Draegerwerk AG & Co KGaA

XETRA:DRW8

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Drägerwerk Q3 2024 Earnings Call. I'm Sargen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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, sir.

[Stefan Dräger, executive]

Good afternoon, and thank you for joining our conference call on our financial results for the first 9 month of 2024. I have with me 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 5 with the business highlights. In the first 9 months of 2024, we successfully paved the way to our annual targets with continued good demand, robust net sales and higher earnings. At EUR 2.4 billion, our intake slightly surpassed the high level of the prior year period. Net sales at EUR 2.3 billion almost reached the high prior year figure, which, at that time, was positively influenced by an improvement in delivery capacity and a search and demand for ventilators in China.

Both in terms of orders and sales, we were able to grow in all regions except APAC. Our safety division performed better than the Medical division, which was affected by the challenging market environment in China. Our EBIT in the first 9 months increased to over EUR 80 million. This growth was driven not only by our operating business, but also by onetime effects totaling around EUR 32 million. Among others, this included the sale of a noncore business activity in the Netherlands and the sale of land in the U.S. in the second quarter with a total amount of EUR 20 million as well as the sale of a building in Spain in the third quarter, which contributed around EUR 10 million to the earnings.

After the first 9 months, our EBIT margin was slightly above the prior year level at 3.5%. Our focus remains on improving profitability. Regarding our FDA warning letter, there have been no relevant news since our last conference call at the end of July. We are still waiting for a response from the FDA to conduct the necessary reinspection of our site in Andover. Actual timing and scheduling of this inspection is at the FDA's discussion. As communicated 2 weeks ago, we confirm our annual guidance and the expectation of a strong year-end business, we continue to forecast net sales growth in the lower half and EBIT margin in the upper half of the previously forecasted ranges. I will come back to this in our outlook at the end of the presentation.

With that, I turn over to Gert-Hartwig for a review of the financials. Gert-Hartwig, please.

[Gert-Hartwing Lescow, executive]

Thank you, Stefan. I would also like to welcome everybody to this conference call of our results for the first 9 months of 2024. Please turn to Page 7 for a review on the Drager Group. As usual, I will be stating currency-adjusted figures whenever referring to growth rates. As Stefan said, we continued to see good demand for our technology for life. Overall, orders in the first 9 months of 2024 increased by about 1.4% to around EUR 2.4 billion, driven particularly by growth in Germany and positive development in EMEA and America.

However, orders in APAC decreased mainly due to the reduced demand for ventilators in China compared to last year and the current challenging market environment in China, which is leading to subdued demand affecting on all Western med-tech suppliers. Net sales in Q3 and in the first 9 months almost reached the prior year level despite the mentioned base effect. After the first 9 months, net sales were only 0.4% lower at around EUR 2.3 billion.

In both reporting periods, our safety division outperformed the Medical division. Due to the good margin of the Safety division, our group's gross profit margin increased by 0.4 percentage points to 44.4% at the end of the first 9 months. Our financial costs decreased by 0.4% in the first 9 months of 2024. This was mainly due to higher other operating income as a result of onetime effects. As Stefan said, the onetime effects contributed around EUR 32 million to earnings in the first 9 months.

Around EUR 31 million of this amount is included in the financial cost, is around EUR 18 million of total onetime effect, the impact in our safety division was stronger than on our Medical division with around EUR 14 million. In the third quarter, the onetime effect amounted to around EUR 12 million for the group, of which EUR 7 million in medical and EUR 5 million in safety.

In the second quarter, we sold our fire alarm system business in the Netherlands to focus our activities on our core business. Additionally, we sold an unused plot of land in the U.S. These onetime effects contributed around EUR 20 million to our EBIT. In the third quarter, we sold a building in Spain, which contributed an additional EUR 10 million. The building was owned by our subsidiary, Drager Hispania, which decided to move to a new location for rent. Including this onetime effect, our EBIT in the third quarter was approximately EUR 24 million compared to around EUR 29 million in the prior year quarter.

Our EBIT margin stood at 3.1%, down from 3.7% in the year before. However, in the first 9 months, profitability improved with EBIT increasing from roughly EUR 77 million to around EUR 80 million. Consequently, our EBIT margin rose from 3.3% to 3.5%. Additionally, the rolling 12-month DVA improved to around EUR 30 million.

Let us now take a closer look at the development of the 2 divisions, starting with the Medical division on Page 8. In the third quarter, order intake was below the prior year level. Growth in EMEA, APAC and Germany was offset by [indiscernible] in the Americas region, which was primarily due to the light -- high level of the prior year when we received major orders from Mexico for workplace infrastructure.

In the first 9 months, order intake decreased by around 2%. This was mainly due to the significant decline in APAC in the course of the missing ventilator demand and the current health care reform in China, which is slowing down health care orders throughout the industry. While net sales in the third quarter were still slightly lower than the prior year's figure, the gap is much lower than in the previous quarters since much of the base effect is related to the first and second quarters.

Overall, net sales in the first 9 months were around 5% below the prior year level at around EUR 1.3 billion. Mainly due to currency effects and higher expenses from inventory adjustments and production, the gross margin in Q3 decreased by 2 percentage points. After 9 months, it was only 0.7 percentage points below the prior year's margin. Financial expenses decreased by roughly 2% in the year-to-date. In the third quarter, EBIT amounted to minus EUR 4 million after EUR 0.3 million in the prior year period.

The EBIT margin decreased from 0.1% to minus 0.9%. In the first 9 months, EBIT amounted to some minus EUR 28 million after minus EUR 2.3 million in the prior year period while the EBIT margin decreased minus 0.2% to minus 2.2%. As mentioned, onetime effects contributed around EUR 14 million. The rolling 12-month DVA was significantly lower at minus EUR 67.7 million coming from minus EUR 41.6 million mainly due to an adjustment of the weighted average cost of capital, reflecting a changed interest rate environment.

I will now turn to our safety division, which delivered another good performance. We are now on Page 9. Our safety business continues to grow. In the third quarter, order intake rose significantly by roughly 12%. Orders for services and customer-specific orders, they recorded a disproportionately high increase. In the first 9 months, order intake rose by roughly 7% to around EUR 1.1 billion, thanks to a higher demand in almost all product categories, especially occupational health and safety equipment as well as respiratory and personal protection equipment. In both reporting periods, Germany was the main driver with an increase of almost 37% in Q3 and 17% year-on-year -- year-to-date.

EMEA also performed very well. In the third quarter, net sales were roughly 1% below the prior year figure. This was due to the decline in EMEA and APAC, which offset the growth in Germany and the Americas. In the first 9 months, however, net sales increased by roughly 6% to just over EUR 1 billion, thanks to growing sales in all regions. The gross margin went up by 1.4 percentage points in Q3. During the first 9 months, it rose by 1.5 percentage points, thanks to effective price enforcement in particular.

Functional expenses were around 2% higher than in the prior year period, mainly due to higher R&D expenses and higher sales costs in the region. In the third quarter, EBIT and EBIT margin remained quite stable at EUR 28.3 million and 8.4% after EUR 28.9 million and 8.5% in the prior year. In the first 9 months, however, EBIT increased significantly from some EUR 79 million to roughly EUR 108 million thanks to the improved operating development and positive onetime effects of around EUR 80 million. The EBIT margin consequently rose from 8.2% to 10.7%. The rolling 12-month DVA also improved significantly by around EUR 31 million to around EUR 97 million, coming from EUR 66 million in the prior year period. All in all, a very positive development in our safety business.

Let's move on to some key ratios on Page 10. In the first 9 months of 2024, we recorded a significant improvement in the operating cash flow. Next to slightly higher earnings, also, working cash flow investment contributed, especially with improved payables and receivables management. Furthermore, the sale of our business in the Netherlands also contributed to a higher free cash flow. Free cash flow after 9 months is clearly back in positive territory. Following our normal CEF seasonality, we expect to see a further improvement in cash generation in the fourth quarter. Net financial debt was further improved during the quarter, so has net financial debt to EBITDA and with a leverage of 0.7%, it is on a healthy level.

Net working capital was around 6% below the prior year level at just below EUR 700 million. A significant improvement in the 12-month rolling EBIT and the decrease in capital employed as at the reporting date also led to an improved 12-month return on capital employed of around 11% compared to 8.4% in the same period of the prior year. The positive business development, next to other things, has also resulted in a further increase in the group's equity position.

As at September 30, the equity ratio was almost 48%. Next to other things, this was mainly due to the adjustment of the calculation parameters [ vision ].

Now I hand back to Stefan Drager for the outlook on Page 12.

[Stefan Dräger, executive]

Ladies and gentlemen, with our markets being intact, good overall demand, robust net sales and improved earnings, we have successfully paved the way to reach our annual target. Some onetime effects helped us to compensate for our prior year tailwinds. At the same time, we saw some bright spots in Q3, such as the significant year-on-year order increase in our safety division. Q4 is always our strongest quarter. This will be no different this year. The remaining net sales gap is not without challenges, especially since we are still not seeing any sign of improving in the Chinese market.

Nonetheless, we confirm our full year targets for 2024. We continue to expect, as previously guided, net sales growth of 1.0% to 5.0% of net currency effects and an EBIT margin of 2.5% to 5.5%. At the same time, we continue to expect net sales growth in the lower half and EBIT margin at DVA in the upper half of the forecasted range.

With this, I would like to end the presentation and hand over to the operator to open the line for your questions, please.

[Operator]

[Operator Instructions] We have the first question coming from the line of Christian Ehmann from Warburg Research.

[Christian Ehmann, analyst]

So I have two at the moment. The first would be regarding your, let's say, feelings toward Q4. You need -- as usual, you need the -- to get in most of the earnings for the year in Q4, depending on what kind of guidance one has in this model. And I would like to ask you to give me your -- some of your parameters which contribute to your confidence for the Q4.

And the second would be regarding the Safety and Medical division. So I appreciate that safety is very much better than medical. What kind of structural -- what kind of effects for the positivity in safety are structural? And what kind of are seasonal? And what kind of effects for the negativity in medical are structural? And what kind are seasonal?

[Gert-Hartwing Lescow, executive]

Let me start with the question on the fourth quarter. Firstly, let me repeat that the seasonality, and I think you said so much in your question, that is, in fact, typical over an extended period, the fourth quarter is, by far, our strongest quarter, in particular on the medical side of the business. And this year makes no exceptions.

And the basis for the assumption that this year will be similar is from a regional point of view, the sound development that we have already seen in North America as well as in South America where some larger tenders will be a little bit in Q2 and the continued good development in Germany. For example, in South America, we had received large orders in Mexico and they will partially be delivered in the fourth quarter. They will contribute. Let me also reiterate. We do not, at this point, expect or have factored in any strong or quick recovery in our Chinese business.

[Stefan Dräger, executive]

And that as -- Stefan Drager speaking. Our -- leading to your second question on both the medical and the safety division, what are seasonal effects and what are structural elements that could be behind. Well, firstly, I would say, and for both divisions, there are no, say, special seasonal effects other than the ones that Gert-Hartwig already mentioned that are typical for all the Drägerwerk business as we had kind of a number of the government bodies as our customers as they are -- many of them are still in the camera realistic system and it is spending the budget towards the end of the year. So that is why it is -- as the overall Drägerwerk business for both divisions has this structure.

Now on the structural side, for the medical -- sorry, start with the safety division. We decided in around -- it was like 2017, I think, or '18 that we wanted to invest more in specific capabilities in the sales organization, specific competencies. And that's what we did, and this is now paying off as we have enjoyed a very good increase in development in the fire and gas detection systems business. And so we have new products coming to the market for the firefighters communication and location system and also for the mining industry, for the oil and gas industry and -- so it is supported by the competitive state-of-the-art product portfolio. But the general underlying reason is that we invested -- a couple of years ago, we decided to invest in specific capabilities in the sales organization.

That strengthens mainly the safety business because it is so diverse, so many different markets that we serve that is actually around 30 different single markets. There is no such thing as a safety market. For the medical, there, which is, of course, a little bit disappointing that it has a site, the downturn overall. There's one single very big factor that, is the situation in China, which was very large, contributed to our Medicare business in the past and then it has a very good development in this current year.

And as Gert-Hartwig pointed out, we have not expected it to recover quickly. So that is the greatest single effect. Without this effect that -- we wouldn't have this discussion. It would look reasonably well overall. And this -- there are some smaller effects. For instance, in Korea, there is still ongoing strike of the doctors in the health care system. So that is also noting the investment for medical equipment. And there, we have -- in addition, we had a big boom in the corona times. You remember the ventilation. So we quadrupled the output of our production, and that continued until well after the pandemic. So that is the reasons why it is not as strong as the safety business, plus the product architecture in the portfolio.

As I said before, we are still working on the last steps of replacing the current architecture goes back to the year 2003 when it was decided the architecture for the therapy systems. So that is now -- has been for the last couple of years a major effort. And so we're looking forward to harvesting the fruit and -- to come. In general, the market outlook is as positive as for the safety business.

[Christian Ehmann, analyst]

A couple of follow-ups, if I may. When I look at the -- sorry, you said that the Q4 is, as we all know, particularly strong for the medical side. Given that we see weakness this year, do you see any indication for the Q4, especially given the development we saw up until now. And if I sum it up correctly, your confidence for Q4 comes mainly from the safety division and from the good order book from North, South America and Germany. And my second question would be to the structural effect in the safety business.

So is it reasonable to assume, and I'm, of course, looking at 2025, that the good growth rate you saw for the safety business overall for 6.5% year-over-year, is this something you -- one could expect to continue in 2025 and even -- might be maybe even beyond in 2026?

[Stefan Dräger, executive]

Yes, in general, it is rather safe to assume that safety continues on a good development. However, please keep in mind that some of the growth, in particular, in '23 came from the improved price defense. So we were able to increase prices significantly. And so that effect was even slightly greater than the volume increase. And the pricing increase will probably not continue at the same slope.

So this factor will continue. As now, everyone is aware in the organization, how important that is, particularly as we put profitability first. However, it will probably go back to a slightly lower rate of improvement for the price defense. So besides from that, it assumes that it will continue on a positive development. Your point before, the good outlook for the Q4. No, I would say, it's not only the confidence based on safety in some regions because we also expect a good Q4 for the medical side. As Gert-Hartwig pointed out, there are larger orders in the mix for the regions that he mentioned. And there is -- other than China, there is no -- and it was -- slightly extends in Korea, there is no fundamental problem that would prevent a similar ratio of the quarter as we typically have in there. So it's -- that's on that part.

[Operator]

The next question comes from the line of Alexander Galitsa from HAIB.

[Aliaksandr Halitsa, analyst]

I'll have several, maybe starting the first set of questions related to medical division. First, whether you could remind us why last year in Q4, the gross profit margin was the lowest throughout the year despite much higher revenue. I presume that maybe the hospital infrastructure orders that you saw last year from medical played a role, but whether you could clarify that? And then related to that question is now looking at sequentially higher volumes, obviously, in Q4 and current mix you have in the backlog, would you expect the gross profit margin in Q4 this year to improve sequentially? That would be the first one.

[Gert-Hartwing Lescow, executive]

So firstly, the Q4 was an overall was lower since we wrote down our factories for the FFP masks.

[Stefan Dräger, executive]

Better than safety.

[Gert-Hartwing Lescow, executive]

Better than the safety division, but that is for the group, the largest factors. We, at this point, see no comparable write-down either in the medical or in the safety division. And you're correct, we had a higher share. We are -- the larger orders that I mentioned, for example, in Mexico, they are more coming from therapy. So there should be a similar hit on profitability. Having said that, it is not unusual that large orders, in particular, also executed with a larger discount to the customer, obviously. But we do not expect a steep hit on the gross profit margin, but in fact, is significantly higher net sales overall in safety and in particular, on the medical side of the business in the fourth quarter.

[Aliaksandr Halitsa, analyst]

Okay. Can I just clarify this Mexico orders? Because if I understood correctly, last year, in Q3, you had also a big order in, I think, in the category of hospital infrastructure. So now we're talking about Mexico orders in Q3 2024. Is that -- are those different orders? Or if you could clarify, do we have big order last year and big order this year? Or is it the same?

[Gert-Hartwing Lescow, executive]

That's quite right. It's actually different orders. I mean, it's to a large degree, too, similar health care group, but it's a different orders. We had a larger share of workplace infrastructure, and we have a higher share of therapy devices this year.

[Stefan Dräger, executive]

And last year, some therapies business as well in Russia, which is now more or less diminishing.

[Aliaksandr Halitsa, analyst]

And just to confirm with -- in terms of profitability, my understanding was always that workplace infrastructure carries lower margins than the therapy devices. Is that also the case with this Mexico fitting of the hospital in Mexico?

[Stefan Dräger, executive]

Generally, right. On the gross profit margin you referred to, there are also, of course, trigger fewer expenses. But on the gross profit, you're quite right. And that's also for Mexico.

[Aliaksandr Halitsa, analyst]

Okay. And then moving on to safety. A couple of questions here as well. I wonder why Q3 top line in safety was flattish in Q3 year-over-year despite you basically having a better year-on-year book-to-bill in Q2 that you carried over into Q3, which should have been helpful. And then simultaneously also in Q3, order intake and safety was also on a good level. Just wondering whether there is anything specific you could call out as the reason why Q3 top line was softer despite the rather positive, I guess, backdrop in terms of order intake?

[Stefan Dräger, executive]

That's a good question. However, we cannot call on anything specific. It is in the nature of the business, if you break it down to lower time or you go down to days, it is becoming more statistically, say, up and down. So I won't think too much about it.

[Aliaksandr Halitsa, analyst]

Okay. Fair enough. And then whether you are -- just wondering whether you're confident to haven't seen this sort of a small blip in Q3 in terms of flattish revenue, whether you're confident to return to revenue growth in Q4, considering that also it seems that Q4 comparable did not really have the benefit last year from the book-to-bill that you have in this year? I guess, the question ultimately is what's your confidence level to return to growth in Q4?

[Stefan Dräger, executive]

It's reasonably good for both the medical and the safety division.

[Aliaksandr Halitsa, analyst]

Okay. Perfect. And then if I may, just to squeeze additional one in terms of order intake in safety. I think throughout the first 3 quarters of this year, there is a divergence in performance between regions. I think Germany and EMEA consistently growing while Americas and APAC are more muted. Just wonder whether you can speak to this divergence, what is doing well in Europe? And why are you much less successful in Americas, APAC? And what are your expectations for this trend going forward?

[Gert-Hartwing Lescow, executive]

So far, APAC also on the safety side, there is a weakness in China. So that's a big key driver for the weaker development. As far as...

[Stefan Dräger, executive]

And also in Japan, in Korea, all, I say, very challenging. So there's no -- it's not much to do with the rest of the world, but it's an individual challenges in these markets.

[Aliaksandr Halitsa, analyst]

And in the U.S. in particular, I mean, you obviously have now benefits from the intensified, I guess, sales and marketing activities in Europe. Are you expecting -- has something changed in the U.S. and whether you're expecting to see similar maybe uptake in the business you have witnessed in Europe for safety division?

[Stefan Dräger, executive]

Yes. To be honest, I think it's a good question. So we are, say, deeply looking into that as we gave with all the -- from our point of view, necessary ingredients for those, and they need some, say, care to find out why it's not going as it should.

[Aliaksandr Halitsa, analyst]

Okay. And then very last one. The currency, you mentioned currency headwinds and higher expenses for inventory adjustments having an impact on profitability in Medical division. Could you maybe quantify that? And also, what are the inventory adjustments and -- yes.

[Gert-Hartwing Lescow, executive]

While we have not broken that out on an individual basis and the inventory adjustment is really a side effect of the lower production in the medical. So when you think about it, it's not so much, if you will, a write-down of the inventory, but it's higher inventory costs due to the fact that we have lower utilization in our production on the medical side. And it's -- actually, if we compare say, the realized margin based on, if you will, what's realized in the market, the lower margin in medical is actually mainly due to these FX effects and the low capacity utilization.

[Aliaksandr Halitsa, analyst]

Okay. And the FX effect, the headwind is stemming from which currencies in particular and whether you're expecting based on current, I guess, trends in this respective currency, whether you're expecting much of the headwind in the coming quarter?

[Gert-Hartwing Lescow, executive]

So the second part is a bit difficult. We regularly assume that currencies are what they are. We do have some, but we do not -- it's very difficult to make a forecast on the individual currencies and it's really across the portfolio of currencies that we have affected. There is not, as of today, a huge impact. But overall, on the net sales side, for the group, the impact is about 1, 1.5 percentage points or so on the net sales. So all in, it's not even anything that I would call a large FX impact. Of course, it is noticeable in particular on the medical side since the relative profitability is already on a rather low level.

[Stefan Dräger, executive]

Yes. And for the single most important, they can't see the U.S. dollar versus euro. Please keep in mind that we have a pretty, say, comprehensive natural hedging as we have cost expenses as a source in our supply chain, about as much as we have income in U.S. dollars.

[Gert-Hartwing Lescow, executive]

Not quite. Sorry for jumping in. In fact, the U.S. dollar is an unusual currency. We have even higher costs, all in, including material the U.S. dollar. So for almost all currencies, we are of course -- not of course. We are long as a non-euro currency. So a stronger currency is positive for us in the bottom line.

For the U.S. dollar, in fact, in retail U.S. dollar is, if you will, harmful on the net sales and on the profit contribution from the country but positive for the EBIT for the group due to the fact that many materials that we use in safety and medical are denominated in U.S. dollars. And the one currently where we are almost balanced out across both medical and safety is the British pound, which is due to the fact that our SCBA on the safety division, are manufactured in the north Finland.

So in addition to the contribution from the market business in the U.K., we have a counter position from manufacturing the SCBAs in -- for the global market.

[Operator]

The next question comes from the line of Jean-Marc Mueller from JMS Invest.

[Jean-Marc Mueller, analyst]

I have a question on cost management. I mean, I look at Dräger since many years. And obviously, cost management has never been the forte of the company. And this year, again, I must say, it's rather disappointing how costs are being managed given the lower top line development. If I adjust the functional cost for the one-offs, the positive one-offs, the costs up over 9 months by around 3% on a top line, which in euro is down 1%.

And that on a base, which is already super high, I mean, you're overspending on R&D and on other functional costs, and still the costs go up any further. Also, you mentioned in medical, pretty poor capacity utilization because of the weak sales development. I mean, when are you willing to address these issues and really take a look at the structural costs at the capacity utilization, et cetera, and maybe make adjustments, which will lead to a sustainable different margin profile for the company, especially in medical?

[Stefan Dräger, executive]

Yes. So our primary focus is on profitability. And the cost is a factor that is important for that and you mean probably expenses. And so I mentioned in my previous answer, one of the reasons why we spent significant amount in R&D, in particular, in the medical division to catch up from the legacy of the previous architecture, which is ongoing. And to make a long story short, then are we willing to make significant cuts into the expenses. At the moment, we do not believe any longer in the future, then we would do it.

[Jean-Marc Mueller, analyst]

But you have been overspending now for many years. I mean, eventually, we should see benefits of this extra costs that have been burdening the P&L now for many years. And I don't see it. The gross margin in medical is still subpar. And I don't see it in -- if you overspend on R&D, that's fine. But eventually, one should see a great product coming out of all this, which will then lead to higher volumes and higher margins because it's potentially the better product, and I've seen neither of it.

[Stefan Dräger, executive]

Yes, you are right. You are absolutely correct, and it's also disappointing for us and in particular, myself. It takes longer than expected to see the benefits and to harvest the fruits. However, we still believe there is something that's going to come. Otherwise, we wouldn't do it. And -- on the R&D side. On the capacity underutilization, we are aware that is a burden and we working on reducing the capacity in the medical production side. So that's not something that we -- from a decline in general, but we do it after we do a thorough reflection of the pros and cons.

[Jean-Marc Mueller, analyst]

Okay. And on the EBIT level, I mean, obviously, upper end of the range, I mean, no surprise given that you have EUR 32 million of one-offs in there. How do you see 2025 given that you have now this very high base effect on the EBIT level? Do you think that there is a chance that you can overachieve 2024 results in 2025? Or will it not be possible to compensate for the EUR 32 million one-offs that you had?

[Stefan Dräger, executive]

Well, the FA change -- at the chart, if we do the calculation that we might overachieve in this year. However, the general overall goal is, as we say, as indicated previously, to achieve profitability steadily by 1% point per year and to have a figure that is, for the time being, about the same as the last digit in the current calendar year. So this year would be a 4% target. And for next year, it will be a 5% target.

And yes, we have the onetime effects this year. It is not completely excluded that we have more onetime effects in the future. However, it is not that we have these because we need to kind of, say, make our results a little bit -- look a little bit nicer. We are in, as I said, for the long term, the goal and the profitability growth. And we are working on several aspects continuously that continue to improve the profitability in the future, including next year.

So -- and also to complete the picture and being completely honest, the environment is not making it really easier given the geopolitical changes and the general economic environment, in particular, in Germany. However, the goal is still intact and we go for it.

[Jean-Marc Mueller, analyst]

I understand that the environment is not easy. I mean, I understand that, and there's not much you can do there except really manage your cost base hard, and I don't see that happening.

[Stefan Dräger, executive]

Yes, it doesn't -- there are things as we have this great diversity, there are so many things to do, and we are addressing. Given one example. So actually you might not be aware, and it's not probably normally even worth mentioning. We are reducing the number of [indiscernible] orders in Deutschland by -- and cut this currently about in half from what is, I think, 16 locations down to around 8 or 9, and there is a further reduction to come.

And there is about more than 1,000 people who live in these places are affected. And so it's not that we are not doing anything. This is only that we are not, say, making provisions for the big bank that probably you would expect. That's not going to happen.

[Jean-Marc Mueller, analyst]

And I mean I think you get this question quite often. But I mean, could you split the business, the medical and the safety business? Or are there -- I mean, do you see substantial synergies having those businesses together?

[Stefan Dräger, executive]

We do. So if we would go for the short term, then we would strip and then sell them both individually. However, as the ringer overall, serving many different stakeholders. In particular internationally, we have made the experience that one Dräger company in a certain country, be it France or I'd say, India, where I would just returned from a trip, that's why I have a bad cold. It is greatly beneficial for Dräger to have a one-company approach per country and legislation, only one organization.

That is all generic functions can be combined, and this is a lot more efficient, and makes us much more attractive as an employer, and we get -- better people can give better service to our customers.

And then we can afford, as I mentioned earlier, you might remember the more specific capabilities in the sales channel in the countries based on this approach. It would be difficult if we split and then the individual entity becomes too small and under critical.

[Operator]

We have now a follow-up question from Christian Ehmann from the line of Warburg Research.

[Christian Ehmann, analyst]

I was also wondering about the effect of the silence from the FDA, how much -- how is the impact on your planned product launches for next year? Does this postpone any of your plans?

[Stefan Dräger, executive]

Currently, we do not see any impact on the product launches and the lifting of the warning. Unfortunately, it has to wait. So to our information, the FDA is undergoing a heavy reorganization in itself. And that is why they -- currently, we do not get answered to all our inquiries. So where we stand with, let's say, setting up and scheduling dates for the inspection, there is no answer because they are busy with the reorganization.

[Gert-Hartwing Lescow, executive]

In fact, if I may add, for some of our approval processes that were in line with the warning letters we have received or have received positive replies with, we shouldn't overestimate that in terms of business impact, but a positive indication. And it's one of the factors that gives us optimism that we will receive a positive answer since on the product level, we do or we have received over the past few months positive feedbacks on at least some of our approvals that were with the FDA.

[Stefan Dräger, executive]

And there's no negative indication. As you said, there is silence.

[Operator]

We have another follow-up question from Alexander Galitsa from HAIB.

[Aliaksandr Halitsa, analyst]

Just a housekeeping. On your interest expenses. I think your guidance is EUR 20 million to EUR 26 million. We've seen EUR 12 million as of 9 months and roughly EUR 4 million per quarter. Just wondering, given that net debt also went down as of Q3, is there a reason why interest expense should increase substantially in Q4? Or you just still being conservative, not adjusting this part of the guidance?

[Gert-Hartwing Lescow, executive]

Mainly the latter, but please keep in mind that the interest expense also includes the interest expense for the pension obligations, which are really set, if you will, to a regular regulatory type of mechanism. And they have not gone down significantly over that period.

[Aliaksandr Halitsa, analyst]

Okay. Understood. And just a quick one on the, I guess, the further one-offs potentially in 2025. So is there -- generally, should we expect more divestments of buildings? Or how big is the scope for this sort of a cleanup, if you will, where you sell idle facilities, et cetera?

[Gert-Hartwing Lescow, executive]

There are no comparable plans at this point.

[Stefan Dräger, executive]

As I previously said, there is no -- there are things that could take into account. However it does not mean that it wouldn't be idle.

[Operator]

[Operator Instructions].

[Stefan Dräger, executive]

At this moment, no further question, then in the interest of everybody's time, I have to say thank you to all of you for being with us and the lively discussion that we had on the subjects also from our point of view, that really matter. Thank you very much, and have a pleasant afternoon. Thank you, and goodbye.

[Operator]

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