Fresenius Medical Care AG & Co. KGaA Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Organic revenue growth was 7% with contributions across all three segments and operating income rose 13%, driving margin expansion to 9.9% and a 75% increase in operating cash flow.
  • Positive Sentiment: The SME25+ transformation program delivered €58 million in sustainable savings through Q2 toward its €180 million annual target, and net leverage improved to 2.7x, within the new 2.5–3x range.
  • Positive Sentiment: A €1 billion share buyback program was initiated beginning in August under the new capital allocation framework to enhance shareholder returns.
  • Negative Sentiment: US dialysis volumes were offset by higher patient outflows due to a severe flu season, leading to a revised assumption of flat to slightly positive same-market treatment growth for 2025.
  • Neutral Sentiment: The newly reported Value Based Care segment saw 28% revenue growth but incurred a €9 million operating loss, with full-year earnings projected to be slightly negative to breakeven.
AI Generated. May Contain Errors.
Earnings Conference Call
Fresenius Medical Care AG & Co. KGaA Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Speaker 5

Ladies and gentlemen, welcome to the report on second quarter 2025 conference call. I am Sandra, the course call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. You can register for questions at any time by pressing one on your telephone. For operator assistance, please press star and the conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Dr. Dominik Heger. Please go ahead, sir.

Speaker 4

Thank you, Sandra. I would like to welcome everyone to our earnings call for the second quarter of 2025. As always, I would like to start out the call by mentioning our cautionary language that is in our Safe Harbor statement as well as in our presentation and in the material that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents and to our filings. We will have 60 minutes for the call. To give everyone the chance to ask questions, we would like to limit the number of questions to two. It would be great if you could make this work. As always, let me now welcome Helen Giza, CEO and Chair of the Management Board, and Martin Fischer, our Chief Financial Officer. Helen, the floor is yours.

Speaker 1

Thank you, Dominik. I'd also like to welcome everyone to the call. We appreciate you taking the time to join us today and for your continued investment in Fresenius Medical Care. Our second quarter results reflect continued improvement in our operational performance and disciplined execution as we transform and strengthen our company.

Speaker 2

Building on this momentum, we are well positioned to embark on our next chapter, FME Reignite, which we outlined at our recent capital markets day in June. Through our clear ambition to lead kidney care through exceptional patient care and innovation.

Speaker 1

We are ready to unlock our full potential.

Speaker 2

Potential to reignite preventive medical care and reignite future growth. I will begin with the paper marks on Slide 4.

Speaker 1

In the second quarter, we delivered strong.

Speaker 2

Organic revenue growth of 7% with positive contributions from all 3 operating segments. Our FME25+ transformation program continued its.

Speaker 1

Momentum, delivering €58 million in additional sustainable savings of our targeted €180 million.

Speaker 2

For the year, we achieved 13% operating income growth, further driving margin expansion. Our operating cash flow development increased by 75% and our net leverage ratio improved to 2.7 times, which is well within our new target leverage range of 2.5 to 3 times. The overall phasing of our earnings through the first half of 2025 has developed well in line with our planning, and we continue to expect accelerating earnings development.

Speaker 1

In the second half of the year, we are of course confirming our full year 2020, given the strength of our cash flow.

Speaker 2

Profile and our belief that shareholders should.

Speaker 1

Meaningfully benefit in the success of our company. We announced in our Capital Markets Day that we will share buyback program.

Speaker 2

Of €1 billion initially, which will be executed in multiple tranches. We have planned to start for the.

Speaker 1

First time already in August, going forward, our new capital allocation framework.

Speaker 2

Provides further opportunity for regular share buybacks.

Speaker 1

This is a key component of our.

Speaker 2

Strategy to reignite value creation and with that shareholder returns, turning to slide 5.

Speaker 1

Here I would like to highlight recent.

Speaker 2

Developments in each of our now three operating segments beginning with Care Delivery in the U.S. The stable volume development reflects strong and accelerating patient inflow dynamics, which have been unfortunately offset by higher than expected patient outflows due to the very severe flu season earlier in the year.

Speaker 1

I will further unpack the U.S. volume.

Speaker 2

Development later in my remarks. Outside the U.S., international FME market treatment growth increased to 1.7%. Second quarter care delivery performance benefited from favorable rate and mix development in the U.S. as well as a positive impact from phosphate binders. Our U.S. clinic network is gearing up for the launch of the 5008X high-volume HDF, and we will begin.

Speaker 1

To roll out the 5008X high-volume HDF machine to our clinic beginning later in the third quarter and ramping up further from there.

Speaker 2

On this slide you will notice that value based care is highlighted as a separate segment for the first time and is no longer included as part of care delivery. As announced in June, we have initiated.

Speaker 1

A new reporting segment as part of our ongoing efforts to refine our operating.

Speaker 2

Model, providing greater visibility into the drivers of this growing business and further enhance our financial reporting transparency. This is important as value based care has a very different financial profile and market dynamics than care delivery. In the second quarter, value based care.

Speaker 1

Benefited from expanded contracting leading to an.

Speaker 2

Increase in member months. With this positive development, the revenue growth.

Speaker 1

In the first half of the year.

Speaker 2

Was at the upper end of our expectations. Turning to care enablement, Care Enablement delivered another strong quarter, supported by volume and price increases, as every year the volume.

Speaker 1

Growth is less strong in the second.

Speaker 2

Quarter, which is normal phasing.

Speaker 1

We continue to test the sustainable savings as part of FME25+ driven by disciplined execution of the next level of footprint optimization across both manufacturing and supply chain.

Speaker 2

As a result, our care enablement margin further progressed within the 2025 target band to 8.7%.

Speaker 1

Care enablement is also well on track for the 5008X excellence in the U.S.

Speaker 2

Following the additional FTA approval of release 2.0 in May.

Speaker 1

If you were able to follow our.

Speaker 2

Capital Markets Day, you will remember that.

Speaker 1

Dr. Franklin Maddux outlined the dynamics of.

Speaker 2

Volume growth and how both patient inflows and outflows play an equal role in shaping overall patient flow.

Speaker 1

This framework is helpful to understand the components of recent volume development in the U.S.

Speaker 2

U.S. and underscores why we are encouraged about future growth. In the second quarter, patient inflow accelerated a bit more than expected compared to the prior year, supported by a higher number of patient referrals and new patient starts.

Speaker 1

This is an important trend as it signals strength in the underlying volume recovery.

Speaker 2

This also reflects ongoing operational improvements in our own inflow management process. This positive development in patient inflow, however, was offset by higher than expected patient outflow.

Speaker 1

The severe flu season in the first.

Speaker 2

Months of the year in the U.S. resulted in significantly increased mortality compared to the already elevated level of the prior year, as well as a greater number of mistreatments. The impact of higher mortality early in the year carry forward, dampening volume growth in subsequent quarters as well. This clearly impacts our assumption of plus.

Speaker 1

0.5% say market treatment growth in the U.S. in 2025.

Speaker 2

We now just carefully assume flat to slightly positive same market sequential growth for 2025.

Speaker 1

I will now hand over to Martin to take you through the second quarter.

Speaker 2

Financial performance in more detail.

Speaker 2

Thank you, Hannon, and welcome to everyone on the call. Also from my side, I will pick up on slide 8. In the second quarter, we achieved organic revenue growth of 7% with all three segments contributing to this strong performance. Revenue increased by 5% at constant currency. The impact from divestitures executed as part of our portfolio optimization negatively impacted revenue development by 110 basis points. As a reminder, we decided to absorb the revenue and operating income effects from divestitures executed in 2024 and 2025. In our guidance range, operating income excluding special items increased by 13% on a constant currency basis, primarily driven by growth in care enablement. As a result, we realized further margin expansion to 9.9%. Divestitures had a neutral effect on operating income margin development. Special items negatively affected group operating income by €51 million.

Speaker 2

This mainly includes costs relating to FME25+ and our continued portfolio optimization, offset by positive effects from the remeasurements of our investment in Humacyte. Next, on slide 9. This slide outlines the year-over-year margin development for the second quarter. At the group level, we realized a margin increase of 80 basis points. This increase was driven by positive contributions from both care enablement and care delivery, with particularly strong results from care enablement, and was partially offset by a slightly negative impact from value based care. Net corporate costs increased by €14 million from the prior year, including a positive €9 million contribution from virtual power purchase agreements. In addition, foreign exchange rates developed unfavorably with a negative €16 million impact. The average U.S. dollar exchange rate in quarter two was $1.13 per euro compared to $1.05 per euro in the first quarter.

Speaker 2

Let us now have a closer look at the drivers of each segment, starting with Care Delivery on slide 10.

Speaker 2

Care.

Speaker 2

Care Delivery showed strong organic revenue growth of 3.6% supported by both Care Delivery U.S. and International. In the U.S. our value growth of 3.4% was driven by favorable rates and payer mix development, which offset the volume impacts from a severe flu season.

Speaker 2

The first month of the year.

Speaker 2

Internationally, we realized robust organic growth of 4.5% driven by 1.7% same market treatment growth and continued rate increases. The execution of our portfolio optimization negatively impacted revenue development by 190 basis points. Operating income further improved, and the margin expanded to 11.2%. On the earnings side, business growth in the quarter was supported by positive rate and mix effects as well as contribution per capita binders. Further sustainable savings from FME25 helped compensate higher inflation costs and higher labor costs. The labor costs were impacted by increasing medical benefit expenses for our U.S. employees. The increase in medical benefit expenses is partially attributable to higher insurance utilization observed across the industry and partially due to the timing of offsetting initiatives. Consistent with broader industry trends, we expect these costs to moderate in the second half of the year.

Speaker 2

The unfavorable translation exchange rate development also had a sizable negative impact. Slide 11 will provide an overview of the developments in our newly reported segment.

Speaker 2

Value based care.

Speaker 2

Value based care realized continued strong organic revenue growth with 28% in the quarter. This was mainly driven by significantly higher volumes in the form of a higher number of member months, mainly due to contract expansion early in the year. On the earnings side, operating income declined to a loss of €9 million due to an unfavorable savings rate and inflation offsetting positive effects from increased member months. While revenue growth of this operating segment is ahead of expectations, we continue to assume a slightly negative to break even.

Speaker 2

Earnings development for the year.

Speaker 2

I will conclude the detailed segment review with care enablement on Slide 12. In the second quarter, care enablement continued to show strong revenue growth of 3%.

Speaker 2

Supported by 3% of any growth revenue.

Speaker 2

Development was driven by volume increases for our products overall and continued positive pricing.

Speaker 2

Momentum.

Speaker 2

Despite volume-based procurement in China, Care Enablement showed a significant 79% increase in operating income, leading to a margin increase of 380 basis points with 8.7%. The operating segment is further advancing into its 2025 target margin band. Earnings growth reflected strong business growth supported by volume growth and pricing as well as savings from FME25+. These positive effects more than offset the anticipated inflationary pressures and the unfavorable impact.

Speaker 2

From foreign exchange translation, moving on to slide 13.

Speaker 2

In the second quarter we realized a 75% increase in operating cash flow, mainly driven by favorable working capital development. This reflects the recovery against prior year headwinds from the cyber incident that changed healthcare and the phasing of federal income tax payments in the U.S. The strong cash flow additionally absorbed unexpected seasonality in invoicing compared to last year. Consistent with our strict financial discipline, we further reduced both our total debt and lease liabilities and our total net debt and lease liabilities compared to the first.

Speaker 2

Half of last year.

Speaker 2

As a reminder, at our Capital Markets Day, we announced our decision to lower our self-imposed target range for our net leverage. As part of our new capital allocation framework, we are now targeting a net leverage ratio of 2.5 to 3.

Speaker 2

Times net debt to EBITDA.

Speaker 2

In the second quarter, our net leverage ratio further improved to 2.7 times, well within this new lower range. More recently, in July, we redeemed a €500 million bond that had matured. As Helen mentioned, our commitment is to return excess cash to shareholders as part of our new capital allocation framework. We are planning to initiate the first tranche of our announced share buyback already this month. I will now hand back to Helen to review our outlook.

Speaker 1

Thank you, Martin.

Speaker 2

I have finished my prepared remarks on slide 15.

Speaker 1

Given our performance through the first half.

Speaker 2

Of the year and our expectations for growth acceleration in the second half of 2025, we are confirming our full year outlook.

Speaker 1

With the strong growth in value based care.

Speaker 2

Care in the first half of the year, which is driven by the contracted risk types, we expect to be at.

Speaker 1

The upper end of our positive to.

Speaker 2

Low single digit % revenue growth range. Risk revenue growth in value based care is not impacting the operating income growth. Therefore, we continue to expect to grow operating income by a high teens to high 20s % rate compared to prior year. We are also confirming our operating income guidance range. This also includes the upper end of our guidance range, which also tells you that we continue to consider this to be a viable outcome for earnings growth.

Speaker 1

With the planned margin improvements by all.

Speaker 2

Three operating segments, including benefits from revenue cycle management, we are fully on track to accelerate our earnings growth in the second half of the year.

Speaker 1

With that, I will now hand back.

Speaker 2

To Dominik to start the Q and A.

Speaker 4

Thank you, Helen. Thank you, Martin. Before I hand over to the Q&A, I would like to remind everyone to limit your questions to two if you have remaining time. With that, I hand it back to Tendra to open the Q&A. Tendra, please.

Speaker 5

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone with a question may press Star and one at this time.

Speaker 4

The first question comes from Hugo Solvet from BNP Paribas. Hugo, the line is yours.

Speaker 3

Hi guys, thanks for taking my questions. I have two please. Maybe in terms of U.S. volume growth and if we think about 2026, you obviously have a low base in H1, are you confident to grow volumes in 2026 in the U.S. that would be. Second, on care enablement, you have very strong margin expansion. 250 basis points in Q1, close to 400 basis points in Q2.

Speaker 3

How should we think about the back?

Speaker 3

Half of the year and the level of comfort to probably the high end of the 2025 margin band here?

Speaker 3

Thank you.

Speaker 2

Hi Hugo, I'll take both of those.

Speaker 1

With regards to U.S. volume growth, obviously what we're seeing right now is this continued elevated mortality. That's why as we kind of concluded the first half flat, we are calling the back half flat to slightly positive. I know a lot of small numbers at this point, but that does assume that the growth continues. We are really encouraged by the referral trends and the inflows, and we have seen improving trends there for five months.

Speaker 2

That is really encouraging on the front end of the funnel.

Speaker 1

That comes back to what we've always said, that once more normalizes and we see the inflows returning, the underlying fundamentals of the business, there's no reason to suggest that that 2%+ is unchanged. Yes, we will expect to see.

Speaker 2

Growth going into 2026, and obviously as we look at the development over the next few quarters, the rate of that slope will be determined in time. I think that follows the consistent messaging we've been giving there.

Speaker 1

You know, with care enablement, we're really, really pleased and encouraged with what we are, with what we are seeing there. As you rightly point out, nice progression in the margin band. You know, clearly we still have the.

Speaker 2

Margin band out there for care enablement of H1, H2, and we haven't found that, but we do see H2 stronger than.

Speaker 1

H1, and then we usually see the back end of the year stronger for us.

Speaker 2

Care enablement, particularly in Care Enablement because of the sales volume.

Speaker 1

It is a little bit seasonal, but the band overall with the open.

Speaker 2

Farming and really pleased with the progress that the team is making.

Speaker 2

Thank you very much.

Speaker 4

The next question comes from Veronika Dubajova from Citigroup.

Operator

Hi, guys. Good afternoon. Hopefully you can hear me okay. Thank you for taking my questions. I will also keep it to two if I can.

Speaker 2

The first one is just on the.

Operator

Patient inflow dynamics, Helen, that you alluded to. Can you maybe talk to sort of how you're thinking about that in terms of the market getting better versus some of the processes that you have in the business? I don't know if you can quantify it and also quantify maybe the mortality that you saw in the quarter just to help us with the math as we think about how things accelerate. I'm sorry to stay on the same topic, but obviously you do have that guidance for 2%+ starting next year. Just curious how you're thinking about the ability to get into that 2%+ already in 2026 or given the dynamics that we're seeing at the moment. Is that more a 2027 question? Sorry to stick to the U.S. market, but those are the two most important points. Thank you.

Speaker 1

Thanks, Veronika. We will see how many times we get asked a different flavor of that question, but we recognize how important it is.

Speaker 2

For us to share what we are seeing in real time.

Speaker 1

Look, I think on the patient inflows, as I've mentioned, there are encouraging.

Speaker 2

Positive, and it's the best tool we've seen in years.

Speaker 1

Not just the fact that this.

Speaker 2

Course is strong, as I mentioned.

Speaker 1

Five months in a row of improving.

Speaker 2

Patient inflows and new patient starts.

Speaker 1

I think it's a bit of both. I think we're still, obviously with our data, trying to tease that out. We're doing a lot of things all at the same time, but we are definitely seeing new referrals coming in. Of course, it is helped by our improved processes to get those patients.

Speaker 2

In and scheduled into treatment.

Speaker 1

I think it's a bit of both. I can't keep out how much is one or the other at the moment, other than the inflows are positive. I think we, on the second part of that question with Super Ben, we've definitely said that that circumstance % normalized mortality, it is somewhat elevated coming out of this even. With the positive inflow, that helps. I think if we had normalized.

Speaker 2

Mortality and the same trend of inflow that we've been seeing, that 2% of the three of them changed.

Speaker 1

I think like we've said, it's that kind of the rate of the slope as we go through.

Speaker 2

2026 will be key. We're kind of encouraged by what we're seeing in this last quarter.

Operator

That's great.

Speaker 2

Thanks so much.

Speaker 2

Thank you.

Speaker 4

The next question comes from Hassan from Berenberg. Hassan, the line is yours.

Speaker 4

Good afternoon. Thank you for taking my questions. A couple from me. Firstly, on the margins you continue to expect an accelerating earnings development in the second half. I wonder if the persistent weaker volume dynamics and lowered expectations here has an impact on your H2 expectations and where you expect to land in the range. Secondly, on value based care your guidance assumes €100 million of incremental revenue year over year, yet you've banked €200 million already in the first half. If you could talk about the strength here and how we should think about the evolution in the second half as well as any dilution at the margin level.

Speaker 4

Thank you.

Speaker 2

Thanks, Hassan. Why don't I tackle the HAF2 trend, and then Martin, maybe you can take the VBC trend.

Speaker 1

Yes, Hassan, clearly the software volume perhaps too does have an impact. However, we've always said that the volume number alone with small numbers, it's quite small. It was never going to make our growth beware. We just recognized the underlying is obviously.

Speaker 2

Important for future growth.

Speaker 1

It doesn't have that significance.

Speaker 2

In the bad path.

Speaker 1

What we know is half two is always stronger than half one, and you always follow this. Q4 is stronger than Q3, that half two are stronger. Clearly, we have that. In the back half, his.

Speaker 2

Development, we will see continued benefits from rate and mix.

Speaker 1

The work that we're doing on web.

Speaker 2

Cycle improvement as we touched on the.

Speaker 1

Talk outline will, and then we're really pleased with the momentum we're seeing on.

Speaker 2

FME25 and of course all the.

Speaker 1

Work that we are doing, continuing operational.

Speaker 2

Improvements will continue to have that momentum.

Speaker 1

It is a little bit of seasonal and also the ramping up of the work that's underway and the programs.

Speaker 2

Initiatives that we are already executing on.

Speaker 2

Martin?

Speaker 2

Yes, Hazel, I'm more than happy to take the VPC one. We are very pleased with what we saw in the first half. Also, we have expanded contracting activities. In the meantime, we have about 148,000 patients under programs and, to be real, expect more than $1.9 billion, to your point, in the full year. When we look at it, when it comes to the operating margin, we always said that it is slightly negative to neutral. As we also said, there's a certain dynamic when it comes to gross revenue recognition, and we expect that we still are within that operating margin corridor. There is a limited conversion that comes from that operation.

Speaker 2

Perfect. Thank you. Thank you.

Speaker 4

The next question comes from Oliver Metzger from ODDO BHF. Oliver, the line is yours.

Speaker 3

Yes, good afternoon. Thanks a lot for taking my questions. The first one is also that beneath mortality you talked also about the missed treatments due to the flu season. Was this an area where you already see a return to the normal baseline or also at an elevated level? The second one is in addition to Hassan's question on value based care, it's now a separate business unit. We have got, thanks to Dominik Heger's team, some historic data, but eventually not enough to identify some patterns.

Speaker 3

Can you give us an indication.

Speaker 3

When you see some more of this typical paydays, and also whether we should think rather in years and quarters about the progress on the bottom line?

Speaker 3

Thank you.

Speaker 2

Yeah, thanks, Oliver. I think I've snagged those questions. Mortality, the blue effects obviously impacted mortality and mistreatment.

Speaker 1

It is kind of a double effect.

Speaker 2

On outflows, if you will.

Speaker 1

That is still elevated over last year. As we were kind of quantifying that flu effect through HUP1, it is.

Speaker 2

Around that 40 to 60 bps.

Speaker 1

Still an elevation over what is already.

Speaker 2

A higher mortality from last year.

Speaker 1

I think that it's fair to say that there's still that elevation.

Speaker 2

I think as we come into corporate three, seeing how that, how that.

Speaker 1

Develops, bringing down the mortality level, obviously the work that we are.

Speaker 2

Doing ourselves on these treatments that are.

Speaker 1

In our control, what's happening as well.

Speaker 2

With the operational improvements, they are elevated, and we continue to work on those to improve that post-pandemic and post two season.

Speaker 1

Matt will give you a nice outline on how we're thinking about value based care numbers. Of course, it is a new segment. We are getting under what the right KPIs are, and I think you can expect us to continue to give more transparency on the KPIs as we move forward. Martin talked about the number of lives that we're covering, but we're also talking.

Speaker 2

About membership and member months because I think that's an important metric for us to continue to track as well in terms of how many months of members we are covering. I think more to come, Oliver, as we kind of get more mature.

Speaker 1

In our reporting here, if you can approve, pulling it all out and having the hypothetical labor was a good step in the right direction. For this year we can see member months and member steps, and obviously that varies too.

Speaker 2

I think as we continue to.

Speaker 1

Progress with this segment, we'll figure out.

Speaker 2

If there's more metrics to provide next year.

Speaker 2

Okay, thank you.

Speaker 4

Next question comes from Ruth from UBS Investment Bank.

Speaker 4

Thank you very much. Thanks for taking my questions. The first one is how much benefit was there from phosphate binders in H1, and how should we think about the remaining benefit into the second half?

Speaker 4

The second one, it's another one.

Speaker 4

On treatment volume dynamics, could you help us put the five months of better inflow into historical context? I mean, is it fair to say that that's the first time since COVID that you've seen that consistency in patient inflows? That'd be really helpful just to sort of frame that shift. Thank you.

Speaker 2

We did see quarter two develop in line on how we expected the quarter to develop. We did see a double-digit million positive contribution for category as we pointed out. We also highlighted in the first half that in quarter one we had a bit of a stronger development and then in quarter two it came in in line with what we assumed. We are better first half in line with our expectations.

Speaker 2

Thanks, Martin and Richard, on treatment.

Speaker 1

Yeah, I think it's fair to say that.

Speaker 2

This has been our strongest answer to 2020 from an inflow perspective.

Speaker 1

It's not just that it's the stronger quarter we've seen, but also the monthly.

Speaker 2

Improvement we have seen over the last five months consistently is an income for us as well.

Speaker 1

For us, we can kind of see that repeated stubborn. Even though we had snow, we could.

Speaker 2

See the theme flowing, improving Q1 into Q2, and the work that we are doing is clearly paying off there.

Speaker 2

Great, thank you very much.

Speaker 4

Thank you, Richard. The next question comes from James from Jefferies. The line is yours. Thanks so much for taking my questions.

Speaker 4

Two, if I may, please. Confirming the guidance range, including the upper end. I'm just kind of curious the levers to get you there, the upper end of the margin range, if volumes are expected to remain flat this year. Second question is just again regarding lower volumes. If volumes don't get to the 2%+ as an exit rate next year, how does that impact your thoughts on timing for capital allocation decisions, just given cash flow so reliant on higher volumes.

Speaker 4

Thank you.

Speaker 2

Hey, James, I'll take the first one, and I'll give the capital allocation question to Martin.

Speaker 1

Obviously, what we try to do is lay out the building blocks of the.

Speaker 2

Headwinds and tailwinds on guidance, and then arrange for them all.

Speaker 1

I think it's fair to say if we hit the bottom end of all those building blocks, we'd be at the bottom end of the range. If we hit the top end, the converse would be cool. Obviously, our job as management is to balance all of those to make them all as strong as possible.

Speaker 2

The building blocks that we gave in with 2024 are the same building blocks. That hasn't changed.

Speaker 1

Right. We are continuing to track quite well within those blocks, and we're managing our rates with those. I think what you maybe want.

Speaker 2

To reiterate, is kind of what I.

Speaker 1

As said in an earlier answer, we know that, you know, there is acceleration.

Speaker 2

In the back half.

Speaker 1

Some of that is the natural phasing and stronger business performance, you know, with the volume seasonality on Care Enablement. H1 was completely in line with our plan. We always knew that our H1 phasing would look like this. The continued momentum on rate and mix the revenue cycle.

Speaker 2

As we mentioned, the strong momentum on FME25, the operating improvements, labor.

Speaker 1

We obviously touched on the softness on volume. Labor, whether inflation is tracking, you know, kind of favorable, in line with our expectations. We did have an unfavorable hit in.

Speaker 2

Q2 for the medical benefit costs.

Speaker 1

I think like the whole, many corporations are seeing and we saw across the.

Speaker 2

Insurance companies, higher claims, and higher cost of claims.

Speaker 1

I think, you know, that is.

Speaker 2

More of a half one phenomenon.

Speaker 1

I think, you know, we're just.

Speaker 2

Managing each one of these building blocks.

Speaker 1

With a high degree of rigor, high degree of focus, pulling through on the programs.

Speaker 2

That's what's giving us the confidence for the back half to development.

Speaker 2

On capital allocation, we did outline in the capital markets clear prioritization of investment into the core, our CapEx of $800 million to $1 billion with a lower leverage ratio and returns to our shareholders. We have announced the $1 billion over two years. You saw that we have a strong cash flow generation in quarter two and development. You also see that the first half has had an outline expected in line with our expectations, and we expect an acceleration for the second half. We will start with the first trial of the share buyback in August, and we feel very confident about our ability to execute the program overall as planned.

Speaker 4

Comes from Gret from UBS Investment Bank.

Speaker 4

Hi guys, thanks for taking my questions. Kind of repeat what we had earlier, maybe for some slightly different information. In terms of phosphate binders and their contribution to the business growth and care delivery, how much more do you think we have to go in the second half? What do you think makes takes up the differential if that sort of eases in terms of contribution in the second half? You've talked a lot about the inflows, which are super helpful. Could you give us a sense as.

Speaker 4

To what the percentage growth is?

Speaker 4

Is it like 1% to 2% in terms of year over year? Has that been trending like this for quite some time? Just a quick one, is there any way of discerning what is share gains versus what is just the kind of funnel picking up?

Speaker 4

Thank you.

Speaker 2

Okay.

Speaker 2

Yeah, more than happy to.

Speaker 2

Graham.

Speaker 2

As I outlined, the first half developed in our expectation with a double-digit million contribution for the second quarter and starting stronger in the first quarter. After the first half, we feel good about what we saw with phosphate binders. There are still certain topics that we are very close to, like utilization and certain pricing developments. So far, we are feeling good about what we saw, and that also gives us confidence.

Speaker 1

Graham, and then on inflows, you know, look, I think a couple of things to your question. The trend that we're seeing, that referral.

Speaker 2

Improvement that we have seen these last five months equates to just under about 1% improvement in referrals year to date, but about more than that in Q2. It was closer to 2% improvement in that referral improvement in Q2.

Speaker 1

That also speaks to the kind of the improving trend since 2020, but also the last five months.

Speaker 2

In terms of your question on share goings, we know that.

Speaker 1

The work that we are doing operationally internally is paying off. I think, you know, those improvements.

Speaker 2

Are certainly visible in our operation. We'll obviously have to see how the.

Speaker 1

The rest of the market reports out this quarter. I think for us it's definitely the patient trend and the work that we're doing.

Speaker 2

Doing is supporting that effort, you know, kind of the.

Speaker 1

Improving that.

Speaker 2

Cancellation rate is also kind of adding to our accepted referral growth.

Speaker 1

Even when you kind of got the new patient start, we had been struggling to get them in and scheduled in time. Front end work on improving this is also a key driver of this. I think this trend, we've been seeing it for a few quarters now. It's not just the last month or so. It's been a consistent trend that we're encouraged by. Obviously, we had a lot of.

Speaker 2

work to do with the turnaround in care delivery. I think that is speaking for itself. I also recognize that we're still talking small numbers.

Speaker 2

No, I really appreciate the caller. Thank you very much.

Speaker 2

Thank you.

Speaker 4

Next question comes from David from JPMorgan.

Speaker 4

Hey guys, thanks for the questions. Slightly different tactics, maybe just first, early thoughts on 2026 and the headwinds you might have in the annualization of phosphate binders and also the expiration of ACA subsidies. Second question, it'd be good to get your recent thoughts or your thoughts on the recent clinical data out of Prokidney for the impact on progression of their product on CKD.

Speaker 4

Thank you.

Speaker 2

Hey, David.

Speaker 1

I think we're definitely not giving 2026 guidance and kind of sizing out the headwinds and tailwinds today.

Speaker 2

More to come on that. What I would say on binders.

Speaker 1

We've got this half one development, and Martin touched on this already. There are a lot of things at play here. We've got the utilize, you've got the patient numbers, the utilization rate. We've got generics, we've got branded. We've got the impact that's sitting on the clinic business. We've got the impact on his hitting pharma business. We've got the impact that's hitting pharmacy. I think we're trying to get our arms around or not. We've got our arms around what we see in 2025, and it is progressing quite nicely as planned. Obviously, this utilization and what happens here every quarter will shape what 2026 looks like. I think the thing that is key to what for us is obviously post.

Speaker 2

The DAPA period, which is January of 2027.

Speaker 1

We are going to learn a lot.

Speaker 2

About the uptake and utilization of these products by then.

Speaker 1

I think David, this is one where you know it's a quarter by quarter through 2025. We'll obviously try and size 2026.

Speaker 2

See what happens post evaporation.

Speaker 1

You know, the other thing on this piece as well is obviously the noise on pharma pricing and potential power. I think it's such a fluid situation.

Speaker 2

We've got good line of sight into 2025 and obviously we'll shape 2026.

Speaker 1

The ACA. I think we had already sized that on a previous call. Of course, you know we expect 2026, and I can size this number, 2026. We already have that. It would be about 2% of U.S. Care Delivery EBIT. Obviously, past 2026, we'll have to see how this plays out and what happens when we get extended tax credits and do these patients end up somewhere else, off exchanges, in different coverage, and what influence they would take.

Speaker 2

I think, you know, too early to call that yet, but obviously we've got our arms around it. You had another question.

Speaker 2

Pro kidneys, the pro kidney data.

Speaker 2

Yeah.

Speaker 2

Yeah.

Speaker 4

We'll wait for the ASN. I think they start their clinical study or the next phase of the clinical study. I think pricing, I think there's rumors for what pricing would be. I think our understanding is you have to see what's the long-term effect of those shots. I think they now do one shot versus two shots. We are not the experts on that, but you have to see how long it actually holds and how long it would improve the outcomes. That's the big question, how it works. I think even the medical people don't fully understand, but it seems to have an effect and I think we'll have to wait for the long-term impact to see if there's more shots they need and what's then the pricing of it.

Speaker 4

I think it's maybe not a very qualified answer, but I think there is not more that we could know better now.

Speaker 4

That's fair enough, thank you.

Speaker 2

Maybe just one follow up just in.

Speaker 2

terms of the phosphate binder double-digit impacts, could you sort of narrow it down a bit whether it's low, medium, or high because that's a 10% to 99% range.

Speaker 2

Yeah, it's more to give you an.

Speaker 2

Indication for the quarter when we talk double digit, it's more on the lower below middle.

Speaker 2

Thank you, David.

Speaker 4

Last question is Falko Friedrichs from Deutsche Bank.

Speaker 4

Falko, the call is yours.

Speaker 4

Sorry, the line is yours. You can't have the full call.

Speaker 3

Okay, Falko, I'm fine with just my two questions. Thank you all. Firstly, could you briefly remind us on the next steps for your new 5008X high-volume HDF machine rollout in the U.S., the things we should be looking out for here, and how meaningful this could potentially be for your financials this year and next? Secondly, at current spot rates, what is your expected FX headwind on?

Speaker 3

Adjusted EBIT for the full year and also on sales. Thank you.

Speaker 1

Thanks, Falko. You know this is my favorite topic, so I will take the HDF question, and Martin, not surprisingly, will take the extreme rate question. We're continuing to go all systems fast.

Speaker 2

On HDF as you heard me say.

Speaker 1

We have all the approvals we need. We already have one clinic fully converted, and the plan is to have 30.

Speaker 2

Clinics and 600 machines converted during PT4.

Speaker 1

Really, really excited about the section and the work that is happening around that input in 2025.

Speaker 2

Somewhat limited, obviously, the big ramp up.

Speaker 1

In 2026, with everything going to plan, excited to get our own U.S. real data and hear firsthand from how our patients are feeling and doing after the treatment. We'll continue to update on that as the year goes through.

Speaker 2

As the year goes by.

Speaker 2

Falko, we do see quite some volatility currently in the markets.

Speaker 4

Over the last couple of weeks.

Speaker 2

I'll give you a reference rate because it also changed from the last quarter to this quarter where we did see a significant development also of U.S. dollar and Euro. Over the last couple of weeks we saw a 1.17ish. It now came down a bit, but when you take that as a reference, we would expect a 3% to 4% impact on both revenue as well as earnings if it were to stay for the remainder of the full year on that level. That effect would also then be.

Speaker 2

A full year effect that we have. Thank you.

Speaker 4

Thank you very much.

Speaker 4

We will close the poll now.

Speaker 4

Thank you for listening in in the summer. We do wish you all a great summer break and are looking forward to be in touch after the break and see you on many conferences, roadshows, and looking forward to reconnect.

Speaker 1

Thank you, everybody. Enjoy that for the summer. Take care. Thank you.

Speaker 1

Take care.

Speaker 5

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines.

Speaker 2

Goodbye.

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