The first quarter has already shown that fiscal year 2009, as expected, will be a difficult year for Drager. While net sales rose by almost 5%, order intake and orders on hand – with strong regional and product-related differences – are still down by more than 9% year on year. “This development confirms our forecast of an approximately 5% decline in net sales for the current fiscal year”, explains Stefan Drager, executive board chairman of Dragerwerk Verwaltungs AG. The Group’s EBIT before non-recurring expenses decreased to EUR6.5 million (Q1 2008: EUR17.5 million). As announced, the Company is confronting the weak earnings development with a turnaround program

Order intake down year on year

Order intake fell by 9.2% (net of currency effects: 9.8%) to EUR448.6 million in the first three months of fiscal year 2009 (Q1 2008: EUR493.8 million). Order intake in the medical division dropped by 7.8% to EUR295.2 million (net of currency effects: 8.8%), while the safety division’s order volume declined by 10.7% to EUR160.1 million (net of currency effects: 10.6%). Compared with the prior-year quarter, orders on hand fell across the Group by 9.2% to EUR424.5 million (March 31, 2008: EUR467.3 million), but are up EUR24.6 million compared with December 31, 2008.

Earnings under pressure

Due to changes in the product mix and currency effects, the gross margin decreased from 47.3% in the first three months of 2008 to 45.4% a year later. The higher volume of net sales led to a proportionately lower increase in gross profit, from EUR191.8 million to EUR193.0 million. A 4.5% increase in functional costs compared with the first quarter of 2008 (research and development costs, marketing and selling expenses, general administrative expenses and other operating income and expenses) impacted earnings. On the one hand, this was due to negative currency effects of EUR4.2 million, mainly due to the relatively strong US dollar. On the other hand, a budgeted increase in research and development costs, which rose to 8.7% of net sales (March 31, 2008: 7.3%), was responsible for the higher functional costs. As a result of these effects, the medical division’s EBIT before non-recurring expenses was significantly weaker at EUR2.7 million (Q1 2008: EUR12.1 million). The safety division managed to increase earnings before interest and taxes by 10.5% year on year to EUR10.5 million (Q1 2008: EUR9.5 million). The Group’s EBIT before non-recurring expenses decreased by 62.9% to EUR6.5 million (Q1 2008: EUR17.5 million) due in particular to the medical division’s weaker earnings contribution compared with the prior-year period.

Turnaround program

For 2009, a number of immediate measures should cushion the effects of the negative margin development and anticipated weak net sales. In order to strengthen its competitive position in the long term, the Company plans to cut costs, increase efficiency and boost income through new products. The group-wide turnaround program therefore contains measures to grow earnings in all function areas, such as procurement, production and logistics, marketing and sales, as well as cross-function fields, such as administration and IT. 150 employees are currently assessing around 400 detailed individual measures spanning nine modules and 70 sub-projects. “In June we will unveil the project in detail and implement a carefully coordinated package of measures”, said Stefan Drager. All expenditure and structures are being put under the microscope in order to identify potential for improvement. Growth, product quality and customer service remain on the agenda.

Outlook

Drager continues to expect net sales to decline by approximately 5% in 2009. Stefan Drager: “In 2009 we will implement a decisive set of measures to secure medium-term profitable growth and regain the trust of the capital market.”