Drägerwerk AG & Co. KGaA

Ladies and gentlemen, welcome to the Q3 2025 earnings conference call. I am Matilde, the course call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Träger, CEO. Please go ahead.

Yes, good afternoon, and thank you for joining our conference call on our financial results for the first nine months, 2025. I have with me today Gert-Heinz Glesbo, CFO, as well as Tom Fischer and Nikola Sammerschmidt, both investor relations. We would like to take you through the results of the presentation that we made available on our webpage this morning. Following the presentation, we will open the floor to your questions. Let's get started on page five with the business highlights. With a significant increase in orders, noticeable growth in sales and very good earnings, We delivered a strong business performance in the first nine months of 2025. Despite difficult economic conditions, demand for our technology for life rose to around 2.6 billion euros. The last time we had such a high order intake after three quarters was in our record year 2020. Growth was driven by both divisions and only The same is true for net sales, which increased to around 2.3 billion. Earnings before interest and taxes almost reached the prior year level at around 77 million euros, despite the positive one of the effects which supported last year's. As a reminder, last year we had divested a non-core business in the Netherlands and unused property in the United States, and a building in Spain, totaling around 30 million euros in one-off effects. Those effects are missing this year. In addition, this year, we need to compensate for some quite strong headwinds, currencies, and tariffs, and a substantial negative impact on our earnings. So, without these headwinds, our EBIT which has been significantly above the prior year level. Our business in the third quarter made a substantial contribution to the strong overall performance in the first nine months. That says we're significantly above the prior year level in Q3 by a bit more than doubled. In addition to our top nine, we were able to improve our operating cash flow in the first nine months with a considerable increase by more than 35 million euro to around 93 million. This development has also been recognized by investors. Until the publication of our preliminary figures, our preferred shares had already increased by around 44% year to date. On the day after the publication, they rose by 12% resulting in an increase of around 63% in the current year. Our common shares have shown strong performance as well, with an increase of around 41% year-to-date. Ladies and gentlemen, as communicated two weeks ago, we now tend to expect the net sales growth at the EBIT margin in the upper half of our forecast range. I will come back to our outlook at the end of our presentation. For that, I turn over to Stefan for a review of the percentages. Stefan, please.

Thank you, Stefan, and welcome, everyone. Please turn to page seven for a group overview. As usual, all growth rates are quoted on a currency-adjusted basis. As Stefan Dreger said, we continue to see a strong demand for our technology for life, and those divisions in all regions Order intake rose by 9% to around 2.6 billion in the first nine months of 2025. The Americas led the growth with an increase of around 19%, followed by EMEA and APEC. In Germany, the order volume was slightly above the prior year level. In the third quarter, orders grew by roughly 7%, as the slight decline in Germany and APEC was more than offset by an increase in the other regions. Our net sales development has further accelerated in Q2. We are well on track to compensate for the slow start in the year caused by some supply chain crashes. Net sales rose by more than 10% in the third quarter. In the first nine months, they increased by roughly 4% to around 2.3 billion. All divisions and regions contributed to in the EMEA and the Americas regions. I'll comment on that when we get to the divisions. Our profit margin increased by 0.7 percentage points in the first nine months to 45.1%, despite currency hedging and higher tariffs. The margin improvement was stronger in the medical division than in the safety division. Operating costs rose only moderately, reflecting disciplined expense management. Our financial expenses increased around 6% in the first nine months, but mainly driven by the absence of last year's $30 million runoff income. Excluding the positive runoff effects mentioned above, the cost increase amounted to 2.4% in the first nine months and to 1.5% in the third quarter. In nominal terms, however, financial expenses were on a slight decline in Q3. Due to the only moderate increase in costs and the significant growth in net sales, we more than doubled our eVitro around $57 million in Q3, coming from around $24 million in the prior year quarter, which had been still supported by the positive one-time effect amounting to $10 million. Our EBIT margin rose from 3.6% at 3.1% to 6.8%. Strong earnings performance in the quarter. Over the first nine months, EBIT came in at around 77%. The EBIT 3% margin is slightly below last year's 80 million and the 3.5% margin. Again, the positive and negative effects from the prior year are now missing. In addition, headwinds from currencies and tariffs key trading currencies. We carefully monitor the development of foreign currencies and manage its risks proactively through hedging and price adjustments. Having said that, FX still had a negative impact of roughly 22 million euros on EBIT. Our operating performance improved year on year, and that improvement nearly, but not fully, upset the absence of run-offs in the FX and tariff drag. Thus, our EBIT declined slightly. Finally, our rolling 12-month VBA improved significantly from roughly 30 million to around 49,000 euros. Let us now take a closer look at the on page 8. The group's order intake can almost talk to send to around 1.5 billion in the first 10 months of 2025, driven by high demand for ventilators, anesthesia machines, services, and consumers. In the second quarter, the mid-double-digit million-euro order for hospital infrastructure from hospital further powered our growth in the Americas. But even without this large order, demand in the medical division grows here and there. In the third quarter, order intake in the medical division increased by more than 5%. The decline in APEB was compensated for by the significant growth in EBR and by the positive development in the other regions. Thanks to EMEA and the Americas in particular, net sales rose significantly by more than 10% per quarter after a slight decline in the primary period. Looking at the first nine months, net sales increased by around 5% to 1.3 billion euros, driven by all regions. In APEC, growth was driven mainly by India and China, with business development somewhat uneven in China. in the third quarter. Although the resolution of our Q1 supply chain problems had a positive impact in Q3 as expected, these effects were offset by the overall weak business in China, resulting in a decline in net sales compared to the prior year quarter. Our gross margin expanded by nearly three percentage points in Q3 and by 1.1 percentage points in the first nine months thanks to a favorable product and country mix, and lower quality expenses from field actions. Functional expenses rose by 6% in the first nine months of 2025, and were roughly 8% in the third quarter. Excluding the proportionate product in one of the facts from the sale of real estate in the prior year, the increase amounted to roughly 4% in the first nine months, and also in the third quarter. Earnings in medical return to positive territory as we are making progress in improving the profitability in the division. Our EBIT grew considerably from minus 4 million to plus 11 million, lifting the EBIT margin from minus 0.9% to 0.3%. For the first nine months, EBIT amounted to around minus 23 million euros after around minus 28 million euros in the prior year period. As mentioned before, one of the facts in the prior year's period played a role. Our role in 12-month CBA improved significantly by around 22 million to around minus 45 million. I will now turn to our safety division. On page nine, in the first nine months, water intake rose by roughly 6%, driven by gas reduction, respiratory and personal protection products, and intermediate solutions. for occupational health and safety normalized after last year's large order for NBC protective filters leading to a lower demand in the U.S. and the Americans delivered strong double-digit order growth while APEC remained almost stable. After a somewhat slower development growth in APEC also contributed to this development. Q3 net sales rose significantly by roughly 10% driven by India and the Americas in particular. The first nine months, net sales increased by more than 2% thanks to growth in all regions. That said, our safety business is back on track after its line weakness in future. Our gross margin funded by 1% in 2020 was stable in the first nine months thanks to a favorable product mix. Financial expenses rose about 5% in the first nine months. This was mainly due to other operating income in the prior year period from the sale of our fire alarm systems business in the Netherlands and the sale of real estate. Higher marketing expenses also had a negative impact on financial costs. Excluding the other operating income of the previous period, financial expenses decreased slightly by 0.3% in the first nine months of the year and by 2.4% in the third quarter. So, good expense management and safety needs. Q3 EBIT improved significantly to roughly $46 million after $28 million prior year quarters. The EBIT margin increased to 12.6%. After the first nine months, the EBIT came just under 100 million euros, down from 108 million. The EBIT margin was just below 10%. Rolling 12-month BDA increased slightly, from roughly 3 million euros to around 94 million euros, coming from 97 billion euros in the previous years. That concludes the safety division review. Let's move on. the development of our cash flow and other key figures on to slide 10. In the first nine months, we significantly improved operating cash flow by around 35 million euro to roughly 93 million euro. This was mainly due to effective work with capital management, especially better development of trade receivables, trade payables, and other liabilities. Outflows from investing activities more than tripled from euros to about 6 million euros, resulting in a free cash flow of around 17 million euros after around 35 million euros. Among other things, the significant increase in outflow was due to a base fact. In the prior year, the sale of high alarm systems business in the Netherlands, the sale of the property in the U.S. had led to a considerable inflow, which is now missing. added in investments to one of its holdings in the first quarter of 2025, which has contributed to a higher outflow year-to-date. Looking at our net financial debt, we had modest reduction, keeping our leverage at a healthy 0.7 net financial debt to the PTA. Our 12-month return on capital employed rose from 10.9% to 12%. This was due to the significant increase in our capital employed. The considerable growth of our rolling 12-month pivot resulted from the good performance in the fourth quarter of 24, which had delivered much higher earnings compared to Q4 23. Net working capital was around 3% higher than in the prior year at around 721 million euros. Our equity ratio as of 2024. Now, I invite Stefan Dreger for our outlook on page 12.

Ladies and gentlemen, QC was a strong quarter for Dreger. Our excellent order development and the increasing sales momentum make us optimistic about the protocols of the business for this year. Therefore, we now expect the upper half of our previous guidance. We now tend to expect less sales growth of 3.0 to 5.0 percent net of currency effects, and an EBIT margin of 4.5 to 6.5. EVO is now expected to be in the range of 10 to 80 million euros. So far, business development during the year has given us a good basis to reach our targets. We are in the most important quarter of this year, with our typical seasonality. In the next coming weeks, we will remain focused on execution to deliver on our promises. With this, I would like to end the presentation and hand over to the operators to open the line for your questions. Please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You'll hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Oliver Reinberg from Kepler-Chevreux. Please go ahead.

Thanks very much for taking my questions. I would have three and probably take them one by one, if possible. The first one would be on the ventilation market, if you just can discuss the dynamics there. I mean, I assume the whole industry has benefited from the exit of wire, GE and Medtronic. There have been some kind of voices who claim that Yettinger and Hamilton have gained most from these kind of changes and Drägerberg somewhat less. I mean, I assume everyone has seen significant growth. I was just trying to get a kind of feeling. Do you feel that's fair or do you believe you have captured your kind of fair share in this kind of market development? And also, to what extent, if we move into next year, is this kind of challenging base effect or will this kind of market consolidation support further growth next year? That would be question number one, please.

Yeah, this is . So I believe that all market participants that are still there share, including ourselves, of the opportunities that come from the of the three players. So for me, I couldn't understand why they, with the three players. And I see that is for the times to come very beneficial to be in the market. As you know, we have the longest tradition and experience and the greatest production capacity for all players as we invented the ventilator in 1907. My great-great-grandfather did this. And I still see it for the future as very beneficial to be in there. And I see that both Mr. Hamilton and myself, we address our customers personally with a video message to let them know that we will be there at their side in the future. So for, it's not a secret, for Hamilton it's a challenge because although it's a US owned company, operations are based in Switzerland, the tax for the US are 39%. So that took some extra effort to cope with that that we don't have. So it's beneficial for, other European ventilator manufacturers, including the one in Sweden.

That makes sense. And do you believe you can still grow from this kind of base next year, or is that a kind of demanding base of which we would expect a kind of decline?

No, I would not expect a decline. I think overall, the market has still opportunities and room for growth. as medical technology environment, the general positive trends, they're still there and continue. So despite maybe some single countries drop out, the global trend is still there.

but that's helpful. The second question is just on supply chain. I mean, there's obviously the kind of discussion on Nextperia, the kind of Dutch company where the conflict with China. I think largely people focus on the automotive industry, but I think they're also a major supplier for chips for the medtech industry. I'm just wondering, is there any kind of risk factor that you face here in particular as we move into the kind of key of Q4 now?

There's Not a big effect. We do use some of these chips, but only to a small extent. And we have larger inventory that we keep on stock, as the automotive people do. And from what we can see, luckily, these are used for applications that are not so, So it's easier to replace, and there are alternative suppliers. So we may see some smaller effect, but not in Q4. Maybe in the next year. Okay.

That's super. That's reassuring. And then the last question just, I mean, obviously, it's a bit too early for next year, but just to get any kind of flavor, We are making nice margin progress in 2025. At the midpoint, we would probably run 50 basis points ahead of the kind of normalized one rates toward a 10% EBIT margin in 2030. I'm just wondering, looking at the pulls and pushes for next year, I mean, is there any reason why you should be below the kind of 6% EBIT margin, which would be implied by this one rate for next year? And in particular, can you provide any kind of color? What incremental margin headwinds you expect from currency next year, please. Thank you.

Yeah, so I give you the first part of the answer, Mr. Heimer. You know, we keep reiterating, so the trigger business cannot be judged by the quarter. So it can always be a bad quarter. That does not mean that the growth is bad. And the same holds true if you have a very good quarter. I like to use this term. So If we look at the figures and analyze where we are, then we see we had an exceptionally good margin in Q3. And so, in addition, we had an exceptionally good margin in Q4 last year. So, if we go back on an average margin for this coming Q4, And then there is the reason to assume that it's not so extraordinary that you might probably think at the first glance. And going back to the margin to normal, that's partially, say, fueled because there are some large tender businesses that start, say, delivering. in this current quarter, so it's better to be, you see, a little bit cautious with the focus and development of the future. The effect of the currency, I don't want to get at you.

Yeah, there will be, given current average rates, there will be an additional ethics headwinds. We are in the final steps of finalizing planning and currency adjustments, but it's possibly in the range of another percentage point margin. We will provide more clarity on that with the publication of our guidance for 26.

Okay. Thanks so much indeed.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from the line of Virendra Chauhan from Alpha Value. Please go ahead.

Yeah, good afternoon. Thanks for taking my question. So for now, just one question around your margins. So Q3 was fairly strong margin and I like you pointed out in your notes as well presentation that it came from the strong net sales growth that you saw in this quarter. Now with of course the sales growth guidance as well being updated is there a chance that we see a similar year-on-year margin expansion in Q4 as well because Q4 of last year was also very strong. I think close to 20% if I remember correctly. So that's my question around your EBIT margin, please.

As I just explained on the question from Oliver Reinder, the ATQC was a very good margin. And that is from a favorable mix of the in the portfolio. And it is safe to assume that the normalized and the decline slightly for the Q4 and for the future. And Q4 in 2024 was also a very good margin if you compare the quarters. Keep that in mind and think about this. So should not be too over-optimistic for the good margin to persist. As I said, in TRIA, we do not think in quarters. So because in a single quarter can always be a little bit up or down versus the others. We, as much as we appreciate the current good results and the general outlook on the single quarter and the margin, I expect that for the Q4, there could be a slight decline. The EBIT margin overall, if that is more the focus, That is, as we said in our guidance, it is the upper end of the previous guidance, and it is in line with what we said earlier, that we strive for a continuous improvement of the EBIT margin that should be about the same figure as the calendar year. So, for this year, it's 25. so that we said that already a couple minutes ago, then it should be plus minus 5%, and again, 2006, that you can, you know, see, think about the ballpark figure of 6%.

Okay. Sorry, maybe can I just ask one more question? I just Yeah, go ahead. Yeah. So all your connected case launched the silent ICU that you had talked about on the previous call, and it was scheduled to be launched in H 225. So I have two bits on that. One is what is your early customer feedback? What is that? And then secondly, When do you expect in terms of a timeline that this, you know, this entire project or focus could translate into meaningful revenue generation for the firm?

The customer feedback from the first, the projects, it is very excited. So, very happy to observe that. look very much forward to taking off. We just, these days, we started our marching campaign where we toot the horn more explicitly for this approach. And so I expect that from the next year on that can be, say,

We now have a question from the line of Jean-Marc Muller from JMS Invest AG. Please go ahead.

Yes, thank you for taking my question. First, I would like to congratulate you on very good Q3 results. Quickly on Q4, I mean, you know, you spent quite some time when we spoke about the numbers, adjusting them for one-offs, and it's fair to say that in Q4 last year, although the numbers was good, it was actually worse by roughly 10 million than what it should have been because you had an impairment charge last year in Q4, right? The underlying number would have been 124 million, not 114 million.

That is correct.

Okay. So, when you're now saying that Q4 might be maybe a little weaker than last year, are we talking about adjusted numbers or reported numbers?

There is a range, and what we try to emphasize is And I think you're iterating that Q4 last year was also operationally a strong quarter. And depending on the delivery and given that it is just by the total number of net sales, there's a higher, if you will, sensitivity to variations in net sales variations. There is a chance that we also get at the lower end reported figures even. Not that we're striving for that, but the discussion would just want to know that the Q4 was operationally and also nominally in spite of the charge, relatively strong quarter.

Yeah, okay. I understand. And maybe ask a little differently. I mean, it's the most important quarter. I understand that. And it's typically a big number when it comes to full year results. But But the range of the guidance is still very wide. I mean, we're talking from the lower end to the upper end, we're talking about roughly 70 million EBIT range. Maybe you can help us a little bit, you know, what would need to happen that we really hit the lower end of the range and what has to happen that we get to the upper end of the range?

There is a couple of factors, and obviously, firstly, I mean, let me just, that's not what we're planning forward. I think you're asking what risks. We have seen ethics turning against us, and this could certainly be a risk going forward. We do see that in spite of the good development overall, We do see some areas where our business is developing not as nicely, if you will. We talked about China in particular in the Q3, where we saw a bit of a, like, Schroemuck's outfit. We also see that our safety business, while very robust overall, is in Germany, for example, being put under pressure due to the general market trends. We also see that in the U.S. For different reasons, many customers are reluctant to fully engage in investments, and to the degree that we see some of these risks to materialize over proportionally and perhaps not see the support or a bit of a slowdown in the support, we see a risk that we also get to the low end. But let me also reiterate, we would be disappointed if our margin falls below the 5%. But at this point, we wouldn't rule that out either.

Okay. And the upper end would just be flawless execution of all the projects?

Exactly. Exactly. Flawless execution would really lead to the upper end.

But this is what you're good at, no? Flawless execution.

Well, you can keep the fingers, the thumbs pressed, and I'm sure we get an ethics development that for change is not running against us, but in our favor.

No, no, I know. I understand. I understand. And add-on question quickly on the cash flow. I mean, also Q4 last year, the cash flow, was pretty solid, despite that the working capital movement in Q4 was actually negative. What should we expect this year? I mean, we obviously should still expect a positive free cash flow, I would assume. But the magnitude, I mean, you lowered your investment guidelines significantly. So I would assume that also cash flows in Q4 should be fairly strong. Is this a fair assessment, or do you see things which go against the strong cash flow in Q4?

By and large, I would support that. And that leads in our range of possible net financial debt, we expect in the normal course to be at the lower end, so more positively for us since there's no underlying risk for our Q4 cash flow situation.

Okay, understood. Thank you.

Once again, to ask a question, please press star and 1 on your telephone. We have a follow-up question from the line of Oliver Reinberg from Kepler Chevrolet. Please go ahead.

Oh, yeah. Thanks very much for taking my follow-up. Probably also two or three. I mean, the first question would be on anesthesia. There was some kind of news in the industry. Obviously, Yettingen now has lined up with Philips and, in fact, also GE. has introduced and called out the kind of launch of a new workstation, which is more meaningful, apparently. I'm not sure if this is a kind of normal industry development, or is there a certain risk that may provide a kind of headwind for anesthesia going forward? That would be the first question, please.

I would say that normal industry development, there are discussions all the time And we also are having discussions, and that's a normal thing. So we're not afraid of this development.

Right. So when you're also having discussion, that means you also are generally open to more different new ways of distribution. Is that the way to understand that?

That's correct. And so there are obviously state companies like that do not have certain modalities, and they're seeking and contracting the ones that have. So because they want to become a full service, say, suppliers, so that's a development. And that has its pros and cons. And as I said, we are not afraid of this setup.

Okay, perfect. And on China, I mean, we've seen an improvement in the first half. Q3 looks like a kind of larger change to the opposite again. I mean, is this larger volatility or because you're calling that out, is there any kind of specifics that happened here and why has it happened if you have any visibility here?

There's nothing new. It's very fragile from where we ended last year. And so far, it's stable, but at a modest level. And it's not likely that it comes back to where it was. for various reasons.

Understood. And last question, any update on the defense-related demand in Germany in terms of what have you seen so far? Is there any kind of acceleration being seen at the moment? Thank you.

Yeah, if you please keep in mind, as I said, last year in Q1, we received a large order for this musket 2000. for the army of roughly 15 million euro. And so that, obviously, did not repeat this year. And despite this not repeating a single, say, order effect from last year, our orders are currently having a double digit growth of around 25% year over year for the defense. So it is eventually picking up, and we do expect to receive more than 100 million euros in orders in the current year.

Perfect. Thanks so much for taking my questions.

For any further questions, please press star and 1 on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Dreger for any closing remarks.

Thank you very much to all of you with us today for your time and your interest, Andrea, and I look very much forward to meet you again and hopefully sometime in person in the future. Have a pleasant afternoons and evenings. Good bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Carisco, and thank you.