Fresenius Medical Care AG

Ladies and gentlemen, thank you for standing by. I am Emma, your chorus call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the second quarter 2020 results. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Dominic, head of investor relations. Please go ahead, sir.

Thank you, Emma. We would like to welcome all of you to the Fresenius Medicare earnings call for the second quarter of 2020. We appreciate you joining today despite the market being a bit in a turmoil today. Now it is my very big pleasure, as always, to start out the call by mentioning our cautionary language that is in our safe harbor statement as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents as well as to our SEC filings. We will be hosting a virtual capital market day on October 8th and hope all of you sign up for it. In preparation for this event, we will pause all non-mandatory capital market communication until our CMD. Therefore, please use the opportunity today to ask your questions. I would like to limit the number of questions again to two in order to give everyone the chance to ask questions. Should there be further questions and time left, we can go a second round. It would be great if we could make this work again this time. With us today is, of course, Reece Powell, our CEO and Chairman of the Management Board. Reece will give you some more color around the business development and go through some of the major topics of the quarter. And, of course, also with us is Helen Gieser, our Chief Financial Officer, who will give you an update on the financials and the outlook. I will now hand over to Reece. The floor is yours.

Thank you, Dominic. Hello, everyone. It's great to have you with us today. I do very much appreciate your interest in Fresenius Medical Care. I also hope that you and your families are all very safe and very healthy. Please allow me to recognize the tireless efforts of our employees both in and outside our clinics and the dedication that is required to ensure that our patients receive their life-saving dialysis treatments in a safe, clean environment with the high quality that they have come to expect from Fresenius Medical Care. I cannot thank our employees enough, but for them, where would we be? As Dominic said, he is joining, leading today from Bad Hamburg. Helen is in Chicago and I am in Boston, and it does appear that this virtual world that we're living in is becoming somewhat of a new normal. Let's hope that fades quickly. Turning to slide four, please. Our strong performance in the second quarter and the first half of this year proves that our core value proposition and the resilience of our business model is well-founded. We are grounded in our vertical integration strategy, and we will continue to do so. Our solid revenue growth did continue in the quarter. We had no support from exchange rates, and yet we achieved a 5% top line growth, and we'll share some of the details with you in due course of the presentation. Our net income was significantly up on a group level due to a great underlying business performance and our diversified global footprint. We had to manage quite different challenges caused by COVID-19 in our regional organizations. The approaches by the various governments and the impacts on our business are varied from region to region. We saw an exceptionally positive cash flow. Helen will give you more background on this in her prepared remarks. From what we know today about the pandemic and that we're able to mitigate the net impacts of the pandemic on our business for these first six months of the year, we confirm our targets for 2020, also including the anticipated effects of COVID-19. A topic most of you have interest in is the proposed ESRD prospective payment system draft guidance. The rate from CMS has an increase of 1.8% for 2021. We are comforted that CMS is taking a steady approach with regard to Medicare reimbursement, and this is broadly in line with the expectations that we had for this draft proposal. Council of Medics will be included in the bundle next year. And now, we must wait until the fall to see what the final rule for 2021 will bring us. We do expect, as usual, there'll be some small changes relative to adjusted inflations of that basket and things of that nature. ASP will have some impact. And we will see that most probably in the very first days of November. Moving to slide five. I'd like to first give you a brief update on the impact of COVID-19 on the business. As mentioned, we saw the pandemic continuing to spread globally. The wide-ranging measures that we took at a very early stage to ensure the continuity and quality of care for our patients continued to bode well for Fresenius Medical Care. We were able to maintain operations in our more than 4,000 dialysis clinics worldwide without significant interruption and to minimize the impact on our staff and patients. This was made possible thanks to the use of telehealth solutions which were used where necessary in order to replace in-person experiences with the virtual experience. The pandemic has affected our business in several different ways. The COVID-19 pandemic affected people with advanced kidney disease. The severity of this illness generated an increase in hospitalizations and slightly higher mortality for those that were infected with the virus. In addition, the pandemic caused an interruption in our routine medical visits and necessary hospitalizations for many patients with advanced CKD moving into end-stage renal disease and treatment. These two factors have impacted the year-on-year growth for the second quarter. In the Asia-Pacific region, postponement of elective procedures due to the pandemic impacted the care coordination business in Australia. Our cure clinics are one of the examples where we saw a sizable impact on the business with little to no help from the local governments. On the other hand, we saw that the pandemic increases the interest in awareness for home dialysis, and we'll talk more about our strategic approach to home and what we're seeing through the second quarter. Turning to slide six, we did continue to grow robustly in the quarter. In the first half, we provided more than 26.5 million treatments to approximately 348,000 patients and more than 4,000 clinics worldwide. The rather low growth of our clinical infrastructure is the result of a strong focus on home, as well as the effect of closed and sold clinics in Asia Pacific, which we discussed in the previous quarter, Q1. Moving to slide seven, quality patient care is the most important factor in our business, and it is the top priority of our sustainability agenda for 2020 and beyond. We are committed to provide the best possible outcomes for our patients on a worldwide basis. I'd like to focus on one of the KPIs that is the number of days patients have spent in the hospital. You see some improvement as we go across these numbers. We'll have to see what the future quarters bring, but we are happy and pleased that we are able to make some contribution to fewer hospital days relative to cost to healthcare systems around the world. Turning to slide eight. We did see solid revenue growth and exceptionally strong income growth in the second quarter. Revenue grew by 5% with solid organic growth of 4.4%. We delivered both in the services business and the products business. Our operational strength continued despite the impact of COVID-19. Operating income increased by 26% and net income by 38%. Based on a strong underlying business performance, the increase was largely due to the recovery of COVID-19-related negative effects that we experienced in the first quarter, and our ongoing cost-saving measures contributed to our ability to overcome this. Helen has more detail for you in her prepared remarks. Turning to slide nine, even during the pandemic, we achieved an overall organic growth of more than 4%. We had strong contributions from North America at 4% and EMEA at 7%. In the Asia-Pacific region, we saw muted development due to the mentioned negative impact of COVID-19 in the care coordination business in Australia. Now, turning to slide 10 and looking at the services business, we delivered robust growth in our healthcare services business despite COVID-19 impacts. and this is because of our global footprint and our early implementation of pandemic procedures. Overall, the increase in revenue was supported by solid organic growth. We saw a higher number of COVID treatments that were provided in hospitals, some delays in referrals, and a slightly higher mortality rate. This had an impact on the development for the same market treatment growth, which was at 2%, a bit lower than first quarter. In North America, growth in both dialysis services and care coordination contributed to 6% revenue increase. We had a significant step up in the care coordination business that we'll talk about later in the day. In EMEA, we realized the solid organic and sane market growth resulting in 4% constant currency growth. The postponement of elective procedures due to the pandemic resulted in a negative organic growth rate in care coordination in Asia Pacific. The effect of closed and sold clinics technically was more pronounced and impacted the organic growth in dialysis care. If you'll turn to slide 11, it's my final slide. The products business continued to deliver very solid reported growth. The overall revenue increase amounted to 6%. It was mainly driven by higher sales of acute products in North America and in Europe, Middle East, and Africa, as well as higher sales of our in-center disposables. This was partially offset by lower sales of in-center machines in Asia Pacific and North America. Revenue from non-dialysis products increased significantly year on year. mainly due to higher sales of our Novolung machine, which can be used to treat COVID-19 patients while they are in the intensive care unit. This is the conclusion of my prepared remarks, and it's my pleasure to turn it over to Helen.