Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I now hand you over to Markus Jorgie, Head of Investor Relations.
Good afternoon, and thanks, everybody, for joining us today. I would like to welcome all of you to our second quarter twenty twenty conference call. With me on the call today are Stefan and Rachel. So as always, I would like to start the call today by drawing your attention to the cautionary language that is included in our Safe Harbor statement on Page two of today's presentation. And without any further ado, I hand it over to Stefan.
The floor is yours.
Thank you, Markus. Good afternoon and good morning, a warm welcome. Thank you for joining us. And as always, we appreciate your interest in Fresenius. Markus has pointed out the safe harbor language to you.
So let's move right to Page three with an update on the current COVID situation. During this unprecedented time, we as Fresenius have truly risen to the occasion. Whilst our doctors, nurses and caregivers have with incredible motivation fought and helped contain the pandemic, our production logistics and admin staff have ensured business continuity. I'm proud to say that we have lived up to our special responsibility and have helped save many lives. So I'd like to take this opportunity to thank all our more than 300,000 employees around the world for their tremendous dedication.
They have truly brought to life our purpose to offer better and affordable healthcare to ever more people. Obviously, we have implemented all necessary precautions to secure the health and safety of our patients and employees in our hospitals, clinics, plants and offices. And we have stuck to our commitment to keep prices for essential drugs for COVID-nineteen patients stable during the crisis. We're here to help, not to take undue advantage. So unsurprisingly, the pandemic has weighed on our financial results.
The more pronounced negative effects in Q2, well, those were anticipated and well flagged. In contrast to Q1, now virtually all geographies were affected throughout the entire quarter. Encouraging though is the visibly strong underlying performance. With all the uncertainties of accurately quantifying the COVID-nineteen effects, we still estimate that for both sales and net income growth, we could have been at the top end of our original guidance ranges excluding COVID-nineteen now in the first half. But clearly, these are somewhat artificial metrics and hence we have adjusted that original guidance to now incorporate estimated COVID-nineteen effects.
And before Rachel will elaborate on that new guidance in a minute, I'd like to clarify our underlying assumptions. Our base case is that a major second COVID-nineteen wave in our relevant markets can be prevented. Instead, we should continue to see local and regional outbreaks and as a consequence more localized or regional governmental containment measures instead of broad lockdowns. On this basis, our colleagues around the world compiled detailed bottom up forecasts, which in turn have informed our adjusted guidance. Whilst I believe that that base case is realistic, we have to closely monitor the recently growing number of infection herds.
Under those assumptions, our new guidance implies an acceleration of earnings growth in the second half. Hence, Q2 is likely to mark the trough. And whilst it also marks a mild step down from our original expectations, I believe our new guidance nicely demonstrates Fresenius' resilience. That brings me to my last point on this slide. Our unique healthcare franchise is in excellent shape to weather this storm.
In fact, we will emerge even stronger from this crisis. Why? Our core competencies, developing and providing affordable high quality healthcare products and services will play an even more important role in the future with our scale, our already efficient and steadily more digitalized hospital and dialysis network, our engineering expertise and world class automated plants. There will be many opportunities for us to seize. On to Slide four and an update on Fresenius Kabi.
And you know this illustration from our Q1 presentation. It's meant to show the major developments in the 2020 and key dynamics to be monitored going forward. As before, take green as more positive, red as more negative, gray as neutral, always relative to our original expectations. So you can see that COVID effects have varied quite meaningfully in timing, direction and magnitude. You see some fading and also some anticipated trend reversals.
I don't want to comment on every single arrow on this slide. The main takeaways are though, the recovery in China is real, but takes longer than expected. In North America, we have seen quite volatile demand for COVID related drugs and devices. A spike late Q1 and early Q2 included some anticipatory buying by hospitals and wholesalers, increasing their safety stock levels, followed by a rapid easing of COVID related demand through April and early May. And after a normalization until the end of Q2, we saw demand pick up again recently.
That is to be monitored. But taken together, this tailwind could not fully offset softer demand for other product categories resulting from lower rates of elective procedures. We observed those resuming only slowly from about forty percent of normal levels in May to about sixty percent by the end of Q2. And assuming no major second COVID-nineteen wave, we expect them to continue to gradually recover. Profitability in North America remains very healthy at a margin north of 39% in Q2.
To be clear, not driven by price increases, but much rather by product mix. Many COVID-nineteen related products are high strength and higher dose presentations. Typically, those are more difficult to manufacture, consequently enjoy a bit less competition and hence carry a higher margin. A word on new product launches. Year to date, we've launched six products.
And while FDA has not reported delays in reviewing applications due to COVID-nineteen yet, the agency has postponed site inspections, and this is likely to impact launch schedules. So currently, we expect to launch 10 to 12 new products this year versus the 15 plus expected originally. In Europe, we've seen much less volatility in COVID related extra demand and also here the delay of elective procedures having a net negative effect on Kabi's financials. But also here, our observation and expectation of an at least gradual recovery of elective procedures. Briefly on biosimilars.
Only recently, we entered into a marketing agreement with the pharmaceutical distributor Medac to cooperate in Germany in the area of treatments for rheumatic illnesses. This partnership offers patients and doctors new benefits and synergies in therapy offerings as well as in consulting. Hence, we are complementing our service propositions. But as I alluded to in Q1, given the immune system suppressing pharmacological effects of adalimumab, the overall market slightly shrunk during the current pandemic. And as we are not a first mover in the European adalimumab market, this has given us a challenge.
We assume though that as the pandemic recedes, we can lever our fairly significant tender wins and get more traction in other European markets. Thus, our underlying expectations for the full year 2020 remain unchanged. At the bottom of the page, Kabi have done a tremendous job of keeping their global supply chains up and running without any meaningful interruption. But COVID-nineteen continues to take its toll here in the form of higher costs for raw materials and logistics and for the protection of our employees. We believe that this is likely a longer lasting effect.
With that, over to our hospital business, starting on Slide five. What we show here is the delta between the occupancy rate at Helios Germany in 2020 versus 2019. As we said in our Q1 call, we had a good start to the year, only to face an unprecedented admissions decline from the March due to COVID. We really saw the trough in April. Adjusted for the Easter effect, where Easter twenty nineteen was a couple of weeks later than this year, we would have seen a more lateral development throughout April.
But from May, occupancy has gradually recovered, reaching a much more reasonable level in June. Also in Spain, not on this slide, we have seen a strong January and February and the significant COVID impact from March. Occupation rates in March and April were still at a decent level, given the intense inflow of COVID-nineteen patients, specifically in Madrid and Barcelona. But under the government instigated state of alarm, we have treated virtually no elective cases in our inpatient facilities in April and May. But from May, we have seen a gradual recovery.
The count of elective treatments for June is encouraging, especially in large metropolitan areas such as Madrid, Barcelona, Seville, Valencia or Saragossa, we have seen a solid recovery of elective procedures, bolstered by many safety initiatives and hospital actions to resume patient treatments that had to be postponed. Hence, on to Slide six with an update on Helios Germany. Over the course of Q2, government interventions have become a less meaningful constraint. We have seen the inversion of the principle in line with our proposal. When originally we were prohibited from treating elective patients in order to reserve capacities for potential COVID patients, we are now permitted to treat elective patients as long as we can guarantee spare capacity.
Right now, the aggregate number for our 83 acute hospitals across Germany shows a mid double digit number of COVID patients, thus negligible. Going forward, we are impacted by government induced distance regulations. Two brief conclusions from that: first, whilst two bedrooms are today by and large the norm in Germany, we still have a few hospitals where we also have a few three bedrooms. So going forward, we will spend some CapEx to convert these. Second, this will moderately weigh on our available capacity, however, estimated only in the mid single digits.
The admission development that I have just shown is obviously mainly driven by the patient's willingness to seek elective procedures. But based on a representative survey to identify the most meaningful concerns, we have established and communicated targeted initiatives to increase our patients' confidence. That brings me to an update on reimbursement in Germany. The law to ease the financial burden for hospitals mitigated most, but certainly not all negative sales and cost effects in the first half. The compensation payment of EUR $5.60 per foregone treatment day was recently amended to arrange between €360 and €760 And while the majority of Helios' hospitals remained in the €560 category, overall, that update is slightly positive for us.
The current law to ease the financial burden has an September expiry date. Will it be extended? Unlikely in the current form. What will be amended? Unclear.
Basically, for our guidance, we are assuming compensation payments to cease in Q4. So how should you think about the remainder of 2020? We have assumed an ongoing recovery of elective treatments bolstered by our marketing activities. We assume the second half could see some normalization and even some catch up effects. But is the second half going to reach the levels of, say, a normal second half and therefore fully making up what we have lost in this past quarter?
I doubt it. On to Slide seven, covering our Spanish hospital business. As discussed, the development in Spain is lagging behind. Q2 was still heavily marked by Q1 Salud's exceptional contributions to combat the pandemic and the mandated postponement of elective procedures under the state of alarm that lasted until late in the quarter. In particular, the foregone elective treatments, unmitigated fixed costs, increased costs for the protection of our patients and staff, as well as for medical devices have led to a very significant negative impact on our EBIT.
So what's the latest on reimbursement and compensation? As far as the reimbursement for actual COVID-nineteen patients is concerned, at the time of our Q1 results, I already referred to the rates that has been discussed for the Catalonia region and that we were firmly working on the assumption that those rate levels sooner or later would also be generally reimbursed by other payers. As of today, we continue to believe that this is a very fair assessment. Actually, in all other regions, primarily depending on the COVID-nineteen prevalence there, private hospitals continue to negotiate with regional governments fair reimbursement tariffs or compensation measures and we expect these discussions to last until the end of this year. But we would characterize these discussions always as fair and reasonable.
Let me remind you that Quran Salute generates close to two thirds of its hospital revenues with private health insurance companies, in short the HICs, and that we treated many privately insured COVID-nineteen patients. Thus, the conversations with those private HICs, we adjusted reimbursement levels are just as important. And we have been negotiating with virtually all of them in the past two months and are making good progress. The Spanish government, as you know, has announced a 9,000,000,000 COVID-nineteen fund to help restore the health care budgets of the 17 Spanish regions. It is increasingly clear that this fund is not meant to reimburse for COVID-nineteen patients nor to compensate the healthcare sector, but rather to inject funds into the 17 regional public healthcare systems which suffered extraordinary cost burdens.
Our assumption is for the regional governments to use those funds to bolster their reserves, to provide liquidity support in case of a second wave and we would also expect them to reduce their patient waiting lists which substantially increased during the COVID crisis. And last but not least, to pay their bills potentially a bit earlier. That would obviously be a welcome type of financial support, But for the avoidance of doubt, overall, I am not expecting anything remotely similar to the COVID compensation program in Germany. So we're rather expecting fair reimbursement and some minor compensation for reserve capacity and additional costs. And from an accounting perspective, providing a true and fair view, we have recognized some of the just mentioned negotiation progress in our Q1 and Q2 results already.
So I don't expect meaningful P and L upside from the final agreements with the payers. How should we think here about the remainder of 2020? We assume that the new normal will bring a capacity utilization which is a notch below the historic levels. As far as distance regulations are concerned, we assume that whilst the impact on Helios Spain is not zero, it is clearly much less relevant than for Helios Germany since the overwhelming majority of our hospitals in Spain have already purely one bedrooms. As I got this question recently a few times, let me emphasize that we believe that doctor shortages should not be a bottleneck for the recovery in Spain.
A large portion of our doctors at Quironsalud are self employed and could not perform their usual elective treatments during the second quarter, resulting in a pretty steep decline in their activity and personal financial income. Additionally, many of their patients truly need to get back to hospital to be treated, particularly those that were already diagnosed pre COVID and had to cancel their planned treatments due to the state of the lung. Hence doctors have a direct incentive to try and fill that gap by catching up during the summer period and treat the well filled pipeline of elective patients. A very positive signal is the better than anticipated performance of the ORP business, where we are now providing COVID-nineteen services to corporates by leveraging both our risk prevention expertise in the workplace and our healthcare capabilities from the hospitals. Beyond the ordinary ORP medical checkup services, we are now also offering COVID-nineteen safety protocols, including consulting and testing services to help our corporate clients get back to work while minimizing infection risk.
Let me add that in our recently acquired LATAM hospitals in Peru and Colombia, we have also been making very significant efforts to fight the pandemic as COVID-nineteen is affecting the region quite severely. Our hospitals are playing an important role in helping combat the crisis and have also seen their elective treatments reduced, but are nonetheless showing a robust development. Taking that all together, we remain optimistic for a healthy recovery in the second half of this year and expect a pronounced catch up effect of postponed treatments. With that, over to Slide eight and an update on Fresenius Vamed, where as already described on our Q1 call, COVID-nineteen weighs on virtually each stage of the company's value chain. The project business continues to be marked by delays, postponements as well as cancellations.
These are accompanied by general execution delays due to COVID-nineteen related travel and quarantine restrictions as well as supply chain restraints. Obviously, this leads to incremental expenses due to project delays. We expect this trend to last well into the second half. The service business is also significantly impacted. We had to observe capacity constraints given health authority induced shutdowns of rehab facilities, coupled with less demand for rehab services due to postponed elective procedures.
But consistent with our assumptions for Helios, we now expect a gradual recovery of post acute treatments in the second half. The technical services business is not significantly affected by COVID-nineteen, but also here we see some negative effects from postponed elective procedures such as for instrument sterilization services. Let me close with Slide nine and a picture from our largest Spanish hospital, the Fundacion Jimenez Diaz in Madrid. The darkest days of this crisis, doctors and nurses were standing in front of the hospital every evening applauding each other for their courage and expressing consolation. They acted with compassion where help and support for those in need was called for and supported and motivated each other as team players.
I continue to be truly inspired by their dedication and they are definitely our heroes of the hour. With that, I am happy to hand over to Rachel. Thank you for now.
Thank you, Stephane. A warm welcome to everyone. As expected, we have seen a weaker Q2, but based on our current assumptions, we think the trough is now behind us. In light of the unprecedented challenges presented by COVID-nineteen, I believe our new full year guidance is testament to the resilience of our well diversified business in these exceptional times. I'm especially pleased by the group's sustained excellent access to the capital and credit market amid this highly volatile situation.
So with that, let's take a closer look at the Q2 twenty twenty results, which you'll find on page 11. The results for Q2 are shown in our usual fashion, so before special items. A comprehensive overview of all special items is provided at the back of our investor news and in the results center on our website. Our financials include COVID-nineteen effects and thus are not comparable with our original guidance from February. I'd like to remind you of my comments in May.
It is very difficult to accurately estimate the impact of the pandemic, in particular the more indirect effects and as time goes by. Nevertheless, to give you the maximum transparency on how our business is developing, we are providing you with ranges based on our best estimates of the quantitative impact of the COVID-nineteen pandemic on the group in the back of the presentation. So let's move to the numbers. Growth rates on the slide are on a constant currency basis. So we delivered sales growth of 2% in Q2 and for the half year, we're at 5% growth.
So even in these challenging times, we continue to generate top line growth. COVID-nineteen had a negative effect of around four to five percentage points on our sales growth in Q2, obviously mainly driven by Helios Spain, but also Kabi and Vamed's top lines were negatively affected by COVID-nineteen. Having said this, the underlying sales growth for the group was very strong and could have been more around the top end of our original guidance range of 4% to 7% growth, excluding COVID-nineteen effects, for both the second quarter and for the half year. EBIT was flat year on year in Q2 twenty twenty and declined by 1% in the first half. Missing sales, combined with incremental COVID-nineteen driven expenses, for example, in our production sites and supply chains as well as negative operating leverage at our Chironsalud and Vamed facilities took their toll.
Moreover, following higher levels of investments in previous years, we see higher levels of depreciation and amortization in 2020. Overall, however, the expected EBIT development at Helios Spain and Kabi were partially compensated by Fresenius Medical Care's strong EBIT growth, resulting from the strong underlying business performance and the recovery of costs incurred in Q1 as well as the recovery of some valuations. Interest decreased year on year by 7% in constant currency to €167,000,000 in Q2, mainly driven by successful refinancing activities and lower interest rates. Given that the improved interest rate environment and expected financing activities, but also considering the ongoing market volatility, we now project our interest expenses for the full year 2020 to be slightly below the prior year level. With much of the reduced rates affecting FMC instruments, we do not expect much of an impact on our group net income from this slight reduction in interest versus our previous expectations.
The group tax rate before special items reached 23.5% in Q2 twenty twenty, in line with our expectations. Without any fundamental changes in the tax environment, we confirm our expectation of a tax rate of between 2324% for the full year. However, with a tax rate of 23.1% in the first half, we now see that the upper end of that range is less likely. Let's move on to net income. Here, Q2 saw a decline of 13%.
Year to date, that's a decline of 6%. The underlying earnings growth is also, though, very healthy. Excluding our estimated COVID-nineteen effects of thirteen to seventeen percentage points, Q2 could have been within our original guidance range of one to 5% growth, although not at the top end of that range. For the first half year, given our good Q1, we would even have been more towards the top end of the original guidance range. Let's move on to page number 12, which illustrates the Q2 twenty twenty momentum of our four business segments.
Let's start with Kabi. The company showed 2% organic sales growth, with differences in developments across the regions. In Europe and The US, tailwinds from the spike in extra demand for COVID-nineteen related drugs and devices in late Q1 eased in April and hence could not fully offset the effects of fewer elective procedures throughout Q2. In Europe, we've also seen our biosimilars business lagging a bit behind our expectations, given the immune suppressive characteristics of adalimumab. Thus, net, The US saw an insignificant sales impact from COVID-nineteen, whereas Europe saw a relatively significant negative effect.
Emerging markets had a mixed Q2. Latin America continued to show strong growth, but Asia Pacific was significantly impacted by COVID-nineteen. In China, we have seen a slow but gradual resumption of activity driven by recovery of elective treatments, with June showing positive organic growth again. Overall, COVID-nineteen had a moderate negative effect on sales growth in Q2. Moving on to Kabi's EBIT, where we've seen a decline of 5% in Q2.
That is as expected, in line with the Q1 result, even though with very different underlying dynamics. Overall, COVID-nineteen had a moderate positive effect on EBIT growth. So why is the EBIT development excluding COVID-nineteen even a bit weaker? The explanation is a technical effect in our biosimilars expenses. We did see a positive one time effect in the prior year quarter, which we explained at the time, and that's related to a balance sheet valuation of Adaceo in Europe that had a significant positive impact on our biosimilars costs in the second quarter twenty nineteen.
Coupled with a slight increased underlying spend, we've seen 18% higher corporate and R and D spend in Q2 this year. If we take a closer look at the regions, starting in North America. Here, we've seen an EBIT on the prior year level with a very healthy margin of 39.3% in Q2, quite consistent and slightly up on Q1. The year on year margin contraction is mainly the result of a very strong prior year basis, which also included a positive one time effect. Europe with solid 4% growth in Q2.
Here we saw a positive contribution from the sale of COVID related products. In emerging markets, we saw a return to growth in Q2, with our business outside of China compensating the temporary COVID related headwinds in China. Here, we've seen a sequential improvement even though the pace of recovery of elective treatments is only gradual. So let's move on to Helios, which showed a 2% organic sales decline in q two, obviously driven by the meaningful foregoing revenue predominantly in Spain due to the state of alarm that was in place for much of q two. Excluding estimated COVID-nineteen effects, we would have been well above our original organic sales growth guidance range of 3% to 6% for Fresenius Helios.
You heard Stephane. Our Latin American business, although affected by COVID-nineteen, is holding up well and thus continues to contribute positively to reported sales growth. The situation in Germany was mostly mitigated by the law to ease the burden for hospitals. Hence, COVID-nineteen had only a slight negative effect on the 4% organic sales growth in Germany in Q2. Based on the very strong first two months of this year, a soft prior year comp as well as positive price effect, the year to date organic sales growth remained strong with 6%.
If we move to EBIT, we saw a decline of 29 in Q2. In Germany, we've seen an EBIT decline of 5% in Q2. The decline was mainly caused by higher costs to protect our employees and patients and some missing sales. The law to ease the negative financial effects for hospitals supported us, but as we have indicated, did not fully offset the negative effects of the pandemic. Year to date, we have seen an increase of 3% based on the strong development we saw in Q1.
In Q2, the very significant EBIT decline of 58% in Spain was completely related to COVID-nineteen. The gradual recovery of elective treatments in June was not able to compensate for the incremental costs and the very significant negative operating leverage effects following the revenue loss from earlier in Q2. Let's move to Vamed, where we have seen only a slight organic sales decline of 1%, whilst EBIT declined very significantly. The relatively stable top line is the result of ongoing projects, primarily in Germany and Austria, and including intercompany projects with Helios and some revenue recognition where milestones were completed before lockdown measures were implemented. This led to an increase of 18% within the project business in Q2.
At the same time, however, we saw a sharp decrease in order intake from international projects, which is a clear signal that this favorable sales development cannot be extrapolated into the second half year. Service business, especially in Wiha and to some extent in instrument sterilization services, was negatively impacted by the lack of elective treatments and other operating restrictions in the first half year this year. EBIT was significantly marked by COVID-nineteen related costs, especially for the protection of our employees and patients. Let's move on to cash flow, which you'll find on Slide number 13. It was an extraordinary strong Q2 in terms of cash flow that took the group operating cash flow position to EUR 3,100,000,000.0.
We have seen an excellent development, in particular at Fresenius Medical Care and Kabi, where positive phasing and onetime effects led to significant growth rate. At Fresenius Medical Care, the strong year on year increase was mainly driven by The U. S. Federal Advanced Payments under the CARES Act. Thus, the cash flow development for the second half year twenty twenty is not anticipated to be as strong as we've seen in the first half.
Kabi posted a very strong Q2 cash flow of €437,000,000 an excellent margin of 26%, took the last twelve months margin to 18.3%. The development was driven by some early cash receipts as well as some tax payment holidays. These will reverse in the second half. Helios, also with a strong year on year growth of 42% in Q2. A strong margin of 12.7% took the last twelve months margin to a healthy 9.2%.
Half one cash flow was €440,000,000 with a margin of 9.2%. The development is driven by the shorter payment periods of the COVID nineteen governmental compensation and reimbursement scheme for our hospital business in Germany. This positive development more than compensates the expected weaker cash flow at Helios Spain. Vamed cash flow in Q2 was positive at €28,000,000 driven by timing of payments in the project business as well as some compensation payments from governmental authorities in the service business. For the full year 2020, the cash flow for Vamed remains unpredictable due to the ongoing COVID-nineteen uncertainties, particularly in the project business.
So for the group, the Q2 performance took the group last twelve months margin to 18.6%. If you deduct the group CapEx of 6.8% in the middle column, you'll arrive at a very strong free cash flow margin bottom right of 11.8%. As you can see from our CapEx, we've been able to continue with our investment programmes, although, of course, there remains some uncertainty on the timing of projects for the remainder of the year. So with that, let's turn to page number 14 for an update on a couple of key points relating to the group's financial position. As Stephane said recently, there seems to be some skepticism from some investors with regards to our leverage.
I clearly wanted to reiterate that we feel very comfortable with our long standing net debt to EBITDA target range of three to 3.5 times, including IFRS 16. We continue to be fully committed to that range over the medium term, although, of course, in the current environment, there are more uncertainties than usual, and here we do anticipate being around the top end of that range at the 2020. The commitment to our leverage target in combination with the resilience of Fresenius' business model is also well recognized by the ratings agencies, resulting in an investment grade rating by all three main agencies. In recent notes and releases, they have emphasized our well diversified business model of noncyclical and cash generating health care assets. There are no major refinancing needs for 2020 left.
For the FSE, we have addressed all major refinancing needs with two successful bond issuances in 2020, totaling €1,500,000,000 Our financial cushion for the group is very comfortable at €5,700,000,000 plus available cash. In summary, Fresenius' strong financial position based on a proven and highly resilient business model continues to to continues to supports the continuation of our successful franchise. Over to page 15, which illustrates the revised outlook for the business segments. So to be clear, our new guidance for the full year 2020 now includes the effects of COVID-nineteen and, as usual, excludes the effects of special items. Stefan and I already outlined our underlying assumptions for the new guidance.
In brief, no major second wave, rather ongoing local and or regional outbreaks, and thus regional containment measures instead of mass lockdowns. Kabi's organic sales growth first, where we now project 2% to 5% growth. This is only a slight decrease versus the original guidance range of three to 6%. Given the relevance of The US market to Kabi's overall development, we will continue to watch the state by state development very closely. At the same time, incremental costs for employee safety, supply chain security, safety stock levels, production and logistics are here to stay in the 2020.
Hence, with a 5% EBIT decline year to date, we are now expecting an EBIT decline of minus 6% to minus 3% for the full year. Moving to Helios, where we have a 1% organic sales growth year to date. We are now projecting a 1% to 4% growth for the full year. This implies a slight acceleration of growth in the second half year, mainly driven by Helios Spain. In Germany, COVID nineteen had only a slight effect on sales growth in the first half.
However, the law to ease the financial burden on hospitals is expected to end at the end of Q3. And moreover, the comps will not get easier in the second half year. For Spain, we are optimistic to see a good ramp up of elective treatments in the 2020. In fact, we have seen already in June and July a positive admissions development month on month. And as already outlined by Stephane, the ORP business is currently showing dynamic growth.
For EBIT, we have a decline of 14% year to date, and thus we have adjusted our full year 2020 EBIT expectation to be broadly stable when compared with the prior year. This implies a significant acceleration of growth in the second half year twenty twenty, also here mainly driven by Helios Spain, where we expect the operating leverage effect this time to work in our favor. Let's move to Vamed. With 5% growth year to date, we are now expecting the full year 2020 organic sales to decline by around 10%. That implies significant headwinds in the second half year, mainly driven by delays in the project business.
Hence, the usual hockey stick effect in the second half year is not expected this year. In addition, we expect to see only a gradual resumption of the rehabilitation business following ramp ups in elective procedures. With an EBIT of €1,000,000 year to date, we now expect an EBIT decline of around 50% in constant currency for the full year. This implies a relative improvement in the second half year of 2020 in comparison to the first half year, even though the year on year decline is still significant. A lot is dependent on the development of government induced travel restrictions and thus our activities in our project business as well as the speed of the recovery of elective treatments and the knock on effect on Vamed services.
Incremental expenses combined with negative operating leverage effects in the rehabilitation business are expected to continue to take their toll. So if we take all of that together for the group, and you'll find that on slide number 16. Let's start with sales growth. Here, we are now expecting three to 6% growth in constant currency. And in terms of net income, where we now project a growth range, including the COVID nineteen effects of minus 4% to plus 1% in constant currency.
As you can see, the upper end of that range overlaps with our original guidance range of plus 1% to plus 5% constant currency growth. I think that this is remarkable in these exceptional times and testament to the resilience of our group. Of course, there are many uncertainties in the second half. And as explained, we have made some clear assumptions in giving this guidance. As you would logically expect, we are expecting the fourth quarter of the year to be clearly our best in terms of profitability with ongoing marked COVID-nineteen effects, particularly in Q3.
As to the currency translation effect, if current exchange rates prevailed until the end of the year, we would see a headwind of around two percentage points, mainly from the US dollar, for both sales and net income. We will continue to actively monitor any broader potential knock on financial impacts of the pandemic, also with regards to our balance sheet. For example, changing currency movements, risk premia for emerging markets and the potential need for revaluations of assets, including goodwill. For the avoidance of doubt, If there would be such an impairment or revaluation requirement, that would be treated as a special item as it is truly one time in nature and thus will not impact our underlying operating performance and not be included within our guidance metrics. With that, Stefan and I are happy to take your questions.
The first question is from the line of Michael Jungling from Morgan Stanley. Please go ahead.
I have sort of two questions. Maybe I can sneak in a third one. Firstly, when it comes to Helios Spain, how much did you record for expected additional reimbursement in Q2 for COVID costs as well as for fully forgone elective procedures? Also on Helios Spain, relative to what you thought you may get from Spain in terms of additional reimbursement, how much have you now been booked or how much have you booked in the first half in percentage terms? Are we 70%, 80% the way there?
And then question number three is on Kabi. For the third quarter, how should we be thinking about the dexamethasone opportunity? Specifically, is it something that can shift the needle? And secondly, if there was extraordinary demand, would you be able to deliver it with your current manufacturing capacity? Thank you.
Michael, Rachel is going to take care of the Helios questions. I'll do Kabi.
So Michael, thanks for your questions. I think we got them. Your line connection is not great. Your first two questions in connection to Helios Spain and what we have booked in terms of various types of reimbursement and compensation. I would say there's quite some complexities within the overall story, given the different regional setups within Spain and also the large number of healthcare and insurance companies with whom we work.
And the exact, I would say, split between reimbursement and compensation is also quite mixed. I would, in trying to answer your question, highlight a mid double digit million euro number in the first half year's results that I think relates broadly to the question that you're asking around compensation. And clearly, is more than 50% of what we would assume for the full year.
Michael, on Kabi, as I indicated when commenting on Slide four, we've seen in North America a bit of a pickup recently against the backdrop of more infections in individual states. That is something that we have got to monitor. Further down that Slide four, when it comes to manufacturing there, I believe lies the answer to your question about our ability to supply. Against the backdrop of that spike in demand late Q1, early Q2, we have continued to manufacture basically or close to full throttle throughout Q2 and are now looking at a very comfortable inventory situation. What we wanted to indicate with the arrow fading into pink before it turns green towards the end of the year is that we actually would have to manage our inventories unless we saw a bit more of a demand through over the course of Q3.
So bottom line, I am convinced that we can supply also to extra demand in Q3. Specifically to dexamethasone, we saw a pickup in demand, but we still believe that the opportunity is relatively small. And to quote you, I do not believe that it's going to move the needle. Thank you.
Great. Thank you so much.
Next question is from the line of Veronika Dubajova from Goldman Sachs. Please go ahead.
Good afternoon, Rachel, Stefan, and thanks for taking my questions. I have two, please. The first one is just curious on an update on China for the Kabi business. I was slightly surprised by the magnitude of decline in the APAC Kabi franchise. Maybe you can give us an update on what you saw exiting the quarter and more broadly how you're thinking about the growth rate for Asia for the second half of the year?
And then I have a follow-up after that.
Veronika, as we indicated also, we have been a bit disappointed about the pace of recovery in China when we were talking to you as part of our Q1 call, we were a bit more optimistic. But unfortunately, it is taking longer in China to get back to normal. Just because you were talking about Asia Pacific and yes, that is where we tend to give at least some qualitative guidance. This time around there is a pronounced differentiation within Asia Pacific and our observation is that the rest of the Asian markets have actually recovered pretty well and are already exhibiting some healthy growth again and China is standing out as a bit of a laggard. What therefore we have indicated on our infamous arrow chart is that yes, it will take the third quarter for us to get into the gray I.
E. Neutral zone before probably only late in Q4, we would get back to the original expectations. But obviously, there is quite some uncertainty. I want to spare you individual quantitative growth rates, but what I can leave you with comfortably is that we see a month over month pickup in demand. So at the very least, we are headed in the right direction.
Hope that is helpful.
That is but I guess, is it fair to assume that China still is down year on year even exiting Q2?
Yes, is.
Okay. And then my second question was sort of a bigger picture question on HELIOS and trying to understand the slightly kind of different dynamics that you're seeing between Germany and Spain and maybe get you to tell us as you think about the full year for both of those regions in terms of where you think you will get to by year end. It seems to me that you're maybe a bit more optimistic about the catch up in Spain versus Germany. Maybe elaborate on why that is the case? And when you think about 100 was the number you thought you were going to get in both of those markets pre COVID, how far off do you think you will be by the end of the year?
Veronica, yes, as a matter of fact, we have seen the COVID phenomenon pretty differently between the two countries. It only kicked in later in Germany. Maybe as a consequence of that, it kicked in only much more gently in Germany relative to Spain. What we were seeing though is that in both countries we have seen a very pronounced regional differentiation where in Spain you truly only had two hot spots and COVID at least as far as we can see didn't play that much of a role outside Madrid and Barcelona. And also in Germany, there is quite a number of Helios hospitals where we're still waiting for the first COVID patient to show up.
I think the most pronounced differentiation is obviously the reimbursement and compensation mechanism. Reimbursement played much more of a role in Spain because of substantially larger number of COVID patients and compensation does not play a role at least not yet and not for the time being. In contrast to Germany and that clearly has something to do with the financial state of affairs between the two countries. I would go back to our underlying base assumption with only local or regional outbreaks going forward. I would also very much expect that a nationwide lockdown is more than unlikely going forward because we will have learned quite a few things from the first wave and that is in particular that hospitals in general, ours in particular, have done an extremely good job in emptying capacity, vacating capacity for potential COVID patients fast and that therefore the complete abolition of elective surgery in my mind is not going to be repeated.
I'm mentioning this at quite some length because what has really hurt us in Spain is the large number of hospitals where we did not have a pronounced COVID outbreak but still were prohibited from doing elective surgery without any compensation. And I just find it against the backdrop of the experience that we've made very unlikely that history is going to repeat itself in that regard. I'm also taking quite some comfort from the pickup of elective surgery in the recent months sequentially, May over April, June over May, July over June. And I therefore do very much expect and that is baked into our guidance that we're not going to have that typical summer quarter this year, but that much rather Q3 could be at a Q2 level this year. We have talked about the financial incentives for doctors.
We've talked about the patients anxiously waiting to get elective surgery. And therefore it is realistic to assume that we are going to see that pickup that we have modeled for guidance purposes. I want to stop here and hope that this at least partially answered your question.
Yes. Thanks very much, guys.
Next question is from the line of Tom Jones from Berenberg. Please go ahead.
Good afternoon. Thank you for taking my question. I had just one, but it was a fairly broad and expansive question really. You sort of alluded to it when you talked about spending some CapEx on some of your three bedroom hospitals reducing them to two bedrooms. But if you look across the three non Fresenius Medical Care businesses, what permanent changes do you think the COVID situation is going to precipitate, in your various business lines, perhaps thinking of it both from a revenue opportunity as well as from a cost?
Tom? I think we've lost you. Tom?
Hello? Can you hear me?
Now we can hear you again.
Do you me to ask the whole question again?
No, no, no. Permanent you were saying more permanent consequences of COVID on revenue opportunities and cost situation and then Exactly.
I'm just wondering how you think your business and your world looks in post COVID world once all the volatility of what's going on now dies down. What permanent changes might ensue from all of this?
You said it more expansive and I would also say that is a moving target where obviously we got to get through this first before we can give a more definitive answer. But as far as our hospital businesses are concerned, I believe that our underlying assumption that we've had all along, namely that many of the procedures performed in a stationary setting right now are going to move to an ambulatory setting and many of those that are in ambulatory setting already have a chance to be rendered at home virtually digitally. That is the thrust of many of the things that we're doing right now. You may have seen further initiatives by us on the digital front recently and we feel encouraged. Now for the avoidance of doubt there is always going to be a need for an acute care stationary hospital setting And we believe that our efforts to go about clustering, about centralization in particular of the more intricate indications will also pay off in a post COVID environment.
As far as Kabi is concerned, my key observation would be that the already fading trust in the global supply chains has taken a further blow in that COVID environment and there is a lot of talk about nationalization of crucial manufacturing infrastructure and not because of a lack of trust, but just because we do believe that we have got to be close to our customers. You know that our motto has been all along that we wanted to manufacture in the country that we serve, so in particular in The U. S. And therefore further broadening of the manufacturing infrastructure is going to happen generally, but we have done most of the investment in our minds already. When it comes to BaMed and I really can only give you highlights per business segment.
When it comes to Vamed, then I really want to pick out the post acute rehabilitation services where I also do believe that quite a few of these services are going to be redundant going forward and will be taken care of more in a digital setting where I would argue that we are the most advanced, at least I haven't seen anyone being more advanced than we are in providing digital post acute services and effectively combining them with what we're doing in a stationary setting.
Perfect. And maybe one sort of derivative question for that, that I'd like to ask is, how has the last six to nine months affected your willingness to put additional capital, to work in the hospital space, perhaps more outside Germany and Spain? This has been a really terrible difficult time for acute care hospitals and you've been quite lucky in Germany. The government's been very supportive. Spain's been a bit more mixed.
But has this whole situation because I don't think any of us think this pandemic is going to be the last of this kind of thing affected your enthusiasm for putting additional capital into the acute care industry, whether in Germany, Spain or anywhere else?
In general, I would say no. One of the lessons learned out of COVID for me are the virtues or the strength of a larger chain where assets, capacities, where knowledge can be transferred not entirely freely but fairly effectively in a hospital chain and also between countries. We're seeing those synergies between Germany and Spain, between Spain and Latin America and that is something that I believe is going to be even more valuable going forward. I do believe that this pandemic in general is going to flash out who the weakest, who the weaker market participants are and that we are going to see more of a consolidation. As you know, we have taken in our core markets Germany and Spain already for a while the position that we would very actively look at what is happening, but not necessarily and that applies particularly to Germany also use capital to further enhance our market position.
I am convinced that in particular when it comes to Germany there is going to be an acceleration of the reduction of installed hospital capacity.
That's all very clear. Thank you very much.
Thanks, Tom.
Next question is from Patrick Wood of Bank of America. Please go ahead.
Perfect. Just a quick one from me. I'm curious as to whether you think, as a result of COVID, just top down, there's going to be more public health spend. I mean, kind of alluded to it in your comments on Spain, the more spend within centralized healthcare systems and hospitals overall, like in Spain areas of that and what you feel the potential implications of that could be for your hospital business on the private side? Thanks.
Patrick, I do believe that both in Germany and in Spain there is an inertia to protect, to maintain the system that is installed for now just on the side of caution for now against the backdrop of a potential second wave. But I would expect that in particular once we get to the stage that we have an effective vaccine, I would expect the different systems to be more differentiating and more focused on what can be sustained from a cost side structurally in the long term. Therefore I would expect as I just tried to allude to in my answer to Tom that we are going to see more of specialization, more of a differentiation that some of the installed capacity is going to be taken offline in order to make sure that these systems can be performed just as effectively, but at a lower cost run rate.
Super. Thanks for taking those questions. Thanks.
Thanks, Patrick.
Next question is from James Van Tempest from Jefferies. Please go ahead.
Hi, thanks for taking questions. Just on Kabi, looking at the guidance range you've now given, looking at the performance in the first half, just curious, the low end obviously implies a slight decline in the second half. So just wondering what scenarios would have to play out for you to reach that and not see the sequential improvement? Second question is follow-up question, but did you are you reiterating your midterm guidance? I didn't see any mention of that in the results this morning.
Thank you.
Hi, James. Let me take the first question. So if I understand correctly, in relation to the Kabi organic sales growth guidance, where we have achieved around 4% for the first half year and we have guided 2% to 5% for the full year. Clearly, think two things to say. Firstly, important to remember that within that first half year results, we've seen a broadly, I would say, outside of China standard Q1.
And then as we went to the end of Q1 and into Q2, we saw in Europe and The U. S. That spike in demand for the COVID relevant drugs. And then as Stefan was explaining earlier, the knock on impact of fewer elective procedures and clearly the slower recovery in China. But net net, there are clearly some very positive impacts in there coming from the standard months that we had at the beginning of the year in our major markets as well as that peak, that spike in demand that we saw.
Now clearly, of course, we've looked at some scenarios for the second half year, as you quite rightly identified. And of course, it is around how the pandemic plays out within that kind of local and regionalized set of assumptions that we talked about in terms of underpinning the whole guidance. And clearly, it is about the mix of the timing of the uptake of elective surgeries, the volumes and quantities of drugs existing within the supply chain today, I. E. With distributors, wholesalers and with clinics themselves versus what we may see in terms of regional or local peaks and then renewed spikes in demand of COVID relevant drugs.
So clearly, you have both positives and negatives depending on in which geographies and in which time frame and with which stock levels the participants are operating. But clearly, if we were to be, as you suggested, more towards the bottom end of the range given the starting point at the half year. That is more playing out with a slower resumption of elective surgeries. They're already being quite a lot of stock within the supply chain and not any repeats in terms of peaks in demand that we've seen in the first half.
James, on midterm guidance, we tend not to actively reiterate that on a quarterly basis. But and hence, we haven't done that today, but you should not read into that that we're not standing behind our guidance anymore. As you know, this is a CAGR that runs into 2023. We have always said that to quite a degree it is back end loaded, which is driven not only but in particular with our expectations as far as the biosimilars business is concerned. Very obviously, given where we started this year and where we have adjusted our guidance to now including COVID, we are a bit below our original expectations.
But that does not mean at all that we no longer believe in our midterm guidance. As we also indicated on the various arrow charts, we do believe that there is catch up potential to some degree later this year, to some degree also next year. So we will have to see whether as far as growth that we've lost that we're likely to lose this year can be recouped in twenty twenty one and twenty twenty two. In any case, is too early against the backdrop of this uncertainty to say something definitive on this guidance. And I would like to ask you for your patience next February as always as part of our full year deliberations.
We will spend a bit of time on that midterm guidance.
That's great. Thank you very much for clarifying that and absolutely. A very quick follow-up if I can and that is in Helios, if you could talk about your digital strategy. I mean a number of providers kind of across Europe have talked about their digital platforms and how much investments they've just given the changing dynamics of how patients initially. I'm just wondering if you could just remind us in terms of the key differentiated drivers and how much investment that needs?
Thank you so much.
The subsidiary between Fresenius Helios and Vamed is called Curoli. Originally, we were starting with digital offerings for post acute care in particular in orthopedics. We are in the process of broadening this to a broader application when it comes to chronic diseases. We are involved in telemedicine, have educated and qualified quite a number of our internal doctors, but also a mid triple digit number of external doctors who will be working on this platform. When it comes to providing additional patient services, in particular when it comes to registration or also visibility of their documents, that is also something that we have already gone about and there are quite a few additional examples.
I want to encourage you to look up CORLI on the web and you will find quite a few additional interesting information. Thank you.
Thank you very much.
The next question is from Oliver Metzger of Commerzbank. The
first one is on Hillis Germany. So you show the chart with the occupancy rate, which is, at least for June, around 10 percentage points lower than the year before. So even for the two months before, it was much lower. However, you still were able to report an organic growth of 4.6, which was, as you said, and reported subject to the corona related elective procedure compensation scheme, but it's still impressive. If you look for the underlying development, so apart from that, what are your observations?
Do you see some improvements in patient volumes and the case mix on a year over year comparison? That's my first question. The second one is on biosimilars. So in the past, you made some comments that you won some tenders. Earlier, you said that the market dynamics for adalimumab are have the change due to lower demand.
These tenders, which should have typically a fixed volume price agreement. So how are the dynamics from the tenders? Do see some lower volumes for them? Or is it just the incremental business from which is currently not there?
Oliver, it's Rachel. Let me try to address your question on the growth in Helios Germany in terms of trying to understand it. As I mentioned in my speech, there is a slight negative effect that we estimate from COVID in Germany in the second quarter. So I. E, as we've discussed before, the law to protect us from the financial burden of COVID has helped us significantly, but has not completely offset the downsides that we have seen.
So there is a slight negative effect on the revenue that we've reported. And thus, you're right, the underlying business, we believe, would have looked stronger. How do you reconcile that with the figures that you can see? Well, what Stephane is showing you on the chart is the absolute occupancy rates. And clearly, you have to remember is that, firstly, the law, the Rettungsham protects us based on the capacity in comparison to the previous year.
So any of those vacancies are already effectively compensated through the law. Then, of course, there is always a question in terms of the case mix of the patients and there are the underlying price effects that have happened between last year and this year. And that is why you can reconcile, if you like, that development in terms of occupancy versus what we believe would have been an underlying growth rate of a little bit stronger than the one that we've reported of around four percent.
Oliver, on biosimilar tenders, before I answer your question specifically, I want to use the opportunity to again point out how heterogeneous Europe is in that regard. There are prescription markets, there are tender markets, there are tender markets where the winner takes it all, There are also tender markets where you get regional tenders. Within those, the winner can take it all, but there are also individual regional tenders where you have a small number of players who will then qualify for further distribution. When in my prepared remarks, I was talking about noteworthy tender wins recently, What I really meant are four regions in The UK, where for the next two years we have qualified as a supplier of edasio going forward, very importantly for us in combination with an home care offering where we have installed capacity already, a very interesting feature that we would like to see being applied also in other European markets. And secondly, we have been successful in six important Italian regions.
Now what I meant with the COVID impact is that whilst we have won these tenders the implementation of that tender win, the change from the incumbent to us being the new supplier, that has taken longer because of administrative hurdles where many of the administrative bodies were not equipped, let's put it that way, to deal with that during the pandemic. But I can also positively confirm that since late May, early June, the pickup in demand under these tenders that we have won is becoming increasingly visible.
Okay. That's good to hear. Thank you very much.
Thank you, Oliver.
The last question is from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you. I have one question left. Could you provide an updated thought on potential M and A activities? And has your thinking around this changed to some extent due to the pandemic?
Falco, not meaningfully, at least not relative to what we were saying as part of our Q1 call. I do believe that more than in earlier times, there is an investor focus on our balance sheet, on our leverage, which is why we wanted to use time on this call again today to explain to you how comfortable we are with this. At the same time, we take investor concerns very seriously and therefore this is not the time to do anything major, anything bold, quite apart from the fact that I do not seek any meaningful seller out there in the current environment. But as far as our general thrust is concerned, we have always prided ourselves of combining organic growth with acquired growth. That is also something that we want to live up to going forward.
It applies to basically all of our four businesses. There is at the same time no appetite whatsoever to add a completely new business leg to the group. I think most of you are particularly interested in our view on a further potential further expansion in the hospital business. And let me hence single that out. We're happy with our LatAm expansion.
However, we have always characterized that as opportunistic and I do not expect any further activity, at least no meaningful further activity in the near term. As far as Spain is concerned, we have always said that we are keen to look for further consolidation of this highly fragmented market. You heard what I was saying about our expectation of COVID fallout. And I would not be surprised if later this year, maybe next year, would see some willing sellers and then we would be actively investigating those opportunities, but at the same time be selective. Lastly, on Germany, our home base And there we have a very good market position already.
We will rather rely on a further reduction of installed capacity out there driving more or less passively our market share. At the same time, you've seen our move with the hospital owned by the order of Malta in Bonn. There we expect the closing of that acquisition over the course of the third quarter. I want to stick to what I was saying recently, is that going to be a regular theme from here on? No.
Is there a potential for a very selective repeat of such a situation where there are very near term and very tangible synergies, I wouldn't rule that out and I would actually welcome that. Bottom line, I do not foresee major acquisition spending in the near term. Our priorities are somewhat different for now. Let's revisit that once we're thoroughly through that current pandemic.
Okay. Thanks very much.
Thank you, Falco. I believe that concludes our conference call today. I hope our answers have informed your thinking further. Markus is available for further questions that could not be answered in today's forum. Rachel and I are also selectively available for investor calls, so feel free to reach out.
Bear with us. We will be working hard to make that adjusted guidance to turn that adjusted guidance now into reality and hopefully maybe even do a bit more. And but first of all, stay safe, stay healthy. Have a good summer.
We want to thank Fresenius and all the participants for taking part in this conference call. Goodbye.