Fresenius Se & Co

Hello, everyone. Welcome to our full year in Q4 2024 earnings call and webinar. The presentation was emailed to our distribution list earlier today and is available on Fresenius.com. On slide two of the presentation, you'll find the usual safe harbor statements, and less stated otherwise, we'll comment on our performance using constant exchange rates, or CER. Today, I'm joined by Michael and Sarah, who will take you through the details of another strong performance. The call will last approximately one hour, with the presentation taking around 35 minutes, and the remaining time for your questions. To give everyone the chance to participate, please limit your questions to one to two in the first instance. We can always come back for a second round if needed. And with that, I will now hand the call over to Michael. Thank you, Nick.

A warm welcome, everyone. Hello from my side. Sarah and I will review our 2024 operational and financial highlights. We will also go into more detail on our individual businesses within CABI and Helios. The company is at an exciting juncture as we focus now on the next chapter of Future Fresenius, what we call Rejuvenate, showing how we will move to the next level of financial and operational performance geared by an innovation mindset. Of course, we have set aside plenty of time for your questions, so why don't we just get started? Well, Fresenius had a great fourth quarter and full year 2024. This performance comes from all the hard work we have done to ensure Fresenius remains a leader in global patient care. The last two years were all about simplification, structural and financial progression. We sharpened our focus and accelerated performance. We successfully concluded several important strategic portfolio measures, including divesting non-core assets. We completed the deconsolidation of Fresenius Medical Care, and we exited vomit. These decisive steps were stringently executed and demonstrate our commitment to deliver value. We made the organization better, increased transparency, delayed management levels, and set rigorous ambitions. We increased both transparency and accountability, creating a performance culture. Achieving more than $470 million of structural improvement in our cost base, we've consistently over-delivered. Fresenius is now a simpler, more focused, and stronger company. Our 2024 results show consistent progress quarter on quarter, year on year. Our momentum continues with a strong finish to the year. We achieved our twice-upgraded 2024 guidance, delivering high single-digit organic revenue growth, with EBIT growing even faster in double digits. Our growth vectors, MedTech, Nutrition, and BioPharma, were the main drivers with 16% year-over-year revenue growth, with the latter in particular with 76% year-over-year growth, increasing its contributions. And this pattern will accelerate as we move into rejuvenate. Helios delivered consistent revenue performance. I think the progress we've made is meaningful and our businesses continue to deliver strong organic growth and better margin expansion. Our commitment and focus on better returns are paying off with the improvement in EPS, especially remarkable from a 13% decline in 2022 to 14% EPS growth in 24. It is a similar story on cash and deleveraging. We finished 2024 at the lower end of our leverage corridor, something the company did not manage for seven years. And now we're increasing our ambition with a new leverage target. This new range reflects us being a stronger company and our financial stability with strategic flexibility. Our future Fresenius transformation has created significant value, i.e. shareholder return. The structural changes we've implemented have made us faster, adaptive, and more robust. Higher margins, more cash, lower debt, these all have created value. and we are happy to see that the market is recognizing our progress. This is also important and a critical development for the increased company morale, as our team now sees the outcome and benefit from their hard work. Looking ahead, we see even more upside. We have a great company position in attractive markets with strong secular growth trends, and we will keep this momentum going. Historically, Fresenius has delivered consistent dividend growth, which was kind of interrupted last year by legal restrictions due to the receipt of the energy relief payments. However, this year, I am pleased to announce that we will resume our dividend. We're proposing one euro per share for 2024. This is a strong increase over the dividend where we left off and demonstrates our improving financial strength and our commitment to delivering shareholder value. Moving forward, we'll adjust our dividend policy in line with our capital allocation priorities. Sarah will go into more detail a little later. Now let's take a look at Fresenius' core assets. Our healthcare assets are strong and address a wide spectrum of current and emerging healthcare needs. The impact of our growth vectors continues to gain relative weight in our activities. This has exactly been the plan when Vision 2026 was introduced in 2021. This expands both our top line and margins. Over the past two years, our group EBIT margins have improved by 180 base points, a clear testament to our strategy. This trend will continue fueled by the increasing contribution from biopharma, the improving medtech margin, and newly launched nutrition products. Our strong care delivery platforms provide predictable, stable, and reliable cash flows, strengthening our balance sheet. These developments are in line with what we had in mind when we initiated Future Fresenius. Our strategy is unfolding as planned, underpinned by a strong high single-digit compound EBIT growth rate of 8%, and even better, a double-digit growth for the full fiscal. It's not a secret that the worldwide macroeconomic environment is changing rapidly. Global markets have become more volatile and trade dynamics are shifting. However, we are well positioned to navigate and potentially benefit from these challenges with a broad and balanced business and regional footprint. While we serve all markets, we have regional and local strengths. In the U.S., for example, shortages are known to be an issue, and 70% of IV drug units shipped by CARBI in the U.S. are listed on FDA's essential medicines list. This is a system-critical role, so we do play a major part in ensuring healthcare security in the country, delivering significant value and ultimately benefit for patients. We consider ourselves a local player in the U.S. with a team of more than 4,000 employees across nine sites. We have invested nearly a billion over the past 10 years to further expand our local manufacturing and supply footprint and capabilities. More than 70% of our pharmaceuticals for the U.S. are produced in the U.S., but it's not just about manufacturing. It's much more. We manage the entire supply chain from logistics to warehousing. We have also invested in our distribution network, making us a reliable player in the system. Affordability is key, especially when it comes to IV generics and biopharmaceuticals. Biosimilars, which come at a significantly lower price than biologics, are vitally important in improving access to cutting-edge treatment for acute and chronic diseases. We see ourselves as the solution to rising healthcare costs. A few words on China. The APEC region remains a strategically important market for Fresenius. Our short-term view on China remains unchanged. There are still challenges, mainly due to a slower economic situation, the impact from the national volume-based procurement, particularly relevant for Cato, which I will discuss in a moment, and the hospital budget control. However, we are seeing signals in the environment with recent news suggesting that healthcare practitioners, physicians, and doctors are becoming increasingly concerned about the impact of NVVP and other policies on direct patient care. Naturally, we are closely monitoring development, but still do not anticipate a substantive change to the operating environment in the short term. With our global healthcare assets, we have great confidence that our sales and margin momentum will continue. Our next strategy phase, Rejuvenate, will lead us another step upwards in performance. At Kavi, there are many exciting growth areas in 2025. Pharma, a highly resilient and cash-generative business, has a steady launch agenda this year. Our U.S. site ramp-up continues to further increase our impact on fluid supply. With nutrition, we continue to leverage our strong market positions. The business delivers a creative margins and we are driving growth with further innovations and product rollouts, which equally means additional investment. On China and keto, which is an important product in this market, this is expected to be included in this year's, it's the 10th national volume-based procurement process creating volatility to the downside on our performance in Q2. But this impact is reflected in our outlook assumptions, and we are already preparing for this normal by optimizing our selling model. In addition, we are also launching new products, tapping into emerging and attractive growth opportunities outside the BBPP system. In MedTech, we continue to drive performance. The Ivan X pump rollout in the U.S. is progressing as planned. Excellent customer feedback so far, and we are pushing product innovations also in our transfusion and cell therapy business. Standout, the adaptive nomogram enables us, on average, to increase the plasma yield by 11% per donation, collecting more per donation while maintaining safe and effective operations. This innovation enables plasma centers to improve collection efficiencies. Great job here by the team in introducing this new software. Overall, we expect steady margin improvement for medtech and see significant potential for further margin expansion. On biopharma, we are beginning to see how powerful it can become. Its impact grows every quarter. We have a growing portfolio of molecules launched in different countries. We continue to work on further improving our operations by scaling and driving vertical integration with map science. We expect our biopharma business to reach more than a billion euro in revenues in the coming years, being accretive to our improved structural margin band of now 16 to 18% for this current fiscal, expect a meaningful leap forward, almost kind of at the margin range. Clearly, BioPharma is making a significant contribution to the structural margin improvement at CABI. Turning now to Helios, where our performance program for Germany is picking up steam. Like our efforts at CABI, these efficiencies are not one-time efforts. They're designed to permanently improve the structural and operational performance of Helios Germany. Kiran Salut is our digital frontrunner, and they will continue to lead in this space with further digital rollouts. I mentioned our growing biosimilars portfolio, and I want to give you more color on this one. The biosimilar market is expected to grow on average by 20% in the next five years, and we are well positioned with our portfolio to capitalize on this very market. On top of products already in the market, we have a broad and attractive pipeline with several new upcoming launches. Tyene is picking up month by month, and we expect an increasing contribution from the U.S. this year. I will share more details on the performance in a minute. Ustikinoma, with our brand name Otulfi, is expected to be launched shortly. We are progressing with several PBMs and health plans for placing Otofi on the formulary. And Denuzomab is also expected to be launched later this year. So when you look at the market size, that means global peak of the originator product, these are very attractive molecules. With MapScience, we have acquired a leading biopharmaceutical company that develops and manufactures biosimilars and biologics with end-to-end capabilities in state-of-the-art facilities in Spain and Argentina. MapScience is not only increasing our pipeline of molecules, but it also complements our service offerings with a highly attractive CDMO business. All this is also contributing in 2024 and beyond. Let's go to Tyen. Tyen continues with great momentum. We see improvement each month, In Europe, the uptake continues to be dynamic. Since last quarter, the market share has continued to improve, now with 22% in EU5 and all countries delivering market share gains. In the U.S., we're progressing well with the tie-in launch. We are now shipping tie-in to more than 100 payer-client agreements. Very, very encouraging. In addition, more than 90% of both pharmacy and medical benefits volume failed. is awarded under exclusivity overall, a great step forward into making healthcare more affordable in the U.S. Our tech transfer in our manufacturing facilities at MapScience in Lyon, Spain, as well as at CAVI in Graz, Austria, is progressing as planned, leading to a stronger, more competitive cost position and enhanced supply reliability as we move forward. You know, bringing all this together, Fresenius has changed for the better, I would say, delivering consistent and sustained improvement in revenue, margins, and cash. As we enter 2025, we're moving into the next phase of our future Fresenius journey, Rejuvenate. We're not going to stop, no, moving to the next level is our goal, setting higher ambitions whilst driving down debt further. We will see continued product launches and upgrades in patient care along our dedicated platforms. At Kabi, we've raised our margin ambitions, paced by performance improvements and the growth contributions from our biopharma business. At Helios, a dedicated performance program will generate productivity improvements and create a stronger business setup while reinforcing our commitment to highest quality care. Having finished 2024 strongly, we enter 2025 with confidence and expect 4% to 6% revenue growth and 3% to 7% EBIT growth. Consequently, EPS will grow accordingly. Over the past three years, we have created a simpler, more focused company delivering shareholder value. And in 2025, we will sharpen this focus even further, continuing our strategic momentum and revenue and earnings growth. Now let me hand it over to Sarah.

Thank you, Michael. A warm welcome also from my side. We concluded a successful year with another quarter of strong execution and delivery on all relevant KPIs. Revenue growth was driven by both operating segments with Kabi's growth vectors showing excellent performance. EBIT growth was mainly fueled by Kabi. Helios had the first quarter in 2024 without the benefit of energy relief payments as anticipated. As a reminder, we had significant support from energy relief in the fourth quarter of last year. Sorry, of 23 actually. Our strong financial progression is also reflected in net income. This, however, must also be viewed in the context of the softer prior year base. Both tax rate and interest expenses were in line with expectations for the full year. We maintained our strong cash generation with operating cash flow nearing 1 billion euros in the fourth quarter. Our rigorous cash focus helped us reach the lower end of our self-imposed leverage target corridor. That is an impressive reduction of more than 70 basis points since the beginning of the year. We are particularly pleased with the excellent EPS momentum delivered in 2024. The stringent execution of our strategy translates into significant financial progression. It becomes even more evident when looking at a multi-year comparison. Our strong bottom line performance was also driven by the great progress made with our cost and efficiency program. In 2024, we realized a strong €201 million in incremental savings at EBIT level. This brings our total structural cost savings to €474 million. Productivity measures will continue to strongly contribute in 2025 and beyond. One-off costs required to realize these are treated as special items as usual. Two years ago, we told you that Fresenius, from now on, will be geared towards returns. At the end of 2024, our return on invested capital is back in the self-imposed target range. However, at 6.2%, we are still not where we want to be and where our ambitions are. There is more work to do, and as we have always said, there are no shortcuts to this one. When we look at ROIC, we include goodwill as it represents part of our legacy challenges. However, to give a clearer picture of our underlying performance improvement, we are also giving you ROIC excluding goodwill as an additional KPI. This is something many investors have been asking for. As explained by Michael, we are now entering the rejuvenate phase to bring our performance to the next level. This means our financial agenda will shift gears as well. In my presentation, I will showcase this agenda along three key parameters. First, higher ambitions. We will push ourselves further, set clear ambitions in line with our long-term strategic vision and pursue them with rigor. Second, increased productivity. We will continue to drive productivity across the board. This includes optimizing processes, enhancing efficiency, and fostering a culture of continuous improvement. And third, focused capital allocation. A disciplined approach to capital allocation will continue to be key to ensure we make the best use of our resources. Investments have to be aligned with our strategic agenda and meet our strict criteria in terms of returns. and we remain committed to strengthening our balance sheet. Fresenius Financial Framework is a living framework. It evolves over time as we achieve new levels of performance and maturity. As we enter 2025, and based on the significant progress made in 2024, we are upgrading our financial framework again. First, we are raising CABI's structural margin band to 16 to 18 percent. This is a clear reflection of the strength of the past quarters and the margin potential we see. Second, we're setting ourselves a more ambitious target corridor for leverage, now at 2.5 to 3 times net debt to EBITDA. I will cover both topics in detail in the course of my presentation. Lastly, after the legally required suspension of dividend payments last year, we are pleased to propose a dividend of €1 per share. This is a strong signal of our financial strength and commitment to attractive shareholder returns. At the same time, we are introducing a new dividend policy which aligns with our capital allocation priorities. More on that in the capital allocation section. Not only have the growth vectors made an increasing contribution to CABI's top-line growth in 2024, they also drove margin expansion, providing the foundation for us to raise the structural margin band. This actually is the 3 plus 1 strategy coming to life. I want to make it very clear at this point, this is about unlocking incremental growth and value. While the growth vectors are gaining momentum, We continue to further strengthen resilience in our highly attractive and cash-generative IV generics business. The balance between new growth opportunities and business stability is key to our success. Within the growth vectors, BioPharma stood out in 2024 with high double-digit top-line growth, being EBIT positive ahead of our original plans. Milestone payments are recurring and provide a stable floor to our dynamic biopharma growth. In 2024, they made a mid to high double-digit EBIT contribution. For your awareness, those milestone payments are predominantly associated with R&D spend. Going into 2025, we expect milestone payments to remain broadly stable on a yearly basis, but there may be some differences in terms of quantum quarter over quarter. Looking ahead to 2025, we expect the strong momentum in biopharma to continue. The business will contribute even more significantly now also in terms of profitability. With our pipeline and upcoming product launches unfolding as planned, we remain confident in achieving our ambitions just outlined by Michael. On nutrition, we always said that nutrition is accretive to the structural margin of CARBI, and that has not changed. Let's turn to Helios. As you know, we received energy relief funding in Germany of roughly €140 million in 2024, resulting in a tough year-on-year comparison. However, and despite this headwind, we still expect EBIT to grow this year, whilst the margin will remain broadly stable. To achieve that, we have moved fast with a dedicated performance program for the German hospital operations, focusing on clinical process optimization, improving non-patient-facing areas for increased efficiency, as well as synergies in procurement. In total, this program is anticipated to deliver an incremental EBIT contribution of around 100 million euros this year. This will add to the top-line driven EBIT growth we expect for both Helios Germany and Chiron Salud. In 2025, contributions from the performance program will be weighted to the second half. In particular, some of the levers are process-related and will take time to deliver and realize benefits. And the program will, of course, continue and provide further upside in 2026 and beyond. It will establish a strong base for continued margin improvement within the 10% to 12% structural margin band for Helios. And also, very importantly, it will further enhance medical outcomes and our quality of care. Let's talk capital allocation. We will ensure that we continue to deploy capital in a focused and value-accretive way. Our approach will be based on the following key pillars. Investing in the business to drive sustainable long-term growth. We see attractive opportunities to invest in ourselves and bolster growth. R&D and, more broadly, spend to foster innovation and further expand our pipeline is part of this. We're committed to disciplined CapEx spending. Any strengthening of our business units through business development will be assessed carefully within our strict guardrails for return and payback and, of course, will be aligned with our strategy and focus areas. Delivering attractive shareholder returns remains a priority. We are firmly committed to rewarding our shareholders and, of course, resume dividend payments from this year. Our new dividend policy is designed to ensure attractive shareholder returns while providing strategic flexibility. Going forward, we will pay out 30 to 40 percent of core net income, that is net income before special items and excluding Fresenius Medicare care. It aligns with our capital allocation priorities and market standards. We will also continue to further strengthen our balance sheet. Our financial discipline remains a priority, and deleveraging will continue with an even more ambitious target corridor. I will come to this in more detail now. In 2024, we achieved strong free cash flow generation with a year-over-year increase of more than €1.5 billion. Impressive, even when adjusting for the foregone dividend in 2024. Key drivers of this performance are our continued efforts to improve working capital as well as successful CapEx management, with 4.3% well below the 5% of revenue. Our strong cash flow generation has allowed us to work on both sides of the equation when it comes to deleveraging. Not only did we increase EBITDA, we were also able to reduce net debt by approximately 2 billion euros. As a result, we reached the lower end of our original leveraged target range of 3 to 3.5 times net debt to EBITDA by the end of 2024. However, we're not stopping here. Also, in light of the more volatile interest rate environment, we are now setting an even more ambitious target range of 2.5 to 3 times. We have made strong progress over the past quarters and will continue to operate in within the guardrails of our disciplined capital allocation strategy. That said, while we will make further progress, it is important to note that the leveraging is not expected to continue at the same pace we saw in 2024. We expect our performance momentum to continue into 2025, starting with CABI. we expect mid- to high-single-digit organic revenue growth. This will mainly be driven by broad progress across the growth vectors. At the margin level, it is about further margin expansion through even better operating performance in our growth vectors, with an increase in contribution by biopharma in particular. We expect CARBI to deliver an EBIT margin of between 16% to 16.5%, within the new structure margin band. At Helios, we expect solid volume development in Spain and Germany that will enable mid-single digit organic revenue growth. The EBIT margin is expected to be around 10% within the structure margin band, and that despite the ending of the energy relief payment in 2024. Moving to Fresenius Group, For the group, we expect 4% to 6% organic revenue growth in 2025. On the EBIT level, we expect growth at constant currency to be in the range of 3% to 7%. In terms of phasing, we see our strong momentum continuing into the first quarter of 2025. However, the overall performance for the full year will be second-half weighted. This reflects the impact of Chinese volume-based procurement on K2 and Q2, the Easter phasing effect, and the year-on-year comparison for Helios Germany with the benefit from energy relief payments in 2024. I would also like to mention our assumptions for other relevant KPIs to help with modeling. For 2025, we expect interest expenses in the range of 400 to 420 million euros. a tax rate between 25% and 26%, and capex of around 5% of revenue. As we enter 2025, we must remember that we are all navigating a fast-moving geopolitical environment, which is introducing a heightened level of operational uncertainty. Obviously, our guidance assumes current factors and known uncertainties, but it does not reflect potential extreme scenarios. Overall, Fresenius is in a much stronger position today. We are more focused, more resilient, and our strategic plan is unfolding successfully. This will provide an excellent foundation for long-term growth and for bringing our performance to the next level. With that, I hand back to Michael.