Drägerwerk AG & Co. KGaA

And gentlemen, welcome to the Drägerwerk full year 2025 earnings call. I'm Moritz, your 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 question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Dreger, CEO. Please go ahead, sir.

Well, good afternoon, and thank you for joining our conference call on our financial results for the fiscal year 2024. I have with me today Gertard de Gespo, CFO, as well as Tom Fischlach and Nikolaus Hammerschmidt, both investor relations. We would like to take you through the results with 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. In 2025, we continued our successful course and generated the highest net sales in our company's history. Both divisions and all regions contributed to this. At around 3.5 billion euro, net sales were slightly above our last forecast and around 25 million euro above the level of the exceptional strong coronavirus year 2020. Unlike during the pandemic, this is a new record that we achieved entirely without a special economic situation. Thanks to the operating momentum, our earnings before interest and taxes also developed very well. EBIT rose by more than 20% to around $233 million despite difficult conditions. The EBIT margin increased by roughly one percentage point to 6.7%, also exceeding our last forecast. This shows that we are making progress in improving our profitability. Order intake also developed very well. As with NetSafe, both divisions contributed to grips. This underlines the continuing demand for our technology for life and gives us a positive outlook for the future. Positive is also the key word with regard to our cash flow development, which GetHub with Lesbo will explain later. We have also performed well on the stock market. Last year, our common shares rose by more than one , while our preferred shares even increased by almost half and were included in the tech stats. This means that we are once again one of the 30 largest listed technology companies in Germany. This listing increases our visibility on the capital market and could make us even more attractive to investors. In mid-January, we published our preliminary business figures for 2025 and our forecast for 2026. Our shares then rose significantly again and reached their highest levels since July 2017. This shows that investor confidence in Brega is higher than it has been for a long time. Our first goal remains to increase profitability such that our EBIT margin is the same as the last digit of the calendar year, as we have more goals that are strategic to steer the company. We are strengthening our innovative power and expanding our competence in the systems business and certainly expanding our services and business. In our medical division, We are particularly driving forward the marketing of network solutions. With this end, we launched a large marketing campaign in 2025. Our goal is to strengthen Spreger's position as the leading provider of connected solutions in the hospital sector. That said, we are also launching a big wave of SPC-based solutions, that is, service-oriented device connectivity the new standards for interoperability of medical devices according to IEEE 11073. It creates new functionalities, therefore added value. With our new silent care package, for example, it contributes to solving one of the biggest problems on the ICU by reducing the alarm noise fatigue. In the safety division, Connectivity is becoming more important, too. Our fire ground monitoring system, for example, helped us to win the Paris Fire Department as a new customer in 2025. Speaking of firefighting, we also received the important approval for our BSS Air Force CBA in North America. Reaching a milestone for strengthening our position In addition to our core business, we are consistently investing in new business opportunities in areas such as clean tech and defense. Last year, our defense business grew significantly. We are well on track to triple our defense sales to more than 300 million euro by 2028. I will talk about the other highlights on the past fiscal year, the dividend, and the outlook at the end of our presentation. I would first like to explain in more detail in page six what challenges we had to overcome last year. So, page six, Advent Compensated. Ladies and gentlemen, 2025 was a very successful year, particularly in light of the difficult conditions. In 2024, we have benefited from positive one-off effects from the sale of non-strategic business activity that was the smoke and fire alarm systems in the Netherlands and some real estate in the United States. This had boosted our EBIT by around 22 million. In the past year, we missed these effects and also faced strong from tariffs and currencies. imposed by the U.S. government had a negative impact of roughly 26 million on our EBIT. Around 21 million out of this was attributable to the medical division and around 5 million to the safety division. In addition, EBIT was impacted by currency effects initiated from the White House and propagated over the world, totaling to around 45 million euros. 28 million euros are attributable to the medical division and around 16 million to the . So, overall, we have to compensate opposing effects of more than 19 million euros. The fact that we even overcompensated these effects is a clear proof of our . We were therefore able to improve our profitability even under difficult conditions. Let's take a look at the margin development of . Following the significant loss in 2022, we have shifted our focus from net sales growth to earnings growth. We have thus set ourselves the goal of increasing our EBIT margin by an average of one percentage point per year from 2024. The focus on profitability in accordance with our corporate objective number one has worked well so far. After the strong turnaround in 23, we were able to improve our EBIT margin by roughly one percentage point in both 24 and 25. While positive runoff effects in particular contributed to the improvement in 24, the improvement in 25 came mainly from the operating business. This is a development that beat very much . And we have our strategic growth. Our corporate objective two is innovation, and our corporate objective three is systems, business, and recurring business. Now, I'd like to hand over to Gerd Hartwig to explain our business development further. I will then turn back with the dividend and the output.

Gerd Hartwig. Thank you, Stefan. I would also like to extend a warm welcome to everyone joining this conference call. for the fiscal year 2025. Please turn to page six for a view on the trading group. As usual, I will be stating currency adjusted figures whenever related, but referring to both rates. As Stefan mentioned, demand for our technology for life remains strong. Overall, orders increased by 7.7% to around 3.6 billion. In Q4, orders rose by 5.6%. Both divisions contributed growth in both reporting periods. Net sales climbed by 5.3% in the fourth year and by 8.7% in the fourth quarter. This was due to good development in both divisions and all regions. Like for orders, the Americas region and the Mayo region were the biggest growth drivers. At around 3.5 billion, net sales reached In addition to the high oil intake, this was mainly due to the strong year-term effects. Benefiting from the record net sales in December and the margin improvement in the medical division, our group's gross margin rose slightly by over 3 percentage points to 45.2 in the full year. Functional expenses rose by 4.6% in 2025, right after there had been positively impacted by one of the attacks of around 32 million euros in the prior year. These attacks included the net sale of a non-strategic business in the Netherlands and the sale of real estate in Spain and the U.S. Excluding these one-off attacks, the increase of partial expenses in 2025 was only 2.5%. This increase is attributable to a higher personal higher number of employees, among other things. Despite the missing positive one-off effects in 24 and the negative currency and tariff effects in 25, our EBIT increased by more than 20% to around 233 million euros. Consequently, our EBIT margin rose from 5.8% to 6.7%. The mentioned headwinds were overcompensated by the high order intake and the improved gross margin. In addition, the strong year-end business contributed to the resilient development. Our EBIT improved by around 37% in the fourth quarter, while the EBIT margin climbed to 13.7% from 10.6% in that period. The four-year EBIT development is in line with our medium-term goal to increase the EBIT margin by one percentage point. of the average. The IDA 2026 EBIT margin includes an additional margin improvement of the higher end of the guidance range. The results of the strong increase in earnings, our DBA of 2025, improved by roughly 36 million to around 9 million. Let us now take a closer look at the development of the two divisions, starting with the medical division, on page 10. Following a slight increase in the prior year, our order intake in the medical division rose by 39% in 2025. This was primarily due to the high demand for our anesthesia machines, ventilators, services, and consumables. In addition, we received the major multi-year order for hospital infrastructure systems for Mexico, which significantly supported the above-average growth in the Americas region. Demand also developed positively in the other regions, particularly EMEA. In the fourth quarter, order intake rose by 2.2% as the decline in APEC and EMEA was overcompensated by significant growth in North Africa and Germany. And by growth in all regions, net sales in the medical division increased by 7.4% in 2025 after decline in the prior year. In Q4, net sales rose by 13% thanks to considerable growth in EMEA, Americas, and Germany. Net sales in the APIC region were around 3% below the prior year level. Our gross margin in the division rose by 0.6 percentage points to 43.6%. The negative currency and tariff effects were overcompensated by the favorable product and country mix. In Q4, one, on the other hand, the gross margin decreased by 0.6 percentage points due to higher inventory write-outs. Functional expenses climbed by 5.7% in 2025, having been positively impacted in the prior year by one of the facts around 15 billion euros from the sale of real estate and the adjustment of the put-off. Without these effects, the increase in 2025 amounted to only 3.7%, with higher personnel expenses being the main cause. The EBIT of the medical provision doubled to 57 million euros after a decline in the prior year. Subsequently, the EBIT margin rose from 1.5% to 2.9%. In 2004, the EBIT increased significantly to around 40% to roughly 80 million euros, thanks to the strong year-end business. As a result of the strong increase in earnings, our EVA and the Medicare provision improved considerably in 2025 from around minus 50 million euros to minus 23 million euros. I will now turn to our safety division, which delivered another good We are now at page 11. Our safety business continues to grow, for the intake rose by more than 6% in 2025. This was primarily due to the high demand for energy institutions and gas detection devices. In addition, respiratory and personal protection products, as well as alcohol and strike-testing devices contributed. The EMEA and America's regions recorded a significant increase in orders, while the APEC region also developed positively. In Germany, demand declined after we had received a major order for NBC protection filters in the prior year. However, industrial demand in Germany is also generally restrained at present. The sales increased by 2%. In Germany, net sales were roughly on par with the prior year, while the Americas recorded a decline. In 2004, net sales rose by just under 3% as the decline in the Americas. Germany was overcompensated by the growth in the bear and the elk. Our gross margin in the division remained stable at 47.3% in 2025 with a negative currency meeting. effects being offset by the more favorable product mix and price adjustments. In Q4, the gross margin slightly decreased by 0.2 percentage points. Functional expenses went up by roughly 3%, having been positively impacted in the prior year by one of the facts of around 17 billion euros from the sale of the non-strategic business area and from the sale of real estate. Excluding these effects, functional expenses fell by 0.4%. The capitalization of development costs led to a reduction in functional expenses in the reporting year. The EBIT of the safety division increased in 2025 by 6.4% to around 176 million euros, while the EBIT margin rose from 11.3% to 11.9%. EBIT climbed by around 33% to roughly 77 million euros as a result of the strong year end business. EBIT margin also improved significantly by 4 percentage points to 16.5%. Our DBA and safety division increased by around 9 million euros to around 113 million euros, coming from around 104 million euros in the prior year. All in all, a very positive development in our safety business. Let's move on to some key ratios on page 12. Thanks to the strong growth in earnings, our cash flow from operating activities improved significantly by around 71 million euros to around 238 million euros in 2025. At the same time, our flow from investing activities rose from just under 55 million euros to around 98 million euros. Among other things, this was due to a supplier loan granted at the purchase of further shares in an investment. Moreover, the sale of our fire alarm systems business in the Netherlands and the sale of the property in the U.S. had led to a considerable inflow in 2024. All in all, our free cash flow amounted to around 140 million euros, which is a considerable improvement of around 60 million euros compared to the prior year. Since free cash flow was on par with net profit, the cash conversion rate amounted to 100%, a level we also expect for the current year. As a result of the decrease in free cash flow, Cash-to-cash equivalents rose significantly by about 22 million euros to 282 million euros. This led to a considerable decline in net financial debt by around 25% to 123 million euros. That said, the ratio of net financial debt to EBITDA declined from 0.5 to 0.3, keeping our leverage at a very healthy level. With regard to net financial debt, We expect the figure to increase in the current year. A large distribution center is currently being built in Lübeck, where we intend to consolidate various logistics warehouses in the future. will rent the property on the long-term basis, which under IFRS results in a higher lease liability. This, together with higher investments, is in turn a key driver for the higher expected net debt in 2026. With an increase of around 4% to 1.7 billion euros, capital employed rose much lower than our EBIT. Therefore, our 12 months return on capital employed went up from 12.1 to 14.2%. Net working capital was around 2% higher than in the prior year, at around 755 million euros. roughly 50% at the end of the prior year. Let's take a closer look at our EPS on page 30. With the increase in earnings since 2022 that Stefan Dreher mentioned at the beginning of his presentation, our EPS has also improved continuously over the past years, coming from around minus 3.50 per share in 2022 earnings per At the same time, our district per share rose from around minus 3.40 to roughly 7.50 euro per share. Again, this clearly underlines the progress we are making in improving our profitability. Now, back to Stefan Lueger for the outlook, starting with our dividend proposal on page 14.

Thank you for having me. While in line with our dividend policy, we intend to distribute around 30% of our net profit to our shareholders. Since our net profit has increased significantly, we will also increase the dividend significantly again for the third time in a row since 2023. We intend to propose a dividend of 2.21 Euro per common share and 2.27 Euro her preferred share for our annual shareholders meeting in May. Our equity ratio is clearly over 50%. Provided that the equity situation remains as positive as it is now, we will continue to at least 30% of our net profit in the coming years. That said, let's move on to our outlook for 2026 on page 15. Ladies and gentlemen, with good demand, record sales, and significantly improved earnings, 2025 was a very successful year. This is even more apparent when you consider the headwind from a difficult economic environment. Our operating business is showing good momentum. Both order intake and order backlog are at a high level. We therefore want to increase net sales again in the current fiscal year. in 2026, we expect an increase in net sales from 2 to 6% of net of currency effects and an EBIT margin between 5 and 7.5%. Both divisions are likely to contribute to net exports and a positive EBIT. We will continue to counter the US import tariffs by raising prices. In the past fiscal year, we developed a package of measures to compensate for some of the customs duties. We expect this compensation to be more effective during the course of the 2026 fiscal year than before. For 2026, we expect the level of customs duties at group levels to be similar to the prior year overall. The brands in the medical division are likely to be significantly higher than in the safety division where we have more possibilities to consolidate and forward with the . The corporate planning, therefore the net sales, and forecast for 26 are based on the assumption that custom duties will remain at the level of the reporting date for the annual financial statement. When we recall the Greenland discussion over a certain weekend in this spring, this is not guaranteed, and it motivates us to further pursue increased profitability to be able to live through the challenges and uncertainties. When it comes to the war in Iran, we do not see any material impact on our business so far. We are present in the Middle East with our own people in Saudi Arabia and Dubai. Our local employees are doing well so far. In general, the region remains the growth market for us. Risk from the war depends heavily on its duration and regional extent and its impact on the global economy. We are able to mitigate this through our high level of diversification. We are very broadly positioned in terms of markets, products, geography, business mechanics, and customers. This strengthens our resilience and gives us a positive outlook to the future. With this, I would like to end the presentation and hand over to the operator to open the floor for your questions. Please.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will 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 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. One moment for the first question please.

and the first question comes from oliver reinberg from kepler please go ahead good afternoon thanks very much for taking my questions um free fma firstly just in the middle east situation as you just confirmed that you don't expect any kind of larger impact can you just confirm that there's also not any kind of expected impact um on the developments basically in terms of supply chains and inflation and that will be question number one um secondly can you just provide an update on the ventilation market we've seen quite some changes basically with Mindway. I saw with Metronic and Bayer actually exiting the market and I think Mindway is now entering in the US market. I mean, it's also high base. Do you continue to expect actually significant growth in this market segment? Any updates on developments here? And then, thirdly, as you called out corporate objective number three to increase the kind of recurring business . Can you just provide some kind of flavor? Where do you stand these days percentage-wise and any kind of targets that you can share in that regard? Thank you.

On the Middle East. Yeah, I confirm that we do not see a material impact of the war on our business at the moment in the foreseeable future, including the supply chain. There is no, not to our knowledge, a significant impact on any specific component production that we can see so far. We have taken some measures in the past to work with our suppliers more carefully and have some stocking levels for our inventory for components. We, of course, cannot compensate for all thinkable effects, and we will remain interdependent from the supply chain. However, I confirm there is no impact that we can see from the current conflicts in the Middle East. What I do see, though, is that the energy prices will remain worldwide on the current level and not return to the level they were like six weeks ago, including the electricity gas and fuel at the gas station. However, our sensitivity to energy is quite limited, so that has no material effect on our outlook and the prognosis. Your second question is on the ventilation. So, yeah, there are two major players have exited the market, and is there. Well, on the other hand, we do not see a significant effect even I would say threat from having a more comprehensive offer in the U.S. Where we see them more and we see they are more active is in Africa. In remote regions where they have also political, Chinese government has political influence in financing some of the African governments or the very obvious direct influence and control on the government in purchasing decisions um there we are out on the more developed markets i would say it is a significant new development on a global scale yes it is the a good copy of the similar offerings and a similar portfolio on both the geographical and the scale and the portfolio. So it is a very viable market companion. Not only on ventilation, but in many modalities to watch. mostly in Africa. Your question on our corporate objective number three, which is the development of business models rather from transaction-based device selling towards interoperability in systems, the business competence in actually doing including recurring businesses and services that are based on contracts instead of the transactions. Yes, we can say that last year, we crossed the 1 billion threshold in services, and some countries in Europe, our sales, the majority already is the services more than in devices, including our home market in Germany. But some other European countries as well, the services sales is greater than devices.

Thanks so much. And can you share any kind of targets, like where you want to go with this kind of offering?

The goal is to grow this further as it is a good way to defend our business over a business that is purely on cost like only some of the business mentioned from in Africa when the decision is on cost alone. When you have a larger share of mind and are more deeply entrenched with the customer in offering a service, we have a better understanding of the customer needs and it's more challenging to replace than if it's on a pure device that is But the trend is that it may become a commodity.

Okay, super. Thanks so much.

And the next question comes from from MWB Research. Please go ahead.

Thank you for taking my question. As we talked about the Iran conflict already, just two questions left from my side. The first one is talking about tariffs. The situation has changed significantly, so what does this mean for DREGA, and will you apply for reimbursements? And the second question is how has the defense activities developed so far in 2026?

Happy to. So, firstly, there is a couple of developments. Firstly, the court decided that tariffs that the Trump administration has put in place are not legal, and we have, in fact, also filed for reimbursement. As of today, it is open how fast The courts will decide and when or if reimbursement will in fact be paid out. And secondly... It's not part of the plan. It's not part of the plan at this point. So if there was a significant outpayment that would be outside, so to speak, and the signals have been mixed how quickly that can happen. I think you've read the news. Two courts, as far as I remember, have decided they are not allowed to delay it, but so far nothing has happened. So there is a chance that we can recollect some of our tariffs. Having said that, given that the previous tariffs have been declared illegal, the Trump administration has put in place another set of tariffs, which are a little bit lower by five percentage points, but they are intact for a full year instead of just two-thirds of the year. And if when those run out after 150 days, there are other, potential tariffs to be enacted. The one that may run the so-called Section 122 tariffs may be replaced by Section 301 and Section 232, and we would expect that that will actually take place in the second half of the year. So, when it comes to effective tariff burden, we still assume that they will remain in place. And as we have seen earlier this year, and as pointed out, sometimes they leave in the discussion about additional and tariffs or not. But so far, we expect actual tariff to be of the same magnitude as last year.

Okay. Your other question on the defense business, where in general, the benefit in both divisions. The medical also benefits if there is the need, for instance, to additionally serve 1,500 wounded soldiers that come per day from the eastern front, what the county is planning for. That means capacity in the German office system or the, field the hospitals also support warships but that is regular medical equipment but we say we would not directly classify the death defense business what we do call such is part of the safety portfolio that can be specific for personal protection like the classical gas mask for a soldier or gas detection equipment for military vehicles to protect those who protect us in our freedom to operate in our democracy. Last year, around the same time of the year, we predicted that we would actually more than triple until the year 2028 to approximately 300 million. Already last year, we saw a good development, and we crossed the 100 million euro threshold with these elements of the portfolio. We confirmed that we think in 2028 it can be 300 because there are quite some opportunities out there.

Thanks. Just a quick follow-up. When talking about tariff reimbursement, do you communicate volume? How much is the figure that could be reimbursed?

will be communicated that they paid, then 26 million euros.

That's actually the net effect. So to the degree that it will be the net effect, it will be in that order. The gross effect is 10 higher, runs around 30 million, and that would be the impact if we get full reimbursement without the need to pass on anything to customers in that context. And as I said, this point, We view that as, well, perhaps not speculative, but we have not received clear indication that we should account for that in the near future, but we'll keep you posted, obviously, when that situation changes.

Okay, sure. Thanks a lot for these answers.

And the next question comes from Pierre-Yves Gauthier from Alfa Value. Please go ahead.

Yes, good afternoon. Thank you. My question relates to your capital spending. You had quite a big surge in 25. Is that likely to last or is it some sort of a bump that we will not see in 26, 27? Thank you for your answer.

Part of the higher investment are due to the loan, which actually has to be accounted for to one of our suppliers, which have to be accounted for under IFAS as an investment. I'm not sure whether that is, that actually was one of the reasons for a bump, and that we do not expect a 26-door later. We do, however, as I pointed out in the presentation, have to account for an investment for a rental agreement. Again, that's due to the statement. So, all in, we expect an increase in the investment volume from around 103 million to 110 to 130 million. which is, as these things are, not cash effective for the full amount in the period of 26, but over the course of the rental.

Thank you.

And we do have a follow-up question from Oliver Reinberg from Kepler Schifrin. Please go ahead.

Oh, yeah. Thanks very much for taking my follow-up. Three FMA. One on China. Can you just provide an update what you see there on the grounds? I mean, it's not a huge market, but any kind of pickup would be helpful to just get the latest dynamics here. Secondly, I think your one nearly comes to an end. Any kind of light you can share how you start into the year? And then last question, just on currencies. I mean, if I think last call we got it for quite a significant impact. If currencies stay where they currently are, can you just give us any kind of flavor what kind of isolated margin you have? Thank you.

Well, I can . I can pick the start in 26. where we started with a good order backlog after the order intake at the first quarter was also very good. And so with this, we had a good start in 26, and the order intake and sales at this moment is according to our expectations and planning. the only way to deliver on our forecast and prognosis.

With regards to the ethics development, in addition to the headwind that we had in 25, overall see a further deterioration, but not by another similar amount. Our currency headwind when we look at net sales is around 1 percentage point, and when it comes to the even margin, it's between 30 to 60 basis points.

I think, Mr. Randek, this is important to figure in when you compare our actual 25 result in particular the margin and the prognosis for the 26th. Because the prognosis for 26th and the whole planning for 26th is based on less favorable exchange rates. So, if these develop and they would be the same as the last year's actual, then the outcome, of course, would be better than the current forecast and prognosis. But it's, from our perspective, not safe to assume that it would be the same, and so we have our best guess included into the planning, and that is the major reason if you wonder why our, excuse me, does not show a stronger improvement because our goal is to improve our profitability by one percentage point per year. So, on average, that is unchanged. China. Yeah, China. We didn't touch China. There is no relevant news on that. That is . relatively stable and continues to be on a much lower level than it used to.

Okay, so thanks so much indeed for the follow-up.

Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star and 1 at this time. So, it looks like there are no further questions. So, I would like to turn the conference back over to Stefan Treger for any closing remarks.

Thank you very much for all of you being with us today during the results conference for 25. Thank you for your questions and the interaction. Look forward to meeting you again either online or preferably some point in time in the not too distant future in person. Have a pleasant afternoon and evening.

Ladies and gentlemen, the conference is now concluded and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.