Fresenius Medical Care AG Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Employee Dedication: Acknowledges employees' efforts in challenging environments like Ukraine, Middle East, and U.S. weather events.
• Care Delivery Progress: U.S. same market treatment growth turned positive, improvements in cancellation rates and missed treatments. International business saw 3% same market growth. CMS ratings show high-quality centers. InterWell achieved best-in-class quality in value-based care.
• Care Enablement Progress: Continued improving returns, supported by FME25 program, supply chain optimization. Launch of HDF enabled 5008X machine in U.S. planned.
• Financial Performance: Organic revenue growth of 2%, operating income increase, net leverage ratio improved to below target corridor. FME25 savings accelerated, expecting EUR200 million in 2024.

Segment Performance

• Care Delivery: In the third quarter, underlying same market treatment growth in the U.S. turned positive though volume remains muted due to elevated mortality. International same market treatment growth accelerated to 3%. Revenue decreased by 2% in Q3 with a negative 330 basis points impact from divestitures. Operating income increased by 5% with a 70 basis point margin improvement, reaching 11.2%.
• Care Enablement: Realized 4% organic revenue growth driven by solid volume development and pricing initiatives. Achieved significant operating income increase, nearly quadrupling from the prior year quarter. Impacted by negative price effects in China from volume-based procurement. Operating margin shows progress towards 2025 targets.

Guidance

• Confirmed 2024 revenue outlook and heightened operating income growth to 16%-18%.
• Maintained 2025 group margin outlook of 10%-14%.
• FME25 savings program ahead of expectations, compensating for muted U.S. volume growth and other factors.

Risks

• Elevated mortality and flu season impact on U.S. volume growth.
• Volatility in value-based care returns.
• Impact of vPPAs on earnings volatility.
• Volume-based procurement in China affecting pricing.

Q: Richard Felton from Goldman Sachs asked about medium-term margin guidance and Care Enablement margins.

A: Helen Giza responded on medium-term margin guidance needing more data points in February and Care Enablement margins being back-end loaded with FME25 programs.

Q: Victoria Lambert from Berenberg asked about hurricane impact in Q4 and Care Enablement PD machine benefit.

A: Helen Giza said hurricane impact in Q4 expected to be similar, lower; no specific sizing on CE PD machine benefit today.

Q: Robert Davies from Morgan Stanley asked about excess mortality impact on U.S. volume growth and clinic closures.

A: Helen Giza said excess mortality still elevated, watching for normalization; net-net opened 11 centers, selective on clinic closures.

Q: Hugo Solvet from Exane BNP asked about U.S. volume growth exit rate and Care Delivery margin phasing.

A: Helen Giza said exit rate expected to normalize post-2025; Martin Fischer said Care Delivery margin drivers included price/volume effects and consent agreement phasing.

Q: Oliver Metzger from ODDO BHF Bank asked about EBIT guidance narrowing and FME25 savings.

A: Helen Giza said EBIT guidance is bottoms-up with sensitivities; FME25 savings ahead of expectations with continuous improvement mindset.

Q: Sezgi Oezener from HSBC asked about other income factors and consent agreement outlook.

A: Martin Fischer said other income included special items and FX; consent agreement phasing is broadly neutral over full year.

Q: Giang Nguyen from Citi asked about U.S. volume growth headwind from mortality and relative momentum.

A: Helen Giza said U.S. volume growth had 60 basis points mortality impact, seeing positive trend; momentum compared to peers is positive with operational progress.

Q: David Adlington from JPMorgan asked about oral drugs in bundle and guidance delay.

A: Helen Giza said unpacking oral drugs impact, visibility maintained but many moving parts; guidance delayed to February for better data.

Q: Marianne from Bank of America asked about leverage ratio and capital allocation.

A: Martin Fischer said continuing to reduce debt to strengthen balance sheet, aligning with post-2025 strategy.

Q: Falko Friedrichs from Deutsche Bank asked about excess mortality reasons and Q4 same-store growth.

A: Helen Giza said mortality due to flu/COVID, same-store growth expected to improve in Q4 with positive October trends.

Q: Sezgi Oezener from HSBC asked about not adjusting 2024 base for divestitures.

A: Martin Fischer said transparency in portfolio optimization, absorbing divestiture impact in guidance.

Q: Christian Ehmann from Warburg Research asked about factors behind return to 2% - 3% same market growth.

A: Helen Giza said factors include mortality reduction, normalization of CKD funnel, and international growth momentum.