Good afternoon and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I now hand you over to Markus Georgi, Head of Investor Relations. Please go ahead.
Thanks, Natalie. Good morning, good afternoon, depending on your time zone. Thanks everybody for joining us today. It's my pleasure to welcome all of you to our first quarter 2023 earnings call. With me on the call today, again, Michael and Sara. Before we start, I would like drawing your attention to the cautionary language that is included in our safe harbor statement on page two of today's presentation. Without any further ado, I'll hand it over to Michael. Michael, the floor is yours.
Markus, thanks. This is Michael. Hello, everybody. Sara and I are going to quickly run you through the Q1 fiscal 23 operational and financial highlights, the progress on #FutureFresenius, then take questions. As we've been saying all along, through #FutureFresenius, the company has been resetting itself, simplifying our structure, sharpening our focus, and accelerating performance. Our mission, of course, is advancing patient care. That means deepening our commitment to our healthcare core, building on our strengths in therapy, and clearly aiming for industry leadership. First three months for fiscal 23, all in all, I'd say we made good progress financially and operationally, we have work still to do. First quarter highlights. Happy with our core. The operating companies, they delivered sequential performance improvement. Both top and bottom line came in strong at Kabi and Helios. Our focus on self-help seems to be paying off.
Our productivity, i.e., cost saving efforts, are having an impact and are continuing on track. Simplifying our group structure is moving ahead. July 14 is the FMC EGM, where shareholders will have to act and decide on the simplified structure. It has taken many discussions to get to this point. It is a straightforward, elegant solution that benefits all shareholders and improves both companies. Staying with our efforts to simplify and make Fresenius more transparent, you'll see Kabi's numbers are reported on a business unit basis. Nutrition, biopharma, MedTech, and pharma. This is clearly in line with the three plus one strategy. It reflects the differences in the businesses and in their respective end markets. More transparency, more opportunities to benchmark and to value the business properly. As mentioned, there is still work to do more than initially anticipated.
Vamed, one of our investment companies where we have an ownership stake below 100%, clearly has legacy issues. The business did not perform as it should. Hurt the quarter. We will go through the details and what we're doing to fix it in a minute. Even with this, there is obvious positive momentum on what really matters. We, the entire leadership team of Fresenius, have the plans and the right mindset for change, and we will keep this going with a clear focus on execution. Now looking a little deeper in the quarter. Strong start to the year. Revenue at EUR 10.2 billion. Healthy 5% year-over-year growth. Happy to see consistent top-line growth across the entire group. Operating companies performing at the top of the range we set out earlier this year clearly underlines their strong position in the markets and them gaining traction.
On EBIT, performance was in line and with the expectations. At the operating companies, we are happy with the developments, i.e., holding up in the current environment, driving productivity and being kind of broadly flat versus prior years. Investment companies are clearly dilutive to our earnings development. Vamed is a disappointment. The trajectory on earnings we've been seeing for the last quarters is not acceptable. Projects and contracts were not moved ahead. We are taking action to fix the problem with a thorough vetting of the business model, timetables, costs, and management. Because of our partial ownership, we have been limited by governance. Yet group management had to step in and take decisive action to ensure that focus and stringency are brought to bear on the structural, personnel, and performance issues. There will be changes. Management and structural review is ongoing. This will take some time to work through.
We will update you on solving this as we move forward through the year. Considering where we are right now and factoring in the impact of the investment companies, we stick with the outlook we announced in February. This is pretty straightforward and realistic. Double clicking on Kabi and Helios, the core of #FutureFresenius. I guess we started out the year strongly. Kabi is a leader in their end markets and across geographies. Vision 2026 is at play. All growth vectors, biopharma, medtech, and nutrition, delivering meaningful top-line momentum and performing above the growth band. In total for Kabi, revenues were up by 7% year-over-year. Our growth vectors catered for double-digit growth. On EBIT, despite inflationary effects and go-to-market resource ramp up on biopharma U.S., they achieved an EBIT margin of 14.5%. Good start delivering the first quarter within the margin band.
Helios again delivered a solid quarter, primarily paced by the quality of our Quirón Salud assets, and both Germany and Spain showed how we can offset continuing inflationary pressure by taking actions. Growth at fertility clearly stood out. Part of the reset at Fresenius was simplifying the ownership structure with FMC. All the necessary prep for the deconsolidation is on track, allowing both managements to set strategy and pursue opportunities most suited to their businesses. The FMC EGM is scheduled for July 14th, and we're looking forward to seeing a positive outcome. It has taken a long time to reach this point. This is an important milestone as we, like all other shareholders, will clearly benefit from a new structure that offers options and flexibility and enhances performance for everyone, FSE, FME, and all shareholders. Meantime, FME has moved ahead.
They have enhanced their financial transparency, put in place an implementation plan for the operational turnaround, and we see improving treatment volumes. Seems that the FME25 plan and the new leadership are starting to gain traction. With all the changes we have announced, what will never change is our focus on patient care. That is at the very heart of all we do, even going further and delivering on our mission, advancing patient care. Our launch portfolios are moving ahead. We're honored that our Ivenix infusion system, after a rigorous clinical led review, was awarded an innovative technology contract from Vizient, whose members include more than half of all acute care hospitals in the U.S. This helps us in gaining what needs to come first, mind share. At Helios, we completed a pilot program for recycling narcotic gases, which addresses both safety and environmental issues in hospital settings.
These are just two showcases of innovation and passion, which are coming out from our thousands of healthcare professionals and committed employees all over the globe. Very proud of all improvements to really advance patient care. Let me turn it over to Sara for more detail on the numbers.
Thank you, Michael. A warm welcome also from my side. Let me walk you through the most important numbers for Q1, give you an update on the implications of the deconsolidation of FME, and provide you with a status quo of our cost savings program. We saw healthy 5% revenue growth in constant currency driven by a group-wide strong demand for our products and services. The EBIT decline of roughly 10% in constant currency in the first quarter was mainly driven by inflationary headwinds. Continued cost increases and the annualization effect compared to Q1 2022 affected our cost base, in particular for material and focusing on Europe, also for energy costs. In addition, we had a very weak quarter at Vamed. Excluding FMC, the EBIT decline was 7% in constant currency.
Focusing on our operating companies, Kabi and Helios, the EBIT development was broadly flat year-over-year despite the cost pressures. Our interest expenses increased by more than 40% year-over-year because of financing activities in a higher interest rate environment. For the full year, we continue to expect interest expenses between EUR 700 million-EUR 750 million. The tax rate before special items stood at 24.9% at the upper end of our full year expectation. This was mainly due to higher taxes at FMC and no capitalization of Q1 tax losses. Operating cash flow increased over a weak prior year quarter to EUR 175 million. Let us take a closer look at the business segment performance in Q1. Kabi had a good start to the year.
Revenue at around EUR 2 billion and a strong 7% organic growth, predominantly driven by volume, but also some targeted pricing initiatives. Especially pleasing is that all three growth vectors are contributing to that momentum. Biopharma, again, stood out with a very dynamic development, in particular in LATAM. We have seen first revenues coming in from the U.S. IV drugs and fluids contributed with a solid 3% to the overall strong growth. In Q1, Kabi achieved an EBIT margin within its structural margin band. This is an excellent achievement driven by the strong revenue development and a positive mix effect. We were able to help address partial market shortages in IV drugs. Our cost-saving program is also progressing well. Compared to Q1 2022, overall higher input costs as well as the investment in U.S. Biopharma and the Ivenix rollout led to margin pressure.
As you have heard from Michael, we have changed Kabi's financial disclosure. I hope you already had a chance to have a look at our website. Pierluigi and the team will provide you with more details at our capital markets day on May 25th. Helios delivered a good Q1. Revenue came in at EUR 3.1 billion with a nice 5% organic growth. Spain was yet again a major contributor to this development, driven by a healthy volume development combined with some price increases. In Germany, admissions continued to come back to a pre-COVID patient structure. We are optimistic that this trend will continue over the year. Fertility saw a positive momentum in Q1 as patients returned to its clinics following a phase of hesitation driven by macroeconomic uncertainty.
EBIT at EUR 311 million, with a good margin of 10.1% and thus right in the middle of the structural margin band of 9%-11%. Compared to Q1 '22, we are seeing some phasing effects with a very strong quarter of '22 in Spain, as well as an increased cost base. Higher energy costs in Germany were mitigated by both governmental support and an energy savings program, achieving almost 20% of savings on energy consumption in Germany. Overall, Helios again demonstrated its ability to compensate inflationary headwinds by sales growth as well as structural productivity. Moving on to Vamed, a very disappointing Q1. Even though revenues were growing, we saw significant negative EBIT development. The EBIT decline was driven by the legacy project portfolio with challenged profitability given significant cost inflation.
We expect legacy projects to also be a drag in the upcoming quarters. We had business initiations that did not materialize as planned and negative one-timers in particular in the service business. As Michael said, we act with rigor and are focusing to restructure the business. This includes streamlining of organizational structures, a stringent cost and efficiency program and likely portfolio measures. We will provide you with an update in the next earnings call. We are progressing well on the planned deconsolidation of FMC, we wanted to provide you with some details around the accounting implications of the deconsolidation as well as some key financials excluding FMC. FMC is currently fully consolidated and broadly speaking, contributes around 50% to our top line and roughly 40% to our EBIT.
Post deconsolidation, FMC will only show up below the EBIT line as an investment company accounted for using the equity method. While virtually all P&L line items will be touched by this change, the economic ownership of our 32% stake will still be reflected in the net income. There are some technical steps on the way to it. After a positive vote on the deconsolidation at FMC's EGM in July, we will apply IFRS 5 reporting standard to FMC. This will lead to consolidating and presenting FMC into a single line in Fresenius's balance sheet and P&L, and requires revaluation of FMC at its market cap compared to the book values we hold in our accounts as per today.
For illustrative purposes, based on FMC's market cap as per April 28th and Q1 financials as per March 31st, this would lead to a negative one-time P&L effect of roughly EUR 0.9 billion, thereof EUR 0.3 billion attributable to Fresenius SE shareholders. It is important to emphasize that this is a pure one-time accounting effect, which would be recognized as a special item and would have no cash impact. In a second step, after registration of the new legal form in the commercial register, we will technically deconsolidate and apply the equity method under IAS 28 for FMC. This will have a further effect dependent on FMC's market cap and additional technical accounting adjustments. Again, important to stress, recognized as special item and without a cash impact.
The described accounting implications highly depend on the market cap of FMC as well as the balance sheet values at the respective dates, thus are expected to vary from the illustrative figures just outlined. Onto our cash flow development. Operating cash flow increased year-over-year by 73% to EUR 175 million. The cash flow margin stood at 1.7%. The first quarter is traditionally a softer cash flow quarter due to phasing effects, with the respective catch-up effect over the course of the year. Q1 2023 was positively impacted by the governmental support on energy costs for Helios Germany, as well as overall solid cash flows at Helios. Phasing effects from higher working capital at Kabi, in particular for receivables and inventory, weighed on Q1. The negative EBIT development at Vamed also had a negative impact on cash flow.
The Q1 performance took the group's LTM margin to 10.3%. Deducting group CapEx of 4.3%, the LTM free cash flow margin stood at 6%. As outlined in my full year presentation, we are in the process of establishing a much more stringent focus on cash and cash returns, which is reflected in the decision making process within the group. Let's take a look at the ROIC, which stood at 4.8% in Q1. Excluding FMC, the ROIC would have been 5.2%. Not where we want to be, we are strengthening our focus on ROIC with rigor, deploying our capital consequently along our strategic pillars and with a clear priority on return KPIs with implications on M&A, investments, and CapEx. It will take time. 2023 will be the inflection point.
On to the cash conversion rate, a new KPI under F³ reflecting our increased focus on cash flow generation and cash conversion. The LTM cash conversion rate, which is the relevant metrics here, stood at 1.1 times, in line with our full year expectation. With respect to the leverage ratio, we are at 3.79 times in Q1, above our target range, mainly due to the softer EBITDA development at FMC and Vamed. To remind you, we expect 2023 to be slightly above our target range. As you know, we are reviewing selected assets for potential divestment. Such divestments would, of course, help create headroom, which is not reflected in our full year 2023 leverage ratio expectation. On to the status quo of our cost saving program. We are delivering on our structural productivity improvements.
We achieved roughly EUR 130 million of cost savings in Q1. Excluding FMC, we are at EUR 70 million. We realized about 25% of the yearly cost savings in Q1, fully on track. I'm happy with that progress. I described to you in the full year call our financial priorities and ambition levels. We have given you a clear and measurable set of goals. That is also driving a performance culture within our group. I'm convinced that this clarity and transparency is also increasing accountability and finally is accelerating execution. With that, I'm happy to hand back over to Michael.
Thanks, Sara. Before we get to questions, I wanna keep front and center the momentum we have in what we call revitalizing the company. We are going to bring permanent change to Fresenius to ensure consistent performance and build back value. In the months since we started this, there has been marked progress. Core delivered nicely. Deconsolidation of FME, which wasn't thought possible, will soon happen if and when all shareholders act in their best interest at the EGM. At Kabi, we've made the whole organization simpler, reporting by business units so that we can better measure and better manage what needs to be done. The financial framework, F Cube, where clear measurement targets bracket our activities are being rolled out. This is a cultural and performance change which is new and necessary.
As we move through the year, you will see the results of our asset reviews, specifically the divestments. The productivity enhancements will go even further than what you see in Q1. They are gaining traction. There's more work to do. Pretty clear that our investment companies have to be reset too. Advancing our ESG agenda will be part of what we call revitalizing as well. This now on slide 20 is the calendar for the FME deconsolidation, likely effective Q3 or Q4 of this year. I wanna end by inviting all of you to attend our Capital Market Day on May 25 in London. The whole management team of Kabi will be available to meet. Kabi's biopharma, med tech, nutrition, and pharma leaders will all be there. We will be highlighting the operations, the financial picture, the products, production footprint, et cetera, et cetera.
I understand that some infusion pumps and other products will be on-site, exciting stuff. There will be discussion and plenty of time for questions. Of course, it will be webcast, but being in attendance will make it better for us and better for you. I really look forward to meeting many of you there. Let's take some questions now. Over to Markus.
Natalie, please go ahead and let us start the Q&A session for today.
Ladies and gentlemen, we are now starting the question and answer session. If you would like to ask a question, please press star followed by one on your touch-tone telephone. The operator will announce your name when it's your turn to ask a question. In case you wish to cancel your question, please press star followed by two. Our first question is from the line of Hassan Al-Wakeel from Barclays. Please go ahead.
Thank you for taking my questions. I have two, please, both on Kabi. Firstly, can you talk about the stronger margin development in the business, given you're already within the structural band, and why you expect a meaningful deterioration in the margin as per your segment guidance over the course of the year or whether there is some conservatism built in here. Secondly, I'd love to hear a bit more about the strength in the nutrition business, and how the performance varied by enteral and parenteral nutrition. As the Chinese market shifts towards more enteral treatment, are you finding that your strength in parenteral nutrition in China is a strong point of synergy? Thank you.
Thank you, Hassan. Let's try to start with the first one or both question. Sara and I we're gonna try not to steal thunder also from the capital market day, which is due in two weeks. Look, we're very happy with the margin we saw in Q1, purely operational, and it was also a function of, I think, what the Kabi team has been working on for, let's say, the last two years. There has been a tremendous growth momentum. The growth of Kabi, you know, at 7%, clearly drove volume. Sara depicted to that, even though we always said that we have limited room for rolling over prices, wherever we had the room, we took actions.
On a volume on pricing base, this really led to the very strong Q1. The words you used for the remainder of the year, I would not use, the, especially your second word. Look, there's gonna be a capital market day in two weeks, there's a new CEO of Kabi. I guess we all agree that we also need to give him a chance to look at the business. He's preparing for the capital market day, and then he will together with his management team, deliver how we see the levers for enhancing the performance going forward and how we, you know, stack up on the margin band.
Also on the split between enteral and parenteral, we gotta go geographies by geographies and see where it's strong. Obviously in China in total, you know that China, where we have a strong also parenteral and enteral business, that we have the volume-based procurement. China, all in all, probably was rather one where we would have to make it up with other countries, which we did. Therefore, the whole business grew nicely, actually, with roughly 8% against prior year. There is obviously synergies between enteral and parenteral in the treatment initiation.
You will probably see in two weeks that the whole topic of nutrition in the clinical routine is gaining more and more attraction, and we get more scientific and medical evidence that nutrition is a key part on treatment paths, also on oncology.
Very helpful, Michael. If I can just follow up on your comment around the margin not meaningfully deteriorating from here. I wonder then if you could help me understand the phasing of EBIT growth for the company overall and given the better start to the year, whether, you know, the upper end of the guidance is more likely. Thank you.
Yeah. I think we deliberately said that we're gonna stick to the guidance and the guidance has, let's say, has some spread and we're gonna go quarter by quarter and update you because we're gonna observe how, you know, our businesses are developing and performing. By and large, what we initiated seems to be working and paying off. Too early to call it a trend because it's a data point, but we are pretty sure because we know the activities, we know what is behind that one. The core is nicely placed with Kabi and Helios. Both Sara and myself, as the entire leadership team, we shared with you our disappointment with one asset where there's work to do.
There's a trajectory for the last quarters, and I'd say we have to look at that one more profoundly. Group had to step in, that's why we felt prudent to keep the outlook as it is. You get data points already as to who is performing strongly and who may be on the watch and what it does or doesn't do to the risk profile.
Perfect. Thank you.
The next question is from the line of James Vane-Tempest from Jefferies. Please go ahead.
Yes, hi. Thanks for taking my question, please. Firstly, just on Vamed. Just wondering how much of a setback this is to what you might want to do with this asset when considering your strategy to manage portfolio exits?
My second question is, again, just coming back to Kabi. Margins were, you know, very strong, but I think if you could give a little bit of clarity, just at least in terms of thinking about the growth vectors where, you know, the profitability decline was double what we were seeing in the IV business, and how we should think about the phasing of that through this year, that would be helpful. And then just related to Kabi as well, the biopharma business, you know, very strong growth of north of 200%. I think you cite Latin America, but any clarity on products there would be useful too. Thank you.
Yeah. look, on Vamed, I think it goes without saying that this is a setback. That's why I deliberately also in my speech said that we got work to do, more than initially anticipated. Everybody should be rest assured that we're gonna get the work done. The focus now is, first of all, getting the hands around that asset and, as also Sara alluded to, you know, making sure there's a stringent restructuring plan in place and that, this is being followed up and everything you need to do now there. We were very clear vis-à-vis, Vamed, in terms of our expectations. Sara sits on the board, and she can give you also more details, but this is the focus now on, on the Vamed.
On the growth vectors. Look, I think we still need to bear in mind, therefore the growth was so instrumental that we are still in an environment where there is inflation. Inflationary, you know, also pressure on the input cost side. That you can also see on nutrition when it comes to milk products or carbohydrate and the like, but the team also took countermeasures. What you see as the, in brackets, margin contraction, which you saw on the growth vectors, is the resource build-up on the biopharma in the U.S. We are about to launch, you know, there you get the picture of what your other question was on biopharma. We are about to launch the adalimumab, our Idacio.
We always have been saying that we are in the second round. I also said, you know, economically, opposed to what we've been maybe alluding to in the past, economically, I feel more this is testing the waters. Business-wise, operationally, this is, of course, important because we're ramping up the resources. We have been building up the sales channels, the chief medical officer, the promotion material. We are driving a multi-channel strategy there, talking to pharmacy benefit managers, but also to our regular channel which are the hospitals, Stimufend, on the onco side we launched in the U.S. This is like really early innings. I think we can count, with our bare hands or fingers the sales we have.
It's as I said, you've got to start somewhere. This is the prefilled syringe stuff, where we are trying to, you know, have patients switch on the biosimilar. We are also there rather looking at the on-body injector, which will come later because this clearly has more patient benefit about patient safety and patient comfort. By and large, I think that is it. We have seen strong growth, regionally also on that end, also for the biopharma, as in also nutrition, others on the Latin America side.
Thank you.
The next question is from the line of Veronika Dubajova from Citi. Please go ahead.
Hi, good afternoon, and thanks for taking my questions. Just two from my side. One is just a follow-up on Vamed. Michael, I'd love to understand exactly what you are doing to increase or improve the performance in the group, and what's a realistic timeframe we should be expecting to see some improvements over? Just conceptually, does this change in any way your attitude towards retaining a stake in the business? That's my first question. I have a follow-up and after that, but maybe we can get this one out of the way first.
Good.
Okay, perfect. Thank you very much, Veronika. Happy to provide you a little more details here. I mean, I think it's fair to say you have seen Q1, now we have a Q4, now we have seen a further deterioration in Q1. We have launched the restructuring program, I think it's fair to say it's obviously it goes the way of streamlining organizational structures, stringent cost and efficiency measures and portfolio. There are some, I would say, short-term measures, which have already been implemented and which we will need to kind of, you know, pull through with full force, that is obviously what you would expect in such a situation. Spend control towers, cash desk, making sure that we operationally get under it as quickly as we can.
Then there are obviously those more structural topics which need a little more time to see the benefits of that coming to fruition. There's a whole review currently ongoing, as you would expect. It's fair to say what we can already see, and I commented on that. Obviously, the legacy portfolio we have, in particular on the project side, is challenged by the significant cost increases we have seen. So the profitability here is challenged as well. There are some, I would sayQuick care fixes, but there are some which just take time, and there are some which can be implemented quicker and some which again take time, and you need to do some analysis there as well. We will act with rigor.
I think it's clear that we will work this one through. We'll update you as we progress. Hopefully by Q2, we can give you a more comprehensive update on where we are with our restructuring program and what exactly are, in particular, I would say, the structural measures we are about to embark on.
Views on ownership? I don't know if that's a question for Michael.
Yeah. I would say currently our focus is to get the business back on track, to look at the restructuring program, to see where we do have self-help, to see where we need to streamline organizational structures and so on. I think as Michael alluded to, we are not 100% owner of the business. That makes some of these steps maybe some more cumbersome than others. We are confident that we will work this through and that's our current focus.
Yeah. Veronica, look, we shouldn't also get ahead of ourselves. We labeled the company as an investment company. We did not put anything up for anything else. When we started the journey, we said investment company and operating company because of the different ways to manage this, is exactly what Sara alluded to, and obviously the focus. What is important now here is that we get to the bottom of this, and therefore we deliberately emphasized it's gonna be full-fledged. I said there's gonna be a vetting, also not only just, we look and tell them save costs and so on and so forth, also of the business model. We did say openly, candidly say this is... It was transparent anyways.
It is a development of the last quarters, and it is not satisfactory, not to say the least. You know, the last thing we can do or should do is to say, "Okay, there's gonna be some measures, and then next quarter it's all gonna be good." It's not. It's gonna be good eventually, that we can promise, but we will update you as we go along next quarter. Sara just said it. Next to these rigorous measures which are being taken immediately as we speak, we're gonna look at the business model and the portfolio. Does it make sense to be a general contractor? If yes, where? And with which risk profile? This is a totally different business model when you talk about project business. This is infrastructure business.
This is about scoping, this is about contracting and all these, this and totally different capability set than running a pharma business or a care delivery business. Therefore, also it's called an investment company. Therefore, don't get ahead of ourselves.
Very clear. Thank you. My second question. Apologies, I had some connection issues. I don't know if this has been asked already, the Ivenix recall, that came out a couple weeks ago. Just curious, kind of anything to read into it, any concerns? Just wanted to give you an opportunity to comment on that. That was it for me. Thank you.
Recall?
Ivanex.
Ivenix. You said recall, right? Yeah. That was an Ivenix issue is already solved. That is doesn't come really as a surprise. It's also not meaningful. Ivenix is a kind of like still in the, not a startup anymore, but we are starting to industrialize. When we bought it, we said it will take some time because we are shifting the whole manufacturing process over to us in order to then get it on a industrial scale manufacturing, bringing the costs down, and obviously also having leverage vis-a-vis vendors on the procurement side, and then obviously building up the go-to-market where there is synergy with our solution business and so on and so forth.
There was a minor issue, I would say, has no financial impact and it is so solved. As it is common, we need to report on this one, and that was it.
Understood. Thanks, guys.
The next question is from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oh, yeah. Thanks so much for taking my questions. Three if I may. The first one is rather kind of big picture. I understand that 2023 is obviously still a transition year given the headwinds from Fresenius Medical Care and also inflation. Now Vamed is obviously shaping up a bit more challenging and inflation can continue. I was just wondering, can you talk to your level of confidence that in 2024 you will deliver significant earnings improvement? If so, what are the kind of key levers here, in particular in your core business activities? Secondly, just on China. I mean, China is obviously a major market for Kabi and also has been a significant growth driver in the past.
Can you just give us any kind of flavor how you think about the sales and in particular earnings course potential for China, let's say in the next two years? Short term, how much headwind should we still expect from volume-based procurement, and do you see any kind of benefit from the reopening? The third question, if I may, just on the new color you provided on the Kabi segment reporting, please. Can you just give us any flavor what kind of margin gap you have between IV and the infusion business within pharma after the allocation of R&D costs that you were doing? Is it fair to say that the gap could be somewhere in the ballpark of 7.5%-10%, or could be more? Thanks so much.
Yeah. Well, great. Thank you. I'll start with your question number three, because it's gonna be short. Obviously we appreciate the interest, but we're not gonna go to that level of detail. There's a lot of, you know, commercial and competitor activities out there. The only thing I would say, comparing, contrasting... I understand where you're coming from. You wanna build a model and compare and contrast to, let's say, others and pure plays out there. As I said, completely understandable. Look, the, the reason why we have IV generics and fluids is that this makes us the relevant player in the marketplace. This is why customers procure and contract with us because of the relevance of the breadth of the portfolio, because we can bring all of that to the table.
These are sometimes, you know, bundle deals, and structured deals and therefore you may understand that we do not feel comfortable to disclose also the difference on that one. I know where you're coming from. Again, on China, there will be more color on the Capital Market Day. You are right that China is, and was the second-largest market also with, like in many other industries with a, with a profit pool, to which was, you know, favorable. Very hard to predict, China because rightfully as you ask, there's stuff which is beyond our control. We cannot predict as to how the government and the system, what it is doing. What we did say very candidly, transparently, is that there will be impact by the volume-based procurement.
We also said, right, or at least when I was still running Kabi, I tried to tell the group at that time, you know, this is also not a one-off. It will remain. From a national volume-based procurement, they go to a provincial volume-based procurement. This is deeply embedded into, you know, into also their policy making of making it more accessible and driving prices down. We have seen this by the way in Q1 in one of the provinces, Guangdong. One other reason which may or may not have contributed to that strong margin in Q1 was that part of the MVVP was being shifted out because of COVID. We still expect that later on.
What helps, this is also built-in in our strategy, is you need to grow and grow stronger also in other regions, which doesn't mean China is an unimportant market. It is still an important market because it caters growth and earnings, but with a different profit pool, which we've been seeing before. Also, the business model is changing because, you know, we used to have in China a promotion model. That means there was a lot of feet on the street and one part of the Vision 2026 global competitiveness was that as we move to a volume-based procurement, obviously you need less feet on the street. We restructured the business.
But again, to put another, you know, element of feet on the street in place for, let's say segments where you need still promotion, but you will get more color on this one. Therefore you see we have been nicely growing in other geographies and also from a vertical perspective, the biopharma, basically one of the growth drivers going forward. Vamed, I think we elaborated on that one, and I think it is too premature to give you already some sort of outlook or what have you for 2024. What we try to do with #FutureFresenius when we launch this in February twenty-second is look, there's a clear plan.
Let us execute on the plan, be very transparent where we are, and then you know, how to calibrate it and what may or may not be the basis for 2024. Okay?
Perfect. Thanks so much.
The next question is from the line of Graham Doyle from UBS. Please go ahead.
Good afternoon guys, and thanks for taking my questions. Just one on Helios and then on the portfolio overall. In terms of margin phasing as we go through the year, I mean it's been a pretty solid business. We think back over the last 18 months to that sort of 10% level. Is there anything we need to think about from a cost side that would be disruptive? Are you pretty comfortable where Q1 landed and sort of as an indicator for the rest of the year? Just sort of thinking about German energy in particular. Then just on portfolio exits, there's one way of phrasing this is, you talk about launching processes in terms of maybe some of these exits.
How confident do you feel you'll have disposals in time to sort of help with the debt refinancing that's coming up over the next sort of six-12 months? Like how much a role can that play in this? Thank you.
Happy to happy to take the one on Helios maybe first. I think overall, Helios demonstrated and has demonstrated also last year that they are able to compensate inflationary headwinds and cost increases, which we actually are seeing and continue to see in 23. We go to the point of wage negotiation. We have now good clarity on tariff negotiations in Germany. There is also a contract coming up in Spain, which we are negotiating. All of that obviously can have a notable impact on our cost base. I would say so far what we are seeing in line. We also have the element of energy costs. Here there are two ways how to tackle it.
I think in Spain, energy costs have been high for a while now. Obviously, Quirónsalud was able to compensate for that very nicely. I think in Germany, as I said, it's two way. One, there is from the healthcare fund, there is a liquidity reserve.
Where you get a lump sum payment to help tackle the increased energy cost. The other effect, which we are also doing in terms of self-help, is to reduce our energy consumption by almost 20%. You see the whole Helios model is geared for self-help and structural productivity. If I look ahead for the year, I would say that Q1 is really good start to the year. I don't see why we should significantly deviate from that. I mean, obviously you will have seasonality patterns, I would say, for example, in Q1 and Q3, but nothing out of the norm, based on what we are currently seeing.
Okay.
Your sorry.
Yeah.
Your second question go over.
Yeah. Second question. Graham, this was, I think on the vestiges also there. What we are again trying to do is lay out a plan, be very transparent on that one, and then really work on that one and deliver. That was a reason why I also mentioned in the speech that we are ready to bring permanent changes to Fresenius and to ensure consistent performance and to build back value. Transactions need time, need preparation. We said 12-18 months when we launched it. We said a handful roughly on assets we are looking at, and we need to be diligent and those things need to be thoroughly prepared on in order to be, at the end of the day, successful.
Business-wise speaking, also what we saw in Q1, I'm very confident about all portfolio elements, also we have in scope. Therefore, you know, this is one of the necessary prerequisites that an asset should also be attractive and performing. We're working on that one. That's why I said we have our hands full.
Okay, great. Thanks a lot, guys.
The next question is from the line of Oliver Metzger from ODDO BHF. Please go ahead.
Good afternoon. Thanks a lot for taking my questions. The first one is, can you elaborate about the competitive dynamics in the US RV business? Second, point is, about your price initiatives at Kabi. Can you comment about the volume price mix and also which of the sub-segments have profited the most within the segment? The third question is, on your EBIT at Helios. We see it basically broad-based among the divisions that there is some pressure on profitability. You made the comment on the energy consumption savings. First to clarify, what was the baseline? Was it year-over-year, or what has to use as reference? Second, which room do you see for incremental cost savings at Helios? Thank you.
Start with Henni?
Yeah. Happy to start with Helios if you want. The savings on energy cost consumption in for the German Helios business, you can take 2022 as a reference point, and it's almost 20% of consumption savings as said. It's also, if you look at the topic more broadly, maybe getting a little bit more detail on the healthcare fund and the liquidity reserve there. I think what I was referring to is that EUR 1.5 billion we are seeing from that fund, that's a lump sum payment you get per installed bed. It is some governmental support for inflation-related costs.
That means for Helios big picture, it's around EUR 85 million funding, which we however reflect in the P&L obviously on a pro rata basis as we work throughout the year. I think that's an important measure. If you say incremental cost savings, obviously Helios is also part of our cost and efficiency program. Yes, they are also working on cost initiatives. I think energy is one important pillar. Digitalization, particularly on the Quirón side, is another important pillar. Structural productivity in terms of processes is a third one. I think Helios overall has demonstrated its ability to counter inflationary headwinds quite well over the last couple of quarters. Not only by cost initiatives, but also by the revenue growth we have seen, in particular at Quirón in Spain.
Yeah. Oliver, let me take the other questions. Let me start with the pricing, price volume in Kabi. I wouldn't overemphasize the contribution of pricing in terms of bottom line impact. What we try to allude to is, we're happy that net-net, we saw a positive contribution also from pricing. We have always told all of you that usually we cannot roll over prices. In a few instances, you were asking where it is, for example, in parts in nutrition, it is in parts on the med tech side, and obviously varies from geography to geography. We have been able to do this.
As a net-net contribution, there was a positive contribution out of pricing where, you know, in an environment we're currently in, and this leads almost to your next question on the competition, and intensity and dynamics in the U.S. that, you know, sometimes you even have to encounter price decreases. Obviously different. You will see that on the CMD, where you have an innovation-driven business on the MedTech or on IV generics, it is more about what is your launch timeline on nutrition. It's also about innovation and setting new price points. I wouldn't overemphasize. The volume piece is much larger than the pricing effect. That is the good news because the volume piece obviously also fills your factories and then drives cost aggression.
On the U.S. dynamics. Look, there were years where there was a lot of drug shortage and capacity shortage that normalized. We always said, the increased competition is still going on. I elaborated a couple of times about the number of competitors in the last couple of years, and that normalized. We had been able a couple of years to step in with the capacity we had. Yet, it is still a very attractive market, because first of all, it's big, it's large in size. There is also still drug shortage in the U.S. We have capacity there. In terms of competitive dynamics, I think one of the tasks Pierluigi now also took on is, you know, where do we have gaps?
Where are we strong? Can we get more nimble on, let's say, catering and matching demand supply dynamics? There is always demand, but, do you have the capacity to supply, to produce it, for what is just being asked? This is one of his key tasks. Overall, I'm very satisfied with the margin which the U.S. caters, out of IV generics.
Okay. That was very helpful. Thank you very much.
The next question is from the line of Robert Davies from Morgan Stanley. Please go ahead.
Thank you. Most of mine have been covered, but I did have one left on just on Vamed. Given that that's more of a project-based business, just wondered how much sort of forward visibility you had there in terms of the margin development over the rest of the year. Is it fair to assume that that business should be back into the black before year end, or is there a scenario where you think they could still be negative through the end of 2023? Thank you.
Look, it's project business, but it's also service business. I think it's fair to say that there is and continues to be some nice underlying margin on the service business. We have seen one-offs, and impact on the service business in Q1. However, I think if you look at Vamed, it's pretty complex within itself, and I think you need to differentiate between the businesses, quite distinctively. If you look to the project business and if you look to visibility, obviously we are now getting under it to get the visibility. I think on average, the remaining projects which we currently have, they run another two to 3 years. Obviously those with contracts pre price increases are the ones which are more challenged.
I would say you need to really dissect between the project and project by project. We have an international project business and a European focus, meaning Germany and Austria in particular, which have different dynamics. Then the services business with high-end services and technical services. Also, you need to look at it in a distinct manner. We aim to give you a good update in Q2, where we will present you with more details on the restructuring plan and also be more specific on how and what the timeline is for our Vamed restructuring program.
Yeah. Thank you.
Maybe let me add to that one. Look, there is a clear restructuring plan and, you know, strong and firm ask from our side, and we got to work through that. They have to work through that. They're gonna be accompanied, obviously, but need to get to the bottom of it. The annoying thing is that, could one have seen it earlier? I don't know. Only if you have the transparency. As Sara said, you need to work project for project. That means contract by contract in a decentralized organization where they are also, you know, catering customers globally. Then you have different business models, the service model. We also have rehab centers and so on and so forth. We need to work through this first.
As I said, we vet the business model 'cause the risk profile varies obviously also, or can vary from contract to contract. Therefore, let us get to the bottom first, and then we will update you on this one. Goes without saying, if you heard us in, you know, at the press conference in February 22nd, we started kind of looking at it in Q4 last year, where you have seen also, let's say, accounting related effects on that one.
Thank you. Maybe just as a follow-up, when you said, I think in your presentation, Becky, you said it was a major restructuring program initiated. Do you have any sort of sense yet in terms of the costs associated with that, or is that still being worked on?
We will provide you also with an update in the Q2 call. I think let's not do kind of piece by piece, but rather give you a more comprehensive view in Q1 on the timeline, on the cost buckets, and on the way forward.
Okay. Okay, great. Thank you.
The next question is from the line of David Adlington from JP Morgan. Please go ahead. Mr. Adlington, you are now live. Please go ahead with your question.
Hey, guys. Thank you for the question. Most have been asked, answered already, but maybe just on Kabi again, just in terms of the pharma margins. Hello, can you hear me?
David, you're breaking up. Nope.
Can you hear me?
Now we can hear you.
Can you hear me?
Yes, we can.
Perfect. I hope you can hear me now.
Yeah.
Awesome. Right. Just on pharma, on Kabi again, just in terms of the 60 basis points of margin improvement, I just wondered if you could split out how much of that was down to price mix versus cost savings. Secondly, on Vamed, there were some reports last week of some compliance issues. Just wondered if you could give some more color on that, what steps you're taking to address, and any risks associated with those compliance issues. Thank you.
Sara?
Happy to start on the Vamed side. I mean, obviously we would be looking into any compliance issue with all the rigor which goes along the way. I think, as you can imagine, if you see a business which is now not performing for some time, you will always get, I would say, more noise around it. You can rest assured we will look at it, as we look at the financials, we will look at the overall structure and the overall setting, and also provide you with updates here.
Yeah. Look, on, on the split volume pricing, uh, uh, on, on a generic and IV fluids, uh, this is I think, uh, s-more detail for the capital market day. They can go into more detail here. Uh, all in all, we were very sa-satisfied because it was also driven by growth. Uh, the 3% which we saw on the, on the, on the pharma business, uh, three point 4% generics and fluids. Uh, fluids also very stable all over the world, you know. That's what I meant with ref-- uh, uh, being relevant, having a, uh, a portfolio where, uh, uh, this has kinda like almost a very stable demand, uh, and that, that helped to, to drive the performance, um, you know, split on, on volume, on pricing on that one is, I think, more for the capital market day.
On Vamed, again, this, I mean, I guess you are quoting the, that article.
No.
where they were talking about that. It needs to be taken into context. We would, if they were quoting the letter, which went from group to them, it is about accounting-related topics in the internal control system, which we made also. You know, we discussed with everybody being involved, also auditors and supervisory board in Q4, and Sara made sure that there's a clear remediation program on that one, in order to ensure, you know, accounting and internal controls compliance.
The last question comes from Christoph Gretler from Credit Suisse. Please go ahead.
Thank you, operator. Good afternoon, Michael, Sara, Markus. I have two questions. You know, the first with respect to Vamed, too. I was a bit surprised by the order of magnitude of the loss. Actually, could you specify how much this one-time effect was in the service business? That would be my first question.
Yes. Yes. It's almost all of the one-timers related to the services business.
Yeah, but the magnitude, you know, is this basically kind of all this loss that we see right now?
No. No, no. It's, to be honest, there are two buckets, I would say. One is legacy portfolio on the project side. The other one is one-timers. I think some of the one-timers had to do with re-evaluations of contracts and claims. Some of them, however, were also unfortunate closures, for example, on a re-rehab clinic because it needed refurbishment. We closed it when normally as we go through the year, we have less occupancy here, which happens to be Q1. Some of it is, I would say, good practice. The other ones had to do with changed client behavior, in particular also in the services part as COVID and the war in Ukraine changed some of the contracts we had in terms of the executability and the timelines moving forward.
We will clearly look into that. As I alluded to, the services business underlying and fundamentally, we see some healthy margin.
Okay. The second question just relates to the margin in this growth vector business at Kabi. This, you know, 270 basis point decline year-over-year. I understood that, you know, there was major investment in U.S. biosimilars. Was this the majority of this margin decline? You know, if you strip that out, you know, were actually margin improved on the, you know, the key business without biosimilars?
Yeah. Look, first of all, it's a number of effects. In the growth vectors there's also a biggie, which is the nutrition business, yeah? I told you also on the nutrition business, very, very kinda pleased with the trajectory they're taking because they have been tremendously growing. On the other hand, they also have to cope with inflationary topics on the input side. I told you about, you know, protein, milk protein products and carbohydrate. But, you know, thanks to a lot of growth and actions they took, so there are many effects on that one. On the, on the biopharma, it was mainly, you know, the buildup we have in the US because, as I said, we still are about to launch.
Don't forget, I also mentioned Ivenix. I said it is at very early stages. Ivenix has a totally per unit economics as long as they are not in a, let's say, more mature state. This was the whole game that we take over and bring down the unit costs in, you know, taking over the manufacturing, having leverage on the procurement side, and so on and so forth. They have been probably, not probably, by fact, dilutive to the overall development. There is ample opportunity at the capital market day of Kabi, which is in two weeks.
Great. Thank you. I appreciate the comments and see you then.
Given that there are no further calls, thanks for participating in today's earnings call. Any more questions, please contact the Investor Relations team. We are going on roadshow tomorrow in London. Until then, talk to you soon. All the best. Thank you.
We want to thank Fresenius and all the participants for taking part on this conference call. Goodbye.