Business Context and Reporting Period
Company: Fresenius Medical Care AG & Co. KGaA
Filing Type: Form 6-K (Interim Report)
Reporting Period: Three months ended March 31, 2021
Business Overview: The Company is the world's leading provider of products and services for individuals with renal diseases, operating a vertically integrated business model that includes dialysis care services and the manufacturing of health care products. Operations are segmented into North America, EMEA, Asia-Pacific, and Latin America.
Key Financial Metrics
| Metric (€ Millions) | Q1 2021 | Q1 2020 | Change (As Reported) |
|---|---|---|---|
| Total Revenue | 4,210 | 4,488 | (6)% |
| Operating Income | 474 | 555 | (15)% |
| Net Income (Shareholders) | 249 | 283 | (12)% |
| Basic EPS (€) | 0.85 | 0.95 | (10)% |
| Operating Margin | 11.3% | 12.4% | -110 bps |
| Net Debt | 11,827 | 11,298 (Dec 2020) | N/A |
| Net Leverage Ratio | 2.9x | 2.7x (Dec 2020) | +0.2x |
| Free Cash Flow | 29 | 304 | (90)% |
| Cash & Equivalents | 1,073 | 1,082 (Dec 2020) | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 6% (as reported) primarily due to a negative foreign currency translation impact of 7%. On a constant currency basis, revenue increased 1%.
- COVID-19 Impacts: The pandemic resulted in a negative impact to net income of €79 million in Q1 2021 (compared to €41 million in Q1 2020). This was driven by excess patient mortality, increased costs for personal protective equipment, and labor costs, partially offset by lower operating costs in certain areas.
- Treatment Volumes: Total dialysis treatments decreased 1% to 13.0 million. Same Market Treatment Growth was -1.5%, significantly affected by COVID-19-related impacts.
- Segment Performance:
- North America: Revenue down 9% (as reported); Operating income down 14%. Impacted by currency, lower calcimimetic reimbursement, and COVID-19.
- EMEA: Revenue down 1%; Operating income down 21% (as reported), largely due to a non-recurring revaluation gain in the prior year.
- Asia-Pacific: Revenue up 6% (as reported); Operating income up 11%. Strong organic growth offset by currency headwinds.
- Latin America: Revenue down 5% (as reported) due to significant currency translation effects (-22%), though constant currency revenue grew 17%.
- Cash Flow: Net cash provided by operating activities dropped to €208 million from €584 million in the prior year, driven by an increase in trade receivables due to seasonality and payment delays by public health organizations.
Guidance, Outlook, and Risks
- Reimbursement Environment: Approximately 28% of consolidated revenue is attributable to U.S. federal programs (Medicare/Medicaid). The 2021 ESRD PPS rate increased by 2.9% on average for large organizations. The 2% Medicare sequestration cut was suspended through December 31, 2021, but will resume thereafter.
- Payment Models: The Comprehensive ESRD Care Model ended March 31, 2021. The Company participates in the mandatory ESRD Treatment Choices (ETC) model starting January 2021 and the voluntary Kidney Care First (KCF) and Comprehensive Kidney Care Contracting (CKCC) models.
- Legal and Regulatory Risks:
- FCPA Resolution: The Company is under a non-prosecution agreement with the DOJ and an agreement with the SEC (ending 2022) regarding conduct outside the U.S. A compliance monitor is in place.
- Litigation: Ongoing investigations include False Claims Act matters regarding joint ventures, pharmacy services, and vascular access procedures. A civil complaint was filed by Mexico's social security agency alleging fraud.
- Outlook: Management expects the ETC and voluntary payment models to have uncertain effects on the business. The Company anticipates final settlement reports for the last performance year of the Comprehensive ESRD Care Model in October 2021.
Investor Verification Checklist
- Currency Sensitivity: Verify the impact of the strong Euro on reported results, as constant currency growth was positive (1%) despite reported declines.
- Receivables Quality: Monitor Days Sales Outstanding (DSO), which increased to 60 days from 50 days, driven by delays in payments from public health organizations.
- COVID-19 Trajectory: Assess the ongoing impact of patient mortality and operational costs on treatment volumes and margins.
- U.S. Reimbursement Policy: Track the resumption of the 2% Medicare sequestration cut after December 31, 2021, and the financial impact of the new ETC payment model.
- Legal Contingencies: Review updates on the DOJ/SEC monitorship and ongoing False Claims Act investigations, particularly regarding the Shiel Medical Laboratory and Azura Vascular Care matters.