Fresenius Medical Care Corporation (FMS)

FMS 
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Fresenius Medical Care (FMS)

Q4 2008 Earnings Call

February 19, 2009 9:15 am ET

Executives

Dr. Ben J. Lipps - Chief Executive Officer

Lawrence A. Rosen - Chief Financial Officer

Oliver Maier - Senior Vice President, Investor Relations

Analysts

Unidentified Analyst

Holger Blum - Deutsche Bank

Unidentified Analyst

Thomas Jones - J.P. Morgan

Kevin Ellis - RBC Capital Markets

Ilan Chaitowitz - Redburn Partners

Unidentified Analyst - Bank of America

Lisa Bedell - Sanford Bernstein

Unidentified Analyst

Presentation

Oliver Maier

Thank you for joining Fresenius Medical Care’s Q4 full year 2008 analysts’ presentation. As normal, I have the easiest part up here actually for the next hour and a half. I just have to introduce you to the Safe Harbor statement. This presentation includes certain forward-looking statements. Actual results could differ materially from those included in the forward-looking statements due to various risk factors and uncertainties.

All these risk factors and uncertainties are described in detail in the company’s filings filed with the SEC and the Deutsche Borse. With that I think Berger introduced Fresenius Medical Care already. With us is Ben Lipps, the CEO of Fresenius Medical Care, and Larry Rosen, our CFO, and they will give you an update for the achievements for 2008 and on the actually good outlook for 2009. Ben, the floor is yours.

Dr. Ben J. Lipps

I am glad all you folks could join us today and a warm welcome to all of our employees and physician associates around the world, management board, and those who have joined us on the internet. I will cover the business update and Larry will cover the financials and then we will go back to questions and answers at the end of the program.

Now, let me say before I start, this was a very interesting and difficult year. We ended up with significant headwinds at the end of the year in terms of currency fluctuations basically also in terms of pharmaceutical costs, but I am really proud to say that the team did an excellent job. We had another record year, and we are also going to propose our 12th consecutive dividend increase. We saw our organic growth grow through the year as the Heparin issues basically were tackled and put behind us. We ended up with a very strong organic growth of 9% in the fourth quarter.

Now, through the year, in the last 2 years, we have been expanding our production facilities and also our de novo clinics, and I will talk a little more about that when we look at the different segments of our business but the reason for that was to be prepared to continue the growth that we see as we look forward into 2009 and 2010. We strengthened our renal pharmaceutical business with the agreement with Galenica. We are excited. We are actually in the process of delivering excellent iron products both in the international region and also in North America. So, I am very enthusiastic about 2009 and 2010.

We continue to see very strong interest in our high-quality products and services, and we have the capacity both in the clinics now and also in the production plants to meet those demands. If you also look at the pipeline in the renal products areas, we have a number of new products coming out in 2009 and 2010 in both hemodialysis and in peritoneal dialysis which I will cover later. So, we are very enthusiastic about 2009 and 2008 was clearly a difficult but very successful year, and you can see on the next slide here, we accomplished our target. Larry will talk more about them later. We had a 9% growth in top line of $10.6 billion. Our organic growth for the year on average was 7%, again that is at our high range of our guidance which is usually 6% to 9% and net income, of course, was, what you have seen in the announcements today, $818 million, again up 14%. We also had 13% earnings per share increase which because of stock options exercised in the last year, we ended up with a few more shares.

Turning now to looking at the revenues around the world and looking by region, North America delivered $7 billion worth of revenue this year, a 5% growth. Again, that accelerated during the year as the EPO administration situation basically stabilized, and I will talk a little bit about that. One of the very exciting things about the US operation is we have a very unique group of coalition members who work for the betterment of basically the patients and this is something that we have developed with basically our partners here who are the other LDOs, the medium-sized dialysis clinics, the drug manufacturers, the device manufacturers, the physicians, and the nurses, so we have a very strong coalition in the US that works together to solve basically our inner discipline issues, come out with one particular voice for the renal patients, and then that is why we were successful last year in accomplishing essentially an increased reimbursement and also getting a number of things arranged through the government. That group is still very active.

We are very interested in participating and supporting the new administration and some of their goals, and you will hear about those later in the year. The US then has really come together of players in the renal space and are doing an excellent job of working together.

Looking at international now, we had $3.6 billion in sales, excellent growth, 18%. Again we had a little tailwind in terms of the currency at the beginning of the year, about 5%, and we ended up with some acquisitions of about 1%, so we ended up with a very strong organic growth in the International of 12% and Europe is the major portion of that; 70% of the revenue. They did have an excellent year at an organic growth rate of 12%. So, again, and of course, we saw for the first time, we passed the $600 million revenue in Asia Pacific, and touched very close to the $500 million revenue in Latin America. So, each of the regions in the International grew double digit in constant currency; very strong year in the International region.

If you look by segment, you we will see that we are pretty stable at about 27% or 26% of our revenue in products and the other is in service, and this is not a particularly bad mix. This has been the way we have designed this, and I will talk a little bit about how we use the service in Latin America and in some other countries as we go along. We are basically quite pleased with the year and quite pleased with the performance of all other regions within the company.

Let’s now look at dialysis services. We had a 6% constant currency growth in services. Again, that was lead by the 18% constant currency growth in international and primarily, as I mentioned, Europe had an 18% growth, Latin America higher at 22%, and Asia Pacific about 10%. Our focus has been in the International area. I will show you the number of de novos we have been building at a 10% rate, so we have been expanding very rapidly our international service business.

This is an excellent platform then for the future because all of our other products from renal pharma to products that go through that, that particular network of clinics, and so this just gives us the long-term stability and the ability to actually innovate new therapies which are good for the patients and we get better outcome such as online hemodiafiltration, so this has been one of our strong investments this year, and it is paying off now and in the future. We treat about 185,000 or 186,000 patients and we have about 2400 clinics. So that is sort of the footprint we have today and as I said, we are very confident we have got, basically, the capability that indicates continued growth.

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