Fresenius SE & Co. KGaA ($FRE)

Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I hand you over to Nick Stone, Head of Investor Relations. .

Thank you, Valina, and hello, everyone. Welcome to our Q1 2026 earnings call and webcast. The presentation was e-mailed to our distribution list earlier today and is available on fresenius.com. On Slide 2 of the presentation, you'll find the usual safe harbor statement. Unless stated otherwise, we'll comment on our performance using constant exchange rates. Today, I'm pleased to welcome Michael and Sara, who will present the results of another quarter of competitive growth. As usual, the call will last approximately 1 hour with the presentation taking around 30 minutes with the remaining time for your questions. Tim always if needed. And with that, I will now hand the call over to Michael.

Thank you, Nick, and welcome to everybody joining us today. I am -- we are pleased to report an excellent start to 2026, fully in line with our expectations, building our great momentum and reconfirming our full year guidance. As always, Sara and I will walk you through the key operational and financial highlights of our individual businesses within Kabi and Helios in a moment. Rejuvenating action means that our next strategy phase of future Fresenius is in full suite with greater focus, speed and sharper execution 2026 is all about accelerating our performance and building a resilient health care company for the future by upgrading our core with targeted investments scaling our platforms and further elevating our performance. It's about being consistent quarter after quarter and team Fresenius is fully aligned. We keep doing what we're doing but do it even better. The first quarter demonstrates that Fresenius is better prepared than ever delivering strong results in a market dominated by geopolitical tensions and global uncertainty, which continue to shape the operating environment. Recent developments in the Middle East are a clear reminder that volatility is no longer temporary. It has become a constant taking center stage in the boardroom. Over the past few years, we have fundamentally reshaped our company, simplified our structure, strengthened our balance sheet and build more agile and competitive operating businesses. Consequently, we have a different organizational and leadership maturity level, which provides resilience and flexibility to navigate uncertainty while staying firmly on core to deliver on our future Fresenius ambition. This is impressively reflected in our Q1 performance, which once again proved we delivered on our commitments. Core EPS grew by 13% in constant currency, clearly outpacing top line growth, driven by operating strength and nice operating leverage and we've been achieving this while investing in innovation, if you look at the OpEx development. Our Kabi business remains a strong performer with growth vectors moving closer to our recently upgraded structural margin band of 17% to 19%. Helios delivered a strong EBIT margin of 10.5% with double-digit EBIT growth in Germany and Spain, a great achievement. Our balance sheet continues to strengthen with net debt-to-EBITDA improving to 2.6x. We're now moving towards the lower end of the self-imposed leverage corridor, which in turn enhances our strategic and financial flexibility in a challenging macro environment. Future present is delivering and encouragingly, this was most recently recognized by S&P Global Ratings, which revised Fresenius' credit outlook from stable to positive. This reflects a lot of hard work over the past several years and demonstrates our commitment to delivering long-term profitable growth and balance sheet strength while positioning the company for future innovation-led growth. The S&P rating marked the best credit position in our history, which is a testament to the strong progress Fresenius has made. Acknowledging today's challenging operating environment, I remain confident in Fresenius' resilience and adaptability. Today, we are reconfirming our full year 2026 guidance with great confidence based on this quarter's performance with 5% organic top line growth and strong 13% EPS growth at constant currency. Now let's dive deeper into our core businesses with Kabi and Helios, both of which delivered very strong performances during the quarter. At Kabi, we are accelerating new product launches and innovation to further strengthen our market leadership position. In pharma, we continue to expand our IV therapy portfolio in the U.S. converting our pipeline into commercial launches most recently with a new premix ready-to-use, ready-to-administer solution in our freeflex bag. Generic drugs and biosimilars currently remain largely sent from U.S. tariffs. We continue to double down on our pipeline and launch excellence, while further strengthening local for local value chain by diversifying suppliers and sources, mitigating risk and building supply networks to ensure long-term success. In Nutrition, we are maintaining a strong pace, expanding geographically and accelerating our innovation pipeline. In Q1, we completed 2 new global launches in enteral nutrition to support patients with additional nutritional leads, including those at high risk of male attrition. And we also launched a new product to address the specific dietary needs of dialysis patients. In parenteral nutrition, we continue to gain market share in the U.S. And within just a few years, Fresenius Kabi has established itself as the leading provider of liberty emulsions. Overall, our Nutrition business continues to deliver attractive growth with highly accretive margins. In MedTech, we secured a multiyear contract with a major French GPO in infusion, an important commercial win. And we achieved another milestone in Q1 with Class III CE for our block back systems under the medical device regulation in Europe. Now let's turn to Biopharma. We continue to see excellent momentum across all regions with our launch portfolio, broad portfolio starting this year very strongly. Tier our totilitimo biosimilar continues to gain sequential market share with 40% and 27% in the top 5 EU countries and the U.S., respectively. Given our early launch, we secured many exclusive contracts in both Europe and the U.S., giving us a meaningful head start and supporting continued share momentum. Otulfi our Ustekinumab biosimilar has now launched in 16 markets worldwide. In France, we see encouraging momentum, including the introduction of our substitution and contract wins, including the country's largest retail pharmacy, where Otulfi positioned as the #1 product. In addition, and that is part of the press, our U.S. team recently secured a contractual agreement for Otulfi with a large federal buyer. With denosumab, we are currently positioned in the top 3 across selected EU markets and have reached 8% market share in EU 5. Most recently, we achieved regulatory approval in Canada, further underscoring the strong consistent progress we are making. Next, let's focus on the highlights in our care provision business. Fresenius Helios where performance was positively impacted by increases in inpatient admissions and pricing. We also continue to speed up innovation and digitization to improve operations in our core businesses. In Germany, we are accelerating the adoption of technology and AI through our recently announced strategic partnership with SAP. Together, we invested in Avalos Medical, a state-of-the-art hospital software developer, which will enable us to build an open, interoperable and AI-enabled digital ecosystem. Through this investment, we are targeting innovative software that will improve clinical workflow, efficient support and ultimately productivity. At Kerasalud, we continue to advance medical excellence and quality with 14 hospitals now recognized in the 2026 world's best hospital ranking, a phenomenal achievement. In addition, a peer review publication in the New England Journal of Medicine Catalyst demonstrated clearly that value-based cost for operators consistently outperform traditional public hospitals across quality, efficiency, patient satisfaction and cost per capita. This demonstrates that you can scale profitability within Universal Health Systems while improving access for lower income population, reinforcing our confidence in the long-term resilience of our model. Let me spend a moment on the current German regulatory environment, which obviously remains key in investor conversations. And let me use this opportunity to separate the wheat from the chat. The German health care system is under increasing pressure. Structural inefficiency, rising deficits in public health insurance and many hospitals operating at a loss are driving the need for report. Policymakers acknowledge the challenge and are responding with measures focused on outcome quality, efficiency and spending discipline, including income-oriented expenditure controls. So if you take it through tomorrow's environment favors scale, quality and excellence, strength that differentiate Helios. We are further executing our cluster strategy, concentrating complex [indiscernible] while maintaining strong regional network. Helios continues to be Germany's most efficient hospital operator. We're utilizing digitization and AI to achieve additional productivity and efficiency improvement, all while enhancing care delivery and patient outcomes. The newly proposed regulations accelerate our strategy, enabling Helios to emerge as a long-term champion, delivering quality, scale and innovation. It's an opportunity for us that reinforces our established competitive advantage. We can work with the current and future regulatory environment we are part of the solution, and we're going to thrive through it. And our ambition vis-a-vis our business remains and prevails. As I mentioned, we are operating in a more volatile geopolitical environment with the situation in the Middle East, the most recent example. However, given our resilient operating model, the direct impact on Fresenius remains limited and manageable. Our balanced portfolio and active measures to create a more agile operating model have proven highly effective, even allowing us to increase R&D investment this quarter while also improving gross margin despite continued uncertainty. On Supply and Logistics, we have largely maintained operations through proactive rerouting and disciplined inventory management. We're also doubling down on local for local manufacturing to further strengthen resilience and flexibility. Obviously, we're closely monitoring the situation, including potential secondary effects such as higher material input costs, and we're also taking the necessary actions to secure supply chain providing continuity while mitigating risk. On energy, we are well protected with an active hedging strategy for 2026 and 2027 that we continue to review given the dynamic situation. Overall, this again underscores the strength of our operating model, diversified exposure resilient supply chain and disciplined risk management. We remain focused on execution while remaining agile in this operating environment. Across Fresenius, our businesses, all our businesses are structurally resilient, not just cyclically defensive, but strategically positioned to perform through digital disruption and geopolitical volatility. Our products are system critical and essential, highly regulated and deeply embedded in health care assistance and patient care. Combined with our vertically integrated manufacturing footprint and local for local supply chain, this creates a strong moat and reliable cash generation. As Europe's leading private hospital operator, we provide critical health care infrastructure digitalization and AI further strengthen our ability to drive efficiency while simultaneously improving patient outcomes. At its core, this remains a highly differentiated nonreplicable business defined by human touch. Together, Fresenius benefits from 3 layers of protection, a mission-critical role in health care, high real asset entry barriers and defensive growth characteristics. This resilience reinforces not limit growth. Our growth vectors are contributing increasingly to earnings, while our stable cash flows continue to fund investment and transformation. That combination resilience and growth is central to rejuvenate as we upgrade our core and scale our platforms. With this, over to Sara.

Thank you, Michael. A warm welcome to everyone joining today's call. Q1 marks an excellent start to the year for Fresenius. The print demonstrates the continued operating strength of our core businesses and the resilience of our financial performance, fully in line with our expectations for 2026. We delivered solid organic revenue growth of 5% and within our guidance range and in line with the expected full year phasing we outlined. EBIT grew by 6% at constant currency with a margin of 11.8%. And both Fresenius Kabi and Fresenius Helios drove this strong performance. I will come back to the operating companies in more detail in a moment. Core EPS increased by an excellent 13% at constant currency. The factors drove this. First, operating strength and nice operating leverage in our core businesses. Second, a year-on-year reduction in interest expense; and third, a lower Q1 tax rate. A technical remark on core EPS. In addition to Fresenius Medical Care, we also adjusted for [indiscernible] which was part of the former Vamed and is reflected in the equity result. In Q1, we had a substantial positive contribution from a divestment on their end. Operating cash flow was very strong, especially compared to historical patterns. On the back of a nice cash conversion, leverage improved further to 2.6x net debt to EBITDA, which is firmly at the lower end of our self-imposed target corridor. Turning to Fresenius Kabi, we saw continued strong operating momentum and disciplined execution with a good start to the year across all KPIs. Organic revenue growth reached 6%, fully in line with our full year indication and the expected phasing for 2026. We expect to ramp up over the course of the year as we continue to execute several launches and rollouts. Both factors delivered 8% organic growth. Biopharma was the driving force here supported by strong volumes and further in ramp-up. Nutrition developed in line with our structural growth ambition despite the kept in China. Importantly, all other regions and product groups performed well in the quarter. MasTec grew against the strong prior year base. Organic growth in pharma at 3% was driven by positive development in Europe, strong volume growth and lower pricing pressure in the U.S. Kabi's EBIT margin reached a strong 16.7% despite delivered and targeted R&D investments, particularly at Met science, as well as the cat-related headwind and some negative impact from U.S. tariffs. Beyond top line growth, the strong margin reflects improved operating leverage and continued cost efficiency. EBIT was up 4% at constant currency in the quarter. Both factors delivered a 40 basis point margin expansion year-on-year to 15.7%, primarily driven by significant improvements in MasTec. On pharma, please keep in mind the elevated prior year margin also helped by the positive onetime effect, which creates a tough comparison. Helios delivered a solid top line performance against strong comps in both Germany and Spain, yield margins picked up year-over-year to 10.5% in which is at the upper end of the full year indication. In Germany, organic growth was at 3%, mainly price-driven. The good inpatient admission growth we saw in the first quarter was partially offset by case mix as expected. As a reminder, the 3.25% surcharge for publicly insured patients is recorded as other income below the revenue line. If we included it in revenue, our organic growth for the first quarter would be close to the upper end of the structural growth plan. EBIT grew an excellent 10% at constant currency. The EBIT margin of [indiscernible] implied a 60 basis point expansion year-on-year. In Spain, organic growth of 4% reflects stable underlying business dynamics with solid activity levels, positive pricing and continued growth in the ORP business. political backdrop in Colombia, some would adversely impacted the top line. EBIT growth of 10% at constant currency against the strong higher comparison was driven by solid top line translating into operating leverage with additional support from a smaller divestment. At around EUR 390 million, we achieved excellent operating cash flow in the first quarter, especially compared with historical patterns. This was driven by phasing effects at Helios as well as a strong underlying performance and successful working capital management at carbon. The strong Q1 helped us achieve an excellent EUR 2.9 billion in operating cash flow over the last 12 months. This clearly demonstrates our continuous improvement as we execute our disciplined and focused cash management approach. Free cash flow for the last 12 months totaled EUR 1.4 billion, including EUR 218 million in proceeds from our pro rata sales alongside the Fresenius Medical Care share buyback. This is now completed. In Q2, our proposed dividend payment of EUR 1.05 per share will be reflected in free cash flow. Our successful cash conversion continued in the first quarter with the last 12 months cash conversion rate of 1.2. Fresenius is now much stronger and more resilient company also financially. For me, this starts with a substantially strengthened balance sheet, since 2022, we have reduced net debt by EUR 3.5 billion or more than 25%. That's why we can now benefit from a significantly improved interest line. Over the same year, leverage decreased by 120 basis points, firmly placing us at the lower end of our target corridor of 2.5 to 3x net debt to EBITDA. Remember, this is before the dividend payment next month. We remain very comfortable with our trajectory for the remainder of the year and continue to target this rail by year-end. The rating agencies have recently acknowledged our progress and strong commitment to an investment-grade credit rating. S&P upgraded its outlook for Fresenius resulting in the company's best credit position ever. Our improved leverage provides significant strategic flexibility meaning we can and will invest in long-term profitable growth by upgrading our core and scaling our platforms as part of our rejuvenate agenda even and despite a challenging operating environment. That's the balance sheet, but our financial resilience equally materializes in our P&L and cash flow performance. Also here, we have packed away for targeted investments and the size of opportunities from a position of strength. Over the past years, Fresenius has become a leaner and more agile organization. In a challenging dynamic environment, we respond quickly and effectively to changes by focusing not only on risks, but also on opportunities. A key element of this resilience is driving structural productivity. In 2025, Helios over delivered on their performance program compensating for the meaningful energy relief headwind. At the same time, Fresenius Kabi is a fantastic job in driving structural productivity improvements across the business on their side. Importantly, these measures are not one-offs. They are sustainable in nature. Improving operating leverage today will benefit tomorrow's performance, and both operating companies are well positioned to deliver business excellence throughout 2026 and in the years ahead. Finally, we remain highly focused on generating strong and reliable operating cash flow. Cash convert is a central element of our financial framework. After 2 years with a cash conversion rate above we expect it to be slightly below 1 for the full year, also reflecting our growth tractor. Our disciplined cash management provides the basis for allocating capital to our strategic priorities of investing in future growth while ensuring attractive shareholder returns and maintaining a strong balance sheet. So in conclusion, our Q1 performance is fully in line with our expectations and the strong start to the year underpins our confidence to reconfirm our full year guidance. To date, we have not seen a material financial impact from the Middle East conflict. Our direct exposure to the region is limited and energy supply largely hedged for 2026 and beyond. That said, the situation is fluid. The duration of the conflict will influence potential second order effects from the supply and pricing of into materials. As laid out in today's presentation, Fresenius has the operating and financial resilience. We have trained the [indiscernible] to drive structural productivity while seeking opportunities. and demonstrated last year when we had to compensate for significant macro headwinds, proof of what we can achieve. FX continued to affect reported numbers and if exchange rates remain as at 31st of March, we would expect an annual adverse impact of approximately 1% on revenue, EBIT and net income, respectively. Turning to expected savings for the full year. We continue to expect ramp of Kabi. The Cape effect started during Q2 last year, but please remember that the full effect will only annualize in Q3. Helios Germany surcharge remains in place until the end of October. As always, our guidance does not reflect any potential extreme scenarios from a fast-moving macro and geopolitical environment. As the year continues, we look forward to keeping you updated on our progress. And with that, I hand it back to Michael.

Yes. Thank you, Sara. Look, REJUVENATE is well underway. And given the strength and the maturity of our organization today, we are well positioned to navigate the current environment. we have repeatedly demonstrated our ability to execute and the resilience of our operating model. For example, in [indiscernible] 25, we twice upgraded our guidance despite significant headwinds. At the same time, we further strengthened the quality of our portfolio and materially improve our financial profile. Combined with increased performance momentum and renewed agility, this gives us the flexibility to seize opportunities as they arrive. We're now operating out of a position of strength. Our excellent results this quarter provides another clear proof point. More than 3 years ago, our priority was stabilized Fresenius, simplify the structure and rebuild credibility. That phase is now largely complete. Today, under regulate, our focus has shifted -- we're accelerating performance and building a business that grows consistently, profitably and with discipline. We're not looking to be labeled as a compounder today. What matters to us is execution over the coming quarters and delivery against our commitments. I am very confident in this both in terms of delivery and on our near- and long-term prospects. REJUVENATE is about innovation-led growth. We are expanding through platforms with substantial growth potential as we continue to scale. Our advantages include unique capabilities such as injectable small molecules and biologics extensive regulatory access and deeply embedded hospital relationships. We are deliberately allocating capital to deliver long-term profitable growth, doubling down on our attractive biosimilars pipeline ahead of what other label gold and age of loss exclusivity and leveraging our expertise in preparation for future relevant modalities. Fostering our leadership in clinical nutrition by providing even more targeted, more specialized products to patients globally. -- adding specialty pharmaceutical products that deliver clear value to patients, providers and health care systems. All of these drive durable volume net growth in structurally resilient nondiscretionary spend market. We're not bidding on a single product. We are building strategic infrastructure and system critical health care services. At the same time, we also manage our structures. We prioritize clarity of complexity with every business playing a defined role in the portfolio without ideology. We run Helios for margin discipline and free cash flow with a clear commitment to best medical quality and patient satisfaction. It is not our growth engine, but it will continue to grow steadily in volume and price contributing to steady earnings growth. We remain ready to act on structures and opportunities when value can be created. The deconsolidation of FMC is a clear example that this discipline is real and not theoretical. Capital allocation is central to how we operate. every euro we invest must meet clear return thresholds. If it does not, it is literally returned. This discipline is reflected both in where we invest and where we deliberately choose not to invest. With our 3 platforms, we are well positioned to deepen our impact and advance our mission to save and improve human life through affordable, accessible and innovative health care products and the highest quality of clinical care. With that, let's move to Q&A.

[Operator Instructions] The first question comes from Graham Doyle from UBS.

Obviously, really solid quarter given the backdrop. Just a couple. So firstly, just on the guidance and sort of the trajectory as we go through the year. It is early days, but you've obviously done a 13% and the guide is EUR 5 million to EUR 10 million. Is there any reason you'd expect growth to materially decelerate as you go through the year? Or is it just a case being cautious? And then the second question is just around the balance sheet, which is clearly materially deleveraged versus when you took over in late 2022, given where the share price is, what sort of flexibility is there to perhaps do something around buybacks?

Yes, Graham thanks for that one. If we start with the latter one, and I got to say, Sara is the guardian, the custodian also of the balance sheet and then capital allocation. And I heard the CFO also encouraging innovation-led growth. So if we think about the use of capital, I would -- in the packing order, probably your option would be way wayback. But that's what it is because we have much better alternatives. On the guidance, you said it. It's early days, but I would also like to draw everybody's attention to our tone. This was a great first quarter outside world remains volatile. I mean a couple of days after our last earnings call, the work broke out in the Middle East already saw that coming. And suddenly, we are all confronted with that one. When we look at what we can control and what we see and where we have visibility, already Q2 is very encouraging already on the growth progress. You may have heard that I said hot of the press, this new contract on Otulfi with the federal. So there are many data points, which make us confident for Q2. And yes, as we said from the outset, that's why we emphasize the numbers are fully according to our own expectations with the ramp-up we wanted to have operationally, obviously, and there is work to do. But I think we are on a very good path. The first month is under the belt. Also that one looks good. And as we move on, we would rather compound execution. And once it gets more tangible, then we turn it around. It's much better. It's more comfortable.

The next question comes from Hugo Solve from BNP Paribas.

I have 2, please. First, Michael, you alluded to that via contracts. When going on the via website, I can find a $140 million contract annually for renewal every year for 4 years. Could you confirm this is the contract that you're referring that your teams have secured? And second on Elior Spain, there's been a bit of noise recently. Can you maybe expand a bit on the contribution of private public partnership in Spain. Where do you come from a sales and profitability perspective? And when or if some of them will be expiring in a distant future.

Yes. Let's start with the later one. Don't expect anything in the near term, midterm or whatever, the next couple of quarters, maybe not maybe even years, we will not probably maybe even decades will not be talking about that one. I referred to noise in Spain. There is a lot of noise. It's not like Germany, but you have a social government, but you also need to consider as always, the federal level, that's the federal level and then the at the state level and then you even have the city level. So we feel very comfortable. There's some noise on public product partnerships. We'll see whether it passes at all and what changes in there. And by the way, it's only a fraction of hospitals. I mean, we got, what, 63 hospitals over there. So it is looking at the number of hospitals, I'm not really worried. The other one was on the contracts for you said VA, I didn't say VA, I said federal. And yes, it's a nice contract, the neighborhood you said is fine. It's EUR 440 million. What for me is stunning or very -- let's say, very positive on that one. It's, first of all, a big contribution to the value driver in the pharma, biopharma business in the U.S., which is a very important market on a very competitive molecule because it is Otulfi. And that is also a function, again, REJUVENATE. We have a great leadership team over there. a new leadership team. It's actually a female leadership team on the go to market. And we can see that she and her team are really hitting it off. What makes me even more happy is that also on the pharma side, last year, we have been opening up this customer segment, which I would call federal customer segment was primarily in the past, we were very much focused on the B2B hospital via GPOs, which will be the dominant and the lion's share. But this is also rejuvenated opening up new channels, new customer segments and if I look, by the way, maybe we'll disclose that in one of the quarterly meetings, what is the uptake in the customer segment federal, it is actually not. So it works on both ends.

The next question comes from Aisyah Noor from Morgan Stanley.

My first one is on the Nutrition business, which I believe Exito has been doing already closer to the high single-digit growth for a few quarters now. With the product launches that you this year. Is there a chance this actually hit double-digit growth in the second half or fourth quarter? And is this kind of assumption perhaps embedded within the copy growth guidance range here? And then my second question is on Helios Spain, maybe a financial one for Sara. I believe you recorded a onetime available hospital asset here. Could you quantify the financial impact of this transaction on sales and EBIT for the quarter? And do you anticipate any more exits in the coming quarters?

Sure. Happy to start with that one. It was actually a minority holding we have in more of an investment company. So it was not core to us. And the majority owner decided to sell, and we sold a long it was small. If I take it out of my EBIT, I'd probably be in the range of between Q1 last year and Q1 this year in terms of margin. So nothing to be excited if so wanted to disclose for transparency.

Yes. And on the nutrition one, I think that may be a little bit too far fetched, but I would want to reinforce, let's say, the narrative I heard in your question. This is a very strong business a very resilient, very high entry barriers. And you rightfully pointed out, I mean we saw the 4.1% growth in Q1, against the backdrop of Q2, which was meaningful because we had the full quarter. Even in quarter 2, as Sara alluded to, there will still be some keto effects yet they want to compensate for that one. And I would expect also their growth rate, particularly in Q3, Q4 to go up. And this is also a function, first of all, technically out of the keto effect, but also the new product launches. I mentioned in my speech, 2 are there. So we're going to ramp them up. You have the integral, if you so wish of those 2 and then Q3, Q4, three more coming. We said are targeting 5 new launches in Nutrition. So another three are coming to further bolster growth. more towards Q3, Q4 and then obviously, given, again, momentum going into '27. And I would also expect that Q4 will be stronger than Q3 in terms of growth rate.

The next question comes from Hassan Al-Wakeel Barclays.

So firstly, on Helios Germany. Sara, when we met earlier in the year, you talked about the potential for other measures to help offset the surcharge loss in '27 over and above the 1.14 base rate adjustment should inflationary pressures persist. As things stand today, this looks to be offset by the 1% discount from the draft bill. So I wonder if you still stand by your comment and whether you view consensus expectations of a small margin decline in Helios Germany, 27% as reasonable, again, based on what you see today? And then secondly, maybe another 1 for you on cost inflation. I appreciate you are hedged on energy for this year. Can you talk to the extent to which you're hedged for next year and also the impacts you're seeing on other cost bucket inflation and any mitigating measures you're taking for this year, but increasingly into '27?

Sure. And happy to start with your last question. So as I said, for 2026, we are significantly hedged on the energy side. For 2027, we will also have hedges in place in quite a substantial manner, actually. And that goes across electricity and gas I think what is a little bit harder to judge from a current perspective because also the situation still remains a bit fluid is those, I would say, second order effects in terms of supply chain. And that goes to inflation on plastics like bananas, but also on logistics. If I talk about logistics, of course, we have longer-term contracts and sales, some of which give a natural hedge to any shorter-term price inflation, some where we are a little bit more kind of vulnerable. However, for us, the growth rate, we feel comfortable there. The longer the conflict actually drags and the higher the overall [indiscernible] environment. Obviously, we are not immune against both secondary or effects. However, I think what we've done consequently, since a couple of quarters now look into that supply chain resilience and stability and double down on secondary suppliers, making sure our supply chains are in order and intact. So overall, let's see how that situation pans out, but I think we tackle it from a position of resilience and strength. When I talk about Helios Germany, I think you said for 2027 was likely there will be a wash between what's currently ongoing on regulation in terms of the additional EUR 1.14 billion versus the reduction of 1 -- what I meant back then, and I think that Soho true, and I think the whole hospital reform maybe last week end of the stabilization export hospital reform exactly tackle that. We need structural reforms. We need digitalization. And actually, we also would love to see a certain angle of deregulation. Because in the end, I think what those reforms will do, they will reward the most efficient and highest-quality hospital platform. And so I do believe we have measures we can draw on be it to the clusterization effect, be it through the focus of care we provide through the clusterization making use of actually the infrastructure we have and if you so wish, making that more productive, looking both digitalization efforts across the hospital. And again, I think, in particular, if you look at digitalization, it's a huge difference on whether you run 1 hospital or you run a hospital system because as you roll out digitalization, there is a lot you can do for quality, but also for efficiency. And so I do believe we have a lot of levers to pull. You know 2020 size was a year where they set up a company program and delivered more than EUR 100 million of savings that was on procurement and going back that was also on Medicare processes and digitization, and that's a rule we will, of course, continue going and driving forward.

Hassan, if I may, add to more strategic aspects of both questions. Obviously, it's absolutely right what Sara said. But I have been talking a lot about resilience and better quality. These are not just words for the script just to give you a little bit of a flavor, this -- first of all, remind everybody this is not an energy-intense business, on the hospital side, this is the whole question on which you guys have and others have on the reform. It is very much, of course, not most driven. It's a service business. So it's not an energy-intense business also Kabi in its manufacturing as such is not an energy-intense business. There may be input materials are alluded to, for example, where oil is the feedstock, granules and the like and obviously, freight costs. Now bigger picture, we also have local for local. So the more we build on local for local, the more we build on local manufacturing, supply qualification, supplier base, logistics, warehouses, hubs, obviously, we do not have to go over the ocean. That is 1 hedge. The second thing is we -- from what we see today, we can all work with even on our scenarios on secondary effects because the business is growing. And the business is growing with nice gross margins, particularly in growth vectors. And with growth factors, for example, biopharma is even less exposed to those whole energy-related things, so I want to remind everybody on the whole Kabi business, for example, that I see -- we have earnings visibility, and we feel confident with the resilience concurrently being growth. They are reinforcing each other. And then again, what I said, it is Central and system. And on the German hospital thing, also don't forget, Sara alluded to that, we have that network effect. The fact of the matter is that most of the hospitals are in red ink and the budget the physical federal budget is growing, and that is what they try to tackle with new law. And in essence, what is and remains intact is the volume is growing in that business. Procedure growth is intact. Volume growth is there. We just have to pick it up whilst others may be struggling with the new regulation since they are underfunded anyways, they may even ultimately go out of business. So our investments into digitization, networks effect, clustering strategy is all there to then be ready to pick up those patients. And once we optimize the network, the cluster strategy, we can guide patients as to where they need to be in order to get capacity utilization. The second thing, also the reimbursement, the pricing is intact, show me 1 business on the planet where other than maybe grids and utilities, where you automatically buy a regulatory framework, get a price per procedure. We don't have to fight with no product, no innovation. Now yes, there are a few regulatory changes and puts and takes and so on and so forth. I would say, by and large, in the long run, on average, the increase in price in percent matches the increase in costs. By the way, the base is higher on the price, which is already good. And then we have levers. First of all, as I said, volume -- and the second, all efficiency measures, and we can run you through very much detail on all the efficiency measures we can take. So I want to just take off the table that there is any clip in '27 on beyond. Other than that, we would have upgraded our financial framework to the downside.

The next question comes from David Adlington from JPMorgan.

They're actually almost all been answered. But -- maybe just on energy cost, maybe just push you a little bit further, Sara. Obviously, you said it's pretty much fully hedged for '26, but maybe you could just quantify the exposure for '27 either your total energy spend or how much of that is hedged would be useful apart from that all out today.

Yes. I mean, I think as Michael said, on the energy bill overall, I think we're not energy intend to see. So it is something we look at. It is something local, maybe on hedging to give you a little bit of more perspective there. We talk about advanced purchases, right. And so we're rolling them and we are rolling them in half upto 36 months and make use of the market opportunity we're seeing. And if I look at 2027, it's also way above the 50% hedging ratio. So depends a little bit if you do double click on electricity and gas, and that depends a little bit between Helios and Kabi, overall, it's way above those 50% and closer to 2/3 actually.

Perfect. And then maybe just on the contracts you secured the federal contract is called. How accretive is that to margins? And if you anticipating that when you gave your margin guidance?

David, can you just repeat that? Sorry, the line drop down.

Yes. On the federal contract that you've won, I just wondered how accretive that was some margins and was that considered, so.

We don't disclose individual contracts, but I can go into the very integrity details of the fundamentals of cost accounting because if it's an incremental contract, it will be accretive if you build on fixed costs. So -- but look, individual contracts, we do not disclose. We appreciate you trying.

The next question comes from Oliver Reinberg from Kepler.

First question would be on Helios, the Q1 margin, which expanded in Germany by 60 basis points. I think I would exclude the surcharge, it was probably down by 140 basis points. Now I understand that the pricing ex searcher may not fully cover kind of inflation, but you're also obviously ramping up your kind of efficiency program. So I just wanted to get your thoughts on the kind of Q1 Helios margin? And then secondly, I think in the U.S. IV generics, you talked about a more friendly competitive landscape. So can you provide some kind of more color, and finally, just on the [indiscernible] Healthcare form, you talked about the kind of volume opportunity that is going to rise from the consolidation. I wonder is there also any kind of new opportunities now to strike contracts with healthcare insurance on.

Maybe let me take the surcharge question. I mean, for me, the question is not with the surcharge fee there or not be there. The question is the top line or is it other income? And if it were to be a top line, how if you look at it compared to last year, the gas last year, it was around 6%. If you combine surcharge plus ERG, it's as well around -- so if I look at that, the surchage being top line, then obviously, my margin drop is not that material, if I were to exclude that.

Oliver, can you repeat your question on IV U.S. What was it?

Sure. My understanding from your prepared remarks was that you talked about a more friendly pricing environment in U.S. generics, but I haven't misunderstood that. So just wondered if you can provide more color on that.

So U.S. generics, I think -- are you referring to -- so Q4, we have seen quite a bit of price pressure on U.S. generics. And in Q1, we're actually seeing that there is lower price pressure on the U.S. generic side, I think conceptually, however, we continue to expect for 2026 continued price pressure in the low to mid-single digits. So I don't think that the environment will change to say. However, having said that in Q1, indeed, we did see a lower price pressure.

Yes. Maybe when you meet competitive landscape, let me highlight another point. According to IQVIA data, last month was the tenth month in a row, where we have been the #1 with roughly 19.5% market share in the U.S. with our broad portfolio. So when we talk about competitiveness, it is that broad portfolio geopolitically or from a national policy point of view, we are manufacturing in the U.S. and thereby solving the problem of drug shortage. And we also launched -- we talked about launch [indiscernible]. We also launched 2 products or launch more products in 2 areas in anesthetics notes in analgesia and that is in these 2 areas. And by the way, if I also look at the competitive landscape during the earnings season, I think we did pretty good overall in the U.S., if you look at the growth rate in the largest and most profitable market, it is amazing how we grew 8% year-over-year with the entire portfolio, not.

The next question comes from Oliver Metzger from ODDO BHF.

Yes. One on Helios Germany. So you reported a negative case mix effect, which comes made from the hybrid DRGs, -- is this a trend which you expect to continue out for the next quarters? Or is it a specific Q1 effect? Second question about in pharma. You reported a better momentum in Europe, its pretty [indiscernible] comment on Europe specifically, but can you remind us how big roughly Europe for you in summer? And what are your expectations for.

We see more indication in creator hybrid DRG. However, and I think that goes exactly to the point Michael mentioned, using our infrastructure and making sure that we capture a good share of hybrid and that we capture that strong activity, both which was at 5% in Q1. I think this is what will generate the additional revenue top line in terms of volume.

Yes. On Europe, Europe in general did good. We had at a 9% growth rate and pharma also was good. I mean it was we always said that the average rate of pharma is 2% to 3%. Europe was at 4.5%. Obviously, we are the leader also not only a pharma and solutions. We are the leader, the clear market leader on solutions. And we are even increasing in our footprint and investing in that one. By the way, we also saw some pricing power -- it's not only price decreases across our portfolio, depending on the individual product we use. So I guess also in Europe, our strategy local-for-local is paying dividends.

Okay. Great. Just to clarify. So it means pharma the Solutions business was more supportive in Europe versus injected the generics. That's correct, ones, isn't it?

Pharma is injectable generics. We don't differentiate between those 2. This is 1 segment because the customer also buys both -- so that Pharma & Solutions grew by 4.5%.

The next question comes from Falko Friedrichs from Deutsche Bank.

I have 1 question on the health care reform as well. Given that it aims to generate further savings beyond 2027, just to clarify, is your statement that you don't see a cliff or a meaningful headwind to your Helios margin in 2027 and would be able to launch efficiency measures? Is that also valid for 2028 and beyond?

Yes. I mean I think what we outlined is how we're going to drive is structural. And so what we do this year will be there next year and will be there the year there. So I think it's the leverage we have from the infrastructure we have, which we will continue to invest in, in particular on the digitalization front and which will provide the uptick in 2017 and beyond, and that includes explicit '28 and '29. And also, let me remind you because there is also the prospect reform, and there was that amendment passed in March of this year. And that also includes the EUR 50 billion on the transformation fund. I think that's an important angle. That's EUR 50 million for 10 years, so that makes EUR 5 billion. Yes, big number. And it starts this year. And obviously, as you can imagine, I mean, it's for project-related CapEx to actually manage that overarching transformation, which the government set out. Now obviously, our ambition is to launch a number of projects, and we have already applied number of projects, which will help to facilitate investing where we think the future of digitalization and procedural growth will go. And obviously, we aim to capture more than our market share.

And Falko, maybe I think you and some of the colleagues may play even a very special role because Germany is also your home country in explaining what's happening here. Let me dissect it again. The fact of the matter is there is a need for structural reform, too many hospitals, too many in reading, too many too many things. There is already a law in place this KHAG [indiscernible] which is, let's say, the smaller version of the later of [indiscernible] This thing is already in place, and this is targeting a structural reform with quality metrics, life to scope and not everybody is allowed to do everything and so on and so forth. All of that works completely in our favor. We're actually even doubling down in optimizing the structure. So don't forget that on that law is already there, and that is the primary target. And then you have the fund, which Sara mentioned, didn't see that in any report, which will help us 1 way or the other because it's money. And then third is now that stabilizing for the payers where, in essence, if we make it short, I'd say we can work with that. We will strive through that 1 without being very well positioned and we don't -- I mean, the 2 yeses you just heard is something money can't buy because this was not scripted.Nobody will fall off any cliff. What we would be loving to have from the German government is more deregulation that, in essence, we could even double down on digitization and AI across our networks because their data security laws and federal laws between Hess and Berlin and all of these things are still in a way. And I don't give us hope. Hope is not a strategy, but we're also talking to them that they will also come to terms that, that is the actual kicker to get the cost out of the system, which will again also work in our favor.

So I think that was our last question. So [indiscernible] saying you a job, maybe Mike any final remarks you'd like to leave.

Yes. Thank you. Usually, I make it short, but this time, I want to reiterate because these were very intense weeks also in the run-up to the quarterly earnings call, I had some investor exposure, and I get the questions and, to some extent, nervousness on the German hospital reform, but that's why we were reiterating and highlighting the fact, the strength and that we're moving the ambition not change, not in the midterm, short term, not anyways. We're going with confidence. Don't forget our portfolio, this is a volume-led -- we said at the beginning of the year when we talked about the guidance, everything is volume led on the Kabi side. Obviously, the factories need to be full. And on the other one, the factories for the hospitals need to be full -- we have clear growth matters in very attractive areas. I was calling another company, which was talking about the golden age of biosimilars with the LOEs, which you see. We do not have, like other alternatives, maybe a 1 trick pony. This is a nice portfolio when logic is always 1 is very strong and resilient or free business is actually very highly cash generative and then fund the growth. We are growing. If you look at the quality of earnings, -- we did spend year-over-year, roughly 150 basis points on OpEx both. It was not only R&D, but also S marketing and selling. I was talking about new customer segment. So we deliberately invested 150 basis points, yet our gross margin also increased by 150 basis points, which tells you new products, new innovation are gaining traction. When it comes to the German hospital reform, Volume growth is almost a given. The pricing environment is constructive. All those numbers, all those morning you hear is not about cutting anything. It is about maybe limiting the growth, and I talked about the equilibrium and how that works. Energy costs, Sara went through it in detail. I think this is very good. And then innovation-led growth. Biopharma nutrition, I like the question on Nutrition. We talked about the ramp-up Q2 biopharma already the good sign with the VA contract. Medtech having had a very strong quarter on profitability. Sara alluded to that one. By the way, a lot of rollout installations coming -- so with that one, clear capital allocation discipline, we have a very strong balance sheet, very, very strong balance sheet. We know how to drive productivity, productivity now bolstered with growth, which is totally different than what we have 3.5 years ago. We needed to work for the growth, but we need to be relentless on produtivity. Now we are as relentless to productivity, but we now we can cater concurrently growth. We have a nice balance sheet we have room for expansion, and we have an even monetary items. With that one, I'll leave you with that.

Thanks very much. Take care, and we'll look forward to catching up on the voting for days and weeks.

We want to thank Fresenius and all the participants for taking part on this conference call. Goodbye.