Frankfurt The healthcare group Fresenius is driving the divestment of its troubled dialysis subsidiary Fresenius Medical Care (FMC). In the coming days, the decisive committees will meet, according to Dax group circles. Investors and shareholders firmly believe that deconsolidation will take place.
In the room is the conversion of FMC into a stock corporation. This would make Fresenius less complex and would no longer have to fully include the subsidiary in the balance sheet. The Bad Homburg group holds around 32 percent of FMC shares, but controls the company through the structure of a partnership limited by shares (KGaA).
Investors are primarily concerned with the question of whether, when and how Fresenius intends to sell its share in the dialysis company, which has sales of around 18 billion euros. They expect answers next Wednesday when Fresenius boss Michael Sen and the new FMC boss Helen Giza present the annual figures of the two Dax companies.
FMC: Helen Giza has to make crucial improvements
It is already clear: A short-term sale of the stake would bring Fresenius little, because FMC has lost more than half of its value on the stock exchange in the past five years. “A sale would currently take place at a very weak valuation,” says Cornelia Zimmermann from the fund company Deka Investments.
In order for a separation to be economically successful for Fresenius, FMC must improve operationally and increase in value. The new CEO should see to that: Giza took over the top post at the beginning of December after the German manager Carla Kriwet left just two months after taking office in disagreement with the board and supervisory board.
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Giza knows FMC well, having joined the board in 2019 as chief financial officer. But the British-American CEO does not expect big leaps this year, as she recently hinted at an industry conference in San Francisco.
David Adlington, analyst at JP Morgan, even interprets Giza’s cautious statements as an indication of a possible drop in earnings at the dialysis specialist in 2023 – after two years with profits falling by up to a quarter. The number of patients, which fell sharply in the corona pandemic, is still weak, according to the analyst.
But the company is not only affected by the corona pandemic with the disproportionately high mortality rate of dialysis patients, which the management likes to point out. FMC’s business has also developed less dynamically in the important US market in previous years. However, due to a large number of special effects, this was not always immediately visible. North America contributes around 70 percent to sales.
As early as 2018, the then FMC boss Rice Powell had to withdraw the profit forecast for the first time after years of constant growth, partly because fewer private patients were treated in the USA. Since then, the profit has been shrinking year after year.
The British chartered accountant with a US passport joined Fresenius Medical Care in 2019 as CFO.
(Photo: Fresenius)
There were also clear management errors: FMC, for example, entered the growing home dialysis market far too late by acquiring the small company NX Stage. The dialysis market leader itself did not have any suitable products to offer here, but mainly focused on the clinical treatment business.
There, on the other hand, FMC is lagging behind when it comes to digitization, insiders report: In many clinics, documentation is still on paper, and the potential of the large amount of data collected from dialysis patients is not being fully exploited.
Analysts speak of five lost years
The analysts at Barclays speak of “five lost years” at FMC. You and other investors are finally expecting operational progress again.
Fresenius Medical Care must focus even more on the operational turnaround, Fresenius boss Sen had demanded after Giza’s appointment. Many employees now expect that there will be further savings in the company, even beyond the ongoing FME 2025 transformation program.
Giza, as head of transformation, has been implementing the program developed with McKinsey since the beginning of 2021: The aim is to align the business model from four world regions to two global business areas – services and product business. 5,000 jobs are to be cut as part of the program, up to 750 of them in Germany. By 2025, the costs are to be reduced by 500 million euros.
North America, however, has not been the focus of the program so far. And that despite the fact that many of the 2,700 dialysis clinics there were recently underutilized. At almost 345,000, the number of patients is still below the level of 2019.
Kidney wash therapy system from Fresenius Medical Care: It was too late to opt for home dialysis.
(Photo: Fresenius Medical Care)
New patients are slowly coming to the clinics – only FMC does not have enough nursing staff to care for them. The company has lost many employees due to the high stress and challenging working conditions in the pandemic. In addition, FMC has a reputation for obstructing the organization of workers in unions. When it comes to staff turnover, FMC is also in a worse position than its competitor Davita, observers close to the company report.
Management has been trying to counteract this for some time with entry and retention bonuses. But Giza had to admit when the nine-month figures were announced in autumn: the effects of the improvement measures will only become visible in 2023.
Former FMC boss Powell had to give up the post a few months earlier than planned because of the poor performance of the company he led last year. Giza stepped in as acting CEO on an interim basis.
The then appointed CEO Kriwet wanted to take action in the clinic business in the USA and get rid of the long-time head of North America, William Valle, insiders report. But she acted clumsily and, with her uncompromising manner, quickly antagonized the board of directors and soon the supervisory board as well.
Clinics in the USA are threatened with sale
It must have become clear to Kriwet at her first town hall meeting that nobody at FMC’s North American headquarters near Boston had actually been waiting for the new German CEO. Not even two dozen employees showed up for their personal introductions, an insider reports. Such a low level of interest in a company with several hundred employees can hardly be explained by the overall low presence due to home office.
In any case, Kriwet had no allies in Helen Giza. The 55-year-old herself wanted the post at the top, and she got it in December. Your priority task now is to position the important US business better and bring it forward.
The fact that clinics can also be given up or sold is taken for granted. Even before the pandemic, not all houses were operating profitably, says a senior FMC manager. North America boss Valle, who was appointed head of the global service business in the new operating structure, is still on board for the time being. According to official information, the 62-year-old’s contract runs until 2025.
Assistance: Tanja Kewes
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