On July 30, 2021 Stephan Sturm, CEO of Fresenius, said: "Overall, our interim result for the 2021 business year is very strong (Press release, Fresenius, JUL 30, 2021, View Source [SID1234585463]). We have achieved very healthy sales and earnings growth, despite the ongoing impact of the pandemic . Our businesses are developing well, and we are making good progress on our initiatives for profitable growth and increased efficiency. The increased vaccination rates in many of our important markets are encouraging, but of course the pandemic is not over yet. We must remain vigilant and will continue to monitor the infection situation very closely. Nevertheless, there are reasons for us to be optimistic: Our growth drivers are intact, good health is and will remain of paramount importance to everyone. We will continue the review of our structures, and to drive efficiency measures along with our growth initiatives. The resulting benefits will allow us to sustainably develop our healthcare group even more successfully."
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COVID-19 assumptions for guidance FY/21
Whilst the pandemic exhibited a quite differentiated regional development, negative COVID-effects have – consistent with expectations – generally receded during Q2/21.
Fresenius had projected that the burdens and constraints caused by the pandemic will recede in the second half of the year. Now, however, the currently rising number of COVID-19 cases, the further evolution of COVID-19 virus mutations as well as stalling vaccination progress could all pose a threat to this assumption, and the company remains vigilant.
Whilst the risk of renewed far-reaching containment measures in one or more of Fresenius’ major markets currently appears less likely, it cannot be excluded. Any resulting significant and direct impact on the health care sector without appropriate compensation is not reflected in the Group’s FY/21 guidance. These assumptions are subject to considerable uncertainty.
FY/21 Group earnings guidance raised
Based on the Group’s strong Q2/21 and the progress in the program to improve Group-wide efficiencies, where the company expects first savings already this year, Fresenius raises its 2021 earnings guidance. The Company now projects net income1,2 to grow in a low single-digit percentage range in constant currency. Previously, Fresenius expected an at least broadly stable net income1,2 development in constant currency. The Company continues to project sales growth3 in a low-to-mid single-digit percentage range in constant currency.
Implicitly, net income1 for the Group excluding Fresenius Medical Care is now expected to grow in a high single-digit percentage range in constant currency. Previously, Fresenius expected mid-to-high single-digit percentage growth in constant currency.
The guidance implies ongoing COVID-19 related headwinds in the second half of the year. It reflects negative pricing effects related to tender activity at Fresenius Kabi in China as well as increasingly noticeable cost inflation effects across selected markets.
Fresenius projects net debt/EBITDA4 to be around the top-end of the self-imposed target corridor of 3.0x to 3.5x by the end of FY/21.
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA
2 FY/20 base: €1,796 million, before special items; FY/21: before special items
3 FY/20 base: €36,277 million
4 At LTM average exchange rates for both net debt and EBITDA; pro forma closed acquisitions/divestitures; excluding further potential acquisitions; before special items
For a detailed overview of special items please see the reconciliation table in the PDF document.
Progress on efficiency measures to sustainably improve profitability
To sustainably enhance profitability and operational excellence, Fresenius has launched group-wide efficiency initiatives. These measures are expected to gradually result in cost savings of more than €100 million p.a. after tax and minority interest in 2023, with some potential to increase thereafter.
While an update on the comprehensive operating model review at Fresenius Medical Care is expected to be provided in fall 2021, the three other Fresenius business segments have already identified and launched initiatives in defined areas.
At Fresenius Kabi, these initiatives comprise the optimization of its production network, reduction of product portfolio complexity, centralization of worldwide purchasing and review of organizational and cost structures.
Fresenius Helios will put a focus on its strategic review of the hospital portfolio and ambulatory care network as well as on the reduction of G&A costs.
Fresenius Vamed will implement some dedicated structural and organizational measures, comprising the optimization of its global subsidiary structure, the review of its assets and shareholdings portfolio and the optimization of procurement and G&A costs.
These activities specific to the business segments will be complemented and supported by initiatives on the Fresenius group level, for example, the implementation of new ways of working at the corporate headquarters as well as a group-wide review of the IT operating model.
Achieving these sustainable efficiencies will require significant up-front expenses. For the years 2021 to 2023, those expenses are expected to be more than €100 million p.a. after tax and minority interest on average, with the largest portion currently expected to materialize in 2022. They will be classified as special items, consistent with previous practice.
The company expects significant contributions from all four business segments and from the corporate center in the 2021 to 2023 period. Hence, it is expected that the savings contributed by Fresenius Medical Care will not be overproportional.
For FY/21, initial low double-digit million € savings after tax and minority interest from the Group’s above outlined cost and efficiency measures are expected to support the Group’s profitability. These savings and efficiency gains derive from activities in all four business segments.
Stephan Sturm, CEO of Fresenius, said: "We examine possible cost reductions with great care; and we implement them in a very targeted way, with a sense of proportion. We are saving because we have goals and want to realize them: We want to give ever more people access to ever better medicine. We want to contribute to keeping – or making – people healthy, to helping people enjoy their lives despite an illness. That is why we have a responsibility to use our valuable resources carefully. We will prioritize resources where they can have the biggest impact, remove duplication, and stop activities where results are not satisfying. This fitness program will benefit everyone: Our patients, the healthcare system, our employees and our shareholders."
8% sales increase in constant currency
Group sales increased by 4% (8% in constant currency) to €9,246 million (Q2/20: €8,920 million). Organic growth was 6%. Acquisitions/divestitures contributed net 2% to growth. Currency translation reduced sales growth by 4%. Excluding estimated COVID-19 effects1, Group sales growth would have been 6% to 7% in constant currency. In H1/21, Group sales increased by 1% (6% in constant currency) to €18,230 million (H1/20: €18,055 million). Organic growth was 4%. Acquisitions/divestitures contributed net 2% to growth. Currency translation reduced sales growth by 5%. Excluding estimated COVID-19 effects1, Group sales growth would have been 5% to 6% in constant currency.
20% net income2,3 increase in constant currency
Group EBITDA before special items decreased by 5% (0% in constant currency) to €1,671 million (Q2/20: €1,762 million). Reported Group EBITDA was €1,662 million (Q2/20: €1,762 million).
In H1/21, Group EBITDA before special items decreased by 6% (-1% in constant currency) to €3,302 million (H1/20: €3,517 million). Reported Group EBITDA was €3,290 million (H1/20: €3,517 million).
Group EBIT before special items decreased by 8% (-4% in constant currency) to €1,030 million (Q2/20: €1,123 million). The constant currency decrease is primarily due to COVID-19 related headwinds at Fresenius Medical Care. The EBIT margin before special items was 11.1% (Q2/20: 12.6%). Reported Group EBIT was €1,021 million (Q2/20: €1,123 million).
In H1/21, Group EBIT before special items decreased by 9% (-5% in constant currency) to €2,039 million (H1/20: €2,248 million). The constant currency decrease is primarily due to COVID-19 related headwinds at Fresenius Medical Care. The EBIT margin before special items was 11.2% (Q1/20: 12.5%). Reported Group EBIT was €2,027 million (H1/20: €2,248 million).
1 For estimated COVID-19 effects please see table in the PDF document
2 Before special items
3 Net income attributable to shareholders of Fresenius SE & Co. KGaA
For a detailed overview of special items please see the reconciliation table in the PDF document.
Group net interest before special items and reported net interest improved to -€121 million (Q2/202: -€167 million) mainly due to successful refinancing activities, lower interest rates as well as currency translation effects. In H1/21, Group net interest before special items improved to -€258 million (H1/202: -€341 million). Reported Group net interest improved to -€258 million (H1/20: -€349 million).
Group tax rate before special items was 21.5% (Q2/202: 23.5%) while reported Group tax rate was 21.3% (Q2/20: 23.4%). In H1/21, Group tax rate before special items was 22.1% (H1/202: 23.1%) while reported Group tax rate was 22.0% (H1/20: 23.0%).
Noncontrolling interests before special items were -€240 million (Q2/20: -€321 million) of which 89% were attributable to the noncontrolling interests in Fresenius Medical Care. Reported noncontrolling interests were -€237 million (Q2/20: -€321 million). In H1/21, noncontrolling interests before special items were -€477 million (H1/20: -€592 million) of which 92% were attributable to the noncontrolling interests in Fresenius Medical Care. Reported noncontrolling interests were -€473 million (Q2/20: -€592 million).
Group net income1 before special items increased by 16% (20% in constant currency) to €474 million (Q2/202: €410 million) driven by Helios Spain, Kabi’s Emerging Markets business as well as the favorable net interest development. Excluding estimated COVID-19 effects3, Group net income1 before special items would have grown 10% to 14% in constant currency. Reported Group net income1 increased to €471 million (Q2/20: €411 million).
In H1/21, Group net income1 before special items increased by 4% (8% in constant currency) to €910 million (H1/202: €875 million). Excluding estimated COVID-19 effects3, Group net income1 before special items would have grown 4% to 8% in constant currency. Reported Group net income1 increased to €906 million (H1/20: €870 million).
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA
2 Before special items
3 For estimated COVID-19 effects please see table in the PDF document.
For a detailed overview of special items please see the reconciliation table in the PDF document.
Earnings per share1 before special items increased by 15% (19% in constant currency) to €0.85 (Q2/202: €0.74). Reported earnings per share1 were €0.84 (Q2/20: €0.74). In H1/21, earnings per share1 before special items increased by 4% (8% in constant currency) to €1.63 (H1/202: €1.57). Reported earnings per share1 were €1.62 (H1/20: €1.56).
Continued investment in growth
Spending on property, plant and equipment was €509 million corresponding to 6% of sales (Q2/20: €474 million; 5% of sales). These investments served primarily for the modernization and expansion of dialysis clinics, production facilities as well as hospitals and day clinics. In H1/21, spending on property, plant and equipment was €893 million corresponding to 5% of sales (H1/20: €1,021 million; 6% of sales).
Total acquisition spending was €491 million (Q2/20: €97 million) mainly for the acquisition of Eugin Group at Fresenius Helios which has been consolidated since April 1, 2021, and the acquisition of dialysis clinics at Fresenius Medical Care. In H1/21, total acquisition spending was €640 million (H1/20: €509 million).
Cash flow development
Group operating cash flow decreased to €1,451 million (Q2/20: €3,082 million) with a margin of 15.7% (Q2/20: 34.6%). The decline was mainly due to the U.S. federal government’s payments in Q2/20 under the CARES Act, the start of recoupment of these advanced payments in Q2/21 as well as the timing of certain other expense payments in 2021 at Fresenius Medical Care. Free cash flow before acquisitions and dividends decreased correspondingly to €952 million (Q2/20: €2,606 million). Free cash flow after acquisitions and dividends decreased to -€359 million (Q2/20: €2,374 million).
In H1/21, Group operating cash flow decreased to €2,103 million (H1/20: €3,960 million) with a margin of 11.5% (H1/20: 21.9%). Free cash flow before acquisitions and dividends decreased to €1,193 million (H1/20: €2,911 million). Free cash flow after acquisitions and dividends decreased to -€242 million (H1/20: €2,334 million).
1 Net income attributable to shareholders of Fresenius SE & Co. KGaA
2 Before Special items
Solid balance sheet structure
Group total assets increased by 5% (3% in constant currency) to €69,655 million (Dec. 31, 2020: €66,646 million) given the expansion of business activities and currency effects. Current assets increased by 7% (6% in constant currency) to €16,901 million (Dec. 31, 2020: €15,772 million) mainly driven by the increase of trade accounts receivables, cash and cash equivalents and inventories. Non-current assets increased by 4% (2% in constant currency) to €52,754 million (Dec. 31, 2020: €50,874 million).
Total shareholders’ equity increased by 4% (2% in constant currency) to €27,131 million (Dec. 31, 2020: €26,023 million). The equity ratio was 39.0% (Dec. 31, 2020: 39.0%).
Group debt increased by 5% (4% in constant currency) to €27,289 million (Dec. 31, 2020: € 25,913 million). Group net debt increased by 4% (3% in constant currency) to € 25,039 million (Dec. 31, 2020: € 24,076 million).
As of June 30, 2021, the net debt/EBITDA ratio increased to 3.60×1,2 (Dec. 31, 2020: 3.44×1,2) driven by COVID-19 effects weighing on EBITDA as well as increased net debt.
1 At LTM average exchange rates for both net debt and EBITDA; pro forma closed acquisitions/divestitures
2 Before special items
For a detailed overview of special items please see the reconciliation table in the PDF document.
Business Segments
Fresenius Medical Care (Financial data according to Fresenius Medical Care press release)
Fresenius Medical Care is the world’s largest provider of products and services for individuals with renal diseases. As of June 30, 2021, Fresenius Medical Care was treating approximately 346,000 patients in more than 4,100 dialysis clinics. Along with its core business, the Renal Care Continuum, the company focuses on expanding in complementary areas and in the field of critical care.
• As assumed, COVID-19 pandemic continued to impact organic growth in dialysis and downstream businesses; patient excess mortality rates significantly reduced
• Negative exchange rate effects continue
• Earnings development impacted by phasing and strong prior-year base, as indicated
• Financial targets for FY 2021 confirmed
Sales of Fresenius Medical Care decreased by 5% (increased by 2% in constant currency) to €4,320 million (Q2/20: €4,557 million). Thus, currency translation had a negative effect of 7%. Organic growth was 1%. In H1/21, sales of Fresenius Medical Care decreased by 6% (increased by 2% in constant currency) to €8,530 million (H1/20: €9,045 million). Thus, currency translation had a negative effect of 8%. Organic growth was 1%.
EBIT decreased by 35% (-30% in constant currency) to €424 million (Q2/20: €656 million) resulting in a margin of 9.8% (Q2/20: 14.4%). EBIT before special items declined by 34% to €430 million (-29% in constant currency; Q2/20: €656 million), resulting in a margin of 10.0% (Q2/20: 14.4%). The decrease was mainly due to the adverse impact of the COVID-19 pandemic, including a high prior-year base as a result of government relief funding, the expected phasing and increase in Sales, General and Administrative expense, negative exchange rate effects and higher direct costs. These effects were partially offset in particular by an improved Medicare Advantage payor mix in the U.S.
1 Before special items
2 Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA
For a detailed overview of special items please see the reconciliation table in the PDF document.
In H1/21, EBIT decreased by 26% (-20% in constant currency) to €898 million (H1/20: €1,211 million) resulting in a margin of 10.5% (H1/20: 13.4%). EBIT before special items decreased by 25% (-19% in constant currency) to €907 million (Q2/20: €1,211 million) resulting in an EBIT margin excluding special items of 10.6% (H1/20: 13.4%).
Net income1 decreased by 38% (-33% in constant currency) to €219 million (Q2/20: €351 million). Net income1 before special items decreased by 37% (-31% in constant currency) to €223 million (Q2/20: €351 million).
In H1/21, net income1 decreased by 26% (-21% in constant currency) to €468 million (H1/20: €634 million). Net income1 before special items decreased by 25% (-20% in constant currency) to €474 million (H1/20: €634 million).
Operating cash flow was €921 million (Q2/20: €2,319 million) with a margin of 21.3% (Q2/20: 50.9%). The decline was mainly due to the U.S. federal government’s payments in Q2/20 under the CARES Act, the start of recoupment of these advanced payments in Q2/21 as well as the timing of certain other expense payments in 2021. In H1/21, operating cash flow was €1,129 million (H1/20: €2,903 million) with a margin of 13.2% (H1/20: 32.1%).
For FY/21, Fresenius Medical Care confirms its outlook as outlined in February 2021. The Company expects revenue2 to grow at a low-to-mid single-digit percentage range and net income1,3 to decline at a high-teens to mid-twenties percentage range against the 2020 base4. This outlook is based on the assumption of a return to normalized mortality rates in H2/21.