Ladies and gentlemen, welcome to the Q2 2025 earnings call. I am George, the Chorus 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 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 Dräger, CEO. Please go ahead.
Yes, good afternoon. Thank you for joining our conference call and our financial results for the first half of 2025. Thank you all for your flexibility for rescheduling the call for one hour due to organizational reasons. Thank you for being with us. I have with me today Gert-Hartwig Lescow, CFO, as well as Tom Fischler and Nikolaus Hammerschmidt, both Investor Relations. We would like to take you through the results of 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 stable net results, with stable net sales and a positive operating result, we achieved a solid business performance in the first half of 2025. At around EUR 1.5 billion, net sales were nominally slightly below the prior year run.
Adjusted for currency effects, they slightly increased. On the other hand, in the first half of 2024, growth was driven by the Medical division instead of the Safety division. Earnings before interest and taxes could not keep up with net sales as our EBIT fell short of the prior year figure at just over EUR 20 million. 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 EUR 20 million and one-off effects. Next to these base effects, currency effects and customs duties had a negative impact on earnings. Considering the missing case and the substantial headwind 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 EUR 1.7 billion. 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 into positive territory at around EUR 18 million after a - EUR 5 million in the prior year figure. The performance of the Dräger 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. In May, the preferred shares, which are listed in the SDAX, were also included in the TecDAX. 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 in Telford, Pennsylvania, and our neonatal care business. Neonatal care is the smallest care area within the business unit therapy. It operates with a rather complex setup since operations are divided over two sites, Lübeck in Germany and Telford in Pennsylvania in the U.S., due to several reasons of the acquisition of a business from Air-Shields, originally in Hatboro, which is nearby Telford.
To ensure the long-term success, we have now decided to consolidate the two existing sites into one. This means all related activities will be consolidated in Lübeck by the end of 2026. By bringing both units together into one optimized location, we will improve efficiency, reduce fixed costs, and enable a stronger platform development while 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 confirm 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 Gert-Hartwig for a review of the financials. Gert-Hart, please.
Thank you, Stefan, and welcome everyone to our H1 results call. Let's turn to page seven for a group overview. As usual, I will close all rows based on a currency-adjusted basis. We continue to see strong demand for our technology for life in both segments and all regions. Order intake rose by more than 10% to over EUR 1.7 billion in the first half of 2025. The Americas led the growth with an increase of about 35%, followed by EMEA and APAC. In Germany, the order volume was slightly above the prior year. In the second quarter alone, orders grew by more than 14%, fueled by broad-based momentum in the Americas, EMEA, and Germany. Net sales rose by 1.8% in the second quarter after a slight decline in the first half of the year. Net sales increased by 0.4% to around EUR 1.5 billion.
APAC's strong performance and a noticeable increase in Germany offset the declines in EMEA and the Americas. We maintained a 44.8% margin as the slight dip in the Safety division was fully offset by the increase in the Medical division. Our financial expenses rose around 6% in H1, driven by the absence of last year's EUR 20 million one-off unit and a one-off rated unit to employees in Germany. Excluding the positive one-off effect as mentioned above, the cost increase amounted to 2.9%. Operating results improved over the course of the year. After modest Q1 EBIT, Q3 EBIT reached EUR 20 million, lifting our EBIT margin from 0.1% to 1.2% to 6.2% in the prior year figure. For the six-month period, EBIT totaled EUR 20.4 million with a 1.3% EBIT margin. In the last year's period, of EUR 55.8 million and a 3.7% EBIT margin.
The main reason for this decline was a positive one-off effect in the first year, which announced it. In addition to these base effects, headwinds from currencies and customs units strained our EBIT as the euro appreciated, job eagerness to trade in currencies. We carefully monitored the development of foreign currencies and managed these relationships proactively through hedging and price adjustments. Having said that, FX had a negative impact of roughly EUR 20 million. Finally, our rolling 12-month DVA dipped to around EUR 17 million. Let's now take a closer look at the development of the Medical division on page eight. We grew order intake by almost 15% to more than EUR 1 billion in the first half of 2025, driven by stock amounts of ventilators in infusion machines, work services, and consumer shares.
In Q2, the net double EUR 6 million a year order for hospital infrastructure in Mexico further powered our growth in the Americas. Even without this large order, demand in the Medical division rose year- over- year. The second quarter order intake in the Medical division decreased 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 EUR 851 million, mainly driven by APAC and Germany. In APAC, mainly India and China drove our growth. However, 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 sales for customs in Korea. We expect sales to accelerate as soon as the current quarter.
Despite currency headwinds and higher customs duties, our gross margin expanded by 1.2 percentage points in Q1 and 0.2 percentage points in H1, thanks to a favorable country mix and lower quality expenses for field taxes. Personnel expenses rose by 5%. Excluding the proportionate positive one-off effect on the sale of the property in the U.S., the increase amounted to 4.4% in the first half of the year and 3% in the second quarter. Our Q2 EBIT improved considerably from - EUR 12.9 million to - EUR 5.9 million, lifting the EBIT margin from - 3% to - 1.4%. For H1, EBIT amounted to - EUR 34 million per year. The EBIT margin decreased from -2 .9% to - 4%. Our rolling 12-month DVA improved by around EUR 5 million to -EUR 60 million. I will now turn to our Safety division on page nine.
In H1, order intake rose by more than 4%, driven by engineered solutions, respiratory and personal protection products, and gas detectors. Orders for occupational health and safety normalized after last year's large order for German Armed Forces for protective filters. EMEA and the Americas delivered strong double-digit order growth. The effect followed with that. In the second quarter, order intake was just under the prior year level with robust single-digit growth in Germany and EMEA, balanced by a decline in the Americas and APAC. Q2 net sales declined 2% and H1 fell 1.4% as the decline to EMEA and the Americas was not fully offset with growth in Germany and APAC. Our business margin is fluctuations of order 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 normally enough. For the full year 2025, n et sales growth in Safety over a strong prior year. This requires a further acceleration of order intake in the coming months. Lower net sales and currency headwinds drove a gross margin growth of 1.4 percentage points in the second quarter and 0.2 percentage points in the first six months. Personnel expenses rose about 8% in H1, mainly reflecting the absence of last year's income from the sale of all fire arms assisted businesses in the Netherlands and higher market incentives. A strong relative increase in functional expenses in the second quarter is due to the aforementioned base effect. Excluding the H1, the increase in the last year amounted to 0.8% in the second quarter. Functional expenses would have decreased by 2.5%.
Q2 EBIT reached EUR 26 million in the second quarter after roughly EUR 54 million in the previous quarter. The EBIT margin fell from 15.1% to 7.6%. After the first two trials, the EBIT came to EUR 54 million, down from EUR 80 million. The EBIT margin was increased to 8.2% after 11.9% for the prior year period. Rolling 12-month DVA decreased significantly by around EUR 21 million to around EUR 77 million, coming from EUR 98 million for the prior year period. That concludes the Safety division review. Let's move on to the development of our cash flow and our funding structure on today's slide of 10. In H1, we delivered a significant improvement in operating cash flow despite the lower earnings of roughly EUR 18 million coming from an outflow of around - EUR 5 million in the prior year period.
This was mainly due to effective working capital management, especially better development of free receivables and other liabilities like cash inflow from FX derivatives. Investing activities used about EUR 60 million in H1 vs EUR 11 million a year ago, resulting in a free cash flow of around - EUR 42 million, - EUR 16 million in the prior year period. We modestly reduced net financial debt, keeping our leverage at a healthy 0.9% net financial debt to EBITDA. Net working capital also remained at the prior year level at around EUR 739 million. Lower rolling 12-month EBIT 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%, which is slightly below year-end 2024 level. Now I'd like to hand back to Stefan Dräger for our outlook on H1 2024.
Thank you, Gert-Hartwig. Ladies and gentlemen, the good order development and the stability of our business give us confidence that we will make up for the shortfall in net sales in the second half of the year. Therefore, we confirm our forecast with net sales growth in the range of 1% - 5% and with EBIT margin between 3.5% and 6.5%. The DVA is expected to be in the range of - EUR 30 million to + EUR 80 million. With this, I would like to end the presentation and hand over to the operator 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 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 two. Participants are requested to use only handsets when asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Oliver Reinberg with Kepler Cheuvreux. Please go ahead.
Oh, yeah, good afternoon, Oliver Reinberg from Kepler Cheuvreux. First question would be three-fold on tariffs. Can you just give us a flavor of what kind of impact on earnings you have seen from tariffs in the first half of the year? Also, what kind of impact do you expect for the full year? 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.
I'll take the first question. The impact from duties in the first half, which essentially is the second quarter, is around EUR 6 million, so in the mid-single digits, if you will. For the full year, we expect at the now announced 15% tariff as of August 15. We expect an impact of around EUR 25 million.
Is it 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. We see a durability for price increases on the Safety side of our business where we have already introduced adjustments of prices. We see very limited potential to increase prices on the Medical side due to, among other reasons, the fact that we have long-term contracts with GPOs, which are not changeable easily. Also, a general environment where price increases on the industrial side, on the Safety side, are quite common, whereas they are less common on the Medical side of our business.
Okay. If I think about basically 2026, when you cannot offset much of this, and mostly, I guess, is related to the Medical division, does it mean we are going to expect a kind of incremental EUR 20 million headwind next year?
Basically, yes, that has to be figured into our planning. We still keep the target of improving our margin 1% every calendar year on average. On average, it is the same as the calendar year in the last period. Very exciting for next year. This is Stefan speaking, but there's not something we can do directly. We can cancel discounts and do less promotions. On a structural level, there's nothing that makes sense to do for next year.
Okay. Just to confirm, the 1% 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. We expect the headwind to continue for next year. We're coming from both from tariffs and the somewhat related currency fluctuations from Europe. It's not so much the dollar-euro relations directly. We are quite well nationally hedged. As we would know, a lot of our cost is also based in the U.S. dollar. We have also considerable expenses with 1,000 employees in the U.S., and some of them being R&D people. We have structured a lot of our procurement with contracts all over the world in U.S. dollar. However, there are third-party currencies like the Mexican peso or the Indonesian or whatever the currency that are devaluated. All the stakes that we achieve in these countries is less in euros.
Understood. Makes sense. 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, it's not. That's right. Okay, they remain there. That affects you.
Super. Perfect. Last question from my side. Can you just provide a bit more color on the performance of Medical? It's two different directions. I guess the order intake is quite impressive. In particular, even if we strip out Mexico, I think there was quite healthy growth. I'm not sure if you can point to any kind of specific theme here or any kind of changes on the competitive landscape that supported this kind of demand. Secondly, when I look at the profitability, - 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 for Medical, please. Thank you.
For the Medical, the outlook firstly remains unchanged in the margin outlook. Obviously, we'll get also benefit from large order increases. On the upper hand, on the upper side of our previous expectation, and that's also positive on the margin. To your earlier question, we also see that we have headwinds from construction, from ethics, and so that balances each other. I think in all, the margin outlook remains largely unchanged.
Unchanged. I think that's a key to understand this development. Despite the headwinds from the currency devaluation or the euro increase in value, despite the headwind from currency and from tariffs, we keep the full range of the guidance because the margin in the Medical is still or even slightly improved because of the favorable product mix and country mix. That is that eventually all our efforts for bringing new products to market and the approvals pay off. The key products we have done is steam and machine is selling very well in the United States. Despite the tariffs, as this is a relatively high-margin product and it is a country with reasonable, good prices, that helps to offset the headwinds.
Super. Is there 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 to our disadvantage. By the way, it's 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. I think that takes a long breath.
Okay. Super. Thanks so much for the color.
Our next question comes from Alexander Galitsa with HAIB. Please go ahead.
Yes. Good afternoon. Thank you for taking the questions. Really, a couple of topics. Maybe starting with the Safety division. I wonder what explains the weakness you see in North America in the Safety division in Q2 in particular. Is it more or less normalization from rather strong performance in the previous quarter, Q1 in particular, or is there something else happening that's worth mentioning? That's the first question. 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. Another question is on FX headwind of EUR 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.
The very last one is just coming back on tariff headwind, which is quite material, it seems. Just wondering what makes you confident you can pick up this slack of EUR 25 million and still reach your sort of projection of 1% guidance, 1% margin improvement if this EUR 25 million on its own almost explains 1 percentage point. What areas should pick up this slack? Thank you.
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. We expect that will normalize to the degree or if the general environment will also stabilize. There is no, if you will, extraordinary other factor at play. To your second question, the divestment for the property in the U.S., that will be in the order of magnitude between EUR 10 million and EUR 20 million. That is, of course, not settled yet. We expect it to materialize if things go quickly by the end of this year or sometimes in the first half of next year. That can depend on several factors, including also the type of buyer and the use of the land he or she wants to make, because that has to go to some authorities.
Last time we sold some land, that actually delayed the process considerably. Your third question was with regards to the impact on the FX 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, proportionately, it's actually higher on the Safety side. The reason is, as we point, or Stefan Dräger has pointed out, there is somewhat of a smaller impact, but still negative, due to the fact that we are U.S. dollar short by a small margin. By and large, we can cut it to almost and a half with slightly higher column there. For the tariff headwind, which was your fourth question, this will be a challenge. We are in the process of planning out what works.
We believe in the long term also as a mitigating effect that at least some of the pricing measures that we implement on the Safety side, they also will deliver a full-year effect when we come in 2026. This will not be sufficient for the last part, 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 are, of course, the long-term contracts. Even longer running contracts will come to an end. 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. To the degree that long-term contracts are running out, we will be able to also implement regular price increases on the Medical side.
Also, what is not easy is possible, but does not make sense is to make structural changes to transfer production into the U.S. At this, when it comes, it's either it's not possible, simply not possible in a shorter term, or from an entrepreneurial standpoint, it does not make sense to invest in such an environment given such uncertainty. What is possible, of course, and would be an important factor for compensating for the headwind is to be even more cautious in the planning for our spending and for the expenses. That does not mean that we will introduce a cost-cutting program as repeatedly asked for, but we will scrutinize each and every euro that we spend.
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 called 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 has this been implemented? Does it require an add-on purchase of software? What's the context to that?
Yeah, the key is the interoperability standard SDC, so that's service-oriented device connectivity. Yes, it has been developed from a nucleus in Germany and we will parse it. However, it has become an international standard. It's IEEE 11073 and also an ISO standard. I think basically what we can see, all manufacturers try to hop on that train now, but we are the first ones that can offer it together with some other partners like B. 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 universities, but also in some developing countries. Incidentally, Mexico is a big seeker interest.
As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Virendra Chauhan with AlphaValue. Please go ahead.
Yeah. Hi. Thanks for taking the questions. The first one is on Safety, the order weakness particularly. Would you like to kind of call out any trends? 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. Recently, we have had this back and forth between the EU and China regarding the participation of companies from either geography in tenders. 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?
Lastly, coming to your margin guidance, the H1 margin is pretty low and significantly below the lower end of your 3.5% - 6.5% range. What would you expect should go really well that you end up at least at the midpoint? I assume that you're really forecasting 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 think in your first question, there is a Safety, what you call, weakness in order intake. It is the same reason behind as we include in the answer to the very first question from Oliver Reinberg, or I think on the second question on the U.S. It is the same for the global business. The business in general has some fluctuations in order intake, and that shifts from one quarter to the next. You shouldn't read too much across for the longer-term development. It is a phasing issue. In general, the market is adept and our offering is good. You shouldn't be too concerned with this single quarter that we report now. For the overall, as well as for the year, we will see further development. I hand over now to Gert-Hartwig for the same.
It's in terms of the reason why we are confident that there is the full range of the guidance intact.
Yeah. Perhaps I'll jump to your second question also because I think it feeds into your guidance question. That was, do we expect negative impacts 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 EUR 5 million, that's actually above the usual tender volume that we have seen in 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. 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 it to be too impactful 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 revenues to increase. Your third question regarding the guidance and how does that stand in the light of our current trading, we are, of course, commented on the very large order backlog, in particular on the medical and therapeutic buys, and that delivers enough group margins. At the back of our typical seasonality, where even in the recent years, we always see a significant portion of our profit on the Medical, in particular, the second half of the year. We expect this year to be not any different. In fact, based on the above in comparison to the prior years, higher order backlog, we expect a higher backend loading of profitability. With that, we see clearly the lower end of the margin on that background.
Given the mix and the order momentum, also the mix, and if we see a good development, 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 full-year expectation.
Perfect. 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 consolidation of the plan there. Two-fold question. One, is it right to assume that this is roughly 10% of Medical sales? Can you provide any flavor in terms of what potential cost savings we could expect from that? Secondly, can you provide an update on what kind of demand you see for all kind of potential defense orders? How that is tracking? Thank you.
Let me jump in, and Stefan Dräger will also comment on the business rationale. 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. We are very reluctant to disclose that. As Stefan Dräger has pointed out, within our therapeutic devices, neonatal care is the smallest one of the different areas. I'm not going to, if you will, counter your estimate. Bear in mind that that's just a rough order of magnitude, not specific figures. We don't like to specify that any further.
For the impact of the consolidation, to give you a rough idea, for this period of year, where the actual transition tax saves, it's an extra expense of a single million-digit figure. In the years to come, it will be a saving of that single million-digit figure. The payback is approximately, if I say, a little over a year. From then on, it's a safe every day.
For your second question?
Is the other the defense business? I’m glad you ask the question, that the defense business can be in the magnitude of EUR 100 million for Dräger. There is definitely potential, and that is a, say, a sizable number for the defense business altogether. That's worth to keep an eye on.
Okay. Perfect. Thanks very much.
Ladies and gentlemen, this was our last question. I hand back over to the management for any closing remarks.
Thank you all for being with us today, for answers and for your questions. Again, for your flexibility for the rescheduling of this meeting by one hour. From now, have a pleasant afternoon and a fine summer. Thank you very much.
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