, redundant inter- nal and external resources are kept available to mitigate these risks. NORMA Group estimates the probability of IT-related risks occurring in all regions despite the countermeasures implemented to be probable (possible in the previous year) and the potential financial impact to be moderate (low in the previous year). 98 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe risks arising from the migration from the old ERP systems to uniform new systems for the entire Group are also offset in the medium term by opportunities arising primarily from the potential for process standardization and optimization across all companies in the NORMA Group. The opportunities that may result from this standardization are regarded as probable. The related financial effects are expected to be at a low level. claims of NORMA Group companies against customers. NORMA Group has asserted claims against suppliers in connection with defective deliveries. Another focus was on legal proceedings concerning its own- or third-party IP rights. In addition, NORMA Group was involved in proceedings relating to tax and customs law issues. Legal risks and opportunities Risks related to standards and contracts Future changes to legislation and requirements, especially liability law, environmental law, tax law, customs law and labor law, as well as changes in related standards, could have a negative impact on NORMA Group’s development. Violations of laws and regulations, but also of contractual agreements, can lead to penalties, regulatory requirements or claims from injured parties. Conversely, NORMA Group can be adversely affected by legal or contractual breaches by third parties. In addition, defective products may result in legal disputes and liability for damages. Likewise, the results of tax audits can lead to tax payments, including penalties and interest. In 2019, litigations in most cases involved labor disputes. Here, the respective NORMA Group companies were sued in connection with the termination of employment relationships. Disputes with customers concerned both alleged product defects and payment NORMA Group uses its current compliance and risk management systems to ensure that it complies with constantly changing laws and regulations and meets its contractual obligations. NORMA Group counters the risk of product defects through its Group-wide quality assurance program. In addition, NORMA Group is also insured against claims arising from certain defective products. Due to the current significant changes in international tax law (e.g. the OECD BEPS Initiative), in particular, which can lead to unanswered legal questions, as well as the increased auditing intensity of tax audits that can be seen in many countries, the likelihood of risks related to standards and contracts is considered possible. However, due to the current risk management measures, the potential financial impact of risks in connection with standards and contracts is still considered to be moderate. Social and environmental standards Violating social and environmental standards could damage the reputation of NORMA Group and result in restrictions, claims for damages or disposal obligations. NORMA Group has therefore implemented Corporate Responsibility as an integral part of the Group strategy. In this context, a systematic Environmental Management System was introduced at NORMA Group so that corporate decisions can always be evaluated also considering the goal of avoiding emissions and conserving resources. The Company also invests in the area of occupational health and safety for its continuous improvement. EMPLOYEES, P. 77 The probability of occurrence of negative developments due to social and environmental risks is still estimated as possible and their potential financial impact as moderate. However investments in the area of Corporate Responsibility serve not only to ward off risks. The measures and initiatives are also seen as having the potential to positively impact both the business environment as well as NORMA Group and its stakeholders. Therefore, NORMA Group estimates the opportunities in this area to be possible and assumes that the measures and initiatives will have a minor impact on its planning. Known legal risks to which NORMA Group is exposed and whose occurrence is sufficiently specified are adequately taken into account by provisions in the Consolidated Financial Statements. Intellectual property Violations of intellectual property rights could lead to lost sales and reputation. For this reason, the Company ensures that its technologies and innovations are legally protected. NORMA Group also minimizes the potential impact by developing customer- specific solutions and through its speed of innovation. At the same time, it is also possible for NORMA Group to violate the intellectual 99 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGproperty of third parties. For this reason, developments for potential patent violations are reviewed at an early stage. There- fore, it is considered possible for the intellectual property to be violated. In view of the increase in IP disputes, the associated potential effects and possible other legal infringements are assessed as moderate in contrast to the previous year. In addition, NORMA Group also sees opportunities as possible that can lead to a minor deviation from the medium-term plan as a result of the consistent defense of the intellectual property and the expansion of legal unique selling points. Assessment of the overall profile of risks and opportunities by the Management Board General economic risks remain for NORMA Group in all areas, which is why setbacks on the way to long-term realization of the growth and profitability targets cannot be ruled out. In contrast, there are clear opportunities that NORMA Group is taking advantage of through its strategy and consistent opportunity management, so that it is possible that the Company might even exceed its profitability targets. The changes in the individual opportunities and risks shown in the overview have no significant impact on NORMA Group’s overall risk profile. NORMA Group has therefore concluded that the Group’s overall profile has not changed significantly compared to the previous year. The Group’s overall situation results from the aggregation of individual risks and opportunities from all categories of the business units and functions. After assessing the likelihood of risks occurring and their potential financial impact as well as in light of the current business outlook, NORMA Group’s Management Board does not believe that there is any individual risk or group of risks with the potential to jeopardize the continued existence of the Group or individual Group companies as a going concern. Taking the aggregated opportunities into account, NORMA Group is in a very good position with respect to both the medium and long terms to further expand its market position and grow globally. This assessment is reinforced by the good opportunities to cover the financing requirements. Therefore, NORMA Group has not made any effort to obtain an official rating from a leading rating agency. 100 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRisk and opportunity portfolio of NORMA Group 1 very unlikely unlikely possible likely very likely Change comp. to 2018 insigni ficant minor moderate significant high Probability of occurrence Financial impact T032 Change comp. to 2018 Financial risks and opportunities Default risk Liquidity Currency Risks Opportunities Risks Opportunities Change in interest rates Risks Opportunities Economic and cyclical risks and opportunities Risks Opportunities Industry-specific and technological risks and opportunities Risks Opportunities Risks and opportunities associated with corporate strategy Risks Opportunities Operational risks and opportunities Commodity pricing Suppliers Quality and processes Customers Risks Opportunities Risks Opportunities Risks Opportunities Risks Opportunities Risks and opportunities of personnel management Risks Opportunities IT-related risks and opportunities Risks Opportunities Legal risks and opportunities Risks related to stan- dards and contracts Social and environ- mental standards Property rights Risks Risks Opportunities Risks Opportunities 1_If not indicated differently, the risk assessment applies for all regional segments. 101 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Remuneration Report This Remuneration Report describes the basic principles of the remuneration system for the members of the Management Board and the Supervisory Board of NORMA Group SE in fiscal year 2019 and provides information on the remuneration granted and paid in 2019. In accordance with the recommendation of the German Corporate Governance Code, the Supervisory Board regularly reviews the amount of benefits granted to the members of the Management Board as well as the resulting annual and long-term expenses and adjusts the remuneration as necessary. In this context, attention is drawn in advance to the changes to the remuneration policy and remuneration system planned for 2020. New remuneration system 2020 The Supervisory Board has initiated a complete revision of the remuneration system for the Management Board members following the predominantly negative vote on the approval of the remuneration system for the Management Board members at the 2019 Annual General Meeting and has therefore engaged in an open and cooperative dialogue with investors and voting rights advisors. In accordance with the Company’s Rules of Procedure and applicable German law, the General and Nomination Committee of the Supervisory Board is responsible for drawing up the remuneration system, which includes both the remuneration of the Management Board and the Supervisory Board. The objective of the General and Nomination Committee is to provide the Supervisory Board with a well-founded proposal for a resolution that is appropriate in accordance with all relevant national and international standards. The recommendations of the German Corporate Governance Code (GCGC), the requirements of the German Commercial Code (HGB) and Stock Corporation Act (AktG) as well as the International Financial Reporting Standards (IFRS) are taken into account. The proposed resolution also takes into account the practice in the markets relevant to NORMA Group and the requirements of voting rights advisors and investors with regard to the remuneration of Management Board members. On the basis of this recommendation, the Supervisory Board decides on the Company’s remuneration policy at its own discretion. In addition to the criteria of the Company’s performance and future prospects, the decision on the appropriateness of the remuneration is also based on the general levels of remuneration paid by comparable companies. NORMA Group’s peer group complies with German law and the amended requirements of the German Corporate Governance Code and is composed of 15 companies whose size, industry and structure are comparable to those of NORMA Group. The peer group comprises Bertrandt AG, Deutz AG, DMG Mori AG, ElringKlinger AG, Gerresheimer AG, Jungheinrich AG, König & Bauer AG, Leoni AG, SAF-Holland S.A., Schaeffler AG, SGL Carbon SE, Stabilus S.A., Vossloh AG, Wacker Neuson SE and Washtec AG. The proposal for Management Board remuneration is approved by the Supervisory Board, which regularly reviews the appropriateness of the total remuneration of the Management Board, including the individual components, and makes adjustments it deems necessary. The Management Board and the Supervisory Board intend to submit the new 2020 compensation system to the Annual General Meeting on June 30, 2020 for approval. NORMA Group SE. As a result, more than 50% of the target amount of the payout of the variable remuneration is either invested in shares of NORMA Group SE by the members of the Management Board or granted by NORMA Group SE on a share-based basis. • The short-term variable remuneration may be increased or reduced by up to 20% depending on the total shareholder return of NORMA Group SE compared to the total shareholder return of a predefined group of 15 other listed companies. • Within the long-term variable compensation, a future amount of a maximum of 20% of the fixed annual salary depends on meeting sustainability goals, e.g. the reduction of CO2 emissions. • The Company has introduced a clawback regulation. • The possibility of a special bonus being granted has been deleted from the employment contracts. • The change of control clause that provides for a severance payment in the amount of three years’ remuneration to be paid upon departure in the event of a change of control has been abolished for new members of the Board of Management. • New members of the Management Board receive a defined contribution pension commitment instead of the previous defined benefit pension commitment. Remuneration of the Management Board in 2019 The following content adjustments are part of the new compensation system 2020: Basic principles of the remuneration system • Within variable remuneration, the share of long-term incentives has been increased compared to the share of short-term incentives. • The members of the Management Board have a share pur- chase and retention obligation for an amount equal to 75% of the amount paid out from the LTI and 100% of the amount paid out from the ESG-LTI. The Company may also opt to paythis amount either completely or in part in shares of The purpose of NORMA Group’s remuneration system is to provide the members of the Management Board with adequate remuneration for their activities and areas of responsibility. The remuneration of the Management Board members is based on the short and long-term success of the Company and rewards the Management Board members for their performance in accordance with the applicable legal regulations. In accordance with their roles and performance, the individual achievement of objectives is taken into account by distinguishing individually 102 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGbetween the fixed remuneration of the Management Board members. Due to the limited number of Management Board members, their performance is regarded as a joint effort and responsibility as a body and no further individual targets have been included in the remuneration system. In accordance with the recommendations of the German Corporate Governance Code, the remuneration comprises a fixed component as well as a short-term variable and a long-term variable component. EBITA (adjusted for acquisitions) of the last three fiscal years. Each Management Board member receives an individually determined percentage of the amount of the three-year average. The short-term variable remuneration is limited to a maximum of 250% of the annual basic salary (Dr. Klein: 200% of the annual basic salary). The short-term variable remuneration for the past fiscal year is paid in the following year after the Supervisory Board approves the Consolidated Financial Statements. If the Management Board member has not worked for the Company for a full twelve months in a fiscal year, the annual bonus is reduced accordingly. The following table provides an overview of the annual bonus: Long-term variable remuneration The long-term variable remuneration is designed as a so-called NORMA Value Added Bonus and represents a part of the variable remuneration of the Management Board aligned toward sustained positive business development and value creation. This long-term variable remuneration component provides a long-term incentive for the Management Board to manage the Company successfully and in a value-enhancing and value-adding manner. The NORMA Value Added Bonus corresponds to the percentage defined for each member of the Management Board as a percentage of the average increase in value from the current and the two previous fiscal years. The annual increase in value is calculated according to the following formula: Annual bonus Assessment basis % rate T033 Cap NORMA Value Added = (adjusted EBIT x (1 – t)) – (WACC x capital employed) Performance-independent components Fixed salary The basic remuneration consists of a fixed cash payment for the entire year based on the respective Management Board mem- ber’s area of responsibility. This basic remuneration is paid in the form of a monthly salary. Performance-related components The performance indicators used for the short-term and long- term variable remuneration are derived from the corporate strat- egy of NORMA Group and are based on a three-year observation period. For Management Board members entering into service from 2015 onwards, or, in the case of new Management Board contracts, from 2015 onwards – this applies to Mr. Kleinhens (until July 31, 2019), Dr. Schneider and Dr. Klein – the variable remu- neration consists of the following components: Short-term variable remuneration Dr. Michael Schneider Dr. Friedrich Klein The short-term variable remuneration is a compensation component which refers to NORMA Group’s average adjusted Bernd Kleinhens Adj. EBITA of last three years (arithmetic mean) Calculation: 0.35% x EUR 163.4 million = EUR 0.57 million Adj. EBITA of last three years (arithmetic mean) Calculation: 0,25% x EUR 163.4 million = EUR 0.41 million Adj. EBITA of last three years (arithmetic mean) Calculation: 0.60% x EUR 163.4 million x 7 / 12 = EUR 0.57 million The calculation of the first component is based on the adjusted consolidated earnings before interest and taxes (NORMA Group EBIT) for the fiscal year and the average corporate tax rate. The second component is calculated from the Group WACC multiplied by the capital employed. The WACC is derived from the following assumptions: Two and a half times the fixed salary 0.35 Two and a half times the fixed salary 0.25 Assumptions for calculating WACC in % Risk-free interest rate Market risk premium Beta factor of NORMA Group Cost of equity Two times the fixed salary 0.60 Cost of debt capital after taxes Cost of capital (WACC) after taxes 2019 0.20 7.50 1.33 11.01 1.79 8.09 T034 2018 0.39 6.50 1.28 9.41 1.85 7.14 103 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The base interest rate is derived from the interest rate structure data of the Deutsche Bundesbank (three-month average – October 1 to December 31, 2019). The market risk premium represents the difference between the expected return on a risky market portfolio and the risk-free interest rate. NORMA Group relies on the recommendation of the Institute of Public Auditors in Germany (IDW) to determine this. The beta factor represents the individual risk of a share compared to a market index. It is ini- tially determined as the average value of the unindebted beta factors of the peer group and is then adjusted to the individual capital structure of NORMA Group. The cost of equity is calculated as the sum of the following three components: risk-free interest rate, weighted country risk of NORMA Group, product of market risk premium and indebted beta factor of the peer group. The credit spread used to calculate the cost of debt was determined on the basis of the current external financing conditions of NORMA Group. Invested capital is calculated as Group equity plus net financial liabilities as of January 1 of the fiscal year. The NORMA Value Added Bonus is limited to a maximum of 150% (or 100% in the case of Dr. Klein) of the fixed annual salary. 75% or 90 % of the amount attributable to the long-term incentive (LTI) is to be paid to the respective member of the Management Board the following year. The Company then uses the remaining 25% or 10% attributable to the long-term variable compensation to purchase shares of NORMA Group in the name and on behalf of the individual Board members. Alternatively, the Company may pay out the remaining balance to the Management Board member. In this case, the Management Board member obligates himself to purchase shares of NORMA Group with the balance of this amount within 120 days after the Annual Financial Statements are approved at the Supervisory Board meeting. The Management Board member may not dispose of the shares for four years. Dividends and subscription rights are to be made freely available to the Management Board member. If a Management Board member takes office in the current fiscal year or does not work for the Company for a full twelve months in a fiscal year, the LTI NOVA of the last three years (arithm. mean) Calculation: EUR 43.7 million x 1,0 % = EUR 0.44 million NOVA of the last three years (arithm. mean) Calculation: EUR 43.7 million x 0,5 % = EUR 0.22 million NOVA of the last three years (arithm. mean) Calculation: EUR 43.7 million x 1,0 % x 7 / 12 = EUR 0.26 million Dr. Michael Schneider Dr. Friedrich Klein Bernd Kleinhens will be reduced proportionately (pro rata). Upon termination of the employment contract, a Management Board member may dispose of his share only after 12 months of leaving the Company. The following table provides an overview of the NORMA Value Added Bonus: NORMA Value Added bonus / LTI Assessment basis % rate Cap T035 Payment /  acquisition of shares Share-based compensation For members of the Management Board who were appointed to the Management Board before 2015 – this only applies to Mr. Kleinhens, who left the Management Board in fiscal year 2019 – tranches of share-based compensation (allotment in 2015, 2016 and 2017) are exercisable in 2019, 2020 and 2021. The emuneration is composed of the following components: Overview of the Matching Stock Program (MSP) at the time of allotment Tranches Option factor Number of options Exercise price in EUR T036 End of the retention period One and a half times the fixed annual salary 1.00 75% / 25% 2017 2016 2015 1.5 1.5 1.5 128,928 128,928 128,928 41.60 46.62 44.09 2021 2020 2019 0.50 One annual salary 75% / 25% One and a half times the fixed annual salary 1.00 90% / 10% The Matching Stock Program (MSP) provided a share price-based long-term incentive to commit to the success of the Company. The MSP is a share-based option right. For this purpose, the Supervisory Board specified a number of stock options to be allot- ted each fiscal year with the reservation that the Management Board member makes a corresponding personal investment in the Company. The MSP was split into different tranches. The first tranche was allotted on the day of the initial public offering of NORMA Group (April 8, 2011). The other tranches were allotted on March 31 each following year, whereby the last allotment took place on March 31, 2017 (no allotment in fiscal years 2018 and 2019). The stock options related to those shares allotted or acquired and qualified in accordance with the MSP stipulated in the Management Board contract. The number of stock options is calculated by multiplying the number of qualified shares held on 104 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING the grant date (for the years 2015 – 2017, 85,952 shares per year) by the option factor determined by the Supervisory Board. The option factor was or will be recalculated for each tranche and amounts or amounted to 1.5 for each of the tranches in the years 2015, 2016 and 2017. 128,928 shares are or were to be taken into account in fiscal years 2015, 2016 and 2017. Each tranche was or will be recalculated taking into account changes in the influencing factors and was settled pro rata temporis over the holding period. The holding period was and continues to be four years and ended or will end on March 31, 2019, 2020 and 2021 for the 2015, 2016 and 2017 tranches. Exercise of the options of a tranche can take place only within an exercise period of two years after the end of the holding period. As a prerequisite for exercise, the share price at the time of exercise (basis: weighted average of the last ten stock exchange trading days before exercise) must be above the relevant exercise hurdle. The exercise hurdle is determined by the Supervisory Board when the respective tranche is allocated and amounts to at least 120% of the exercise price. The exercise hurdle was set at 120% of the exercise price for the 2015, 2016 and 2017 tranches. The exercise price of the tranches is determined on the basis of the weighted average of the closing prices of the Company’s shares on the last 60 trading days immediately preceding the allocation of the respective tranche. Dividend payments by the Company during the holding period are to be deducted from the exercise price of the respective tranche. The value of the stock option is calculated on the basis of valuation models recognized by business management. The Company is free to decide at the time of exercise whether the option will be settled in shares or in cash. Based on the history of NORMA Group, a settlement in the form of a cash payment is expected in the future. Further information can be found in the NOT ES P. 18 4. Pension agreements In addition, there is an entitlement to a pension upon commence- ment of service or signing of the contract as of 2015, which is measured as a percentage of the pensionable income (fixed salary). The pension entitlement arises when the contract has expired, but not before the person has reached the age of 65 or if that person is unable to work. The percentage depends on the number of years of service as a Management Board member. The percentage amounts to 4% of the last yearly fixed salary prior to leaving for each completed year of service. The percentage can increase to a maximum of 55% of the last annual salary. Furthermore, a survivors’ pension will be paid as well. Severance payments In the event of premature termination of the employment contract without an important reason, any payments to the Management Board are not to exceed the value of two annual remunerations and correspond at most to the value of the remuneration for the remaining term of the employment contract. If a special right of termination is exercised in the event of a change of control, the Management Board receives compensation of three years’ remuneration, but no more than the value of the remuneration for the remaining term of the employment contract. The annual remuneration includes the current annual fixed salary as well as short- and long-term variable remuneration components from the past fiscal year. Other benefits The members of the Management Board are additionally compensated with a company car, which they can also use for personal purposes. Furthermore, Management Board members are reimbursed for any expenses and travel costs incurred while performing their duties for the Company in accordance with the Company’s respectively applicable guidelines. Inventor’s bonuses are also granted. The board members also receive employer grants for health and nursing care insurance. The statutory deductible in the amount of 10% of the damage amount of the D&O insurance taken out for the managers of NORMA Group is borne or insured privately by the members of the Management Board. Retirement of the chairman of the Management Board Bernd Kleinhens, the Chairman of the Management Board of NORMA Group SE, left the Management Board with effect from July 31, 2019. The termination agreement concluded in this con- text provides for the service agreement to be continued until March 31, 2020 (date of termination) and that Bernd Kleinhens will be available as an advisor to the future CEO until the end of his service agreement. Bernd Kleinhens will receive his fixed salary until the date of termination. The Company will grant Bernd Kleinhens his full annual bonus for 2019; the annual bonus for 2020 will be reduced pro rata temporis to the date of termination. In addition, Bernd Kleinhens will receive the NORMA Value Added Bonus from the Long-Term Incentive Program for the performance period 2017-2019, which will be reduced pro rata temporis to July 31, 2019. The retirement benefit claims granted remain unchanged. Remuneration for the period until July 31, 2019, is shown in the following tables. Benefits promised or granted for the period after July 31, 2019, amount to a total of EUR 1,480 thousand and are composed as follows: non-performance-related component thousand, performance-related component EUR 636 EUR 645 thousand, long-term incentive components EUR 0 thou- sand and pension expense EUR 199 thousand (disclosure pursuant to Section 314 (1) no. 6a sentence 6 letter dd) HGB). 105 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRemuneration of the Management Board in fiscal year 2019 Management Board remuneration in 2019 according to the accounting standard DRS 17 The Management Board’s remuneration for fiscal year 2019 is reported in accordance with the appliable accounting principles (DRS 17) and the recommendations of the German Corporate Governance Code. The total remuneration of the Management Board pursuant to Section 315e in connection with Section 315a (2) and Section 314 (1) no. 6a sentence 5 of the Germany Commercial Code (HGB) is distributed among the individual members of the Management Board as shown in TABLE 037. Management Board remuneration in 2019 in EUR thousands Fixed components Performance-related components Long-term incentive effect Total remuneration Dr. Michael Schneider Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) 2019 423 572 438 1,433 2018 387 590 591 1,568 2019 334 409 219 962 2018 83 106 74 263 2019 310 572 181 1,063 2018 524 1,011 591 2,126 John Stephenson (until Jan 31, 2018) 2019 2018 n/a n/a n/a n/a 24 0 8 32 Total 2019 1,067 1,553 838 3,458 T037 2018 1.018 1.707 1.264 3.989 Expenses in the amount of EUR 1,480 thousand were also incurred for Mr. Kleinhens in fiscal year 2019 in connection with the cessation of his activities in the current fiscal year (2018: EUR 298 thousand in expenses for Mr. Deggim in connection with the cessation of his activities). The performance-related components include only the short-term annual bonuses. All other bonuses and the MSP are listed under long-term incentives. A provision was recognized for the variable compensation ele- ments. The stock options associated with the MSP are assessed on an ongoing basis and included in other provisions in the income statement. The benefits promised to the members of the Management Board in the event of the regular termination of their activities (cf. Section 315e in connection with Section 315a (2) and Section 314 (1) no. 6a sentence 6 HGB) are distributed among the individual members of the Management Board as shown in TABLE 038. Overview of the promised pensions of the Board members in EUR thousands Present value of pension Expended/accrued amount Dr. Michael Schneider Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) 2019 1,843 838 2018 1,005 526 2019 367 314 2018 53 53 2019 847 279 2018 371 371 Total 2019 3,057 1,431 T038 2018 1,429 950 The present value of all pension commitments to former members of the Management Board and their surviving dependents amounted to EUR 847 thousand as of December 31, 2019 (2018: EUR 0 thousand). 106 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRemuneration of the Management Board in 2019 in accordance with the German Corporate Governance Code In accordance with the German Corporate Governance Code in the version dated February 7, 2017, the remuneration of the Management Board is broken down by grant for the year under review and inflow in or for the year under review as follows – the models recommended in the Code are used for presentation: Remuneration granted to the Management Board Dr. Michael Schneider 2019 (Min) 2019 (Max) 2018 2019 2019 (Min) 2019 (Max) 2018 2019 2019 (Min) 2019 (Max) Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) in EUR thousands Fixed remuneration Benefits Total One-year variable remuneration Multi-year variable remuneration Other perennial remuneration Subtotal Pension expenses Total remuneration 2019 396 27 423 572 438 1,010 357 1,790 396 27 423 0 0 0 357 780 396 27 423 990 594 1,584 357 2,364 360 27 387 590 591 1,181 225 1,793 324 10 334 409 219 628 266 1,228 324 10 334 0 0 0 266 600 324 10 334 648 324 972 266 1,572 81 2 83 106 74 180 65 328 in EUR thousands 2019 2019 (Min) 2019 (Max) 2018 2019 2019 (Min) 2019 (Max) 2018 Werner Deggim (until Dec 31, 2017) John Stephenson (until Jan 31, 2018) Fixed remuneration Benefits Total One-year variable remuneration Multi-year variable remuneration Other perennial remuneration Subtotal Pension expenses Total remuneration 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 230 4 234 0 0 0 0 234 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 23 1 24 0 0 0 0 24 294 16 310 572 256 828 279 1,417 2019 1,014 53 1,067 1,553 913 2,466 902 4,435 294 16 310 0 0 0 279 589 294 16 310 735 441 1,176 279 1,765 Total 2019 (Min) 2019 (Max) 1,014 53 1,067 0 0 0 902 1,969 1,014 53 1,067 2,373 1,359 3,732 902 5,701 T039 2018 504 20 524 1,011 591 1,602 473 2,599 2018 1,198 54 1,252 1,707 1,256 2,963 763 4,978 107 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGInflow from Management Board member remuneration T040 in EUR thousands Fixed remuneration Benefits Total One-year variable remuneration Multi-year variable remuneration LTI tranche 2016 – 2017 LTI tranche 2015 – 2017 Matching Stock Program 2014 – – 2018 Other perennial remuneration Subtotal Pension expenses Total remuneration Dr. Michael Schneider Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) John Stephenson (until Jan 31, 2018) Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 396 27 423 572 0 0 0 438 1,010 357 1,790 360 27 387 590 0 0 0 591 1,181 225 1,793 324 10 334 409 0 0 0 219 628 266 1,228 81 2 83 106 0 0 0 74 180 65 328 294 16 310 572 113 0 0 256 941 279 1,530 504 20 524 1,011 0 230 718 591 2,550 473 3,547 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 23 1 24 0 0 217 670 0 887 0 911 1,014 53 1,067 1,553 113 0 0 913 2,579 902 4,548 968 50 1,018 1,707 0 447 1,388 1,256 4,798 763 6,579 Furthermore, the former members of the Management Board Mr. Kleinhens, Mr. Deggim and Mr. Stephenson received a total of EUR 1,144 thousand in fiscal year 2019 (payments made in 2018: EUR 1,662 thousand to Mr. Deggim). 108 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRemuneration of the Supervisory Board The remuneration for the Chairman and the Vice Chairman of the Supervisory Board was calculated separately in accordance with the recommendations of the German Corporate Governance Code in the version dated February 7, 2017. The Chairman is paid double the remuneration of the other members of the Supervisory Board, and the Vice Chairman is paid one and a half times this amount. In addition, the Chairman and members of the Supervisory Board’s committees are remunerated separately. The Supervisory Board members will be remunerated for their activities on the day after the 2020 Annual General Meeting as follows: Remuneration of the Supervisory Board in 2019 T041 Supervisory Board member Membership / Chairman of a committee Remuneration in EUR Lars M. Berg Chairman of the Supervisory Board Erika Schulte Vice Chairwoman of the Supervisory Board Chairman of the General and Nomination Committee Rita Forst Günter Hauptmann Member of the Audit Committee Member of the Strategy Committee (since May 22, 2019) Member of the Strategy Committee (since May 22, 2019) Member of the Audit Committee (until May 21, 2019) Chairman of the Strategy Committee (since May 22, 2019) Member of the General and Nomination Committee Dr. Knut J. Michelberger Chairman of the Audit Committee Mark Wilhelms Total Member of the General and Nomination Committee Member of the Audit Committee (since May 22, 2019) 110,000.00 91,136.99 60,000.00 75,342.47 95,000.00 56,136.99 487,616.45 No remuneration was paid to Supervisory Board members in fiscal year 2019 for services personally rendered (in particular advisory and brokerage services). Furthermore, the Supervisory Board members are reimbursed for any expenses and travel costs incurred while performing their duties for the Company in accordance with the Company’s respectively applicable guidelines. The members of the Supervisory Board arrange private insurance or are personally responsible for the statutory deductible of 10% of the amount of loss up to a limit of 1.5 annual salaries for the D&O insurance policy carried for the Management Board and the Supervisory Board of NORMA Group. 109 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOther Legally Required Disclosures An overview of the information required under Section 315a para- graph 1 of the German Commercial Code (Handelsgesetzbuch, HGB) is presented below: same way as other shareholders in accordance with applicable legislation and the Articles of Association. Section 315a (1) no. 1 HGB NORMA Group SE’s share capital totalled EUR 31,862,400.00 on December 31, 2019. This is divided into 31,862,400 registered shares with no par value. Each share entitles the bearer to one vote. There are no other classes of shares. NORMA Group SE holds no treasury shares. Section 315a (1) no. 2 HGB The Management Board of NORMA Group SE is not aware of any restrictions affecting voting rights or the transfer of shares or any agreements between shareholders which could result in such restrictions. Section 315a (1) no. 3 HGB There are no direct or indirect capital holdings exceeding one tenth of the voting rights other than those voting rights listed in the Notes to the Consolidated Financial Statements. Section 315a (1) no. 4 HGB There are no shares in NORMA Group SE that confer special con- trol rights to the holder. Section 315a (1) no. 5 HGB There are no employee share plans through which employees can acquire shares of NORMA Group SE. Employees with shareholdings in NORMA Group SE exercise control rights in the Section 315a (1) no. 6 HGB Management Board members are appointed and dismissed in accordance with Section 84 et seq. of the German Stock Corporation Act (Aktiengesetz, AktG). The Articles of Association of NORMA Group SE do not contain any provisions related to this issue that contradict the applicable legislation. The Supervisory Board is responsible for determining the concrete number of members on the Management Board. It can nominate a Chairman and Vice Chairman of the Management Board or a Management Board spokesperson and a deputy spokesperson. Changes to the Articles of Association are to be decided on by the Annual General Meeting in accordance with Section 179 (1) AktG. In accordance with Section 179 (1) sentence 2 AktG, the Annual General Meeting can authorize the Supervisory Board to make changes which affect only the wording of the Articles of Association. The Annual General Meeting of NORMA Group SE has chosen to do so: According to Article 14 (2) of the Articles of Association, the Supervisory Board is authorized to make changes to the Articles of Association which only affect their wording. In accordance with Article 20 sentence 3 of the Articles of Association, a simple majority of votes submitted is sufficient for a resolution on changing the Articles of Association if at least half of the share capital is represented when the resolution is adopted and a different majority is not required under the law. The Supervisory Board is authorized to amend the wording of article 6 of the Articles of Association to reflect the issue of the new shares from Conditional Capital 2015. The same will apply insofar as the authorization to issue convertible bonds, bonds with warrants, and / or participation rights with or without conversion or option rights or conversion or option obligations in accordance with the Annual General Meeting’s resolution of May 20, 2015, is not exercised during the term of the authorization or the corresponding option or conversion rights or option or conversion obligations have lapsed because the exercise periods have expired or for another reason. The Supervisory Board is authorized to amend the wording of Article 5 of the Articles of Association in accordance with the issuance of new shares from Authorized Capital 2015 and, provided that Authorized Capital 2015 has not been utilized or not been fully utilized by May 19, 2020, adjust the authorization after that deadline has expired. The Management Board may determine that the share capital is to remain unchanged in the event that shares will be withdrawn and, instead, be increased by withdrawing a percentage of the remaining shares in the share capital pursuant to Section 8 (3) German Stock Corporation Act. In this case, the Management Board is authorized to adjust the number of shares in the Articles of Association. Section 315a (1) no. 7 HGB Authorized capital In accordance with the resolution passed at the Annual General Meeting on May 20, 2015, the Management Board is authorized, with the Supervisory Board’s consent, to increase the Company’s share capital once or repeatedly by up to a total of EUR 12,744,960 on or before May 19, 2020, by issuing up to 12,744,960 new registered shares against cash and / or non­cash contributions (Authorized Capital 2015). The Management Board is authorized, with the Supervisory Board’s consent, to exclude the shareholders’ subscription rights 110 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGwholly or in part, once or repeatedly, in accordance with the following provisions: • to exclude the shareholders’ subscription rights for fractional amounts; • if and to the extent that it is necessary to grant the bearers or creditors of conversion or option rights and / or the bearers or creditors of financing instruments carrying conversion or option obligations which were or are issued by NORMA Group SE, or by a domestic or foreign Company in which NORMA Group SE holds directly or indirectly the majority of the votes and capital; • in the case of a capital increase against cash contributions pursuant or according to Section 186 (3), sentence 4 AktG, if the par value of the new shares is not substantially lower than the stock exchange price of the already listed shares in the Company and if the new shares which were issued under exclusion of the subscription right do not exceed a propor- tional amount of 10% of the share capital in total; • in case of capital increases against non-cash contributions, in particular for the purpose of acquiring enterprises, parts of enterprises or interests in enterprises. The Authorized Capital 2011/II which was resolved by the Annual General Meeting on April 6, 2011, has thus been cancelled by resolution of the Annual General Meeting on May 20, 2015. Article 5 of the Articles of Association of NORMA Group SE has been changed accordingly. Conditional capital The Management Board is authorized to issue, with the Supervisory Board’s consent, once or repeatedly on or before May 19, 2020, bearer or registered convertible bonds and / or bonds with warrants and / or participation rights carrying a conversion or option right and / or conversion or option obligation (or a combination of these instruments) in a total nominal amount of up to EUR 200,000,000 with or without a limited maturity term (hereinafter referred to collectively as ‘bonds’) and to grant the creditors of bonds conversion / option rights and / or lay down for the creditors of bonds conversion / option obligations to subscribe to a total of up to 3,186,240 new registered shares of the Company with a pro rata amount of the share capital of a total of up to EUR 3,186,240 in accordance with the terms and conditions of the bonds. The share capital of the Company is conditionally increased by up to EUR 3,186,240 through an issuance of up to 3,186,240 new registered shares (Conditional Capital 2015). The purpose of Conditional Capital is to issue shares to the creditors of convertible bonds and / or bonds with warrants and / or participation rights carrying an option / conversion right and / or a conversion / option obligation (or a combination of such instruments), which will be issued based on the authorizations granted by the Annual General Meeting of NORMA Group SE on May 20, 2015, or domestic or foreign companies in which NORMA Group SE directly or indirectly holds the majority of the votes and the capital. New shares are issued at the conversion or option price to be determined in each case in accordance with the respective authorization. The conditional increase in capital will be performed only insofar as the bearers of conversion or option rights based on the aforementioned bonds or participation rights exercise their conversion or option rights or conversion or option obligations that are based on such bonds are fulfilled, and insofar as the conversion or option rights and / or conversion or option obligations are not satisfied through own shares, shares from authorized capital or other consideration. The new shares will participate in the profit as of the beginning of the fiscal year in which they are issued; notwithstanding the above, the Management Board may, if permitted by law, resolve with the consent of the Supervisory Board that the new shares be able to participate in the profit as of the beginning of an earlier fiscal year for which, at the time of their issue, the Annual General Meeting has not yet resolved on the appropriation of the net retained profit. The authorization of the Management Board to issue warrants and convertible bonds and participation rights with warrants and convertible rights and Conditional Capital 2011 resolved by the Annual General Meeting on April 6, 2011, were cancelled by shareholder resolution on May 20, 2015. Article 6 of the Articles of Association of NORMA Group SE has been amended accordingly. Authorization to acquire own shares Pursuant to the resolution of the Annual General Meeting on May 20, 2015, NORMA Group SE is authorized to acquire up to a total of 10% of its own share capital at the time at which the resolu- tion was adopted or – in the event that this value is lower – at the time that the authorization is exercised via the stock exchange or via a public purchase offer on or before May 19, 2020, for any permissible purpose. This authorization may be exercised by NORMA Group SE in whole or in partial amounts, once or repeatedly, in pursuit of one or more purposes, but also be carried out by companies that are dependent on NORMA Group SE or in which NORMA Group SE holds a majority of the shares, or on its or their account. If the shares are acquired on the stock exchange, the equivalent value per share that is paid (without ancillary acquisition costs) may not exceed the price of the share in NORMA Group SE in the Xetra trading system (or a comparable successor system), as determined on the trading day in Frankfurt / Main by the opening auction, by more than 10% and not fall below it by more than 20%. If the acquisition is effected by way of a public purchase offer, the purchase price offered or the threshold values of the purchase price margin (excluding ancillary acquisition costs) may not exceed the closing price of 111 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING• to issue in connection with share-based payments and employee share participation programs. The purchase right of shareholders to these own shares is excluded in the event of an appropriate use. NORMA Group SE is authorized to acquire its own shares within the framework of the aforementioned, related to the share capital limits, and by using derivatives such as put options, call options, forward purchases or a combination of these instruments and to take out derivative transactions. The acquisition of shares by using derivatives is limited to a number of shares that does not exceed a proportionate amount of 5% of the existing share capital at the time. Section 315a (1) no. 8 HGB NORMA Group’s financing agreements including the contracts for the promissory notes include the typical Change of Control Clause. In the event of a takeover by a third party, the possibility that NORMA Group would not be able to finance itself at similarly favorable terms and conditions cannot be ruled out. Section 315a (1) no. 9 HGB NORMA Group SE has no agreements in place that provide com- pensation for members of the Management Board or employees in the event of a takeover bid. Please see the Remuneration Report for further details. REMUNERATION REPORT, P. 102. the NORMA Group SE share in the Xetra trading system (or a comparable successor system) on the third trading day in Frankfurt / Main prior to the day of the public announcement of the offer by more than 10% and not fall below it by more than 20%. Should the relevant price vary by a not inconsiderable extent following the publication of the public purchase offer, the offer may be adjusted. In this case, the closing price on the third trading day in Frankfurt / Main prior to the public announcement will be based on any adjustment that has been made. The Management Board is authorized to use shares of the Company for any legal purpose, once or repeatedly, in whole or in part, and also through dependent or majority-owned NORMA Group SE related companies or through third parties acting on their behalf or on behalf of NORMA Group SE. In particular, the shares acquired may be redeemed without such redemption or its implementation requiring a shareholder resolution. The cancellation leads in principle to a capital reduction. The Management Board may alternatively determine that the share capital is to remain unchanged upon redemption. In addition, the Management Board is expressly authorized to use the shares acquired under this authorization on one or more occasions, in whole or in part, individually or jointly, and also by dependent or majority-owned NORMA Group SE related companies or, on their account or third parties acting on the account of NORMA Group SE as follows: • for sale against cash, provided that the price is not significantly below the stock market price of shares of the Company at the time of sale (simplified exclusion of subscription rights in accor- dance with Sections 186 (3) sentence 4, 71 (1) no. 8 sentence 5 half-sentence 2, AktG, is limited to a maximum of 10% of the share capital), • for sale against payment in kind, particularly for the acquisi- tion of companies, parts of companies or participations in companies, • to meet obligations under conversion or option rights or obligations to act or option, Report on Transactions with Related Parties In fiscal year 2019, there were no significant transactions with related companies or persons besides the minority activities of members of the Management Board described in the Corporate Governance Report. 112 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCon sol idated Fin an c ial Statements 114 115 116 117 118 203 205 206 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report Con solidated State me nt of Co m p reh e n si ve In com e Consolidated Statement of Comprehensive Income in EUR thousands Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income Other operating expenses Employee benefits expense Depreciation and amortization Operating profit Financial income Financial costs Financial costs – net Profit before income tax Income taxes Profit for the period Other comprehensive income for the period, net of tax Other comprehensive income that can be reclassified to profit or loss, net of tax Exchange differences on translation of foreign operations Cash flow hedges, net of tax Costs of hedging, net of tax Other comprehensive income that cannot be reclassified to profit or loss, net of tax Remeasurements of post-employment benefit obligations, net of tax Other comprehensive income for the period, net of tax Total comprehensive income for the period Profit attributable to Shareholders of the parent Non-controlling interests Total comprehensive income attributable to Shareholders of the parent Non-controlling interests (Un)diluted earnings per share (in EUR) Note (8) (9) (10) (11) (12) (18, 19) (13) (16) (24) (21, 24) (21, 24) (24, 26) 2019 1,100,096 3,045 4,910 – 477,628 630,423 13,630 – 157,879 – 312,376 – 77,116 96,682 1,460 – 16,950 – 15,490 81,192 – 22,743 58,449 7,210 8,893 – 1,750 67 – 1,519 – 1,519 5,691 64,140 58,422 27 58,449 64,236 – 96 64,140 (15) 1.83 T042 2018 1,084,140 10,383 5,197 – 473,551 626,169 15,589 – 162,016 – 282,768 – 63,429 133,545 2,703 – 14,371 – 11,668 121,877 – 30,089 91,788 10,749 10,068 748 – 67 – 214 – 214 10,535 102,323 91,873 – 85 91,788 102,540 – 217 102,323 2.88 114 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCon solidated State me nt of F in a n c i a l Po sit ion Consolidated Statement of Financial Position T043 Note Dec 31, 2019 Dec 31, 2018 in EUR thousands Note Dec 31, 2019 Dec 31, 2018 Equity and Liabilities Assets in EUR thousands Non-current assets Goodwill Other intangible assets Property, plant and equipment Other non-financial assets Derivative financial assets Income tax assets Deferred income tax assets Current assets Inventories Other non-financial assets Other financial assets Derivative financial assets Income tax assets Trade and other receivables Contract assets Cash and cash equivalents Total assets 1,514,340 1,471,686 (18) (18) (19) (23) (21) (17) (22) (23) (21) (21) (21) (8) (29) 393,087 265,407 290,843 2,792 120 1,173 9,375 962,797 173,249 21,933 4,792 330 8,607 162,386 525 179,721 551,543 389,505 283,394 243,326 2,404 2,180 878 6,571 928,258 178,107 17,984 5,231 584 6,807 143,138 1,185 190,392 543,428 Equity attributable to equity holders of the parent Subscribed capital Capital reserve Other reserves Retained earnings Equity attributable to shareholders Non-controlling interests Total equity Liabilities Non-current liabilities Retirement benefit obligations Provisions Borrowings Other non-financial liabilities Contract liabilities Lease liabilities Other financial liabilities Derivative financial liabilities Deferred income tax liabilities Current liabilities Provisions Borrowings Other non-financial liabilities Contract liabilities Lease liabilities Other financial liabilities Derivative financial liabilities Income tax liabilities Trade and other payables Total liabilities Total equity and liabilities 31,862 210,323 9,850 375,843 627,878 1,576 629,454 15,890 5,984 495,927 356 103 30,168 1,630 684 69,562 620,304 8,543 45,971 36,665 420 8,427 17,496 229 3,712 143,119 264,582 884,886 (24) (26) (27) (21) (28) (8) (21) (21) (17) (27) (21) (28) (8) (21) (21) (21) 31,862 210,323 2,517 356,022 600,724 1,717 602,441 12,804 7,260 455,759 431 149 0 1,992 605 73,099 552,099 8,750 113,332 26,984 453 0 18,866 153 6,580 142,028 317,146 869,245 1,514,340 1,471,686 115 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Con solidated State me nt of Ca s h F l ows Consolidated Statement of Cash Flows in EUR thousands Operating activities Profit for the period Depreciation and amortization Gain (–)/loss (+) on disposal of property, plant and equipment Change in provisions Change in deferred taxes Change in inventories, trade account receivables and other receivables, which are not attributable to investing or financing activities Change in trade and other payables, which are not attributable to investing or financing activities Change in reverse factoring liabilities Payments for share-based payments Interest expenses in the period Income (–)/expenses (+) due to measurement of derivatives Other non-cash expenses (+)/income (–) Cash flow from operating activities thereof interest received thereof income taxes Investing activities Payments for acquisitions of subsidiaries, net Investments in property, plant and equipment and intangible assets Proceeds from the sale of property, plant and equipment Cash flow from investing activities Financing activities Payments for the acquisition of non-controlling interests Interest paid Dividends paid to shareholders Dividends paid to non-controlling interests Proceeds from borrowings Repayment of borrowings Proceeds from/ repayment of derivatives Repayment of lease liabilities Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rates on cash and cash equivalents Cash and cash equivalents at the end of the period Note 2019 (18, 19) (26, 27) (17) (21, 22, 23) (21, 28) (29) (29) (18, 19) (24) (21) (21) (29) 58,449 77,116 17 364 – 5,254 – 15,299 5,557 2,135 – 1,045 15,008 73 – 38 137,083 1,007 – 32,879 0 – 57,784 751 – 57,033 0 – 15,070 – 35,049 – 43 263,664 – 296,600 – 83 – 10,058 – 93,239 – 13,189 190,392 2,518 179,721 T044 2018 91,788 63,429 184 777 – 5,401 – 2,651 – 20,960 – 6,198 – 3,513 13,218 436 – 266 130,843 484 – 33,072 – 69,797 – 60,842 1,131 – 129,508 – 1,121 – 13,676 – 33,456 – 134 117,467 – 37,266 – 409 – 123 31,282 32,617 155,323 2,452 190,392 116 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCon solidated State me nt of C h an g e s in E q uit y Consolidated Statement of Changes in Equity in EUR thousands Balance as of December 31, 2017 (as reported) Effects of IFRS 9 Balance as of January 1, 2018 Result for the period Exchange differences on translation of foreign operations Cash flow hedges, net of tax Remeasurements of post-employment benefit obligations, net of tax Total comprehensive income for the period Dividends paid Dividends paid to non-controlling interests Acquisition of non-controlling interests Total transactions with owners for the period Balance as of December 31, 2018 (as reported) Effects of IFRS 16 Balance as of January 1, 2019 Changes in equity for the period Result for the period Exchange differences on translation of foreign operations Cash flow hedges, net of tax Remeasurements of post-employment benefit obligations, net of tax Total comprehensive income for the period Dividends paid Dividends paid to non-controlling interests Total transactions with owners for the period Attributable to equity holders of the parent Subscribed Note capital Capital reserve Other reserves 31,862 210,323 – 8,364 31,862 210,323 – 8,364 0 0 0 0 0 31,862 210,323 10,200 681 10,881 0 2,517 Retained earnings 298,077 – 600 297,477 91,873 – 214 91,659 – 33,456 342 – 33,114 356,022 – 2,033 Total 531,898 – 600 531,298 91,873 10,200 681 – 214 102,540 – 33,456 0 342 – 33,114 600,724 – 2,033 31,862 210,323 2,517 353,989 598,691 9,016 – 1,683 7,333 58,422 – 1,519 56,903 – 35,049 0 – 35,049 58,422 9,016 – 1,683 – 1,519 64,236 – 35,049 0 – 35,049 0 0 0 0 (21) (24, 26) (24) (24) (21) (24, 26) (24) T045 Non- controlling interests Total equity 2,423 – 13 2,410 – 85 – 132 – 217 – 134 – 342 – 476 1,717 – 2 1,715 27 – 123 – 96 – 43 – 43 534,321 – 613 533,708 91,788 10,068 681 – 214 102,323 – 33,456 – 134 0 – 33,114 602,441 – 2,035 600,406 58,449 8,893 – 1,683 – 1,519 64,140 – 35,049 – 43 – 35,092 Balance as of December 31, 2019 31,862 210,323 9,850 375,843 627,878 1,576 629,454 117 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNotes to the Con so l idate d Fin ancial Sta tem en ts General information 1. Group information NORMA Group SE is the ultimate parent Company of NORMA Group. Its headquarters are located at 63477 Maintal, Edisonstrasse 4, in the vicinity of Frankfurt, Germany, and the Company is registered in the commercial register of Hanau under the number HRB 94473. NORMA Group SE and its affiliated Group subsidiaries operate in the market as ‘NORMA Group’. NORMA Group has been listed in the Prime Standard of Frankfurt Stock Exchange’s Regulated Market since April 8, 2011. For a detailed overview of NORMA Group’s shareholdings, please refer to the APPENDIX TO THE NOTES: ‘ VOTING R IGHTS’. NORMA Group SE was established in 2006 as a result of the merger of Rasmussen GmbH and the ABA Group. Rasmussen was founded in 1949 as Rasmussen GmbH in Germany. It manufactured connecting and retaining elements as well as fluid conveying conduits such as monolayer and multilayer tubes and corrugated tubes. All products were marketed globally under the NORMA brand. ABA Group was founded in 1896 in Sweden. The Group has since developed into a leading multinational company specializing in the design and production of hose and pipe clamps, as well as connectors for many worldwide applications. NORMA Group markets its products to its customers via two different market channels: Engineered Joining Technology (EJT) and Distribution Services (DS). law as set forth in Section 315e of the German Commercial Code (HGB) for the year ended December 31, 2019. For Engineered Joining Technology (EJT) customers, NORMA Group offers tailor-made solutions and special engineered joining systems. To effectively fulfill special requirements, NORMA Group builds on extensive industry and application knowledge, a successful track record of innovation and long-standing relationships with all its key customers. The Consolidated Statement of Comprehensive Income has been prepared in accordance with the total cost method. The Consolidated Financial Statements of NORMA Group SE were prepared by the Management Board on March 23, 2020, and are scheduled to be released for publication after approval by the Supervisory Board on March 24, 2020. For Distribution Services (DS) customers, NORMA Group offers a wide range of standard fastening and fixing products. Further- more, NORMA Group offers a broad technological and innovative product portfolio which includes brands like ABA®, Breeze®, Clamp-All®, CONNECTORS®, FISH®, Five Star®, Gemi®, NDS®, NORMA®, Raindrip®, R.G.RAY®, Serflex®, TORCA and TRUSTLENE®. 2. Basis of preparation The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The Consolidated Financial Statements of NORMA Group are being filed with and published in the German Federal Gazette (Bundesanzeiger). The preparation of financial statements in conformity with IFRS requires the Management Board the use of certain accounting estimates. It is also required to exercise its judgment in the pro- cess of applying the Group’s accounting policies. The areas involv- ing a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in N OT E 6 ‘ C R I T I C A L ACCOUNTING ESTIMATES AND JUDGMENTS’. In past decades, NORMA Group has, driven by its successful acquisitions and continuous technological innovation with products and operations, developed into a Group of companies of global importance. The Consolidated Financial Statements of NORMA Group have been prepared in accordance with International Financial Reporting Standards and the relevant interpretations as adopted by the EU (IFRS) as well as with the regulations under commercial 118 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING reclassification within the Statement of Comprehensive Income of the leasing installments previously recognized as operating expenses to depreciation and interest expense and thus an increase in EBITDA (by the full reclassification effect) as well as EBITA and EBIT (by the reclassification effect attributable to interest). In the Statement of Cash Flows, the cash flows from operating activities attributable to the payments for capitalized leases have been reclassified from cash flow from operating activities to cash flow from financing activities. The effects of the first-time application of IFRS 16 on the Consolidated Statement of Financial Positions as of Janu- ary 1, 2019, and the effects on the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Cash Flows for the period from January 1 to December 31, 2019 are presented in the following: Accounting standards applied for the first time in the current fiscal year • The recognition of leases with a remaining term of less than 12 months as of January 1, 2019 as current leases. IFRS 16 Due to the first-time adoption of IFRS 16 since January 1, 2019, the Group’s Consolidated Financial Statements have been affected by changes in accounting policies in the following areas. NORMA Group applied the modified retrospective method for the first time adoption as of January 1, 2019, for accounting purposes as lessee, i.e. the cumulative adjustment effects at the time of first-time application have been recognized as a charge to equity against retained earnings and the comparative figures for the previous year’s periods have not been adjusted. For previous operating leases that do not end in 2019, the Group recognizes a lease liability at the present value of the future lease payments (taking into account any extension options) as of January 1, 2019. The weighted avarage interest rate applied in the NORMA Group was 3.08%. • The non-inclusion of initial direct costs in the measurement of rights of use on the date of initial application. • Subsequent consideration of the current state of knowledge when determining the term of leases for contracts with renewal or termination options. The Group has elected not to change the original carrying amounts of assets and liabilities under finance leases existing on the date of first-time adoption of IFRS 16. The effects of the first time adoption of IFRS 16 on retained earnings are as follows: Retained earnings reconciliation: IFRS 16 T046 in EUR thousands Retained earnings The corresponding rights of use are calculated as if IFRS 16 had been applied since the beginning of the lease. Both, the rights of use and the future lease payments are mainly discounted using the lessee’s marginal borrowing rate at the date of initial application. Retained earnings as of December 31, 2018 Effects of IFRS 16 of which deferred taxes Retained earnings as of January 1, 2019 356,022 – 2,033 614 353,989 Applied simplifications The Group made use of the following simplifications when IFRS 16 was applied for the first time: • Assumption of the previous assessment of whether a lease is encumbered. For the majority of leases, the Group as lessee recognizes a right of use asset under IFRS 16 and a corresponding lease liability. The lease liability must be compounded in the subsequent valuation and the right of use must be depreciated. Besides the resulting balance sheet extension, under IFRS 16, there is a 119 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGReconciliation Consolidated Statement of Financial Position IFRS 16 T047 in EUR thousands Non-current assets Property, plant and equipment Deferred income tax assets Other non-current assets Current assets Other current assets Total assets Equity Retained earnings Other equity Liabilities Non-current liabilities Lease liabilities Other financial liabilities Deferred income tax liabilities Other non-current liabilities Current liabilities Lease liabilities Other financial liabilities Other current liabilities Total liabilities Total equity and liabilities Dec 31, 2018 as originally presented IFRS 16 Jan 1, 2019 restated 243,326 6,571 678,361 928,258 543,428 543,428 1,471,686 356,022 246,419 602,441 0 1,992 73,099 477,008 552,099 0 18,866 298,280 317,146 869,245 1,471,686 31,980 620 32,600 0 32,600 – 2,033 – 2 – 2,035 26,180 – 16 6 26,170 8,481 – 16 8,465 34,635 32,600 275,306 7,191 678,361 960,858 543,428 543,428 1,504,286 353,989 246,417 600,406 26,180 1,976 73,105 477,008 578,269 8,481 18,850 298,280 325,611 903,880 1,504,286 The difference between the nominal values of the payments expected as of December 31, 2018; for operating leases in the amount of EUR 21,905 thousand and the lease liabilities of EUR 34,661 thousand recorded in the opening balance sheet is mainly due to the reassessment of the lease terms in accordance with the requirements of IFRS 16. Sufficiently secure extension or termination options were taken into account when determin- ing the lease payments to be recognized as liabilities and resulted in net in a higher value to be recognized. The non- inclusion of lease payments for certain low-value and short-term leases and the discounting of the lease liability in accordance with IFRS 16 had the opposite effect. The Right of use relate to the following types of assets: Carrying amounts rights of use T048 Carrying amounts in EUR thousands Dec 31, 2019 Jan 1, 2019 Land and buildings 36,834 27,778 Machinery and tools Forklifts and warehouse Office and IT equipment Company cars Total 247 1,429 233 2,170 182 1,691 291 2,038 40,913 31,980 120 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn contrast to the previous approach, according to which expenses for operating leases were shown in full in operating profit, under IFRS 16, for capitalized leases, only the amortization of rights of use is allocated to operating profit. Interest expenses from the compounding of lease liabilities are shown in the financial result. Compared to the previous method, this relieves the operating profit by EUR 1,031 thousand in 2019. Reconciliation for Consolidated Statement of Comprehensive Income IFRS 16 T049 in EUR thousands Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income Other operating expenses Employee benefits expense Depreciation and amortization Operating profit Financial income Financial costs Financial costs – net Profit before income tax Income taxes Profit for the Period Other comprehensive income for the period, net of tax Other comprehensive income that can be reclassified to profit or loss, net of tax Exchange differences on translation of foreign operations Cash flow hedges, net of tax Other comprehensive income that cannot be reclassified to profit or loss net of tax Remeasurements of post-employment benefit obligations net of tax Other comprehensive income for the period, net of tax Total Comprehensive Income for the Period Profit attributable to Shareholders of the parent Non-controlling interests Total comprehensive income attributable to Shareholders of the parent Non-controlling interests (Un)diluted earnings per share (in EUR) 2019 1,100,096 3,045 4,910 – 477,628 630,423 13,630 – 157,879 – 312,376 – 77,116 96,682 1,460 – 16,950 – 15,490 81,192 – 22,743 58,449 7,210 8,893 – 1,683 – 1,519 – 1,519 5,691 64,140 58,422 27 58,449 64,236 – 96 64,140 1.83 Effects of IFRS 16 2019 without IFRS 16 1,100,096 3,045 4,910 – 477,628 630,423 13,554 – 169,175 – 312,376 – 66,775 95,651 1,460 – 15,694 – 14,234 81,417 – 22,811 58,606 7,210 8,893 – 1,683 – 1,519 – 1,519 5,691 64,297 58,579 27 58,606 64,393 – 96 64,297 1.83 76 11,296 – 10,341 1,031 – 1,256 – 1,256 – 225 68 – 157 – 157 – 157 – 157 – 157 – 157 – 0.0 121 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGReconciliation Consolidated Statement of Cash Flows IFRS 16 in EUR thousands 2019 Effects of IFRS 16 Operating activities Profit for the period Depreciation and amortization Gain (–) / loss (+) on disposal of property, plant and equipment Change in provisions Change in deferred taxes Change in inventories, trade account receivables and other receivables, which are not attributable to investing or financing activities Change in trade and other payables, which are not attributable to investing or financing activities Change in reverse factoring liabilities Payments for share-based payments Interest expenses in the period Income (–) / expenses (+) due to measurement of derivatives Other non-cash expenses (+) / income (–) Cash flows from operating activities thereof interest received thereof income taxes Investing activities Investments in property, plant and equipment and intangible assets Proceeds from the sale of property, plant and equipment Cash flows from investing activities Financing activities Interest paid Dividends paid to shareholders Dividends paid to non-controlling interests Proceeds from borrowings Repayment of borrowings Proceeds from / repayment of derivatives Repayment of lease liabilities Cash flows from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rates on cash and cash equivalents Cash and cash equivalents at the end of the period 58,449 77,116 17 364 – 5,254 – 15,299 5,557 2,135 – 1,045 15,008 73 – 38 137,083 1,007 – 32,879 – 57,784 751 – 57,033 – 15,070 – 35,049 – 43 263,664 – 296,600 – 83 – 10,058 – 93,239 – 13,189 190,392 2,518 179,721 – 157 10,341 – 68 1,260 – 58 11,318 0 – 1,260 – 10,058 – 11,318 0 0 T050 2019 without IFRS 16 58,606 66,775 17 364 – 5,186 – 15,299 5,557 2,135 – 1,045 13,748 73 20 125,765 1,007 – 32,879 – 57,784 751 – 57,033 – 13,810 – 35,049 – 43 263,664 – 296,600 – 83 0 – 81,921 – 13,189 190,392 2,518 179,721 122 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDue to the changed recognition of lease expenses from operating leases in the Statement of Cash Flows, the cash inflow from operating activities improved by EUR 11,318 thousand in 2019. The cash outflow from financing activities decreased accordingly. The effects on the key performance indicators of NORMA Group can be seen in the MA NAG EM ENT GROU P R EPORT P. 6 5 . IFRIC 23: uncertainty over income tax treatments In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments. The interpretation clarifies the recognition and measurement requirements when there is uncertainty over income tax treatments. In assessing the uncertainty, an entity shall consider whether it is probable that a taxation authority will accept the uncertain tax treatment. Amendments to IAS 19: plan amendment, curtailment or settlement On February 7, 2018, the IASB issued amendments to IAS 19 – plan amendment, curtailment or settlement. The amendments to IAS 19 Employee Benefits now explicitly state that after an amendment, curtailment or settlement of a pension plan during the year, the current service cost and the net interest for the remaining period must be recalculated. The actuarial assumptions valid at the time of the planned event must be used for this recalculation. Annual improvement project 2015 – 2017 In December 2017, the IASB conducted the cycle as part of the Annual Improvement Project 2015 – 2017, which provides various amendments to existing standards. The cycle: 2015 – 2017 contains clarifications for three standards, IFRS 3 and IFRS 11, IAS 12 and IAS 23. The amendments and IAS are effective for annual periods beginning on or after January 1, 2019. Standards, amendments and interpretations of existing standards that are not yet effective and have not been adopted earlier by the group The following standards and amendments to existing standards have been published and application is mandatory for all accounting periods beginning on or after Janu- ary 1, 2019. The Group has decided against early adoption. regulations also include an optional ‘concentration test,’ which should enable a simplified identification of a business operation. These amendments shall be applied for acquisitions occurring during annual periods beginning on or after January 1, 2020, while earlier application is permitted. However, first-time adoption within the EU prior to endorsement is not permitted. The IASB has published a number of other pronouncements. These recently translated accounting pronouncements as well as the pronouncements which have not yet been implemented have no material effect on the Consolidated Financial Statements of NORMA Group. 3. Summary of significant accounting principles Consolidation 1) Standards, amendments and interpretations to existing (a) Subsidiaries standards that have not been endorsed by the EU: Amendments to IFRS 3: definition of a business On October 22, 2018, the IASB issued amendments to the guidance in IFRS 3, ‘Business Combinations’ that revises the definition of a business. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of an investee begins from the date the Group obtains control of the investee and ceases when the Group loses control of the investee. With this amendment, the IASB clarifies that a business comprises a group of activities and assets that include at least one resource, input, and one substantive process, which together significantly contribute to the ability to create outputs. Furthermore, in terms of outputs, now the focus is on goods and services provided to customers; the reference to cost reductions is omitted. The new The Group uses the acquisition method of accounting to account for business combinations. The initial value for the acquisition of a subsidiary is recognized at fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The initial value recognized includes the fair value of any asset 123 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGor liability resulting from a contingent consideration arrangement. On the acquisition date, the fair value of the contingent consideration is recognized as part of the consideration transferred in exchange for the acquiree. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the acquisition date. According to IFRS 3, for each business combination, the acquirer shall measure any non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The Group measures the non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired, is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized immediately in the Consolidated Statement of Comprehensive Income. In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition date fair value and recognizes the resulting gain or loss, if any, in profit or loss. Intercompany transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (b) Non-controlling interests Non-controlling interests have a share in the earnings of the reporting period. Their interests in the shareholders’ equity of sub- sidiaries are reported separately from the equity of the Group. The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. (c) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the subsidiary is remeasured at its fair value, with the change in the carrying amount recognized in profit or loss. The initial carrying amount is the fair value for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. 124 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGValuation methods The following table shows the most important valuation methods: Valuation methods Position Assets Goodwill Other intangible assets (except goodwill) – finite useful lives Other intangible assets (except goodwill) – indefinite useful lives Property, plant and equipment Derivative financial assets: Classified as cash flow hedge Classified as fair value hedge Without hedge accounting Inventories Other non-financial assets Other financial assets Trade and other receivables Trade receivables, available for sale Contract assets Cash and cash equivalents Liabilities Pensions Other provisions Borrowings Other non-financial liabilities Lease liabilities Other financial liabilities: Financial liabilities at cost (FLAC) Derivative financial liabilities: Classified as cash flow hedge Classified as fair value hedge Without hedge accounting Contingent consideration Trade and other payables Valuation method Acquisition costs less potential impairment Amortized costs Acquisition costs less potential impairment Amortized costs At fair value in other comprehensive income At fair value through profit or loss At fair value through profit or loss Lower of cost or net realizable value Amortized costs Amortized costs Amortized costs At fair value through profit or loss Percentage of completion method less potential impairment Nominal amount Projected unit credit method Present value of future settlement amount Amortized costs Amortized costs Valuatiion based on IFRS 16.36 Amortized costs At fair value in other comprehensive income At fair value through profit or loss At fair value through profit or loss At fair value through profit or loss Amortized costs T051 125 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFair value estimation Foreign currency translation IFRS 7 requires for financial instruments that are measured in the Statement of Financial Position at fair value in accordance with IFRS 13 a disclosure of fair value measurements by level using the following fair value measurement hierarchy: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities, Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is as prices) or indirectly (that is derived from prices), and Level 3: Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs). The level in the fair value hierarchy within which the fair value measurement is categorized in total is determined on the basis of the lowest level input that is significant to the fair value measurement in total. The different hierarchy levels demand different amounts of disclosure. On December 31, 2019, and 2018, the Group’s derivative financial instruments carried in the Statement of Financial Position at fair value (e. g. derivatives used for hedging) are categorized in total within Level 2 of the fair value hierarchy. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using a present value model based on forward exchange rates. (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Consolidated Financial Statements are prepared in ‘euros’ (EUR), which is NORMA Group SE’s functional and the Group’s presentation currency. • Assets and liabilities for each Consolidated Statement of Financial Position presented are translated at the closing rate on the date of that Consolidated Statement of Financial Position; • Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the actual rate on the dates of the transactions); and • All resulting exchange differences are recognized as a (b) Transactions and balances separate component of equity. Goodwill and fair value adjustments arising through the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Foreign currency transactions are translated into the functional currency using the actual exchange rates on the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within ‘financial income / costs’. All other foreign exchange gains and losses are presented in profit or loss within ‘other operating income / expenses’. (c) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: 126 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe exchange rates of the currencies affecting foreign currency translation are as follows: Intangible assets (a) Goodwill Exchange rates per EUR Australian dollar Brazilian real Chinese renminbi yuan Swiss franc Czech koruna British pound sterling Indian rupee Japanese yen South Korean won Malaysian ringgit Mexican peso Polish złoty Serbian dinar Russian ruble Swedish krona Singapore dollar Thai baht Turkish lira US dollar T052 Spot rate Average rate Dec 31, 2019 Dec 31, 2018 2019 2018 1.5995 4.5157 7.8205 1.0854 1.6220 1.6103 4.4440 4.4147 7.8751 7.7329 1.1269 1.1126 1.5803 4.3071 7.8065 1.1550 25.4080 25.7240 25.6680 25.6468 0.8508 0.8945 0.8774 0.8847 80.1870 79.7298 78.8145 80.6760 121.9400 125.8500 122.0522 130.3588 Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary on the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. 1,296.2800 1,277.9300 1,304.6216 1,298.7919 (b) Development costs 4.5953 4.7317 4.6370 4.7630 21.2202 22.4921 21.5534 22.7001 4.2568 4.3014 4.2968 4.2612 117.5700 118.2690 117.8292 118.2359 69.9563 79.7153 72.4412 74.0428 10.4468 10.2548 10.5853 10.2611 1.5111 1.5591 1.5271 1.5924 33.4150 37.0520 34.7642 38.1559 6.6843 1.1234 6.0588 6.3606 1.1450 1.1195 5.6960 1.1810 Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if development costs can be measured reliably, the product or process is technically and commercially feasible and future economic benefits are probable. 127 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFurthermore, NORMA Group intends, and has sufficient resources, to complete development and use or sell the asset. The costs capitalized include the cost of materials, direct labor and other directly attributable expenditure that serves to prepare the asset for use. Such capitalized costs are included in profit or loss in line ‘own work capitalized’. Capitalized development costs are stated at cost less accumulated amortization and impairment losses with an amortization period of generally three to five years. Development costs which did not meet the requirements are expensed as incurred. (c) Other intangible assets Separately acquired other intangible assets are shown at historical cost less accumulated amortization. Intangible assets acquired in a business combination are recognized at fair value on the acquisition date. Other intangible assets which have a finite useful life will be amortized over their estimated useful life. Amortization is calculated using the straight-line method to allocate their cost. Other intangible assets which are determined to have indefinite useful lives as well as intangible assets not yet available for use are not amortized, but instead tested for impairment at least annually. Furthermore, other intangible assets which are determined to have indefinite useful lives and therefore are not amortized, will be reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for these assets. In general, the Group’s other intangibles are not qualifying assets in accordance with IAS 23 and borrowing costs eligible for capitalization therefore do not exist. The useful lives of other intangible assets acquired in a business combination are estimates based on the economics of each specific asset which were determined in the process of the purchase price allocation. The major part of these assets are brand names and customer lists. The estimated useful lives for other intangible assets are as follows: • Patents: 5 to 10 years • Customer lists: 4 to 20 years • Technology: 10 to 20 years • Licenses, rights: 3 to 5 years • Trademarks: indefinite or 20 years • Software: 3 to 5 years • Development costs: 3 to 5 years Other intangible assets with indefinite useful lives are essentially brand names, for which the end of usability is not foreseeable and therefore indeterminable. These brand names result from acquisitions. For these brand names, an indefinite useful life is assumed. Based on a market perspective, there are no clear indications for a definite useful life of these brand names as they have been well-established in the market for many years. Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation and impairment loss, if substantial. Historical cost includes expenditure that is directly attributable to the acquisition of the items and, if any, the present value of estimated costs for dismantling and removing the assets, restoring the site on which it is allocated. Borrowing costs eligible for capitalization in the sense of IAS 23 were not available. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is foreseeable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance expenses are charged to profit or loss during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, on each balance sheet date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within ‘other operating income /  expenses’. The estimated useful lives for property, plant and equipment (excluding rights of use under IFRS 16) are as follows: 128 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING• Buildings: 8 to 40 years • Machinery and technical equipment: 3 to 18 years • Tools: 3 to 10 years • Other equipment: 2 to 20 years Leasing activities of the Group and their accounting treatment (from January 1, 2019) NORMA Group has significant leases for the rental of land and buildings. In addition, the Group maintains leases for various company cars and technical equipment under non-cancellable lease agreements. Besides the usual extension options, the leases include, to a minor extent, purchase and termination options that are not taken into account. The lease terms per asset class are as follows: • Right of use assets – land and buildings: 1 month to 78 years • Right of use assets - machinery and tools : 3 to 6 years • Right of use assets – forklifts and warehouse: > 1 to 7 years • Right of use assets – office and IT equipment: > 1 to 6 years • Right of use assets – company cars: > 1 to 9 years The Group’s leases generally do not contain credit terms, how- ever, leased assets may not be used as collateral for borrowings. As of January 1, 2019, leases are recognized as rights of use and corresponding lease liabilities at the time when the leased asset is available for use by the Group. Each lease payment is divided into repayment and financing expenses. Finance expenses are charged to the income statement over the lease term. The right of use asset is amortized on a straight-line basis over the shorter of the useful life and the lease term. Right of use asset and lease liabilities are initially recognized at present value. The lease liabilities generally include the present value of the following lease payments: • fixed payments (including de facto fixed payments, less any leasing incentives to be received) • variable lease payments linked to an index or interest rate • expected residual value payments from residual value guarantees of the lessee • the exercise price of a purchase option, if it is sufficiently certain that the lessee will exercise it • penalties for terminating the lease, if the lease term takes into account that the lessee will exercise a termination option Lease payments are discounted at the interest rate underlying the lease if this can be determined. Otherwise, they are discounted at the lessee’s incremental borrowing rate. Rights of use assets are measured at cost, which is comprised as follows: • amount of the initial measurement of the lease liability • all leasing payments made at or before the commencement date, less any lease incentives received • all initial direct costs incurred by the lessee, and • the estimated costs incurred by the lessee in dismantling or removing the underlying asset, restoring the site on which it is located, or returning the underlying asset to the condition required by the lease agreement. Exceptions in the form of accounting options exist for short-term leases (minimum term of a maximum of twelve months if no purchase option has been agreed) and for low-value assets. The lease payments resulting from these leases are therefore to continue to be included in operating expenses in the future. NORMA Group has made use of these simplified application options as a lessee, with the exception of leased assets that are allocated to the asset class ‘Right of use assets – land and build- ings’. Furthermore, lessees are granted an accounting option not to separate leasing and non-leasing components, which NORMA Group has made use of, except for the asset classes ‘Right of use assets – land and buildings’ and ‘Right of use assets – company cars’. i. Extension and termination options Some of NORMA Group’s real estate leases contain extension options. Termination options are included to a very limited extent in the area of real estate leasing. Such contractual terms and conditions are used to provide the Group with operational flexibility with respect to the contract portfolio. The majority of the current extension and termination options can only be exercised by the Group and not by the respective lessor. In determining the term of leases, all facts and circumstances that provide an economic incentive to exercise extension options or not to exercise termination options are taken into account. Changes to the term of the lease resulting from the exercise of extension and termination options are only included in the term of the lease if an extension or non-exercise of a termination option is reasonably certain. The following considerations are taken into account when deter- mining the term of the leases or the inclusion or non-inclusion of extension and termination options: 129 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Contract-related Market-related • existence of renewal or purchase options and their conditions, • an obligation to dismantle installations or restore them to • legal and local regulations to be observed for the (permanent) obligation, their original condition, • alternative lease payments for comparable assets. • amount of lease payments (including all variable payments) for an optional period compared to customary market payments. Asset-based / Company-based • the existence of significant leasehold improvements that would be lost in the event of (premature) termination or non-extension of the contract, • costs in connection with a loss of production upon termination of the lease, • costs associated with the acquisition of an alternative asset, • dependence of the business activity (core business) on the continued use of the asset, • financial consequences of the extension or termination of the lease, • nature of the leased asset (specific vs. generic / general The assessment will be reviewed if a significant event or significant change in circumstances occurs that could influence the previous assessment, provided this is within the lessee’s control. As of December 31, 2019, potential additional cash outflows from extension options in the amount of EUR 1,516 thousand and potential reduced cash outflows from termination options in the amount of EUR 626 thousand were not recognized in the lease liability as it is not reasonably certain that the leases will be renewed or terminated prematurely. Adjustments to the lease liabilities / right of use assets due to changes in estimates of the term or amount of the expected lease payments (index-based payments) amount to EUR 15 thousand (an increase). leased asset; extent to which the leased asset is critical to the lessee’s operations). Leases and their accounting treatment (until December 31, 2018) Leases in which substantially all the risks and rewards incidental to ownership remain with the lessor are classified as operating leases. Payments made under operating leases (less incentives received from the lessor) are recognized as an expense on a straight-line basis over the lease term. Leases where the Group bears substantially all the risks and rewards incidental to ownership are classified as finance leases. A finance lease is capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Each lease payment is divided into an interest and a repayment portion so that the lease liability carries a constant interest rate. The net lease liability is reported under liabilities in accordance with its term. The interest portion of the lease payment is recog- nized in profit or loss. Property, plant and equipment held under a finance lease is depreciated over the shorter of the following two periods: the economic life of the asset or the lease term. The Group has both operating leases and finance leases, which mainly relate to property, plant and equipment. Impairment of non-financial assets (a) Assets with finite useful lives An impairment test must be carried out for assets with a determinable useful life if there are indications of a possible impairment. If there are any such indications, the amortized car- rying amount of the asset is compared with the recoverable amount, which represents the higher of fair value less costs to sell and value in use. The value in use is equivalent to the present value of the future cash flows expected from the continuing use of the asset. In the event of impairment, the difference between the amortized carrying amount and the lower recoverable amount is recognized as an expense. The impairment loss is reversed as soon as there are indications that the reasons for impairment no longer exist. These may not exceed the amortized cost of acquisition. 13 0 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The classification depends on the business model according to which NORMA Group manages its financial assets and the char- acteristics of the contractual cash flows of these financial assets. NORMA Group reclassifies debt instruments only when the business model for managing such financial assets changes. Recognition and derecognition Regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to pur- chase or sell the asset. Financial assets are derecognized when the rights to receive cash flows have expired or been transferred and the Group has transferred substantially all risks and rewards of ownership. (b) Goodwill and other assets with an indefinite useful life Moreover, other intangible assets with an indefinite useful life, other intangible assets not yet ready for use or advance payments on such assets as well as goodwill must be tested for impairment annually. A test is also performed whenever there is any indication that an asset might be impaired. Where the reasons for an impairment no longer exist, the impairment loss is reversed, except in the case of goodwill. The recoverable amount is determined for each individual asset, unless an asset generates cash inflows that are not largely independent of those from other assets or other groups of assets or cash-generating units. In these cases, the impairment test is performed at the relevant level of cash-generating units to which the asset is attributable. Goodwill acquired in a business combination is allocated at the acquisition date to the cash-generating unit or group of cash- generating units that are expected to profit from the synergies deriving from the business combination. This also represents the lowest level at which goodwill is monitored for internal management purposes. These are the operating and reportable segments EMEA, Americas and Asia-Pacific. For cash-generating units, NORMA Group first determines the relevant recoverable amount as fair value less costs to sell, which it compares with the respective carrying amounts, including allocated goodwill in the case of impairment tests on goodwill. For further details regarding the determination of the fair value less costs to sell and the underlying assumptions, we refer to. NOTE 18. ‘GOODWILL AND OTHER I NTANGI BLE ASSETS’. Inventories Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated variable selling costs. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Inventories of the Group are not qual- ifying assets in accordance with IAS 23, so that the acquisition or production costs do not include capitalized borrowing costs. Financial instruments (a) Financial assets There is currently no goodwill in the Group that can be directly allocated to an individual entity because this reflects the enter- prise value of the acquired entity regardless of the transaction. Classification From January 1, 2018, on, the Group classifies its financial assets in the following measurement categories: The Company normally determines the recoverable amount using measurement methods based on discounted cash flows. • Debt instruments measured at amortized cost (AC); • Debt instruments measured at fair value through equity Brand names with indefinite useful lives acquired in business combinations are tested for impairment at the level at which a recoverable amount, which is based on the fair value less costs to sell, can be determined. (FVOCI), with cumulative gains and losses reclassified to the income statement when the financial asset is derecognized; • Debt, derivative and equity instruments at fair value through profit or loss (FVTPL); • Equity instruments classified as FVOCI, with gains and losses remaining in other comprehensive income (OCI) (without reclassification). 131 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGMeasurement Financial assets are initially recognized at fair value plus trans- action costs for all financial assets not carried at fair value through profit or loss. Debt instruments The subsequent measurement of debt instruments depends on the Group’s business model for managing the financial asset and the cash flow characteristics of the financial asset. A debt instrument is measured at amortized cost if the objective of the business model is to hold the financial asset in order to collect the contractual cash flows and the contractual cash flows from the financial asset represent only principal and interest payments and the fair value option is not exercised at inception. Interest income from these financial assets is reported under financial income using the effective interest method. Gains and losses from derecognition, impairment and currency translation are recognized directly in the Consolidated Statement of Comprehensive Income and reported in other operating income / expenses. A debt instrument that is held in a business model in which both the contractual cash flows of financial assets are received and financial assets are sold, and in which the contractual cash flows include only principal and interest payments, is measured at fair value with no effect on income, unless the fair value option is exercised upon initial recognition. Changes in the carrying amount are recognized in other comprehensive income, except for impairment gains or losses, interest income and gains and losses on currency translation, which are recognized directly in the Consolidated Statement of Comprehensive Income. When the financial asset is derecognized, the cumulative gain or loss recognized in other comprehensive income is reclassified from equity to the Consolidated Statement of Comprehensive Income. Interest income from these financial assets is recognized in financial income using the effective interest method. Gains and losses from currency translation are recognized directly in the Consolidated Statement of Comprehensive Income and reported in other operating income / expenses. Impairments Since January 1, 2018, NORMA Group assesses on a forward - looking basis the expected credit losses associated with its debt instruments, which are measured at amortized cost or at fair value with no effect on income. The Group has three types of financial assets subject to this new model: • Trade receivables from the sale of goods and the rendering of services, The impairment losses recognized in the Consolidated Statement of Comprehensive Income are disclosed separately in the section “Notes to the Statement of Comprehensive Income.” • Contract assets from research and development activities; and • Other debt instruments measured at amortized cost All other debt instruments that do not meet these two conditions must be measured at fair value through profit or loss (FVTPL). Equity instruments All equity instruments are subsequently measured at fair value. If an equity instrument is not held for trading purposes, NORMA Group may, at the time of initial recognition, make the irrevocable decision to measure it at fair value with recognition of changes in value in other comprehensive income (FVTOCI), whereby only income from dividends is recognized in profit or loss for the period unless it represents a capital repayment. Changes in the fair value of financial assets at fair value through profit or loss are recognized in the Consolidated Statement of Comprehensive Income under other operating income / expenses. In the case of trade receivables, NORMA Group applies the simplified approach provided for in IFRS 9, which requires the recognition of expected credit losses over the term of the receivables from their initial recognition; further details can be found in NOTE 21. (A) ‘ TRADE AND OTHER RECEIVABLES’. Receivables which are significantly overdue, which can be more than 180 days due to the customer structure , or those whose debtors were subject to insolvency or similar proceedings, are individually tested for impairment. 13 2 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe criteria that the Group uses to determine if there is objective evidence of an impairment loss include: • A breach of contract, such as a default or delinquency in interest or principal payments; • The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; • It becomes probable that the borrower will enter bankruptcy or other financial reorganization. For cash and cash equivalents, receivables from the ABS program and factoring (both from purchase price retentions), and other receivables, mainly from banker’s acceptance bills for trade receivables, NORMA Group applies the general impairment approach. As it is our policy to only invest in high-quality assets of issuers with a minimum rating of at least investment grade so as to minimize the risk of credit losses, we use the low credit risk exception. Thus, these assets are always allocated to stage 1 of the three-stage credit loss model and, if material, a loss allowance for an amount equal to 12-month expected credit losses will be recorded. This loss allowance is calculated based on our exposure as of the respective reporting date, the loss given default for this exposure, and the credit default swap spread as a measure of the probability of default. To ensure that during their lifetime, our investments always fulfill the requirement of being investment-grade, we monitor changes in credit risk by tracking published external credit ratings. Financial liabilities that are measured at amortized cost After initial recognition, financial liabilities are carried at amor- tized cost using the effective interest method. Trade payables, liabilities to banks and other financial liabilities, in particular, are classified to this category. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include derivative financial instruments and contingent purchase price liabilities. Gains or losses on financial liabilities that are measured at fair value through profit or loss are included in profit or loss. (c) Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remea- sured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivative financial instruments not designated as hedges Gains and losses from derivatives that are not designated as hedges (trading derivatives) are recognized in profit or loss. Trading derivatives are classified as non-current assets or liabilities in accordance with IAS 1.68 and IAS 1.71 if they have a remaining term of more than one year; otherwise they are classified as current. Derivative financial instruments designated as hedges Derivatives included in hedge accounting are generally designated as either: • Hedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedge); • Hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or • Hedges of a net investment in a foreign operation (net investment hedge). At the inception of the transaction, NORMA Group documents the relationship between the hedging instruments and the hedged item, including whether changes in the cash flows of the hedging instruments offset changes in the cash flows of the hedged item. The Group documents the risk management objectives and strategies for undertaking the hedging transaction. Further information on the instruments used by the Group and the NOTE 5 ‘FINANCIAL RISK MANAGEMENT’ hedging can be found in and 21. (F ) ‘DERIVATIVE FINANCIAL INST RUMENTS’. The development of the hedging reserve in equity can be found in NOTE 21. (F ) ‘DERIVATIVE FINANCIAL INSTRUMENTS’. (b) Financial liabilities Financial liabilities primarily include trade payables, liabilities to banks, derivative financial liabilities and other liabilities. 133 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to offset the recognized amounts and an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. At NORMA Group, arrangements exist which do not meet the criteria for netting in the Consolidated Statement of Financial Position according to IAS 32.42, as they allow netting only in the case of future events such as default or insolvency on the part of the Group or the counterparty. The following tables present the recognized financial instruments that are offset, or subject to enforceable master netting arrangements and other similar agreements but not offset, as of December 31, 2019, and 2018: Offsetting financial instruments T053 in EUR thousands Dec 31, 2019 Financial assets Derivative financial instruments (b) Trade and other receivables (a) Other financial assets Cash and cash equivalents Total Financial liabilities Borrowings Derivative financial instruments (b) Trade and other payables (a) Other financial liabilities Total Dec 31, 2018 Financial assets Derivative financial instruments (b) Trade and other receivables (a) Other financial assets Cash and cash equivalents Total Financial liabilities Borrowings Derivative financial instruments (b) Trade and other payables (a) Other financial liabilities Total Gross amounts of financial assets / financial liabilities offset in the statement of financial position Net amounts recognized in the statement of financial position Amounts that are not offset in the statement of financial position Financial instruments Gross amounts of financial assets /  financial liabilities Net amount 450 162,888 4,792 179,721 347,851 541,898 913 143,621 19,126 705,558 2,764 143,604 5,231 190,392 341,991 569,091 758 142,494 20,858 733,201 0 502 0 0 502 0 0 502 0 502 0 466 0 0 466 0 0 466 0 466 450 162,386 4,792 179,721 347,349 541,898 913 143,119 19,126 705,056 2,764 143,138 5,231 190,392 341,525 569,091 758 142,028 20,858 732,735 100 0 0 0 100 0 100 0 0 100 335 0 0 0 335 0 335 0 0 335 350 162,386 4,792 179,721 347,249 541,898 813 143,119 19,126 704,956 2,429 143,138 5,231 190,392 341,190 569,091 423 142,028 20,858 732,400 13 4 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING(a) Offsetting arrangements NORMA Group gives volume-based rebates to selected customers. Under the terms of the supply agreements, the amounts payable by NORMA Group are offset against receivables from the customers and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet. (b) Master netting arrangements – not currently enforceable Agreements with derivative counterparties are based on an ISDA Master Agreement and other corresponding national master agreements, such as the corresponding German Framework Agreement. These arrangements do not meet the offsetting criteria because they allow netting only in the case of future events such as default or insolvency on the part of the Group or the counterparty. The table above shows the impact on the Group’s balance sheet if all set-off rights were exercised. Current and deferred income tax Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements and on tax losses carried forward and not yet used tax credits. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. A surplus of deferred income tax assets is recognized only to the extent that it is probable that future taxable profit will be avail- able against which the temporary differences can be utilized. The tax expenses for the period are comprised of current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. For taxable temporary differences arising on investments in subsidiaries and associates, deferred tax liabilities are recognized, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The current income tax charge is calculated on the basis of the tax laws enacted on the balance sheet date in the countries where the Group’s subsidiaries operate. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Employee benefits (a) Pension obligations Group companies operate different pension schemes. NORMA Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions to a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. The major defined benefit plan is the German benefit plan which defines the amount of pension benefit that an employee will receive on retirement to depend on years of service and compensation. The liability recognized in the Consolidated Statement of Financial Position with respect to defined benefit pension plans is the present value of the defined benefit obligation on the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions, as well as returns on plan assets, which are not included within the net interest on the defined benefit liability, are recognized within retained earnings in other comprehensive income (OCI). 135 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGPast service costs are recognized fully in the period of the related plan amendment. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no fur- ther payment obligations once the contributions have been paid. The contributions are recognized as employee benefits expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. (b) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits as a liability and expense on the earlier date of: (a) when the entity can no longer withdraw the offer of those benefits; or (b) when the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value. (c) Short-term employee benefits Provisions Employee benefits with short-term payment dates include wages and salaries, social security contributions, vacation pay and sickness benefits and are recognized as liabilities at the repay- ment amount as soon as the associated job has been performed. Provisions are recognized when the Group has a present legal or constructive obligation to third parties as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. (d) Provisions for other long-term employee benefits Provisions for obligations similar to pensions (such as anniversary allowances and death benefits) are comprised of the present value of future payment obligations to the employee less any associ- ated assets measured at fair value. The amount of provisions is determined on the basis of actuarial opinions in line with IAS 19. Gains and losses from the remeasurement are recognized in profit or loss in the period in which they are incurred. Share-based payment Share-based payment plans issued at NORMA Group are accounted for in accordance with IFRS 2 ‘Share-based Payment’. In accordance with IFRS 2, NORMA Group in principle distinguishes between equity-settled and cash-settled plans. The financial interest from equity-settled plans granted on the grant date is generally allocated over the expected vesting period against equity until the exit event occurs. Expenses from cash-settled plans are generally also allocated over the expected vesting period until the exit event occurs, but against accruals. A description of the plans existing within NORMA Group can be found in NOTE 25 ‘SHARE-BASED PAYMENTS’. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation taking into account all identifiable risks. Provisions are discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. In addition to the expected amount of cash outflows, uncertain- ties also exist regarding the time of outflows. If it is expected that the outflows will take place within one year, the relevant amounts are reported in the short-term provisions. When the Group expects a refund for a provision, this refund is recognized in accordance with IAS 37.53 as a separate asset. If the refund is in a close economic relationship with the recognized provision, the expenses from the provision are netted with the income from the corresponding refund in profit or loss. Income from the release of non-utilized provisions from prior years is recorded within other operating income. 136 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRevenues from contracts with customers (revenue recognition) (a) Sale of goods NORMA Group recognizes revenue, when or as control over distinct goods or services is transferred to the customer; i. e. when the customer is able to direct the use of the transferred goods or services and obtains substantially all of the remaining benefits, provided a contract with enforceable rights and obligations exists and amongst others collectability of consideration is probable taking into account our customer’s creditworthiness. Revenue is the transaction price NORMA Group expects to be entitled to. Variable consideration is included in the transaction price if it is highly probable that a significant reversal of revenue will not occur once associated uncertainties are resolved. The amount of variable consideration is calculated by either using the expected value or the most likely amount depending on which is expected to better predict the amount of variable consideration. Consideration is adjusted for the time value of money if the period between the transfer of goods or services and the receipt of payment exceeds twelve months and there is a significant financing benefit either to the customer or NORMA Group. If a contract contains more than one distinct good or service, the transaction price is allocated to each performance obligation based on relative stand-alone selling prices. If stand-alone selling prices are not observable, the Company reasonably estimates those. Revenue is recognized for each performance obligation either at a point in time or over time. Revenues are recognized at a point in time when control of the goods passes to the buyer, usually upon delivery of the goods. Invoices are issued at that point in time and are usually payable within 30 to 90 days. For the sale of goods, retrospective volume discounts, which usually apply to a calendar year, are often agreed to. Revenues from these sales are recognized at the amount of the consideration set in the contract less the estimated volume discounts. The estimate of the refund liabilities recognized for these volume rebates is based on experience and revenue recognized in the fiscal year. (b) Engineering services Revenues are recognized over time under the percentage-of- completion method, based on the percentage of costs incurred to date compared to total estimated costs. An expected loss on the contract is recognized as an expense immediately. Payment terms are usually 30 to 90 days from the date of invoice issued according to the contractual terms. The percentage of completion method places considerable importance on accurate estimates of the extent of progress towards completion and may involve estimates on the scope of deliveries and services required for fulfilling the contractually defined obligations. These estimates include total contract costs, total contract revenues, contract risks, including technical risks and other judgments. Under the percentage of completion method, changes in estimates may lead to an increase or decrease in revenue. The creditworthiness of our customers is taken into account in estimating the probability that economic benefits associated with a contract will flow to the Company. Contract assets, contract liabilities, refund liabilities and considerations payable to a customer When either party to a contract with customers has performed, NORMA Group presents a contract asset, a contract liability or a trade receivable depending on the relationship between NORMA’s performance and the customer’s payment. A contract asset represents NORMA Group’s right to consider- ation in exchange for goods or services that have been transferred to the customer. The impairment of contract assets is measured, presented and reported on the same basis as for financial assets within the scope of IFRS 9. Trade receivables are recognized if NORMA Group’s right to consideration are unconditional. Considerations received, which are expected to be reimbursed to the customer, are shown as refund liabilities. These liabilities are included in the balance sheet in the item ‘Trade and other payables’. These amounts typically relate to expected volume discounts and annual customer bonuses. Consideration payable to a customer that cannot be directly allocated to a service or good received by NORMA Group are recognized as a reduction of the transaction price. If this reduction relates to future revenue, this part is recognized in other non- financial assets as consideration payable to a customer. 137 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGGovernment grants 4. Scope of consolidation Government grants are not recognized until there is reasonable assurance that the conditions attached to them are complied with and that the grants will be received. With NORMA Group SE, the Consolidated Financial Statements contain all domestic and foreign companies which NORMA Group SE controls directly or indirectly. Government grants for the compensation of expenses incurred are recognized in profit or loss as part of the other operating income on a systematic basis over the periods in which the related costs are expensed that the grants are intended to compensate for. Grants related to non-depreciable assets are recognized in profit or loss as part of the other operating income over the periods that bear the cost of meeting the obligations. Grants related to depreciable assets are recognized in profit or loss over the periods that bear the expense related to the depre- ciation of the underlying assets and are recognized as deferred income in the Statement of Financial Position. The deferred income is recognized in profit or loss on a straight-line basis over the expected useful life of the underlying asset and reported as part of other operating income. The Consolidated Financial Statements for 2019 include 8 domestic (Dec 31, 2018: 8) and 44 foreign (Dec 31, 2018: 44) companies. The composition of the Group changed as follows: Change in scope of consolidation T054 As of January 1 Additions of which newly founded of which acquired Disposals of which no longer consolidated of which mergers As of December 31 2019 2018 Total Domestic Foreign Total Domestic Foreign 52 0 0 52 8 0 0 8 44 0 0 48 5 2 3 1 1 0 44 52 7 1 0 1 0 0 0 8 41 4 2 2 1 1 0 44 There were no additional acqusitions or establishments during 2019. 138 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING For a detailed overview of NORMA Group’s share holdings, please refer to the following chart: List of Group companies of NORMA Group as of December 31, 2019 T055 No. Company Central functions Registered address held by company of NORMA Group SE Currency Equity 1 Result 1 Share in % Direct parent 01 02 03 NORMA Group SE Maintal, Germany NORMA Group APAC Holding GmbH Maintal, Germany NORMA Group Holding GmbH Maintal, Germany Segment EMEA 04 05 06 07 08 09 10 11 12 13 14 15 NORMA Distribution Center GmbH Marsberg, Germany DNL GmbH & Co KG NORMA Germany GmbH NORMA Verwaltungs GmbH STATEK Stanzereitechnik GmbH DNL France SAS NORMA Autoline France SAS Maintal, Germany Maintal, Germany Maintal, Germany Maintal, Germany Briey, France Guichen, France NORMA Distribution France SAS Croissy Beaubourg, France NORMA France SAS DNL UK Ltd. NORMA UK Ltd. NORMA Italia SpA Briey, France Newbury, Great Britain Newbury, Great Britain Gavardo, Italy 01 01 03 03 03 03 03 03 09 09 09 03 13 03 100.00 100.00 94.80 100.00 94.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kGBP kGBP kEUR 24 106,814 2,175 6,227 56,306 20 4,467 29,801 26,066 2,471 6,068 15,958 18,630 6,210 – 7 0 2 0 2 – 85 0 2 0 2 0 2 – 4,398 – 244 596 – 20 7,000 8,077 1,878 CONTINUED ON NEXT PAGE 13 9 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGList of Group companies of NORMA Group as of December 31, 2019 (continued) T055 No. Company Registered address held by company of NORMA Group SE Currency Equity 1 Result 1 Share in % Direct parent 16 17 18 19 20 21 22 23 24 25 26 27 28 Groen Bevestigingsmaterialen B.V. Purmerend, Netherlands NORMA Netherlands B.V. Purmerend, Netherlands NORMA Polska Sp. z.o.o. Sławniów, Poland NORMA Group Distribution Polska Sp. z.o.o. Sławniów, Poland Lifial – Indústria Metalúrgica de Águeda, Lda. Águeda, Portugal NORMA Group CIS LLC Togliatti, Russian Federation DNL Sweden AB NORMA Sweden AB Stockholm, Sweden Stockholm, Sweden Connectors Verbindungstechnik AG Wallisellen, Switzerland NORMA Grupa Jugoistocna Evropa d.o.o. Subotica, Serbia Fijaciones NORMA S.A.U. NORMA Czech, s.r.o. NORMA Turkey Bağlantı ve Birleştirme Teknolojileri Sanayi ve Ticaret Limited Şirketi L’Hospitalet de Llobregat, Spain Hustopeče, Czech Republic Kadıköy / İstanbul, Turkey Segment Americas 29 30 31 32 33 34 NORMA do Brasil Sistemas De Conexão Ltda. Atibaia, Brazil NORMA Group Mexico, S. de R.L. de C.V. 3 Monterrey, Mexico NORMA Distribution and Services S. de R.L. de C.V. Juarez, Mexico Craig Assembly, Inc. Auburn Hills, MI, USA National Diversified Sales, Inc. Woodland Hills, CA, USA NG AM FinSrv, LLC Auburn Hills, MI, USA 03 22 03 18 03 03 03 22 03 03 03 03 07 37 36 36 37 37 36 70.00 100.00 100.00 100.00 99.99 99.96 100.00 100.00 100.00 100.00 100.00 100.00 100.00 98.20 99.40 99.00 100.00 100.00 70.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 kEUR kEUR kPLN kPLN kEUR kRUB kSEK kSEK kCHF kRSD kEUR kCZK kTRL kBRL kUSD kMXN kUSD kUSD kUSD 5,057 509 5,060 497 147,192 24,833 12,687 5,495 226,149 86,422 207,413 3,146 4,500 – 133 20,061 77,617 64,640 – 1,188 4,635,411 186,584 5,024 437 369,947 7,762 31,061 3,447 4,620 2,944 – 3,189 72,998 – 7,717 – 1,262 2,174 8,471 314,174 31,033 – 202 59 CONTINUED ON NEXT PAGE 140 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGList of Group companies of NORMA Group as of December 31, 2019 (continued) No. Company Registered address held by company of NORMA Group SE Currency Share in % Direct parent NORMA Manufacturing NA SW, LLC Auburn Hills, MI, USA 35 36 37 38 39 NORMA Michigan, Inc. NORMA Pennsylvania, Inc. NORMA U.S. Holding LLC R. G. RAY Corporation Segment Asia-Pacific 40 NORMA Pacific Pty. Ltd. Auburn Hills, MI, USA Auburn Hills, MI, USA Auburn Hills, MI, USA Auburn Hills, MI, USA Dandenong South, Victoria, Australia 41 42 43 44 45 46 47 48 49 50 51 52 Fengfan Fastener (Shaoxing) Co., Ltd. Shaoxing City, China NORMA China Co., Ltd. Qingdao, China NORMA EJT (Changzhou) Co., Ltd. Changzhou, China NORMA EJT (Wuxi) Co., Ltd. NORMA Group Products India Pvt. Ltd. Wuxi, China Pune, India Kimplas Piping Systems Ltd. Nashik, Maharashtra, India Kimplas Ltd. NORMA Japan Inc. NORMA Products Malaysia Sdn. Bhd. (formerly Chien Jin Plastic Sdn. Bhd.) Essex, Great Britain Tokyo, Japan Ipoh, Malaysia NORMA Korea Inc. Seoul, Republic of Korea NORMA Group Asia Pacific Holding Pte. Ltd. Singapore, Singapore NORMA Pacific (Thailand) Ltd. Chonburi, Thailand 36 37 01 37 37 51 51 03 51 51 51 51 46 51 51 51 01 51 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 kUSD kUSD kUSD kUSD kUSD T055 Result 1 – 6,147 2,426 – 2,730 – 936 2,498 Equity 1 – 6,135 95,670 109,779 21,804 122,930 100.00 100.00 kAUD 15,183 2,695 80.00 100.00 100.00 100.00 99.99 100.00 100.00 60.00 100.00 100.00 100.00 99.99 80.00 100.00 100.00 100.00 100.00 100.00 100.00 60.00 100.00 100.00 100.00 100.00 kCNY kCNY kCNY kCNY kINR kINR kGBP kJPY kMYR 37,126 237,420 103,149 211,739 557,533 1,892,354 703 4,108 17,150 36,927 2,758 25,236 69,861 232 118,688 – 3,638 31,325 248 kKRW 575,046 43,437 kSGD kTHB 207,207 – 28,303 115,183 27,867 1_ Reported values according to IFRS as of December 31, 2019; except for NORMA Group Holding GmbH, NORMA Germany GmbH, STATEK Stanzereitechnick GmbH and NORMA Distribution Center GmbH; these values are prepared according to German GAAP as of December 31, 2019, but not yet finally audited. The values are translated with the exchange rates according to NOTE 3. 2_A profit pooling contract exists. 3_Maquiladora operation of company No. 36. 141 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING5. Financial risk management Financial risk factors The Group’s operations expose it to a variety of financial risks, including market, credit and liquidity risks. The Group’s financial risk management focuses on the unpredictability of the financial markets and is designed to mitigate potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain exposures. Overview of financial risks T056 Risk Risks from Assessment Management Market risk – Foreign exchange risk Future transactions and recognized financial assets and liabilities Cash flow projections and sensitivity analysis Forward exchange contracts and natural hedges Market risk – Interest rate risk Long-term borrowings at variable interest rates Default risk Cash and cash equivalents, deriva- tive financial instruments, trade receivables and contractual assets Sensitivity analysis Interest rate swaps Age structure analysis and credit rating Diversification of bank balances, credit limits and letters of credit Liquidity risk Payment obligations arising from borrowings and other liabilities Rolling cash flow forecasts Availability of committed credit lines and facilities and trade working cap- ital management Financial risk management is carried out by a central Treasury department (Group Treasury). The responsibilities and necessary controls related to risk management are defined by the Group’s management. The Treasury department is responsible for identifying and assessing financial risks in close consultation with the Group’s operating units. In a close dialogue, Group Treasury informs and trains the companies and technically handles the hedging process. The use of derivative and non-derivative financial instruments and the investment of liquidity surpluses are governed by policies established by Group management. (a) Market risk Foreign exchange risk NORMA Group operates as an internationally active Company in 100 different countries and is exposed to the currency risk resulting from various foreign currency positions in respect of the most important currencies: the US dollar, British pound, Chinese renminbi, Indian rupee, Polish Złoty, Swedish krona, Swiss franc, Czech koruna, Serbian dinar and Singapore dollar. Taking into account the respective risk-bearing capacity of the subsidiaries, Treasury Risk Management strives to achieve a reasonable degree of hedging of net foreign currency risks (as a result of taking into account incoming and outgoing foreign currency transactions). Highly fluctuating net foreign currency risks are thus hedged with increased hedging ratios. The external financial liabilities denominated in US dollars are repaid with US dollar receipts resulting from the externally financed investments in the US. The foreign currency position of these liabilities was therefore not hedged. The Group uses forward exchange contracts to hedge the foreign exchange risk arising from its operating activities. The risk arises from a possible change in future cash flows from a highly probable forecasted transaction in a non-functional currency, which is due to a change or fluctuation in the exchange rate. The hedging relationship is designated as a cash flow hedge. The Group only designates the spot component as a hedging element. Gains or losses on the effective portion of the change in the spot component of the forward contract are recognized in the hedging reserve as a component of equity. Changes in the forward component of the hedging instrument relating to the hedged item (“aligned forward element”) are recognized in other comprehensive income in the hedging reserve as a component of equity. 142 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING In addition, the Group uses forward exchange contracts to hedge intercompany financing transactions that involve foreign exchange risk arising from intercompany loans denominated in non-func- tional currencies. The Group designates such loans and hedging instruments as fair value hedges in order to achieve the offsetting effects of hedged items and hedges in the same income statement line item. The Group designates only the spot component as a hedging element. Gains or losses from the effective portion of the change in the spot component of the forward transaction are recognized in the financial result, analogous to those of the underlying item. The changes in the forward component of the hedging instrument, which relate to the hedged underlying trans- action (“aligned forward element”) are also included in this item. For more information on the foreign currency risk hedging instruments used by the Group, please refer to N OT E 2 1 . ( F ) ‘DERI VATIVE FIN ANCIAL INSTR UM E NTS ’. In accordance with the Group guideline, the essential contractual conditions of the forward transactions for all hedging relation- ships must correspond to the hedged underlying transactions. The effects of changes in the exchange rates of financial assets and financial liabilities denominated in foreign currencies are presented below. Foreign exchange risk T057 Dec 31, 2019 Dec 31, 2018 in EUR thousands + 10 % – 10 % + 10 % – 10 % Currency relation EUR / USD Profit before tax – 607 743 – 681 833 EUR / GBP Profit before tax 121 – 148 308 – 376 EUR / CNY Profit before tax – 634 776 – 567 693 EUR / INR Profit before tax – 62 76 – 208 255 EUR / PLN Profit before tax 890 – 1,088 727 – 888 EUR / SEK Profit before tax 339 – 415 256 – 313 EUR / CHF Profit before tax 63 – 77 123 – 151 EUR / CZK Profit before tax 273 – 334 233 – 285 EUR / RSD Profit before tax – 63 77 – 91 111 EUR / SGD Profit before tax – 136 167 – 465 568 Interest rate risk NORMA Group’s interest rate risk arises from long-term borrow- ings with variable interest rates. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk which is partially offset by hedges (interest rate swaps). As there are currently no signs of a more restrictive monetary policy in the euro zone, NORMA Group considers the risk of interest rate increases for the euro to be unlikely in the short term. In the longer term, however, the risk of interest rate increases is considered possible. On the other hand, in view of the current low interest rate level in the euro zone, the opportunities that could result from a further decline in interest rates are considered unlikely. In the USD area, on the other hand, further interest rate reductions are considered more likely, which would lead to corresponding opportunities for NORMA Group. Against the backdrop of the measures already implemented to optimize financing, the financial impact of these opportunities is considered to be insignificant. Currently swaps cover around 34% (2018: 71%) of outstanding variable interest rate loans. Further information on the instruments used to hedge the interest rate risk used by the Group can be found under NOTE 21. (F ) ‘DERIVATIVE FINANCIAL INSTRU MENTS’. Below, the effects of changes in interest rates are analyzed for bank borrowings which bear variable interest rates, and for interest rate swaps included in hedge accounting. Borrowings that bear fixed interest rates are excluded from this analysis. Due to the current low level of interest rates in those markets that are relevant for NORMA Group’s funding, the likelihood of rising interest rates is higher than that of declining interest rates – this has been addressed in the sensitivity analysis. 143 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn fiscal year 2019, if interest rates on euro and US dollar denominated borrowings had been 100 basis points (BPS) (2018: 100 BPS) higher with all other variables held constant, profit before tax for fiscal year 2019 would have been EUR 1,183 thou- sand lower (2018: EUR 503 thousand lower) and other comprehensive income would have been EUR 1,531 thousand higher (2018: EUR 2,716 thousand higher with a 100 basis points shift). In fiscal year 2019, if interest rates on euro and US dollar denominated borrowings had been 50 basis points (2018: 50 BPS) lower with all other variables held constant, profit before tax for fiscal year 2019 would have been EUR 84 thousand higher (2018: EUR 63 thousand higher). Other comprehensive income would have been EUR 786 thousand lower (2018: EUR1,437 thousand lower). Other price risks As NORMA Group is not exposed to any other material economic price risks, such as stock exchange prices or commodity prices, an increase or decrease in the relevant market prices within reasonable margins would not have an impact on the Group’s profit or equity. The raw material risk is mainly based on alloy surcharges, which can be passed on to customers to a certain extent via price passing clauses. Therefore, the Group’s exposure to other price risks is considered probable, but with low financial impact RIS K A ND OPPORTUN IT Y R EPORT. (b) Credit risk The credit risk incurred by the Group is the risk that counterpar- ties fail to meet their obligations arising from operating activities and from financial transactions. Credit risk arises from cash and cash equivalents and deposits with banks and financial institu- tions, as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk is monitored on a Group basis. To minimize credit risk from operating activities and financial transactions, each counterparty is assigned a credit limit, the use of which is monitored regularly. Credit risk exposure from cash and cash equivalents and other financial assets T058 As of December 31, 2019 Equivalent to External Rating Gross Carry- ing Amount Not Credit- Impaired Gross Carry- ing Amount Credit - Impaired AAA – BBB– 193,378 0 in EUR thousands Risk class 1 – low risk As of December 31, 2018 In order to reduce the credit risk arising from our investing activities and derivative financial assets, in accordance with our internal treasury policy, we have entered into all transactions only with recognized, large financial institutions and issuers, each with high external credit ratings. in EUR thousands Risk class 1 – low risk Equivalent to External Rating Gross Carry- ing Amount Not Credit- Impaired Gross Carry- ing Amount Credit - Impaired AAA – BBB– 202,990 0 In operational business, default risks are continuously monitored. The aggregate carrying amounts of financial assets represent the maximum default risk. Given the Group’s heterogeneous customer structure, there is no risk concentration. As of December 31, 2019, the credit exposure for the gross carrying amounts of cash and cash equivalents and other financial assets was as follows: Further details on the credit risk positions for trade receivables can be found under ‘ T R A D E A N D OT H E R N OT E S 2 1 . ( A ) RECEIVABLES’. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury maintains flexibility in funding by maintaining availability under committed credit lines. 144 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn July 2013, NORMA Group issued a promissory note loan of EUR 50 million with terms of 7 and 10 years. The two fixed- interest annual tranches will be repaid in July 2020 and July 2023. Yet another promissory note loan was issued in December 2014, also with 7- and 10-year terms in both euro and dollar tranches. This promissory note loan has a total volume of approximately EUR 80 million and has both fixed and variable interest tranches. These promissory notes will be redeemed in December 2021 and December 2024. A third promissory note with 5-, 7- and 10-year maturities has a total volume of approximately EUR 149 million and was issued in August 2016. The different tranches also consist of both fixed and variable interest rate tranches and will be repaid in 2021, 2023 and 2026. In December 2019, NORMA Group repaid a promissory note in the amount of approximately EUR 108 million. In addition, the syndicated bank loan with a total volume of approximately EUR 183 million, consisting of euro and dollar tranches, and an accordion facility of EUR 102 million included in the total volume, Maturity structure of non-derivative financial liabilities Dec 31, 2019 in EUR thousands Borrowings Trade and other payables Other financial liabilities Dec 31, 2018 in EUR thousands Borrowings Trade and other payables Finance lease liabilities Other financial liabilities was refinanced before maturity in 2022. Due to the current favorable market environment, this refinancing was achieved via a new syndicated bank loan and a commercial paper program. The refinancing in December 2019 promises the Group even greater security and flexibility. In addition, the annual financing costs were reduced significantly. Furthermore, the new syndicated bank loan includes a sustainability component. This links the financing conditions to NORMA Group’s commitment to Corporate Responsibility. By further improving its sustainability rating, the Company has the opportunity to further reduce the interest burden of its financing. With the conclusion of the new loan agreement, the Group has secured approximately EUR 250 million in debt financing capital, consisting of both euro and dollar tranches. In addition, a EUR 50 million revolving facility and a leveraged flexible accordion facility were included. The loan agreement has been concluded for a term of five years and includes the option to extend it twice for a further year each. The newly launched commercial paper program with a total volume of up to EUR 300 million consists of short-term (2 – 12 weeks) bearer bonds. The revolving issuance of such short-term bonds enables the Group to manage and optimize its short-term financing requirements even more flexibly via the money and capital markets in addition to its existing credit lines with various banks. Liquidity is monitored on an ongoing basis with regard to the Group’s business performance, planned investment and redemption of loans. The amounts disclosed in the table below are the contractual, undiscounted cash flows. Financial liabilities denominated in foreign currencies are translated at the closing rate on the balance sheet date. Interest payments on financial instruments with variable interest rates are calculated on the basis of the interest rates applicable as of the reporting date. up to 1 year > 1 year up to 2 years > 2 years up to 5 years 57,594 143,119 17,496 218,209 110,813 0 0 110,813 379,415 0 1,631 381,046 up to 1 year > 1 year up to 2 years > 2 years up to 5 years 127,305 142,028 17 18,850 288,200 44,624 355,739 5 0 44,629 13 1,976 357,728 T059 > 5 years 43,160 0 0 43,160 > 5 years 90,115 90,115 145 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe maturity structure of the derivative financial instruments based on cash flows is as follows: Maturity structure of derivative financial instruments T060 As of Dec 31, 2019 in EUR thousands Derivative receivables – gross settlement Cash outflows Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Derivative receivables – net settlement Cash inflows Derivative liabilities – net settlement Cash outflows As of Dec 31, 2018 in EUR thousands Derivative receivables – gross settlement Cash outflows Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Derivative receivables – net settlement Cash inflows Derivative liabilities – net settlement Cash outflows up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years – 940 955 – 578 576 406 – 268 151 30 – 644 – 614 0 0 up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years – 31,221 31,414 – 5,385 5,302 1,746 – 216 1,640 608 – 418 190 217 – 41 176 0 146 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Capital risk management Estimated impairment of goodwill Pension benefits NORMA Group’s objectives when managing capital are to ensure that it will continue to be able to repay its debt and remain finan- cially sound. The Group is subject to the financial covenant total net debt cover (net debt in relation to adjusted Group EBITDA), which is monitored on an ongoing basis. This financial covenant is based on the Group’s Consolidated Financial Statements as well as on special definitions of the bank facility agreements. There were no covenant breaches in 2019 and 2018. In the case of a covenant breach, the facility agreement includes several ways to remedy a potential breach by rules of exemption or shareholder actions. If a covenant breach occurs and is not remedied, the syndicated loans may be, but are not required to be, withdrawn. 6. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience, and expectations regarding future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, sel- dom equal the respective actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year are addressed below. NORMA Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in N OT E 3 . ‘ S U M M A R Y O F S I G N I F I CA N T ACCO U N T I N G P R I N C I P L E S – IMPAIRMENT OF NON- FINANCIAL ASSETS’. The recoverable amounts of cash-generating units have been determined based on fair value less costs to sell calculations. These calculations are based on discounted cash flow models, which require the use of esti- mates. NOTE 18. ‘GOO DWILL AND OTHER INTANGIBLE ASSETS’ In 2019 and 2018, no impairment of goodwill, which amounted to EUR 393,087 thousand on December 31, 2019 (Dec 31, 2018: EUR 389,505 thousand), was necessary. Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgments are required in determining the worldwide provision for income taxes. There are transactions and calcula- tions for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters differs from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. On December 31, 2019, income tax liabilities were EUR 3,712 thousand (Dec 31, 2018: EUR 6,580 thousand) and deferred tax liabilities were EUR 69,562 thousand (Dec 31, 2018: EUR 73,099 thousand). The present value of the pension obligations depends on a number of factors determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The present value of the defined benefit obligation is calculated by discounting the estimated future cash outflows using the interest rates of high-quality corporate bonds. The Group determines the appropriate discount rate on the bal- ance sheet date. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in NOTE 3. ‘SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES – EMPLOYEE BENEFITS’. Pension liabilities amounted to EUR 15,890 thousand on Decem- ber 31, 2019 (Dec 31, 2018: EUR 12,804 thousand). Useful lives of property, plant and equipment and intangible assets The Group’s management determines the estimated useful lives and related depreciation / amortization charges for its property, plant and equipment and intangible assets. This estimate is based on projected lifecycles. These could change as a result of technical innovations or competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will 147 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. Accounting for leases • Subseqeunt changes in the estimated fair values of liabilities and provisions may result in additional expense (if increasing the estimated fair value) or additional income (if decreasing the estimated value). In connection with the accounting for leases, estimation uncer- tainties and discretionary decisions arise, which are described in N OT E 3 . ‘ S U M M A R Y O F S I G N I F I CA N T AC C O U N T I N G P R I N C I P L E S – LEASING ACTIVITIES OF THE GROUP AND THEIR ACCOUNTING TREATMENT (FROM JANUARY 1 , 20 19 )’. Business combinations In our accounting for business combinations, judgment is required in determining whether an intangible asset is identifiable, and should be recorded separately from goodwill. Additionally, estimating the acquisition-date fair values of the identifiable assets acquired and liabilities assumed involves considerable judgment. The necessary measurements are based on information available on the acquisition date and are based on expectations and assumptions that have been deemed reasonable by management. These judgments, estimates, and assumptions can materially affect our financial position and profit for several reasons, including the following: • Fair values assigned to assets subject to depreciation and amortization affect the amounts of depreciation and amortization to be recorded in operating profit in the periods following the acquisition. • Subsequent negative changes in the estimated fair values ofassets may result in additional expense from impairment charges. 7. Adjustments Certain expenses are adjusted for operational management purposes. Hence, the following results which are adjusted by these expenses, reflect the Management Board’s perspective. In fiscal year 2019, net expenses of EUR 13,431 thousand in total were adjusted within EBITDA (earnings before interest, tax, depreciation and amortisation) (2018: EUR 4,390 thousand). These relate to other operating expenses (EUR 2,920 thousand), employee benefit expenes (EUR 9,935 thousand) and material costs (EUR 213 thousand). Those are linked to the rightsizing program which was initiated in the fourth quarter 2018 for optimizing organizational structures. The adjustmends of employee benefit expenses are attributable to costs for internal project hours of permanent staff, to costs for temporarily hired employees and to severance payments made. Furthermore, integration costs of EUR 310 thousand within other operating expenses and EUR 53 thousand within employee benefit expenses were adjusted. These are directly contributable to the acquired companies Kimplas and Statek in fiscal year 2018. The adjustments made within EBITDA in fiscal year 2018 are related in the amount of EUR 389 thousand to costs of materials that resulted from the valuation of the inventories acquired as part of the purchase price allocation for the acquisition of Kimplas. The adjustments for acquisition-related costs within other operating expenses amounting to EUR 1,190 thousand are related to the acquisitions of Kimplas and Statek. In addition, expenses for the integration of the companies acquired in the current fiscal year amounting to EUR 426 thousand were adjusted in other operating expenses and within employee benefit expenses (EUR 152 thousand). Furthermore, adjustments were made in connection with the rightsizing project launched in the fourth quarter of 2018 to optimize the Group’s structure within employee benefit expenses in the amount of EUR 1,771 thousand, within other operating expenses in the amount of EUR 443 thousand and within costs of materials in the amount of EUR 19 thousand. Besides the adjustments mentioned, depreciation of property, plant and equipment from purchase price allocations in the amount of EUR 3,998 thousand (2018: EUR 3,993 thousand) within EBITA (earnings before interest, taxes and amortization of intangible assets) and amortization of intangible assets in the amount of EUR 22,484 thousand (2018: EUR 21,124 thousand) from purchase price allocations within EBIT were adjusted as in past years. Furthermore, an impairment loss of EUR 1,433 thousand in the area of capitalized customer relationships was adjusted in fiscal year 2018 within amortization of intangible assets. This related to the Chinese company Fengfan. 148 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The theoretical taxes resulting from the adjustments are calculated using the respective tax rate of each Group entity and are taken into consideration in adjusted earnings after taxes. Profit and loss net of adjustments in EUR thousands Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income and expenses Employee benefits expense EBITDA Depreciation EBITA Amortization Operating profit (EBIT) Financial costs – net Profit before income tax Income taxes Profit for the period Non-controlling interests Profit attributable to shareholders of the parent Earnings per share (in EUR) The following table shows profit or loss net of these expenses: 2019 unadjusted 1,100,096 3,045 4,910 – 477,628 630,423 – 144,249 – 312,376 173,798 – 45,891 127,907 – 31,225 96,682 – 15,490 81,192 – 22,743 58,449 27 58,422 1.83 Integration costs Step-up effects from purchase price allocations ‘Rightsizing /  Footprint’ Total adjustments 0 310 53 363 363 363 363 – 80 283 0 0 3,398 3,398 22,484 25,882 25,882 – 6,379 19,503 213 213 2,920 9,935 13,068 63 13,131 13,131 13,131 – 3,525 9,606 0 0 0 213 213 3,230 9,988 13,431 3,461 16,892 22,484 39,376 0 39,376 – 9,984 29,392 0 T061 2019 adjusted 1,100,096 3,045 4,910 – 477,415 630,636 – 141,019 – 302,388 187,229 – 42,430 144,799 – 8,741 136,058 – 15,490 120,568 – 32,727 87,841 27 283 19,503 9,606 29,392 87,814 2.76 CONTINUED ON NEXT PAGE 149 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGProfit and loss net of adjustments (continued) in EUR thousands Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income and expenses Employee benefits expense EBITDA Depreciation EBITA Amortization Operating profit (EBIT) Financial costs – net Profit before income tax Income taxes Profit for the period Non-controlling interests Profit attributable to shareholders of the parent Earnings per share (in EUR) 2018 unadjusted M&A related costs Integration costs Step-up effects from purchase price allocations ‘Rightsizing /  Footprint’ Total adjustments 0 1,190 1,190 1,190 1,190 1,190 – 305 885 0 426 152 578 578 578 578 – 148 430 389 389 389 3,993 4,382 22,557 26,939 26,939 – 6,903 20,036 19 19 443 1,771 2,233 2,233 2,233 2,233 – 572 1,661 0 0 0 408 408 2,059 1,923 4,390 3,993 8,383 22,557 30,940 0 30,940 – 7,928 23,012 0 1,084,140 10,383 5,197 – 473,551 626,169 – 146,427 – 282,768 196,974 – 32,175 164,799 – 31,254 133,545 – 11,668 121,877 – 30,089 91,788 – 85 91,873 2.88 T061 2018 adjusted 1,084,140 10,383 5,197 – 473,143 626,577 – 144,368 – 280,845 201,364 – 28,182 173,182 – 8,697 164,485 – 11,668 152,817 – 38,017 114,800 – 85 885 430 20,036 1,661 23,012 114,885 3.61 150 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNotes to the Consolidated Statement of Comprehensive Income 8. Revenue from contracts with customers Revenue recognized during the period related to the following: Revenue by distribution channel T062 in EUR thousands 2019 2018 2019 2018 2019 2018 2019 2018 EMEA Americas Asia-Pacific Consolidated Group Engineered Joining Technology (EJT) 359,776 368,671 205,001 219,958 100,681 95,947 665,458 684,576 Distribution Services (DS) Other revenues 123,052 123,112 244,679 219,219 62,439 51,510 430,170 393,841 3,142 3,021 1,088 2,337 238 365 4,468 5,723 485,970 494,804 450,768 441,514 163,358 147,822 1,100,096 1,084,140 Total revenues increased by 1.5% to EUR 1,100,096 thousand compared to the previous year (2018: EUR 1,084,140 thousand). The increase is due to negative organic growth which was compensated by positive currency effects and acquisitions. Revenue by category in EUR thousands 2019 T063 2018 Revenues from the sale of goods 1,093,903 1,077,338 Other revenue mainly consists of revenue from the sale of production residues in metal production. Revenues in 2019 include income of EUR 1,758 thousand from the reversal of reimbursement liabilities recognized in the previous period. The reversals represent the difference between the expected volume discounts and annual bonuses recognized for customers in the previous period and the actual payment in the fiscal year. In 2018, EUR 2,719 thousand in revenues from construction contracts are included. incurred to the estimated total costs. The contract liabilities represent advance payments received for goods to be supplied by NORMA Group. Contract assets and contract liabilities in the amounts of EUR 525 thousand and EUR 420 thousand respec- tively (2018: EUR 1,185 thousand and EUR 453 thousand respec- tively) are expected to be realized or settled within the next twelve months. The contract liabilities from advance payments received in the amount of EUR 453 thousand recognized as of January 1, 2019, were recognized as sales revenues, net of any sales taxes, in the fiscal year. Revenues from engeneering services Revenues from other services Other revenue 0 1,750 4,443 425 1,204 5,173 1,100,096 1,084,140 For the analysis of sales by region, please refer to N OT E 3 0 . Transaction price of unsatisfied performance obligations ‘SEGMENT REPORTING.’ Contract assets and liabilities Contract assets represent revenues from development services rendered, which were realized based on the ratio of costs already NORMA Group applies the practical expedient of IFRS 15 and does not disclose the transaction price allocated to unsatisfied performance obligations as of the balance sheet date, as the outstanding obligations are part of a contract with an initial term of up to twelve months. 151 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING9. Raw materials and consumables used 10. Other operating income 11. Other operating expenses Raw materials and consumables used comprised the following: Other operating income comprised the following: Other operating expenses comprised the following: Raw materials and consumables used T064 Other operating income T065 Other operating expenses in EUR thousands 2019 2018 in EUR thousands Cost of raw materials, consumables and supplies – 444,876 – 438,985 Cost of purchased services – 32,752 – 34,566 – 477,628 – 473,551 The raw materials and consumables used lead to a decreased ratio of 43.4% (2018: 43.7%). In relation to the total value, raw materials and consumables used are, with a ratio of 43.1%, at the same level as last year (2018: 43.1%). Currency gains operational Reversal of provisions Reversal of accruals Grants related to employee benefits expense Reimbursement of vehicle costs Other income from disposal of fixed assets Foreign exchange derivatives Government grants Refund other taxes Others 2019 6,092 1,516 2,491 27 874 246 412 606 147 2018 in EUR thousands 2019 7,567 Consulting and marketing – 18,129 – 17,136 616 3,258 Expenses for temporary workforce and other personnel-related costs Freights – 32,554 – 32,958 – 31,363 – 29,109 23 IT and telecommunications – 17,326 – 15,788 873 Rentals and other building costs – 5,364 – 12,528 Travel and entertainment – 10,907 139 700 603 359 Currency losses operational Research & development Vehicle costs Maintenance Commission payable Non-income-related taxes Insurance 1,219 13,630 1,451 15,589 Income from the reversal of liabilities and unused provisions is mainly due to the reversal of personnel-related obligations. Office supplies and services Other administrative expenses Others T066 2018 – 9,591 – 8,475 – 3,837 – 4,583 – 3,504 – 6,114 – 2,574 – 2,532 – 2,495 – 5,776 – 5,016 – 6,330 – 3,099 – 2,856 – 3,652 – 6,150 – 3,052 – 3,161 – 2,734 – 6,949 – 4,253 – 157,879 – 162,016 152 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOther operating expenses for 2019 (EUR 157,879 thousand) were 2,6% lower than other operating expenses for 2018 (EUR 162,016 thousand). This is mainly because of a decrease for rent and other property costs in conjunction with the first time adoption of IFRS 16 of EUR 9,114 thousand. Without the total effects of IFRS 16, other operating expenses would have been EUR 11,296 thousand higher and would have increased by 4.4% to EUR 169,175 thousand compared to the previous year. In relation to the total value, other operating expenses increased disproportionately lower with a ratio of 14.2% (2018: 14.7%). Without the first time adoption effects of IFRS 16, the ratio would be above the previous year level, amounting 15.3%. In 2019, employee benefits expense amounted to EUR 312,376 thousand compared to EUR 282,768 thousand in 2018. The increase of 10.5% is mainly due to an increase in the average headcount in 2019 compared to 2018. Furthermore, expenses for the rightsizing program, started in fourth quarter 2018, were reported. The additional employee expenses summed up to EUR 9,935 thousand in 2019 (2018: EUR 1,771 thousand). Cur- rency effects had a negative effect on employee benefits expenses. In relation to the total value, employee benefits expense increased disproportionately higher with a ratio of 28.2% (2018: 25.7%). In 2018, the ratio was positively influenced by lower additions to accruals for employee bonuses. In 2019, the average headcount was 6,798 (2018: 6,614). 12. Employee benefits expense Employee benefits expense comprised the following: Employee benefits expense in EUR thousands 2019 T067 2018 Wages and salaries and other termination benefits – 256,715 – 230,815 Social security costs – 42,339 – 39,748 Pension costs – defined contribution plans Pension costs – defined benefit plans – 11,692 – 11,016 – 1,630 – 1,189 – 312,376 – 282,768 13. Financial income and costs Financial income and costs comprised the following: Financial income and costs in EUR thousands 2019 T068 2018 Financial costs Interest expenses Bank borrowings incl. hedging instruments – 13,340 – 13,282 Leases (2018: finance lease) – 1,260 Expenses for interest accrued on provisions – 82 – 6 8 Expenses for interest accrued on pensions – 162 – 124 Foreign exchange result on financing activities Result on valuation of derivatives – 212 – 74 715 – 436 Other financial cost – 1,820 – 1,246 – 16,950 – 14,371 Financial income Interest income on short-term bank deposits Other financial income 1,007 453 1,460 484 2,219 2,703 Net financial cost – 15,490 – 11,668 153 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe interest expenses from bank borrowings include in 2019 EUR 14,067 (2018: EUR 13,344 thousand) and EUR 727 thousand are related to interest income from hedging derivatives (2018: interest expenses of EUR 62 thousand). from borrowings thousand 14. Net foreign exchange gains / losses Earnings per share in 2019 and 2018 were as follows: The exchange differences recognized in profit or loss are as follows: Earnings per share 2019 T070 2018 The increase of interest expenses for leasing is attributable to the first time adoption of IFRS 16. Net foreign exchange gains / losses in EUR thousands Note 2019 T069 2018 Profit attributable to shareholders of the parent (in EUR thousands) 58,422 91,873 In fiscal year 2019, net losses from the valuation of derivatives amount to EUR 74 thousand compared to net losses in the amount of EUR 436 thousand in fiscal year 2018. The development of losses on valuation of derivatives as well as of foreign exchange result on financing activities results from the hedging of the US dollar financial liabilities and from the development of the US dollar compared to the prior year. The hedging relationship is classified as a fair value hedge, hence the valuation effects of the derivatives and of the financial liabilities are both reflected in the financial result. The net effect is disclosed in   NOTE 14. ‘NET   FOR EIGN EXCHAN GE G AINS /  LOSSES.’ Other financial income mainly includes income from the adjustment of the liability from the option to acquire the outstanding non- controlling interests of a subsidiary. N OT E 2 1 . ( E ) ‘ F I N A N C I A L LI AB IL ITIES AND NET DEBT ’ Transaction costs in connection with financing are netted with the bank borrowings. They are amortized over the financing period of the respective debt using the effective interest method. As of December 31, 2019, the value of transaction costs recognized in the balance sheet and amortized over the maturities of the bank borrowings amounted to EUR 1,129 thousand (2018: EUR 810 thousand). Currency gains operational Currency losses operational Foreign exchange result on financing activities Result from foreign exchange rate derivatives (10) 6,092 7,567 Earnings per share (un)diluted (in EUR) 1.83 2.88 Number of weighted shares 31,862,400 31,862,400 (11) – 6,330 – 8,475 (13) – 212 715 16. Income taxes The breakdown of income taxes is as follows: (10, 13, 21) – 72 – 522 – 343 – 536 Income taxes in EUR thousands 2019 T071 2018 15. Earnings per share Earnings per share are calculated by dividing net income for the period attributable to NORMA Group’s shareholders by the weighted average number of shares issued during the period under review. NORMA Group has only issued common shares. In 2019, as in the previous year, the average weighted number of shares was 31,862,400 (2018: 31,862,400). As of December 31, 2019, and 2018, there were no dilutive effects on earnings per share. Current tax expenses – 27,936 – 34,629 Deferred tax income 5,193 4,540 Total income taxes – 22,743 – 30,089 The combined income tax rate for the German companies for 2019 amounted to 30.1% (2018: 30.1%), comprising corporate income tax at a rate of 15%, the solidarity surcharge of 5.5% on corporate income tax, and trade income tax at an average rate of 14.2%. The taxation of the foreign subsidiaries is calculated on the basis of the tax rate applicable in the respective country of domicile. Deferred taxes, calculated using the tax rates which apply respectively, are expected to apply in the various countries at the time of realization. 154 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The income tax expense of the Group actually reported differs from the theoretical income tax expense based on the German combined income tax rate of 30.1% for 2019 as follows: The item ‘Other’ consists mainly of other income-based taxes (e. g. withholding tax) in 2019 and 2018. Tax reconciliation in EUR thousands Profit before tax Group tax rate 2019 81,192 30.1% T072 2018 121,877 30.1% Expected income taxes – 24,439 – 36,685 The income tax charged / credited directly to other comprehen- sive income during the year is as follows: Income tax charged / credited to other comprehensive income T073 2019 in EUR thousands Cash flow hedges gains / losses Remeasurements of post-employ- ment benefit obli- gations Other comprehen- sive income Before tax amount Tax charge / credit Net of tax amount – 2,363 680 – 1,683 – 2,066 547 – 1,519 – 4,429 1,227 – 3,202 – 674 – 861 5,658 9,203 Tax effects of: Tax losses and tax credits from the actual year for which no deferred income tax is recog- nized Effects from the deviation of the Group tax rate resulting mainly from different foreign tax rates Non-deductible expenses for tax purposes Other tax-free income Tax effect of changes in tax rates regarding deferred taxes Income taxes related to prior years Impairment of tax assets Other Income taxes – 2,773 432 – 1,692 1,088 2018 – 150 – 260 557 – 21 158 – 9  – 1.333 – 1,031 – 22,743 – 30,089 in EUR thousands Cash flow hedges gains / losses Remeasurements of post-employ- ment benefit obli- gations Other comprehen- sive income Before tax amount Tax charge / credit Net of tax amount 948 – 267 681 – 265 51 – 214 683 – 216 467 155 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe movement in deferred income tax assets and liabilities during the year is as follows: Deferred income tax assets T076 in EUR thousands Dec 31, 2019 Dec 31, 2018 Notes to the Consolidated Statement of Financial Position 17. Deferred income tax The analysis of deferred tax assets and deferred tax liabilities due to maturity is as follows: Deferred tax assets and deferred tax liabilities (gross) in EUR thousands Dec 31, 2019 Dec 31, 2018 Movement in deferred tax assets and liabilities T075 Intangible assets in EUR thousands T074 2019 2018 Property, plant and equipment Deferred tax liabilities (net) – as of January 1 Deferred tax income Tax charged to other comprehensive income 9,516 8,105 Foreign exchange rate differences 7,274 First time adoption of IFRS 16 7,785 17,301 66,528 – 5,193 – 1,227 705 – 626 55,698 – 4,540 216 1,123 Other assets Inventories Trade receivables Retirement benefit obligations /  pension liabilities Provisions 0 Borrowings 15,379 Acquisition of subsidiaries 0 14,031 Other liabilities, incl. derivatives Deferred tax liabilities (net) – as of December 31 60,187 66,528 Deferred tax assets Deferred tax assets to be recov- ered after more than 12 months Deferred tax assets to be recovered within 12 months Deferred tax assets Deferred tax liabilities Deferred tax liabilities to be recov- ered after more than 12 months 75,038 77,276 Deferred tax liabilities to be recovered within 12 months Deferred tax liabilities 2,450 77,488 4,631 81,907 The analysis of deferred income tax assets and deferred income tax liabilities without taking into consideration the offsetting of balances within the same tax jurisdiction is as follows: Trade and other payables Tax loss carry forward and tax credits Deferred tax assets (before valuation allowances) Valuation allowance Deferred tax assets (before offsetting) Offsetting effects Deferred tax assets 4,146 585 1,005 2,560 909 2,937 490 176 2,656 651 2,556 692 806 1,812 1,291 2,205 491 1,347 2,505 559 3,430 2,962 19,546 – 2,245 17,301 – 7,926 9,375 17,226 – 1,847 15,379 – 8,808 6,571 156 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDeferred income tax liabilities T077 In 2019 and prior years, the Group had tax losses at several subsidiaries in several countries. The expiration of tax loss carry forwards not recognized for tax purposes is as follows: Deferred income tax assets are recognized for tax loss carry forwards as far as it is expected that the deferred tax assets will be utilized in the foreseeable future. Expiry of not recognized tax losses T079 in EUR thousands Dec 31, 2019 Dec 31, 2018 Deferred income tax assets for unused tax losses and unused tax credits developed as follows: up to 1 year > 1 year up to 5 years > 5 years Expiry of recognized tax losses T078 Unlimited carry forward in EUR thousands Dec 31, 2019 Dec 31, 2018 Total 0 0 0 6,516 6,516 1,546 0 0 4,643 6,189 up to 1 year > 1 year up to 5 years > 5 years Unlimited carry forward Total 35 1,623 1,698 7,828 11,184 2,505 450 1,671 4,643 9,269 The Group did not recognize deferred income tax assets in respect of tax loss carry forwards amounting to EUR 6,516 thousand on December 31, 2019 (Dec 31, 2018: EUR 6,189 thousand). Regarding taxable temporary differences amounting to EUR 419,395 thousand on December 31, 2019 (Dec 31, 2018: EUR 365,100 thousand), associated with investments in subsidiaries, no deferred tax liabilities are recognized since the respective parent is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 18. Goodwill and other intangible assets The acquisition costs as well as accumulated amortization and impairment of intangible assets consist of the following: in EUR thousands Dec 31, 2019 Dec 31, 2018 Intangible assets Property, plant and equipment Other assets Inventories Trade receivables Retirement benefit obligations /  pension liabilities Borrowings Provisions Other liabilities, incl. derivatives Trade and other payables 57,406 15,171 1,603 60,287 14,703 3,801 162 198 6 200 90 394 3 179 325 0 6 255 30 41 Untaxed reserves 2,254 2,280 Deferred tax liabilities (before offsetting) Offsetting effects Deferred tax liabilities Deferred tax liabilities (net) 77,488 – 7,926 69,562 60,187 81,907 – 8,808 73,099 66,528 Deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the deductible temporary difference can be utilized. As of December 31, 2019, and also in the previous year, deferred tax assets were recognized for all deductible temporary differences because sufficient taxable income will most likely be available to utilize these deductible temporary differences. 157 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDevelopment of goodwill and other intangible assets in EUR thousands Acquisition costs Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents & technology Internally generated intangible assets Intangible assets, other Total Amortization and impairment Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents & technology Internally generated intangible assets Intangible assets, other Total As of Jan 1, 2019 Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2019 T080 423,918 272,509 1,920 43,281 55,859 70,395 23,113 8,551 899,546 34,413 87,645 1,771 35,539 12,889 35,899 11,528 6,963 0 0 40 822 0 816 6,692 853 9,223 0 16,768 26 3,650 1,552 4,895 4,334 0 226,647 31,225 0 0 – 24 – 146 0 0 – 188 – 26 – 384 0 0 – 24 – 144 0 0 – 188 – 26 – 382 0 0 – 26 400 0 0 247 – 621 0 0 0 – 33 182 0 0 247 – 396 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4,078 4,654 8 282 1,000 590 296 – 41 427,996 277,163 1,918 44,639 56,859 71,801 30,160 8,716 10,867 919,252 496 1,776 7 164 236 500 207 – 118 3,268 34,909 106,189 1,747 39,391 14,677 41,294 16,128 6,423 260,758 CONTINUE ON NEXT PAGE 158 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDevelopment of goodwill and other intangible assets (continued) in EUR thousands Acquisition costs Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents & technology Internally generated intangible assets Intangible assets, other Total Amortization and impairment Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents & technology Internally generated intangible assets Intangible assets, other Total As of Jan 1, 2018 Additions Deductions Transfers 389,962 243,447 1,900 41,056 51,667 49,541 16,948 7,788 802,309 33,245 67,753 1,711 30,864 10,941 30,715 7,625 7,009 0 0 7 1,576 0 669 5,758 1,010 9,020 0 17,500 50 4,444 1,430 4,021 3,729 80 189,863 31,254 0 0 0 – 44 0 0 0 0 – 44 0 0 0 – 38 0 0 – 3 0 – 41 0 0 5 171 0 0 16 – 121 71 0 0 0 0 0 0 0 0 0 Changes in consolidation Currency effects As of Dec 31, 2018 T080 23,822 20,228 0 244 1,865 18,782 0 0 10,134 8,834 8 278 2,327 1,403 391 – 126 423,918 272,509 1,920 43,281 55,859 70,395 23,113 8,551 64,941 23,249 899,546 0 0 0 0 0 0 0 0 0 1,168 2,392 10 269 518 1,163 177 – 126 5,571 34,413 87,645 1,771 35,539 12,889 35,899 11,528 6,963 226,647 159 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGGoodwill and other intangible assets – carrying amounts T081 Significant individual intangible assets T082 useful lives are fully allocated to the cash-generating unit (CGU) Americas. Carrying amounts in EUR thousands Dec 31, 2019 Dec 31, 2018 Carrying amounts in EUR thousands Dec 31, 2019 Dec 31, 2018 393,087 389,505 170,974 184,864 NDS – Customer lists 109,801 114,994 15 Remaining Useful Life (in years) Trademarks with an unknown term of use are subjected to an annual impairment test pursuant to IAS 36 on the basis of the recoverable amount pursuant to the procedure described in N OT E 3 . ‘ S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S – IMPAIRMENT OF NON- FINANCIAL ASSETS.’ 171 5,248 42,182 30,507 14,032 2,293 149 7,742 42,970 34,496 11,585 1,588 The change in goodwill, customer lists and patents & technology results from positive foreign exchange differences, mainly from the US dollar area. The change in goodwill is summarized as follows: On December 31, 2019, and 2018, the intangible assets were unsecured. Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to geographical areas. A summary of the goodwill allocation is presented below: Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents & technology Internally generated intangible assets Intangible assets, other Total 658,494 672,899 Change in goodwill in EUR thousands The item ‘patents and technology’ on December 31, 2019, con- sists of patents worth EUR 8,494 thousand (Dec 31, 2018: EUR 9,797 thousand) and technology worth EUR 22,013 thou- sand (Dec 31, 2018: EUR 24,699 thousand). Balance as of December 31, 2018 Currency effect Balance as of December 31, 2019 T083 389,505 3,582 393,087 Internally generated intangible assets include development costs for technologies in the amount of EUR 9,071 thousand (Dec 31, 2018: EUR 8,078 thousand) as well as internally generated soft- ware in the amount of EUR 4,960 thousand (Dec 31, 2018: EUR 3,507 thousand). The item ‘Intangible assets, other’ consists mainly of prepayments. Besides the goodwill, there are intangible assets within trade- marks with an indefinite useful life in the amount of EUR 28,396 thousand (2018: EUR 27,860 thousand) resulting from the acquisition of NDS in 2014. From a market perspective, NORMA Group assumed an indefinite useful life for these acquired trademarks, which mainly include the corporate brand NDS®, because these brands have been established in the market for a number of years and there is no foreseeable end to their useful life, therefore useful lives are indefinite. Trademarks with indefinite 160 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Goodwill allocation per segment T084 in EUR thousands Dec 31, 2019 Dec 31, 2018 CGU EMEA CGU Americas 178,484 178,540 180,030 176,500 CGU Asia-Pacific 34,573 34,465 393,087 389,505 Goodwill for the CGU Americas increased in 2019 mainly due to currency effects. The recoverable amount of a CGU is determined based on fair value less costs to sell, which is calculated by discounting projected cash flows. Based on the inputs used for this valuation technique, fair values are classified as level 3 fair values. NOTE 3 ‘ S U M M A R Y O F S I G N I F I CA N T AC C O U N T I N G P O L I C I E S – FA I R VA LU E EST IMATION’ These calculations use cash flow projections based on financial budgets approved by the management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed our expectations for the long- term average growth rate for the geographical area of the respective CGU. The discount rates used are after tax rates and reflect the specific risk of each CGU. The respective before tax rates are 11.71% (2018: 10.61%) for the CGU EMEA, 9.82 % (2018: 8.86%) for the CGU Americas and 11.88% (2018: 10.74%) for the CGU Asia-Pacific. A sensitivity analysis for the individual CGUs takes into account any changes in the key assumptions that are considered possi- ble. The sensitivity analysis was performed in isolation for all sig- nificant influencing factors, i.e. a change in the fair value of a cash-generating unit is only caused by a reduction or increase in the respective influencing factor. The key assumptions used for fair value less costs to sell calculations are as follows: Impairment losses on other intangible assets No significant impairment losses or reversals of impairment losses were recognised for intangible assets in fiscal year 2019. 19. Property, plant and equipment The acquisition and manufacturing costs as well as accumulated depreciation of property, plant and equipment consist of the fol- lowing: Goodwill per segment – key assumptions T085 December 31, 2019 CGU EMEA CGU Americas CGU Asia-Pacific Terminal value growth rate Discount rate Costs to sell 1.00% 9.19% 1.00% 1.00% 8.14% 1.00% 1.00% 9.28% 1.00% December 31, 2018 CGU EMEA CGU Americas CGU Asia-Pacific Terminal value growth rate Discount rate Costs to sell 1.50% 8.40% 1.00% 1.50% 7.15% 1.00% 1.50% 8.44% 1.00% The assumptions are based on management’s expectations regarding future developments. 161 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDevelopment of property, plant and equipment T086 in EUR thousands Acquisition costs Land and buildings Machinery & tools Other equipment Assets under construction Right of Use Assets Land and buildings Machinery & tools Forklifts and warehouse Office and IT equipment Company cars Total Depreciation and impairment Land and buildings Machinery & tools Other equipment Assets under construction Right of Use Assets Land and buildings Machinery & tools Forklifts and warehouse Office and IT equipment Company cars Total adjustments from changes in accounting policies (Note 2, basis of preparation) As of Dec 31, 2018 As of Jan 1, 2019 (adjusted) Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2019 120,700 343,606 69,628 36,716 0 0 0 0 0 570,650 54,132 219,781 53,378 33 0 0 0 0 0 327,324 – 5,452 61,497 206 2,949 458 3,321 62,979 – 182 28,449 24 1,258 167 1,283 30,999 115,248 343,606 69,628 36,716 61,497 206 2,949 458 3,321 633,629 53,950 219,781 53,378 33 28,449 24 1,258 167 1,283 358,323 1,391 16,346 2,945 24,938 11,907 133 408 57 1,465 59,590 3,290 26,522 5,643 0 8,297 68 656 121 1,294 45,891 776 21,138 1,683 – 23,597 – 29 – 3,342 – 2,693 – 72 – 3,956 0 – 299 0 – 388 569 2,794 321 317 412 11 5 26 117,955 380,542 71,884 38,302 69,860 339 3,069 520 4,424 – 10,779 0 0 4,455 686,895 – 28 – 2,887 – 2,602 – 7 – 3,639 0 – 274 0 – 333 – 9,770 0 0 161 1,312 214 – 7 – 81 0 0 – 1 10 1,608 57,373 244,728 56,633 19 33,026 92 1,640 287 2,254 396,052 CONTINUE ON NEXT PAGE 162 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGDevelopment of property, plant and equipment (continued) in EUR thousands Acquisition costs Land and buildings Machinery & tools Other equipment Assets under construction Total Depreciation and impairment Land and buildings Machinery & tools Other equipment Assets under construction Total Property, plant and equipment – carrying amounts As of Jan 1, 2018 Additions Deductions Transfers Changes in consolidation Currency effects T086 As of Dec 31, 2018 111,560 302,020 65,565 22,021 501,166 51,181 196,162 48,641 29 296,013 2,332 15,459 2,998 33,446 54,235 3,098 23,365 5,708 4 32,175 – 312 – 1,367 – 1,205 – 242 – 3,126 – 53 – 951 – 959 0 – 1,963 1,912 17,059 1,171 – 20,213 – 71 0 0 0 0 0 5,112 8,121 1,030 1,309 15,572 0 0 0 0 0 96 2,314 69 395 2,874 – 94 1,205 – 12 0 1,099 120,700 343,606 69,628 36,716 570,650 54,132 219,781 53,378 33 327,324 in EUR thousands Land and buildings Machinery & tools Other equipment Assets under construction Total Carrying amounts Dec 31, 2019 Dec 31, 2018 60,582 66,568 135,814 123,825 15,251 38,283 16,250 36,683 249,930 243,326 On December 31, 2019, the item ‘Machinery and tools’ included tools valued at EUR 30,688 thousand (Dec 31, 2018: EUR 28,166 thousand). T087 No material impairment and no material write-ups were recognized on property, plant and equipment in 2019 and 2018. Right of use assets – carrying amounts T088 On December 31, 2019, and 2018, property, plant and equipment were unsecured. 20. Leases The following disclosures contain information about NORMA Group’s leases following the first-time adoption of IFRS 16 in fiscal year 2019. (i) Amounts recognized in the Consolidated Statement of Financial Position The following items related to leases are shown in the Consolidated Statement of Financial Position: in EUR thousands Land and buildings Machinery & tools Forklifts and warehouse Office and IT equipment Company cars Total Carrying amounts Dec 31, 2019 36,834 247 1,429 233 2,170 40,913 Carrying amounts as of January 1, 2019 (moment of first time adoption) are shown under NOTE 2 ‘BASIS OF PREPARATION’. 163 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe maturities of the nominal values and the carrying amounts of the lease liabilities as of December 31, 2019, are as follows: Leases in the statement of profit or loss in TEUR Maturity of lease liabilities Dec 31, 2019 T089 Depreciation charge of right-of-use assets in EUR thousands Lease liabilities – Nominal value Lease liabilities – Carrying amount up to 1 year > 1 year up to 2 years Land and buildings > 5 years Machineries and technical equipments 11,369 26,366 16,983 Forklifts and warehouse equipments Office and IT equipments 8,427 17,790 12,378 Company cars (ii) Amounts recognised in the income statement Finance costs Interest expenses Currency gains / -losses The following amounts relating to leases are recognised in the income statement: Other operating expenses Expenses relating to short-term leases for which no RoU asset was recorded Expenses relating to leases of low-value assets that are not shown above as short-term leases Expenses relating to variable lease payments that were not included in the measurement of the lease liability (iii) Amounts recognised in the cash flow statement EUR 15,781 thousand in total are recognised as cash outflows in the cash flow statement because of right-of-use assets. Of this, EUR 11,318 thousand were recognised under cash flows from financing activities and EUR 4,463 thousand were recognised under cash flows from operating activities. 21. Financial instruments The following disclosures provide an overview of the financial instruments held by the Group, detailed information about each type of financial instrument held and information about the accounting policies used. T090 2019 10,436 8,297 68 656 121 1,294 – 1,256 – 1,260 4 Financial instruments according to classes and categories were as follows: 4,463 3,614 849 0 164 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFinancial instruments – classes and categories T091 in EUR thousands Financial assets Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other receivables Trade receivable – ABS / Factoring program (mandatorily measured at FVTPL) Other financial assets Cash and cash equivalents Financial liabilities Borrowings Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other payables Finance lease liabilities Other liabilities Totals per category Financial assets at amortized cost Financial assets at fair value through profit or loss (FVTPL) Financial liabilities at amortized cost (FLAC) Note 21. (f) 21. (a) 21. (b) 21. (d) 21. (c) 21. (e) 21. (f) 21. (e) 20 21. (e) Category IFRS 7.8 according to IFRS 9 Carrying amount Dec 31, 2019 Fair value through profit or loss Derivatives used for hedging Measure- ment basis IFRS 16 Fair value Dec 31, 2019 Amortized cost Measurement basis IFRS 9 n/a n/a Amortized Cost FVTPL Amortized Cost Amortized Cost 435 15 140,258 22,128 4,792 179,721 140,258 4,792 179,721 22,128 FLAC 541,898 541,898 n/a n/a FLAC n/a FLAC 911 2 143,119 38,595 19,126 324,771 22,128 704,143 143,119 19,126 324,771 704,143 22,128 435 15 911 2 38,595 435 15 140,258 22,128 4,792 179,721 556,309 911 2 143,119 n/a 19,126 324,771 22,128 718,554 CONTINUE ON NEXT PAGE 165 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFinancial instruments – classes and categories (continued) T091 in EUR thousands Financial assets Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other receivables Trade receivable – ABS / Factoring program (mandatorily measured at FVTPL) Other financial assets Cash and cash equivalents Financial liabilities Borrowings Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other payables Other financial liabilities Other liabilities Finance lease liabilities Totals per category Financial assets at amortized cost Financial assets at fair value through profit or loss (FVTPL) Financial liabilities at amortized cost (FLAC) Note 21. (f) 21. (a) 21. (b) 21. (d) 21. (c) 21. (e) 21. (f) 21. (e) 21. (e) Measurement basis IFRS 9 Category IFRS 7.8 according to IFRS 9 Carrying amount Dec 31, 2018 Fair value through profit or loss Derivatives used for hedging Measure- ment basis IAS 17 Fair value Dec 31, 2018 Amortized cost 2,571 151 42 675 45 38 n/a n/a n/a Amortized Cost FVTPL Amortized Cost Amortized Cost 2,571 151 42 128,485 14,653 5,231 190,392 128,485 5,231 190,392 14,653 FLAC 569,091 569,091 n/a n/a n/a FLAC FLAC n/a 675 45 38 142,028 20,826 32 324,108 14,653 731,945 142,028 20,826 324,108 731,945 32 14,653 2,571 151 42 128,485 14,653 5,231 190,392 582,624 675 45 38 142,028 20,826 32 324,108 14,653 745,478 166 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING21. (a) Trade and other receivables Trade receivables T093 Trade and other receivables were as follows: in EUR thousands Dec 31, 2019 Dec 31, 2018 Trade and other receivables Trade receivables T092 in EUR thousands Dec 31, 2019 Dec 31, 2018 Less allowances for doubtful accounts 155,158 137,425 – 1,637 – 1,654 153,521 135,771 Trade receivables Other receivables 153,521 135,771 8,865 7,367 162,386 143,138 Other receivables mainly include banker’s acceptance bills for trade receivables for customers in China. These financial assets are generally required to collect contractual cash flows and are allocated to the “hold” business model accordingly and are initially recognized at fair value plus transaction costs and are subsequently carried at amortized cost using the effective interest method less any impairment losses. On the balance sheet date, trade receivables were as follows: i. Classification as trade receivables Trade receivables are amounts payable by customers for goods sold or services rendered in the ordinary course of business. If the receivables are expected to be settled within twelve months, they are classified as current assets. If this is exceptionally not the case, they are reported as non-current assets. Trade receivables are classified in accordance with IFRS 9. They are generally required to collect the contractual cash flows and are allocated to the “hold” business model accordingly. They are recognized initially at the amount of the unconditional consideration and are subsequently carried at amortized cost using the effective interest method less any impairment losses. If trade receivables contain a significant financing component, they are initially recognized at fair value. ii. Impairment and write-offs of trade receivables For trade receivables, the simplified approach, which is based on the expected credit losses over the respective terms, is used. Loss rates calculated on the basis of historical and forecast data are used, taking into account the business model, the respective cus- tomer and the economic environment of the geographical region. For this purpose, NORMA Group considers in particular the credit default swaps of the respective client’s home countries as well as industry-specific default probabilities derived from external sources. In addition, loss rates from customer-specific credit default swaps (CDS) are used, if available. On this basis, the allowance for trade receivables and contract assets as of December 31, 2019 was determined as follows: 167 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCredit risk exposure trade receivables As of December 31, 2019 in EUR thousands Trade receivables – before allowances ECL allowance Trade receivables – after allowances As of December 31, 2018 in EUR thousands Trade receivables – before allowances ECL allowance Trade receivables – after allowances The impairment losses on trade receivables developed as follows from the opening balance sheet value as of January 1, 2019, to the closing balance sheet value as of December 31, 2019: Impairment reconciliation in EUR thousands Impairment allowance as of Jan 1, 2019 – based on IFRS 9 Additions Reversals Consumption Translation effect Impairment allowance as of Dec 31, 2019 Credit loss rate < 1% Credit loss rate ≥ 1% ≤ 2.5% Credit loss rate > 2.5% 78,072 704 77,368 48,907 723 48,184 6,051 210 5,841 Credit loss rate < 1% Credit loss rate ≥ 1% ≤ 2.5% Credit loss rate > 2.5% 66,895 488 66,407 47,694 892 46,802 8,183 274 7,909 Impairment losses on trade receivables, together with those on contract assets, are recognized in operating profit as net impair- ment losses. Unused amounts reversed are included in the same line item. The net expenses recognized in fiscal year 2019 from these impairment losses amounted to EUR 53 thousand (2018: 62 thousand). Receivables with significant arrears, which may be more than 180 days due to the customer structure, or those for which insol- vency or similar proceedings have been initiated, are individually tested for impairment. If, on the basis of an appropriate assess- ment, it cannot be assumed that these can be realized, they are written off directly. In the fiscal year, the following losses resulted from the write-off of trade receivables: T094 Total 133,030 1,637 131,393 Total 122,772 1,654 121,118 Gains / losses arising from derecognition IFRS 7.20A T096 in EUR thousands 2019 2018 Reasons for derecognition Gains arising from derecognition T095 Impairments on trade receivables Losses arising from derecognition 0 893 0 Write-off (IFRS 9.5.4.4) 507 1,654 1,293 – 1,240 – 89 19 1,637 Losses on the disposal of trade receivables through write-offs are recognized in operating profit as impairment losses, net. Unused amounts reversed are included in the same line item. 168 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGiii. Fair value of trade receivables Trade receivables have short-term maturities, therefore the carrying amounts on the balance sheet date correspond to their fair values, as the effects of discounting are not material. 21. (b) Trade receivables transferred or available for transfer Transferred trade receivables i. Subsidiaries of NORMA Group in the EMEA and Americas segments transfer trade receivables to external purchasers as part of factoring and ABS transactions. The details and effects of the respective programs are presented below. a) Factoring transactions In the factoring agreement concluded in 2017, that has a maximum volume of receivables of EUR 18 million, NORMA Group subsidiaries in Germany and Poland sell trade receivables directly to external purchasers. As part of this factoring program, receivables of EUR 6.4 million were sold as of December 31, 2019, (Dec 31, 2018: EUR 8.6 million) whereof EUR 0.6 million (Dec 31, 2018: EUR 0.0 million) are purchase price retention that are maintained as a cintingency reserve and not paid out, but recognized as other financial asset. The requirements for a receivables transfer were met in accordance with IFRS 9.3.2.1 since the receivables were transferred in accordance with IFRS 9.3.2.4 a). Verification in accordance with IFRS 9.3.2.6 shows that nearly all opportunities and risks were neither transferred nor retained. It follows in accordance with IFRS 9.3.2.16 that NORMA Group recognizes remaining continuing involvement. NORMA Group is continuing to perform receivables management (servicing) for the receivables sold. Although NORMA Group is only entitled to act as a servicer, the Company retains the right to dispose of the sold receivables, as purchasers do not have the right to resell the receivables acquired. NORMA Group is continuing to recognize the sold trade receivable to the extent of its continuing involvement, i. e., at the maximum amount to which it continues to be liable for the late payment risk inherent in the receivables sold. Hence, NORMA Group is recognizing a corresponding financial liability. The requirements for the derecognition of receivables in accordance with IFRS 9.3.2.1 are met, as the receivables are transferred in accordance with IFRS 9.3.2.4 a). The examination of IFRS 9.3.2.6 shows that essentially all opportunities and risks have been transferred. NORMA Group continues to service the receivables sold. Although NORMA Group is not entitled to dispose of the receivables sold in any other way than within the framework of receivables management, the Company retains control over the receivables sold as the buyers do not have the actual ability to resell the acquired receivables. The remaining continuing involvement in the amount of EUR 59 thousand (Dec 31, 2018: EUR 79 thousand) was recognized as a financial liability and considers the maximum potential loss for NORMA Group resulting from the late payment risk of receivables sold as of the reporting date. The fair value of the guarantee / inter- est payments to be assumed has been estimated at EUR 5 thousand (Dec 31, 2018: EUR 7 thousand) , taken through profit or loss and recognized under other liabilities. b) ABS transactions In 2014, NORMA Group entered into a revolving asset purchase agreement (Receivables Purchase Agreement) with Weinberg Capital Ltd. (special purpose entity). Within the agreed structure, NORMA Group sold trade receivables in the context of an ABS transaction which was successfully initiated in December 2014. Receivables are sold by NORMA Group to a special purpose entity. In 2018, NORMA established a further factoring program. Under the factoring agreement concluded in December 2018 with a maximum receivables volume of USD 16 million, a subsidiary of NORMA Group in the US sells trade receivables directly to external purchasers. As part of this factoring program, receivables amounting to EUR 11.8 million were sold as of December 31, 2019 (Dec 31, 2018: EUR 15.4 million). Of this amount, EUR 2.4 million (Dec 31, 2018: EUR 3.2 million) were treated as purchase price retentions and not paid out, but rather held as security reserves and recognized as other financial assets. As of December 31, 2019, domestic NORMA Group entities had sold receivables in an amount of EUR 14.0 million (Dec 31, 2018: EUR 15.2 million) under this asset-backed securities (ABS) program with a maximum volume of EUR 25 million. From the receivables sold, EUR 0.6 million (Dec 31, 2018: EUR 0.6 million) were retained as loss reserves and not paid out. These assets were recognized as other financial assets. The basis for this transaction is the transfer of trade receivables of individual NORMA Group subsidiaries to a special purpose entity with a framework of undisclosed assignment. This special purpose entity (SPE) is not consolidated under IFRS 10 because neither the power 169 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGover the SPE is attributable to NORMA Group nor does NORMA Group have an essential self-interest and no connection between power and variability of the returns of the special purpose entity exists. The requirements for a receivables transfer according to IFRS 9.3.2.1 are met, since the receivables are transferred accord- ing to IFRS 9.3.2.4 a). Verification in accordance with IFRS 9.3.2.6 shows that a substantial share of all risks and rewards were nei- ther transferred nor retained. Therefore, according to IFRS 9.3.2.16, NORMA Group’s continuing involvement must be recognized. This continuing involvement in the amount of EUR 251 thousand (Dec 31, 2018: EUR 272 thousand) includes the maximum amount that NORMA Group could conceivably have to pay back under the default guarantee and the expected interest payments until the payment is received for the carrying amount of the receivables transferred. The fair value of the guarantee / interest payments to be assumed has been estimated at EUR 205 thousand (Dec 31, 2018: EUR 215 thousand), taken through profit or loss and recognized under other liabilities. NORMA Group entered into another agreement with Weinberg Capital Ltd. (program special purpose entity) in fiscal year 2018 by concluding a further revolving receivables purchase agreement on the sale of trade receivables. The agreed structure provides for the sale of trade receivables of NORMA Group as part of an ABS transaction and was successfully initiated in December 2018. The receivables are sold to a special purpose entity by NORMA Group. As part of this ABS program with a volume of up to USD 30 mil- lion, US American Group companies of NORMA Group sold receiv- ables amounting to EUR 19.5 million as of December 31, 2019 (Dec 31, 2018: EUR 22.0 million), of which EUR 0.8 million (Dec 31, 2018: EUR 0.9 million) were not paid out as purchase price retentions, but rather held as security reserves and recognized as other financial assets. The basis for the transaction is the assignment of trade receivables of individual NORMA Group companies to a program special purpose entity as part of a silent assignment. According to IFRS 10, this program special purpose entity is not to be consolidated, as NORMA Group is not assigned any decision-making power, nor is there any material self- interest or link between decision-making power and the variability of returns from the program special purpose entity. The requirements for derecognition of receivables in accordance with IFRS 9.3.2.1 are met, as the receivables are transferred in accordance with IFRS 9.3.2.4 a). The audit of IFRS 9.3.2.6 shows that almost all opportunities and risks have neither been transferred nor retained. In accordance with IFRS 9.3.2.16, NORMA Group must therefore recognize the remaining continuing involvement. A continuing involvement of EUR 619 thousand (Dec 31, 2018: EUR 813 thousand) was recognized as other financial liability and comprises the maximum amount that NORMA Group might have to repay under the assumed default guarantee and the expected interest payments until receipt of payment in respect of the carrying amount of the receivables transferred. The fair value of the guarantee or of the interest payments to be assumed was included in the carrying amount and recognized as other liabilities in the amount of EUR 227 thousand (Dec 31, 2018: EUR 287 thousand). ii. Trade receivables available for transfer In the opinion of the Group, trade receivables included in these programs but not yet disposed of at the end of the reporting period cannot be allocated to either the “hold” or the “hold and sell” business models. They are therefore included in the fair value through profit and loss (FVTPL) category. 21. (c) Cash and cash equivalents Cash and cash equivalents are measured at their nominal value and include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less and which are subject only to insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the Consolidated Statement of Financial Position. 21. (d) Other financial assets Other financial asstes were as follows: Other financial assets T097 in EUR thousands Dec 31, 2019 Dec 31, 2018 Receivables from ABS program Receivables from factoring Other assets 1,426 3,010 356 4,792 1,521 3,204 506 5,231 170 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGReceivables from the ABS program and from factoring include reserves for the trade receivables sold. N OT E 2 1 . ( B ) ‘ T R A D E REC EIVA BLES T RA NSFERR ED OR AVAILA BLE FOR TRAN SF E R ’ Other financial assets are generally required to collect the con- tractual cash flows and are accordingly allocated to the “hold” business model. They are initially recognized at fair value plus transaction costs and are subsequently carried at amortized cost using the effective interest method less impairment. 21. (e) Financial liabilities and net debt Trade and other liabilities i. Trade and other payables are as follows: Trade and other payables T098 in EUR thousands Dec 31, 2019 Dec 31, 2018 Trade payables and other payables Reverse factoring liabilities Refund liabilities 109,385 109,193 21,335 12,399 19,200 13,635 143,119 142,028 Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. All reimbursement liabilities are due to third parties within one year. The carrying amounts on the balance sheet date therefore correspond to their fair values, as the effects of discounting are not material. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. NORMA Group participates in a reverse factoring program. The liabilities included in this program are reported under trade payables and similar liabilities, as this corresponds to the economic content of the transactions. All trade payables and liabilities from reverse factoring programs are due to third parties within one year. As a result, these have short-term maturities, therefore the carrying amounts on the bal- ance sheet date correspond to their fair values, as the effects of discounting are not material. Refund liabilities Reimbursement liabilities are recognized for volume discounts and similar bonus agreements payable to customers. These arise from retrospective volume rebates or similar agreements that are based on total sales or on a specific product sale of a 12-month or shorter period. Refund liabilities are recognized for discounts expected to be payable to the customer for sales completed by the end of the reporting period. For further details, please refer to NOTE 3 ‘SUMMARY OF SIGNIFICANT ACCOUNTING P RINCIPLES.’ ii. Bank borrowings The borrowings were as follows: Borrowings T099 in EUR thousands Dec 31, 2019 Dec 31, 2018 Non-current Bank borrowings Current Bank borrowings 495,927 455,759 495,927 455,759 45,971 45,971 113,332 113,332 Total borrowings 541,898 569,091 Borrowings are recognized initially at fair value, net of directly attributable transaction costs incurred. Borrowings are subse- quently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method. 171 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent that there is no evidence that it is probable that some or all of the facil- ity will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. The maturity of the syndicated bank facilities and the promissory note on December 31, 2019, is as follows: a) Fair value of bank borrowings The fair value calculation of the fixed-interest promissory note, which is recognized at amortized cost and for which the fair value is stated in the notes, was based on the market yield curve according to the zero coupon method considering credit spreads (level 2). Interest accrued on the reporting date is included. Maturity bank borrowings 2019 in EUR thousands Syndicated bank facilities, net Promissory note, net Commercial paper Total up to 1 year > 1 year up to 2 years > 2 years up to 5 years 0 99,739 247,740 108,072 0 29,000 15,000 44,000 99,739 355,812 41,500 T100 > 5 years 41,500 The maturity of the syndicated bank facilities and the promissory note on December 31, 2018, is as follows: Maturity bank borrowings 2018 in EUR thousands Syndicated bank facilities, net Promissory note, net Total up to 1 year > 1 year up to 2 years > 2 years up to 5 years 4,839 106,103 110,942 4,839 29,000 33,839 174,590 161,635 336,225 T101 > 5 years 0 86,500 86,500 b) Financial covenant The Group is subject to the financial covenant total net debt cover (net debt in relation to adjusted Group EBITDA), which is moni- tored on an ongoing basis. This financial covenant is based on the Group’s Consolidated Financial Statements as well as on spe- cial definitions of the bank facility agreements. In the event of non-compliance with a financial ratio, the credit agreement provides for several possibilities of cure in the form of exemption provisions of the shareholder measures. If there is a breach of a condition which is not remedied, the syndicated loan may possibly be called in. There were no covenant breaches in 2019 and 2018. 172 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGiii. Other financial liabilities Other financial liabilities were as follows: Future minimum lease payments non-cancellable finance leases Other financial liabilities in EUR thousands T102 T103 Dec 31, 2018 in EUR thousands Dec 31, 2019 Dec 31, 2018 Gross finance lease liabilities – minimum lease payments Non-current Lease liabilities Other liabilities Current Lease liabilities Acquisition liability n/a 1,630 1,630 n/a 0 Liabilities from ABS and factoring 16,043 Other liabilities Total other financial liabilities 1,453 17,496 19,126 Up to 1 year > 1 year up to 5 years > 5 years Future finance charges on finance lease Present value of finance lease liabilities Up to 1 year > 1 year up to 5 years > 5 years 16 1,976 1,992 16 546 17,141 1,163 18,866 20,858 17 18 0 35 3 16 16 0 32 a) Lease liabilities as of Dec 31, 2018 To a minor extent, the Group leases property, plant and equipment and land under finance leases with terms of between 1 and 5 years. The future aggregate minimum lease payments under non- cancellable finance leases and their respective present values are as follows: The fair values of finance lease liabilities are calculated as the present values of the payments associated with the debts based on the applicable yield curve and NORMA Group’s credit spread curve (level 2). The information on NORMA Group’s leasing liabilities for fiscal year 2019 is presented under NOTE 20. ‘LEASES’. b) Liabilities from the ABS and factoring The liabilities from the ABS and factoring include liabilities from continuing involvement in the amount of EUR 929 thousand (Dec 31, 2018: EUR 1,164 thousand), liabilities from fair values of default and interest guarantees in the amount of EUR 438 thousand (Dec 31, 2018: EUR 509 thousand) recorded under the ABS and factoring programs and liabilities from customer payments for receivables already sold under the ABS and factoring programs in the amount of EUR 14,676 thousand (Dec 31, 2018: EUR 15,468 thousand) as part of the debtor /  receivables management performed by NORMA Group. c) Other liabilities As of December 31, 2019, other non-current liabilities include lia- bilities of EUR 1,631 thousand (2018: EUR 1,976 thousand) for the option to acquire the remaining minority interest in connection with the acquisition of Fengfan Fastener (Shaoxing) Co., Ltd. (Fengfan) in the second quarter of 2017. This option gives NORMA Group the right to acquire the remaining 20% of the shares in Fengfan. The risks and rewards of the remaining shares are not transferred to NORMA Group due to the contractual structure. Consequently, the present value of the estimated future payment of EUR 3,946 thousand at the time of acquisition is reported under other financial liabilities. Changes in the estimate of the amount to be paid are recognized in the income statement under the financial result in the Consolidated Statement of Comprehensive Income. Current liabilities include liabilities from bills of exchange amounting to EUR 146 thousand and other liabilities. 173 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGiv. Maturity of financial liabilities The financial liabilities of NORMA Group have the following maturity: Maturity of financial liabilities v. Net debt Net debt of NORMA Group is as follows: Net debt T104 in EUR thousands T105 Dec 31, 2019 Dec 31, 2018 Dec 31, 2019 in EUR thousands Borrowings Trade and other payables Other financial liabilities Dec 31, 2018 in EUR thousands Borrowings Trade and other payables Finance lease liabilities Other financial liabilities up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years 45,971 143,119 17,496 206,586 99,208 355,247 41,472 1,630 Bank borrowings, net 541,898 569,091 Derivative financial liabilities – hedge accounting Lease liabilities (2018: finance lease liabilities) Other financial liabilities 913 38,595 19,126 758 32 20,826 99,208 356,877 41,472 Financial debt 600,532 590,707 up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years 113,332 142,028 16 18,850 274,226 33,348 335,977 86,434 4 12 1,976 33,352 337,965 86,434 Cash and cash equivalents 179,721 190,392 Net debt 420,811 400,315 At EUR 600,532 thousand, the financial liabilities of NORMA Group were 1.7% higher than on December 31, 2018 (EUR 590,707 thousand). The decrease in loans is attributable to the net repayment due to the refinancing in December 2019 ‘FINANCIAL RISK MANAGEMENT ’. Contrary, the effects of exchange rate changes on the US dollar tranches of the syndicated loans and the promissory note loan increased the loans item. In the area of derivatives, there was an increase in the negative market values of hedging derivatives. NOTE 5. The increase of lease liabilities is due to the first time recogni- tion of liabilites for recognised right of use assets because of the first time adoption of IFRS 16 in fiscal year 2019 (EUR 38,595 thousand). 174 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOn the other hand, other liabilities decreased due to the payment of liabilities resulting from ABS and factoring and the adjustment of the recognised liabilities for the option to acquire minority inter- ests in the amount of EUR 1,631 thousand (2018: 1,976 thou- sand) in connection with the acquisition of Fengfan. Net debt increasd by EUR 20,496 thousand, an increase of 5.1%, to 420,811 compared to the previous year (2018: 400,315). This is because of the first time adoption effects of IFRS 16 as described before. In addition, cash neutral exchange rate effects on foreign currency loans and interest expenses increased net debt in fiscal year 2019. 21. (f) Derivative financial instruments Derivative financial instruments held for hedging purposes are carried at fair value. They are fully classified in level 2 of the fair value hierarchy. Derivative financial instruments T106 in EUR thousands Assets Liabilities Assets Liabilities Dec 31, 2019 Dec 31, 2018 Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total Less non-current portion Interest rate swaps – cash flow hedges Non-current portion Current portion 435 0 15 450 120 120 330 911 0 2 913 684 684 229 2,571 151 42 2,764 2,180 2,180 584 675 45 38 758 605 605 153 The derivative financial instruments are as follows: Further details on the use of hedging instruments can be found in NOTE 5. ‘FI NANCIAL RISK MANAGEMENT.’ i. Effects of accounting for cash flow hedges on the net assets, financial position and results of operations The effects of foreign currency and interest rate-related hedging instruments on the net assets, financial position and results of operations are as follows: 175 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGin EUR thousands Hedging interest rate risk CFH Interest rate swap USD Interest rate swap USD Interest rate swaps EUR in EUR thousands Currency risk hedging CFH Currency forwards EUR – CZK Currency forwards EUR – PLN Currency forwards EUR – GBP Currency forwards EUR – CNY The effects of cash flow hedge accounting on financial position and performance Net book value as of Dec 31, 2019 (+Derivative financial assets / - Derivative financial liabilities) Nominal amount Average hedging rate Hedging ratio Maturity 435 – 684 – 227 160,353 60,600 76,753 23,000 1.25 2.01 1.54 1:1 1:1 1:1 2020-2021 2021 2020 T107 Change in fair value of the hedged item used as the basis for recognizing hedge ineffectiveness for the period Change in fair value of the hedging item since 1 Jan Book value of hedged item as of Dec 31, 2019 – 1,646 1,646 160,353 Net book value as of Dec 31, 2018 (+ Derivative financial assets / -Derivative financial liabilities) 105 17 30 – 33 Nominal amount (+Buy / -Sell) – 9,600 – 600 – 6,000 2,500 Average hedging rate Hedging ratio 1 Maturity Change in fair value of the hedging item since Jan 1 Change in fair value of the hedged item used as the basis for recognizing hedge ineffectiveness for the period 26.29 4.42 0.90 8.05 1:1 1:1 1:1 1:1 ≤ 1 year ≤ 1 year ≤ 1 year ≤ 1 year 115 8 53 10 – 115 – 8 – 53 – 10 1_The forward foreign exchange contracts are denominated in the same currency as the highly probable future transactions, therefore the hedge ratio is 1: 1 in EUR thousands Hedging interest rate risk – interest rate swap Interest rate swap USD Interest rate swap USD Interest rate swaps EUR Net book value as of Dec 31, 2018 (+ Derivative financial assets / -Derivative financial liabilities) Nominal amount Average hedging rate Hedging ratio Maturity 2,571 – 70 – 605 193,042 126,403 43,639 23,000 1.57 0.00 1.54 1:1 1:1 1:1 2019–2021 2021 2020 Change in fair value of the hedged item used as the basis for recognizing hedge ineffectiveness for the period Change in fair value of the hedging item since Jan 1 Book value of hedged item as of Dec 31, 2018 1,300 – 1,300 193,042 176 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe effective part, as well as the accrued and recognized costs of hedging recognized in other comprehensive income excluding taxes developed as follows: Change in hedging reserve before tax in EUR thousands Balance as of January 1, 2018 Foreign currency translation effects Reclassification to profit or loss Net fair value changes Accrued and recognized costs of hedging Balance as of December 31, 2018 Foreign currency translation effects Reclassification to profit or loss Net fair value changes Accrued and recognized costs of hedging Balance as of December 31, 2019 Amounts due to interest rate swaps recognized in the hedging reserve in equity will be released in profit or loss before the repay- ment of the loans. In fiscal year 2019 and 2018, no ineffective portion of cash flow hedges relating to foreign exchange derivatives and interest rate swaps was recognized in profit or loss. Reserve for costs of hedging Spot component of foreign exchange derivatives Interest rate swap 0 – 67 – 67 67 0 279 – 2 – 279 59 0 57 0 11 – 68 660 – 63 1,300 1,897 – 727 – 1,646 0 – 476 T108 Total 939 – 2 – 342 1,359 – 67 1,887 0 – 716 – 1,714 67 – 476 177 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGii. Effects of accounting for fair value hedges on the net assets, financial position and results of operations The effects of foreign currency-related hedging instruments on the net assets, financial position and results of operations are as follows: The effects of fair value hedge accounting on financial position and performance Net book value as of Dec 31, 2019 ( +Derivative financial assets / -Derivative financial liabilities) Nominal amount (+Buy / -Sell) Average hedging rate Hedging ratio Maturity T109 Change in fair value of the hedged item used as the basis for recognizing hedge ineffectiveness for the period Change in fair value of the hedging item since Jan 1 in EUR thousands Currency risk hedging FVH Currency forwards PLN – EUR Currency forwards JPY – SGD 15 – 2 940 574 4.36 80.28 1:11 1:11 ≤ 1 year ≤ 1 year 15 – 2 – 15 2 1_ The foreign exchange forward contracts for USD-EUR hedging are denominated in the same currency and have the same volume as the hedged net foreign exchange risk from external USD loans and intragroup monetary items in USD, therefore the hedge ratio is 1:1 in EUR thousands Currency risk hedging FVH Currency forwards USD – EUR Currency forwards GBP – EUR Currency forwards SEK – EUR Currency forwards PLN – EUR Currency forwards JPY – SGD Net book value as of Dec 31, 2018 (+Derivative financial assets / -Derivative financial liabilities) – 20 – 10 23 19 – 7 Nominal amount (+Buy / -Sell) – 8,734 2,236 3,413 3,022 556 Average hedging rate Hedging ratio Maturity Change in fair value of the hedging item since Jan 1 Change in fair value of the hedged item used as the basis for recognizing hedge ineffectiveness for the period 1.16 0.89 10.33 4.36 79.41 1:1 1 1:1 2 1:1 2 1:1 2 1:1 2 ≤ 1 year ≤ 1 year ≤ 1 year ≤ 1 year ≤ 1 year 28 17 25 11 4 – 28 – 17 – 25 – 11 – 4 1_ The foreign exchange forward contracts for USD-EUR hedging are denominated in the same currency and have the same volume as the hedged net foreign exchange risk from external USD loans and intragroup monetary items in USD, therefore the hedge ratio is 1:1 2_The forward exchange contracts are denominated in the same currency and volume as the hedged risk from intra-group monetary items, therefore the hedge ratio is 1:1 178 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING21. (g) Financial instruments at fair value The tables below provide an overview of the classification of financial assets and liabilities measured at fair value in the fair value hierarchy under IFRS 13 as of December 31, 2019, as well as December 31, 2018: An overview of the gains and losses arising from the hedging of fair value changes that were recognized in the financial result is shown below: Gains and losses fair-value hedges in EUR thousands Losses (–) / Gains (+) on hedged items Losses (–) / Gains (+) on hedging instruments 2019 – 39 – 44 – 83 T110 2018 531 – 892 – 361 Financial instruments – fair value hierarchy in EUR thousands Recurring fair value measurements Assets Interest rate swaps – cash flow hedges Foreign exchange derivatives – fair value hedges Trade receivable – ABS /  factoring program (mandatorily measured at FVTPL) Total Liabilities Interest rate swaps – cash flow hedges Foreign exchange derivatives – fair value hedges Total Level 1 1 Level 2 2 Level 3 3 T111 Total as of Dec 31, 2019 435 15 22,128 22,578 911 2 913 0 0 435 15 22,128 22,578 911 2 913 0 0 CONTINUE ON NEXT PAGE 179 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFinancial instruments – fair value hierarchy (continued) in EUR thousands Recurring fair value measurements Assets Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade receivable – ABS / Factoring program (mandatorily measured at FVTPL) Total Liabilities Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total Level 1 1 Level 2 2 Level 3 3 T111 Total as of Dec 31, 2018 2,571 151 42 14,653 17,417 675 45 38 758 0 0 0 0 1_Fair value measurement based on quoted prices (unadjusted) in active markets for these or identical assets or liabilities. 2_Fair value measurement for the asset or liability based on inputs that are observable on active markets either directly (i. e. as priced) or indirectly (i. e. derived from prices). 3_Fair value measurement for the asset or liability based on inputs that are not observable market data. 2,571 151 42 14,653 17,417 675 45 38 758 180 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNo transfers between the different levels occurred in 2019 and 2018. The fair value of interest swaps is calculated as the present value of estimated future cash flows. The fair value of forward foreign exchange contracts is determined using a present value model based on forward exchange rates. Trade receivables held for sale as part of the factoring and ABS transaction and measured at fair value through profit or loss have short-term maturities. In addition, the calculated credit risk of the counterparty is not material, therefore the carrying amounts at the balance sheet date correspond to their fair values. 21. (h) Net gains and losses on financial instruments The net gains or losses on financial instruments (by measurement category) in accordance with IFRS 7.20 (a) are as follows: Financial instruments – net gains and losses in EUR thousands 2019 T112 2018 Net gains or net losses on financial assets measured at amortized costs 61 191 Net gains or net losses on financial liabilities measured at amortized cost – 13,968 – 11,481 – 14,457 – 11,290 Net gains and losses on financial assets measured at amortized cost include impairment losses on trade receivables and interest income from short-term deposits with banks. Net gains and losses on financial liabilities measured at cost include interest expense and fees from loans and borrowings. Currency effects from the translation of financial assets and liabilities according to IAS 21 are shown within FOREI GN EXCHANGE GAINS / LOSSES.’ NOTE 14 ‘NET 22. Inventories Inventories were as follows: Inventories T114 in EUR thousands Dec 31, 2019 Dec 31, 2018 Raw materials, consumables and supplies 21. (i) Total interest income and expense from financial Work in progress instruments Finished goods and goods for resale 49,795 17,659 48,220 20,978 105,795 108,909 173,249 178,107 Interest expenses / income from financial assets and liabilities (IFRS 7.20(b)) T113 in EUR thousands 2019 2018 Interest income financial assets at cost 1,007 484 Interest expenses financial liabilities at cost – 14,280 – 13,578 On December 31, 2019, impairments were made on inventories amounting to EUR 7,672 thousand (Dec 31, 2018: EUR 6,561 thousand). On December 31, 2019, and 2018, the inventories were not collateralized with the exception of the customary business reservations of title. 181 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING23. Other non-financial assets Authorized and conditional capital Other non-financial assets were as follows: Other non-financial assets T115 in EUR thousands Dec 31, 2019 Dec 31, 2018 3,450 10,550 5,024 3,388 2,313 3,679 8,237 4,289 2,933 1,250 24,725 20,388 Deferred costs VAT assets Prepayments Consideration payable to a customer Other assets 24. Equity Subscribed capital The subscribed capital of the Company on December 31, 2019, and 2018 amounted to EUR 31,862 thousand and was fully paid in. It is divided into 31,862,400 shares with no par value and a notional value of EUR 1. The liability of the shareholders for the obligations of the company to its creditors is limited to this capital. The amount of the subscribed capital is not permitted to be distributed by the Company to its shareholders. The Management Board is entitled to increase the share capital by up to EUR 12,744,960 until May 19, 2020, by issuing up to 12,744,960 new no-par value registered shares in exchange for cash and / or contributions in kind either once or several times by resolution of the Annual General Meeting held on May 20, 2015, with the approval of the Supervisory Board, whereby the sub- scription rights of shareholders may be restricted (Authorized Capital 2015). The share capital is being increased by up to EUR 3,186,240 by resolution of the Annual General Meeting on May 20, 2015, by issuing up to 3,186,240 new no-par value registered shares to grant convertible bonds and / or bonds with warrants (Conditional Capital 2015). The resolutions of the Annual General Meeting of April 6, 2011, Authorized Capital 2011 and Conditional Capital 2011, were repealed. Capital reserve The capital reserve contains: • amounts (premiums) received for the issuance of shares, • premiums paid by shareholders in exchange for the granting of a preference for their shares, • amounts resulting from other capital contributions of the owners. 182 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGRetained earnings Retained earnings consisted of the following: Development of retained earnings T116 in EUR thousands Retained earnings Remeasurements of post-employment benefit obligations IPO costs directly netted with equity Reimbursement of IPO costs by shareholders Acquisition of non-controlling interest Effects from the application of IAS 19R Effects of IFRS 9 Effects of IFRS 16 Total Balance as of December 31, 2017 (as reported) 306,623 – 2,496 – 4,640 4,681 – 6,930 Balance as of Jan 1, 2018 Profit for the year Dividends paid 306,623 91,873 – 33,456 – 2,496 – 4,640 4,681 – 6,930 Acquisition of non-controlling interests 342 Effect before taxes Tax effect – 265 51 Balance as of December 31, 2018 (as reported) 365,040 – 2,710 – 4,640 4,681 – 6,588 Balance as of Jan 1, 2019 Profit for the year Dividends paid Effect before taxes Tax effect 365,040 58,422 – 35,049 – 2,710 – 4,640 4,681 – 6,588 – 2,066 547 839 839 0 – 600 0 298,077 0 297,477 91,873 – 33,456 342 – 265 51 839 839 – 600 0 356,022 – 600 – 2,033 353,989 58,422 – 35,049 – 2,066 547 Balance as of December 31, 2019 388,413 – 4,229 – 4,640 4,681 – 6,588 839 – 600 – 2,033 375,843 A dividend of EUR 35,049 thousand (EUR 1.10 per share) was paid to the shareholders of NORMA Group after the Annual General Meeting in May 2019. 183 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Other reserves Other reserves consisted of the following: Development of other reserves in EUR thousands Cash flow hedges Balance as of January 1, 2018 Effect before taxes Tax effect Balance as of December 31, 2018 Effect before taxes Tax effect 657 948 – 267 1,338 – 2,363 680 Foreign exchange rate differences on translating foreign operations – 9,021 10,200 1,179 9,016 Balance as of December 31, 2019 – 345 10,195 T117 Total – 8,364 11,148 – 267 2,517 6,653 680 9,850 25. Share-based payments Management incentive schemes The Matching Stock Program The Matching Stock Program (MSP) for the Management Board provides a long-term incentive to commit to the success of the Group. The MSP is a share-based option. To this end, the Supervisory Board specifies a number of share options to be granted each fiscal year with the proviso that the Management Board member make a corresponding personal investment in the Group. In line with the new Management Board contracts, the MSP was closed. The last allotment of options was in fiscal year 2017. The shares involved in the share options are those shares allocated or acquired and qualified as part of the MSP defined in the Management Board contract. The number of share options is calculated by multiplying the qualified shares held at the time of allotment by the option factor specified by the Supervisory Board. A new option factor is set for every tranche. The first tranche was allocated on the day of the IPO. The other tranches will be allocated on March 31 each following year. The holding period is four years (on March 31, 2021, for the 2017 tranche, on March 31, 2020, for the 2016 tranche and on March 31, 2019, for the 2015 tranche). Non-forfeitable claims out of the options are earned pro rata over the respective performance period. The exercise price for the outstanding tranches will be the weighted average of the respective closing price of the Group’s share on the 60 trading days directly preceding the allocation of each tranche. Dividend payments by the Group during the vesting period are deducted from the exercise price of each tranche. The options of a tranche can only be exercised within a period of two years following the expiration of the holding period. In order for an option to be exercised, the weighted average of the last ten trading days must be at least 1.2 times that of the exercise price. The pay-out is limited to 2% of the average (adjusted) EBITA (tranches 2014, 2015, 2016 and 2017) or to 2% of the average (adjusted) EBITDA (tranche 2013) during the holding period (cap). When the option is exercised, the Group can decide whether to settle the option in shares or cash. NORMA Group classified the stock options as a cash settlement analogues to the previous year. The determination of fair value, which is the basis for determining the pro rata provision on the balance sheet date, was carried out using a Monte Carlo method. The expected volatilities are set to be the historical volatility of the three-year period before the valuation date. Due to the cash settlement, the options are valued on each balance sheet date and the resulting changes in fair value are recognized through profit or loss, whereby the prorated expenses were ratably recognized over the performance period. 184 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe option rights granted under the MSP changed as follows in the 2019 and 2018 fiscal years: Development of the MSP option rights Long-term incentive plan T118 In fiscal year 2013, NORMA Group installed a share-based, long-term, variable compensation component for executives and certain other groups of employees (Long-Term Incentive Plan). Expected duration until exercise in years 1.25 2.25 1.25 Proportional fair value per outstanding “share units” in EUR as of December 31, 2019 347,045.00 306,021.00 179,494.00 Tranche MSP 2015 Tranche MSP 2016 Tranche MSP 2017 Fair value per “share unit” in EUR as of December 31, 2019 Exercise price in EUR Balance as of December 31, 2017 Tentatively granted “share units” Exercised Lapsed Balance as of December 31, 2018 Balance as of December 31, 2018 Tentatively granted “share units” Exercised Lapsed 3.57 4.11 40.09 42.62 4.25 38.50 97,322 74,465 51,607 97,322 74,465 51,607 97,322 74,465 51,607 9,375 Balance as of December 31, 2019 97,322 74,465 42,232 In fiscal year 2019, income in the amount of EUR 115 thousand (2018: income of EUR 526 thousand) resulting from the MSP were recognized in employee benefits expense against a correspond- ing net reversal within the provisions. Furthermore, no payment was made for the exercised option rights (2018: disbursement from the tranche 2014 EUR 2,468 thousand). The total provision for the MSP amounts to EUR 833 thousand as of December 31, 2019 (Dec 31, 2018: EUR 948 thousand). The Long-Term Incentive Plan (LTI) is a share-based payment, cash settled plan that takes into account both the performance of the Company and the share price development. The participants receive a preliminary number of share units (virtual shares) at the start of the performance period based on a percentage of the respective base salary multiplied by a conversion rate. The conversion rate is determined based on the average share price of the previous 60 trading days of the calendar year prior to the grant date. Once four years have elapsed, the number of share units granted at the start of the performance period is adjusted based on the performance the Company has achieved, incorporating both the targets defined during the performance period and the Company / regional factor. The goal achievement factor, measured by adjusted EBITA, as well as the Company / regional factor are applied as performance targets. The goal achievement factor is based on the adjusted EBITA of NORMA Group. The absolute adjusted EBITA target is determined for every year of the performance period based on the budgeted value. After conclusion of the four-year period, the yearly recorded adjusted EBITA values are defined as a percent- age in relation to the target values and averaged out over the four years. Allocation occurs above a goal achievement ratio of 90%. Between 90% and 100% goal achievement, every percentage point amounts to 10 percentage points of goal achievement factor. Between 100% and 200% goal achievement, the goal achievement factor grows by 1.5 percentage points per percentage point of goal achievement. 185 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING The share units granted under the LTI changed as follows in the 2019 and 2018 fiscal years: Development of LTI Expected duration until exercise in years Fair value per “share unit” in EUR as of December 31, 2019 Share price when granted in EUR Balance as of December 31, 2018 Tentatively granted “share units” Exercised Lapsed Balance as of December 31, 2019 Expected duration until exercise in years Fair value per “share unit” in EUR as of December 31, 2017 Share price when granted in EUR Balance as of December 31, 2017 Tentatively granted “share units” Exercised Lapsed Balance as of December 31, 2018 3rd Tranche LTI 2015 4th Tranche LTI 2016 5th Tranche LTI 2017 6th Tranche LTI 2018 T119 7th Tranche LTI 2019 n/a n/a 1.00 2.00 3.00 n/a 36.89 30,930 – 30,930 0 35.62 48.57 26,464 – – 940 25,524 37.38 39.77 36.59 56.27 37,631 28,808 – 2,582 35,049 – 2,568 26,240 35.72 48.25 0 38,352 – 38,352 2rd Tranche LTI 2014 3rd Tranche LTI 2015 4th Tranche LTI 2016 5th Tranche LTI 2017 6th Tranche LTI 2018 n/a n/a 36.40 18,567 – 18,567 – 0 n/a 48.25 36.89 31,029 – – 99 30,930 1.00 42.47 48.57 27,394 – – 930 26,464 2.00 41.47 39.77 41,184 – 3,553 37,631 3.00 40.70 56.27 0 29,259 – 451 28,808 The Company factor is determined by the Group Senior Management based on the Company’s development, as well as the development in relation to comparable companies. In addition to this, the development of free cash flows is taken into account when determining the factor. At the discretion of the Group Senior Management, unanticipated developments can also be taken into account and the Company factor corrected either downward or upward accordingly. The factor can assume values between 0.5 and 1.5. The factor takes into account the results of the region as well as the region-specific characteristics and is used as an adjustment factor for plan participants with regional responsibility. The value of the share units is then determined at the end of the fourth calendar year based on the average share price of the last 60 days of trading in this fourth year. In case the calculated Long-term Incentive pay-out exceeds 250% of the initial grant value, the maximum pay-out is capped at 250%. The value determined is paid out to the participants in cash in May of the fifth year. The LTI is a Group-wide and global compensation instrument with a long-term orientation. Due to the coupling to the development not only of the stock price, but also the Company’s performance, the LTI provides an additional incentive to create value through value-based action, aligned with the goals of NORMA Group. The determination of fair value, which is the basis for determining the pro rata provision on the balance sheet date, was performed using a Monte Carlo simulation. Due to the cash settlement of the virtual share units, the fair value is measured on each balance sheet date and the resulting changes in the fair value are recognized in income or loss. The allocation of the expenses is made on a pro rated basis over the performance period. 186 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING In fiscal year 2019, expenses resulting from the LTI in the amount of EUR 334 thousand (2018: EUR 360 thousand) were recorded under personnel expense and within a corresponding provision. Furthermore, a payment amounting to EUR 1,045 (2018: tranche 2014: EUR 1,045 thousand) was made for exercised options (tranche 2014). In total, the provision for the LTI amounts to EUR 2,271 thousand as of December 31, 2019 (Dec 31, 2018: EUR 2,982 thousand). 26. Retirement benefit obligations Retirement benefit obligations result mainly from two German pension plans and a Swiss post-employment benefit plan. The German defined benefit pension plan for NORMA Group employees was closed for new entrants in 1990 and provides benefits in case of retirement, disability, and death as life-long pension payments. The benefit entitlements depend on years of service and salary. The portion of salary that is above the income threshold for social security contribution leads to higher benefit entitlements compared to the portion of the salary up to that threshold. Even if no further benefits can be earned from these old commitments, NORMA Group is still exposed to certain actuarial risks associated with defined benefit plans, such as longevity and compensation increases. Due to the amount of the obligation and the composition of the plan participants, approximately 96% being pensioners, a significant change in the actuarial assumptions would have no significant effects on NORMA Group. Employees hired after 1990 are eligible under a defined contribution scheme. The contributions are paid into an insurance contract providing lump sum payments in case of retirements and deaths. Furthermore, a plan for members of the Management Board was established in fiscal year 2015. This second German defined benefit plan is based on a direct commitment to an annual retirement payment for members of the Management Board of NORMA Group. The annual retirement payment is measured as a percentage of the pensionable income. The pension entitlement arises when the contract has expired, but not before reaching the age of 65, or if that individual is unable to work. The percentage depends on the number of years of service as a Management Board member. The percentage amounts to 4% of the last fixed annual salary prior to leaving for each completed year of service. The percentage can increase to a maximum of 55%. Furthermore, a survivor’s pension will be provided as well. The obligations arising from the plan are subject to certain actuarial risks associated with defined benefit plans, such as longevity and compensation increases. Please see the Remuneration Report for further details with regard to this plan REMUNERATION REPORT. Besides the German plans, there is a further benefit plan in Switzerland resulting from the Swiss ‘Berufliches Vorsorgegesetz’ law (BVG). According to the BVG, each employer has to grant post-employment benefits for qualifying employees. The plan is a capital-based plan under which the Company has to make contributions equivalent to at least the limits specified in the plan conditions for employee contributions. These plans are administered by foundations that are legally separated from the entity and subject to the BVG. The Group has outsourced the investment process to a foundation, which sets the strategic asset allocation in its group life portfolio. All regulatory granted obligations out of the plan are reinsured by an insurance company. This covers risks of disability, death and longevity. Furthermore, there is a 100% capital and interest guarantee for the retirement assets invested. In the case of a shortfall, the employer and plan participants’ contribution may be increased based on the decisions of the relevant foundation board. Strategies of the foundation boards to make up for potential shortfalls are subject to approval by the regulator. Besides the plans described in Germany and Switzerland, NORMA Group also participates in a multi-employer pension plan in the US for the benefit of employees of one of its US-based plants. NORMA Group’s obligation to participate in the fund arises from the agreement with the employees’ labor organization. The multi-employer pension plan is governed by US federal law under which the plan funds are held in trust and the plan administration and procedures substantially governed by federal regulation. The multi-employer pension plan is a defined benefit plan, and would normally be treated as such based on its associated actuarial estimates; however, the plan trustees do not provide the participating employers with sufficient information to individually account for the plan (or their portioned participation therein) as a defined benefit plan. For this reason, the plan is being treated in accordance with the rules for defined contribution pension plans (IAS 19.34). The share of contributions that NORMA Group paid to the pension schemes in the previous fiscal year amounts to EUR 1.4 million (2018: EUR 1.3 million). Contributions to the plan are recognized directly in personnel expenses for the period. Future changes to the contributions, if any, would be determined through negotiations with the workers’ organization, as they may be slightly modified from time to time by regulation, and except for which NORMA Group has no other fixed commitment to the plan. Conditionally, in the unlikely event that NORMA Group withdraws from the fund or a significant employer in the fund experiences a major solvency event, additional future contribution payment obligations could arise. The funded status of the multi-employer plan is reported annually by the US Department of Labor, and is influenced by various factors, including investment performance, inflation, changes in demographics and changes in the participants’ levels of performance. Based on the information provided by the plan administrator, the plan is undercapitalized. The value of the undercapitalization amounts to USD 1,195 mil- lion for all plan participants (over 150 companies). The portion of 187 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group to this shortfall is 3.0% (based on information provided for 2018). The expected employer contributions to the pension schemes for the following year 2020 amount to EUR 1,486 thousand. The reconciliation of the net defined benefit liability (liability in the balance sheet) is as follows: A detailed reconciliation of the changes in the DBO is provided in the following table: Reconciliation of defined benefit obligations (DBO) and plan assets in EUR thousands 2019 2018 Reconciliation of the net defined benefit liability T121 Reconciliation of the changes in the DBO The amounts included in the Group’s Consolidated Financial Statements arising from its post-employment defined benefit plans are as follows: As of January 1 Current service cost Administration costs Components pension liability T120 Interest expenses in EUR thousands Dec 31, 2019 Dec 31, 2018 Remeasurements: Present value of obligations Fair value of plan assets Liability in the balance sheet 20,495 4,605 15,890 17,786 4,982 12,804 Return on plan assets excluding amounts included in net interest expenses Actuarial (gains) losses from changes in demographic assumptions Actuarial (gains) losses from changes in financial assump- tions Experience (gains) losses Employer contributions Benefits paid Business combinations, disposals and other Foreign currency translation effects As of December 31 15,890 12,804 12,804 1,630 17 162 12,127 1,189 16 124 23 – 94 in EUR thousands As of January 1 Current service cost Administration costs Interest expenses Remeasurements: Actuarial (gains) losses from changes in demographic assumptions Actuarial (gains) losses from changes in financial assump- tions – 17 – 29 Experience (gains) losses Plan participants contribution 1,592 468 – 229 – 640 6 74 120 Benefits paid 268 Transfers Business combinations, disposals and other Foreign currency translation effects – 224 – 836 98 45 2019 17,786 1,630 17 210 T122 2018 15,537 1,189 16 157 – 17 – 29 1,592 468 108 – 709 – 807 6 211 120 268 120 – 865 – 86 1,174 185 As of December 31 20,495 17,786 188 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe total defined benefit obligation at the end of fiscal year 2019 includes EUR 11,963 thousand for active employees, EUR 243 thousand for former employees with vested benefits and EUR 8,288 thousand for retirees and surviving dependents. The transfer in the amount of EUR 807 thousand (2018: EUR 86 thousand) relates to the benefit plan in Switzerland and is a result of the legally required transfer of net defined benefit obligation to the new employer upon the departure of an employee. Disaggregation of plan assets The allocation of the plan assets of the benefit plans is as follows: Disaggregation of plan assets in EUR thousands 2019 T124 2018 Asset class Insurance contracts 4,543 4,937 Experience gains and losses recognized in fiscal year 2019 are also a result of the described transfers within the benefit plan in Switzerland and a result of changes in the number of participants of the Manangement Board within the plan in Germany. Cash deposit Equity securities 9 53 38 7 A detailed reconciliation of the changes in the fair value of plan assets is provided in the following table Reconciliation of changes in the fair value of plan assets in EUR thousands As of January 1 Interest income Remeasurements: Return on plan assets excluding amounts included in net interest expenses Employer contributions Plan participants contributions Benefits paid Transfers Business combinations, disposals and other Foreign currency translation effects Fair value of plan assets at end of year 2019 4,982 48 – 23 229 108 – 69 – 807 0 137 4,605 T123 2018 3,410 33 94 224 120 – 29 – 86 1,076 140 4,982 Total 4,605 4,982 Cash deposits and equity securities have quoted prices in active markets. The values for insurance contracts represent the redemption value. No quoted prices in an active market are available for these. Actuarial assumptions The principal actuarial assumptions are as follows: Actuarial assumptions in % Discount rate Inflation rate Future salary increases Future pension increases 2019 0.43 1.52 1.90 1.60 T125 2018 1.13 1.51 2.28 1.59 The biometric assumptions are based on the 2018 G Heubeck life-expectancy tables for the German plan and on the life- expectancy tables of the BVG 2015 G for the Swiss plan. The tables are generation tables and hence differ according to gender, status and year of birth. Sensitivity analysis If the discount rate were to differ by + 0.25% / – 0.25% from the interest rate used on the balance sheet date, the defined benefit obligation for pension benefits would be an estimated EUR 634 thousand lower or EUR 794 thousand higher. If the future pension increase used were to differ by + 0.25% / − 0.25% from Management’s estimates, the defined benefit obligation for pension benefits would be an estimated EUR 370 thousand higher or EUR 356 thousand lower. The reduction / increase in the mortality rates by 10% results in an increase / deduction in life expectancy depending on the individual age of each beneficiary. That means, for example, that the life expectancy of a male NORMA Group employee age 55 years as of December 31, 2019, increases / decreases by approximately one year. In order to determine the longevity sensitivity, the mortality rates were reduced / increased by 10% for all beneficiaries. The effect on DBO as of December 31, 2019, due to a 10% reduction / increase in mortality rates would result in an increase of EUR 966 thou- sand or a decrease of EUR 945 thousand. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method) has been applied as when calculating the post-employment benefit obligation recognized in the Consolidated Statement of Financial Position. Increases and decreases in the discount rate or rate of pension progression which are used in determining the DBO do not have a symmetrical effect on the DBO due to the compound interest effect created when determining the net present value of the future benefit. 189 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIf more than one of the assumptions are changed simultaneously, the combined impact due to the changes would not necessarily be the same as the sum of the individual effects due to the changes. If the assumptions change at a different level, the effect on the DBO is not necessarily in a linear relation. Expected payments from post-employment benefit plans in EUR thousands Expected benefit payments Future cash flows Employer contributions expected to be paid to the post-employ- ment defined benefit plans in fiscal year 2020 are EUR 235 thou- sand (2018: EUR 240 thousand). The expected payments from the plans for post-employment benefits are distributed as follows for the next 10 financial years, whereby the last 5 years are shown as a total: 2020 2021 2022 2023 2024 2025 – 2029 in EUR thousands Expected benefit payments 2019 2020 2021 2022 2023 2024 – 2028 T126 2019 850 817 826 953 867 5,208 2018 836 1,074 827 834 960 4,674 The weighted average duration of the defined benefit obligation is 14.64 years (2018: 12.0 years). 190 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING27. Provisions The development of provisions is as follows: Development of provisions T127 in EUR thousands Guarantees Severance Early retirement Other personnel-related obligations Outstanding invoices Others Total provisions As of Jan 1, 2019 Additions Amounts used Unused amounts reversed Interest accrued Changes in consolidation Transfers Foreign currency translation As of Dec 31, 2019 1,560 25 2,412 9,703 1,012 1,298 16,010 917 89 477 4,681 994 859 8,017 – 562 – 56 – 1,115 – 4,476 – 1,049 – 881 – 8,139 – 257 – 40 0 – 1,105 – 6 – 108 – 1,516 0 0 6 76 0 0 82 0 0 0 0 0 0 0 0 6 0 – 2 0 0 4 12 0 0 27 18 12 69 1,670 24 1,780 8,904 969 1,180 14,527 in EUR thousands As of Jan 1, 2018 Additions Amounts used Unused amounts reversed Interest accrued Changes in consolidation Transfers Foreign currency translation As of Dec 31, 2018 Guarantees Severance Early retirement Other personnel-related obligations Outstanding invoices Others Total provisions 1,128 408 3,075 12,164 730 1,279 18,784 690 56 743 3,302 1,000 705 6,496 – 156 – 368 – 1,405 – 5,541 – 747 – 513 – 8,730 – 161 – 98 0 – 234 – 3 – 120 – 616 0 0 0 – 8 0 0 – 8 51 0 0 0 0 34 85 0 24 – 1 – 5 0 – 74 – 56 8 3 0 25 32 – 13 55 1,560 25 2,412 9,703 1,012 1,298 16,010 191 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGProvisions – split current / non-current T128 in EUR thousands Guarantees Severance Early retirement Other personnel-related obligations Outstanding invoices Others Total provisions Dec 31, 2019 Dec 31, 2018 Total 1,670 24 1,780 8,904 969 1,180 thereof current thereof non-current 1,464 24 671 4,709 969 706 206 0 1,109 4,195 0 474 Total 1,560 25 2,412 9,703 1,012 1,298 14,527 8,543 5,984 16,010 thereof current thereof non-current 1,363 25 0 5,500 1,012 850 8,750 197 0 2,412 4,203 0 448 7,260 Early retirement contracts Employees at NORMA Group in Germany can in general engage in an early retirement contract (‘Altersteilzeit’). In the first phase, the employee works 100% (‘Arbeitsphase’). In the second phase, he / she is exempt from work (‘Freistellungsphase’). The employees receive half of their pay for the total early retirement-phase as well as top-up payments (including social security costs paid by the employer). The duration of the early retirement is a maximum of six years. Accounting for early retirement (‘Altersteilzeit’) is based on actu- arial valuations taking into consideration assumptions such as a discount rate of – 0.24 % p.a. (2018: 0.02% p.a.) as well as the 2018 G life-expectancy tables by Dr. Klaus Heubeck. For signed early retirement contracts, a liability has been recognized. The liability includes top-up payments (‘Aufstockungsbeträge’) as well as deferred salary payments (‘Erfüllungsrückstände’). The expected payments out of the early retirement provisions amount to EUR 671 thousand for fiscal year 2020. Severance payments Provisions for severance payments include expected severance payments for NORMA Group employees due to circumstances where a final agreement has not yet been reached. The provi- sions will be paid out in the following fiscal year and are therefore reported under current provisions. Guarantees Provisions for guarantees include provisions due to circumstances where a final agreement has not yet been reached and provisions based on experience (customer claim quota, amount of damage, etc.). Future price increases are considered if material. 192 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOther personnel-related provisions Other personnel-related provisions are as follows: Provisions – other personnel-related T129 Dec 31, 2019 Dec 31, 2018 in EUR thousands Notes Total thereof current thereof non-current LTI – Board Members LTI – Management STI – Board Members Matching Stock Program (MSP) NORMA-VA-Bonus Anniversary provisions Other personnel-related (25) (25) 59 2,271 2,198 833 913 1,203 1,427 8,904 59 348 2,198 347 913 0 844 0 1,923 0 486 0 1,203 583 4,709 4,195 Total 706 2,982 1,706 948 1,256 1,098 1,007 9,703 thereof current thereof non-current 617 852 1,706 268 1,256 0 801 5,500 89 2,130 0 680 0 1,098 206 4,203 The Company’s Long-Term Incentive Plan (LTI) for the Management Board consists of two different long-term compensation elements. The variable compensation is designed differently depending on the time when a Board member took office. For the Board members in office before 2015, it consists of an EBITA component and an operating free cash flow before external use (FCF) component, each of which is observed over a period of three years (performance period). A new three-year performance period begins every year. Both components are calculated by multiplying the average annual adjusted EBITA and FCF values actually achieved in the performance period by the adjusted EBITA and FCF bonus percentages specified in the employment contract. In the second step, the actual value of a component is compared to the medium-term plan approved by the Supervisory Board to evaluate the Company’s performance and adjustments are made to the LTI plan. The LTI plan is limited to two and a half times the amount that would be arrived at on the basis of the figures in the Company’s medium-term plan. If the actual value is lower than the planned value, the LTI plan is reduced on a straight-line basis down to a minimum of EUR 0 if the three-year targets are missed by a significant amount. Due to the calculation of the variable remuneration based on future results of the Group, uncertainties exist regarding the amount of the future outflows. Parts of the long-term compensation component will be paid out in the first half of the following fiscal year and are therefore reported under the current provisions. When entering service as of reporting year 2015, the variable compensation of the Management Board consists of the NORMA VA Bonus. This variable remuneration for the members of the Management Board who are not part of the MSP provides a long-term incentive for the Management Board to work hard to make the Company successful. The LTI is an appreciation bonus that is based on the Group’s performance. The Board member receives a percentage of the calculated increase in value. The NORMA Value Added Bonus corresponds to the percentage of the average increase in value from the current and the three previous fiscal years. The annual increase in value is calculated using the following formula: NORMA Value Added = (adjusted EBIT × (1 – t)) – (WACC × invested capital) The calculation of the first component is based on the consolidated earnings before interest and taxes (Group EBIT) for the fiscal year and the average corporate tax rate (t). The second component is calculated from the Group cost of capital (WACC) multiplied by the capital invested. The Group’s weighted average cost of capital (WACC) is derived from the base interest rate, the market risk premium and the beta factor. The base interest rate is derived from the interest rate structure data of Deutsche Bundesbank (three-month average - October 1 to December 31). The market risk premium represents the difference between the expected return of a risky market portfolio and the risk-free interest rate. NORMA uses the recommendation of the Institut der Wirtschaftsprüfer (IDW) to determine this risk premium. The beta factor represents the individual risk of a share compared to a market index. It is first determined as the average value of the unindebted beta factors of the peer group and then adjusted to NORMA’s individual capital structure. The cost of equity is calculated by adding the risk-free interest rate and the weighted country risk of NORMA Group with the product of the market risk premium and the indebted beta factor of the peer group. The credit spread used to calculate the cost of debt was determined 193 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGon the basis of the terms of the current external financing of NORMA Group. Invested capital is calculated from consolidated equity plus net financial liabilities as of January 1 of the fiscal year. The NORMA Value Added Bonus is limited to a fixed annual salary. 75% or 90% of the amount attributable to the LTI is paid to each Management Board member the following year. The Company then uses the remaining 25% or 10% attributable to the LTI to purchase shares of NORMA Group SE in the name and on behalf of the individual Board members. Alternatively, the Company may pay out this balance to the Board member. In this case, the Management Board obligates itself to purchase shares of NORMA Group SE with the balance of this amount within 120 days after the annual financial statements are approved at the Supervisory Board meeting. The Management Board member may not dispose of the shares for four years. Dividends and subscription rights will be made freely available to the Management Board member. If a Board member takes office in the current fiscal year or does not work for the Company for a full twelve months in a fiscal year, the LTI will be reduced proportionally (pro rata). Upon termination of the employment contract, a Management Board member may dispose of his shares only after 12 months of leaving the Company. With the termination of the executive position upon request of the Management Board or on the basis of an important reason, future claims for the variable part of the LTI lapse. The LTI for Management (Long-Term Incentive Plan) is a variable compensation component based on the share price of NORMA Group. A detailed description can be found in NOTE 25 ‘SHA RE-BASED PAYMEN TS.’ The STI of the Management Board (Short-Term Incentive Plan) results from short term variable cash payment. A description can be found in the REMUNERATION REPORT. 28. Other non-financial liabilities Other non-financial liabilities are as follows: As of December 31, 2019, provisions for the Matching Stock Program (MSP) for NORMA Group’s Management Board amount to EUR 833 thousand (2018: EUR 948 thousand). There was no payment for exercised options in fiscal year 2019. In fiscal year 2018, EUR 2,468 thousand were paid for exercised options from the 2014 tranche NOTE 25 ‘SHARE-BASED PAYMENTS’. Anniversary provisions are based on actuarial valuations taking into account assumptions such as a discount rate of 0.57 % p. a. as well as the 2018 G Heubeck life-expectancy tables. Other personnel-related provisions mainly include payable income tax and social security contributions in foreign countries. Other non-personnel-related provisions Provisions for outstanding invoices in the amount of EUR 969 thousand (2018: EUR 1,012 thousand) include expected obligations for the audit and advisory services. There are uncertainties regarding the amount and timing of the outflows. However, it is expected that this results in payments within a year. Other provisions mainly include obligations for other taxes. Other non-financial liabilities T130 in EUR thousands Non-current Government grants Other liabilities Current Government grants Non-income tax liabilities Social liabilities Personnel-related liabilities (e.g. vacation, bonuses, premiums) Other liabilities Total other non-financial liabilities Dec 31, 2019 Dec 31, 2018 266 90 356 1.230 2.119 4.484 28.118 714 36.665 37.021 391 40 431 1.068 2.398 4.521 18.671 326 26.984 27.415 The increase in personnel-related liabilities is mainly due to the increase in liabilities from employee bonuses and outstanding severance payments in connection with the rightsizing program. NORMA Group received government grants of which EUR 1,496 thousand were not recognized in profit or loss. They consist of grants in cash as well as land. The grants are bound to capital expenditures, employees and the supply of equity of the respec- tive local entities. NORMA Group recognizes the government grants as income over the period in which related expenses occur. In 2019, EUR 606 thousand were recognized as income (2018: EUR 603 thousand). 194 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOther Notes 29. Information on the Consolidated Statement of Cash Flows In the statement of cash flows, a distinction is made between cash flows from operating activities, investing activities and financing activities. Net cash provided by operating activities is derived indirectly from profit for the period. The profit for the period is adjusted to eliminate non-cash expenses such as depreciation and amorti- zation as well as expenses and payments for which the cash effects are investing or financing cash flows and to eliminate other non-cash expenses and income. Net cash provided by operating activities of EUR 137,083 thousand (2018: EUR 130,843 thou- sand) represents changes in current assets, provisions and lia- bilities (excluding liabilities in connection with financing activities). As in the prior year, the Group participates in a reverse factoring program, a factoring program and an ABS program. Liabilities in the reverse factoring program are reported under trade and other payables. As of December 31, 2019, reverse factoring liabilities in the amount of EUR 21,335 thousand are recognized (Dec 31, 2018: EUR 19,200 thousand). PAYABLES’ The cash flows from the reverse factoring, the factoring and the ABS program are shown under the cash flow from operating activities as this corresponds to the economic substance of the transactions. NOTE 2 1. ( E ) ‘ TRA DE AND OTHE R The total amount of trade receivables sold within the factoring and ABS program can be found in N OT E 2 1 . ( B ) ‘ T R A D E REC EIVA BLES AVAILAB LE FOR TRAN SF E R ’. Net cash provided by operating activities includes in 2018 cash outflows from the payments of the cash-settled share-based payments in the amount of EUR 1,045 thousand (2018: EUR 3,513 thousand), which result from the MSP tranche (2018: tranche 2014) for the Management Board of NORMA Group and from the Long-Term Incentive Plan (LTI) for NORMA Group employees. EUR 54,843 thousand (2018: EUR 63,255 thousand), expendi- tures in the amount of EUR 33,009 thousand (2018: EUR 42,793 thousand) relate to growth and expenditures amounting to EUR 21,834 thousand (2018: EUR 20,462 thousand) to mainte- nance and continuous improvements. The correction of expenses due to measurement of derivatives in the amount of EUR 73 thousand (2018: expense in the amount of EUR 436 thousand) relates to fair value gains and losses recognized within the income statement assigned to the cash flows from financing activities. In fiscal year 2018, net payments for acquisitions of subsidiaries in the amount of EUR – 69,797 thousand which result from the payments due to the acquisition of Kimplas and Statek as well as from payments in connection with the acquisition of Fengfan acquired in the second quarter of 2017 are also included in the cash flows from investing activities. Other non­cash income (–) / expenses (+) in net cash provided by operating activities mainly include foreign exchange rate gains and losses on external debt and intragroup monetary items in the amount of EUR – 341 thousand (2018: EUR – 716 thousand). Furthermore, other non­cash income (–) / expenses (+) include non­ cash interest expenses from the amortization of accrued costs, amounting to EUR 356 thousand (2018: EUR 303 thousand). Cash flows from financing activities mainly comprise outflows resulting from the payment of the dividend to shareholders of NORMA Group, amounting to EUR 35,049 thousand (2018: EUR 33,456 thousand), cash outflows resulting from interest paid (2019 EUR 15,070 thousand; inclusively interest paid for lease liabilities of EUR 1,260 thousand; 2018: 13,676) as well as repay- ments of derivatives in the amount of EUR 83 thousand (2018: proceeds of EUR 409 thousand). Cash flows resulting from interest paid are disclosed as cash flows from financing activities. Cash flows from investing activities include net cash outflows from the acquisition and disposal of property, plant and equip- ment and intangible assets amounting to EUR 57,033 thousand (2018: EUR 59,711 thousand) including the change of liabilities from investments in property, plant and equipment and intangi- ble assets amounting to EUR 2,941 thousand (2018: EUR – 2,412 thousand). From the investments in non-current assets of Furthermore, net repayments for loans amounting to EUR 32,936 thousand (2018: net proceeds of EUR 64,734 thousand) N OT E 5 . ( C ) ‘ L I Q U I D I T Y R I S KS ’ dividend payments to non- controlling interests in the amount of EUR 43 thousand (2018: EUR 134 thousand), repayments for liabilities of ABS and factoring in the amount of EUR 791 thousand (2018: proceeds of EUR 15,467 thousand) and repayments for lease liabilities in the amount of EUR 10,058 thousand (2018: EUR 123 thousand), disclosed as cash flows from financing activities. N OT E 2 0 . ‘LEASES’ AND 21. (E ) ‘FINANCIAL LIABILITIES AND NET DEBT ’ 195 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn addition, payments for the acquisition of shares in a subsidiary from the acquisition of non-controlling interests in the amount of EUR 1,121 thousand are included in the cash flow from financing activities in fiscal year 2018. The changes in balance sheet items that are presented in the Consolidated Statement of Cash Flows cannot be derived directly from the balance sheet, as the effects of currency translation are non-cash transactions and changes in the consolidated Group are shown directly in the net cash used in investing activities. Cash is comprised of cash on hand and demand deposits of EUR 174,918 thousand on December 31, 2019 (Dec 31, 2018: EUR 185,870 thousand), as well as cash equivalents with a value of EUR 4,803 thousand (Dec 31, 2018: EUR 4,522 thousand). Cash from China, India, Russia, Brazil and Malaysia (Dec 31, 2019: EUR 43,364 thousand, Dec 31, 2018: EUR 29,999 thousand) cannot currently be distributed due to restrictions on capital movements. Reconciliation of debt movements to cash flows from financing activities The following table represents the reconciliation from the opening balance sheet values of the financial statements of debt arising from financing activities for the relevant closing balance sheet items and which led to changes in equity. 196 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGReconciliation of changes in assets and liabilities to cash flows from financing activities T131 Financial liabilites Borrowings from the ABS / factoring programs Long-term loans payable Short-term loans payable Note Derivatives held to hedge financial liabilities (assets (-) / liabilites(+)) Equity Lease liabilities Liabilities from put / call option for NCI Interest rate swaps – cash flow hedge Foreign currency derivatives – fair value hedge Retained earnings Other Reserves Non- controlling interests Total 113,332 455,759 15,467 32 1,976 – 1,897 – 4 356,022 2,517 1,717 944,921 (21. (e)) (21. (e)) (21. (f)) (21. (e)) (24) 15,000 – 114,830 248,664 – 180,979 – 791 – 13,774 – 1,260 – 10,058 – 83 727 263,664 – 296,600 – 83 – 14,307 – 10,058 – 35,049 – 43 – 35,092 (29) – 113,604 3,031 67,685 1,627 13,712 356 29,500 – 29,500 43,212 – 29,144 – 791 – 11,318 0 727 – 83 – 35,049 0 – 10 1,260 34,661 13,970 49,891 n/a 38,595 – 378 33 33 1,631 1,646 74 – 1,645 n/a n/a n/a n/a 54,870 375,843 – 727 n/a n/a – 727 9,705 9,850 0 n/a 476 0 n/a – 13 Other changes related to equity (24) n/a n/a Balance as of December 31, 2019 45,971 495,927 14,676 0 n/a in EUR thousands Balance as of December 31, 2018 Changes in cash flow from financing activities Loan proceeds Loan repayments Inflow (+ )/ outflow (–) from hedging derivatives Interest paid Repayment of debts from leases Dividends paid Total change in cash flow from the financing activities Effects of changes in exchange rates Changes in the fair value Other changes Based on debt Interest expense First time adoption of IFRS 16 New leases Transfer Other changes related to debt – 43 – 123 – 92,476 4,525 75 n/a n/a n/a n/a 25 14,634 34,661 13,970 0 63,265 54,870 1,576 975,180 197 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING 30. Segment reporting Segment reporting T132 in EUR thousands 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 EMEA Americas Asia-Pacific Total segments Central functions Consolidation Consolidated Group Total revenue 523,199 543,126 460,320 451,171 166,639 151,293 1,150,158 1,145,590 26,545 26,554 – 76,607 – 88,004 1,100,096 1,084,140 thereof inter- segment revenue 37,229 48,322 9,552 9,657 3,281 3,471 50,062 61,450 26,545 26,554 – 76,607 – 88,004 Revenue from external customers 485,970 494,804 450,768 441,514 163,358 147,822 1,100,096 1,084,140 0 0 0 0 1,100,096 1,084,140 Contribution to consolidated Group sales 44% 46% 41% 41% 15% 13% 100% 100% Adjusted gross profit 1 296,828 306,174 257,378 254,089 76,007 67,234 630,213 627,497 n/a n/a Adjusted EBITDA 1 90,815 95,534 79,606 87,175 28,012 22,977 198,433 205,686 – 11,116 – 4,025 Adjusted EBITDA margin 1, 2 17.4% 17.6% 17.3% 19.3% 16.8% 15.2% 422 – 89 – 920 630,635 626,577 – 297 187,228 201,364 17.0% 18.6% Depreciation without PPA depreciation 3 – 17,201 – 13,162 – 15,585 – 8,886 – 7,909 – 4,712 – 40,695 – 26,760 – 1,734 – 1,422 – 42,429 – 28,182 Adjusted EBITA 1 73,614 82,372 64,021 78,289 20,103 18,265 157,738 178,926 – 12,850 – 5,447 – 89 – 297 144,799 173,182 Adjusted EBITA margin 1, 2 14.1% 15.2% 13.9% 17.4% 12.1% 12.1% 13.2% 16.0% 632,012 624,446 655,301 649,757 258,943 250,416 1,546,256 1,524,619 301,560 361,153 – 333,476 – 414,086 1,514,340 1,471,686 204,606 198,342 271,858 291,204 53,732 54,814 530,196 544,360 631,795 671,394 – 277,105 – 346,509 884,886 869,245 Assets 4 Liabilities 5 CAPEX 25,003 28,275 18,041 21,103 12,352 11,707 55,396 61,085 1,510 2,170 Number of employees 6 3,612 3,613 1,735 1,727 1,340 1,160 6,687 6,500 111 114 1_For details regarding the adjustments, refer to 2_Based on segment sales. 3_Depreciation from purchase price allocations. 4_Including allocated goodwill, taxes are shown in the column ‘consolidation’. 5_Taxes are shown in the column ‘consolidation’. 6_Number of employees (average headcount). NOTE 7 . n/a n/a n/a n/a 56,906 63,255 6,798 6,614 198 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group segments the Group at a regional level. The reportable segments of NORMA Group are EMEA, the Americas and Asia-Pacific. NORMA Group’s vision includes regional growth targets. Distribution Services are focused regionally and locally. EMEA, the Americas and Asia-Pacific have linked regional intercompany organizations with different functions. As a result, the Group’s management reporting and controlling system has a regional focus. The product portfolio does not vary significantly between these segments. Revenues of each segment are generated from the three product categories clamps (CLAMP), joining elements (CONNECT) and fluid systems / connectors (FLUID). NORMA Group measures the performance of its segments through profit or loss indicators which are referred to as ‘adjusted EBITDA’ and ‘adjusted EBITA’. ’Adjusted EBITDA’ comprises revenue, changes in inventories of finished goods and work in progress, other own work capitalized, raw materials and consumables used, other operating income and expenses, and employee benefits expense, adjusted for material one-time effects. EBITDA is measured in a manner consistent with that used in the Consolidated Statement of Comprehensive Income. Inter-segment revenue is recorded at values that approximate third-party selling prices. External sales per country in EUR thousands 2019 T133 2018 Segment assets comprise all assets less (current and deferred) income tax assets. Taxes are shown in the reconciliation. Segment assets and liabilities are measured in a manner consistent with that used in the Consolidated Statement of Financial Position. Assets of the ‘Central Functions’ include mainly cash and intercompany receivables. Segment liabilities comprise all liabilities less (current and deferred) income tax liabilities. Taxes are shown in the consolidation. Segment assets and liabilities are measured in a manner consistent with that used in the Consolidated Statement of Financial Position. Liabilities of the ‘Central Functions’ include mainly borrowings. Germany 186,834 203,820 USA, Mexico, Brazil 450,768 441,514 Other countries 462,494 438,806 1,100,096 1,084,140 Non-current assets per country include non-current assets less deferred tax assets, derivative financial instruments, and shares in consolidated related parties and are as follows: Capex equals additions to non-current assets (property, plant and equipment and other intangible assets). Non-current assets per country T134 in EUR thousands Dec 31, 2019 Dec 31, 2018 Current and deferred tax assets and liabilities are shown in the consolidation. On December 31, 2019, EUR 19,155 thousand (Dec 31, 2018: EUR 14,256 thousand) in tax assets and EUR 73,274 thousand (Dec 31, 2018: EUR 79,679 thousand) in tax liabilities were shown in the consolidation. ‘Adjusted EBITA’ includes, in addition to EBITDA, the depreciation adjusted for depreciation from purchase price allocations. External sales per country, measured according to the place of domicile of the company which manufactures the products, are as follows: In 2019 and 2018, expenses for special impacts were adjusted. An overwiew of those adjustments and a reconciliation from unadjusted to adjusted income statement is explained under NOT E 7. ‘A DJU STM ENTS’ Germany 134,946 132,109 USA, Mexico, Brazil 470,872 449,366 Sweden Other countries Consolidation 31. Contingencies 48,303 48,501 313,776 299,932 – 14,595 – 10,401 953,302 919,507 The Group has contingent liabilities in respect of legal claims aris- ing in the ordinary course of business (e.g. warranty obligations). NORMA Group does not believe that any of these contingent lia- bilities will have a material adverse effect on its business or any material liabilities will arise from contingent liabilities. 199 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING32. Commitments Capital commitments Capital expenditure (nominal value) contracted for on the balance sheet date but not yet incurred is as follows: Compensation of members of the Management Board (IFRS) in EUR thousands Short-term benefits Other long-term benefits Commitments in EUR thousands T135 Termination benefits Dec 31, 2019 Dec 31, 2018 Share-based payment T136 2018 3,989 10 763 – 526 2019 3,458 0 902 – 31 Property, plant and equipment 5,386 8,774 Total compensation according to IFRS 4,329 4,164 There are no material commitments concerning intangible assets. 33. Related party transactions Sales and purchases of goods and services In 2019 and 2018, no management services were bought from related parties. There were no material sales or purchases of goods and services from non-consolidated companies, from the shareholders of NORMA Group, from key management or from other related parties in 2019 and 2018. Compensation of members of the Management Board Compensation of the members of the Management Board according to IFRS is as follows: In the 2019 financial year, additional termination benefits amounting to EUR 1,480 thousand (2018: EUR 298 thousand) were recognised. Provisions for the compensation of the members of the Management Board are as follows: Provisions for compensation of the Management Board members in EUR thousands Note Dec 31, 2019 Dec 31, 2018 LTI – Management Board STI – Management Board Matching Stock Program (MSP) NORMA VA Bonus Total (27) (27) (25) (27) 59 706 2,198 1,706 833 913 4,003 948 1,256 4,616 Details regarding the individual provisions can be found in the respective notes. Besides the provisions shown above, a defined benefit obligation exists for the Management Board. The present value of the obli- gation amounts to EUR 4,114 thousand as of December 31, 2019 (Dec 31, 2018: EUR 1,776 thousand). N OT E 2 6 . ‘ R E T I R E M E N T BENEFIT OBLIGATIONS’. Details regarding the compensation of the Management Board can be found un the REMUNERATION REPORT P. 103 34. Additional disclosures pursuant to section 315e (1) of the German Commercial Code (HGB) Compensation of Board members The remuneration of the Management Board and Supervisory Board was as follows: Compensation of Board members in EUR thousands T137 Total Management Board Total Supervisory Board 2019 3,458 488 3,946 T138 2018 3,989 446 4,435 In the 2019 financial year, additional termination benefits amount- ing to EUR 1,480 thousand were recognised. 200 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGThe remuneration of the members of the Management Board was as follows: Compensation of members of the Management Board T139 The defined benefit obligation of pension commitments to prior members of the Management Board and their dependants was EUR 847 thousand as of December 31, 2019 (2018: EUR 0 thousand) Dr. Michael Schneider Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) John Stephenson (until Jan 31, 2018) Total Fees for the auditor in EUR thousands 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Fees for the auditor, PricewaterhouseCoopers GmbH Wirtschafts- prüfungsgesellschaft, Frankfurt / Main were expensed as follows: Fixed compensation Variable compensation Long-term incentives 423 572 438 387 590 591 334 409 219 83 106 74 310 572 181 524 1,011 591 Total compensation 1,433 1,568 962 263 1,063 2,126 0 0 0 0 24 1,067 1,018 0 8 1,553 1,707 Fees for the auditor 838 1,264 in EUR thousands 32 3,458 3,989 Auditing services Other confirmation services Other services 2019 603 35 37 675 T141 2018 662 38 116 816 In the fiscal year 2019, expenses for the termination of Mr. Kleinhen’s activities, in total EUR 1,480 thousand, are recognised (2018: EUR 298 thousand expenses for Mr. Deggim for termination of his activities). Besides these expenses, expenses for a defined benefit obliga- tion were recognized in 2019 as follows NOTES 26. ‘RETIREMENT BENEFIT OBLIGATIONS’: Section 314 para 1 No 6a HGB: retirement benefit obligations In addition to auditing services, the auditor provided confirmation services for financial covenants audit. Other services include audit of the Nonfinancial Statement. Headcount T140 The average headcount breaks down as follows: Dr. Michael Schneider Dr. Friedrich Klein (since Oct 1, 2018) Bernd Kleinhens (until July 31, 2019) Total in EUR thousands 2019 2018 2019 2018 2019 2018 2019 2018 Present value of the obligation 1,843 1,005 Amount spent / deferred 838 526 367 314 53 53 n/a 277 371 371 2,210 1,429 1,429 950 201 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGAverage headcount Number Direct labor Indirect labor Salaried 2019 3,291 1,294 2,213 6,798 T142 2018 3,226 1,239 2,149 6,614 The category ‘direct labor’ consists of employees who are directly engaged in the production process. The numbers fluctuate according to the level of output. The category ‘indirect labor’ consists of personnel that does not directly produce products, but rather supports production. Salaried employees are employees in administrative / sales / central functions. Consolidation Name, place of domicile and share in capital pursuant to section 313 (2) No. 1 HGB of the consolidated group of companies is presented in NOT E 4 . ‘S COPE OF CONS OLIDAT ION ’. Proposal for the distribution of earnings The Management Board and Supervisory Board of NORMA Group SE propose to the Annual General Meeting, which has been post- poned from May 14, 2020, to June 30, 2020, to suspend the div- idend for fiscal year 2019. This proposal takes into account the forecast for fiscal year 2020 that has been adjusted in connection with COVID-19. Corporate Governance (section 161 AktG) The Management Board and Supervisory Board have issued a Corporate Governance Declaration pursuant to section 161 of the German Stock Corporation Act (Aktiengesetz) and made it available to shareholders on the website of NORMA Group. WWW.NORMAGROUP.COM/CORP/EN/I NVESTORS / 35. Exemptions under section 264, paragraph 3 of the German Commercial Code (HGB) In 2019, the following German subsidiaries made use of disclosure exemptions pursuant to section 264, paragraph 3 of the German Commercial Code (HGB): • NORMA Group Holding GmbH, Maintal • NORMA Distribution Center GmbH, Marsberg • NORMA Germany GmbH, Maintal • NORMA Verwaltungs GmbH, Maintal • STATEK Stanzereitechnik GmbH, Maintal 36. Events after the balance sheet date The global spread of the novel COVID-19 has increased contin- uously in the first weeks and months of fiscal year 2020. The forecast prepared in this Consolidated Management Report was made before the drastic spread of COVID-19 and thus at a time when the economic effects of the virus could not yet be reflected. In light of this situation, there are noticeable uncertainties with regard to the negative effects on future macroeconomic devel- opment in the further course of the current financial year. How- ever, the Management Board of NORMA Group assumes that, should it be impossible to contain this pandemic in a timely man- ner, its further spread will lead to significant losses and negative effects on the markets relevant to NORMA Group and thus also on the business development of NORMA Group. 202 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGAppendix to the Notes to the Consolidated Financial Statements Voting rights notifications Voting rights notifications According to section 160 (1) No. 8 AktG, information regarding voting rights that have been notified to the Company pursuant to section 33 (1) or (2) of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) must be disclosed. The following table gives an overview of all voting rights notifications that have been sent to the Company as of March 9, 2020. It contains the information of the last notification of each shareholder. The percentage and shares may have changed in the meantime. All notifications of shareholder voting rights in the year under review and beyond are available on the website of NORMA Group. WWW. N ORM AG ROUP.COM/COR P/E N/IN VESTORS / Notifying party Allianz Global Investors GmbH, Frankfurt / Main, Germany 1 T. Rowe Price International Ltd, London, United Kingdom 2 T. Rowe Price International Discovery Fund, Baltimore, Maryland, USA 2 BNP Paribas Asset Management Holding S.A., Paris, France BNP Paribas Asset Management France S.A.S., Paris, France Allianz Global Investors Fund SICAV, Senningerberg, Luxembourg 1 AXA S.A., Paris, France Ministry of Finance on behalf of the State of Norway, Oslo, Norway 3 Atlantic Value General Partner Limited, London, United Kingdom The Capital Group Companies, Inc., Los Angeles, California, USA Threadneedle Management Luxembourg SA, Bertrange, Luxembourg 4 Impax Asset Management Group plc, London, United Kingdom Allianz SE, Munich, Germany Achievement of voting rights Touched or exceeded reporting threshold Share in % Shares Pursuant to WpHG T143 Feb 18, 2020 more than 15% 15.20% 4,843,141 section 33, 34 WpHG Feb 11, 2020 more than 5% 5.01% 1,596,572 section 33, 34 WpHG Feb 05, 2020 more than 3% 3.08% 982,752 section 33, 34 WpHG Feb 04, 2020 less than 3% 0.00% 0 section 33, 34 WpHG Feb 04, 2020 more than 3% 3.90% 1,242,634 section 33, 34 WpHG July 19, 2019 June 25, 2019 more than 3% less than 3% 3.30% 2.99% 1,050,330 953,618 section 33, 34 WpHG section 33, 34 WpHG May 13, 2019 less than 3% 2.68% 852,437 section 33, 34 WpHG May 05, 2019 more than 3% 3.10% 986,195 section 33, 34 WpHG Apr 03, 2019 less than 3% 2.85% 907,240 section 33, 34 WpHG Feb 28, 2019 more than 5% 5.004% 1,594,389 section 33, 34 WpHG Feb 12, 2019 Oct 25, 2018 more than 5% more than 3% 5.08% 3.04% 1,617,656 968,681 section 33, 34 WpHG section 33, 34 WpHG 1_ The 15.20% of Allianz Global Investors GmbH (Frankfurt / Main, Germany) contain the 3.30% of the self­reportable Allianz Global Investors Fund SICAV (Sennigerberg, Luxembourg). 2_ Looking at the entire corporate chain, T. Rowe Price Group Inc. (Baltimore, USA) through its subsidiaries T. Rowe Price International Ltd (London, United Kingdom) and T. Rowe Price International Funds and T. Rowe Price International Discovery Funds (both Baltimore, USA) holds 5.01%. 3_ The Ministry of Finance on behalf of the State of Norway holds 2.68% direct voting rights and 0.51% indirect voting rights through instruments, for a total of 3.18%. 4_ Looking at the entire corporate chain, Ameriprise Financial Inc. (Wilmington, USA) holds a total of 8.35%. The two subsidiaries Threadneedle Asset Management Limited (London, Great Britain) and Threadneedle Management Luxembourg SA (Bertrange, Luxembourg) hold 6.79% and 5.004%, respectively. 203 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGCorporate bodies of NORMA Group SE Members of the Management Board Members of the Supervisory Board Dr. Michael Schneider PhD in Economics Chief Executive Officer (CEO) since November 14, 2019 and Chief Financial Officer (CFO) since November 14, 2019 ad interim Lars M. Berg (Chairman) • Consultant • Chairman of the Supervisory Board of Greater Than AB, Stockholm, Sweden (listed on the stock exchange) • Member of the Supervisory Board of Leitwerk AG, Appenweier, Germany Erika Schulte (Vice chairwoman) • Managing Director of Hanau Wirtschaftsförderung GmbH, • Member of the Supervisory Board of accuris AG, Munich, Hanau, Germany Dr. Knut J. Michelberger • Consultant • Member of the Supervisory Board of Weener Plastics Group, Ede, The Netherlands (not listed on the stock exchange) • Member of the Advisory Board (Deputy Chairman) of Racing TopCo GmbH, Troisdorf, Germany (not listed on the stock exchange) • Member of the Advisory Board of Kaffee Partner Holding GmbH, Osnabrück, Germany (not listed on the stock exchange) • Member of the Advisory Board of Tegimus Holding GmbH, Germany • No seats on other boards or comparable committees Frankfurt, Germany (not listed on the stock exchange) Dr. Friedrich Klein Master’s degree in Mechanical Engineering Chief Operating Officer (COO), since October 1, 2018 Bernd Kleinhens Master’s degree in Mechanical Engineering, Chief Executive Officer (CEO) until July 31, 2019 Rita Forst • Consultant • Member of the Supervisory Board (Non-Executive Director) of AerCap Holdings N.V., Dublin, Ireland (listed on the stock exchange) – since April 2019 • Member of the Advisory Board of Joh. Winklhofer Beteiligungs GmbH & Co. KG, Munich, Germany (not listed on the stock exchange) • Member of the Supervisory Board of ElringKlinger AG, Dettingen, Germany (listed on the stock exchange) • Member of the Advisory Board of Westport Fuel Systems Inc., • Member of the Advisory Board of Moon TopCo GmbH, Poing, Germany (not listed on the stock exchange) • Member of the Advisory Board of Rena Technologies GmbH, Gütenbach, Germany (not listed on the stock exchange) – until January 2019 Mark Wilhelms • Chief Financial Officer at Stabilus S.A., Luxembourg • No seats on other boards or comparable committees Maintal, March 9, 2020 / March 23, 2020 Vancouver, Canada (listed on the stock exchange) NORMA Group SE • Member of the Advisory Board of Metalsa, S.A. de C.V., Monterrey, Mexico (not listed on the stock exchange) – until May 2019 The Management Board Günter Hauptmann • Consultant • Member of the Advisory Board of Moon TopCo GmbH, Poing, Germany (not listed on the stock exchange) Dr. Michael Schneider Chief Executive Officer (CEO) Dr. Friedrich Klein Chief Operating Officer (COO) 204 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING R esponsibilit y Statemen t To the best of our knowledge, and in accordance with the applicable reporting principles, the Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Conso- lidated Management Report includes a fair review of the devel- opment and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Maintal, March 9, 2020 / March 23, 2020 NORMA Group SE The Management Board Dr. Michael Schneider Chief Executive Officer (CEO) Dr. Friedrich Klein Chief Operating Officer (COO) 205 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGInd ependent A ud ito r ’s Re por t To NORMA Group SE, Maintal Report on the Audit of the Consolidated Financial Statements and of the Consolidated Management Report Audit opinions We have audited the Consolidated Financial Statements of NORMA Group SE, Maintal, and its subsidiaries (the Group), which comprise the Consolidated Statement of Financial Position as at 31 December 2019 and the Consolidated Statement of Comprehensive Income, consolidated statement of profit or loss, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the financial year from 1 January to 31 December 2019, and Notes to the Consolidated Financial Statements, including a summary of significant accounting policies. In addition, we have audited the Consolidated Manage- ment Report of NORMA Group SE for the financial year from 1 January to 31 December 2019. We have not audited the content of those parts of the Consolidated Management Report listed in the “Other Information” section of our auditor’s report. In our opinion, on the basis of the knowledge obtained in the audit, • the accompanying Consolidated Financial Statements com- ply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2019, and of its financial performance for the financial year from 1 January to 31 December 2019 and • the accompanying Consolidated Management Report as a whole provides an appropriate view of the Group’s position. In all material respects, this Consolidated Management Report is consistent with the Consolidated Financial State- ments, complies with German legal requirements and appro- priately presents the opportunities and risks of future devel- opment. Our audit opinion on the Consolidated Management Report does not cover those parts of the Consolidated Man- agement Report listed in the “Other Information” section of our auditor’s report. Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the Consolidated Financial Statements and of the Consolidated Management Report. under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Consolidated Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of Euro- pean law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to pro- vide a basis for our audit opinions on the Consolidated Financial Statements and on the Consolidated Management Report. Key audit matters in the audit of the Consolidated Financial Statements Basis for the audit opinions We conducted our audit of the Consolidated Financial Statements and of the Consolidated Management Report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Insti- tute of Public Auditors in Germany] (IDW). Our responsibilities Key audit matters are those matters that, in our professional judg- ment, were of most significance in our audit of the Consolidated Financial Statements for the financial year from 1 January to 31 December 2019. These matters were addressed in the context of our audit of the Consolidated Financial Statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. 206 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGIn our view, the matter of most significance in our audit was as follows: 1. Recoverability of goodwill Our presentation of this key audit matter has been structured in each case as follows: a) Matter and issue b) Audit approach and findings c) Reference to further information Hereinafter we present the key audit matters: Recoverability of goodwill executive directors and adopted by the Supervisory Board forms the starting point for future projections based on assumptions about long-term rates of growth. In doing so, expectations relating to future market developments and country-specific assumptions about the performance of macroeconomic indicators are also taken into account. The discount rate used is the weighted average cost of capital for the relevant cash-generating unit. The outcome of this valuation is dependent to a large extent on the estimates made by the executive directors with respect to the future cash inflows from the respective group of cash-generating units, the discount rate used, the rate of growth and other assumptions, and is therefore subject to considerable uncertainty. Against this background and due to the complex nature of the valuation, this matter was of particular significance in the context of our audit. a) In the Consolidated Financial Statements of NORMA Group SE a total amount of EUR 393.1 million, representing around 26% of total assets, is reported under the balance sheet item “Goodwill”. The Company allocates goodwill to the groups of cash-generating units, which correspond to the Group’s operating segments. Goodwill is tested for impairment (“impairment test”) on an annual basis or if there are indications that goodwill may be impaired, to determine any possible need for write-downs. For the purposes of the impairment test the carrying amount of the relevant cash-generating unit is compared with its fair value less costs of disposal. This measurement is generally based on the present value of the future cash flows of the relevant cash-generating unit to which the respective goodwill is allocated. Present values are calculated using discounted cash flow models. For this purpose, the Group’s five-year financial plan prepared by the b) As part of our audit, we evaluated the methodology used for the purposes of performing the impairment test, among other things. We also assessed whether the future cash inflows underlying the measurements and the discount rates used on the whole provide an appropriate basis for the impairment tests of the individual cash-generating units. We assessed the appropriateness of the future cash inflows used in the calculation, inter alia, by comparing this data with the current budgets in the five-year financial plan prepared by the executive directors and approved by the Supervisory Board, and by reconciling it with general and sector-specific market expectations. In addition, we assessed whether the basis for including the costs of Group functions was appropriate. In the knowledge that even relatively small changes in the discount rate applied can have a material impact on the value of the entity calculated using this method, we focused our testing in particular on the parameters used to determine the discount rate applied, and assessed the calculation model. Further- more, in addition to the analyses carried out by the Company we performed our own sensitivity analyses and, taking into account the information available, determined that the carrying amounts of the cash-generating units, including the allocated goodwill, were adequately covered by the discounted future net cash inflows. Overall, the measurement parameters and assumptions used by the executive directors are com- prehensible. c) The Company’s disclosures on goodwill are contained in sections 3 and 18 of the Notes to the Consolidated Financial Statements. Other information The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the Consolidated Management Report: • the group statement on corporate governance pursuant to § 289f HGB and § 315d HGB included in section “Principles of the group” of the Consolidated Management Report • the corporate governance report pursuant to No. 3.10 of the German Corporate Governance Code • the separate non-financial report pursuant to § 289b Abs. 3 HGB and § 315b Abs. 3 HGB The other information comprises further the remaining parts of the annual report– excluding cross-references to external information – with the exception of the audited Consolidated Financial Statements, the audited Consolidated Management Report and our auditor’s report. 207 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Our audit opinions on the Consolidated Financial Statements and on the Consolidated Management Report do not cover the other information, and consequently we do not express an audit opin- ion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information • is materially inconsistent with the Consolidated Financial Statements, with the Consolidated Management Report or our knowledge obtained in the audit, or • otherwise appears to be materially misstated Responsibilities of the executive directors and the Supervisory Board for the Consolidated Financial Statements and the Consolidated Management Report The executive directors are responsible for the preparation of the Consolidated Financial Statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB and that the Consolidated Financial Statements, in com- pliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the prepa- ration of the Consolidated Management Report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the Consolidated Financial Statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future devel- opment. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have con- sidered necessary to enable the preparation of a Consolidated Management Report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the Consolidated Man- agement Report. The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the Consolidated Financial Statements and of the Consolidated Management Report. Auditor’s responsibilities for the audit of the Consolidated Financial Statements and of the Consolidated Management Report In preparing the Consolidated Financial Statements, the execu- tive directors are responsible for assessing the Group’s ability to Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and whether the Consolidated Management Report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the Consolidated Financial Statements and the knowledge obtained in the audit, complies with the Ger- man legal requirements and appropriately presents the opportu- nities and risks of future development, as well as to issue an audi- tor’s report that includes our audit opinions on the Consolidated Financial Statements and on the Consolidated Management Report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated Financial Statements and this Consolidated Man- agement Report. We exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the Consolidated Financial Statements and of the Consoli- dated Management Report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appro- priate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve 208 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGcollusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit of the Consolidated Financial Statements and of arrangements and measures (systems) relevant to the audit of the Consolidated Management Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems. • Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures. • Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the Consolidated Financial Statements and in the Consolidated Management Report or, if such dis- closures are inadequate, to modify our respective audit opin- ions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. • Evaluate the overall presentation, structure and content of the Consolidated Financial Statements, including the disclo- sures, and whether the Consolidated Financial Statements present the underlying transactions and events in a manner that the Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and finan- cial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the Consolidated Financial Statements and on the Consolidated Management Report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions. • Evaluate the consistency of the Consolidated Management Report with the Consolidated Financial Statements, its con- formity with German law, and the view of the Group’s posi- tion it provides. • Perform audit procedures on the prospective information presented by the executive directors in the Consolidated • Management Report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective infor- mation and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ mate- rially from the prospective information. We communicate with those charged with governance regard- ing, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a state- ment that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Consolidated Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. Other legal and regulatory requirements Further information pursuant to article 10 of the EU audit regulation We were elected as group auditor by the annual general meeting on 21 May 2019. We were engaged by the Supervisory Board on 29 November 2019. We have been the group auditor of the NORMA Group SE, Maintal, without interruption since the financial year 2010. We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit- committee pursuant to Article 11 of the EU Audit Regulation (long- form audit report). Reference to supplementary audit We issue this audit report on the amended financial statements and the amended management report on the basis of our audit, duly completed as at 9 March 2020, and our supplementary audit completed as at 23 March 2020, related to the amendments of disclosures in the notes to the financial statements and the man- agement report. Due to the consideration of new facts concern- ing the consequences of the coronavirus the forecast and the proposal of the distributions of earnings have been amended. We refer to the presentation of the amendments by the executive directors in the amended notes to the financial statements, sec- tion “Events after the balance sheet date” and “Proposal of the distributions of earnings”, as well as the amended Consolidated Management Report, section “Forecast Report”. 209 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGGerman public auditor responsible for the engagement The German Public Auditor responsible for the engagement is Stefan Hartwig. Frankfurt / Main, March 9, 2020 Limited to the amendments stated in the “Reference to Supplementary Audit” section above: 23 March 2020. PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft sgd. Stefan Hartwig Wirtschaftsprüfer (German Public Auditor) sgd. ppa. Richard Gudd Wirtschaftsprüfer (German Public Auditor) 210 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGFur th er Informa ti on 212 216 217 220 221 223 Glossary List of Graphics List of Tables Overview by Quarter Multi-year Overview Financial Calendar, Contact and Imprint Fur the r Informa tion Glossary 5S Methodology 5S is a method for organizing a work space for efficiency and effectiveness in order to reduce industrial accidents. Aftermarket segment The market concerned with the maintenance / repair of investment goods or long-life final goods (e.g. vehicles) or the sale of replacement parts or complementary parts for the goods. This involves the sale of services and / or parts that are directly related to the previous sale of the goods. APAC Abbreviation for the Asia-Pacific region. Asset backed securities (ABS) program A specific way of converting payment claims into negotiable secu- rities with a financing company. Best landed cost approach Assessment of the total costs of a product including the price of the product as well as the charges for shipping, taxes and / or duties. Brexit In a referendum on June 23, 2016, the citizens of the United King- dom voted against the country remaining in the European Union (EU). The collective consequence of the EU exit has taken on the popular, unofficial term of Brexit. Bubble assignment Short-term exchange program for employees to promote internal knowledge transfer, intercultural awareness, the development of networks and the individual development of participants. Cash-pooling Consolidating liquidity within the Group through central financial management with the purpose of compensating for excess liquid- ity or liquidity shortfalls. Code of conduct A set of policies which can and should be applied in a wide range of contexts and environments depending on the situation. In contrast to a rule, the target audience is not obliged to always comply with the Code of Conduct. A Code of Conduct is more of a personal commitment to follow or abstain from certain patterns of behavior, ensuring that nobody gains an unfair advantage by circumventing these patterns. Commercial Paper Commercial Paper (CP) is a short-term bond issue with a money market character. Compliance Conforming to rules: a company and its employees adhering to Codes of Conduct, laws and guidelines. Corporate governance A set of all international and national rules, regulations, values and principles which apply to companies and determine how these companies are to be managed and monitored. Corporate responsibility A form of corporate self-regulation integrated into a business model by taking societal and environmental aspects into account. Coverage The regular assessment of the economic and financial situation of a listed company by banks or financial research institutions. Cross-selling effects The action or practice of selling an additional product or service to an existing customer. Distribution Services (DS) One of NORMA Group’s two ways to market, providing a wide range of high-quality, standardized joining products for a broad range of applications and customers. 212 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGElastomers Stable but elastic plastics which are used at a temperature above their glass transition temperature. The plastics can deform under tensile or compressive load, but then return to their original shape. Gemba walk Daily walk through the production halls, inspecting individual processes in the opposite order of workflow and analyzing potential opportunities for improvements. EMEA Abbreviation for the economic area of Europe (comprising Western and Eastern Europe), the Middle East and Africa. Global excellence program A cost optimization program. It coordinates and manages all of NORMA Group’s sites and business units. Engineered Joining Technology (EJT) One of NORMA Group’s two ways to market. It provides customized, highly Engineered Joining Technology products primarily, but not exclusively, for industrial OEM customers. IATF 16949 An international standard that combines the existing general demands on quality management systems of the (mostly North American and European) automotive industry. Earnings before interest, taxes and amortization (EBITA) EBITA describes earnings before interest, taxes and amortization of intangible assets. For long-term comparison and a better understanding of business development, NORMA Group adjusts the EBITA for certain one-time expenses. These are described in the Management Report as well as in the Notes to the Consolidated Financial Statements. Earnings before interest, taxes, depreciation and amortization (EBITDA) Earnings before interest, taxes, depreciation (of property, plant and equipment) and amortization (of intangible assets). It is a measure of a company’s operating performance before investment expenses. For long-term comparison and a better understanding of its business development, NORMA Group adjusts the EBITDA for certain one-time expenses. These are described in the Management Report as well as in the Notes to the Consolidated Financial Statements. EBITA margin (adjusted) The adjusted EBITA margin is calculated from the ratio of adjusted EBITA to sales and is an indicator of the profitability of NORMA Group’s business activities. Equity ratio Equity in relation to total assets. European market infrastructure regulation (EMIR) EU regulation that regulates the over-the-counter market with derivative products. The main stipulation of this regulation obli- gates market participants to clear their over-the-counter stan- dard derivative transactions through a central counterpart and report these transactions to a trade repository. EBITDA margin (adjusted) The adjusted EBITDA margin is calculated from the ratio of adjusted EBITDA to sales. Fiat Chrysler Automobiles (FCA) An automobile manufacturer formed from the merger of the Italian Fiat S.p.A. and the Us-Based Chrysler Group LLC. Economies of scale Indicates the ratio of the production volume to the production factors used. In the case of positive scale effects, the production output is also increased with the intensification of production factors. Free cash flow Indicates the amount of money that is available to pay dividends to shareholders and / or repay loans. Gearing Gearing is a measure of a company’s debt level. Gearing is calculated from the ratio of net debt to equity. IDW The Institute of Auditors in Germany (Institut der Wirtschaftsprüfer in Deutschland e. V.) Initial public offering (IPO) First offering of shares of a company on the regulated capital market. Innovation roadmapping Systematic approach to adapt company-specific product innovations to future market and technological developments. Innovation scouting Structured observation of changes, potentials and relevant knowledge of technological developments and processes. International securities identification number (ISIN) 12-digit alphanumerical code used to identify a security traded on the stock market. 213 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGISO 14001 An international environmental management standard that specifies the internationally accepted requirements for an environmental management system. Matching Stock Program (MSP) The Matching Stock Program (MSP) provided a share price-based long-term incentive to commit to the success of the Company. The MSP is a share-based option right. ISO 9001 International standard that defines the minimum requirements that quality management systems must meet. ISO 45001 Health and Safety Management that replaces the current Occupational Health and Safety Assessment Series 18001 (OHSAS 18001) Lean manufacturing A systematic method for the elimination of waste within a manufacturing process. An integrated socio-technical system reduces or minimizes supply-side, customer-side and internal fluctuations. Leverage Leverage is a measure of a company’s debt and is calculated as the ratio of net debt (without hedging instruments) to adjusted EBITDA over the last 12 months (LTM). For the purpose of a bet- ter comparison, adjusted EBITDA LTM includes the companies acquired during the year. Long-term assignment Long-term exchange program for employees to promote internal knowledge transfer, intercultural awareness, the development of networks and the individual development of participants. Material cost ratio The material cost ratio of NORMA Group results from the ratio of material expenses to sales. Net debt Net debt is the sum of financial liabilities less cash and cash equiv- alents. Financial liabilities also include liabilities from derivative financial instruments that are held for trading purposes or as hedging instruments. Net operating cash flow Net operating cash flow is calculated on the basis of EBITDA plus changes in working capital, less investments from operating activities. Net operating cash flow is a key financial control figure for NORMA Group and serves as a measure for the Group’s liquidity. NORMA Value Added (NOVA) A key financial control figure for NORMA Group that serves as a measure for the annual rise in corporate value. OHSAS 18001 Occupational Health and Safety Assessment Series; certification of occupational health and safety management systems. Original equipment manufacturer (OEM) A company that retails products under its own name. Peugeot Société Anonyme PSA A French car manufacturer group that includes the Citroen, DS, Opel, Peugeot and Vauxhall brands. Prime standard A segment of the regulated stock market with higher inclusion requirements than the General Standard. It is the private law segment of the Frankfurt Stock Exchange with the highest transparency standards. All companies listed in the DAX, MDAX, TecDAX and SDAX must be included in the Prime Standard. Reverse factoring A financing solution initiated by the ordering party in order to help its suppliers finance their receivables more easily and at a lower interest rate than they would normally be offered. Roadshow Series of corporate presentations made to investors by an issuer at various financial locations to attract investment in the company. Securities ID number (WKN) A six-character combination of numbers and letters used in Germany to identify securities. Selective catalytic reduction (SCR) Selective catalytic reduction is a method used to reduce particle and nitric oxide emissions.. SMED (Single Minute Exchange of Die) Optimization of set up times of processes through both organizational and technical measures. Societas europaea (SE) Legal form for stock companies in the European Union and the European Economic Area. With the SE, the EU started allowing for companies to be founded in accordance with a largely uniform legal framework at the end of 2004. Thermoplasts (also known as plastomers) Plastics which become elastic (thermoplastic) in a particular temperature range, whereby this process is reversible. 214 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGWeighted average cost of capital (WACC) The weighted average cost of capital (WACC) represents a company’s total costs of capital for liabilities and equity depending on the individual capital structure. Working capital Trade working capital describes the Group’s current net operating assets and is calculated as the sum of inventories and trade receivables minus trade payables. Xetra An electronic trading system operated by Deutsche Börse AG for the spot market. 215 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGList of Graphics Graphic To our Shareholders G001 Index-based comparison of NORMA Group’s share price performance in 2019 with DAX, MDAX, SDAX and MSCI World Automobiles G002 Distribution of trading activity in 2019 G003 Free float by region G004 Analyst recommendations G005 Share price development of the NORMA Group share since the IPO compared to the SDAX Consolidated Management Report G006 NORMA Group (simplified structure) G007 Organizational structure of NORMA Group G008 Sales by distribution channel G009 Strategic goals of NORMA Group G010 Important financial control parameters G011 Development of sales 2019 Page Graphic Page G012 Adjusted cost of materials and cost of materials ratio G013 Adjusted EBITA and adjusted EBITA margin G014 Asset and capital structure G015 Maturity profile by currency G016 Maturity profile by financial instruments G017 Breakdown of sales by segments G018 Development of nickel prices and the alloy surcharge 1.4301 G019 Purchasing turnover in 2019 by material groups G020 Development of personnel figures at NORMA Group G021 Breakdown of employees by group G022 Incident rate G023 Marketing expenses 2019 by segments G024 Risk management system of NORMA Group 28 29 29 30 31 48 49 50 51 52 65 66 67 68 70 70 71 76 77 78 78 80 81 89 216 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGList of Tables Table Introduction T001 Financial Figures 2019 To our Shareholders T002 Overview of the voting rights notifications T003 Analysts covering NORMA Group T004 Key figures for the NORMA Group share since the IPO in 2011 T005 Responsibilities of the Management Board T006 Other mandates of the Supervisory Board members T007 Directors’ dealings Consolidated Management Report T008 Adjusted EBIT after taxes T009 Capital employed as of beginning of the year (Jan 1) T010 Assumptions for the calculation of the WACC T011 Financial control parameters T012 Non-financial control parameters T013 R&D key figures T014 GDP growth rates (real)  T015 Actual business development compared to the forecast T016 Adjustments T017 Effects from the first-time adoption of IFRS 16 on key financial control parameters T018 Effects on group sales Page Table Page Table Page 2 30 30 32 38 41 43 53 53 53 54 54 57 58 63 64 65 65 T019 Development of sales channels T020 Return on capital employed (ROCE) T021 T022 T023 Effects from the first-time application of IFRS 16 in EMEA Effects from the first-time application of IFRS 16 in Americas Effects from the first-time application of IFRS 16 in Asia-Pacific T024 Development of segments T025 Strategic investment highlights 2019 T026 Core workforce by segments T027 Forecasts for GDP growth (real) T028 Engineering: real change in industry sales T029 Automotive industry: global production and development of sales (light and commercial vehicles) 66 67 71 72 72 73 74 78 83 83 83 T038 Overview of the promised pensions of the Board 106 members T039 Remuneration granted to the Management Board T040 Inflow from Management Board member remuneration 107 108 T041 Remuneration of the Supervisory Board in 2019 109 Consolidated Financial Statements T042 Consolidated Statement of Comprehensive Income T043 Consolidated Statement of Financial Position T044 Consolidated Statement of Cash Flows T045 Consolidated Statement of Changes in Equity T046 Retained earnings reconciliation: IFRS 16 T047 Reconciliation Consolidated Statement of Financial Position IFRS 16 T048 Carrying amounts rights of use T030 Construction industry: development of European construction output 84 T049 Reconciliation for Consolidated Statement of Comprehensive Income IFRS 16 T031 Forecast for the fiscal year 2020 T032 Risk and opportunity portfolio of NORMA Group T033 Annual bonus T034 Assumptions for calculating WACC T035 NORMA Value Added bonus / LTI 88 101 103 103 104 T036 Overview of the Matching Stock Program (MSP) at 104 the time of allotment T037 Management Board remuneration in 2019 106 T050 Reconciliation Consolidated Statement of Cash Flows IFRS 16 T051 Valuation methods T052 Exchange rates T053 Offsetting financial instruments T054 Change in scope of consolidation T055 List of Group companies of NORMA Group as of December 31, 2019 T056 Overview of financial risks 114 115 116 117 119 120 120 121 122 125 127 134 138 139 142 217 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGTable Page Table Page Table Page T057 Foreign exchange risk 143 T078 Expiry of recognized tax losses 157 T100 Maturity bank borrowings 2019 T058 Credit risk exposure from cash and cash equivalents and other financial assets 144 T079 Expiry of not recognized tax losses 157 T101 Maturity bank borrowings 2018 T080 Development of goodwill and other intangible 158 T102 Other financial liabilities T059 Maturity structure of non-derivative financial 145 assets liabilities T060 Maturity structure of derivative financial instruments T061 Profit and loss net of adjustments T062 Revenue by distribution channel T063 Revenue by category T064 Raw materials and consumables used T065 Other operating income T066 Other operating expenses 146 149 151 151 152 152 152 T081 Goodwill and other intangible assets – carrying amounts T082 Significant individual intangible assets T083 Change in goodwill T084 Goodwill allocation per segment T085 Goodwill per segment – key assumptions T103 Future minimum lease payments non-cancellable finance leases T104 Maturity of financial liabilities T105 Net debt T106 Derivative financial instruments T107 The effects of cash flow hedge accounting on financial position and performance 160 160 160 161 161 T086 Development of property, plant and equipment 162 T108 Change in hedging reserve before tax T087 Property, plant and equipment – carrying amounts 163 T109 The effects of fair value hedge accounting on financial position and performance T067 Employee benefits expense 153 T088 Right of use assets – carrying amounts 163 T110 Gains and losses fair-value hedges T068 Financial income and costs 153 T089 Maturity of lease liabilities Dec 31, 2019 164 T111 Financial instruments – fair value hierarchy T069 Net foreign exchange gains / losses 154 T090 Leases in the statement of profit or loss 164 T112 Financial instruments – net gains and losses 154 T091 Financial instruments – classes and categories 165 T113 Interest expenses / income from financial assets and liabilities (IFRS 7.20(b)) T070 Earnings per share T071 Income taxes T072 Tax reconciliation T073 Income tax charged / credited to other comprehensive income 154 T092 Trade and other receivables 155 T093 Trade receivables 155 T094 Credit risk exposure trade receivables T095 Impairment reconciliation T074 Deferred tax assets and deferred tax liabilities 156 (gross) T096 Gains / losses arising from derecognition IFRS 7.20A T075 Movement in deferred tax assets and liabilities T076 Deferred income tax assets T077 Deferred income tax liabilities 156 156 157 T097 Other financial assets T098 Trade and other payables T099 Borrowings 167 167 168 168 168 170 171 171 T114 Inventories T115 Other non-financial assets T116 Development of retained earnings T117 Development of other reserves T118 Development of the MSP option rights T119 Development of LTI T120 Components pension liability 172 172 173 173 174 174 175 176 177 178 179 179 181 181 181 182 183 184 185 186 188 218 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGPage 201 202 203 220 221 223 Table Page Table T121 Reconciliation of the net defined benefit liability 188 T141 Fees for the auditor T122 Reconciliation of the changes in the DBO 188 T142 Average headcount T123 Reconciliation of changes in the fair value of plan assets 189 T143 Voting rights notifications Further Information T144 Overview by Quarter T145 Multi-Year Overview T146 Financial calendar 2020 T124 Disaggregation of plan assets T125 Actuarial assumptions T126 Expected payments from post-employment benefit plans T127 Development of provisions T128 Provisions – split current / non-current T129 Provisions – other personnel-related T130 Other non-financial liabilities T131 Reconciliation of changes in assets and liabilities to cash flows from financing activities T132 Segment reporting T133 External sales per country T134 Non-current assets per country T135 Commitments T136 T137 Compensation of members of the Management Board (IFRS) Provisions for compensation of the Management Board members T138 Compensation of Board members T139 T140 Compensation of members of the Management Board Section 314 para 1 No 6a HGB: retirement benefit obligations 189 189 190 191 192 193 194 197 198 199 199 200 200 200 200 201 201 219 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGOverview by Quarter Overview by Quarter 1 Income statement Revenue Adjusted gross profit Adjusted EBITA Adjusted EBITA margin EBITA Adjusted profit for the period Adjusted EPS Profit for the period EPS NOVA (NORMA Value Added) 3 Cash flow Cash flow from operating activities Net operating cash flow Cash flow from investing activities Cash flow from financing activities Balance sheet Total assets Equity Equity ratio Net debt 4 EUR million EUR million EUR million % EUR million EUR million EUR EUR million EUR EUR million EUR million EUR million EUR million EUR million EUR million EUR million % EUR million Q1 2019 2 Q2 2019 2 Q3 2019 2 275.6 161.3 39.6 14.4 36.9 25.2 0.79 19.2 0.60 10.9 9.8 – 0.3 – 16.6 – 13.9 289.0 167.1 40.9 14.2 32.8 25.7 0.81 15.6 0.49 10.5 27.0 28.8 –11.6 – 40.8 274.0 159.0 38.7 14.1 35.0 23.3 0.73 16.4 0.52 8.1 38.4 37.4 – 11.3 – 8.1 T144 Q4 2019 2 261.4 143.3 25.5 9.8 23.3 13.7 0.43 7.3 0.23 – 4.5 61.9 57.0 – 17.5 – 30.4 Mar 31, 2019 Jun 30, 2019 Sep 30, 2019 Dec 31, 2019 1,533.7 631.6 41.2 455.5 1,505.8 602.5 40.0 479.0 1,553.7 634.9 40.9 464.2 1,514.3 629.5 41.6 420.8 220 1_Minor deviations may occur due to commercial rounding for the full year 2019 compared with the summation of the corresponding quarterly amounts. 2_The adjustments are described in the Notes. 3_NOVA for Q1 bis Q3 2019 as reported on the corresponding reporting dates. 4_Including derivative hedging instruments. NOTES, P. 1 48 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Multi-Year Overview Multi-Year Overview 1 Order situation Order book (Dec 31) Income statement Revenue thereof EMEA thereof Americas thereof Asia-Pacific EJT DS Adjusted gross profit Adjusted EBITA Adjusted EBITA margin EBITA EBITA margin Adjusted profit for the period Profit for the period Adjusted EPS EPS Financial result Adjusted tax rate R&D expenses R&D ratio (in relation to EJT sales) (Adjusted) cost of materials (Adjusted) cost of materials ratio (Adjusted) Personnel expenses (Adjusted) personnel cost ratio NOVA (NORMA Value Added) 2019 2 2018 2017 2016 2015 2014 2013 T145 2012 3 EUR million 358.3 379.2 329.1 302.4 295.8 279.6 236.7 215.4 EUR million EUR million EUR million EUR million EUR million EUR million EUR million EUR million % EUR million % EUR million EUR million EUR EUR EUR million % EUR million % EUR million % EUR million % EUR million 1,100.1 486.0 450.8 163.4 665.5 430.2 630.6 144.8 13.2 127.9 11.6 87.8 58.4 2.76 1.83 – 15.5 27.1 31.2 4.7 477.4 43.4 302.4 27.5 17.3 1,084.1 494.8 441.5 147.8 684.6 393.8 626.6 173.2 16.0 164.8 15.2 114.8 91.8 3.61 2.88 – 11.7 24.9 30.5 4.5 473.1 43.6 280.8 25.9 60.8 1,017.1 485.9 411.3 119.9 638.2 372.3 601.3 174.5 17.2 166.8 16.4 105.0 119.8 3.29 3.76 – 16.1 30.0 29.4 4.6 418.6 41.2 269.6 26.5 54.9 894.9 432.0 381.6 81.3 535.9 354.5 545.6 157.5 17.6 150.4 16.8 94.6 75.9 2.96 2.38 – 14.6 28.9 28.8 5.4 352.9 39.4 243.9 27.3 53.1 889.6 416.0 395.3 78.2 540.3 344.1 533.1 156.3 17.6 150.5 16.9 88.7 73.8 2.78 2.31 – 17.2 32.1 25.4 4.7 362.9 40.8 234.1 26.3 48.3 694.7 394.5 237.8 62.5 481.0 211.5 405.6 121.5 17.5 113.3 16.3 71.5 54.9 2.24 1.72 – 14.5 33.3 25.7 5.3 289.9 41.7 188.3 27.1 n/a 635.5 388.0 191.5 56.0 443.9 193.6 371.4 112.6 17.7 112.1 17.6 62.1 55.6 1.95 1.74 – 15.6 32.6 21.9 4.9 269.4 42.4 169.7 26.7 n/a 604.6 367.5 193.3 43.8 427.6 174.5 344.4 105.4 17.4 105.1 17.4 61.8 56.6 1.94 1.78 – 13.2 30.3 22.1 5.1 263.5 43.6 156.5 25.9 n/a CONTINUED ON NEXT PAGE 221 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Multi-Year Overview 1 (continued) Cash flow Cash flow from operating activities Net operating cash flow Cash flow from investing activities Cash flow from financing activities Balance sheet Total assets Equity Equity ratio Net debt 4 Working capital Working capital ratio Employees Core workforce Total workforce incl. temporary workers Share Number of shares (weighted) Number of shares (year-end) 2019 2 2018 2017 2016 2015 2014 2013 EUR million EUR million EUR million EUR million EUR million EUR million % EUR million EUR million % 137.1 122.9 – 57.0 – 93.2 1,514.3 629.5 41.6 420.8 192.5 17.5 6,523 8,521 130.8 124.4 – 129.5 31.3 1,471.7 602.4 40.9 400.3 179.2 16.5 6,901 8,865 146.0 132.9 – 70.8 – 77.7 1,312.0 534.3 40.7 344.9 158.2 15.6 6,115 7,667 149.2 148.5 – 133.8 49.6 1,337.7 483.6 36.2 394.2 144.5 16.1 5,450 6,664 128.2 134.7 – 44.5 – 70.4 1,167.9 429.8 36.8 360.9 151.9 17.1 5,121 6,306 96.4 109.2 – 265.1 57.7 1,078.4 368.0 34.1 373.1 141.8 20.4 4,828 5,975 115.4 103.9 – 43.4 51.7 823.7 319.9 38.8 153.5 110.8 17.4 4,134 4,947 T145 2012 3 96.1 81.0 – 58.1 – 34.1 691.8 289.2 41.8 199.0 115.9 19.2 3,759 4,485 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 1_Key figures prior to the IPO are not shown due to lack of comparability between HGB and IFRS. For this reason, the multi-year-overview includes only the years from 2010 onwards. 2_ In 2019, adjustments were made which especially relate to the acquisitions and the rightsizing program which was initiated in the fourth quarter of 2018. The adjustments are described in the Notes. NOTES, P. 14 8 The adjustments of prior years can be found in the corresponding Annual Reports. 3_ 2012: The accounting rules changed in 2013 due to the first-time application of IAS 19R. In order to better compare the earnings, assets and financial positions, the 2012 figures have been adjusted to suit the new accounting rules and may therefore deviate from the figures published in the 2012 Annual Report. 4_Including derivative hedging instruments. 222 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGING Financial Calendar, Contact and Imprint Financial Calendar 2020 Date Event T146 May 6, 2020 June 30, 2020 Aug 5, 2020 Nov 4, 2020 Publication of Interim Statement Q1 2020 Ordinary Annual General Meeting 2020, Frankfurt Publication of Interim Report Q2 2020 Publication of Interim Statement Q3 2020 The financial calendar is constantly updated. Please visit the Investor Relations section on the Company website WWW. NORMAGROUP.COM /COR P/E N/IN VESTORS / Editor NORMA Group SE Edisonstraße 4 63477 Maintal Phone: + 49 6181 6102­740 E-mail: info@normagroup.com www.normagroup.com Contact E-mail: ir@normagroup.com Contact persons Andreas Trösch Vice President Investor Relations Phone: + 49 6181 6102­741 E-mail: andreas.troesch@normagroup.com Vanessa Wiese Senior Manager Investor Relations Phone: + 49 6181 6102­742 E-mail: vanessa.wiese@normagroup.com Chiara von Eisenhart Rothe Manager Investor Relations Phone: + 49 6181 6102­748 E-mail: chiara.voneisenhartrothe@normagroup.com Ivana Blazanovic Manager Investor Relations Phone: + 49 6181 6102­7603 E-mail: ivana.blazanovic@normagroup.com Design and Realization MPM Corporate Communication Solutions, Mainz Editing NORMA Group MPM Corporate Communication Solutions, Mainz Photo credits P. 8: Adobe Stock, #167630104, SasinParaksa P. 10: Adobe Stock, #249121004, Kalyakan P. 11: Adobe Stock, #19971063, LVDESIGN P. 12 Adobe Stock, #143487869, danielkay P. 14: Adobe Stock, #246144443, Olivier Le Moal P. 18: Adobe Stock, #36644589, kalafoto P. 19: Bernd Euring P. 20: Adobe Stock (formerly Fotolia) #121322457, von Jurga Jot P. 25: Bernd Euring P. 33: Eckhard Stein P. 57: Adobe Stock, #105359401, ramoncarretero P. 93: Adobe Stock, #82672538, Romolo Tavani P. 9, 13, 16, 17, 22, 23, 79: NORMA Group Note on the Annual Report This Annual Report is also available in German. If there are differences between the two, the German version takes priority. Note on rounding Please note that slight differences may arise as a result of the use of rounded amounts and percentages. Forward-looking statements This Annual Report contains certain future-oriented statements. Future- oriented statements include all statements which do not relate to historical facts and events and contain future-oriented expressions such as ‘believe,’ ‘estimate,’ ‘assume,’ ‘expect,’ ‘forecast,’ ‘intend,’ ‘could’ or ‘should’ or expressions of a similar kind. Such future-oriented statements are subject to risks and uncertainties since they relate to future events and are based on the Company’s current assumptions, which may not in the future take place or be fulfilled as expected. The Company points out that such future-oriented statements provide no guarantee for the future and that the actual events including the financial position and profitability of NORMA Group SE and developments in the economic and regulatory fundamentals may vary substantially (particularly on the down side) from those explicitly or implicitly assumed in these statements. Even if the actual assets for NORMA Group SE, including its financial position and profitability and the economic and regulatory fundamentals, are in accordance with such future-oriented statements in this Annual Report, no guarantee can be given that this will continue to be the case in the future. Date of publication March 25, 2020 223 NORMA Group SE – Annual Report 20193 TO OUR SHAREHOLDERS4 CONSOLIDATED MANAGEMENT REPORT5 CONSOLIDATED FINANCIAL STATEMENTS6 FURTHER INFORMATION1 INTRODUCTION2 TIMES ARE CHANGINGNORMA Group SE Edisonstraße 4 63477 Maintal, Germany Phone: + 49 6181 6102-740 info@normagroup.com E-mail: Internet: www.normagroup.com 

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