By Ludwig Burger
FRANKFURT (Reuters) -German healthcare group Fresenius SE (ETR:FREG) will slash costs and proceed with plans to cede strategic control over struggling dialysis group Fresenius Medical Care (NYSE:FMS) (FMC (NYSE:FMC)) as its new CEO seeks to simplify the diversified healthcare group, it said.
The move comes after Elliott Investment Management took a stake in Fresenius last year, sparking speculation the activist investor might push for a break-up of the company.
"This is an inflection point for Fresenius," Chief Executive Michael Sen said on Tuesday. "The new structure will greatly benefit both companies: Fresenius Medical Care needs an operational turnaround, to improve its performance and focus on its core business."
The Kabi division, a maker of generic hospital drugs, and the Helios division, with its German and Spanish hospital chains, would be "at the center of the group’s ambitions", while FMC and hospitals project development unit Vamed would be run as financial investments.
Sen, who became Fresenius CEO in October shortly before Elliott's stake became known, has previously said he would focus on profitability.
"Fresenius needs this change because the company has not set its priorities over the last few years," Sen told journalists on a call. "Growth was achieved at the expense of margins and in the end an increase in debt reduced the strategic leeway."
Fresenius said in its statement that net debt at the end of 2022 rose 3% from a year earlier to reach 25 billion euros, or 3.65 times its earnings before interest, taxes, depreciation and amortisation (EBITDA),
Fresenius said it aimed to exclude FMC, which has been hit hard by a high rate of COVID-19 deaths among its patients, from its regular financial reporting by changing its legal form to that of a stock corporation from KGaA, likely by the end of 2023 after a shareholder vote in July.
That set-up currently gives Fresenius strategic control and the right to appoint leadership positions even though it only holds 32% of FMC's capital, but Sen said the parent company derived no benefits from that arrangement.
But he added Fresenius would continue to hold that stake regardless of the change.
Frankfurt-listed shares of Fresenius and FMC were up 1% and 2.2%, respectively.
Fresenius also said it expected its 2023 earnings before interest, taxes (EBIT) and special items to come in between flat and down by a "high-single-digit" percentage, when adjusted for currency changes, after 2022 adjusted EBIT declined 6% to 4 billion euros ($4.3 billion).
It is also targeting annual structural cost savings of around 1 billion euros before interest and tax by 2025.
In a separate statement, FMC said full-year net income dropped 31% to 673 million euros, below an analyst consensus of 681 million euros posted on the company's website, marking the fourth consecutive annual decline.
It expects sales to grow at a low to mid-single digit percentage rate in 2023.
($1 = 0.9395 euros)