Dragerwerk Ag Prd Shs Non

Ladies and gentlemen, welcome to the Q2 2025 earnings call. I am George, 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 Q&A 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 Drager, CEO. Please go ahead.

Yes, good afternoon, and thank you for joining our conference call and our financial results for the first half of 2025. And thank you all for your flexibility before rescheduling the course of one hour due to organizational reasons. Thank you. for being with us. I have with me today, Gerd Habeck-Lesko, CFO, as well as Tom Fischer and Nicola Thomas-Schmidt, 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 this floor to your questions. So let's get started on page five with the business highlights. stable net sales and a positive operating result, we achieved a solid business performance in the first half of 2025. At around 1.5 billion euro, net sales were nominally slightly below the prior year, but adjusted for currency effects, they slightly increased. On the other hand, Other than in the first half of 2024, growth was driven by the medical division instead of the safety department. Prices before interest and taxes could not keep up with net sales as our EBIT fell short of the prior year figure at just over 20 million euros. This was due particularly to the positive one-off effects in the prior year, which are now not repeated. As a reminder, last year we had divested a non-core business in the Netherlands and an unused lot of land totaling at around 20 million in one-off effects. Next to the space effects, currency effects, and custom duties had a negative impact on earnings. Considering the missing space effects and the surface furniture had been from currencies and tariffs, The earnings performance is actually quite good for our typical seasonality. In addition, the order intake makes us confident about the further course of our business for the remainder of the year. In the first six months, demand for our technology for life increased significantly to around 1.7 billion euros. Despite the difficult economic conditions caused by the U.S. customs policy, we were able to grow order intake in both divisions and all regions and even achieve the highest order intake in its first half year since the record half of 2020. This gives us a good foundation for accelerated net sales growth in the coming months. In addition to the good demand, we were able to improve our operating cash flow, which came back to positive territory at around 18 million euro after a minus 5 million in the prior year period. The performance of the bigger shares was successful as well. The price of our common shares rose by more than a third, and the price of our preferred shares by more than 40% in the first half of the year. The preferred shares, which are listed in the S DAX, are also included in the Tech DAX. This makes us even more visible to tech investors. Our goal remains improving profitability. In some cases, this might include the reduction of complexity. Therefore, I would like to share some news regarding our U.S. site, Hotel for Pennsylvania, and our new nail care business. Neonatal care is the smallest care area within the business unit therapy, and it operates with a rather complex setup. This operation is divided over two sites, in Germany and in Pennsylvania in the U.S. due to other reasons of the acquisition of the business from , originally, in Hasbro, which is nearby . So to ensure the long-term success, we have now decided to consolidate the three existing sites into one. This means all related activities will be consolidated in Lubeck by the end of 2026. By bringing both units together into one optimized location, we will improve efficiency, reduce fixed costs, and enable stronger platform development by continuing to deliver high-quality solutions to its customers. The U.S. property will be divested. Ladies and gentlemen, as communicated two weeks ago, we've confirmed our annual accounts. I will come back to this in our outlook at the end of the presentation. With that, I turn now over to Gerd Hartwig for a review of the financials. Gerd Hartwig, please.

Thank you, Stefan, and welcome everyone to our H1 results call. We continue to see strong demand for our technology for life in both segments and regions. Oil intake rose by more than 10% to over 1.7 billion in the first half of 2025. The Americans left the growth with an increase of around 25%, followed by EMEA and APEC. In Germany, the oil volume was slightly above the Americas, EMEA, and Germany. Net sales rose by 1.8% in the second quarter after a slight decline in the first quarter. In the first half of the year, net sales increased by 0.4% to around 1.5 billion. Apex strong performance and a noticeable increase in Germany offset the decline in EMEA and the Americas. We maintained a 44.8% gross margin as the slight dip in the state's division was fully offset by an increase in the medical division. Our function expenses rose around 6% in H1, driven by the absence of last year's €20 million one-off income and a one-off agent payment term for use in Germany. Excluding the positive one of the facts mentioned above, Our operating results have improved over the course of the year, after Q1, Q2, Q3 reached 20 million, listing our margin from 0.1% in Q1 to 2.6% in Q2. In the prior year's second quarter, however, those figures had been much higher at around 41 million and 5.7%. For the six-month period, EBIT totalled 20.4 million with a 1.3% EBIT margin. Below last year's EBIT of 55.8 million and a 3.7% EBIT margin. The main reason for this decline was a positive one of the tax from the prior year, which are now missing. In addition to these base effects, headwinds from currency, trading currencies. We carefully monitor the development of foreign currencies and manage these risks proactively through hedging and price adjustments. Having said that, ethics had a negative impact of roughly 20 million euros. Finally, a role in 12 months BVA did retreated to around 17 million euros. Let's now take a closer look at the development of the medical division on page eight. We grew our intake by almost 15% to more than 1 billion in the first half of 2005, driven by strong demand for ventilators, anesthesia machines, work services, and consumer products. In Q2, the mid-double-digit-million-euro multi-year order for hospital infrastructure for Mexico further powered our growth in the Americas. Even without this large order, demand in the medical division rose here. second quarter, order intake in the medical division increased by around 25%, thanks to significant growth in all regions. Net sales rose by 5% in the second quarter after a significant decline in the first quarter. Looking at the first six months, net sales increased by around 2% to 851 million euros, mainly driven by APEC in Germany. In APEC, mainly India and China drove our growth. growth in the People's Republic cooled down considerably in the second quarter, underscoring market volatility in China. We resolved Q1 supply chain disruption and production is up and running again. We expect sales to accelerate as soon as the current quarter. Despite currency headwinds and higher custom duties, our gross margin expanded by 1.2 percentage points in Q1 and 0.2 percentage points in H1. to a favorable country makes lower quality expenses from field taxes. Partial expenses rose by around 5% in the first half of 25 and by around 4% in the second quarter. Excluding the proportionate positive one-off effect from the sale of the property in the U.S., the increase amounts to 4.4% in the first half of the year and 3% in the second quarter. Our Q2 EBIT improved considerably from minus 12.9 million to minus 5.9 million, lifting the EBIT margin from minus 3 to minus 1.4 percent. For H1, EBIT amounted to around minus 34 million euros, was therefore significantly below the prior year figure of around minus 24 million. The EBIT margin increased from minus 2.9 percent to minus 4 percent. Our rolling 12-month DBA, improved by around 5 million to minus 60 million. I will now turn to our safety division and patient arm. In H1, water intake rose by more than 4% driven by engineered solutions, respiratory and personal protection products, and gas detections. Orders for occupational health and safety normalized after last year's large work of the German armed forces for protective filters. EMEA and the Americas delivered strong double-strip order APEC saw a pullback. In the second quarter, oil intake was just under the prime year level with robust single-digit growth in Germany and EMEA balanced by a decline in the Americas and APEC. Q2 net sales declined 2% and H1 fell 1.4% as the decline in EMEA and the Americas was not fully offset by growth in Germany and APEC. Our business often has fluctuations of oil intake and net sales from one quarter to the next without too much need to read across for the long-term development. These ups and downs are normal in our business. For the full year 25, we expect net sales, growth, and safety over a strong prior year. This requires a further acceleration of water intake in the coming month. Lower net sales and currency headwinds drove a gross margin drop of 1.2, 0.4 percentage points in the second quarter and 0.2 percentage points in the first six months. Functional expenses rose. about 8% in H1, mainly reflecting the absence of last year's income from the sale of all fire alarm assisted business in the Netherlands and higher market expense. The strong relative increase in functional expenses in the second quarter is due to the aforementioned base attacks, excluding the extraordinary. The increase in the first half of the year amounted to 0.8% in the second quarter, by 1.5 percent. Q2 EBIT reached 26 million in the second quarter after roughly 54 million euros in the private quarter. The EBIT margin fell from 15.1 percent to 7.6 percent. After the first six months, the EBIT came to 54 million euros, down from 80 million euros. The EBIT margin was 8.2 percent after 11.9 percent in the private period. Rolling 12-month DBA decreased significantly by around 21 million euros to around 77 million euros, coming from 98 million euros in the prior year period. That concludes the case individual review. Let's move on to the development of our cash flow and our capital structure on slide 10. In H1, we delivered a significant improvement in operations. for around minus 5 million euros in the prior year period. This was mainly due to effective working capital management, especially better development of trade receivables and other liabilities like the cash inflow from ethics derivatives. Investing activities used about 60 million euros in H1 versus 11 billion a year ago, resulting in a free cash flow for around minus 42 million euros. around minus 16 million euros in the prior year period. We modestly reduced net financial debt, keeping our leverage at a healthy 0.9 net financial debt . Network capital also remained at the prior year level at around 739 million euros. Lower rolling 12-month even paired with stable capital employed brought our 12-month return on capital employed to around 9.9% down from 10.9%. Our equity ratio as of June 30th stood at 49.1%, just slightly below year-end 24 level. Now, I'd like to hand back to Stefan Dreger for our outlook on H-12.

Thank you. Ladies and gentlemen, the good water development and the seasonality of our business give us confidence that we will make up for the shortfall in net sales in the second half of the year. We confirm our forecast with net sales growth in the range of 1 to 5% and an EBIT margin between 3.5 and 6.5%. The DBA is expected to be in the range of minus 30 to plus 80 euro. With this, I would like to end the presentation and hand over to the operator to open the line for your trash set, please.

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. Our first question comes from Oliver Reinberg with Kepler-Schrover. Please go ahead.

Good afternoon, Oliver Reinberg from Kepler-Schrover. The first question would be threefold on tariffs. Can you just give us a favour, what kind of impact on earnings you have seen from tariffs in the first half of the year? And also, what kind of impact do you expect for the full year? And then the third element to this kind of discussion, can you just update us what you're doing currently in terms of countermeasures. I guess there could be potential surcharges or any kind of discussions with GPOs in the U.S. Any kind of color you could provide on this kind of process would be helpful. Thank you.

So I'll take the first question. The impact from duties in the first half, which essentially is the second quarter, is around 6 million euros. And for the full year, we expect at the now announced 15% tariff as of August 15, we expect an impact of around 25 million euros.

And can I just ask, is that a kind of gross impact or is it net of any kind of potential countermeasures?

That's the gross impact for the tariff. We do have some mitigation. Sorry, that's actually after, that's the net impact after some price increases, and we see a good ability for price increases on the safety side of our business where we have already introduced adjustments of prices, and we see very limited potential to increase prices on the medical side due, among other reasons, to the fact that we have not changeable easily, and also a general environment where a price increases on the industrial side, on the safety side, are quite common, whereas they are less common on the medical side, obviously.

Okay, and if I think about then basically 2026, when you cannot offset much of this, and mostly, I guess, it's related to the medical division, does it mean we are going to expect a kind of incremental 20 million headwind next year?

Basically, yes, it has to be taken into our planning. We still keep the target of improving our margin one percent point every calendar year on average. So, on average, it is the same as the calendar year, the last . So, next year, there is not something that is not something we can do directly. We can cancel discounts and so do less promotions, but on a structural level, Nothing that makes sense it could do for next year.

Okay. So, just to confirm, the one percentage points margin improvements, you expect that to deliver on average even including basically the headwinds from tariffs, correct?

That is correct. That is still the goal. And we expect the headwinds to continue. both from tariffs and the somewhat related currency circulations. It's not so much the dollar-euro relation directly. We are quite well naturally hedged. It's also based in US dollar. We have also considerable expenses with 1,000 employees in the U.S. and some of them being R&D people, and we have purchased a lot of our procurement with contracts all over the world in U.S. dollar. However, there are third-party currencies like the or whatever the currency that is evaluated and all the sales that we achieve in these countries is less in Europe.

Understood. Makes sense. And can I also just confirm the margin guidance you provide for this year that is after any potential headwinds from currency and tariffs. Is that correct?

Yes, that's correct. From all what we know until today. That's why. Okay. So that affects you.

Super. Perfect. And then last question from my side. Can you just provide a bit of more color on the performance of medical? I mean, it's to different directions. I mean, I guess the order intake is quite impressive. In particular, even if we strip out to Mexico, I think there was a quite healthy growth. I'm not sure if you can point to any kind of specific theme here on any kind of changes on the competitive landscape that supported this kind of demand. And then secondly, when I look at the profitability, minus 4% in the first half is still coming down. It may be partly down to tariffs, but if you can just provide any kind of update how you feel about the kind of margin book with medical, please. Thank you.

For the medical, the outlook firstly remains unchanged in the margin outlook. Obviously, we'll get also benefit from the large order entries really on the upper end on the other side of our previous expectation, and that's also positive on the margin. Then again, to your earlier question, we also see that we have headwind from customs and from ethics, and so that balances each other. The margin outlook remains largely unchanged.

Unchanged, and I think that the key to understand this development in this environment is Despite the from the currency devaluation or the increase in value, despite the from currency and from tariffs, we keep the full range of the guidance because the margin in the medical is stable or because of the and favorable the product mix and country mix. And that eventually all our efforts for bringing new products to market and the approvals, they pay off, and the key products, the Atom and Steven machine is selling very well in the United States with this type of service, as this is a relatively high margin product, and it is a, countries with reasonable, good prices, that helps to offset the headwinds.

Super. And anything that drives a particular strength in terms of demand? I mean, have you benefited from competitive changes in ventilation?

To some extent, yes. Some players left the market. That is also clearly not our disadvantage. Well, there is no real short-term boost. We do some marketing campaign. I personally address the customers that in any video campaign that we have no intention to leave the market and we will be there tomorrow other than some other players. But I think that takes a long breath.

Okay, super. Thanks so much for the comment.

Our next question comes from Alexander Galitsa with HAIB. Please go ahead.

Good afternoon. Thank you for taking the questions. Really a couple of topics, maybe starting with safety division. I wonder what explains the weakness you see in North America in safety division? In Q2 in particular, is it more or less normalization from rather strong performance in previous quarter, Q1 in particular, or is there something else happening that's worth mentioning? That's the first question. Then I have a question regarding the divestment of a facility you alluded to, if you would be able to quantify as of today roughly what kind of magnitude we're talking about in terms of proceeds for the facility. Then another question is on a fixed headwind of $20 million. If you would be able to roughly quantify how much is in safety and how much is in medical, that's number three. And the very last one is just coming back Parrot had wind, which is quite material, it seems. Just wondering what makes you confident you can pick up the slack of 25 million and still reach your sort of projection of one percentage point guidance, one percentage point margin improvement, if this 25 million on its own almost explain one percentage point. So what areas should pick up this slack? Thank you.

So let me start on your first question. The safety weakness in the Americas is mainly related to lower investment spending on behalf of our customers that also operate in an environment of uncertainty somewhat. So we expect that that will normalize to the degree or if the general environment will also stabilize. But there is no extraordinary other factor at play at this point. To your second question, the divestment for the property in the U.S. that will be in the order of magnitude between 10 and 20 billion. That is, of course, not settled yet, and we expect it to materialize if things go quickly by the end of this year or sometimes in the second half of next year. That will, sorry, first half of next year. That will, can depend on several factors. including also the type of fire and the use of the land he or she wants to make, because that has to go through some authorities. And last time we sold some land, that actually has delayed the process considerably. Your third question was with regards to the impact on the ethics on the medical and safety division. very roughly they are of the same order of magnitude. That is a tad higher on the medical, but given the size of the division proportionally, it's actually high on the safety side. And the reason is, as we've pointed out, as Chef Andreas pointed out, there's somewhat of a smaller impact, but still negative, due to the fact that we are U.S. dollar short. that you can cut it to almost in half with slightly higher cost. For the tariff headwind there, which was your fourth question, of course, this will be a challenge. We are in the process of planning out what works, we believe, in the long term also as mitigating the fact that at least some of the pricing measures that we implement on the safety side, they also will deliver a four-year effect when we come into 26. Of course, this will not be sufficient for the last month, but that will help us. Secondly, when we talk about the medical side, part of the reason that we are not able to enforce price changes on the short term of course, the long-term contracts. But even longer-running contracts will come to an end, so there is more potential to adjust prices in the normal course of business. What is not easily possible is to introduce short-term ad hoc surcharges in the medical, but to the degree that long-term contracts running out, we will be able to also implement regular price increases on the medical side.

Also, what is not is the does not make sense is to make structural changes to transfer production into the U.S. At this point in time, it's either it's not possible, simply not possible in the shorter term, it does not make sense to invest in such an environment that's given such uncertainty. So, what is possible, of course, and that would be an important factor to compensate for the is to be more cautious in the planning for our spending and for the expenses. It does not mean that we will introduce a cost-carrying program as repeatedly asked for, but it will scrutinize each and every euro that is spent.

Understood. May I just slip in one additional question? You have announced that you will be launching in the second half of the year a silent care package, which you call the world's first interoperable multimodal system based on the standard. Can you just maybe add some more context to this launch? Who will be able to use this? How is this being implemented? Does it require an add-on purchase of software? What's the context to that?

Yeah, the key is the interoperability standard STC, so that service-oriented device connectivity. That, yes, it has been developed from a nucleus in Germany, and we were part of that. However, it has become an international standard. It's IEEE 11073, and also an ISO standard. And basically, what we can see, all manufacturers try to hop on that train now. They will be the first ones that can offer it together with some other partners like the Braun and Ascom. We have a joint offering that combines the devices from several manufacturers into one seamless operating environment. That's, of course, most applicable to the higher standard Western-style university, but also in some developing countries, including Mexico, we see great interest.

As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Virendra Shauhan with Athavayu. Please go ahead.

Yeah. Hi. Thanks for taking the questions. So the first one is on safety, the order weakness particularly. So would you like to kind of call out any trends? Because safety order growth has been relatively strong all through the last few quarters. And hence, weakness in this Q2 was a little bit unexpected. Would you like to call out any kind of trends or divergences between this performance and order book development? That would be the first one. Second question is on China. So recently we have had this back and forth between EU and China regarding the participation of companies from either geography in tenders. So, given that even China has kind of blocked European firms in participating in some tenders, do you think that would kind of be a drag for you on growth in China? And lastly, coming to your margin guidance. So, the H1 margin is pretty low and significantly below the lower end of your 3.5 to 6.5% range. So what would you expect should go really well that you end up at least at the midpoint? I assume that you're really focusing some strong growth in the back end, but what exactly is driving that kind of confidence? Or do you think maybe 3.5 to the midpoint, the lower half of that is more realistic at this point? Thank you.

I take your first question. with safety what you call weakness in order intake. It's the same leaving behind as included in the answer to the very first question from Oliver Lineback or I think on the second question on the U.S. It is the same for the global business that the business in general has some fluctuations in order intake and let's say it's from one product to the next and you shouldn't too much cost for the longer-term development. So, it is a saving issue, and in general, the market is intact, and the offering is good, and should be too concerned with the single quarter that we report now. for the overall, for the year, we will see a further development. That is, I had overlapped it there. After the same, it's more for the reason why we are confident that we have the full range of the guidance system.

Let's jump to your second question also because I think it feeds into your guidance question and that was do we expect negative impact from the recent announcement in China to lock out European competitors from certain tenders? In fact, the tender volume that has been implemented in that measure of roughly 5 million euros, that's actually recent years in China for our type of products. I do know that that's different for other offerings and perhaps affects other companies differently, but for the type of business that we have seen in the past and that we expect in the future, that is actually a rare situation to have a tender that exceeds that. As a consequence, we do not expect a material impact. for the type of business that we do in China. Having said that, we currently see a stabilization of the Chinese business, and we expect further stabilization and perhaps even a pickup of growth, but it needs to increase. To your third question regarding the guidance and how does that stand in the light of our current trading, We are, of course, we have commented on the very large order backlog, in particular on the medical end there on the therapeutic end. That delivers above group margins and at the back of our typical seasonality, where even in the recent years, we always see a significant portion not any different, and in fact, based on the BASC, in comparison to the prior years, higher order backlog, we see we expect a higher back-end loading of profitability. the lower end of the margin on that background, but given the mix and the order momentum, also the mid, and if we see a good development where the momentum could be turning with, for example, also an acceleration not only in the U.S., but also in China, also the mid to higher end of the margin guidance to be clearly a possibility for our four-year expectation.

Thank you.

Our last question is a follow-up from Oliver Reinberg. Please go ahead.

Thanks very much for taking my follow-up. The first one would be on neonatal care. I think you talked about the consideration of the plan there. So two-fold question. One, is it right to assume that this is roughly 10% of medical sales, and can you provide any flavor in terms of what potential cost savings we could expect from that? And then secondly, just can you provide an update on what kind of demand you see for all kind of potential defense orders, so how that is tracking? Thank you.

Let me jump in, and Stefan Dreger will also comment on the business rationale, but as you are aware, we refrain from disclosing any individual sizes of our product areas for a couple of reasons, not least because we don't see similar figures from our market companions. So, we are very reluctant to disclose that. But as Stefan Dreger has pointed out, within our therapy devices, neonatal care is the smallest one of the different areas. So, I'm not going to, if you will channel your view, you estimate, but bear in mind that that's just a rough order of magnitude, not a specific figure. We don't like to specify that any further.

For the impact of the consolidation, it gives you a rough idea for this term here where the actual transition takes place. It's an extra expense of a single-million-digit figure, and the years to come, it will be a saving of a single-million-digit figure. So the payback is approximately a little over a year, and from then on, it's safe every day.

And for your second question.

Yeah, the defense business. What we expect, and I'm glad you asked the question, that the defense business can be in the magnitude of 100 million euros . So there is definitely potential, and that is a, say, for the defense business altogether that's worth to keep an eye on.

Okay, perfect. Thanks so much.

Ladies and gentlemen, this was our last question. I hand back over to the management for any closing remarks.

Well, thank you all for being with us today, for your questions, and again for your flexibility for the scheduling of this meeting by one hour. And for now, have a pleasant afternoon and a fine summer. Thank you very much.

Ladies and gentlemen, the conference is now over. Thank you for choosing CoreSchool and thank you for participating in the conference. You may now disconnect your lines. Goodbye.