Fresenius Medical Care Reports First Quarter Results In Line With Expectations Despite Significant Headwinds

Press release Financial tables

  • Excess COVID-19 mortality higher than expected, but declining throughout the quarter
  • Earnings development is impacted by continued very high labor costs, compounded by the effects of Omicron in healthcare services and by rising material and logistics costs in healthcare products. Health care
  • Earnings development in the EMEA region is also impacted by the war in Ukraine
  • Financial targets for fiscal year 2022 confirmed

Rice Powell, CEO of Fresenius Medical Care, said: “When we see what is happening in Ukraine, it is once again above all the human drama that saddens us deeply. I am incredibly grateful and proud of everyone who continues to work tirelessly to ensure patient care and the maintenance of our local operations in these exceptionally difficult circumstances. Although it is difficult to talk about figures with these images in mind, I must say that in addition Omicron strongly affected the quarter. This has resulted in high excess mortality in our patients and dramatically high labor costs in the United States to run isolation clinics and shifts. We were able to compensate for this and deliver a quarter in line with our expectations. Based on a sharp decline in excess mortality in February and March, we confirm our financial targets for 2022.”

Key figures (IFRS)

Q1 2022

millions of euros

Q1 2021

millions of euros

Growth

yoy

Growth

yoy, cc

Revenue 4,548 4,210 +8% +3%

Operating result

excluding special items1

348

403

474

477

-27%

-15%

-30%

-19%

Net revenue2

excluding special items1

157

200

249

251

-37%

-20%

-39%

-23%

Core EPS (EUR)

excluding special items1

0.54

0.68

0.85

0.86

-37%

-20%

-39%

-23%

yoy = year over year, cc = at constant currency, EPS = earnings per share

Excess mortality linked to COVID-19 higher than expected at the start of the year

Excess COVID-19-related mortality among Fresenius Medical Care patients was approximately 2,310 in Q1 2022 (Q1 2021: ~3,200; Q2 2021: ~1,900; Q3 2021: ~2,900; Q4 2021: ~2,0003). It decreased significantly in February and March in line with infection rates, but on a quarterly basis it still exceeded the level originally expected. This has resulted in an increased need for isolation clinics and shift work and has limited the Company’s ability to mitigate the effects of labor shortages and wage inflation in the US market.

Excess COVID-19 mortality has accumulated to around 9,000 patients over the past twelve months and around 22,600 since the start of the pandemic.

The estimated overall adverse effect of cumulative excess mortality related to COVID-19 on organic growth in the Healthcare Services business was approximately 290 basis points in the first quarter.

The war in Ukraine impacts business development

The war in Ukraine is affecting dialysis operations and patient care at Fresenius Medical Cares in the country itself, but has also led to an increase in bad debts in Russia and Ukraine. The direct negative effect of the war in Ukraine amounted to EUR 22 million on the operating result in the first quarter and is treated as a special item. Fresenius Medical Care will continue to closely monitor the potential effects of war as well as the general impact of the challenging inflationary macroeconomic environment.

Evolution of first quarter results in line with expectations

Revenue increased by 8% to EUR 4,548 million (+3% at constant exchange rates, +2% on an organic basis).

Healthcare Services revenue increased by 8% to €3,607 million (+3% at constant exchange rates, +1% on an organic basis). At constant currencies, this was mainly driven by organic growth, which was achieved despite the negative impact of COVID-19, the partial reversal of a provision related to a revenue recognition adjustment for accounts receivable in litigation and contributions from acquisitions.

Sales of healthcare products increased by 6% to €941 million (+3% at constant exchange rates, +3% on an organic basis). Growth at constant currency was mainly driven by higher sales of in-clinic disposables and renal pharmaceuticals. This was partially offset by lower sales of machines for chronic treatment.

Operating result decreased by 27% to EUR 348 million (-30% at constant exchange rate), resulting in a margin of 7.6% (Q1 2021: 11.3%). Operating income excluding exceptional items, i.e. costs incurred for FME25 and impacts related to the war in Ukraine, decreased by 15% to 403 million euros (-19% at exchange rate constant), i.e. a margin of 8.9% (Q1 2021: 11.3%). At constant currency, the decrease is mainly due to higher labor costs, negative effects related to COVID-19, as well as inflation and higher supply chain costs. ‘supply. These effects were only partially mitigated by the partial reversal of an accrual related to a revenue recognition adjustment for disputed accounts receivable.

Net revenue2 decreased by 37% to EUR 157 million (-39% at constant exchange rate). Excluding exceptional items, the net result decreased by 20% to EUR 200 million (-23% at constant exchange rate), mainly due to the mentioned negative effects on the operating result.

Basic earnings per share (EPS) decreased by 37% to EUR 0.54 (-39% at constant exchange rate). EPS excluding exceptional items fell by 20% to EUR 0.68 (-23% at constant exchange rates).

Cash development

In the first quarter, Fresenius Medical Care generated EUR 159 million in operating cash (Q1 2021: €208 million), resulting in a margin of 3.5% (Q1 2021: 4.9%). The decline was primarily due to the continued recovery of US government payments received in 2020 under the CARES Act and lower net income, partially offset by a favorable impact from trade and other receivables.

Free movement of capital4 amounted to -€1 million (Q1 2021: €29 million) in the first quarter, representing a margin of 0.0% (Q1 2021: 0.7%).

Regional developments

In North America, revenue increased by 9% to EUR 3,171 million (+2% at constant exchange rates, +0% organic). At constant exchange rates, this was mainly due to organic growth in the Healthcare Products business and the reversal of a provision related to a revenue recognition adjustment for trade receivables in dispute. This was partially offset by the negative impact of COVID-19 on the Healthcare Services business.

Operating income in North America decreased by 24% to €304 million (-29% at constant currency), resulting in a margin of 9.6% (Q1 2021: 13.7% ). At constant exchange rates, the decrease in operating income is mainly due to higher labor costs, the negative impact of COVID-19, inflation and higher labor costs. the supply chain as well as the costs related to the FME25. This was only partially offset by the partial reversal of an accrual related to a revenue recognition adjustment for receivables in dispute.

The income in the EMEA increased by 1% to EUR 674 million in the first quarter (+3% at constant exchange rate, +2% on an organic basis). At constant exchange rates, this is mainly explained by the organic growth of the Health Care Services business, which was achieved despite the negative impact of COVID-19.

Operating profit in EMEA decreased by 23% to €61 million (-19% at constant currency), resulting in a margin of 9.1% (Q1 2021: 11.9% ). The decrease is mainly due to the impact related to the war in Ukraine.

In Asia Pacific, revenue increased by 8% to EUR 507 million (+4% at constant exchange rates, +4% organic). At constant exchange rates, this change is mainly due to the organic growth of the Health Care Products activity.

Operating income increased by 16% to €99 million (+14% at constant exchange rate), representing a margin of 19.5% (Q1 2021: 18.1%). At constant exchange rates, this is mainly due to a gain on the sale of clinics, favorable currency effects on transactions and growth in the Health Care Products business.

Latin America revenue increased by 15% to €183 million (+15% at constant exchange rates, +16% on an organic basis), mainly due to strong organic growth in the Healthcare Services and Healthcare Products businesses.

The operating result improved by 68% to EUR 11 million (+51% at constant exchange rate), representing a margin of 6.1% (Q1 2021: 4.2%). This was mainly due to a favorable currency effect, which was partially offset by inflationary cost increases.

Patients, clinics and employees

As of March 31, 2022, Fresenius Medical Care has treated 343,493 the patients in 4,153 dialyses clinics in the world and numbered 122,635 employees (full-time equivalents) worldwide, compared to 124,995 employees as of March 31, 2021.

Outlook

Based on the first quarter results, which were in line with the Company’s expectations, Fresenius Medical Care confirms its financial objectives for 2022. The improvement in results will be driven by the expected growth in activity, the reduction in PPE and FME25 savings. The company expects revenue and net income to grow at low to mid-single digit percentage rates in fiscal 2022.5

Conference call

Fresenius Medical Care will host a conference call to discuss first quarter 2022 results on May 4, 2022 at 3:30 p.m. CEST / 9:30 a.m. EDT. Details will be available in the “Investors” section. A replay will be available shortly after the call.

Please refer to our income statement included at the end of this news and attachments as separate PDF files for a complete overview of the first quarter 2022 results. Our 6-K disclosure provides further details.


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