Fresenius Medical Care AG

Ladies and gentlemen, thank you for standing by. I'm Natalie, your chorus call operator. Welcome and thank you for joining the Presidious Medical Care Earnings Call on the fourth quarter and full year 2021. 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 touchdown 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.

Thank you, Natalie. As mentioned by Natalie, we would like to welcome you to our earnings call for the fourth quarter and for year 2021. We appreciate you joining today to discuss our recent performance and our outlook. Some of you might have already joined our press conference earlier today. I will, as always, 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 our 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 would like to limit the call to 60 minutes because you have a long day already, I guess. Therefore, we would like to restrict the number of questions in the Q&A again to two in order to give everyone the chance to ask questions. Should there be further questions in time left, we can go a second round. It would be great if we could make this work. With us today is, of course, Reese Powell, our CEO and Chairman of the Management Board, and Helen Gieser, our Chief Financial Officer and Chief Transformation Officer for FME25. Reese will give you some more color around the strategy and business development. Helen will provide to you a detailed update on the financials as well as on our targets for 2022. And with that, I will hand over to Reese, the floor is yours.

Thank you, Dominic. Welcome, everyone. Thank you for joining our presentation today and for your continued interest in our company. I would like to start with thanking our entire team at Fresenius Medical Care, our frontline workers in the clinics, production sites, and distribution centers for their continued tireless work in what is an extraordinary situation that we've encountered over the past two years. It is inspiring to see the amount of energy mobilized by our employees for our patients. I'll begin my prepared remarks on slide three. In 2021, we delivered our financial targets for the year, despite a stronger than projected headwind from COVID-19 in the second half of the year, as well as increasing macroeconomic inflationary pressures relating to both labor and raw materials. We all know that the pandemic and its impacts cannot be forecasted. We expect these challenges will continue to be a significant headwind in 2022. we will have to work with our best assumptions as we've done previously. During the fourth quarter, COVID-19-related excess mortality continued to accumulate, but at a lower level than the spike we saw in the third quarter. We continue to execute on our strategic priorities, and I look forward to sharing the progress we have made with you later today. Finally, we will propose a dividend of Euro 1.35 at our annual general meeting in May. Turning to slide five, the impact of COVID-19-related excess mortality on our patient base has been an unprecedented development for us. In the near term, this is a challenge for our business that we must manage. At the same time, the key underlying drivers of our core dialysis business for the medium to long term remain solid and have not changed. As the global population continues to age, along with increasing incidence of hypertension and diabetes, we project more than 6 million people will require dialysis by 2030. We continue to see solid new patient starts, confirming that these drivers remain intact and indicates the potential for a strong rebound in growth once COVID-19 is once and for all behind us. Turning to slide six, we continue to believe that our midterm strategy prioritizes patient needs and quality of care, aligns with the key drivers and developments for our industry, and positions our business to deliver attractive, sustainable, profitable growth over the medium term and beyond. We are executing on this strategy despite the challenges with the pandemic. Within the renal care continuum, our goal is to extend our patient reach by treating patients holistically as they move through different stages of kidney disease and different treatment modalities. In the past year, we have expanded our treatment of CKD patients and appointed a head of transplantation medicine. This is a newly created position within our global medical office. In critical care, We have recently expanded our portfolio by offering an innovative adsorber, which can be operated with our acute equipment. And with Unisite, we have established a vehicle that allows us to extend into CKD therapy with regenerative medicine approaches. Turning to slide seven. On this slide, we highlight two key examples of how we are not only delivering on our strategic priorities but also leading the market in doing so. As the leader in value-based care, we are able to build on our experience from having supported 500,000 value-based care program participants and managed risk for more than 20 billion U.S. dollars in medical expenses over the past seven years. We have also built the largest database of CKD patients in the industry. Today, we manage care for approximately 80,000 CKD and ESRD patients in both private and public value-based care arrangements. This includes approximately 24,000 ESRD and 28,000 CKD patients that are part of CMS's kidney care choice models that started this January. In 2022, we expect to generate approximately $1.1 billion in revenues and manage more than $6 billion in medical costs. We expect to realize an operating income margin of around 1% of medical costs under management on top of the operating income we generate from the related dialysis treatments that we perform. We are also excited about the progress we have made and the growth potential we see for home dialysis. After achieving our 15% plus target for home dialysis treatments in the U.S. a year ahead of schedule, we have now set ourselves an aspirational target of 25% of treatments at home by 2025. We managed this growth during challenging times and are encouraged by the potential for further growth, especially once the pandemic and labor shortages behind us, and we are able to put full force behind training the growing pool of patients that are interested and desire home dialysis. Moving to slide eight. Our commitment to sustainability is integral in our strategy and is another area where we continue to demonstrate progress. We are consistently advancing our global sustainability activities with the goal to drive the integration of sustainability principles into business activities and assume even greater accountability. In 2021, we've reached further important milestones of our global sustainability program in areas such as patients and employees, environmental protection, combating bribery and corruption, and respect for human rights. We measured on a global level how we are progressing, how satisfied our patients are with our services, and the level of engagement of our employees. Moving to slide nine, combating climate change is a challenge for all of society, and we are taking action to be a part of the solution. The Management Board of Fresenius Medical Care set the goals for our company to become climate neutral in our operations by 2040 while we continue to grow. To achieve this ambition, we have developed a decarbonization roadmap and set our targets in line with a 1.5 degree centigrade science-based scenario. A major milestone will be achieving our mid-term target to reduce our absolute scope one and scope two emissions by 50% by 2030. The ultimate lever for carbon dioxide reduction here is the transition to renewable electricity. Our roadmap to climate neutrality will be a multi-year journey, and we are at the beginning. We will continuously review opportunities to improve, We will assess options from investing in energy efficiency and opportunities that come along with new technologies. We will continue to look at the entire lifecycle of our product portfolio. We will report on progress each year. We will continuously review the relevant impact of Scope 3 emissions or inclusions in our targets at some point in our future. Our carbon management is part of our global sustainability agenda and closely linked with our company strategy for long-term sustainable success. Moving to slide 10. Last year, we announced FME25 in the transformation of our operating model in order to better execute on our strategy 2025 while creating shareholder value and establishing the basis for sustainable, profitable growth. beyond 2025. We have taken some important steps toward transitioning to our new operating model with only two future global operating segments. Helen, in her capacity as Chief Transformation Officer, will provide further details on how FME25 is advancing later in this presentation. Moving to slide 12. During 2021, we delivered approximately 53 million life-sustaining dialysis treatments to approximately 345,000 patients. The decrease in the number of patients and the number of treatments directly relates to the tragic impact COVID-19 has had on the lives of our patients. The 2% clinic growth mainly relates to growth in North America. due to acquisitions and newly opened clinics initiated prior to the onset of the pandemic. Turning to slide 13, we continue to see stable anemia as well as bone and mineral metabolism control, demonstrating that our patients are receiving consistent, high-quality dialysis care even during this terrible pandemic that we continue to deal with. Looking to slide 14, This slide compares the development of COVID-19 infections worldwide to the number of cases we have seen across our Fresenius medical care patient population. In the most recent and very significant surge in January, we have seen very high numbers of COVID-19 cases matching the emergence and spread of the Omicron variant. The Omicron variant is highly contagious, albeit with less severity than prior variants or the original virus itself. We know that vaccinated and boosted patients suffer less risk of severe or catastrophic results from COVID-19. We are continuing to advocate that all of our patients be vaccinated. We have seen increases in vaccination rates since our third quarter results at the beginning of November. At the end of January, approximately 80% of our patients in the United States have been at least partially vaccinated. and 57% of all fully vaccinated patients have already received their booster. On a global basis, approximately 81% of our patients have been at least partially vaccinated, and 58% of all fully vaccinated patients have already received their booster. Turning to slide 15. During the fourth quarter, COVID-19-related excess mortality among our patient population declined to around 1,800 excess deaths. Globally, on a 12-month basis, excess deaths amounted to approximately 10,000. Pandemic to date, 20,000 deaths have occurred approximately. And again, pandemic to date, 20,000 deaths. Given the four to six week lag time from infection to passing away, as well as the delay in recording of deaths that occur outside our facilities or outside of our control, it is too early to have a concrete data plan on the development of excess mortality so far in 2022. We all know that the pandemic and its impacts are not predictable, so we can only make assumptions. We currently assume For the full year 2022, we could see as many as 5,000 to 6,000 excess deaths globally. With the spike in cases related to the Omicron variant and the vulnerable nature of our patients, we expect excess mortality in the first quarter could be rather high. Turning to slide 17. In the fourth quarter, we achieved 3% revenue growth in constant currency. supported by positive growth in both health care services and products. Our net income, excluding special items, declined by 32% on a constant currency basis. Costs related to FME25 will be treated as a special item, and during the fourth quarter, we had 43 million euro in FME25-related costs pre-tax. Our fourth quarter net income included a negative net COVID-19 effect of 76 million euros. We continue to face macroeconomic inflationary pressures related to both labor and raw materials. We see in labor cost development in the U.S. is unprecedented at this time. In my 25 years with Fresenius Medical Care, I never remember seeing a market as hot, if you will, or as turbulent as we see it today at this time. Turning to slide 18. For the full year 2021, we delivered revenue of 17.6 billion euro, reflecting 2% growth in constant currency. our net income excluding special items declined by 23% on a constant currency basis. We were able to achieve the lower end of our guidance range despite some unanticipated and substantial headwinds, including a significantly higher than expected impact from COVID-19, a higher than expected wage inflation, and the negative effect from the fair value re-measurement of our investment in Humacyte that accounted for around 40 million Euro for the full year 2021. Please allow me one comment regarding 2022 so that you do not have to waste one of your two questions to ask me about it. For the first six weeks of this year, the convergence of ongoing and well-documented worker Raw material and transportation shortages with historically high absenteeism rates due to the Omicron variant presented significant challenges for FNC and the industry. This impacted our ability to meet customer demand for dialysis concentrates and had a knock-on effect with our disposable supplies for certain geographies within the United States. We have worked with all providers in the United States to prioritize deliveries in order to build up inventories in provider clinics and within our own warehouses. Patient care remains the highest priority for us as we work to navigate this unprecedented and challenging situation. We applaud the collaboration among all kidney care providers in the United States, which ensured that patient care remained the highest priority as we worked together to navigate this unprecedented and quite challenging situation. Moving to slide 19. At our upcoming annual general meeting in May, we will propose a dividend for 2021. The proposal targets to ensure continuity of our dividend payments despite the unprecedented but temporary effects of COVID-19. We believe that the fundamental drivers of our business and growth remain unchanged, and the experience that we are seeing with COVID is temporary and it's lasting. This underscores our commitment to delivering shareholder return. At this point, I'd like to turn it over to Helen, and she'll take you through the financials as well as our outlook for 2022.