Fresenius Medical Care on track to achieve full-year targets after solid second quarter

(PresseBox) ( Bad Homburg, )
- Underlying business development in line with expectations
- Continued strong organic revenue growth
- Healthy growth in the U.S. dialysis business
- Negative effect from ESCOs, based on recent reports for prior plan years
- Increasing earnings growth momentum expected
- Outlook 2019 confirmed

Rice Powell, Chief Executive Officer of Fresenius Medical Care, said: “We have delivered a solid second quarter with continued strong organic revenue growth. Net income in our underlying dialysis business developed in line with our expectations. We are confident to accelerate earnings growth over the second half of the year toward achieving our full-year targets. Due to ongoing delays in reconciliation of generated savings in the value-based ESCO pilot program and differing views with regard to the measurement mechanisms, it is prudent to adjust the rate of savings we applied to accrue revenues and earnings. While views differ on the magnitude of savings generated, it is clear that we have realized meaningful savings in the ESCO pilot as well as other value-based arrangements. We moved quickly and maintained tremendous focus since 2014. We are uniquely positioned with our vast experience to impact cost and quality of care in kidney disease. We remain committed to value-based care.”

Home dialysis strategy reinforced by President Trump’s Executive Order

Fresenius Medical Care continues to achieve an increase in the number of treatments being carried out in the home setting in North America. The investments in training facilities, education and distribution are important areas of investments this year. Concurrently, the company is investing around EUR 100 million in 2019 as part of the Cost Optimization Program to optimize its US services footprint. The company´s execution of its home strategy is additionally supported by the Executive Order on Advancing Kidney Health. Fresenius Medical Care has intensified its initiatives to promote home dialysis, improve access to transplants, and develop value-based care models for chronic kidney disease patients.

Continued strong organic growth

Revenue in the second quarter 2019 increased by 3% to EUR 4,345 million (stable at constant currency). Organic growth continued to be strong at 4%. Adjusted for the Q2 2018 revenue contribution from Sound Inpatient Physicians (“Sound”, divested effective end of Q2 2018) as well as the impact from the IFRS 16 implementation and the revenue contribution from NxStage, revenue increased by 8% (+5% at constant currency).

Health Care Services revenue increased by 2% to EUR 3,455 million (-2% at constant currency). Growth was constrained by missing revenue from the divested Sound activities and closed or sold clinics. Growth in same market treatments (volume growth), acquisitions and increases in organic revenue per treatment had a positive impact. Health Care Products revenue increased by 7% to EUR 890 million (+6% at constant currency), mainly driven by higher sales of home hemodialysis products (supported by the acquisition of NxStage), products for acute care treatments, peritoneal dialysis products, and renal pharmaceuticals, partially offset by lower sales of machines as a result of changes in the accounting treatment for sale-leaseback transactions due to the IFRS 16 implementation and in EMEA lower sales of dialyzers.

In the first half 2019, revenue increased by 4% to EUR 8,478 million (-1% at constant currency). Excluding the effects from Sound, the IFRS 16 implementation and NxStage, revenue was up by 9% (+5% at constant currency). Organic growth was 5%. Health Care Services revenue grew by 3% (-2% at constant currency). Health Care Products revenue increased by 7% (+5% at constant currency).

In the second quarter 2019 total EBIT decreased by 63% to EUR 521 million (-65% at constant currency), resulting in an operating income margin of 12.0% (compared to 33.3% in the previous year). The strong result in the previous year was driven by the gain related to divestitures of Care Coordination activities. On an adjusted basis, EBIT decreased by 12% to EUR 491 million (-17% at constant currency) and operating income margin decreased from 14.1% to 11.5% driven by higher personnel expense and the reduction in patient attribution and a decreasing savings rate for ESCOs, based on recent reports for prior plan years (“ESCO effect”).

In the first half 2019, EBIT decreased by 44% to EUR 1,058 million (-47% at constant currency). Adjusted for the effects described above, EBIT decreased by 2% (-7% at constant currency).

Net income2 decreased by 74% to EUR 254 million (-76% at constant currency) in the second quarter 2019. On an adjusted basis, net income2 decreased by 9% (-14% at constant currency).

Based on approximately 303.5 million shares (weighted average number of shares outstanding), basic earnings per share (EPS) decreased by 74% to EUR 0.84 (-76% at constant currency). On an adjusted basis, basic EPS amounted to EUR 0.92, representing a decrease of 9% (-14% at constant currency).

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