NORMA Group SE (NOEJ) Earnings Call Transcript & Summary

Well, thank you very much for the introduction. Ladies and gentlemen, a warm welcome to our conference call and Q&A session for the Q1 2020. And I'm personally very happy to be back in the team here at NORMA Group after my COVID-19 infection. And I hope that you and your families all are healthy and protected against that virus. Today, in that conference, we will lead you through the presentation and the Q&A. We means Andreas Trösch and myself. Andreas is Head of Investor Relation, Group Communications and Corporate Responsibility of NORMA Group. And together with Andreas, we will lead you through that presentation and the Q&A session. I started with a remark on the coronavirus, and this is also a very important topic for the developments, of course, at NORMA Group. And then so far, we put together on the first page of the presentation, and I'll go to Page 2, effect and figures in the Q1 regarding COVID-19 and market update before we come to some figures. And if you look on that Page 2, we have a very challenging market situation, as you all know, as we are all in that market environment, COVID-19 uncertainties depending on the shutdowns due to the pandemic, what about the changes, what about second wave and so on. So there's a lot of uncertainty based on that pandemic. This also means that the automotive market was very weak. The whole sector was weak due to the global economic situation as well as upcoming powertrain technologies and also the impacts of the coronavirus, of course. In the Distribution Services business, we have some positive impacts due to critical infrastructure products and products for medical use. So that's a certain advantage of NORMA Group's broad product portfolio in different end markets. And especially in the U.S., the NDS business is defined as critical infrastructure products. And then so far, we also had in light a nice growth in the water management business in the U.S. But overall, an extremely challenging market situation based on the described aspects. The COVID-19 actions, of course, as probably every company has started regarding the market situation. Of course, we have an ongoing monitoring of COVID-19 developments and the situation of the demands in the market. We have to monitor our supply chain very closely for potential impacts. And we have to screen our customer situation. We have to screen our suppliers in that marketplace. Of course, we have to focus on the health and health situation of our employees with preventive measures and guidelines, home office regulations, et cetera, travel restrictions. Probably, you all know that in that COVID-19 period. This led us to short-term actions and also mid- and long-term actions that we started and realized in the past. Regarding our temp workers, we have and we make use of flexibility in our workforce in the temp workers' area where we decreased in the Q1 2020. We have seen that the -- in the last few days and week -- or few weeks have first factory reopenings in EMEA and Americas, following early factory shutdowns. And we also took care of the cash situations that we have, a good cash situation also due to a strict capital management and less capital spendings. Mid- and long-term actions. You all know that we started and put in place our rightsizing program with the target to optimize production landscape, structures, processes and systems. We published our Get on track program in November last year, where we see additional changes, focusing on operational excellence, structural improvements also regarding plants, even our product portfolio and the purchasing processes especially. And we also have to see that the COVID-19 phase have their -- its implications, but we also have to prepare for the post-COVID-19 phase so that we have to prepare the organization for the recovery past COVID-19 crisis. And hopefully, this will be in the second half of that year. So that's an overall overview on the market situation, COVID-19 situation. And going from that to our Q1 financials on Page 3 of the presentation. We see the concrete impacts of these market situations. Regarding sales, we have sales down by 8% in the first -- excuse me, in the first quarter 2020. That means that we had generated EUR 253.6 million in the first quarter. And from an organic perspective, it's a reduction versus Q1 2019 of 8.9%. We generated a EBITA margin of 10.7% out of these -- versus pre year reduced sales amount, that means EUR 27.1 million, which is a reduction of 31.6%. As mentioned, we have a good cash situation. We had a positive net operating cash flow in the first quarter 2020 of EUR 6.7 million, while we had in the first quarter 2019 minus EUR 0.3 million. So a nicely improved cash flow situation based on the operating measures. Balance sheet. We have an equity ratio of 40.8%, which is slightly increased versus the December 2019 amount, while we have a net debt of EUR 437 million end of Q1 '20. The guidance 2020. Based on the effect of the corona crisis, we cannot yet define a reliable guidance 2020 for the full year at this time because of that whole uncertainty of the whole market situation and corona. I think we are in line with a couple of companies on the market. But based on that extremely high volatility, from today's perspective, there's no change to guess a reliable and more detailed forecast for the year. If you look on the top line development on Page 4, we see the sales Q1 2020, as mentioned, EUR 253.6 million, EUR 22 million below Q1 2019, which is an overall change of 8% and a organic downturn of 8.9%, which means organically, we are EUR 25 million below Q1 last year. We had a slight positive impact from the currencies, around EUR 3 million so that we ended up Q1 at nearly EUR 254 million. And we see the split of the sales of our global business: EMEA, 46%; Americas, 41%; and APAC, 13% as sales contributors. If you look on the organic decline of 8.9% in Q1, the reasons for that development is a very weak EJT business in all regions in the first quarter due to that COVID-19-related shutdowns. While we saw a slight organic growth of the U.S. water business at NDS so that we, again, here see the positive impacts from a broad end market portfolio. And as mentioned, EUR 2.5 million positive currency impacts. If we have a look on the segments on the regions on Page 5, we see these developments in the regions, EMEA, Americas, APAC. And we see in all regions a downturn in organic sales. It's in EMEA minus 8.3%. It's in Americas minus 9.8%; and in APAC, minus 8.6%. And all 3 regions suffer from that negative impact from the COVID-19 pandemic. Once again, Americas, slightly positively impacted by the organic growth of the water management business. If you go to Page 6, we see the, let's say, historic development of our margin. 10.7% in Q1 2019, which is significantly lower than in the last years. We see the impact of the shutdowns and market implications from that special phase, and so far, the better Q1 2020 than Q4 '19, but still on a very low level. 10.7% EBITA and 15.1% in EBITDA as a margin in Q1. If you look at a couple of details on Page 7, in the adjusted EBITA and the EBIT development, we have material cost ratios and gross profit nearly on the same level as we had to last year in Q1 2019. We see that we could reduce the personnel costs from EUR 79 million to EUR 76.8 million. And nevertheless, it's too high for that sales level so that we have personnel costs of 30.3%. So the 100% flexibility is not given. And we have to see that this significant lower level of sales volume caused by that COVID-19 effects also drives the percentage rate of personnel costs up higher than last year, while the absolute figures went down. It shows that we have some personnel measures, but not a 100% flexibility of personnel costs. The other operating income and expenses are up by 110 basis points, also due to higher freight costs and expenses for expected losses from trade receivables where we did evaluation of our receivables in connection with the COVID-19 pandemic and even some positive adjustments effects in prior years, but the main impact also here coming from COVID-19 aspects. We have to keep in mind, that's what I mentioned earlier, that we strictly have to focus our customer and even our supplier situation where there might be some insolvent customers where we have to be very careful in assessing the receivables, what we did. Looking into the operating adjustments that we show on Page 8 of that presentation. And we have no adjustment from the Get on track program. As we mentioned to you last year, we do not adjust for costs in the course of the Get on track program. So that -- and on the EBITDA level, we have the same figure for reported EBITDA and adjusted EBITDA of EUR 38.2 million and no adjustments in the EBITDA. The other adjustments being an EBITA depreciation and in EBIT amortization is coming from earlier acquisitions so that we have PPA adjustments of EUR 6.5 million on the EBIT level coming from past acquisitions. And total adjustments, earnings per share after tax of $0.15. And overall, EUR 4.8 million, once again, coming from past acquisitions from depreciation and amortization. So earnings per share is reported Q1 2020 EUR 0.34 and adjusted EUR 0.49. In relation to the last year, that's on Page 9, this means a negative impact caused by that or impacted by that COVID-19 development in adjusted earnings per share and reported earnings per share by 37% and around 43% in the Q1 2020. If you look on the debt and net debt ratios, which is shown on Page 10, we have that equity ratio of 40.8%. We have a leverage that increased to 2.5x EBITDA due to the lower EBITDA, while net debt increased by 3.9% to EUR 437 million compared to year-end 2019. And we also have to mention on that chart that looking into the debt situation, which increases from EUR 601 million December versus EUR 649 million in March, we increased our debt by EUR 48 million. We just took the chance in March to produce some, let's say, liquidity reserves to be on the safe side by taking our revolver facilities in March so that we have a good, let's say, overall liquidity position in that risky times and in these volatile times where nobody really knows what is going on with COVID and with the market situation to be on the safe side. And we have EUR 211 million end of March in cash so that we are in a good position regarding cash development and cash basis for the next month. Gearing is on the net -- on the same level as December at 0.7. And we also see on Page 11 that we have a quite solid maturity profile that gives us also a good position from a treasury perspective in 2020, where we have some amounts that we have to pay. It's EUR 29 million due end of July. And we have EUR 15 million in CP program, Commercial Paper program that we extended. We included here in that chart a new information on the covenants in the presentation because it's a very important metrics in these days when companies are in such a, let's say, market and COVID crisis. We are showing the covenants for bank borrowings and also for our promissory notes. And we see that in the bank borrowings, we do not have any, let's say, running covenants. We only have in the bank borrowings a topic where we have a margin step-up of 50 basis points if the leverage would go higher than 3.75. Once again, we are at 2.5 currently. And we also put in the information for the promissory notes, where we have 2 border lines, which is below 3.25. If we have leverage higher than 3.25, we have a margin step-up of 75 basis points. And here we have with a leverage higher than 3.75 a possibility that there might be a repayment review of these promissory notes, but this first date would be March 2021. So that we also are on a quite comfortable position in terms of covenants, maturity profile and even by the amount of cash that we have for the next month. So solid long-term maturity profile, only minor repayments scheduled in 2020 and no covenant breach possible at least until March 2021 in that current Q1 figures. Looking on the cash development, which was quite strong in Q1 on Page 12. We see that we have net operating cash flow in the Q1 2020 of EUR 6.7 million, while we had a net operating cash flow Q1 2019 of minus 0.3%. So although we have a lower EBITDA in the first quarter, we compensated this cash impact by a strict working capital management and also by a strict management of CapEx and investments, which are lower than in the Q1 2019. And overall, the cash flow -- the net operating cash flow of Q1 '20 is significantly better than Q1 '19, so that overall, from a cash perspective, we are on a quite -- once again, quite comfortable position. And these market situations, in these crisis situation with COVID, it's important to have a solid cash development. As you all know, cash is king in these crisis periods. And so far, we took care of these cash positions, which worked out very well in the last couple of weeks. On Page 13, we show to you NORMA Value Added. NORMA Value Added is, from a strategic point of view, from a value creation point of view, our long-term strategic target to work on value creation for NORMA Group. We see that in Q1 2019, we had a value creation NORMA Value Added of EUR 10.9 million. Q1 2020 based on these negative impact is negative, minus EUR 2.5 million in the first quarter. We also have to see that this contains partly exogenous impacts. For example, we have a market risk premium that was defined by the Institute of Public Accountants (sic) [ Auditors ] to take a higher market risk premium, which increased our weighted average cost of capital to around 8% instead of 7.1% in the past, which also has an impact of more than EUR 2 million. If you would exclude that, we would be around 0. But currently, Q1 2020, including all these impacts, minus EUR 2.5 million. And of course, we are working to improve that figure and to generate value as we did in the past. Another very important aspect for us in 2020 is, and this is shown on Page 14, our Get on track program. We are well underway with the activities of our Get on track program. We saw already minor benefits and costs in Q1 2020. And once again, just to remember, these costs are not adjusted and these first benefits quickly after having it published are in purchasing and in the product portfolio. And we also have to define the first -- finally define the first activities for a product group that we will transfer from a German production location to Czech Republic. This was already discussed with the Works Councils and with the employees. So I can't publicly talk about that, and this will be performed in the next weeks. So Get on track program is well underway. And we show the Get on track program effects for the next year and for the full year 2020 and the next years with the onetime costs, once again, not adjusted, fully shown in the EBITA plus benefits that we expect and the net impact. Get on track, well underway. If you look on the outlook 2020 on Page 15. Due to the ongoing COVID pandemic, as I mentioned, it does not make any sense and it is not possible to give a reliable forecast and guidance from today's view. But as previously stated and also published via an ad hoc announcement, we continue to believe that the forecast originally published in the year 2019 presentations and year-end report, for the fiscal year 2020, it's no longer maintainable because the effects of the corona crisis and the implications from a customer perspective on customer demand and the whole supply chain cannot be estimated at this time. And therefore, no detailed forecast for fiscal year 2020 currently possible. That and based on the latest assessments of economic research institutes, industry associations, IHS, LMC and so on, we assume that the consequences of the corona crisis also for the full year, of course, will result in a significantly negative deviation from the forecast that we originally published in the 2019 year-end report. We all know that the complete market is impacted by corona and COVID-19 implications. We believe that NORMA Group is very well positioned in that crisis situation. And then so far, we also see some chances for the future coming out of that crisis situation. But for the time being, there's no reliable guidance that could be published. So far, I would like to thank you very much for listening. And now, Andreas and myself are, of course, happy to get your questions and discuss with you.

The first question is from Ingo Schachel, Commerzbank.

My first question would be on your personnel costs and you spoke about the time lag in reducing personnel costs. Can you tell us a bit more about what we should expect in the second quarter by how much can you reduce the number of temps? And should we see a lower number of core staff in EMEA and APAC at the end of the second quarter? And then how many people are currently on the short-term work?

Yes. Just one general information before I also hand over to Andreas. We have currently not flexibilized 100% of personnel costs. What we currently see is that we reduced our temp workers. We currently have some additional workers to reduce special freight costs and some operating situations so that we expect a good development over the next quarters, but maybe some details from Andreas.

Yes. When it comes to personnel cost and overall, the factory shutdowns, we are monitoring the market situation closely, meaning we are on the engineered side talking to our customers on a daily basis and try to find out what their plans for reopening and increasing of productions are. And by that, we are adjusting our capacity, meaning we have the big list of our facilities, and we are, on a daily basis, adjusting the capacity. And by that, we are also adjusting our personnel costs. So it is now on May 6 too early to judge what the full quarter and even the full year will be this year. We are closely monitoring the situation. We have the flexibility. What we did is, and this is not a guidance, it's a scenario, we calculated a scenario, which shows 20% top line down for the full year. And in this scenario, we would have a flexibility in personnel cost of roughly 40% and we would have a flexibility of other operating costs of roughly 60%, while material costs are almost fully flexible according to the demand in the market. So it's a volatile situation. That's also the reason why we could not give any guidance today. We are using the flexibility. We still have plenty of temp workers to be reduced. We are also, of course, in negotiations with our permanent workers. And we are making use -- wherever it is possible, we make use of the short-term work that we can do, for example, here in Germany.

And just to mention the temp workers that you mentioned. End of 2019, we had nearly 2,000 temp workers, 1,998. This was reduced end of March to 1,690. So there is a flexible development in the personnel costs, but of course, not 100%.

Okay. Yes. Thanks a lot for sharing the scenarios. That's a very clear statement. And now maybe on the less volatile parts of your business on NDS, can you talk a bit how the growth trajectory has unfolded into the second quarter and also how different it is? I mean does it really make a difference for you, anecdotally, whether do-it-yourself stores in certain markets are open? But are you seeing clear double-digit growth from the market where every channel is open? And the revenue declines in areas where do-it-yourself stores are still closed? Or are you seeing broad-based solid or slight growth across all markets in which you're active?

Yes. Thanks for the question. If you look on NDS, we have 2 very interesting impacts. First, we have an impact. If there is a period of time where plants are closed, production facilities are closed, people are at home, they might have the chance to go into their garden and think about putting a store model irrigation system or a landscape irrigation system into their garden because they have the time. Now there are shops closed, but there, we also see the advantage of the NDS business. We saw a very good e-commerce business, especially in March in the U.S. So that we serve different sales channels. Of course, if you should take -- if you take Home Depot, et cetera, when they are closed, it's difficult to make some sales. And there, it helps a lot that we have, meanwhile, an intensive sales channel. And if I have correctly in mind, we had in March 50% of the sales via e-commerce, and this helps a lot. By the way, the e-commerce channel is more and more important for our water management business for our NDS business and on a long-term business for the Distribution Services business. So this helped overall for the NDS business Q1.

Okay. Just a quick last one on this write-down on trade receivables. Can you give us a number on how much you've written down?

The receivables write-down was roughly less than EUR 1 million.

The next question is from Kai Mueller, Bank of America.

Good to hear that you're feeling better after catching the COVID yourself. I've got 2 questions. One is really more on the market and the second one is on your business. Is -- in terms of market, obviously, everyone is tracking very closely. The automotive market, there's obviously talks about potential stimulus program in Germany. What's your view on trucks? Because obviously, truck is a reasonably sized business for you, especially in the U.S. The latest data we're seeing, you took, we hear about, 60% cut in production in 2020. Can you give us a bit of color how you're preparing for that? And when do you really see that happening? Is it orders being canceled at your customers now and then the production is really taking the hit in Q2 and maybe all the way through Q3 as well? That's the first one really on your view on trucks. And the second point is on your margins. Obviously, Q2 at the 10% is in the double digits -- sorry, Q1. Q2 clearly will be the weakest quarter, probably as many of your peers are also saying. Can you give us an indication of what you're doing to keep -- limit that impact as much as possible? And can you give us some sort of magnitude, could it turn loss-making? Or you -- will you be able to still stay profitable in that quarter?

Well, Kai, thank you very much for your remark and also for your questions. First topic, truck business. If you look on the truck business, commercial vehicles 2020 Q1 and if you look on the market figures also published by LMC, the whole market was down by 27%. And if you take the U.S. business, it's 20-plus percent. So this was the situation in Q1. If you look into Q2 -- and that's a very important information. In Q2 in U.S., LMC is expecting a downturn of 90.1% -- 90.8%. So Q2 2020, from a truck perspective, will be probably a horrible quarter in Q2. Besides that, if you look into Q3, Q4, taking LMC figures, LMC is forecasting after Q2, Q3 and Q4 a 23% plus -- minus downturn versus last year. So this is a critical situation for the full year, but especially for the second quarter, looking into the U.S. business, being more than 90% LMC expectation below last year. And of course, we address these issues. We intensify short-term labor. We have additional cost programs in OpEx, et cetera, so that we limit traveling, we limit and reduce further part-time workers, et cetera. So there's a full program in place to reduce every single cent and euro in terms of costs. Will that be enough, based on this critical situation in Q2, to not show a negative result? To be honest, I cannot give you a final answer today based on the volatile situation that we currently have. We are nearly in the mid of Q2. What we see is that April was -- April as a month was terrible. It will not directly improve in May. And we have to see which will be the impacts out of shutdowns in June or do we see already some improvements. This is extremely volatile currently. But be assured that we have every single cost cent and cost euro under monitoring. To give a view on Q2 margin from today's perspective is not possible.

Okay. And maybe to get an idea, you obviously showed actually reasonable performance in your EJT business, given all that's going on. Have you seen in your own orders possibly that OEMs were sort of preordering? Or other way around, you were still shipping when they were already shutting their facilities? That actually when they start opening plants again, that until pickup is for you, i.e., as a supplier, that might be delayed because they go first through inventory? Has there been some phenomenon that you could see at your customers' end?

No. So what we have in our business model, and that's also true for the time being, is that we usually have with our products not really a stock level with the customers. We are delivering just in time. The parts leave our premises in 72 hours, and then the stock level of our OEMs is usually 4, maybe 5 days of our parts. So there is no pre-ordering, mainly due to the fact, if you look at the parts numbers that we have, the different SKUs, it's a huge variety. And therefore, it doesn't make sense for the OEM to put a high stock level of our parts, and this did also not happen now in the last weeks or months of the corona impact. When we look at the order book, the orders, this is, of course, we have an electronic order book as always, which is in theory, good for the next couple of months, but not during these times. That's why our sales guys, our key accountants, they are on the phone on a daily basis, trying to figure out what the -- in Europe, more than 200 customer plants are doing, what the order level might be independent of what is still in the order book electronically. That's the big task right now. That's also what I mentioned earlier. We have to monitor it very closely and we need to be very flexible. And that's why we are planning our capacities on a daily basis as well.

The next question is from Philippe Lorrain, Berenberg.

Yes. Just to follow-up, a quick one. You were mentioning that you -- typically, your customers have 4, 5 days of inventory of your products. Is it -- do you mean they have this inventory of 4, 5 days of production on their own premises or at your premises in -- basically waiting to be shipped or to be actually picked up by the customers? That's the first.

Yes -- no, that's on -- that's basically on their premises, meaning they produce the cars or the engines and if we would not ship additional products, they would run out of stock in 4, 5 days. So that's their, let's say, safety stock, what they have. The message is, it's not like a month or 2 months or whatever, like they have ready or finished cars on their lots or finished engines. This is not the case in the supply chain coming from us as a supplier to the OEMs.

Typically, it's a more just-in-time supply chain relationship that we have. And as Andreas mentioned, the stock situation is just for, let's say, reserve for not charging the supply chain.

Just out of interest, do your customers actually tell you how much products they already have, let's say, in their own inventory? Or is it just like a statement that you can make because you've experienced that kind of situation in the past?

Well, it's a statement that we have from experience from the past. There is no daily inventory monitoring from the customers as we get via EDI. They're quantity assessments, but this is done on the basis of products they expect to use, but not on the inventory level.

Okay. Great. And then I've got like a more of a generic question perhaps. I guess you already gave the answer, but perhaps you can just shed some more light. So could you shed more light on why the geographies have performed, like, quite similarly in terms of organic sales decline? I think especially like APAC versus EMEA, while we had like a reduction in production in China, especially that starts much before what we've seen in EMEA? And generally speaking as well, like around 10% decline in the U.S. We've got the water business, of course like, performing a bit better. And I know that the truck business was like a bit of a hit. But perhaps you can walk us, like, more through the different exposure in the different regions in terms of end markets, if that helps?

Yes. But if you -- Philippe, if you, for example, take in the China business. China, meanwhile, seems to be going back nearly to normal so that they had some significant impacts in January and maybe February. And this came mainly for the other regions for EMEA and the Americas in March. So we have a certain time shift in having the impacts, but the impacts are in APAC, in EMEA and Americas, very significant. There's a different timing. So that -- I would agree with you that China is going back to normal if, nobody knows, there's no second wave. But this is just a, let's say, shift between months in these markets. So that's looking at the markets based on these assumptions, and once again, it's extremely volatile. And today, nobody can give the right forecast. But taking this information, we would expect China going back to normal in the next couple of weeks taking this information. But for example, if you take the U.S. business, Americas business, especially driven by the truck business, as mentioned in Q2, minus 90%, 9-0 percent, for the truck business according to LMC in Q2 will hurt significantly in Q2. So there is a certain split and phasing. APAC, let's say, coming back to normal earlier, Americas facing significant downturns, especially in truck and EMEA as well.

And then maybe one other point. I think you were asking about the different margin levels compared to the, more or less, equal downturn in top line. One point also is what Michael mentioned earlier, is the adjustment that we had last year from the rightsizing, which was an adjusted number, but we did not adjust now for Get on track. So that's also one effect which hit America specifically there, meaning that we want to put, let's say, the whole truth on the table and not adjust the Get on track cost, while last year, it was adjusted. That's another, let's say, on top of the main topic, which is, for sure, in Q1, the truck business down.

Your next question is from Christian Ludwig.

First of all, I would try to come back to the statement, Andreas, that you made earlier when you said -- I just want to understand, is your scenario analysis. If you lose 20% of your top line, you said your personnel cost flexibility, if I understood it correct, was 40% and the other cost flexibility is 60%. So how do I read that? You can reduce your personnel cost by 40% if you lose 20% top line, is that the right way to look at that?

Yes. So the scenario, what we did, is that we put all information from the regions together. And we're analyzing then what could we do on the cost side if the top line goes down by 20%. And the numbers I mentioned is then that we have the flexibility on material cost, almost all of it. It's never 100% in life, of course, and that we have a flexibility on personnel cost of roughly 40% and other operating costs 60%. That would be the scenario. Let's see what life brings at the end of the day, but this is what we put together in order to, yes, get a feel for the year and take then the measures that we have to do according to the market requirements.

But wouldn't I have to assume that there is a time lag there? So I mean if you lose 20% this year, you will not be able to use your personnel cost in the same time frame by 40%?

Absolutely. I mean that's exactly why I say scenario, yes? This is, of course, has to be seen month-by-month, and we are updating actually this scenario on a weekly basis. And then you have to see month-by-month. You have to consider, as you say, the time lag, of course. And you have to see where is the market going down and what is the number of temp workers in that market, what is the number of -- or the possibility of short-term work in that market. Of course, it gets tremendously complex if you dig deeper. But as a statement, let's say -- that was my point earlier, as a statement on group level, that's the flexibility that we see. And then, again, life will show -- we will see what the reality will show. But that's, let's say, to give you some comfort on what we see and what we can do on that end.

And of course, Christian, you have said you have that flexibility, not all at the same time. When you realize that sales are going down in the month, you have to adapt, but you have some 1, 2 months of adaptation time, of course. And so far, this is fine for the, let's say, full year. But if you take a week or a month, you need some, let's say, interaction between months.

Okay. Understood. And then a question on your ramp-up scenario. I mean hearing or listening to the calls of your main customers, the messages are quite diverse actually. I mean Volkswagen and Daimler have started ramping up again. BMW just said today, they won't start before May 18. Now doesn't that make your life even more difficult? I assume you don't have separate factories for these guys, but they're all supplied by similar factories. So now you have to open up factories, although only 1/3 or 2/3 of your customers are going back up again. Or how do I have to think about that?

Yes. So of course, you're absolutely right. It's a very challenging period to manage that ramp up. And the key to that is to be as flexible as possible and to discuss and be very closely with our customers when do they open which factory, which products do they need. So for us, it's extremely important having a flexible and quickly reacting production facilities as well as a clear communication line, quick communication line directly with our customers to get the information as early as possible. That's what we have to do internally.

And in addition, of course, what we also do since the whole pandemic started, we are checking our supply chain, meaning we are looking at our suppliers. We want to make sure that we have suppliers, on the one hand side, close by in order to avoid distances, but also then to have a second and third supplier in case that one -- the one or the other is not able to reopen or is not able to deliver to us. So it starts with the supplies that we need. It starts, like Michael says, with the different locations that we have. And then again, back -- and I have that nice colorful plan in front of me, and no, I cannot send it to you. We have it really plant-by-plant and day-by-day, where we measure and look into the details coming from the customers then into our factories and also then steered in our supply chain, meaning that the suppliers are on standby and can deliver to us. So it's a complex world right now. The teams are quite busy. The spirit is good, I have to say also on this side. Lots of things are getting done in a very fast way. Everybody is on the same page. It's tricky times, I can tell you that, but we will make it, yes.

Okay, great. I appreciate that it's a very difficult time. And 2 more questions. One, could you give us a rough figure of what your capacity utilization looks like for Europe and North America right now? And two, looking at the split between the 2 segments, EJT, DS, yes, they were not that -- the decline was not that different in Q1 but would it be fair to assume that for Q2, we should expect a massive decline in EJT, while DS should hold up fairly well?

Yes. So when we -- that's exactly the point. So on the engineered side, besides China, the world is down in Q2. April was really bad, coming from the fact that most of the supply -- most of the customer plants are shut down, while DS is holding up quite nicely, yes. It's also down, of course, but at least something is happening. And as mentioned earlier, the water business in California is seen from the state of California as critical infrastructure products, meaning we have the factories up and running in California and can supply the market then with the products what they need. So in Q2, for sure, EJT will be heavily down, while DS should be not too bad. Let's see how it plays out, but that's the status that we have right now.

Okay. And on the current capacity utilization?

And what was the second part of your -- yes, the capacity utilization. If I look into this week, for example, we are globally roughly on 50%, 5-0. And in Europe, it's less than that. It's more in the 40% range. In Asia Pacific, we are more towards the 70%, 80% range, having a smaller region there. And it's roughly in Americas, it's between 50% and 60% range. And Americas, of course, nicely positively impacted by NDS.

The next question is from Andre Finke, HSBC.

First of all, also from my side, good to have you back, Dr. Mike Schneider. The most important news of today, I think, for all of us.

Thanks, Mr. Finke.

Two questions, maybe as a follow-up to NDS and the DS -- comments on DS. I mean if I look at DS and organic growth decline of 7.5% in the first quarter and then assume that NDS is probably around half of the segment sales in the first quarter and was up 1.4%, doesn't that mean that organic decline of DS ex the water business was very significant too?

Well, the business also in DS, what I mentioned earlier is the [ OMEC ], the do-it-yourself shops in Germany and the world are closed, you have that impact. So it's, of course, also a difficult situation for the Distribution Services business, which we typically sell via wholesalers and retailers. And starting -- or in the water management business, we meanwhile have a very significant part in e-commerce, where we have in the nonwater Distribution Services business also starting e-commerce channels, but not in the range in March. For example, 50% of the business at NDS was done via e-commerce in March. So that's a significantly lower portion for the U.S. business, which suffered in the first quarter by the do-it-yourself shops being closed.

Okay. And then the second follow-up on NDS. If you look at the profitability in the first quarter of the water business, was it in the usual range? Or is it -- has it suffered as well?

Well, typically, the water management business is in the, let's say, old NORMA Group average. So it typically has a very good margin, at the average, let's say, around 17% -- 16%, 17% of EBITA. But of course, if there is only 1% of growth, instead of 8%, 9%, it's adjusted, that's for sure. NDS business, nice margin business, nicely growing, and so far, happy to have NDS. And once again, I mentioned this already 2 times. I'm mentioning it a third time. It's one of the biggest advantages of NORMA Group to have that added market diversification around a technical focus around joining technology in these different end markets. And this is also helping us significantly in these days.

Okay. And my question was basically trying to find out what the underlying [ ability ] of the non-NDS business in Americas is. And it's probably roughly breakeven only in the first quarter, right, if NDS has usual profitability? Is that a fair assumption?

Well, I would assume it's in the positive area. But of course, if you have these variations and reductions, you can also not have flexible cost 100% in DS. So it also helps, of course, the margin, but being better than, for example, the automotive business in these days.

And I mean in addition to that, there we have to take one step back. I mean the launch of the Get on track program, which we announced in Q4 last year was also for the purpose that we have margin-wise, not the level as we enjoyed a couple of years back. So the 17 plus, which was kind of the trademark for NORMA for many years was then last year, 13 plus -- 13.2% to be correct. And the reason why we launched Get on track is that we have to do partially our homework, that we have to put effort in the 3 areas of that program, being locations, being products and being purchasing and procurement advantages in structures and processes. And of course, one homework that we have to do is North American nonwater business, for sure. So COVID-19 and the pandemic has a certain effect now. It's not helpful if the truck business goes double-digit down in Q1, for sure not. But other than that, the margin has to be improved. That's why we mentioned earlier that the Get on track program is launched and it is on track. But we need that also in order to get back to the old margin levels, meaning including the nonwater business, which is enjoying nice, high margins. But the nonwater business in the U.S. needs to be dealt with, and this is part of the Get on track.

Okay. But it was still in the blacks in the first quarter, right? That's what you say, I think.

I have to look it up, to be honest. Borderline -- border.

Okay. And the next question relates to the restructuring. I mean you mentioned that this is ongoing. You mentioned the shift of the product line. In the quarterly report, you talked about delays of a couple of months of some projects. So I just want to make sure that this is rather negligible in the overall context of the restructuring program?

Yes. That's absolutely right. We mentioned that our, well, rightsizing program and the Get on track program are well on track, are well underway. The projects -- programs are going on. And so far, of course, if you, for example, have a reduction of sales in a critical market situation or social situation with COVID and you don't buy 100 parts from your supplier, but 50 parts, the overall impact out of 50 parts, of course, in absolute figures is lower. Nevertheless, of course, our projects are going on very well. It's well underway. And so far, we will realize our Get on track and our rightsizing measures as planned.

Okay. And then another follow-up to the -- to your comments on temps. You reduced the number of temps by 308, I think, in the first quarter, but it's still a relatively high absolute number with close to 1,700 temps, around 20% of your overall workforce, I think. So why is that number still that high when you already have the headwinds in terms of top line?

Well, we have to see that also we have these reductions, especially in March. We, of course, in other locations, have some projects that we finished in March where we needed these workforce for sending out products, for preparing our restructuring measures, et cetera. So that we need a couple of -- of course, a couple of people, and the reductions will go on in quarter 2, 3, 4. This will go on in the next quarters. You do not see the full impact in Q1.

Okay, fair enough. And my last question is related to the liquidity and balance sheet. You mentioned that you draw down on some of your facilities to have a bit of a bigger cushion. Are you already -- or are you on top also negotiating with banks to have the overall amount of credit lines extended?

Yes. We are -- in fact, we are in running discussions and ongoing discussions with our banks regarding potential liquidity reserves where there is a very high interest of our banks. So I think there we are on a very good way. If we would need in the future additional liquidity, then we have the right solutions in place. That's fine. On the other hand, of course, we also do not want to, let's say, overshoot and have too much liquidity reserves. We want to have the right liquidity reserves for our business for -- have a efficient run-up of our facilities so that we have the right level optimized with liquidity with the right level and there's a very high level of flexibility and a very high interest of our banking partners to support. Nevertheless, I'm not sure if we really need additional capital for the next month. We are very well positioned currently, EUR 211 million of cash plus revolver facilities so that we are excellently positioned from a cash position. But besides that, there's also additional reserves that we could draw. Does that answer your question, Andre?

Maybe he dropped out of the line. So I can see online now here on the screen that we do not have any further questions. So thank you from my side.

Yes, thank you all very much for attending our Q1 2020 call. Once again, I think we all are in a very critical market situation. COVID-19 impacted significantly. Please keep in mind, NORMA Group is very well positioned in that situation. Our liquidity is on a very well-managed high level so that we are safe on that side. And then so far, NORMA is well positioned. We'll go out of that crisis strengthened for the future. And the long-term perspective, we clearly write a very good growth scenario for the next couple of years. Thanks a lot. And all the best to you.

Thank you. Bye-bye.