Fresenius Medical Care AG

Thank you, Alice. Good morning, good afternoon, or good evening, depending on where you are. I would like to welcome you to our earnings call for the second quarter of this year. We appreciate you joining us today. As always, I do 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. The call is scheduled for 60 minutes. We have prepared a presentation and will have time for your questions after the prepared remarks. As always, we would like to limit the number of questions to two in order to give everyone the chance to ask. In case there are further questions and time left, we will gladly offer a second round Let me now welcome Helen Gieser, our CEO and Chair of the Management Board, and Martin Fischer, our CFO. Helen will begin the presentation with an update on the major developments, and Martin will provide a review of the financial performance in the second quarter. Afterwards, we are happy to take your questions. With that, Helen, the floor is yours.

Thank you, Dominic. Welcome, everyone. Thank you for joining our presentation today and for your continued interest in Fresenius Medical Care. I will begin my prepared remarks on slide four. We continue to deliver on our commitments while executing against our strategic plan and working through the company transformation and turnaround efforts. I am proud of the progress we are making in realizing improved financial performance and progress towards our 2025 group margin target. While there is clearly more work to be done and external factors to address, overall, we have made important progress to strengthen our business and position ourselves for sustainable, profitable growth over the medium and long term. And none of that would be possible without each and every one of our employees around the globe, for which they have my utmost gratitude. Within Care Delivery, while still muted, we saw a sequential improvement in same market treatment growth in the U.S. with more promising developments in June. Adjusted for the exit from less profitable acute care contracts, same market treatment growth in the U.S. was flat. During our previous earnings call, I mentioned that we were seeing higher mortality levels at the start of the year in the U.S. than we anticipated. Through the second quarter, we have seen a continued increase elevated trailing 12-month mortality, and we saw an extended influenza season and are seeing increased COVID cases. This translated to a 60 basis point higher mortality than we had expected at the point of giving guidance. We are closely monitoring the development of mortality. In parallel, we continue to work on the volume pieces that are in our control. such as streamlining the admissions process and reducing mistreatments. Value-based care remains an important element of our strategy in the U.S., with its focus on improving patient outcomes and reducing total cost of care for the industry. In the second quarter, our value-based care book of business contributed with revenue growth and slightly improved its profitability. Through the first half of the year, value-based care was a positive contributor to the operating income. On the international side, we continue to move at pace on our portfolio optimization plan. In the second quarter, we closed the previously announced divestments of Kira Day Hospitals Group in Australia and our dialysis clinic networks in Chile, Ecuador, Sub-Saharan Africa, and Turkey. The divestitures of clinic operations in Curacao, Guatemala, and Peru were closed in July. The refocus on our high performing core international countries is supporting a sustainable, profitable growth development. Last quarter, I spoke about the important leadership changes in care delivery, and this was an important step to further enhance our operational excellence. Our main focus is to analyze, benchmark, streamline, and implement our major operational processes to improve efficiency, speed, enhance the patient experience and reduce costs while maintaining our already high standards of patient safety and quality. Finally, within care delivery, our 2025 margin outlook assumes moderate reimbursement increases. We would like to see a higher reimbursement increase for our services than the proposed 2.1%, in particular given the level of inflation that the industry is facing. However, that increase is within our assumption. and we are currently providing our comments to the draft rule. Turning to care enablement, I'm very proud of the progress we continue to make here. Driving this positive margin development is continued execution of targeted pricing initiatives. China continues to be an important and attractive market for us, even taking into account the impact of volume-based procurement. We minimize the VBP impact by restructuring our sales channel and the mix of products offered in the respective tenders. We have localized production where it gives us an advantage or the right to play in profitable market segments. VBP has now been introduced in the first province in June and had a limited impact on our earnings development in the second quarter. In the second half, we expect a low to mid-double digit million euro impact on our earnings development. which is assumed in our outlook for the year. While FME25 savings benefit both segments, at this stage in the program, a significantly greater proportion of savings are planned to come from care enablement. To this extent, the optimization of our supply chain and manufacturing footprint remains in focus. Another priority for care enablement is preparing for the rollout of high-volume HDF in the U.S., with the introduction of the 5008X machine. I'm excited to report that as part of the preparation, the first 5008X patient treatments in the U.S. were successfully performed in June. Part of the rollout will include education on high-volume HDF as a treatment modality. For our capital markets audience, Dr. Frank Maddox, our Chief Global Medical Officer, will host an educational expert call on high volume HDF from a medical perspective on September 16th. Information about the call is available on our investor relations website. Moving to slide five. In the second quarter, we delivered organic revenue growth of 2% with positive contributions from both segments. The increased operating income and improved margin were mainly driven by continued momentum in our care enablement business. This was supported by strong contributions from the execution of our FME25 program. FME25 contributed 57 million euro in additional savings. With this, we are year-to-date already above the low end of our full-year FME25 savings target range of 100 to 150 million euro, and I can say that we expect to hit the top end of the range. In line with our disciplined financial policy, we reduced our net financial debt and improved our leverage ratio within the lower end of our net leverage target corridor, to which Martin will come back later. Underscoring our commitment to sustainability and reducing our CO2 emissions, we announced that we had entered into virtual power purchase agreements for renewable energy during the second quarter. This is an important step toward our goal of becoming a carbon neutral in our operations by 2040. VPPAs do introduce a degree of volatility that can impact earnings. In the second quarter, VPPAs had a positive mid-single-digit million euro impact on earnings, which was allocated to both segments. Given our year-to-date performance through the second quarter and development of our assumptions to date, We are confirming our full year 2024 outlook. I will now hand over to Martin to walk you through the second quarter financial performance in more detail.

Thank you, Helen, and welcome to everyone on the call. I will recap our second quarter financials beginning on slide seven. In the second quarter, we recorded organic revenue growth of 2%, supported by both care delivery and care enablement. On an outlook base, revenue grew by 0.1%. Revenue development was negatively impacted by the successful execution of our portfolio optimization plan. The divestitures realized during the second quarter accounted for 170 base points of growth. During the second quarter, operating income on an outlook base improved by 8%, driven by the performance of care enablement. This resulted in a meaningful margin improvement of 70 basis points, bringing us closer to our 2025 margin target band. divestitures realized during the second quarter had a neutral effect on operating income development. Next on slide 8. This slide provides an overview of the 70 basis points group margin improvement on an outlook base. On the left, you see how we get from the second quarter 2023 operating income to the starting point of our outlook base by adjusting for special items and divestitures. In the middle, the chart shows the quarterly margin contribution by segment. The decrease in profitability for care delivery from a high prior year basis was positively offset by meaningful increase in care enablement earnings contribution, which I will elaborate more in the subsequent slides. Corporate also had a positive impact driven by FME25 savings as well as positive phasing of insurance costs. On the right, special items on the quarter include a positive humor site remeasurement effect, which was offset by costs related to FME25 and the legal form conversion, as well as effects from portfolio optimization. Turning to slide 9. Care delivery revenue decreased by 1% on an outlook base, despite an organic growth contribution of 2%. As you might recall, we decided not to adjust our numbers in the current financial year for the divestitures we are closing in this year, and to absorb this impact in our guidance range. Therefore, this decline reflected the impact of divestitures realized in the first half of this year, which had a negative 240 basis point impact on the revenue of care delivery. In care delivery U.S., revenue increased by 1% on an outlook base, driven by growth in our value-based care business, reimbursement rate increases, and a favorable payer mix impact. As Helen described earlier, elevated mortality continues to weigh on the U.S. volume development, resulting in a sequentially improved but flat same-market treatment growth when adjusting for the exit of less profitable acute care contracts. In the second quarter, we recorded an operating income decline of 7% compared to the high prior year basis. As expected, this resulted in a sequential margin improvement against the first quarter of this year. Our earnings development was strongly impacted by labor and inflationary cost increases, both developing in line with our expectations for the full year. In the second quarter of 2023, we had comparatively low level of labor costs, with still a large number of open positions that resulted in a tougher base comparison. For 2024, we are still assuming a net 3% increase in labor expenses due to higher wage inflation and staffing requirements. This is in line with our expectations. Inflationary costs in care delivery largely relate to higher costs for medical supplies. Also, business growth was negatively impacted by elevated bad debt reserves due to higher AR associated with the vendor change post the cyber incident at Change Healthcare. Despite our flat volume development in the U.S., this was partially offset by positive business growth driven by favorable pricing and payer mixed developments, as well as further FME25 savings. Turning to slide 10. In the second quarter, care enablement revenue grew by 3% on an outlook base. This was supported by 3% organic revenue growth and primarily driven by continued pricing momentum. On an outlook base, operating income for care enablement quadrupled compared to the prior year basis. This increase was driven by business growth, again, reflecting the positive pricing development, savings from FME25, compensating for inflationary cost increases and negative foreign currency exchange effects. As mentioned by Helen in the second quarter, volume-based procurement in China had a slight impact on care enablement business growth due to the rollout of the first province. As assumed in our outlook, the impact from volume-based procurement on our operating income will be more pronounced in the second half of 2024. The meaningful second quarter margin increase for care enablement represents an important step forward towards our 2025 margin target band. The performance in the first half of this year positions us very well to deliver against our plans. Turning to slide 11. The decrease in our operating cash flow was primarily impacted by the timing of two developments. In response to the cyber incident at Change Healthcare in the first quarter, We made the decision to change vendors as a measure to mitigate this risk in the future. Although the standing up of new providers resulted in a delay in collection in the second quarter, the cash impact is expected to be recovered in the third quarter. And we have made already significant progress on this in July. Our operating cash flow development was also negatively impacted by the phasing of federal income tax payments in the U.S. We do continue to enforce our strict financial policy and use divestment proceeds for further deleveraging. Total debt and lease liabilities were reduced not only compared to the second quarter of last year, but also compared to the end of last year by €470 million. Also, total net debt and lease liabilities decreased. Our net leverage ratio improved to 3.1%. approaching the lower end of our self-imposed target corridor of 3 to 3.5 times. We also paid out the annual dividend in the second quarter. In line with our 2025 strategic ambitions and current capital allocation priorities, deleveraging remains our top priority. We continue to execute against our portfolio optimization plans, and proceeds will continue to be used to further reduce debt. I will now hand over to Helen to finish with our outlook.