Drägerwerk AG & Co. KGaA

Ladies and gentlemen, welcome to the Dregerwerk Q2 2026 earnings call. I'm Moritz, the chorus code operator. I would like to remind you that all participants will be in a 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 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 Drager, CEO. Please go ahead, Stefan.

Good afternoon, and thank you for joining our conference call on our financial results for the first half of 2026. I have with me today Gert-Hartwig Lescow, Group CFO, as well as Tom Fischler and Nikolaus Hammerschmidt, both investor relations. We would like to take you through the results with the presentation that we made available on our web page 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 continued good demand, excellent net sales development, and significantly higher profitability, we delivered a strong business performance in the first six months of 2026. At around 1.75 billion euros, order intake was slightly above the high prior year level, while net sales grew by more than 90 million euros to around 1.6 billion euros. Thanks to the good operating business, the improved gross margin and some customs refunds, our EBIT more than tripled to around 64 million euros As a result of the good earnings performance, our free cash flow rose considerably to around 16 million euros from minus 42 million euros of the prior year. As communicated last week, we raised our guidance. I will come back to this in our outlook at the end of the presentation. I turn over to Gert Hartwig for a review of the financials. Gert Hartwig, please.

Thank you, Stefan. And welcome, everyone. Please turn to page 7 for a group overview. As usual, all growth rates are quoted on a currency-adjusted basis. As Stefan Drager said, we continue to see good demand for our technology for life. Order intake rose by 1.8% in the first six months. This was driven by all regions except the Americas, which saw a significant decline as a result of a major order for hospital infrastructure systems from Mexico in the second quarter of 2025. Despite this substantial base effect, our order entry for the group was, due to a very strong development in safety, on par with the prior year's quarter. Compared to order intake, net sales showed a much higher dynamics with an increase of 7.7% in the first half of the year and 8.5% in the Q2. In both reporting periods, the decline in APEC was offset by significant growth in EMEA and the Americas as well as a noticeable increase in Germany. Our gross margin in the first six months improved by 1.7 percentage points to 46.5%, supported by both divisions. Functional expenses rose by 24 million euros or 4.8% in the first half of the year, driven by higher personnel costs evenly split between Germany and the rest of Europe. Trade costs and marketing expenses each accounted for roughly one-eighth of the rise. In Q2, the increase was more pronounced at 8%, mainly reflecting the same cost drivers in the second quarter. Importantly, in both periods, financial expenses grew slower than net sales, and keeping it that way is our target for the full year. Looking ahead, we are watching our ad count development closely. Freight rates also remain a headwind due to geopolitical tensions in the Middle East. We are working to offset these pressures and we remain confident in keeping full-year expense growth below net sales growth. Our EBIT in the first six months rose significantly from around €20 million to around €64 million, lifting our EBIT margin from 1.3% to 4.0%. In the second quarter, our EBIT more than doubled, rising from around €20 million to around €46 million. Consequently, our EBIT margin climbed from 2.6% to 5.4%. In addition to the strong net sales growth, the operational business supporting a higher gross margin and slightly better currencies, earnings were driven by a one-off of €7.8 million from the customs refunds received in Q2, recognized in our cost of goods sold. Shortly after the half-year balance sheet date, we received additional customs refunds of around 14.2 million euros, including interest payments. This one-off will be recognized in our Q3 earnings. We also consider further customs refunds of around 7 to 9 million euros to be possible. However, it is currently not clear whether, when, and in what actual amount such refunds will be received. Thanks to the significant increase in EBIT, our rolling 12-month DBA also improved considerably from around 17 million euros to around 129 million euros. Let us now take a closer look at the development of the medical division on page 8. At around 956 million euros, order intake in the first six months was 3.7 below the prior year figure. As I mentioned before, the main reason for this was the Mexico effect. It shows in the steep year-over-year decline in the Americas region. Adjusted for this, order volume in the medical division would have remained around stable. Demand for anesthesia machines and ventilators as well as patient monitors declined while warming therapy devices, consumables, accessories, and services went up. APEC recorded a slight decline while demand in Germany and EMEA increased noticeably. In the second quarter, the Mexico effect had a significantly stronger impact than in the first half of the year. Driven by the considerable decline in the Americas, order intake decreased by 11.5%. In Germany and APEC, demand was also below the prior year figure, while EMEA recorded strong growth. Net sales rose by 7.6% to around €898 million in Q2. Growth was even stronger at 9.7%. In both reporting periods, the Americas were by far the biggest growth driver, followed by EMEA and Germany. Due to a favorable product mix, our gross margin in the first six months expanded by 2.1 percentage points to 44.6% despite negative currency developments. Functional expenses rose by around 6.2% in the first half of the year and by 9.6% in the second quarter. This is primarily due to higher personnel expenses and trade costs. Our EBIT in the medical division was still negative at minus 14.3 million euros after six months, but it improved significantly coming from minus 33.7 million euros in the prior year period. This also applied to the EBIT margin, which rose from negative 4.0 to negative 1.6%. In Q2, EBIT came back to positive territory at 4.3 million euros after negative 5.9 million euros in the prior year's quarter, lifting the EBIT margin from negative 1.4 to positive 0.9%. Our rolling 12-month DBA improved significantly too. I will now turn to our safety division. We are on page 9. Order intake in the first 6 months rose significantly by 9.5%, driven by strong demand in all product areas and regions. Respiratory and personal protection Products, gas detection and occupational health and safety equipment were particularly in demand. Services also made a significant contribution to growth. Above all, the Americas, Germany and APEC showed strong momentum. In the second quarter, order momentum picked up even further. The division recorded strong order growth of an impressive 19.0%, thanks to very good development in all regions. and particularly the Americas and APEC. Net sales rose significantly by 7.8% in the first half of the year, driven by considerable growth in the Americas and EMEA, as well as an increase in Germany. The APEC region recorded a decline. In Q2, net sales increased by around 7% due to the positive development in the Americas and EMEA. In Germany, net sales were just below the prior year figure while APEC developed more weekly. Despite higher customs expenses, our gross margin in the first six months increased by one percentage point. This was, in part, attributable to higher capacity utilization and lower negative currency effects. Functional expenses were 2.7% above the prior year level, Primarily due to the increase in personnel and marketing expenses and freight costs. In the second quarter, functional expenses increased by 5.6%. Here too, the development of personnel costs was the main driver. Our EBIT in the safety division increased significantly in the first six months from €54 million to €78 million. This lifted the EBIT margin from around 8% to around 11%. In Q2, EBIT grew from around 26 million to around 42 million euros. The EBIT margin consequently rose from 7.6 to 11.3%. Rolling 12 months DBA improved by around 57 million euros to around 134 million euros. Let's move on to the development of our cash flow and other key figures on to slide 10. In the first six months, We significantly improved the operating cash flow by around 43 million euros to around 60 million euros. In addition to the increase in earnings, this was mainly due to lower income tax payments and effective working capital management, especially better development of trade payables and contract liabilities. Higher operating cash flow as well as lower investment outflow led to an improved free cash flow by 58 million euros. Going forward, we expect free cash flow to continue to develop positively. Looking at our net financial debt, we had a significant reduction by around 79 million euros to around 190 million euros. The reason for this was the increase in cash and cash equivalents due to the strong free cash flow. As a result, the already healthy ratio of our net financial debt to EBITDA further improved to 0.5. At the beginning of the first quarter, we repaid a maturing note loan in the amount of 50 million euros with our own liquidity. Our 12-month rolling return on capital employed rose from 9.9% to 15.7%. This was due to the high EBIT in the past four quarters. At around 798 million euros, net working capital was 8% higher than in the prior year. Our equity ratio as of June stood at around 52%, around one percentage point above the year-end level of 2025. With that, I hand back to Stefan Drager for our outlook on page 12.

Ladies and gentlemen, 2026 has been very successful for Drager so far. Our strong operating business in the first six months and the usually higher dynamic in the second half make us optimistic about the further course of the business. Therefore, we continue to expect net sales growth between 2% and 6% net of currency effects. Regarding our earnings guidance, we have made two positive adjustments in recent weeks. Due to the strong operating performance and the customs refunds received in the second quarter, we raised the lower end of the EBIT margin took 5.5% weeks ago. Following the additional custom refunds received after the balance sheet date, we raised our guidance once more and we now expect an EBIT margin between 6% and 8%. But even without any refunds, which are an unplanned margin tailwind in this year, we are going to perform well in 2026. This resilience is a result of our shift from net sales growth to earnings growth, which we started some years ago. Since then, we have been making very good progress in improving our profitability each year. And we are well on track to reach our ambition to improve the EBIT margin by one percentage point per year to reach 10% by the year 2030. Now is the right time to sharpen our equity story and to explain our markets and our position and the resulting growth and margin improvement. We will therefore host a Capital Markets Day for institutional investors and analysts on November 18th, 2026 at our headquarters here in Lübeck. The entire Executive Board will present We look forward to welcoming you in person on our premises in November. With this, I would like to end the presentation and hand over to the operator to open the line for your questions, please.

Thank you. 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 touchtone 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-Chevreux. Please go ahead.

Oh, yes. Good afternoon. Three questions from my side. First would be on safety. I mean, the division continues to perform quite strongly, both in terms of top-line and also margin outlook. I was wondering if you can provide us with some thoughts like how sustainable this momentum is. And also in terms of margin, we are now probably approaching the fully and all-time high peak. I mean, is this a kind of level from where you see further expansion potential? Secondly, just on cost inflation, I mean, most companies now see more headwinds driven by the kind of geopolitical challenges. So I was wondering if you can provide some kind of color to what extent the costs have also increased on your side. And then thirdly, I think in your prepared remarks, you also talked about that the order intake of medical and therapy devices is a bit declining. I wonder if you can share some kind of thoughts in terms of what we see in the market. I mean, GE is about to launch a new anesthesia device, NH2, and monitoring people talk about larger size deals, and there was also kind of change in ownership. Had any of this an impact on your kind of demand level here? Thank you.

Yeah, OK, first question, Mr. Handek, of safety. Yes, I would absolutely say the development in the profitability and sales growth in the safety division is sustainable. From the very different markets that we serve, by far the largest part is very solid Thank you very much. So even faster in particular and with profitability in the near to mid-term future. So the difference between the two should become a lesser and a larger part of the data overall is the growth development and profitability is carried by the medical division. What other players are doing that is sometimes a little bit different from what we are doing but we see as well here in the medical environment markets are intact and the general development of NewEd technology, including the service-oriented device connectivity that we are pushing, are enabling the customers to develop a server for assisted therapy and automation and in times where the personnel is crucial, That's a very good thing to do, as we can see more and more as we are bringing this to the market. That is very, very safe. So on that side, a very positive outlook. Your second question on the geopolitical effect on Drieger, We can no longer say that it goes unnoticed. The blocking of the street of Hormuz and the Iran conflict do have some Limited effect on Drager. We see currently higher logistics costs in air and sea freight. The rates have gone up all over the globe with an expected impact of up to 10 million for the full year 2026. And in the region, we see a little bit lower top line as the business is muted, as it's becoming difficult to travel. in the area. However, it's relatively small compared to the overall cost and size of the business of Draeger. But it does have some limited effect in the meantime. I remember I predicted in the first call we had this year that it will last for the minimum for the remainder of the year. And that is what we are currently seeing. And it will take years to rebuild the capacities. Whenever that commences, the rebuilding of the refineries and so then we will benefit for sure.

That's so helpful. If I just can follow up on the safety margin, I mean, we are approaching now kind of peak level most likely this year. I mean, is this the peak or do you see further expansion potential from there?

We will discuss this further on the Capital Markets Day with you, hopefully in person, Mr. Reinberg. So in general, I would not say it's the peak and from now we will see a decline. So that's for sure. So I don't fear that.

Okay, perfect. Thanks so much.

As a reminder, Anyone who wishes to ask a question may press star and 1 at this time. Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Stefan Drager for any closing remarks.

It appears that you are saving all your questions for the discussion in November. So I look very much forward to meet as many as possible from you in person by then. So until then, thank you very much for your interest, for being with us today, and have a pleasant summertime, and look forward to seeing you again in the not too distant future, ideally in November. Thank you very much. Good bye!