Good afternoon, and thank you for joining our conference call on our results for the first nine months of 2026. With me today are Gert-Hartwig Lescow, our CFO, Tom Fischler, and Nikolaus Hammerschmidt from Investor Relations. After the presentation, we will be ready to take your questions. Let's get started on page five with the business highlights. With continued good demand and excellent net sales development, we delivered a strong top line in the first nine months of 2026. At around EUR 2.7 billion, order intake was noticeably above the high prior year level, while net sales grew by around EUR 110 million to around EUR 2.5 billion. Earnings rose by roughly EUR 35 million to around EUR 112 million, lifting our EBIT margin to 4.6%. This was mainly due to customs refunds. But even without those one-off effects, there is still an improvement of around EUR 11 million.
As a result of the significant increase in earnings and continued effective working capital management, our free cash flow rose considerably to around EUR 114 million, coming from around EUR 16 million in the prior year. As communicated last week, we confirmed our guidance. I will come back to this in our outlook at the end of the presentation. With that, I turn over to Gert-Hartwig Lescow for a review of our financials. Gert-Hartwig Lescow, please.
Thank you, Stefan, and welcome everyone. Please turn to page seven for the group overview. As usual, growth rates are quoted on a currency-adjusted basis. As Stefan Dräger said, we continue to see good demand for our Technology for Life. Order intake rose by 3.6% in the first nine months. This growth was supported 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. In the third quarter, order intake increased by 7%, mainly due to strong development in Germany and APAC. Compared to order intake, net sales showed higher dynamics with an increase of 5.3% in the first nine months, driven by Germany, EMEA, and the Americas.
In Q3, net sales were 1% above the prior year quarter as growth in Germany, EMEA, and APAC was largely offset by a decline in the Americas. This decline partly reflects the higher prior year base rather than a change in underlying demand. In 2025, medical deliveries, particularly in the U.S., were concentrated in the second half of the year. The gross margin benefited from custom refunds by around one percentage point and increased by 1.7 percentage points to 46.8%. Functional expenses rose by around EUR 55 million, or 6.1% in the first nine months, driven by higher costs for personnel, logistics, and IT. In Q3, the increase was more pronounced at 8.7%, mainly reflecting the same cost drivers. Looking closer, the increase in personnel expense reflects both structural and one-off effects.
Since Q2 2026, higher expenses from the ongoing collective bargaining agreement have been a structural driver on top of one-off accruals for the share price linked variable management compensation. In addition, logistics expenses rose particularly due to higher costs for air and container freight and ongoing geopolitical tensions in the Middle East. Furthermore, one-time project-related expenses were incurred in connection with taking over the newly leased international distribution center in Lübeck to ensure our ability to deliver during the transition phase. We are working to offset these pressures, and our target remains unchanged to keep full year expense growth below net sales growth. Our EBIT in the first nine months increased by almost half to around EUR 112 million, lifting our EBIT margin from 3.3% to 4.6%. EBIT for the first nine months included one-time effects of EUR 27.9 million from customs refunds.
Of this amount, EUR 7.8 million was attributable to the second quarter and EUR 20.1 million to the third quarter. A portion of these refunds, totaling EUR 3.8 million, relates to custom expenses from the current fiscal year and therefore has no impact on earnings in comparison to the prior year. At the same time, custom expenses totaling EUR 25.8 million were incurred in the U.S. during the current year, which are not refundable under current law. Just to be clear, the net effect on tariffs year to date was negative with roughly - EUR 2 million. In the third quarter, EBIT declined from around EUR 57 million to EUR 48 million. The EBIT margin amounted to around 5.6% after 6.8% in the prior year quarter. Lower net sales growth was offset by a disproportionate increase in functional costs. At the same time, the comparative EBIT level was high.
In the third quarter of 2025, EBIT had more than doubled due to significant sales growth characterized by catch-up effects and moderate cost development. Due to the significant increase in EBIT, our rolling 12 months DVA also rose considerably from around EUR 49 million to around EUR 117 million. Let us now take a closer look at the development of the medical division on page eight. At around EUR 1.5 billion, order intake in the first nine months was 3.5% below the prior year figure. The 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 almost stable. In EMEA and APAC, demand remained nearly unchanged, while Germany recorded a noticeable increase. In the third quarter, order intake was 3% lower than the prior year figure.
Growth in Germany, the Americas and APAC was offset by a significant decline in EMEA. Net sales increased by 4.4% to around EUR 1.4 billion in the first nine months. This was driven by Germany, EMEA and the Americas. In Q3, net sales declined by 1.4%. The main reason for this was the significant decline in the Americas, which was partly attributable to the high prior year level. In the third quarter of 2025, we were able to accelerate deliveries of anesthesia machines in the U.S. again. Despite negative currency effects, the gross margin improved by 2.2 percentage points to 45.2% due to customs refunds and a favorable product mix and country mix. Functional expenses rose by around 6.5% in the first nine months and by 7.3% in the third quarter. This is primarily due to a higher personnel expense and freight costs.
Our EBIT margin in the medical division stood at minus EUR 9.7 million after nine months, coming from minus EUR 22.7 million in the prior year period. The EBIT margin therefore rose from -1.7% to -0.7%. in Q3, EBIT fell from EUR 11 million to EUR 4.5 million. The EBIT margin amounted to 1.0% after 2.3% in the prior year quarter, and our rolling 12-month DVA increased significantly by EUR 31.9 million to - EUR 13.4 million. I will now turn to our safety division. We are on page nine. Order intake in the first nine months rose significantly by 13.1%. This was supported by all product areas and regions. in Germany, orders grew by almost 28% due to a major order for defense solutions. The Americas and APAC also recorded disproportionate growth. in the third quarter, order momentum picked up even further.
Thanks to the good development in all regions and the major order in particular, the division recorded an impressive increase of 20%. in addition to Germany, the Americas and APAC also delivered significant growth. Net sales were clearly above the prior year level with an increase of 6.5% in the first nine months. This was particularly driven by EMEA as well as Germany and the Americas. The APAC region recorded a slight decline. in Q3, net sales increased by around 4%, and the decline in the Americas was more than offset by the positive development in the other regions. Despite negative currency effects, the gross margin improved by 1.1 percentage points to 48.8% due to a better product mix and customs refunds. Functional expenses increased by 5.4% in the first nine months and by 11.1% in the third quarter. This was largely due to higher personnel costs and freight costs.
Our EBIT in the safety division increased significantly in the first nine months from around EUR 100 million to around EUR 122 million. This lifted the EBIT margin from under 10% to over 11%. in Q3, EBIT was around EUR 2 million below the prior year figure at around EUR 44 million. The EBIT margin consequently came down from 12.6% to 11.4%. Rolling 12 months DVA improved by around EUR 36 million to around EUR 131 million. Let us move on to the development of our cash flow and other key figures on to slide 10. in the first nine months, our operating cash flow increased significantly by around EUR 82 million to around EUR 175 million. in addition to the growth in earnings, which was mainly driven by the customs refund, this was particularly due to effective working capital management, especially better development of trade receivables and payables.
Higher operating cash flow as well as lower investment outflow led to an improvement in free cash flow by around EUR 98 million. 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 EUR 116 million to around EUR 106 million. 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 0.3
At the beginning of the first quarter, we paid a maturing note loan in the amount of EUR 50 million with our own liquidity. Our 12-month rolling return on capital employed grows from 12.0% to 15.6%. This was due to the higher EBIT in that period. At around EUR 736 million, net working capital was 2% higher than in the prior year. Our equity ratio as of September 30th stood at around 52%, around one percentage point above the year-end level of 2025. Now, I hand back to Stefan Dräger for our outlook on page 12.
Ladies and gentlemen, 2026 has been very successful for Drägerwerk so far. After the first nine months, we confirm our last guidance for the full year. We continue to expect net sales growth of 2%-6%, net of currency effects, and an EBIT margin of 6%-8% for the full year of 2026. As a reminder, we will present our Ambition 2030 at our Capital Markets Day on November 18th in Lübeck. Please feel invited. The event will also be streamed live via webcast. You can find all the details on the investor relations pages on our website. We are looking forward to your participation. With this, I would like to end the presentation and hand over to the operator to open the floor for your questions, please.
We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on the 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 while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oh, yeah. Hi, good afternoon. I have three questions from my side, if I may. Firstly, can you just talk a bit more on the kind of medical margin? I think when we strip out the tariff refunds effect, it was even down the nine months compared to the last year. I guess to move towards the kind of 10% margin ambition, medical has to contribute meaningfully. So can you just provide some kind of color here in the main building blocks to improve the medical margins going forward, please? Secondly, also medical in the orders. I think these were flat now in the first nine months, excluding the Mexico effect.
Can you just talk a bit more detail what held that back, quantifying the Middle East impact, and probably talk around the kind of product groups and what kind of visibility you have if this kind of order growth is going to accelerate going forward? Then thirdly, just on functional costs. I guess if you want to increase functional costs below the growth of sales, that means quite material decline in Q4. Is that correct? Because I think we are seeing like 8%-10% growth of functional costs in Q2 and Q3. Can you just confirm that and give us any kind of color what was the kind of magnitude of this, what we can probably call special items in terms of the effect from the share price increase and one-time project cost? Thanks so much.
First question is for the medical margin. Without going into too much detail, as we're going to share in more detail our roadmap for margin improvement. Firstly, your observation is obviously correct, that the margin improvement for the group includes the margin improvement on the medical, and that's driven by a couple of factors that includes net sales growth, also supported by our portfolio, by better standing in the monitoring after the warning letter. That includes high efficiency in research and development.
The tariff reimbursement.
I understood the question was for going forward for the margin improvement.
Yeah.
Or maybe you can clarify that, Oliver.
I think it would be your first and your second question together. One was for the year to date, and the other was the order development going forward. Correct?
But both are basically looking at what are the drivers from the improvement going forward. That would be most helpful.
Stefan Dräger speaking. For the order development, I would say there is no particular product category or region that stands out. Germany is doing relatively well. China is still below our expectations, but no particular big thing that is deviating from the normal, and also we expect for the remainder of the year that the order intake and sales will be better in the fourth quarter, will be the best quarter. We have no indication to believe that any unusual or deviation for any product group or region should occur. For the margin, yes, year to date, that it does include the tariff reimbursement. Other than that, it is on a good track, and it is slightly improved, but no big thing has happened so far or is expected to happen for the remainder of the year.
Yeah. To your other question, firstly, your observation is accurate. That requires tight spending in the fourth quarter. For the third quarter alone, roughly one third of the increase is due to, say, one-offs as tax, either because they occurred in the third quarter of 2025 and did not repeat themselves positively, or items like the burdening from the shares that occurred in the third quarter this year but will not repeat themselves.
Okay. Perfect. Thanks so much.
The next question comes from the line of Harald Hof from mwb research. Please go ahead.
Thanks a lot, and thanks for taking my questions. I've got two questions. The first one is the order intake in Germany. It was quite strong. Could you provide more details on the contract from the defense sector? What is its size and value, and do you expect further orders in this area? The second question is regarding the FDA warning letter. Following the closure of this letter, what are the next steps and what can we expect for 2027 and potentially beyond? Thank you.
The order intake in Germany, as you said, that's to a large degree driven by a one-off order from one customer that will be delivered over the next few years. It will not turn into net sales as our normal order entry within a short amount of time, but over a period of two-three years. The total volume is in the low double-digit million.
Yes, we are working on more similar orders from the defense sector for multi-year contracts that can be even a larger magnitude, but that's to be seen.
In total, as you are probably aware, our goal is to increase our defense business from roughly EUR 100 million, which we had in around 2025 to around EUR 300 million and that goal is unchanged. The current order entry well supports that ambition.
For the warning letter, that after almost seven years is now lifted, so we are prepared to reap the benefits from the approvals of the products, and from no longer employing resources on all the work that's associated with satisfying the FDA to fulfill all the requirements. So that's done. What it means for the future, stay tuned for our Capital Markets Day. We ask for more patience and please visit us or join us on the conference. We will show it in great detail.
Okay, then I will be a little bit more patient. Yes, I will be there, so see you in November.
See you then.
As a reminder, if you wish to register for a question, please press star and one on your telephone. We now have a question from the line of Jean-Marc Mueller from JMS Invest AG. Please go ahead.
Yes, thank you for taking my questions. Most have been answered, but on the functional cost in Q4, I have to emphasize the math here. When you are talking about not growing faster than sales, that implies, if I do the math, that Q4 functional cost will be roughly at the level of Q3. I understand that you just mentioned that of the EUR 30 million increase, roughly EUR 10 million was a one-off in Q3 and will not repeat in Q4. But still, typically we see quite a step-up in functional cost in Q4. So to have a similar level in Q4 as in Q3, would imply very tight cost management. Can you elaborate maybe a little further or just give us a bit more confidence that you can achieve this number?
Well, at this point, as I said, there are some. One of the facts that will go away, and they will provide for some increase in the fourth quarter. As you said, or as you imply, that requires tight spending management in the Q4. There is not much more that I can add at this point.
Okay. One thing went nearly a little unnoticed, it is that you changed your net debt guidance for the year, to basically a net debt of zero to -EUR 50 million. You stood at -EUR 106 million after nine months, so that implies a free cash flow in Q4 of something between EUR 56 million- EUR 106 million. Is this how we have to look at cash flow in Q4?
I think so. I will probably have to get back to you on the math there. We will get in touch with Tom. Sorry.
Okay. It just implies a super strong free cash flow, not just in Q4, but for the whole year. My add-on question obviously then would be, what ideas would be with the dividends that is going to be paid out in 2027?
Well, the dividend policy will remain unchanged, and that is we will distribute at least 30% of our net income as dividend.
Okay, good. Thank you.
Once again, to ask a question, please press star and one on your telephone. We have a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead. Mr. Reinberg, your line is now open. You may go ahead with your question.
Can you hear me?
Yes, we can.
Okay, perfect. Thanks for taking my follow-up. Two from me. Firstly, on China, can you just talk to what you actually see on the ground in China in terms of dynamics? Some people are quoting some kind of improvements. Was my understanding you do not see that, and also, what is the kind of activities of a Chinese player globally? Where do you see the most, and do you observe any kind of change in dynamics there? That would be question number one. Secondly, just thinking about 2027, is there any kind of, from a big picture perspective, any kind of relevant tail and headwinds that we should be aware of? Thank you.
On China, as I already said, it is below our expectations, and there is no growth for us. We see that also in China, our Chinese competitors also suffer from what we know from both Mindray as well as our development partner, Edan. They both have a decline, a double-digit decline in their domestic sales. They have to take some measures to reduce their spending and cost because of the domestic sales in China decline. That makes them even more dangerous and stronger in some other parts of the world, in particular in CSA, so Latin America and Africa, some parts of Asia, to a lesser extent, in Europe and North America. I think I can say in North America, we hired their chief sales person now working for us and gives us a lot of good insights on the strategy.
Into opportunities for the future, which we again enlighten and highlight on the Capital Markets Day, to come on November 18th. What we do in addition, our chief sales officer traveled to China together with the German Minister of Economy, Katherina Reiche, and met the Chinese government on a federal level and also on a provincial level. Surprisingly, the Guangdong province is supporting us, asking in local tenders to promote Drägerwerk in the procurement process. The business impact is not yet very relevant. As I say, it is overall below our expectations, but we do not give up.
For China. Neither domestically in China nor in the competition around the world. Next question.
2027 tailwind?
What was it, the headwinds?
Headwinds. What kind of headwinds we expect for 2027.
Actually, both tail and headwinds, whatever is worth considering.
On headwinds. Maybe some headwinds from supply chain shortages coming from this AI hype may spill over to us. That could happen and currency is also always a factor. At this point, it is neutral to us, which is not bad. It could be worse.
Okay. Any tailwinds to consider? Any kind of positives from a big picture perspective? Or business as usual?
Defense, as we already touched before. We had some pretty sizable opportunities. Then, if I may say, we are working on a very prestigious project, the FDNY, the Fire Department of New York City, the biggest in the world, which has been in the hands of our market companion, Scott, for 70 years, and there is a tendering process right now, and Scott is out, and we are still in the shortlist.
Okay, cool.
You can't count on it, please. Like you said, it would be a tailwind or a bonus on top of what we are doing.
Super. Fingers crossed. Thank you.
Very motivated to make it happen.
Cool. Thanks so much.
For any further questions, please press Star and one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Dräger for any closing remarks.
Well, ladies and gentlemen, thank you very much for joining us today on our nine-month conference call, and look forward to see, hopefully, many of you on the Capital Markets Day on November 18th, either in person or in the live stream. It will also be possible to ask questions online and get the answers online in real-time. With that, I close the conference. Thank you, and have a pleasant afternoon and evening.