NORMA Group SE (NOEJ) Earnings Call Transcript & Summary

Good afternoon, and good morning, ladies and gentlemen. Welcome to our conference call regarding NORMA Group's results for the third quarter of 2024. My name is Guido Grandi, and I'm accompanied by my colleague, Annette Stieve. Together, we will go through the following slides. Following our presentation, we will be happy to answer your questions. Let us start with some key figures for the third quarter of 2024. As you can see from these numbers, this year's third quarter is not a top line, but rather a bottom line story for NORMA Group. Due to a volatile market environment, net sales in the third quarter of 2024 amounted to EUR 273.6 million, representing a decrease of 7.9% compared to the same quarter of the previous year. Given this difficult business environment, our team has done a great job addressing the general market trends and implementing our Step Up measures. The adjusted EBIT came out at EUR 20.9 million, representing a profit margin of 7.7% for the quarter versus EUR 24.8 million, 8.3% last year. Our net operating cash flow was EUR 28.2 million compared to EUR 38.6 million in the same quarter last year, while supply chain financing came down EUR 10 million relative to the end of September 2023. This results in an increased equity ratio of 48.1% on September 30, 2024, after it stood at 46.4% at the end of December 2023. Relative to our nonfinancial KPIs, we're happy to report that CO2 emissions were reduced by 8.1% relative to the same time period last year. Let us move on to the next slide, where we show our top line development in more detail. Looking at our turnover for the first 9 months of 2024, we see a decline of 5.1%, which is mainly due to a rather weak third quarter. We expected a challenging year 2024 right from the start. Nevertheless, we are, of course, not satisfied with the current market conditions and sales that are at the lower end of our expectations. The main reason for the decline in the third quarter was the negative volume effect of 6.9%. In addition, currency effects had a slightly negative impact on our sales results. In contrast, the Teco business, which has been part of NORMA Group since the end of February 2024, provided a positive sales contribution of 0.2%. Let's dive deeper into why our sales have been rather low on the next slide. In the Americas region, sales remained stable in the third quarter, excluding negative currency effects. Since the beginning of the year, however, the strategically important market has shown a mixed picture. Industry Applications as well as Mobility & New Energy suffered mainly from weak demand. By contrast, sales in our U.S. Water Management business continued to grow. The decline in sales in EMEA was primarily due to the continued weakness in the automotive industry, which continued into the third quarter. This is due to the low end customer demand and their uncertainty in e-mobility versus traditional vehicles. In addition, the prior year period was characterized by some catch-up effects. In Asia Pacific, we saw a further reduction in sales in the third quarter after revenues had already been declining since the beginning of the year. As in EMEA, this was mainly due to weak demand from the automotive industry and infrastructure, while the Water Management business was just slightly below last year's revenues for the same time period. Let's take a closer look at the sales development by region and SBU in the third quarter on the next slide. In the Americas region, Industry Applications remained stable on previous year's levels. Water Management would even have recorded slight growth had this not been offset by currency effects. Likewise, the Mobility & New Energy business reported a reduction in sales almost exclusively due to negative currency effects. In the EMEA region, Industry Applications continue to be affected by the generally weak economic environment, but sales picked up sequentially from quarter-to-quarter. Water Management recorded strong growth with an above-average contribution from this year's acquisition of Teco. Mobility & New Energy decreased due to a generally weak market condition, which led to unusually high volatility and a particular short-term adjustments to business volumes. This affects our business with all customer groups, be it passenger car OEMs, truck OEMs or their respective suppliers. In the APAC region, Industry Applications saw weaker demand as China's economy recovery continued to lag. In contrast, sales in Water Management increased mainly as a result of higher prices. Finally, Mobility & New Energy in Asia could not escape the general automotive downturn. On the next slide, we will show you what all this means for our strategic business units, our SBUs. As already mentioned in previous discussions, we are reorganizing our report. As a part of this, from the first quarter of this year, we have been reporting our sales performance by our 3 strategic business units. This is a very important step in promoting our SBU structure and increasing the transparency of our progress. Let's start with Industry Applications, where sales in the third quarter were 4% lower compared to the same quarter last year. The decline was primarily driven by weak demand in APAC, which was down by almost 1/3. However, we recorded a sequential improvement over the previous quarter and a strong September, which showed a year-on-year growth in all 3 regions. We see this as an initial sign of success for our growth initiatives in Industry Applications, albeit a challenging market environment. Water Management sales maintained the exceptionally high level of the prior year quarter. Our Teco acquisition in Europe offset negative currency effects and a slight decline in volumes. In these figures, we compensated some sales losses due to an extraordinary weather event in the U.S. at the end of the third quarter. Although the storm had a short-term impact on sales, it is another example of the ongoing trend towards increasingly frequent extreme weather patterns and therefore, the need for our storm water products. Mobility & New Energy sales, on the other hand, were significantly lower than in the prior year's quarter. Subdued global demand and unexpected short-term disruptions such as temporary plant closures at some of our customers, particularly in EMEA and Asia Pacific regions, led to lower volumes. Unfavorable price and currency effects played a minor role. Now that I have presented the challenging revenue situation, I will leave it to my colleague, Annette Stieve, to share with you the highlights below the top line.

Thank you very much, Guido, and a warm welcome from me as well. As Guido Grandi just said, this quarter is a bottom line story, and I look forward to taking you through. Let's start with the gross profit margin, which shows a pleasing upward trend. This is mainly due to the fact that total material costs and inbound logistic costs decreased over proportionately to the decrease in sales, both in absolute terms and as a percentage. Total operating costs also decreased despite a higher personnel expense ratio as we were able to reduce freight costs by almost EUR 7.6 million, of which special freight costs were reduced by around 80%. Consequently, both our adjusted EBITDA margin and the adjusted EBIT margin were solid in Q3 and year-to-date, higher than in '23, even considering lower sales. Here, you can see the results of our efficiency measures and the operating -- operational improvements we have put in place. Let's get over to the development by region. The EBIT margin in the Americas region developed remarkably well, both in the third quarter and on a year-to-date basis. On the one hand, this is due to the positive development of the gross profit margin. In addition to favorable material costs, our sales teams were able to achieve slight price increases. At the operating level, lower freight costs also contributed to this positive development. The EBIT margin in EMEA was disappointing in Q3, mainly impacted by the low sales volume. On a year-to-date basis, however, the continued implementation of further operational efficiency measures had a positive impact. Freight costs were successfully reduced, rising personnel costs dampened this development. In APAC, the decline in sales in Q3 still resulted to an EBIT margin of 4.9%. To conclude, the margin development provides the necessary foundation to maintain our course and deliver robust results. We consider the positive year-to-date margin development as a clear success achieved by the Step Up program. At the next slide, our service slide for you, we show our operational adjustments in the P&L. We adjusted acquisition-related costs referring to Teco in our EBITDA amounting to EUR 300,000. The rest results from PPA amortizations of prior acquisitions and the corresponding tax impact. Let's have a brief look to our EPS. In line with the decline in sales, earnings per share are lower than previous year. Additionally, a lower net financial result and a higher tax rate in the first 2 quarters have also affected year-to-date figures. The financial result of the third quarter of minus EUR 5.3 million represents a notable improvement on the prior year's figure of minus EUR 6.6 million. Major reasons were the impact of lower interest rates and the payback of a promissory note of EUR 2 million in July. The tax rate -- the adjusted tax rate in Q3 '24 was 35.1%, which represents a significant improvement on the high tax rates in the first 2 quarters. Overall, unrecognized deferred tax assets and losses as well as nondeductible withholding taxes and nondeductible expenses continue to result in an above-average but slightly improving tax rate. Let's move over to the balance sheet figures. Our net financial debt visibly decreased compared to the end of '23 by 2.2% and by even 15.6% against September '23. This is also reflected in the reduction of leverage from 2.6x as of September '23 to 2.2x as of September '24. I'm pleased to report that the equity ratio has once again improved significantly, reaching its highest level since the IPO. Finally, I would like to discuss cash flow with you. Our cash flow Q3 was lower than last year. This is based on a lower EBITDA as well as a lower increase in trade working capital and additionally, slightly lower investments from the operating business. If we compare year-over-year, we see that EBITDA is almost on par. The lower working capital outflow of EUR 16.2 million year-to-date includes a decrease in supply chain financing programs of EUR 8 million to EUR 50 million compared to the end of '23. At the end of September '23, supply chain financing programs even amounted to EUR 60 million. In total, net operating cash flow has increased by about EUR 44 million year-over-year. And on top, supply chain financing programs have been reduced by about EUR 10 million. With this solid encouraging achievements, I would like to give back to Guido Grandi.

Thank you, Annette. Ladies and gentlemen, our bottom line results show the effectiveness of our strategy to steer the NORMA Group through a difficult economic environment, as Annette has just said. Based on the assumption that the last 3 months of 2024 will remain to be challenging, we have concretized the sales outlook for the lower end of the previously communicated range. This means that based on our current knowledge, we expect group sales for the full year of 2024 to be around EUR 1.2 billion. For the EMEA region, we now forecast a full year sales in the range of around EUR 480 million to around EUR 500 million, taking into account the continuously subdued environment, particularly in the European automotive industry. For the Americas region, we now expect sales in the range of around EUR 540 million to EUR 550 million. In APAC, slow demand in key customer industries characterized the first 9 months of 2024. We, therefore, now expect the region to achieve full year 2024 sales in the range of around EUR 140 million to EUR 150 million. Despite the headwind at the top line level, we are still expecting our adjusted EBIT margin to reach the lower end of the guidance at around 8%. I would like to take this moment to emphasize once again the outstanding achievements of our teams over the past few months in optimizing our efficiency in many areas of the group. The fact that we are able to maintain our margin guidance in such a volatile and challenging environment is a reflection of an outstanding team effort. So please let me provide you with some more recent achievements of the Step Up program in the remaining slides. As we have repeatedly stated over the last quarters, the goal of our midterm growth and efficiency program, Step Up, is to make NORMA Group's operations more efficient and productive in order to achieve further profitable growth in our 3 strategic business units. To this end, we intend to shift the sales shares of the 3 SBUs, which is progressing quarter-by-quarter. Mobility & New Energy now account for 56%, while the other 2 account for 44% of revenues. By the end of September 2024, we identified more than 1,800 actions in the internal program tool. 2/3 are in the implementation phase with many close to completion. Several key initiatives are implemented, including cost optimization measures by the global purchasing organization and logistics process efficiency initiatives. The numbers on the slide may seem abstract, but reflect concrete results. Whilst our efficiency measures helped to secure and even lift our margins in the first 9 months of the year, our growth measures still need some time to visibly unfold their effect. I will give you a recent positive example here in a minute. Since we keep getting questions about this, I would like to emphasize once again that our clear strategic goal is to achieve above-average growth in our Industry Applications and Water Management businesses, supported by targeted acquisitions where appropriate. At the same time, we're constantly reviewing all strategic options to increase the value of the company. This includes the possibility of buying and selling individual entities. We're also constantly reviewing the structure of our global production and distribution network. It is our duty to raise value for all stakeholders and continuously test our strategy. We, as the management team, are absolutely convinced that our Step Up program is going to deliver healthy and profitable growth for NORMA Group. NORMA Group aims to grow shareholder value sustainably. The focus is on continuous profitable expansion. By growing our existing customer base and acquiring new customers, we expand our business and global reach. The adjusted EBIT margin is a key performance indicator. We've made progress on our target EBIT margin this year. We aim to return to a double-digit EBIT margin at group level. Industry Applications and Water Management should reach 15% to 20%. For Mobility & New Energy, we're working towards 10%. Let me conclude with 2 examples of how our entire team at NORMA Group works together in making Step Up a complete success. High efficiency is key to improving our profitability. In order to achieve this, our colleagues in India have developed an innovative approach to optimize quality assurance processes. The focus is on increasing the degree of automation by introducing a state-of-the-art vision inspection system. In particular, this involves the automatic integration of dimensional inspection into quality control. The integration of a multidimensional camera system enables direct sorting of faulty parts and the packaging of flawless products. We're already implementing the new processes. The necessary investment into the described automation is scheduled for next year and included in our budget. On the growth side, we want to broaden our horizons to bring our expertise and capabilities to other industries and new customers. By shifting engineering capacity from Mobility & New Energy to other applications, we aim to enable faster adoption of product initiatives and accelerate product innovation. Our Industrial Applications SBU has successfully entered the market for new household appliances such as dishwashers in the Americas region as part of our Step Up cross-selling initiative. The NORMA Group has recently started to supply TORRO clamps to one of the largest brands of home appliances in the United States. The customer wanted a top-quality clamp with U.S. standard screws. Our product development and operations team created a clamp and adapted the manufacturing process. It is based on the TORRO design and meets the desired high-quality requirements. This example clearly demonstrates that our expertise, innovative strength and flexibility enable us to win and retain new OE customers who have a very high demand for our joining products. Ladies and gentlemen, with these 2 examples, I would like to conclude today's presentation. They should give you a flavor of the success that we are continuously generating with our Step Up program. During the presentation, we have also demonstrated the positive impact of our Step Up program on our financial performance. This is shown by the significant improvement in our margin and cash flow profile. Thank you for taking the time to participate in our call today. We now look forward to addressing any questions you may have.

The first question came from the line of Yasmin Steilen from Berenberg.

I have 3, if I may. First, on the Mobility & New Energy business. Following the sales decline in Q3, can you share some insights on the current call-off activities and the RFQ dynamics in the automotive and in the commercial vehicle industry? Then second, on pricing. In Q3, price pressure had been subordinated according to your comments. However, with the current news flow from the light vehicle, commercial vehicle industry, what are your expectations on pricing, in particular for the Mobility segment within the next year? And the last question on EMEA. After the positive development in H1, we have seen negative operating leverage on the lower sales volumes that hampered the adjusted EBIT margin. Can you share more color on the Step Up measures that tackle -- that you plan to tackle the labor cost inflation?

Thank you very much, Yasmin. Yes, let me start with your first question, MNE sales and the call-off outlook for the remainder of the year. Based on our assumption, and that's also what we see in the current call-offs is that we see a little bit of a stabilization in the current market situation. That's basically true across the 3 regions. Now I have to put a big question mark to this because, of course, what we see in our systems and what we also use for our assumptions is not taking into account that there might be any, I don't know, significant strikes at some of our large OEM customers. But we're looking at the current market conditions. Relative to the current market conditions, we don't see a big relief or a big growth for the fourth quarter, but a stabilization relative to what we've seen in September and now also in October. So again, stable on a low level, not accounting for any significant changes that we might not see at this stage. Concerning pricing for Q3, yes, we do see pricing coming down a little bit, keeping in mind that, of course, in 2022 and also 2023, the company was very successful to raise prices with customers. And now we see some of these prices coming down. Some of this is even, to a certain degree, automatic because we have to walk along the steel pricing in the market. Nevertheless, I can say that overall, the price level that we're currently achieving is lower relative to last year, but it's better than what we had expected relative to our budget. In other words, our negotiations are working out okay. And this is due to the fact that on the one hand, we do see material prices coming down. There's a little bit of a pressure also on our sales price. But at the same time, we see labor prices going up, merit increases all over the world. And this, of course, needs to be compensated in our sales price, and that's what we're also using in our discussions and negotiations with our customers. Last but not least, your third question concerning EMEA and the lower EBIT margin in the third quarter. I want to be very clear, and I also want to make sure that we don't have a misunderstanding here. We're, of course, not satisfied with the EBIT margin that we have achieved in EMEA in the third quarter. Nevertheless, the background of this based on our analysis is clearly the low volume that we've seen in the third quarter. It is not a measure for our Step Up implementation, but it's rather an automatic result of the lower performance. Nevertheless, of course, we have labor cost inflations in EMEA, but also in other regions that are significant and that need to be compensated. And that's also where our Step Up program comes in. As I mentioned in the presentation, we have 1,800 measures already in the system and about 2/3 of those are already in implementation.

Maybe just a follow-up on the -- on EMEA. So basically, I understand you correctly that, obviously, there are no restructuring plans planned at all. But basically, this implies also that you expect the volumes to recover as of next year on commercial vehicle and on light vehicle.

Well, I didn't hear me saying anything about restructuring, but I can, of course, do that. When you look at restructuring, and of course, when you also look at the marketplace and the companies in the market around us, there is a lot of restructuring currently going on. The way we like to look at it is that NORMA Group has already done some of this homework over the last 2 years. I mean, as we all know here around the virtual table, some of these activities have not been implemented very efficiently, but nevertheless, they were implemented, meaning that we reduced our capacity in EMEA over the last 2 years already, basically ahead of the crowd, so to say. So what we see today is, of course, a sluggish demand. And of course, if the demand stays at this very low level, then we have more homework to do. Nevertheless, we don't expect it to stay on this very, very poor level that we see in the moment where we do expect some recovery, and that should then also fill our plans to an adequate amount. Nevertheless, as I also stated in the presentation, of course, we see it as our task to constantly review our footprint and to constantly test our footprint relative to the requirements that we have. And yes, there might be some footprint hygiene also in the future concerning some adjustments, and we will address that as they come up.

The next question comes from the line of Nikita Lal from Deutsche Bank.

I would have also 3, if I may. The first one is a follow-up on the situation in EMEA. If you're talking about stabilization of volumes in Q4 versus Q3, is it fair to assume then a similar profitability level in Q4? Then my second question is on APAC. As I remember correctly from your Q2 conference call, I think you said something like the H2 margin should be better than the H1 margin. So now we are seeing such a low Q3 margin in APAC, is it still fair to assume that H2 should be better and then Q4 has to be much better than H1 and Q3 we saw right now? And my third question is on 2025. So I acknowledge that you are not giving us any guidance for 2025, but could you just qualitatively talk about the environment you expect to see next year?

Okay. Thank you, Nikita. Thank you for the questions. Concerning EMEA and the stabilization of profits going into the fourth quarter, let's be a bit more specific here. When we're comparing quarter 3 and quarter 4, of course, quarter 3 is influenced significantly by the vacation season in the middle of the year in Europe. So by nature, quarter 3 is lower in sales. So we actually do expect quarter 4 to be a little bit stronger. But if I look at the last couple of months, looking at September and October and extrapolating that towards the end of the year, that's where I see the stabilization. So we're not expecting anymore that the market overall is picking up significantly, but we're expecting it to be stable, but definitely better than July and August, which, of course, our summer months are low months and therefore, influence the third quarter, but not so much the fourth quarter. Relative to your question in APAC, yes, traditionally, our second half of the year is stronger than the first half of the year. This has something to do, number one, that with the New Year festival in China, that, of course, has a significant influence on the first quarter and therefore, the first half, while the second half is not influenced by this, and it's also not influenced, of course, by the Christmas season as we see that, of course, in the Western Hemisphere. So naturally, our second quarter in APAC is stronger. On top of that, we have some significant Water Management business in the Asia Pacific region. And also, in the southern half of the world and the southern half of the globe, of course, springtime is coming. And therefore, we see that business picking up in the second half. So generally speaking, yes, second half and also fourth quarter should be better in APAC. Is it at the level where we would like to see it or where it was in prior years? Unfortunately, no. So therefore, we expect quarter 4 to be better than quarter 3 for APAC, but unfortunately, not better than prior years at this stage. Last but not least, our outlook for 2025. I mean, yes, as you indicated, we're not ready to give any guidance on 2025 yet. But our view on things is that, of course, 2024 was a very difficult year, not just for NORMA Group, but overall, the economic situation was very dire. We expect 2025 to be slightly better, but not significantly better. So we are looking quite conservatively at 2025.

The next question is from Tonn Marc-Rene from [ ARBG ] Research.

We think it's Marc-Rene Tonn from Warburg Research. Maybe the name was not spelled correct.

[Audio Gap] profitability. And I really appreciate that you are, let's say, showing a rather strong result given the weak environment. But when you look forward and look at your midterm targets for the segments and what that means for the group and assume that you, let's say, will end up this year in line with guidance at around 8% -- and a bit, let's say, coming back to Yasmin's question. When we look at your Step Up measures, you said 66% are implemented. I think that does not necessarily mean that we already see 66% of the, let's say, financial benefit, which you are expecting from these measures. Perhaps some indication would be helpful here is on how much more tailwind over the next years we can still expect from the Step Up program when it comes to your earnings and margin development and how much we should eventually expect from the revenue side. I also expect and perhaps you could give us some indication here that given the particularly low volumes in which environment you are currently working in that the operating leverage is probably pretty high. But you can give us some indication, let's say, what currently, let's say, every million euros up or down may mean for you? And how we should think about that also, let's say, going into 2025, let's say, assuming perhaps a slight improvement which may then already have, let's say, a meaningful impact on EBIT or whether you would like us to be a bit more cautious on that side? That would be the first question.

Marc, we are pretty sorry, but there was a technical issue with the line. So we did not understand the first part of your question. Could you please repeat it?

I'll try. So basically, if I make it a bit easier. Looking at the Step Up program, you said 66% of measures are implemented already. How much of the financial impact of this 66% of measures do you already have in the books? And how much would you expect, let's say, still to be, let's say, supportive for the years ahead?

Sure. And thank you for repeating and sorry for the confusion there. Let me -- I'm going to answer your question, but let me be a little bit more general to make sure everybody understands. The Step Up program, the way we look at it is a continuous improvement program. So when we're quoting the 1,800 measures and the 66% implementation, 2/3 implementation, this should give you a feel for where we are. Unfortunately, it doesn't give you a feel for where we're going because we don't see an end to this, like we expect, I don't know, 2,000 activities and then we stop. This is a continuous improvement program. So we're going to carry this forward. Nevertheless, the other thing that makes it a bit challenging for the communication here is the savings and the efficiency improvements that we see in Step Up unfortunately, don't stand alone. Just to give you an example, if we're successful to reduce the workforce in a specific site or in a specific operation because of a smarter way of producing things, then we reduce personnel costs. At the same time, of course, we have merit increases that we have to compensate for. When we look at our Step Up measures, I have to say we're looking at the good side of things, basically looking at the sunshine, looking at those things that make us better. We're not using this as a control tool to also compensate -- I mean, on the bottom line, of course, we compensate for cost increases, but we don't track that in the same tool. So for us, it's a continuous improvement tool that gives us significant improvements in the double-digit million range that we achieved for this year and on same levels also for the years to come. But unfortunately, of course, reality comes in and compensates for some of these measures with merit increases and material cost increases and other things that we're trying to compensate. So long story short, we do see significant benefit of Step Up. We will carry this forward into next year. We do see that we have some great momentum here, and we're very confident that we would have not been able to keep the profitability level and also we would have not been able to keep our guidance without this effort of the team.

On top, Marc-Rene, if I may complete that at the end, we are also financing -- invest in new businesses. So we invest in bringing up an EMEA water business or bringing the EMEA -- the water business to EMEA, where we prefinance certain activities like ferries, whatever or when we go to different new products in IA, might it be telecommunication boxes or what we just said about washing machine things and whatever. This is all first the prefinancing heat -- our heat pump solutions where we invest in the business, and this has to be prefinanced.

In other words, as they -- do they -- and now coming back to the second part of the question. So that basically means when looking into next year and let's say, we probably have to do it and I'm fully aware that it's not the time for the 2025 guidance. But looking into next year, when we look at what we should expect for the margin, it is probably -- we should, let's say, try to approach it a bit more from the operating leverage side rather than some massive incremental cost savings from any measures you are currently implementing. And second -- and related to that, the operating leverage probably currently is pretty high, which then should also, let's say, be, let's say, very helpful or, let's say, even very negative next year depending on where revenues will go.

Well, I mean when you look at our current situation, maybe the way to interpret is that especially for those facilities and for those machines and plants that are working on the Industry Applications and also the Mobility & New Energy side, we're looking at utilization levels of 70% to 80%. So way below a normal fill stage, so to say, or efficient stage. We're expecting that revenues will come back to a certain degree. As I said, we're conservative also looking into 2025. But if these volumes come back to a, let's call it, normal level of utilization of 80% to 85%, then we will see a significant impact also on our bottom line.

Is there, let's say -- perhaps this leads to this question. Is there, let's say, a revenue level, I fully appreciate that, let's say, regional mix and product mix also will play a role, but where we say, okay, we need a certain level for double-digit margin in the group. Is it, let's say -- is there an easy number, which you could have? Or is it, let's say, very individual to tough to say...

It's very individual given the 3 business units that we have. And of course, the product mix and also the margin, of course, of these different products are not comparable. So -- but by definition, I mean, that's easy to say. But by definition, we need higher utilization levels on the automotive side than we need on the water side. And that's also due to the fact that, of course, in our automotive processes, there is a higher level of automation. And therefore, these -- this equipment lives with the utilization level.

So what we do more and more, and I think this we announced already with the beginning of Step Up that the first measures were absolutely oriented to cost saving to efficiency. And the more we put that in place now, what is a continuous improvement, we are concentrating in parallel, but more and more on growth initiatives. And these growth initiatives, they should give us this future volume in order to participate out of that and to profit out of that in the future. Yes.

[Operator Instructions] The next question is from Felix Kruse from Hauck Aufhauser Investment Banking.

I'm left with one after my colleagues already asked a few that I wanted to ask. And that's on other operating expenses, specifically the temporary workforce expenses. It looks like you reduced the employee count there by about 270 in Q3. Could you comment on whether this adjustment was made towards the beginning of the quarter, the end, whether we've kind of seen an average effect and then also whether we should expect a normal seasonal adjustment of the temporary workforce in Q4 or whether some of that has been pulled forward maybe?

Well, we have to keep in mind with the temp workers, we float a little bit. So we have to keep in mind that our Mexican colleagues, all our Mexican colleagues are 100% temp workers. So that is a kind of maquiladora, a kind of tax trade tariff-driven, I would say, construction. So therefore, these are 100% workers who work for us, but they are 100% temp. So therefore, we breathe in particular, in these factories in Mexico with this. This is not so much something what has to do with the season or whatever, that is really -- we are -- can breathe with this in Mexico, and that is not so much seasonal-wise or starting at a certain period or whatever. Anyhow, for sure, we reduced our temps all over, as we already said last year. We concentrated our colleague, Dr. Heymann concentrated in order to gain his operational efficiency first on the, I would say, very heavy points. So first, it was being able to deliver, secure the quality. And now we are in the middle of bringing the efficiency that we have the right amount of workers in our factories. And by this, for sure, we first reduced the temps because these guys we put on top in order to secure on that. So that is the special part and the typical part out of that and absolutely according to our plan.

So just to clarify, part of that reduction was efficiency improvement, and you wouldn't expect an increase in -- or the same increase in temporary workers if volumes pick back up?

No, not necessarily. So the efficiency part will not necessarily immediately go to a certain increase when the volume is back, not at all. That is efficiency out of our operational problems we had in the past and what we finally cleared.

Is there any way you can quantify that for us?

It's difficult. I mean, as Annette was explaining, we have 3 factors that are overlapping a little bit. We have some facilities like the ones in Mexico that are 100% temporary labor. We have other facilities where in a normal production situation, you would always work with, let's say, 5% to 10% temporary labor just to keep the flexibility and to adjust to fluctuations in your demand. And then last but not least, and this is the main portion that played a big role here in the past, we had a high amount of temporary labor in the past because of inefficiencies. Now as Annette described, the inefficiencies are basically out of the system. And at this stage, because of the low demand, we also reduced temporary labor as a flex tool for all other locations. So right now, we are probably at a -- I don't want to say, a historic minimum, but definitely a minimum relative to the usage of temporary labor. If the economy picks up again, then we would probably also add additional people on a temporary basis at first. So therefore, if economy picks up, we do or we would see an increase of temporary labor up to that point where we have that flexibility in the system again.

The next question is from Peter Rothenaicher from Baader Bank AG.

I have a question on APAC. So if I look at the sales figure, down 24% in the third quarter. So this looks really disastrous. I understand there is definitely some impact from the weak economy, but don't you think you have here some structural problems in here? How do you look on this?

Yes, Peter, thank you for your question and also for your observation. I mean the situation in APAC is significant. There is no doubt about it. It is not due to the fact that we lost significant amounts of business. It is a little bit due to the fact that we have a little bit of an unfortunate product mix, especially as it refers to China. Number one, Industry Applications is down because overall construction is down. But then also relative to the automotive situation in China, we were a little bit, let's call it, unlucky this year because our customer mix is not very favorable. We have a large Chinese customer that has, so to say, treated us well relative to high volumes over the last couple of years. That is GAC. And GAC is struggling this year because they have a product mix change. They have a new program to replace an old car platform. So therefore, we see significantly lower volumes. And we do see significantly lower volumes in APAC or in China specifically for applications for internal combustion engines because as we all know from the media, the transfer from internal combustion engines to electrical vehicles is faster in Asia Pacific as it is in the rest of the world. So 2 things that are putting pressure on our sales in Asia Pacific, but 2 things that we feel will be compensated in the future. So as I said before, we do see it as our task to always look at our capacities and also to look at our footprint. And of course, we're also doing that in Asia Pacific. But I don't want to see the minus 24% as the new normal for our operations in Asia. It is more of a current situation that we have to compensate.

And when do you expect here some turnaround? You mentioned special unfortunate situations. When will this recover? Is this already visible for 2025 or still uncertain?

Well, what we do see is at least from a month-to-month basis that volumes are improving in APAC and especially in China. We do have some hope also for next year. The model change that I was referring to at GAC is now behind us. So we do see some volumes picking up over there. Of course, the overall economic situation, I mean, who knows, right? I mean this might be the first year that China even misses their growth target of 5%, which is, I guess, an [ anomaly ] by itself. But yes, I mean, we do see some light on the horizon. Is it enough to really look into 2025 optimistically? I don't know yet.

Okay. But for the time being, there is no reason for devaluation of some participation subsidiaries or something like that?

Nothing concrete at this point. But as I mentioned before, we're always looking at capacities and our footprint as well.

Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Guido Grandi for any closing remarks.

Well, first of all, thank you very much for everybody participating in this call. As you've seen, a very challenging third quarter relative to the revenue situation we're faced with and the overall economic situation. Nevertheless, let me say that I'm proud of the team over here at NORMA Group that we're able to keep profitability at a strong level and also enabling us to stick with our guidance for the rest of the year. So thanks again for your interest and your patience, and we'll talk to you soon.