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Fresenius Medical forecasts smaller income decline as cost inflation eases
Global Banking & Finance Review®
Company
By Ludwig Burger and Patricia Weiss
FRANKFURT (Reuters) – Dialysis group Fresenius Medical Care on Wednesday said a possible earnings fall this year would likely not be as pronounced as previously feared, helped by cost cuts, and as labour shortages and cost inflation slowly ease.
It now expects 2023 operating income to remain flat or slip by up to a “low-single digit” percentage, when adjusted for currency swings, the German company said in a statement.
The company had previously projected earnings to remain flat or decline by up to a high-single digit percentage rate.
“We have seen a stabilisation of the labour market and of the inflationary environment. Our measures to increase productivity, supported by the targeted clinic closures, are driving a positive development,” CEO Helen Giza said.
The group reported a 41% rise in second-quarter adjusted operating income to 401 million euros ($441 million), beating the median analysts’ estimate of 372 million euros posted on the its website.
Parent company Fresenius SE, a diversified healthcare group, has initiated a transformation to cede control over the struggling dialysis firm, but plans to keep its stake for now as part of a turnaround plan.
Last month, shareholders voted in favour of making Fresenius Medical a regular stock corporation and to abolish its legal status as a KGaA company which gives the parent firm special rights, in order to simplify its governance and make Fresenius a regular minority shareholder.
The company was previously hit hard by a high rate of COVID-19 deaths among its patients, and it said on Wednesday that excess mortality was still a slight burden on growth.
Fresenius, which runs hospital chains and makes generic hospital drugs, said second-quarter earnings before interest and tax (EBIT) slipped 5% to 956 million euros, hurt by falling profits at hospital contract developer Vamed, though it topped a consensus forecast of 872 million euros.
Fresenius said 332 million euros worth of writedowns on assets and provisions for expected financial burdens at Vamed resulted in a 20 million euro operating loss at the business.
The healthcare group’s CEO Michael Sen, who took over last October, is cutting costs and has said the group will focus on generic drugs unit Kabi and hospitals operator Helios, while Fresenius Medical and Vamed would be treated as financial investments.
($1 = 0.9103 euros)
(Reporting by Ludwig Burger, Editing by Rachel More and Varun H K)
Operating income is the profit a company makes from its normal business operations, excluding any income derived from non-operational activities like investments or sales of assets.
Cost inflation refers to the rise in prices of goods and services, which can increase the overall cost of production for businesses, affecting their profitability.
Writedowns are reductions in the book value of an asset, often due to a decrease in its market value or expected future cash flows, impacting a company's financial statements.
A turnaround plan is a strategy implemented by a company to reverse its declining performance and return to profitability, often involving restructuring and cost-cutting measures.
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