News Column

Accelerated growth in Q2 - Fresenius raises FY 2014 sales outlook, fully confirms earnings outlook

August 4, 2014



ENP Newswire - 04 August 2014

Release date- 01082014 - Ulf Mark Schneider, CEO of Fresenius, said: 'All business segments showed marked improvement from the first quarter.

The integration of the newly acquired hospitals is fully on track and we are pleased with their strong financial performance. Kabi saw growing business momentum in all key markets. Looking ahead, we expect growth to accelerate further across the Group in the second half of the year and fully confirm our 2014 earnings guidance.'

1 2014 before integration costs (Fenwal: EUR3 million; acquired Rhon hospitals: EUR8 million) and disposal gains (two HELIOS hospitals: EUR22 million; Rhon stake: EUR35 million); 2013 before integration costs (Fenwal: EUR27 million)

2 Net income attributable to shareholders of Fresenius SE & Co. KGaA; 2014 before integration costs (Fenwal: EUR2 million; acquired Rhon hospitals: EUR6 million) and disposal gains (two HELIOS hospitals: EUR21 million; Rhon stake: EUR34 million); 2013 before integration costs (Fenwal: EUR20 million); including these effects, net income attributable to shareholders of Fresenius SE & Co. KGaA increased by 16% (+17% in constant currency) to EUR534 million

20141 Group sales outlook raised

Fresenius raises its sales outlook following acquisitions at Fresenius Medical Care, and now expects sales to increase by 14% to 16% in constant currency. Previously, the Company expected sales growth of 12% to 15%. Fresenius fully confirms its net income2 guidance, and continues to expect an increase of 2% to 5% in constant currency.

The net debt/EBITDA ratio is expected to be approximately 3.25 particularly reflecting Fresenius Medical Care's acquisitions (previously 3.00 to 3.25).

12% sales growth in constant currency

Group sales increased by 7% (12% in constant currency) to EUR10,733 million (H1/2013: EUR9,987 million). Organic sales growth was 3%. Acquisitions contributed 9%. Divestitures had a marginal effect on sales growth.

Organic sales growth was 3% in North America and 2% in Europe. In Asia-Pacific organic sales growth was 2%, impacted by a slow first quarter in China for Fresenius Medical Care and Fresenius Kabi. In Latin America organic sales growth was 9%. In Africa, the decline in sales is mainly due to fluctuations in the project business at Fresenius Vamed.

Adverse currency translation effects weighed on Group sales in all regions, particularly in Latin America (-19%), Asia-Pacific (-7%), Africa (-7%) and North America (-5%).

Group net income in line with guidance

Group EBITDA1 was EUR1,854 million (H1/2013: EUR1,860 million) and increased by 3% in constant currency. Group EBIT1 decreased by 3% (0% in constant currency) to EUR1,403 million (H1/2013: EUR1,448 million). Besides currency headwinds, this development is mainly attributable to the year-over-year comparison of issues at Fresenius Medical Care and Fresenius Kabi which occurred in 2013. The EBIT margin was 13.1% (H1/2013: 14.5%). In Q2/2014, the EBIT margin increased sequentially by 150 bps to 13.8%.

Group net interest was -EUR283 million (H1/2013: -EUR313 million). Improved financing terms as well as favorable currency effects contributed to the decrease. In addition, H1/2013 net interest included EUR14 million one-time costs resulting from the early redemption of a Senior Note.

The Group tax rate2 was 29.6% and above the prior-year level (H1/2013: 28.5%). In Q2/2014, the Group tax rate was 32.4% due to a special tax effect at Fresenius Medical Care.

Noncontrolling interest was EUR301 million (H1/2013: EUR330 million), of which 94% was attributable to the noncontrolling interest in Fresenius Medical Care.

Group net income3 increased by 1% (3% in constant currency) to EUR487 million (H1/2013: EUR482 million). Earnings per share3 were EUR2.71 (H1/2013: EUR2.70). Group net income3 excluding the special tax effect at Fresenius Medical Care increased by 2% (4% in constant currency).

Group net income attributable to shareholders of Fresenius SE & Co. KGaA including integration costs for Fenwal and the acquired Rhon hospitals, as well as the disposal gains from two HELIOS hospitals and the Rhon-Klinikum stake increased by 16% (+17% in constant currency) to EUR534 million. Earnings per share increased by 15% (+16% in constant currency) to EUR2.97. A reconciliation to earnings according to U.S. GAAP can be found on page 14 of this Investor News.

Continued investment in growth

The Fresenius Group spent EUR522 million on property, plant and equipment (H1/2013: EUR425 million). The Company primarily invested in the modernization and expansion of production facilities and hospitals as well as in the equipment of new, and the expansion of existing dialysis clinics.

Strong cash flow in Q2

Operating cash flow was EUR750 million (H1/2013: EUR947 million) with a margin of 7.0% (H1/2013: 9.5%). The decrease was mainly attributable to the payment for the W.R. Grace bankruptcy settlement of US$115 million1, increased working capital at Fresenius Medical Care and Fresenius Kabi as well as a change from annual to monthly upfront payments to Fresenius Vamed for a technical management contract all in Q1/2014. In Q2/2014, the operating cash flow margin was 11.0%.

Net capital expenditure increased to EUR532 million (H1/2013: EUR416 million). Free cash flow before acquisitions and dividends was EUR218 million (H1/2013: EUR531 million). Free cash flow after acquisitions and dividends was -EUR1,275 million (H1/2013: 92 million).

Solid balance sheet structure

The Group's total assets increased by 8% (at actual rates and in constant currency) to EUR35,502 million (Dec. 31, 2013: EUR32,758 million). This increase is mainly attributable to the first-time consolidation of hospitals acquired from Rhon-Klinikum AG. Current assets grew by 19% to EUR9,464 million (Dec. 31, 2013: EUR7,972 million). Non-current assets increased by 5% to EUR26,038 million (Dec. 31, 2013: EUR24,786 million).

Total shareholders' equity increased by 3% to EUR13,706 million (Dec. 31, 2013: EUR13,260 million). The equity ratio was 38.6% (Dec. 31, 2013: 40.5%).

Group debt was EUR14,527 million (Dec. 31, 2013: EUR12,804 million). Net debt was EUR13,457 million (Dec. 31, 2013: EUR11,940 million).

As of June 30, 2014, the net debt/EBITDA ratio was 3.391 (Dec. 31, 2013: 2.512). The increase is mainly due to the acquisition of hospitals from Rhon-Klinikum AG.

Pro forma including acquired Rhon hospitals and excluding two HELIOS hospitals; before integration costs (Fenwal; acquired Rhon hospitals) and disposal gains (two HELIOS hospitals; Rhon stake)

Pro forma excluding advances made for the acquisition of hospitals from Rhon-Klinikum AG; before integration costs (Fenwal)

Number of employees increases

As of June 30, 2014, the number of employees increased by 18% to 209,933 (Dec. 31, 2013: 178,337). This is mainly due to the acquisition of hospitals from Rhon-Klinikum AG.

Business Segments

Fresenius Medical Care

Fresenius Medical Care is the world's leading provider of services and products for patients with chronic kidney failure. As of June 30, 2014, Fresenius Medical Care was treating 280,942 patients in 3,335 dialysis clinics.

Second quarter shows accelerated growth and margin improvement

Net income impacted by US$ 18 million special tax effect

2014 guidance confirmed

Sales increased by 5% (6% in constant currency) to US$7,398 million (H1/2013: US$7,076 million). Organic sales growth was 4%. Acquisitions contributed 2%. Adverse currency effects reduced sales by 1%.

Sales in dialysis services increased by 6% (7% in constant currency) to US$5,731 million (H1/2013: US$5,421 million). Dialysis product sales increased by 1% (1% in constant currency) to US$1,667 million (H1/2013: US$1,655 million).

In North America sales grew by 5% to US$4,914 million (H1/2013: US$4,663 million). Dialysis services sales increased by 6% to US$4,517 million (H1/2013: US$4,261 million). Dialysis product sales decreased by 1% to US$397 million (H1/2013: US$402 million).

Sales outside North America ('International' segment) increased by 3% (5% increase in constant currency) to US$2,458 million (H1/2013: US$2,397 million) impacted inter alia by the reorganization of the distribution network in China. Sales in dialysis services increased by 5% (10% in constant currency) to US$1,214 million (H1/2013: US$1,161 million). Dialysis product sales increased by 1% (1% in constant currency) to US$1,244 million (H1/2013: US$1,236 million).

EBIT decreased by 4% to US$1,001 million (H1/2013: US$1,038 million). The EBIT margin was 13.5% (H1/2013: 14.7%). EBIT was impacted by sequestration and rebasing of Medicare's reimbursement rate in the United States. In Q2/2014, EBIT increased by 2% to US$556. The EBIT margin increased sequentially by 200 bps to 14.5%.

Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA decreased by 10% to US$439 million (H1/2013: US$488 million). Excluding a special tax effect at Fresenius Medical Care in Q2/2014, net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA was US$457 million.

Operating cash flow was US$562 million (H1/2013: US$841 million). The decrease was mainly attributable to the payment for the W.R. Grace bankruptcy settlement of US$115 million and increased working capital in Q1/2014. The cash flow margin was 7.6% (H1/2013: 11.9%).

Fresenius Medical Care confirms its outlook for 2014. Fresenius Medical Care expects sales of approximately US$15.2 billion, translating into a growth rate of around 4%. This outlook excludes sales of about US$500 million from acquisitions.

Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA is expected to be unchanged between US$1.0 to US$1.05 billion. The company has initiated a global efficiency program designed to enhance its performance over a multi-year period. Potential cost savings before income taxes of up to US$60 million generated from this program are not included in the outlook for 2014.

Fresenius Kabi

Fresenius Kabi offers infusion therapies, intravenously administered generic drugs and clinical nutrition for seriously and chronically ill patients in the hospital and outpatient environments. The company is also a leading supplier of medical devices and transfusion technology products.

Sales decreased by 2% (+3% increase in constant currency) to EUR2,466 million (H1/2013: EUR2,519 million). Organic sales growth was 2% (Q2/2014: 4%). Adverse currency translation effects weighed on sales (-5%), mainly due to the weaker currencies in the United States, Brazil, Argentina and South Africa against the Euro.

Sales in Europe decreased by 1% (organic sales growth: +1%) to EUR1,024 million (H1/2013: EUR1,030 million). Sales in North America decreased by 5% (organic sales growth: 0%) to EUR747 million (H1/2013: EUR784 million). Asia-Pacific sales were EUR464 million (organic sales growth: +6%; H1/2013: EUR456 million). Sales in Latin America/Africa decreased by 7% (organic sales growth: +11%) to EUR231 million (H1/2013: EUR249 million).

EBIT1 was EUR411 million (H1/2013: EUR469 million), a decrease of 9% in constant currency. Adverse currency translation effects particularly weighed on Q2 EBIT with -4% compared to -2% in Q1/2014. Besides currency headwinds, EBIT was impacted by lower HES sales and the 2013 price cuts in China. The EBIT margin of 16.7% was in line with expectations and our guidance range. Sequentially, EBIT margin improved by 20 bps to 16.8% in Q2/2014.

Net income decreased by 10% to EUR217 million (H1/2013: EUR242 million).

Fresenius Kabi's operating cash flow was EUR215 million (H1/2013: EUR238 million) with a margin of 8.7% (H1/2013: 9.4%), mainly due to temporarily higher working capital requirements. Cash flow improved from Q1 (EUR42 million) to Q2 (EUR173 million). Cash flow before acquisitions and dividends in H1/2014 was EUR73 million (H1/2013: EUR120 million).

Integration costs for Fenwal were EUR3 million (pre-tax) in H1/2014. These costs are reported in the Group Corporate/Other segment. The vast majority of planned integration costs of EUR40-50 million are expected to accrue towards the end of 2014.

Fresenius Helios

Fresenius Helios is Germany's largest hospital operator. HELIOS owns 110 hospitals, thereof 86 acute care clinics including seven maximum care hospitals in Berlin-Buch, Duisburg, Erfurt, Krefeld, Schwerin, Wiesbaden and Wuppertal and 24 post-acute care clinics. HELIOS treats more than 4.2 million patients per year, thereof more than 1.2 million inpatients, and operates more than 34,000 beds.

Sales increased by 49% to EUR2,521 million (H1/2013: EUR1,695 million). The strong increase in sales is mainly due to the acquired hospitals from Rhon-Klinikum AG. The divestment of two HELIOS hospitals reduced sales growth by 2%. Organic sales growth was 3% in H1 and Q2.

EBIT1 grew by 40% to EUR250 million (H1/2013: EUR179 million). The EBIT margin was 9.9% (H1/2013: 10.6%). The margin decline is due to the consolidation of the newly acquired hospitals. The EBIT margin increased by 120 bps from 9.3% in Q1/2014 to 10.5% in Q2/2014.

Net income2 increased by 50% to EUR179 million (H1/2013: EUR119 million).

Sales of the established hospitals grew by 3% to EUR1,713 million. EBIT improved by 5% to EUR184 million. The EBIT margin increased to 10.7% (H1/2013: 10.6 %).

Sales of the acquired hospitals were EUR808 million, EBIT was EUR66 million and EBIT margin was 8.2%. Q2/2014 EBIT margin increased substantially to 9.1% (Q1/2014: 7.0%).

In Q1/2014, approximately 90% of the acquisition of hospitals from Rhon-Klinikum AG was completed. Approximately 70% of the acquired business was consolidated as of January 1, 2014, and approximately 20% as of March 1, 2014. The acquisition of HSK Dr. Horst Schmidt Kliniken in Wiesbaden is consolidated as of June 30, 2014. In addition, HELIOS acquired Rhon-Klinikum's 265-bed hospital in Cuxhaven with 2013 sales of approximately EUR40 million. The transaction is expected to be completed July 31, 2014.

The integration of the acquired hospitals is progressing as planned.

Fresenius Helios continues to project 2014 organic sales growth of 3 to 5%. The acquired hospitals are also expected to show 3 to 5% organic growth and to contribute sales of approximately EUR1.8 billion. EBIT for HELIOS including the acquired hospitals is expected to increase to EUR540-560 million.

Fresenius Vamed

Fresenius Vamed manages projects and provides services for hospitals and other health care facilities worldwide.

Sales decreased by 5% to EUR398 million (H1/2013: EUR421 million). Organic sales growth was -8%. Acquisitions contributed 3%. Sales in the project business decreased by 17% to EUR173 million (H1/2013: EUR208 million) reflecting typical quarterly fluctuations. Sales in the service business grew by 6% to EUR225 million (H1/2013: EUR213 million).

EBIT was EUR15 million (H1/2013: EUR15 million) with a margin of 3.8% (H1/2013: 3.6%).

Net income1 increased to EUR10 million (H1/2013: EUR9 million).

Order intake was EUR300 million (H1/2013: EUR311 million). As of June 30, 2014, order backlog was EUR1,262 million (Dec. 31, 2013: EUR1,139 million).

Fresenius Vamed fully confirms its 2014 outlook and expects to achieve organic sales growth of 5% to 10% and EBIT growth of 5% to 10%.

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This release contains forward-looking statements that are subject to various risks and uncertainties. Future results could differ materially from those described in these forward-looking statements due to certain factors, e.g. changes in business, economic and competitive conditions, regulatory reforms, results of clinical trials, foreign exchange rate fluctuations, uncertainties in litigation or investigative proceedings, and the availability of financing. Fresenius does not undertake any responsibility to update the forward-looking statements in this release.

Contact:

Birgit Grund

Senior Vice President

Investor Relations

Tel: +49 (0) 6172 608-2485

Fax: +49 (0) 6172 608-2488

Email: Birgit.Grund@fresenius.com


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Source: ENP Newswire


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