Fresenius SE & Co. KGaA (FRE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I hand you over to Markus Georgi, Head of Investor Relations. Please go ahead.

Good afternoon, and thanks, everybody, for joining us today. I would like to welcome all of you to our Q4 full year 2020 conference call. With me on the call today are Stephan 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 2 of today's presentation. And now without any further ado, I hand it over to you, Stephan, the floor is yours.

Thank you, Markus. Good afternoon, and good morning, a warm welcome. Thank you for joining us. As always, we appreciate your interest in Fresenius. Markus has pointed out the safe harbor language to you. We have a lot on our agenda today. I assume you have lots of questions. So let's move right to Page 4 and our key messages. COVID-19 has created unprecedented challenges for individuals, society, and obviously also for corporates. The pandemic continues to accelerate trends. We've been exposed to and much rather are trying to shape digitalization, affordable, high-quality health care products and services, a global yet local manufacturing approach, just to name a few. I am convinced these times will reward corporates who can draw resilience from their large critical infrastructure and well-proven business models, but who, at the same time, are ready to embrace and drive change to take their existing strength into this beginning decade with agility and entrepreneurial spirit, and that's why I'm so sure that Fresenius will be even stronger after this crisis. Our agility and entrepreneurial spirit had many phases during 2020. First our doctors, nurses and caregivers have, with incredible motivation, fought and helped contain the pandemic. Our manufacturing, logistics and admin staff have insured business continuity. I am proud that we, the entire Fresenius organization, have lived up to our special responsibility, and have helped to save thousands of lives with our products, services and therapies. Thus, I'd like to take this opportunity to thank all our more than 300,000 employees around the world for their tremendous dedication. You have clearly brought our purpose to life to ever better and affordable health care to ever more people. Thank you. We have not only made major contributions to society. We were also commercially successful. We made our guidance, delivered 5% year-over-year sales growth and at least very broadly, stable net income, both in constant currency. Plus, we generated cash flow at an exceptional level, strengthening our already solid balance sheet. And that brings me to our dividend proposal for 2020. We want to extend our flawless track record and propose a 5% increase to EUR 0.88 per share. And that would mark our 28th consecutive dividend increase. For 2021, you find our core expectations and assumptions in the middle of this slide. And taken together, we assume the current burdens and constraints caused by COVID only to recede in the second half. And from then, rather a gradual recovery, then a meaningful catch-up. At the same time, we assume meaningfully less government support than last year. And thus, we project net negative COVID effects to impact the first half of this year more than the second half of 2020. For the medium term, if you look through the COVID impact, you will see many attractive growth drivers here at Fresenius and megatrends that, based on our resilience, we are embracing and capitalizing on. In order to retain the required agility, we are determined to launch decisive efficiency improvement and cost-saving initiatives. Thus, we project earnings growth to accelerate significantly over the next years. And we, hence, confirm our medium-term growth targets. On to Page 6. We observed a lively investor debate whether Fresenius should be viewed as growth or value. And judging from our organic sales growth track record here on this slide, the top line can't be the issue; fairly consistent, mid-single digit. But we obviously recognize the decoupling of earnings growth from the top line. I see 3 reasons: One, there's little we can do about the COVID impact. We believe that last year, excluding COVID, earnings growth would have been much more in line with strong sales growth. And I guess we all hope that COVID remains a temporary burden. Two, our conscious investments over the last few years; biosimilars, plant upgrades, home dialysis, clustering of hospitals, et cetera, they are bound to yield a return in terms of sustainable, incremental growth. Last, but not least; three, price pressure in many of our businesses, also as a result of regulatory changes. That has been a constant theme over the years that we have successfully dealt with, but it has gained traction recently. And irrespective whether that may only be temporary, we want to counter that with our efficiency improvement program. Bear with me, I'll come back to that in a minute. We expect this program, combined with the increasingly positive contributions from our investments over the recent past and the hopefully receding COVID impact, to lead to dynamic earnings momentum from '22 onwards. The long and the short of it, we have good reason to believe in a structural recoupling of top and bottom line growth and are determined to make it happen, to see off that growth versus value debate. That brings me to Slide 7 and our strategic road map. We have defined 3 phases for the development of Fresenius over the next years: optimize, grow and accelerate, structured around the pillars of strategic growth initiatives, operational excellence and cost efficiency and more broadly, portfolio optimization. We are fully committed to this road map because bringing Fresenius back into dynamic earnings growth trajectory, that is our clear goal. This year, we will initiate the group-wide efficiency program I was just talking about, more details on the next slide. And we will put more effort into an ongoing portfolio evaluation. We will critically review the current portfolio within our business segments with a focus on long-term profitability and capital efficiency. Then bigger picture, group structure. We recognize that equity markets apply an ever-larger discount to conglomerates. They seem increasingly out of fashion. Our current group structure has, however, in our opinion, quite a few advantages that investors, for instance, appreciate the diversification of Fresenius, facilitating our access to debt capital at more attractive terms and conditions in comparison to a standalone approach for each of our segments. Moreover, we see meaningful tax advantages. Not least, the group's structure and sheer size offers stability by spreading geographical and end market exposure. It has served us well over the years, and frankly, did not stand in the way of an attractive valuation and share price outperformance. However, synergies between the segments remain limited. And we see a mix of capital-intensive, lower-growth service businesses with higher-margin, higher-return pharmaceuticals businesses. With these different elements at play and with a currently somewhat uncertain and volatile environment, that is why the strategic evaluation is a consistent theme over all 3 phases. At the end of the day, the advantages to be given up must be weighed against the potential benefits to be gained from a potentially revised group structure. We're not making the strategic evaluation now with the intention of changing anything fundamental in the short term. Much rather, we want to be prepared in case the firmly expected earnings acceleration does not materialize. In that, from our today's perspective unlikely case, we will have to find alternative routes to create value for our owners so consider it more a backup than for now. This year, we will focus on our balance sheet and very disciplined capital allocation. Lowering our leverage ratio is a key in sustaining the [indiscernible] flexibility. Due to COVID-19 headwinds, however, we are unlikely to reduce our leverage ratio already this year but are confident to significantly delever over the medium term. Over that period, we plan to reinvest our cash flows either in return-generating M&A or increasing shareholder remuneration. Talking about acquisitions. Our business is about scale. Thus, we still consider ourselves an acquisitive company who will continue to go after consolidation opportunities and search for appropriate targets to gain strategically superior position. Large strategic acquisitions are more than likely to take a backseat in the short term. But in the medium to long term, large deals, of course, remain on the agenda. On share buybacks, we are by no means categorically ruling them out. We may pursue them in appropriate circumstances. That means if we saw a sustainable reduction of the leverage ratio and if the valuation of our stock won't improve over the next few years. On to the growth drivers for our company. We have clearly defined future themes for Fresenius: biosimilars, bundling of service offerings in our hospital [indiscernible] fertility, digital services, and home hemodialysis. We are convinced that we will unleash dynamic, profitable growth over the next years based on these themes on top of our attractive existing businesses. Let's go segment by segment, which presents the cornerstones of our strategy. I am convinced that FMC is excellently positioned for continued, sustainable growth. Whilst the company has launched a material transformation of its global operating model, it is diligently executing its 2025 strategy, embracing personalized medicine; holistic home care; digital technologies, such as artificial intelligence; and its capability to analyze huge amount of data for the benefit of patients. At Kabi, we are rigorously striving for the continuous expansion of our portfolio whilst embracing operational excellence. We have invested close to $1 billion in the expansion of our U.S. manufacturing footprint and our network of U.S. distribution centers. These investments are now coming on stream and will make a significant impact on the chronic problem of drug shortages in the U.S. Our strategy remains to further differentiate and diversify our U.S. business to reduce the dependency on the more volatile IV generics business. We are not only expanding our product segments, for example, with biosimilars, we are also developing new ways to help our acute care customers with efficient and safe drug preparation. That is what we call value-added IV drug products, and you will find a slide on Page 23 in the backup, which illustrates this strategy more in detail. But also in Europe and the emerging markets, we are continuously expanding our portfolio, obviously, with biosimilars in Europe, but also in China, where growth over the next years is expected to be supported by the launch of new formulations and applications in parenteral and enteral nutrition as well as the further rollout of our IV drug portfolio. On to Helios, where based on our strength in the inpatient hospital business, we are further developing the company to an integrated health care provider. This integrated approach is designed to serve patients for all health-related demands. We aim to be the patient's first choice in and outside the hospital. We seek to serve our patients at all levels of care, from prevention and occupational medicine, ambulatory care to inpatient services. Prevention will be even more in the focus for the benefit of the patient, but also to allocate spending in the health care system more efficiently. We are already Spain's leading provider of outpatient care and aim to replicate that success in Germany by fully integrating our offering in a patient-focused end-to-end journey. To increase the digital connectivity with patients, we have invested significantly in service tools, such as patient portals, video consultations and other digital features, especially for chronically ill patients. And we continuously focus on finding additional growth opportunities. We will seek to further expand through greenfield hospital projects and selective small- to medium-sized acquisitions throughout our existing regions. Fresenius Helios has become a leading international provider of fertility services with the recently announced acquisition of Eugin. Given demographic and health trends as well as changing lifestyles, the underlying growth drivers of the fertility market have proven to be strong and sustainable. And as the global market for fertility services is still highly fragmented, it represents a very attractive opportunity for future consolidation. At Vamed, we will rigorously roll out our integrated service business model while strengthening and extending our market positions. Taking all that together, I am convinced that shaping our future according to this road map, we will create value for our company, shareholders and society. Fresenius is a fantastic company with an entrepreneurial culture, highly motivated employees, very attractive and steadily growing end markets. It is now on us to thoughtfully reposition our portfolio within those markets to revive our earnings dynamic. On to Slide 8 and the planning for our cost efficiency program. We are currently in the process to define measures to reduce costs and to improve efficiency, and the program has basically 2 goals. Firstly, it's about organizational structures and processes where we have the clear goal to become an even more agile organization that is truly fit for the fast-changing environment we are operating in. For example, through the growing potential of digitalization. And secondly, it is about further improving our already competitive cost position. We plan to rigorously implement only those initiatives where we expect to see an attractive payback period of 2 to 3 years. Overall, these initiatives are targeted to result in cost savings of at least EUR 100 million per annum after tax and minority interest in 2023, with some further potential to increase thereafter. Achieving these sustainable cost savings will, however, require significant upfront expenses. Those are expected as an average for the years 2021 to '23 to be in the order of magnitude of EUR 100 million, again, after tax and minority interests. Consistent with previous practice, we plan to classify them as special items. With that, on to Slide 9, with a separate update on biosimilars because it is important to me to illustrate the progress we are making. For adalimumab, we have not only achieved a pretty comprehensive market penetration in Europe, we have also entered the Chilean and Colombian market. And we will soon expand into other Latin American markets such as Brazil expected for Q3. Our partnership with the pharmaceutical distributor, Medac, progress is in line with our expectations. We will roll out the successful marketing activities in the area of treatments for rheumatic illnesses also to other European markets soon. We are very pleased with recent tender activities. We are winning most of the tenders we are participating in, and thus, we are consistently gaining market share, although from a low base. We feel that a certain price stability in the EU is being reached. And in the U.S., we've even seen price increases over the course of last year. On to pegfilgrastim. We are expecting to launch this, our second biosimilar, soon. For the U.S. approval, there is an FDA inspection of our manufacturing plants outstanding. And for the EU approval, the EMA has to inspect our labs. Both these inspections are part of the regulatory procedure, and we have no reason to assume that they won't be successful. However, those are physical inspections. And thus, due to COVID, we cannot exclude that there might be delays. And even though the pegfilgrastim's launch is important, the planned on-body device market entry is financially significantly more meaningful for us. We are optimistic about the launch in 2022 and currently see only a limited number of competitors in that application [indiscernible]. A word on tocilizumab, the biosimilar to ACTEMRA. We are looking forward to enter the U.S. and the EU with our third biosimilar in 2023. The financially more meaningful market for us is the subcutaneous dosage form since we are currently assuming to lead the competition here. And we have quite a few more molecules in our portfolio than those 3 late-stage. We expect to enter the U.S. and the EU in 2024 with an autoimmune and in 2025 with an oncology biosimilar. Having said that, we feel comfortable to confirm our business plan, thus achieving high triple-digit million euro sales from 2024 onwards and being EBITDA breakeven in 2023. That will not only significantly accelerate growth at Kabi but is also a meaningful earnings accelerator for the entire Fresenius group. On to ESG, and that's on Slide 10. I've already talked about the pandemic earlier in today's prepared remarks. But among many other things, the pandemic was a strong proof for our thesis that sustainability sits at the core of our business model. Delivering ever better medicine for ever more people in these challenging times continues to determine virtually everything we do. The safety and health of our employees and patients, their families and the communities we're working, they were the focus of our COVID response. In our hospitals and clinics, we have established strict safety protocols to maintain the provision of essential treatment while reducing infection risk for patients and staff. In our manufacturing facilities, we've introduced strict hygiene measures such as disinfection and distancing. And from March 2020, many of our employees and admin functions have worked from home to avoid infection. I am very proud that despite these increased safety measures, we were able to continue manufacturing and delivering life-saving products and treatments even when operations and supply chains were hampered by global restrictions. We have implemented a group sustainability board headed by myself to align and coordinate all of our sustainability-related activities. As promised about a year ago, we have spent more time and resources on conveying the importance of our ESG priorities to our stakeholders. And we have made measurable progress. Over the past month, we have improved in all major sustainability ratings. Just 2 examples, we moved from BB to BBB at MSCI, and we were ranked with the best-in-class B up from C by climate change rating CDP. In '21 and '22, we will continue our work by identifying core ESG KPIs as part of refreshed management Board compensation, which we plan to put on the agenda of our AGM in May. We have discussed the remuneration system proposal with many of you already in November, and the feedback that we received was quite positive. Supervisory board elections will also be on the agenda, and we plan to introduce age limits for both supervisory and management boards. So we're hoping for your support at the meeting in May. That brings me to Slide 11, and our planned conference call series starting this year. We are keen to creating more transparency on some of our hidden champions. And we are looking forward to invite you to virtual meetings, where you will also have a chance to get to know other senior members of Fresenius' management. And with that, I am pleased to hand over to Rachel. Thank you for now.

Thank you, Stephan. A warm welcome to everyone. I am pleased that we delivered a good finish to the year amid the unprecedented challenges of COVID. Our Q4 results for 2020 are on Page 13 and 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-19 effects. We are providing you with ranges based on our best estimates of the quantitative impact of the COVID-19 pandemic in the backup of the presentation. So to the numbers. Growth rates on the slide are on a constant currency basis. We delivered sales growth of 5% in Q4 and for the full year, fully in line with our guidance. COVID-19 had a slight negative effect on our sales growth in the fourth quarter and in the full year, so we would have been more at the top end of our original 4% to 7% guidance range, excluding COVID-19 effects, both for the quarter and for the full year. EBIT showed sequential accelerated growth of 2% in Q4. And for the full year, EBIT was flat year-on-year. Interest decreased year-on-year by 7% in constant currency to EUR 654 million. That's even a bit better than our expectation, mainly driven by successful refinancing activities and ongoing favorable market conditions. For 2021, based on current exchange rates, we aim for net interest somewhat below the prior year, mainly due to refinancing activity and with a small contribution to year-on-year net income growth. The group tax rate before special items reached 23.1% year-to-date, in line with our expectations. And for 2021, we aim for a tax rate around 23%. Moving on to net income. In Q4, we have seen another positive growth quarter with 2% growth. Year-to-date, that's a decline of 3% and thus in line with our guidance. Excluding estimated negative COVID-19 effects, we could have been nicely within or even more towards the top end of the original guidance range, both in the quarter and in the full year. Let's go to Page 14, which illustrates the Q4 2020 momentum at each of our 4 business segments. So Q4 in a nutshell, while Kabi was marked by ongoing headwinds in the U.S. and moreover, COVID-related project delays at Vamed as well as overall COVID-related expenses weighed on our earnings growth. Overall, however, these challenges were compensated by very healthy EBIT growth at Helios and solid growth with FMC. Having a closer look at Kabi. The company showed a strong 5% COVID-driven organic sales growth in Q4, leading to 4% organic growth for the full year 2020 with significant differences in the development across the regions. Europe, with 9% organic sales growth in the fourth quarter and 6% in the full year. In line with rising COVID case numbers, we have seen increased demand for COVID-related products across the region and our well-diversified portfolio. Emerging markets showed again a sequential acceleration with 15% organic growth in the fourth quarter, leading to 6% in the full year. Especially pleasing is China, where we have seen healthy organic sales growth in Q4 based on elective treatments almost at pre-COVID levels. The other Asia-Pac markets, however, are still significantly affected by COVID and are lagging behind. Latin America continued to show very strong growth with increased COVID-related volume demand. As in the previous quarters, inflation-driven price increases contributed, to a certain extent, to top line growth rates. In the U.S., fewer elective treatments, competitive pressure and the temporary manufacturing issues at our plant in Melrose Park outweighed extra demand for COVID-related products. This led to an organic sales decline of 3% in the fourth quarter and a flat development for the full year. Over to Kabi's EBIT, where we have seen a decline of 10% in constant currency in the fourth quarter and 6% in the full year, as expected at the bottom end of our guidance range. To the regions. Europe had a decline of 1% in Q4, primarily due to incremental COVID expenses, currency transaction effects, some onetime items and a strong prior year comp. Nevertheless, for the full year, we saw 9% growth. Emerging markets with 29% growth in Q4, particularly pleasing is the development in China. Moreover, we saw some small onetime items and the prior year quarter with a weak comp. The full year growth of 5% was nevertheless significantly negatively impacted by COVID effects. Over to North America with a significant EBIT decline of 33% in the fourth quarter. As expected, the headwinds from Q3 continued in Q4. We saw ongoing volume and price pressure, increased COVID-related costs as well as planned higher SG&A spending to build our biosimilars infrastructure ahead of the launches in the coming years. However, the Q4 decline was additionally fueled by some temporary issues that are expected to ease in the course of 2021, fracturing issues in Melrose Park, missing income and the final write-down of receivables for a customer in Chapter 11 as well as some smaller onetime items. If we adjust EBIT for those items, we are in the mid-30s IV business EBIT margin corridor range, and the decline would be more high single to low double-digit percentage year-on-year. Moving to Helios, where a very healthy 9% organic sales growth in Q4 leads to 4% organic growth for the full year. The situation in Germany with fewer elective treatments compared to Q4 2019 was largely mitigated by governmental compensation measures. Hence COVID-19 had only a slight negative effect on the 8% organic sales growth in Germany in Q4. Case mix effects contributed again positively in Q4. With the very strong first 2 months of 2020 and positive price effects, this led to the healthy full year organic sales growth of 6%. We have seen strong 11% organic sales growth in Spain in Q4, where the impacts of the second COVID wave on our business during the winter months was not as pronounced as the first wave in spring. Our Latin American business, although also affected by COVID, is still holding up well and thus also contributes positively to reported sales growth. Moving to EBIT, where a strong increase of 13% for Fresenius Helios in Q4 led to an EBIT on prior year's level for the full year. In Germany, we have seen an EBIT increase of 10% in Q4. Financial support provided by the German government under revised regulations focusing on regions with high COVID incidences broadly offset additional headwinds as Helios Germany continued to play a crucial role in treating COVID patients. Also here, case mix effects contributed positively. In the full year, EBIT increased by 4% with a healthy margin of 9.5%, broadly consistent with that from the prior year. Helios Spain delivered strong growth of 19% in Q4 in constant currency. That brings us to the full year to a decline of 5% with a margin of 12.1%. Good activity levels, some onetime effects from further commercial agreements as well as good contribution from Latin America drove a strong performance in Q4. Over to Vamed, where we have seen an organic sales decline of 22% in the fourth quarter, leading to a decline of 8% for the full year 2020. As in prior quarters, the project business was marked by postponement and cancellations due to COVID and the service business saw less demand for post-acute care treatment, whilst the high-end technical services remained robust. EBIT was very significantly marked by COVID-19-related costs, especially for the protection of our employees and patients as well as incremental costs due to project delays. So let's move on to cash flow on Slide 15. A strong Q4 took the group operating cash flow to EUR 1.4 billion. For the full year, we are an exceptional EUR 6.5 billion, a 54% year-on-year increase with a margin of 18.1%. This increase is significantly influenced by the U.S. federal advanced payments under the CARES Act as well as shorter payment periods of the COVID-19 government compensation and reimbursement scheme for our German hospital business. But even without those COVID-19-related items, we would have seen year-on-year growth. This continued relatively elevated CapEx at 6.6% of sales, it brings us to a group free cash flow margin, bottom right, of 11.5%, accordingly, also exceptionally strong. We ended the quarter with a robust 3.44x net debt-to-EBITDA as a ratio. For 2021, we expect to be around the top end of the self-imposed target corridor of 3.0 to 3.5x, excluding special items since we will see the reversing effect of the CARES Act payments and ongoing significant COVID effects weighing on our EBITDA development. With that, let's turn to the 2021 outlook and our guidance assumptions, which you'll find on Slide #17. Our guidance includes the effects of COVID, and as usual, excludes the effects of special items, which for 2021 are likely to entail the usual items as well as the significant restructuring charges that you heard about from Stephan. Recognizing the still very high COVID case numbers across the globe and the associated various containment measures being enacted in many of our relevant markets, for guidance purposes, we are assuming that the current burdens and constraints caused by the pandemic will only begin to recede in the second half of this year. Nevertheless, with significantly less government support in 2021 expected, the net negative impact of COVID on group revenue and net income this year is expected to be greater than in 2020. The improvements that we expect in the second half of 2021 are, of course, heavily dependent on continuously advancing vaccination programs in our relevant markets. Possible deterioration of the situation with containment measures that have a significant and direct impact on the health care sector and are not appropriately compensated is not included in our group's full year 2021 guidance. To be clear, that is not the situation right now. There remains, of course, significant uncertainty in these assumptions and the potential impact on our business. We obviously also have no crystal ball in front of us. Considering the highly volatile environment, we are convinced that giving you guidance ranges, not only on group, but also on business segment level, is bold and as such, are giving you somewhat broader ranges to try to take account of the inherent uncertainty. I would hope with more certainty, we can tighten those guidance ranges in the course of this year. Having said that, let's turn to the 2021 outlook by business segment, which you'll find on Slide #18. Kabi's organic sales growth first, where we project low to mid-single-digit growth. We assume ongoing market and volatile COVID effects in the first half, and that competitive pressure in the U.S. will last throughout the full year 2021 as well as some more anticipated price pressure from the tendering system in China. On to EBIT, where we expect a stable development up to low-single-digit percentage growth. Top line drivers here have a direct impact on the EBIT line. Moreover, we are seeing higher depreciation levels due to our significant investments over the last years and ramping investments into biosimilars sales and marketing capabilities. In terms of phasing, we are assuming to see significant regional differences. For example, with softer comps in the emerging markets in the first half and tougher comps in North America also in the first half, leading overall to a weaker Q1 growth and a stronger Q2 for both sales and EBIT. Over to Helios, where we expect low- to mid-single-digit percentage organic sales growth. For 2021, we expect a solid development in Germany with most of half 1, in all likelihood, significantly impacted by COVID effects and the associated government support programs, similar to those that are currently in place. Helios Spain is expected to be back to good, solid mid-single-digit organic sales growth. For EBIT, we project mid- to high-single-digit percentage growth this year. We expect Spain to grow significantly faster than Germany on the back of softer comps and a stronger top line development. With some headwinds from the final definitions within the nursing carve-out, ongoing uncertainty associated with our COVID assumptions and the expectation of some meaningful reduction in government support, we expect to keep absolute EBIT for Helios Germany for 2021 on broadly the same level as we saw in the full year 2020. Again, the phasing of the COVID impacts year-on-year are likely to see a weaker Q1 growth for Helios in both Spain -- sorry, in both sales and EBIT and much stronger growth rates in the second quarter. Over to Vamed. We expect mid- to high-single-digit percentage organic sales growth and a high double-digit million euro absolute EBIT. This guidance considers ongoing headwinds, especially in the project business in the first half of 2021. Moreover, incremental COVID-related expenses, combined with negative operating leverage effects in the rehabilitation business, are expected to continue to take their toll in the first half of this year, whilst we assume the high end technical services business to continue to be very resilient. So taking all of that together for the group, and that's on Slide #19. Starting with sales growth, where we expect low to mid-single-digit percentage growth. There is a small inorganic effect from the Eugin acquisition, the Malteser acquisition in Germany and hospital acquisitions in Latin America baked into our expectations. Over to net income. We are projecting an at least broadly stable development in 2021. Also for net income, we are expecting a small inorganic effect from the acquisition. A word on the phasing of growth. Obviously, the different expected effects of the pandemic in the different segments and regions will have a very significant effect on the quarterly growth rate as we go through this year. Currently, we assume for the group that Q1 of 2021 will likely show weaker growth as we have much more negatively impact from COVID than we did in the first quarter of 2020, a situation which we hope to see somewhat reversed in the second quarter. As to the currency translation effect, if current exchange rates prevailed until the end of the year, we would see a headwind of around 3 percentage points mainly from the U.S. dollar for both sales and net income. And with that, Stephan and I are very happy to take your questions.

[Operator Instructions] And the first question is from the line of Michael Jungling of Morgan Stanley.

The first question I have is on the corporate structure. Who is the decision-maker on the portfolio structure of Fresenius? Is it the supervisory board of Fresenius? Or is it the supervisory board of the Else Kröner Foundation? And in that context, is the foundation showing signs of being supportive of a large change at Fresenius SE? That's question number one. Question number two is when it comes to your guidance, what are your assumptions behind vaccination, the importance of vaccination in Europe for your hospital business and also for your assets in the United States? Where do we need to get to, to be able to achieve your guidance for the full year? And the final question is on Kabi Melrose Park. Can you comment how the R&D and ANDA pipeline looks beyond 2020? I think it's very nice to derisk it for this year. But just a thought of how important Melrose Park is for 2022 and '23 should you have an adverse decision by the FDA?

Thank you, Michael. It's Stephan. On any potential decision on the corporate structure, our management board then the supervisory board and ultimately, potentially, our shareholder meeting would be the decision maker. On the one hand, this is early, and we're starting to go about an evaluation. On the other hand, I would say there is freedom of thought. On vaccines, Rachel is going to provide that answer. On Melrose Park, as you know, this is 1 of 3 of our plants in North America. Frankly, we haven't had major contributions as far as ANDA approvals out of Melrose Park for a while. And as we also indicated, as part of our Q3 call, as soon as we saw a risk, and at this point in time, it is not more than a risk for a more meaningful holdup of ANDA approvals, we have also started efforts to transfer ANDA files to our 2 facilities. So I don't want to dodge your question straightaway, but on the other hand, what I will leave you with is the longer time lasts the more alternatives we're going to have as far as ANDA approvals are concerned. Rachel, vaccines?

Thanks, Stephan. And Michael, many thanks for the question. I think for us, what is key in terms of underlying our guidance assumptions for 2021, and specifically, the improvements that we've talked about in the second half year is some, let's say, recession of the negative effects that we're seeing from COVID. And that means, in principle, a gradual return to some kind of normality over time. Specifically, of course, that is relevant in terms of supply chain activities, travel constraints and very crucially for many of our business models, the volume of elective surgeries within our own clinics and then the knock-on effects that, that has both on our rehabilitation clinics, but also on demand for our drugs. And so there isn't a date and a specific market penetration of vaccinations that is crucial. But clearly, in all of the important markets for us that we continue to see marked and consistent progress in vaccinations that allows the gradual loosening of COVID restrictions enables patients to feel confident to return to hospitals and that hospitals have the capacity to return to the more normal levels of elective procedures so that the knock-on implications for our business can begin to see a recession in the negative impacts that we have seen to date. So crucially, I think, Michael, consistent progress in the important markets of vaccines that enable a gradual recession of negative impacts in the second half year this year are the key assumptions that are underlying the guidance that we've given. I hope that's helpful. Thank you very much.

Could you just sort of give, perhaps, a bit of color in terms of what your expectations are for vaccinations in Spain and in Europe? The Europe's being quite slow in getting vaccines. Are you hoping that it will be 50%, 60% by year-end? Or is it going to be a lower number? Just a sense of what you need to get these procedures, the elective procedures up to a higher level?

Michael, I think it's very difficult to be very concrete. But clearly, if you look at the maps in terms of the effectiveness of the vaccines, and also the potential for the speed of rollout that we have seen in some markets that are going, let's say, more quickly than some of the European countries, there is quite credibly an opportunity that we get above 50% during the course of 2021. And I do think that, that would begin to clearly have a material impact on the number of hospital admissions for COVID. And clearly, that will, obviously, then have a knock-on impact in terms of the opportunities for elective procedures and free up capacities to enable that to happen, hopefully, also bringing some confidence to patients who may otherwise have been reticent. I hope that helps.

The next question is from Tom Jones of Berenberg.

I had 2, maybe 3. The first one was just on Helios. If I look at Slide 29, your occupancy rates seem to be down kind of high single digits in Q4, if I take the average of that wiggly line. But revenues grew 9%, which is quite a disconnect. I was just wondering if you could perhaps give us a bit more color on those 2 figures and maybe try and square that circle for us? The second question was just on -- maybe on the guidance, sorry, for Rachel. You -- in past years, you've given an absolute range for net income growth guidance. Whereas this year, you've set a floor effectively, but given there's no upper limit of where you expect net income or think net income could fall. I understand there's more uncertainty than usual, but what is it that's specifically given you cause to not provide an upper limit on the net income growth guidance for this year?

Tom, thank you for the questions. You said 2, possibly 3. I think those were 2. But I'll try and address them and hope that I got all of them on the way. Your first question around the Helios occupancy rates and in comparison to the very pleasing growth that we saw in revenue in Q4. I think 3 things from my side that are very relevant to remember. There is, of course, a price effect year-on-year coming from the combination of the DRG inflator, but also the usual other, let's say, pricing aspects that you see on a regional level within the German health care scheme, and that clearly had a positive impact throughout the year and was also a good contributor in Q4. Secondly, what we've seen is that with slightly fewer patients, we have tended to see more seriously ill patients on average within our clinics, i.e., there is a case mix effect that is also having a reasonably relevant inflationary impact on price when you make a comparison year-on-year. And I think the third effect that's important is what I also mentioned in my speech, there have been revised government support measures in the fourth quarter specifically focused on the regions with hospitals with very high incidents of COVID, where we do have a number of hospitals who have been very active in supporting the care of those patients. And clearly, that government support has also been a relevant contributing factor in the fourth quarter. So I think those 3 effects are the ones that enable you to square the circle between the occupancy rates and the revenue growth that we saw in Q4. Your second question associated with the nature of the guidance that we've given for net income growth for the group for 2021. I think you've understood quite correctly why we have moved to slightly broader ranges. What I mentioned in my speech, clearly, this is, I think, a bold move on our part to give you not only group guidance, but also segment guidances with the inherent uncertainties that we have with the current situation influenced by the pandemic. And I hope that it is helpful in giving you the context of how the moving parts work in contributing to the group guidance. You are effectively right in terms of saying that we have given you a guidance that has a floor, which is at a minimum at least broadly stable over 2020 in constant currency, and there is no upper limit to our guidance. And I think that's very clear in terms of there are a number of uncertainties for us, which we hope are going to become step-by-step clearer throughout the year. And we hope that we will be able to give you something increasingly more specific as we gain that certainty. But for now, what was important for us with the different mix effects and the different risks that we faced in the different business models was to be very clear that we do see a floor of at least broadly stable over the prior year.

Okay. That's very helpful. The third question was probably more one for Stephan, actually. So if I may, Stephan, the points you made about the group structure, I think, are fair. But what I'm trying to disentangle in my mind is why the potential changes to group structure are only a backstop. If they are indeed value-creating for shareholders, why not look at them at the same time as improving the underlying earnings growth of the business? Why do they only have to kick in if the earnings growth of the business in its current structure doesn't improve? Just some color around that would be helpful, I think.

Tom, we are determined to take a close look at them right now. But at the same time, as I was trying to allude to in my speech, a, we believe that the current group structure has meaningful advantages in terms of lower cost of debt and also save taxes. And b, the complexity that seems to be perceived these days is -- has not stood in the way in the past of a very attractive valuation. We have not, in my mind, at least, increased at least but meaningfully increased complexity recently. And therefore, in my mind, it's got to be something different. I will be varied to like heartedly give up very tangible advantages. But -- and therefore, we were saying at the end of the day, this needs to be weighed up. And I would like to look for truly tangible advantages of a change of the group structure rather than this just being flavor of the year. But again, we will be determined to take a look at this in short order, and we will not be dogmatic about it. As I just answered to Michael's question, there is freedom of thought.

The next question is from Veronika Dubajova of Goldman Sachs.

I have 3, please. One is, Stephan, can you disclose the biosimilar revenues for 2020? It's such a big part, I think, of where your midterm guidance is different from consensus, and it would be really good to understand exactly where you are. And if you can comment, I know you gave us some graphics in the slide, but maybe comment more specifically on expectations and KPIs you have year-by-year so that we can track your progress and think about giving you more credit for this business than I think it's currently earning, that would be really helpful. So that's my first question. My second question is on the Helios 2021 guidance. And Rachel, apologies if I misunderstood you, but it seems to me that you are implying further margin deterioration in the German business, if you're kind of talking about stable EBIT against revenues that are -- I'm just kind of trying to understand what's happened there because in 2019, margins were at almost 10%. Seems to me like you're guiding to margins of around 9% and maybe I've just missed something, but slightly surprised by that margin deterioration. And if I misunderstood you, then why is it that the Helios margins will not return to pre-COVID levels this year? Is it something else other than Germany? And then my third question is kind of a follow-up to the portfolio optimization question that Tom asked, I think, has been a theme of today. I guess it would be really good to understand. If I look at your business over the past 4, 5 years, it's been a little bit of game of Whac-a-Mole. There's been something that hasn't gone right every single year in one of the businesses. And I guess, I mean, that's the inherent nature of being a diversified company, and it has some advantages. But also it has turned out significant amount of disadvantages over the last couple of years. And so if I can just push a little bit harder on these perceived sets that you see because that's been in cost of capital, which is anyhow [ very rich ] right now. It's kind of hard for us to see from the outside what the value is, given that every January, we seem to wake up and there is something wrong in one of the division, or at least that is the perception that investors have.

Veronika, biosimilars 2020 low double-digit million euros. Expectations for '21, a multiple of that. Sorry, I can't be more specific. On Helios Germany, Rachel is going to answer that. On the advantages of the current group structure in the form of saved interest and taxes, this is a recurring triple-digit number. Capitalized a very meaningful value. I am willing to find ways to make up for that if a suggested change would mean that we're going to lose it. Rachel?

Thanks, Stephan. Veronika, your question on Helios Germany. I think the first important thing to remember when we're talking about comparing 2021 and 2020 specifically is, of course, we are expecting both years to be significantly impacted from an operational perspective from COVID. We know how 2020 ran. I don't need to remind you of that. We are obviously starting 2021 with a significant COVID impact in the first quarter. And you've heard us describe, and I think, talk about in quite a lot of detail, our assumptions in terms of how we expect that to develop during the year. I think second thing that's very important is we are expecting meaningfully less government support in 2021 than we received in 2020. And particularly, I think, as I mentioned in my speech, one would anticipate continuing to have a COVID impact and significant support for Germany, particularly in the first half year, but then hopefully, a gradual improvement in the underlying COVID situation. And obviously, that government support's very likely dropping away. So with all of that in mind, with my comments, you should infer a solid but modest organic sales growth for Germany as part of that low to mid single-digit growth that I mentioned for the Helios Group, and as I said, a broadly stable EBIT growth year-on-year. That implies to me still a margin in the same kind of order of magnitude as we have seen in recent years, namely something that probably starts with a 9. But in the context of what I've just described, where we do anticipate a significant COVID negative effect on our hospitals in Germany this year and a meaningfully less size in terms of the government support package. I hope that's helpful.

Understood. I guess what I was just trying to ask in a very winded way was, is there anything structural that you think has changed in the German business that would prevent you from going to that market that's maybe closer to 10% as you get to 2022.

I know -- Veronika, I would say there are definitely some interesting structural developments in the German healthcare sector as in other markets, and you heard Stephan talk about them in his speech, particularly the acceleration of outpatient treatment, further acceleration of digital services for our patients, the move even more towards prevention and the opportunity that actually that brings for Fresenius Helios in the medium term to give that end-to-end journey, given the infrastructure and capabilities that we already have in the German market. So yes, there are -- I would say there are structural developments. And of course, those kind of changes always present risks, but for me, they also present very clear opportunities. So a margin that is in the order of magnitude of 9% to 10% with potential growth opportunities, I think, is definitely feasible. But with the strategic positioning and strategic development that we've talked about and Stephan was particularly referring to in his speech today.

The next question is from David Adlington of JPMorgan.

Two questions, please. I don't want to flog the restructuring horse, but maybe if I could just push you in terms of when we might hear some further thoughts, so you're looking at it in the short term, but actions going to be taken possibly until '23. I just wanted to get your thoughts maybe when we might hear some more. And then second, just on the cost savings, the EUR 500 million. I just wondered how that -- sorry, the EUR 100 million, how that overlaps with the EUR 500 million at Fresenius Medical Care, obviously different timeframes there. How much of a contribution from Fresenius Medical is going towards that EUR 100 million by '23?

David, I wouldn't rule out, but at the same time, would be surprised if you heard something more from us in this regard, something tangible over the course of this year. I think as far as group structure is concerned, next stop is going to be a year from now. But by then, I will also want to tell you something more definitive against the backdrop of a further -- of further progress that we will have made one way or the other on our strategic road map. Again, Plan A is to deliver on the growth initiatives and the cost efficiency. Plan B is rather to do something about it if something are currently unforeseen gets into the way. Rachel is going to talk about the cost saving assumptions.

Thank you, Stephan. David, thank you for the question. Let me try to paint a picture for you of the different pieces. And clearly, I don't want to preempt what you're going to hear from Rice and Helen later. But I think 2 or 3 points from my perspective would be very relevant. I think, firstly, both for the Fresenius Group, and I'm sure you'll hear from Helen and Rice later also for Medical Care, the plans that we are making to have a look at cost and efficiency measures and particularly for Medical Care, the work that they are looking at in terms of the potential transformation of some of their business models is definitely in the early stages. And as you heard from Stephan and I earlier, we hope to be able to talk to you in more detail in terms of some of those concrete plans when we release our Q1 results, which will be at the beginning of May. So it is in that context that we wanted on behalf of the FSE group today to give you an idea of the targets that we've set for ourselves and an idea of the order of magnitude of what that might mean. So that you have some concept of the ambition that we have, but at the same time, the understanding that we are looking at a number of flanks and opportunities, let's say, in terms of where those savings might come from and that there are not concrete plans that go behind. And hence, in terms of building a bridge for you between EUR 100 million and EUR 500 million, I think there are a few moving parts that are worth considering, but at the same time, recognizing that neither business has a detailed plan of measures they are going to execute. And of course, that means don't -- that we don't have a detailed year-by-year plan in terms of exactly how those costs and benefits will pan out. When you have a look in more detail at what Medical Care are describing, they are talking about run rate cost savings from 2025, and they are talking at an operational level, i.e., at an EBIT level. And when you then have a look at our target, we are talking at the FSE group level, which is obviously meaning after net -- sorry, after tax and minorities, i.e., at a net income level for the group. So as Medical Care move towards their EUR 500 million EBIT in 2025, clearly, you may expect a contribution from them in 2023, but that would be built into our numbers only with our 32% share and after tax. And hence, you can't really directly compare those 2 numbers. They are in a different timeframe and also at a different level, given the structure of the group as a whole. But clearly, Medical Care's activities are important to us from an FSE group perspective. But clearly, as you've seen from the slide that Stephan presented, we are also looking at a number of other opportunities and areas where we see that there could be some efficiencies that we will be able to drive across all of the segments of the group, including corporate. So you shouldn't think that this is just a Medical Care plan. It is a group-wide set of activities where Medical Care will, of course, make a contribution. But clearly, a significant difference in terms of the timeframe and the line of the P&L that we're talking about when you try to compare the EUR 100 million with the EUR 500 million. I hope that helps for you, David.

Maybe if I just come back, Rachel. And just on why have a different time frame for FSE versus Medical one to have an overlapping timeframe?

I think there's quite basic reasons for that. Fresenius Medical Care in their Capital Markets Day in October set themselves medium-term financial targets of mid- to high single-digit growth out to 2025, so for the cumulative period out to 2025. And the FSE, so us as a group, we have medium-term targets that run out until 2023. And clearly, given the uncertainty that we are currently operating in and the headwinds that both businesses are currently facing to secure the midterm targets for the 2 groups, respectively, we are both looking at cost and efficiency and transformation measures. And hence, we have respectively referred to the last year of the medium-term guidance that each of us have.

The next question is from Lisa Clive of Bernstein.

So 3 questions. 2 on Melrose Park. First, on Slide 22, does the language around this mean that you weren't originally planning on launching anything from Melrose Park or you were and now you sort of shifted away from that? And can you just give us a comment on generally what proportion of your recent launches have been from Melrose Park? And then second question on Melrose Park is sort of, can you just walk us through what the potential timeframe could be with the FDA? It's my understanding there isn't any inspection scheduled. And so if the FDA does not feel the need to do an inspection, and therefore, there's no risk of a warning letter, if I understand correctly, if you could just sort of elaborate on that? And then, lastly, on opportunities in the U.S. Can you give us an update on the timeline for when your infusion therapy business will go online in the U.S.?