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 Fresenius Medical Care Earnings Call Report on the first quarter 2022. 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 first quarter in 2022. We appreciate you joining today to discuss the performance of the first quarter and, of course, of the outlook. 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 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 are aware that today is a busy reporting day with three German companies in the sector reporting. Therefore, we will try to keep the presentation short and leave time for questions. As always, we 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. Unfortunately, we are limited to 60 minutes for the call. With us today, unfortunately for the last time, is Reece Powell, our CEO and Chairman of the Management Board. Reece will give you some more color around the strategy and business development, and of course, also with us is Helen, our Chief Financial Officer, Chief Transformation Officer, and Deputy CEO, who will give you an update on the financials and the outlook. Before I hand over, I want to make sure that you all have in your diaries our next expert call on June 28th with Frank Maddox, our Chief Medical Officer, and Joe Turk, who has our home activities and is former president of Next Stage Medical. They will provide an update on how we are accelerating home growth. Further information is available on our website.

Rhys, the floor is yours. Thank you, Dominic. Welcome, everyone. Thank you for joining our presentation today. You will have seen the announcement yesterday, and Dominic has already mentioned that this will be my last earnings call, as I will now shift my focus to the handover for the remainder of this year. I think now I'm looking at somewhere around 41 or 42 earnings calls for me in the role as CEO and Chairman. I have thoroughly enjoyed my time discussing FMC with you, trying to answer your questions and guide you as best that we could as we took the journey through these 10 years together. Before I start with the quarter, I'd like to say a few words on the war in Ukraine. I am both touched and proud of our team there. Our colleagues are relentlessly continuing to provide for our patients, even risking their lives to continue to administer dialysis treatments under the most difficult of circumstances. It is admirable and it's heroic, and I'm very proud of these people. Although it has less focus in the media, the pandemic continues to be present, and the highly infectious Omicron variant has put a great deal of strain on our organization. I continue to be grateful to our entire team and our frontline workers in the clinics, our production sites and distribution centers for their continued, tireless work in what is an extraordinary situation for more than two years now. As flagged in our last earnings call in February, we were expecting a weak start into the year, driven by high excess mortality, as well as inflationary pressures in all spending categories for the company. January excess mortality was even higher than expected, and while we did see very significant declines in February and March, overall first quarter excess mortality was higher than we had assumed. Omicron affected us in multiple ways, particularly in our health care services business in North America. I will show you later Omicron caused infection rates to spike high in our patient population, and so we once again had to increase the number of isolation clinics, which led to additional labor costs in the forms of extra shifts, overtime, and hazardous pay. Due to its highly infectious nature, we had record absenteeism and sick leave as our employees either had to isolate for themselves or take care of their family members. Therefore, we had to employ more temporary and traveling nurses and other temporary staff in our services business. Additionally, we were short of employees in some of our manufacturing sites, as well as our delivery drivers, resulting in increased supply chain costs for distribution and logistics, in particular, in the products business. Additionally, we all see higher oil and energy prices leading to increased raw materials and logistics costs. We have a sizable negative effect, particularly on our product margins, which are already under inflationary pressures. Despite these significant adverse developments, we continue to progress in our FME25 transformation. We are also encouraged by the strong decline in COVID-19 infection rates that we have recently observed in February and March of the quarter. Consequently, we confirm our financial targets for 2022. We also continue to make good progress in several important strategic areas. The announced merger between Fresenius Health Partners, Interwell Health, and Cricket Health in March is an example of how we are executing on our 2025 growth strategy while also leading the market in value-based care. The new company, which will be fully consolidated by FMC and operate under the Interwell Health brand, will manage 100,000 lives. With the merger, we now target for 2025 to engage and manage the care of more than 270,000 people with kidney disease and manage roughly 11 billion US dollars of medical costs. We expect the transaction to close in the second half of this year. Despite the unprecedented and not improving labor shortage situation, and the resulting lack of training capacity for our home dialysis business, I'm glad to say that we've managed to keep our share of U.S. treatments in a home setting at a high level of slightly more than 15% through the first quarter. And as you know, when we need nurses out of our training facilities to go into clinics to provide treatments, we will do that, and that does put pressure on our training capabilities. We are making good progress on our sustainability journeys. As you know, we began the year by setting our global climate targets. We are now working on continuously implementing our target roadmap, and we will regularly report on our progress. We have also increased transparency on our sustainability activities. Our recently published non-financial report outlines the progress of our global sustainability program and highlights focus areas and measures we are taking to support our patients, our people, and the environment. This annual sustainability update includes more than 200 sustainability performance indicators. Turning to slide five. As you well know, we are very mission-focused at Fresenius Medical Care, and our number one priority is delivering quality outcomes for our patients. During the first quarter, we delivered approximately 13 million life-sustaining dialysis treatments to more than 343,000 patients. The absence of growth in the number of patients and treatments directly reflect the impact of the COVID-19 pandemic. While the number of clinics increased by 1% year over year, mainly due to acquisitions, it is important for you to note that sequentially the number of clinics has declined from Q4 2021 through the first quarter. Turning to slide six. This slide highlights our key quality indicators, which show the stability of clinical results in our patients receiving their treatments, as there is no visible COVID-19 impact on the quality that we are delivering. 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 throughout the pandemic. I would ask you to note on the bottom of the chart, you can see we have now moved to days in hospital per patient year on a global basis. This is new. It's something I promised to do for you before I retired, and so let it be made known we got this done. And you can see the first quarter of 21, and then we've made some progress in the first quarter of 22. Moving on to slide seven. This slide compares the development of COVID-19. Match the emergence and spread of the highly contagious Omicron variant. We are extremely relieved to see that the infection rates have since come down almost as fast as they had previously spiked. We're back to the levels seen before the Omicron-related surge. With the substantial spike in confirmed infections in the month of January, we once again had to increase the number of isolation clinics, leading to additional labor costs in the form of extra shifts, overtime, hazardous pay. With 800 clinics, we had more than three times as many isolation shifts at the peak of Omicron in January than we had at the end of March when we were at 250 some odd isolation clinics. tremendous impact in that period of time with the infection. Turning to slide eight, COVID-19 related excess mortality significantly increased in January. Even though excess deaths came down strongly in February and March, excess mortality among our patient population increased to around 2,300 during the quarter. And thus, it did exceed the assumptions we had. However, The assumed full-year excess mortality range of 5,000 to 6,000 seems realistic to us at this point in time. Globally, since the start of the pandemic, excess deaths have accumulated to approximately 22,600. We expect that excess mortality in the second quarter will reflect a recently observed significant drop in our patient population's infection rates. Turning to slide nine, during the first quarter, we realized revenue growth was 3% in constant currency, supported by positive growth in both health care services and products. Unfortunately, that growth did not fall through to the bottom line, mainly due to significant increases in labor costs, further compounded by Omicron-related costs, as well as the significant costs we incurred in our supply chain in the first quarter. In addition, increased energy, raw material, and logistics costs are weighing on our product margins during the quarter. These substantial adverse developments were partially offset by an earlier than planned partial reversal of an accrual related to a revenue recognition adjustment for accounts receivables and legal dispute. So with that, we were able to deliver the quarter in line with our original expectations. We had assumed in our guidance support from the U.S. Provider Relief Fund for our wholly owned entities would help with the compounded labor costs, but those funds have not yet been distributed, and therefore they did not offer us any opportunity in the first quarter. On a net income, excluding special items, declined by 23% on a constant currency basis. During the quarter, we had 33 million euros in FME25-related costs and a €22 million negative impact related to the war in Ukraine. Both numbers relate to operating income and are reported as special items. And now it's my pleasure to turn it over to Helen. She'll walk you through the financials and the outlook.