Fresenius Medical Care Corporation (FMS)

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Fresenius Medical Care AG & Co. KGAA (FMS)

Q4 2012 Earnings Call

February 26, 2013 9:15 am ET

Executives

Oliver Maier - Head of Investor Relations & Corporate Communications- Fresenius Medical Care Management Ag

Robert Maurice Rice Powell - Chairman of Management Board and Chief Executive Officer

Michael Brosnan - Chief Financial Officer of Fresenius Medical Care Management AG and Member of Management Board - Fresenius Medical Care Management

Analysts

Martin Brunninger - Nomura Securities Co. Ltd., Research Division

Holger Blum - Deutsche Bank AG, Research Division

Marcus Wieprecht - MainFirst Bank AG, Research Division

Volker Braun - Commerzbank AG, Research Division

Michael K. Jungling - Morgan Stanley, Research Division

Lisa Bedell Clive - Sanford C. Bernstein & Co., LLC., Research Division

Veronika Dubajova - Goldman Sachs Group Inc., Research Division

Presentation

Oliver Maier

Welcome back, everybody. Good morning, good afternoon, everybody in the audience, everybody joining us on the Internet. Joining us today is obviously, Rice Powell, the CEO of Fresenius Medical Care; and Mike Brosnan, the Chief Financial Officer. Before turning it over to Rice, I would like to remind you that we will be making forward-looking statements and our actual results may differ materially from these results. We, therefore, encourage you to review our materials provided today in the 20-F filing for these factors.

So that's all from my end, Rice, the floor is yours, please.

Robert Maurice Rice Powell

Thank you, Oliver. Good morning, good afternoon, everyone. Before I begin my prepared remarks, first let me say that it's a privilege for me to be here. Sixteen years with the company, I've done a lot of different things, predominantly in North America, and this is a chance for me to do a lot of new things in different parts of the world. I'm quite excited to do this. And it's not lost on me that I have some rather large shoes to fill, following Dr. Ben Lipps, but I will do the best I can in the time that I have.

And also, before I get into the first slide, I would sincerely like to thank my colleagues on the management board and all the employees at Fresenius Medical Care for the dedication and hard work that they put in throughout 2012, years past and also years to come in the future.

When you look at delivering shareholder value, we understand at FMC that it's important that we give you an outlook of how we are going to continue to do that. I do think it's important that you recognize we are the market leader in a growing market. The dialysis market is going to grow about 4% in constant currency, on a volume basis. Patient basis is about 6%, but think about the fact that in 2020, this will be a USD 100 billion market and when we finished in 2012 it was a $75 billion market. So plenty of room to grow and thrive in this particular space that we're in. And I think we all know what drives this and what the conditions are among our patients, that continues to see them grow at about 6%.

Obviously, in health care, if you cannot provide the highest standard of care, you won't be successful. We've set a very high bar for the competition and we will continue to do that. I think integral to our success is vertical integration, an undying focus on bringing the best quality product and service that we can and also approaching every unmet medical need as a therapy, and how do we get the most out of that therapy for our patients. And we have to continue to invest in what I believe to be our best resource, which is our people. We have a culture of innovation and we will continue to do that in our R&D efforts both from a product standpoint as well as looking at new therapy opportunities. And we'll continue to expand geographically, where appropriate and when appropriate.

2012 was a record year for us. I'm just going to give you a very top line view and Mike will take you through a lot more detail in his prepared remarks. But looking at the blue shaded area, $13.8 billion in revenue, $2.3 billion in EBIT, and net income at $1.187 billion or the adjusted net income at a $1.118 billion. Why do we call it a record year? Two very clear issues for me drive this. One, our dialysis services business grew at 15% in constant currency and the global products business grew at 5%. And for the first time ever, we generated over $2 billion of operating cash flow, $2,039,000,000, I believe, to be exact, a record for us.

Looking at the regions and how we progressed through the year. North America continued at roughly 65% of the total revenue and International at 35%. In North America, you can see that just above $9 billion in revenue for the year, organic growth of 4%. International had a very strong year at $4.7 billion in revenue growth, 9% constant currency and organic growth at 6%. 2012 was a year of focus, particularly around integration. We had large acquisitions, both in Europe as well as in the United States, and we spent a lot of time working on those. I would also like to compliment my colleagues in Europe. We had a tremendous cash collection year, one of the best we've ever had. And in the midst of all of those activities, Europe continues to bring new therapy to the market, better outcomes, a great example of that is hemodiafiltration.

And I would point you to Asia Pacific and just notice that we broke $1 billion in revenue in that region for 2012.

Now looking at the services franchise. A couple of numbers that I think are key for you to look at on this slide. If you look at the number of clinics, 3,160 clinics as of December 31 of last year, 9% growth in our clinic base. Then if you come down the chart, what you see is we delivered 38.6 million treatments on a global basis, 12% growth. And then 258,000 patients, which was 11% growth. So clinics at 9%, treatments at 12%, patients at 11% growth. Another way to look at this is, every 7/10 of a second, somewhere in the world, Fresenius Medical Care dialyzes a patient. Every day, 24 hours a day, 7 days a week, we're dialyzing.

A little clarity on the clinic situation. When you look at this, you can see on a total basis, we had 65 De Novo clinics and then 276 acquired. I'd be remiss to not remind you that we did have divestitures among those clinics, as a result of working with the antitrust authorities in the various regions. So the net effect of that, was about 197 clinics that actually stayed with us once we'd gotten through the divestiture process.

Again, looking at organic revenue growth and dialysis services, I'm going to focus on the full year figures down at the bottom half of the page. I know Mike's got some detail that he'll take you through on the fourth quarter as well as full year. But you can see, for the service business, approximately $10.5 billion in revenue for the year, constant currency growth at 15%, organic growth at 4% and same-market growth at 4%.

I would highlight to you that, 1 year ago, in North America, we were working very hard to achieve about 2.9% in the same-market growth and we told you then that we were going to reengineer the process, we were going to relook at how we do this, to get that growth to a more acceptable number, and I'm proud to say that we've done that. And I think part of it lies, the success lies in our engineering roots. We tend to go into the service side of the business with a very practical eye and look how to make processes better, if it's at all achievable, and we've done that.

Now, looking at patient care. We're in the business of health care, you've seen this chart many times. Again, I'd like to just remind you, we're now looking at metrics across the world, U.S., EMEA and Asia-Pacific. I won't take you through each of this specifically. You've seen them, you should be familiar with this. I think what's important is we continue to make progress in the general direction that we want to go. In some individual cases, we may drop 1 point or 2 down from where we were the prior quarter, but over the trends, over an the entire year, you'll see we continue to improve. And I take great pride in looking at the hospitalization days, we want to continue to drive these down, but nice performance there.

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