LÜBECK (dpa-AFX) - The medical and safety technology group Drägerwerk is increasingly feeling the effects of the sanctions due to the Russian war of aggression against Ukraine. "We have already weathered a great many crises together with our employees in Russia, but this one is even deeper," company CEO Stefan Dräger told financial news agency dpa-AFX on Thursday. Business in Russia more than halved last year. He added that the safety technology business was even more difficult than the medical technology business.

For example, the company manufactures gas detectors that are intended for Russian nickel producer Nornickel, but can be assigned to Gazprom by order of the authorities. The gas company is on the sanctions list. In order not to run the risk of violating the sanctions, for example, Dräger had to completely stop its safety technology business with the country and lay off the division's employees. Drägerwerk has its own company in Moscow with just over 100 employees. According to earlier data, in a normal year the Russian workforce had contributed two percent to sales.

But Dräger also explained that the medical technology business in Russia was very difficult due to the ever new sanctions. It is very time-consuming to check whether an oligarch on the sanctions list is still involved in a hospital.

Added to this, he said, were problems in the supply chain. "We strictly adhere to the export regulations," he emphasized. Before the war, Drägerwerk was the market leader for medical products in Russia. Last year, its market share fell to half, he said. While US competitor General Electric was able to maintain its share, the Chinese company Mindray more than doubled its market share.

In addition, it was sometimes difficult to pay the salaries of employees in Russia, because this could only be done with rubles, which were earned by selling products in Russia. A transfer of money is excluded by the sanctions.

Meanwhile, Drägerwerk has been facing higher costs for some time. Many other companies are also suffering as a result of higher inflation and strained supply chains. Most recently, however, prices on the oil and gas markets, which had previously risen sharply due to the Ukraine war, have fallen again.

"All costs are rising," Draeger said. For example, he said, energy costs in Lübeck increased dramatically from 6.9 cents per kilowatt hour on New Year's Eve to 47.6 cents. Fortunately, however, this did not have quite the same impact, as the company's production is not very energy-intensive. The sharp rise in wage costs had a much greater impact. In total, Drägerwerk employees will receive eight percent more pay this year and next year.

According to Dräger, the costs for the procurement of electronic components are, however, decreasing again somewhat, said the manager. Last year, these were still difficult to obtain and in some cases had increased in price by a hundred times. In total, Dräger incurred additional costs of almost 80 million euros here in 2022. Freight costs also fell slightly, the manager said. The company is trying to pass on the higher costs to customers through price increases.

For the time being, Drägerwerk intends to retain the additional production capacities built up during the Corona pandemic, despite the now significantly lower demand for FFP2 masks. "We have calculated the new facilities in such a way that they will have paid for themselves after the first major government orders," said the Group CEO. Demand has fallen back to pre-Corona levels, he said. Due to the initially high demand for FFP masks, the Group had expanded its production sites in Sweden and South Africa during the Corona pandemic and also set up new factories in the UK, France and the US.

Drägerwerk is currently in negotiations with various governments to develop supply concepts, said the Group CEO. These included the U.S., the U.K., France and Germany. So far, however, the company has no contract, he said. Most of the machines used to manufacture FFP2 masks have now been mothballed, he said. However, the company is currently still maintaining the equipment in order to be able to start it up again quickly if necessary. The machines are therefore already largely written off. But even the low standby costs are not economically justifiable in the long term, he said. "Without standby orders, we will probably have to scrap the machines soon," he said.

Business in China is also becoming increasingly difficult. According to the company, the market is the third largest for Drägerwerk, and even the largest for some applications. "The Chinese government has seen medical technology as a strategic market for quite some time," Dräger said. There are increasingly severe restrictions on foreign companies, he said. "I'm afraid it will be difficult for medical technology in the medium term."

In the short term, foreign manufacturers were allowed to supply ventilators after all because of the Corona waves after the restrictions were lifted, Dräger said. As a result, Drägerwerk will have already reached 60 percent of its planned annual budget for ventilators in China by the end of the first quarter, he said. The company operates its own development and manufacturing facility for medical devices in Shanghai and for safety technology in Beijing./mne/stw/jha/

--- by Michaela Nehren-Essing, dpa-AFX ---