Fresenius SE & Co KGaA
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Fresenius SE & Co KGaA
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Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I now hand you over to Markus Georgi, Head of Investor Relations. Please go ahead.
Thanks, Natalie. Good morning, good afternoon, depending on your time zone. Thanks everybody for joining us today. It's my pleasure to welcome all of you to our first quarter 2023 earnings call. With me on the call today, again, Michael and Sara.
Before we start, I would like drawing your attention to the cautionary language that is included in our safe harbor statement on Page 2 of today's presentation. And without any further ado, I hand it over to Michael. Michael floor is yours.
Markus, thanks. This is Michael. Hello, everybody. Sara and I are going to quickly run you through the Q1 fiscal '23 operational and financial highlights. The progress on future Fresenius and then take questions. As we've been saying all along through future Fresenius, the company has been resetting itself. Simplifying our structure, sharpening our focus and accelerating performance. Our mission, of course, is advancing patient care. That means deepening our commitment to our health care core building on our strengths in therapy and clearly aiming for industry leadership.
First 3 months for fiscal '23, all-in-all, I would say we made good progress financially and operationally, but we have work still to do. First quarter highlights, happy with our core, the operating companies. They delivered sequential performance improvement, both top and bottom line came in strong at Kabi and Helios. Our focus on self-help seems to be paying off our productivity, i.e., cost-saving efforts or having an impact and are continuing on track. Simplifying our group structure is moving ahead, July 14 is the FMC, EGM where shareholders will have to act and decide on the simplified structure.
It has taken many discussions to get to this point. It is a straightforward, elegant solution that benefits all shareholders and improves both companies. Staying with our efforts to simplify and make Fresenius more transparent, you'll see Kabi's numbers are reported on a business unit basis. Nutrition, Biopharma, MedTech and Pharma, this is clearly in line with the 3 plus 1 strategy and it reflects the differences in the businesses and in their respective end markets.
More transparency, more opportunities to benchmark and to value the business properly. As mentioned, there is still work to do, more than initially anticipated. Vamed, one of our investment companies where we have an ownership stake below 100%, clearly has legacy issues. The business did not perform as it should, hurt the quarter. We will go through the details and what we are doing to fix it in a minute. And even with this, there is obvious positive momentum on what really matters. We the entire leadership team of Fresenius have the plans and the right mindset for change, and we will keep this going with a clear focus on execution.
Now looking a little deeper in the quarter. Strong start to the year, revenue at EUR 10.2 billion, a healthy 5% year-over-year growth. Happy to see consistent top line growth across the entire group. Operating companies performing at the top of the range we set out earlier this year, clearly underlines their strong position in the markets and then gaining traction.
On EBIT, performance was in line and with the expectations. At the operating companies, we are happy with the developments, i.e., holding up in the current environment, driving productivity and being kind of broadly flat versus prior year. Investment companies are clearly dilutive to our earnings development. Vamed is a disappointment. The trajectory on earnings we've been seeing for the last quarters is not acceptable. Projects and contracts were not moved ahead. We are taking action to fix the problem. With a thorough vetting of the business model, time tables, costs and management.
Because of our partial ownership, we have been limited by governance, yet group management had to step in and take decisive action to ensure that focus and stringency are brought to bear on the structural, personnel and performance issues. There will be changes, management and structural review is ongoing. This will take some time to work through. We will update you on solving this as we move forward through the year.
So considering where we are right now and factoring in the impact of the investment companies, we stick with the outlook we announced in February. This is pretty straightforward and realistic.
Double clicking on Kabi and Helios. The core of future Fresenius, I guess we started out the year strongly. Kabi is a leader in their end markets and across geographies. Vision 2026 is at play. All growth vectors, Biopharma, MedTech and Nutrition delivering meaningful top line momentum and performing above the growth plan. In total for Kabi, revenues were up by 7% year-over-year. Our growth vectors catered for double-digit growth. On EBIT despite inflationary effects and go-to-market resource ramp-up on Biopharma U.S., they achieved an EBIT margin of 14.5%, good start delivering the first quarter within the margin band.
Helios again delivered a solid quarter, primarily paced by the quality of our Quirónsalud assets, and both Germany and Spain showed how we can offset continuing inflationary pressure by taking actions.
Growth at fertility clearly stood out. Part of the reset at Fresenius was simplifying the ownership structure with FMC. All the necessary prep for the deconsolidation is on track, allowing both managements to set strategy and pursue opportunities most suited to their businesses. The FMC, EGM is scheduled for July 14 and we're looking forward to seeing a positive outcome. It has taken a long time to reach this point. This is an important milestone as we like all other shareholders, will clearly benefit from a new structure that offers options and flexibility and enhances performance for everyone, FSC, FME and all shareholders.
Meantime, FME has moved ahead. They have enhanced their financial transparency, put in place an implementation plan for the operational turnaround, and we see improving treatment volumes. It seems that the FME 25 plan and the new leadership are starting to gain traction. With all the changes we have announced, what will never change is our focus on patient's care. That is at the very hard of all we do. Even going further and delivering on our mission, advancing patient's care. Our launch portfolios are moving ahead. We are honored that our Ivenix Infusion System after a rigorous clinical led review was awarded an innovative technology contract from Vizient whose members include more than half of all acute care hospitals in the U.S. This helps us in gaining what needs to come first mind share.
At Helios, we completed a pilot program for recycling narcotic gases, which addresses both safety and environmental issues in hospital settings. These are just 2 showcases of innovation and passion, which are coming out from our thousands of health care professionals and committed employees all over the globe. Very proud of all improvements to really advance patient's care.
Now let me turn it over to Sara for more detail on the numbers.
Thank you, Michael. A warm welcome also from my side. Let me walk you through the most important numbers for Q1, give you an update on the implications of the deconsolidation of FME and provide you with a status quo of our cost savings program.
We saw a healthy 5% revenue growth in constant currency, driven by a group-wide strong demand for our products and services. The EBIT decline of roughly 10% in constant currency in the first quarter was mainly driven by inflationary headwinds. Continued cost increases and the annualization effect compared to Q1 '22 affected our cost base, in particular, for material and focusing on Europe also for energy costs.
In addition, we had a very weak quarter at Vamed. Excluding FMC, the EBIT decline was 7% in constant currency. And focusing on our operating companies Kabi and Helios, the EBIT development was broadly flat year-over-year despite the cost pressures. Our interest expenses increased by more than 40% year-over-year because of financing activities in a higher interest rate environment. For the full year, we continue to expect interest expenses between EUR 700 million to EUR 750 million. The tax rate before special items stood at 24.9%, at the upper end of our full year expectation. This was mainly due to higher taxes at FMC and no capitalization of Q1 tax losses.
Operating cash flow increased over a weak prior year quarter to EUR 175 million.
Let us take a closer look at the business segment's performance in Q1. Kabi had a good start to the year. Revenue at around EUR 2 billion and a strong 7% organic growth, predominantly driven by volume, but also some targeted pricing initiatives. Especially pleasing is that all 3 growth vectors are contributing to that momentum. Biopharma again stood out with a very dynamic development, particular in LATAM. And we have seen first revenues coming in from the U.S.
IV drugs and fluids contributed with a solid 3% to the overall strong growth. In Q1, Kabi achieved an EBIT margin within its structure margin band. This is an excellent achievement driven by the strong revenue development and a positive mix effect. We were able to help address partial market shortages in IV drugs. Our cost-saving program is also progressing well. Compared to Q1 '22, overall higher input costs as well as the investments in U.S. Biopharma and the Ivenix rollout led to margin pressure.
As you have heard from Michael, we have changed Kabi's financial disclosure and I hope you already had a chance to have a look at our website. Pier-Luigi and the team will provide you with more details at our Capital Markets Day on May 25. Helios delivered a good Q1. Revenue came in at EUR 3.1 billion with a nice 5% organic growth. Spain was yet again a major contributor to this development driven by a healthy volume development combined with some price increases.
In Germany, admissions continue to come back to a pre-COVID patient structure and we are optimistic that this trend will continue over the year. Fertility saw a positive momentum in Q1 as patients return to its clinics following a phase of hesitation driven by macroeconomic uncertainty. EBIT at EUR 311 million with a good margin of 10.1% and thus right in the middle of the structural margin band of 9% to 11%. Compared to Q1 '22, we are seeing some phasing effects with a very strong quarter of '22 in Spain as well as an increased cost base. Higher energy costs in Germany were mitigated by both governmental support and an energy savings program achieving almost 20% of savings on energy consumption in Germany. Overall, Helios again demonstrated its ability to compensate inflationary headwinds by sales growth as well as structural productivity.
Moving on to Vamed, a very disappointing Q1. Even though revenues were growing, we saw a significant negative EBIT development. The EBIT decline was driven by the legacy product portfolio with challenged profitability given significant cost inflation. We expect legacy project to also be a drag in the upcoming quarters. Furthermore, we had business initiations that did not materialize as planned and negative one-timers in particular in the service business. As Mike has said, we act with rigor and are focusing to restructure the business. This includes streamlining of organizational structures, a stringent cost and efficiency program and likely portfolio measures. We will provide you with an update in the next earnings call.
As we are progressing well on the planned deconsolidation of FMC, we wanted to provide you with some details around the accounting implications of the deconsolidation as well as some key financials, excluding FMC. FMC is currently fully consolidated and broadly speaking, contributes around 50% to our top line and roughly 40% to our EBIT.
Post deconsolidation, FMC will only show up below the EBIT line as an investment company accounted for using the equity method. Thus, while virtually all P&L line items will be touched by this change, the economic ownership of our 32% stake will still be reflected in the net income. However, there are some technical steps on the way to it.
After a positive vote on the deconsolidation at FMC's EGM in July, we will apply IFRS 5 reporting standard to FMC. This will lead to consolidating and presenting FMC into a single line in Fresenius' balance sheet and P&L and requires revaluation of FMC at its market cap compared to the book values we hold in our accounts as per today.
For illustrative purposes, based on FMC's market cap as per April 28 and Q1 financials as per March 31, this would lead to a negative one-time P&L effect of roughly EUR 0.9 billion. Thereof, EUR 0.3 billion attributable to Fresenius SE shareholders. It is important to emphasize that this is a pure one-time accounting effect, which would be recognized as a special item and would have no cash impact.
In the second step, after registration of the new legal form in the commercial register, we will technically deconsolidate and apply the equity method under IAS 28 for FMC. This will have a further effect dependent on FMC's market cap and additional technical accounting adjustments.
Again, important to stress, recognize a special item and without a cash impact. The described accounting implications highly depend on the market cap of FMC as well as the balance sheet values at the respective dates and thus are expected to vary from the illustrative figures just outlined.
On to our cash flow development. Operating cash flow increased year-over-year by 73% to EUR 175 million. The cash flow margin stood at 1.7%. The first quarter is traditionally a softer cash flow quarter due to phasing effects with the respective catch-up effect over the course of the year. Q1 '23 was positively impacted by the governmental support on energy cost for Helios Germany as well as overall solid cash flows at Helios. On the other hand, phasing effects from higher working capital at Kabi, in particular for receivables and inventory weighted on Q1.
Moreover, the negative EBIT development at Vamed also had a negative impact on cash flow. The Q1 performance took the group's LTM margin to 10.3%, deducting group CapEx of 4.3%, the LTM free cash flow margin stood at 6%. As outlined in my full year presentation, we are in the process of establishing a much more stringent focus on cash and cash returns, which is reflected in the decision-making process within the group.
Let's take a look at the ROIC, which stood at 4.8% in Q1. Excluding FMC, the ROIC would have been 5.2%, not where we want to be. But we are strengthening our focus on ROIC with rigor, deploying our capital consequently along our strategic pillars and with a clear priority on return KPIs with implications on M&A, investments and CapEx, but it will take time. 2023 will be the inflection point. On to the cash conversion rate, a new KPI under SQ reflecting our increased focus on cash flow generation and cash conversion. The LTM cash conversion rate, which is the relevant metrics here stood at 1.1x in line with our full year expectation.
With respect to the leverage ratio, we are at 3.79x in Q1, above our target range, mainly due to the softer EBITDA development at FMC and Vamed. To remind you, we expect '23 to be slightly above our target range. As you know, we are reviewing selected assets for potential divestment. Such divestments would, of course, help create headroom, which is not reflected in our full year '23 leverage ratio expectation.
On to the status quo of our cost-saving program, we are delivering on our structural productivity improvements. We achieved roughly EUR 130 million of cost savings in Q1. Excluding FMC, we are at EUR 70 million. Thus, we realized about 25% of the yearly cost savings in Q1, fully on track. I'm happy with that progress. I described to you in the full year call our financial priorities and ambition levels. We have given you a clear and measurable set of goals and that is also driving a performance culture within our group. I'm convinced that this clarity and transparency is also increasing accountability and finally is accelerating execution.
With that, I'm happy to hand back over to Michael.
Thanks, Sara. Before we get to questions, I want to keep front and center the momentum we have in what we call revitalizing the company. We are going to bring permanent change to Fresenius to ensure consistent performance and build back value. In the months since we started this, there has been marked progress, core delivered nicely, deconsolidation of FME, which wasn't far possible will soon happen if and when all shareholders act in their best interest at the EGM.
At Kabi, we've made the whole organization simpler reporting by business units, so that we can better measure and better manage what needs to be done. The financial framework FQ, where clear measurement targets bracket our activities are being rolled out. This is a cultural and performance change, which is new and necessary. As we move through the year, you will see the results of our asset reviews, specifically the divestments and the productivity enhancements will go even further than what you see in quarter 1, they are gaining traction.
There is more work to do, pretty clear that our investment companies have to be reset too and advancing our ESG agenda will be part of what we call revitalizing as well. This now on Slide 20 is the calendar for the FME deconsolidation, likely effective Q3 or Q4 of this year. I want to end by inviting all of you to attend our Capital Market Day on May 25 in London. The whole management team of Kabi will be available to meet. Kabi's Biopharma, MedTech, Nutrition and Pharma leaders will all be there. We will be highlighting the operations, the financial picture, the products, production footprint, et cetera, et cetera. I understand that some infusion pumps and other products will be on site, exciting stuff. There will be discussion and plenty of time for questions. Of course, it will be webcast, but being in attendance will make it better for us and better for you. I really look forward to meeting many of you there. Let's take some questions now over to Markus.
Natalie, please go ahead and let us start with Q&A session for today.
[Operator Instructions]
And our first question is from the line of Hassan Al-Wakeel from Barclays.
I have 2, please, both on Kabi. Firstly, can you talk about the stronger margin development in the business given you're already within the structural band? And why you expect a meaningful deterioration in the margin as per your segment guidance over the course of the year or whether there is some conservatism built in here?
And then secondly, I would love to hear a bit more about the strength in the nutrition business and how the performance varied by enteral and parenteral nutrition, as the market shifts towards -- as the Chinese market shifts towards more enteral treatment. Are you finding that your strength in parenteral nutrition in China is a strong point of synergy?
Thank you, Hassan. Let's try to start with the first 1 or both questions. Sara and I will going to try not to steal thunder also from the Capital Market Day, which is due in 2 weeks. Look, we're very happy with the margin we saw in Q1 purely operational. And it was also a function of -- I think what the Kabi team has been working on for, let's say, the last 2 years, there has been a tremendous growth momentum. The growth of Kabi at 7% clearly drove volume, Sara depicted to that, even though we always said we have limited room for rolling over prices, wherever we had the room we took actions. So on a volume on pricing base, this really led to the very strong Q1.
The words you used for the remainder of the year, I would not use especially your second word. Look, there's going to be a Capital Market Day in 2 weeks and there is a new CEO of Kabi. So I guess we all agree that we also need to give him a chance to look at the business he's preparing for the Capital Market Day and then he will together with his management team deliver how we see the levers for enhancing the performance going forward, and how we stack up on the margin band.
Also on the split between enteral and parenteral, we got to go geographies by geographies and see where it's strong. Obviously, in China, in total, you know that China, where we have a strong also parenteral and enteral business that we have the volume-based procurement. So China, all-in-all, probably was rather one where we would have to make it up with other countries, which we did.
Therefore, the whole business grew nicely actually with roughly 8% against prior year. There is obviously synergies between enteral and parenteral in the treatment initiation. You will probably see in 2 weeks that the whole topic of nutrition in the clinical routine is gaining more and more attraction and we get more scientific and medical evidence that nutrition is a key part on treatment paths also on oncology.
Very helpful, Michael. If I can just follow up on your comment around the margin, not meaningfully deteriorating from here. I wonder then if you could help me understand the phasing of EBIT growth for the company overall and given the better start to the year, whether the upper end of the guidance is more likely.
Yes. I think we deliberately said that we're going to stick to the guidance and the guidance has, let's say, has some spread and we're going to go quarter-by-quarter and update you because we're going to observe how our businesses are developing and performing. By and large, what we initiated seems to be working and paying off, too early to call it a trend because it's a data point, but we are pretty sure because we know the activities, we know what is behind that one. So the core is nicely placed with Kabi and Helios.
Both Sara and myself, as the entire leadership team, we shared with you our disappointment with one asset where there's work to do. And there's a trajectory for the last quarters and I would say we have to look at that one more profoundly, group had to step in, and that's why we felt prudent to keep the outlook as it is. But you get data points already as to who is performing strongly and who may be on the watch and what it does or doesn't do to the risk profile.
The next question is from the line of James Vane Tempest from Jefferies.
Firstly, just on Vamed. And just wondering how much of a setback this is to -- you might want to do with this asset when considering your strategy to manage portfolio exits?
My second question is, again, just coming back to Kabi, margins were very strong, but I think if you could give a little bit of clarity, just at least in terms of thinking about the growth vectors where the profitability decline was double what we were seeing in the IV business and how we should think about the phasing of that through this year, that would be helpful? And then just related to Kabi as well, the Biopharma business, very strong growth of north of 200%. I think you said Latin America, but any clarity on products there would be useful, too?
Yes. Look, on Vamed, I think it goes without saying that this is a setback. That's why I deliberately also in my speech said we got work to do more than initially anticipated, but everybody should be rest assured that we're going to get the work done. And the focus now is, first of all, getting the hands around that asset and as also Sara alluded to, making sure there is a stringent restructuring plan in place and that this is being followed up and everything you need to do there.
We were very clear vis-a-vis Vamed in terms of our expectations. Sara sits on the board and she can give you also more details, but this is the focus now on the Vamed.
Then on the growth vectors. Look, I think we still need to bear in mind and therefore, the growth was so instrumental that we are still in an environment where there is inflation and inflationary also pressure on the input cost side. And that you can also see on nutrition when it comes to milk products or carbohydrate and the like but the team also took counter measures. What you see as the (margin contraction), which you saw on the growth vectors is the resource primarily. The resource buildup on the Biopharma in the U.S. We are about to launch and there you get the picture of what your other question was on Biopharma, we are about to launch the adalimumab or Idacio. We always have been saying that we are in the second round.
And I also said, economically, opposed to what we've been maybe alluding to in the past, economically, I feel more this is testing the waters. Business-wise, operationally, this is, of course, important because we are ramping up the resources, we have been building up the sales channels, the Chief Medical Officer, the promotion material. We are driving a multichannel strategy there, talking to pharmacy benefit managers, but also to our regular channel, which are the hospitals peg on the onco side, we launched in the U.S. This is like really early innings. I think we can count with our bare hands or fingers the sales we have, but it's -- as I said, you've got to start somewhere.
This is the prefilled syringe stuff where we -- and we are trying to get -- have patients switch on the Biosimilar. But we are also there rather looking at the on-body injector, which will come later because this clearly has more patient benefit about patient's safety and patient's comfort.
So by and large, I think that is it, but we have seen strong growth regionally also on that end or for the Biopharma as in, also Nutrition and others on the Latin America side.
The next question is from the line of Veronika Dubajova from Citi.
Just 2 from my side. One is just a follow-up on Vamed. And Michael, I would love to understand exactly what you are doing to increase or improve the performance in the group? And what's the realistic time frame we should be expecting to see some improvements over? And just conceptually, does this change in any way your attitude towards retaining a stake in the business? That's my first question.
And then I have a follow-up on after that, but maybe we can get this one out of the way first.
Okay. Perfect. Thank you very much, Veronika. I am happy to provide you a little more details here. I mean, I think it's fair to say, you have seen Q1, now we have Q4, now we have seen a further deterioration in Q1. We are and we have launched the restructuring program. And I think it's fair to say it's obviously it goes the way of streamlining organizational structures, stringent cost and efficiency measures and portfolio. And there are some, I would say, short-term measures, which have already been implemented, and which we will need to kind of pull through with full force, and that is obviously what you would expect in such a situation spend control towers, cash desk making sure that we operationally get under it as quickly as we can. And then there are obviously those more structural topics, which need a little more time to see the benefits of that coming to fruition.
There's a whole review currently ongoing, as you would expect. And it's fair to say what we can already see and I commented on that, obviously, the legacy portfolio we have and particularly on the project side, is challenged by the significant cost increases we have seen. And so the profitability here is challenged as well. So there are some, I would say, quick care fixes, but there are some, which just take time.
And there are some, which can be implemented quicker and some which again takes time and you need to do some analysis there as well. But we will act with rigor. I think it's clear that we will work this one through and then we'll update you as we progress. And hopefully by Q2, we can give you a more comprehensive update on where we are with our restructuring program and what exactly are in particular, I would say the structural measures we are about to embark on.
And views on ownership? I don't know if you or Michael -- if so I am just....
I would say, currently, our focus is to get the business back on track, to look at the restructuring program to see where we do have self-help to see where we need to streamline organizational structures and so on. I think as Michael alluded to, we are not 100% owner of the business, that makes some of these steps maybe some more cumbersome than others, but we are confident that we will work this through and that's our current focus.
Yes. Veronica, look, we shouldn't also get ahead of ourselves. We labeled the company as an investment company. We did not put anything up for anything else. When we started the journey, we said investment company and operating company because of the different ways to manage this is exactly what Sara alluded to and obviously, the focus.
What is important now here is that we get to the bottom of this and therefore, we deliberately emphasized it's going to be full fledged. I said there's going to be a vetting also, not only just we look and tell them save costs and so on and so forth, also of the business model. We did say openly, candidly say this is -- and it was transparent anyways, it is a development of the last quarter and it is not satisfactory, not to say the least.
So the last thing we can do or should do is to say, okay, there's going to be some measures and then next quarter, it's all going to be good. If not, it's going to be good eventually that we can promise, but we will update you as we go along next quarter. Sara just said it next to these rigorous measures, which are being taken immediately as we speak. We're going to look at the business model and the portfolio. Does it make sense to be a general contractor. And if yes, where and which risk profile, this is a totally different business model when you talk about project business. This is infrastructure business. This is about scoping, this is about contracting and all these -- and totally different capability set than running a Pharma business or care delivery business.
And therefore, also it's called an investment company. So therefore, don't get ahead of ourselves.
Very clear. And then my second question, apologies, I had some connection issues. I don't know if this has been asked already, but the Ivenix recall that came out a couple of weeks ago, just curious kind of anything to read into it any concerns. Just wanted to give you an opportunity to comment on that. And that was it for me?
I would think -- you said recall, right? Yes, that was an Ivenix issue is already solved that is -- doesn't come really as a surprise, is also not meaningful. Ivenix is like still in the -- not a start-up anymore, but we are starting to industrialize. When we bought it, we said it will take some time because we are shifting the whole manufacturing process over to us in order to then get it on an industrial scale manufacturing, bringing the costs down and obviously, also having leverage vis-a-vis vendors on the procurement side, and then obviously, building up the go-to-market where there is synergy with our solution business and so on and so forth.
And there was a minor issue, I would say, it has no financial impact and it is solved, but as it is common, we need to report on this one, and that was it.
The next question is from the line of Oliver Reinberg from Kepler Cheuvreux.
3 if I may. The first one is on the big picture. So I understand that 2023 is obviously still a transition year, given the headwinds from Fresenius medical care and also inflation. And now Vamed is obviously shaping up a bit more challenging and inflation can continue. So I was just wondering, could you talk to your level of confidence that in 2024, you will deliver significant earnings improvement. And if so, what are the kind of key levers here, in particular, in your core business activities?
Secondly, just on China. I mean China is obviously a major market for Kabi and also has been a significant growth driver in the past. So can you just give us any kind of flavor on how you think about the sales and in particular, earnings cost potential for China, let's say, in the next 3 years?
And short term, how much headwind should we still expect from volume-based procurement? And do you see any kind of benefit from the reopening?
And the third question, if I may, just on the new color you provided on the Kabi segment reporting, please. Can you just give us any flavor what kind of margin gap you have between IV and the infusion business within Pharma after the allocation of R&D costs that you were doing.
So is it fair to say that the gap could be somewhere in the ballpark of 7.5% to 10% or could be more?
Yes. Well, great. Thank you. I'll start with your question number 3 because it's going to be short. Obviously, we appreciate the interest. But we're not going to go to that level of detail. There's a lot of commercial and competitor activities out there. The only thing I would say comparing contrasting, I understand where you're coming from. You want to build a model and compare and contrast to, let's say, others and pure plays out there, as I said, completely understandable. But look, the reason why we have IV generics and fluids is that this makes us the relevant player in the marketplace. This is why customers procure and contract with us because of the relevance of the breadth of the portfolio because we can bring all of that to the table. And these are sometimes bundled deals and structure deals and therefore, you may understand that we do not feel comfortable to disclose also the difference on that one. But I know where you're coming from.
Also again, on China, there will be more color on the Capital Market Day. You are right that China is and was the second largest market, also with -- like in many other industries, with a profit pool to which was favorable. Very hard to predict China because rightfully, as you ask, there's stuff which is beyond our control.
We cannot predict as to how the government and the system, what it is doing. What we did say very candidly, transparently is that there will be impact by the volume-based procurement. And we also said right or at least when I was still running Kabi, I tried to tell the group at that time, this is also not a one-off it will remain. And from a national volume-based procurement, they go to a provincial volume-based procurement.
This is deeply embedded into also their policy making of making it more accessible and driving prices down. We have seen this, by the way, in Q1 in one of the provinces Guangdong. One other reason, which may or may not have contributed to that strong margin in Q1 was that part of the [ MVPP ] was being shifted out because of COVID. But we still expect that later on, what helps, and this is also built in our strategy is you need to grow and grow stronger also in other regions, which doesn't mean China is not an important market. It is still an important market because it caters growth and earnings, but with a different profit pool, which we've been seen before.
Also the business model is changing because we used to have in China a promotion model. That means there was a lot of feet on the street. And one part of the Vision 2026 global competitiveness was that as we move to a volume-based procurement, obviously, you need less feet on the street. So we restructured the business. And -- but again, to put another element of feet on the street, in place for, let's say, segments where you need still promotion, but you will get more color on this one. But therefore, you see we have been nicely growing in other geographies and also from a vertical perspective, the Biopharma basically one of the growth drivers going forward.
Then yes, Vamed, I think we elaborated on that one, and I think it is too premature to give you already some sort of outlook or what have you for 2024. What we try to do with future Fresenius when we launched this in February 22 is look, there is a clear plan, let us execute on the plan, be very transparent where we are and then you know how to calibrate it and what may or may not be the basis for 2024.
The next question is from the line of Graham Doyle from UBS.
Just one on Helios and then on the portfolio overall. In terms of margin phasing we go through the year, it has been a pretty solid business, we think back over the last 18 months so that sort of 10% level. Is there anything we need to think about from a cost side that would be disruptive? Or are you pretty comfortable where Q1 landed in sort of as an indicator for the rest of the year as we thinking about German energy in particular. And then just on portfolio exits versus one way of phrasing this is you talk about launching processes in terms of maybe some of these exits. How confident do you feel you'll have disposals in time to sort of help with the debt refinancing that's coming up over the next sort of 6 to 12 months? Like how much role can that play in us?
Happy to take the one on Helios, maybe first. So I think overall, Helios demonstrated and has demonstrated also last year that they are able to compensate inflationary headwinds and cost increases, which we actually are seeing and continue to see in '23. I think we go to the point of wage negotiation. I think we have now good clarity on tariff negotiations in Germany.
I think there are also contracts coming up in Spain, which we are negotiating, all of that obviously can have a notable impact on our cost base. I would say so far, what we are seeing in line. We also have the element of energy costs. Here, if there are 2 ways how to tackle it, I think in Spain, energy costs have been high for a while now.
And obviously, Quironsalud was able to compensate for that very nicely. I think in Germany, as I said, it's 2-way is one, there is from the health care fund, there is a liquidity reserve where you get a lump sum payment to help tackle the increased energy cost. But the other effect, which we are also doing in terms of self-help is to reduce our energy consumption by almost 20%.
So you see the whole Helios model is geared for self-help and structural productivity. And thus, if I look ahead for the year, I would say that Q1 is a really good start to the year. I don't see why we should significantly deviate from that. I mean, obviously, you will have seasonality patterns, I would say, for example, in Q1 and Q3, but nothing out of the norm based on what we are currently seeing.
Sorry, your second question go over.
Yes. Second question, look, Graham, this was, I think on divestitures. Also there, what we are again trying to do is lay out a plan, be very transparent on that one and then really work on that one and deliver. That was the reason why I also mentioned in the speech that we are ready to bring permanent changes to Fresenius and to ensure consistent performance and to build back value. Transactions need time, need preparation. We said 12 to 18 months when we launched it. We set a handful, roughly on assets we are looking at and we need to be diligent and those things need to be thoroughly prepared in order to be at the end of the day successful.
Business-wise speaking also what we saw in Q1, I'm very confident about all portfolio elements also we have in scope. And therefore, this is one of the necessary prerequisites that an asset should also be attractive and performing. We're working on that one. That's why I said we have our hands full.
The next question is from the line of Oliva Metzger from ODDO BHF.
The first one is, can you elaborate about the competitive dynamics in the U.S. IV business? Second point is about your price initiatives at Kabi. Can you comment about the volume price mix and also which of the subsegments have profited the most within the segment?
The third question is on your EBIT at Helios. We see it basically broad-based among the divisions that there is some pressure on profitability. You made a comment on the energy consumption savings. First, to clarify, what was the baseline? Was it year-on-year? Or what has -- you use as a reference?
And second, which room do you see for incremental cost savings at Helios?
Happy to start with Helios, if you want. So the savings on energy cost consumption for the German Helio business, you can take 2022 as a reference point and it's almost 20% of consumption savings, as said. It's also -- if you look at the topic more broadly and maybe getting a little bit more detail on the health care fund and the liquidity reserve there, I think what I was referring to is that EUR 1.5 billion we are seeing from that fund and that's a lump-sum payment you get per installed bed and it is some governmental support for inflation-related cost. And that means for Helios big picture, it's around EUR 85 million funding, which we, however, reflect in the P&L, obviously, on a pro rata basis as we work throughout the year. I think that's an important measure.
Now if you say incremental cost savings, obviously, Helios is also part of our cost and efficiency program. And yes, they are also working on cost initiatives. I think energy is one important pillar. Digitalization, particularly on the Q1 side is another important pillar. Structural productivity in terms of processes is the third one.
So I think Helios overall has demonstrated its ability to counter inflationary headwinds quite well over the last couple of quarters, also not only by cost initiatives, but also by the revenue growth we have seen in particular at Q1 in Spain.
Oliver, let me take the other questions. Let me start with the pricing -- price volume in Kabi. I wouldn't overemphasize the contribution of pricing in terms of bottom line impact. What we try to allude to is we're happy that net-net, we saw a positive contribution also from pricing. As we have always told all of you that usually we cannot roll over prices. But in a few instances, you were asking where it is, for example, in parts in Nutrition, it is in parts on the MedTech side and then obviously varies from geography to geography. But we have been able to do this so as a net-net contribution, there was a positive contribution out of pricing, where in an environment we are currently in and also the -- and this leads almost to your next question on the competition and intensity and dynamics in the U.S. that sometimes you even have to encounter price decreases.
Obviously, different. You will see that on the CMD we have an innovation-driven business on the MedTech or on IV generics, it is more about what is your launch time line on Nutrition. It's also about innovation and setting new price points. I wouldn't overemphasize. So the volume piece is much larger than the pricing effect. And that is the good news because the volume piece, obviously also fills your factories and then drives cost degression.
On the U.S. dynamics, look, there were years where there was a lot of drug shortage and capacity shortage, that normalized. We always said that the increased competition is still going on. I elaborated a couple of times about the number of competitors in the last couple of years and that normalized. So we had been able a couple of years to step in with the capacity we had. Yet there is still -- it is still a very attractive market because first of all, it's big, it's large in size.
There is also still drug shortage in the U.S. We have capacity there. And in terms of competitive dynamics, I think one of the tasks Pier-Luigi now also took on is where do we have gaps? Where are we strong? Can we get more nimble on, let's say, catering and matching demand supply dynamics because there is always demand, but do you have the capacity to supply, to produce it for what is just being asked. And this is one of his key tasks.
Overall, I'm very satisfied with the margin, which the U.S. caters out of IV generics.
The next question is from the line of Robert Davies from Morgan Stanley.
Most of have been covered, but I did have one last one. Just on Pharmed. Given that it's more of a project-based business, just wondered how much sort of forward visibility you had there in terms of the margin development over the rest of the year. Is it fair to assume that our business should be back into the black before year-end? Or is there a scenario where you think they could still be negative through the end of '23?
Look, it's project business, but it's also a service business. I think it's fair to say that there is and continues to be some nice underlying margin on the service business. We have seen one-offs and impact on the service business in Q1. However, I think if you look at Vamed, it's pretty complex within itself. And I think you need to differentiate between the businesses quite distinctively. If you look to the project business and if you look to visibility, obviously, we are now getting under it to get the visibility.
I think on average, the remaining projects, which we currently have, they run another 2 to 3 years. Obviously, those with contracts pre-price increases are the ones, which are more challenged. But I would say you need to really dissect between the project and project-by-project. We have an international project business and European focused, meaning Germany and Austria, in particular, which have different dynamics. And then the services business with high-end services and technical services. Also, you need to look at it in a distinct manner.
We aim to give you a good update in Q2, where we will present you with more details on the restructuring plan and also be more specific on how and what the time line is for our Vamed restructuring program.
Maybe let me add to that one. Look, there is a clear restructuring plan and strong and firm ask from our side, and we've got to work through that. They have to work through that. They're going to be accompanied obviously, but need to get to the bottom of it. The annoying thing is that could one have seen it earlier, I don't know, only if you have the transparency. As Sara said, you need to work project for project. That means contract-by-contract in a decentralized organization, where they are also catering customers globally.
And then you have different business models, the service model. We also have rehab centers and so on and so forth. And we need to work through this first. And as I said, we vet the business model because the risk profile varies obviously also, can vary from contract-to-contract. And therefore, let us get to the bottom first and then we will update you on this one. It goes without saying, if you heard us in at the press conference in February 22, we started kind of looking at it in Q4 last year, where you have seen also, let's say, accounting-related effects on that one.
Maybe just as a follow-up, when you said -- I think in your presentation back, you said it was a sort of major restructuring program initiated. Can you just -- do you have any sort of sense yet in terms of the costs associated with that? Or is that still being worked on?
We will provide you also here with an update in the Q2 call. I think let's not do kind of piece by piece, but rather give you a more comprehensive view in Q1 on the time line on the cost buckets and on the way forward.
The next question is from the line of David Adlington from JPMorgan.
Most of have been answered already, but maybe just on Kabi again, just in terms of the Pharma margins. Hello?
Breaking up?
Can you hear me?
Now we can hear you.
Can you hear me?
Yes, we can.
So just on Pharma on Kabi, just in terms of the 60 basis points of margin improvement, I just wondered if you could split out how much of that was down to price and mix versus cost savings?
And then secondly on Vamed, there were some reports last week of some compliance issues. Just wondered if you could give some more color on that. What steps you're taking to address and any risks associated with those guideline issues?
Happy to start on the Vamed side. Obviously, we would be looking into any compliance issue with all the rigor, which goes along the way. I think as you can imagine, if you see a business, which is now not performing for some time, you will always get I would say, more noise around it. But you can rest assured, we will look at it. As we look at the financials, we will look at the overall structure and the overall setting and also provide you with updates here.
Yes. Look on the split, volume pricing on the generic and IV fluids, this is, I think, more detail for the Capital Market Day. They can go into more detail here. All-in-all, we were very satisfied because it was also driven by growth and the 3%, which we saw on the Pharma business, 3.4% generics and fluids. Fluids also very stable all over the world. That's what I meant with being relevant having a portfolio where this has kind of like almost a very stable demand and that helped to drive the performance split on volume and pricing on that one, I think more for the Capital Market Day.
And on Vamed, again, this -- I guess you are quoting that article where they were talking about that, it needs to be taken into context. We were -- if they were quoting the letter, which went from group to them, it is about accounting related topics in the internal control system, which we made also we discuss with everybody being involved also auditors and Supervisory Board in Q4. And as Sara made sure that there's a clear remediation program on that one in order to ensure accounting and internal controls compliance.
And the last question comes from Christoph Gretler from Credit Suisse.
Thank you, operator. Good afternoon, Michael, Sara, Markus. I have 2 questions. The first with respect to Vamed too. I was a bit surprised by the order of magnitude of the loss. Actually, could you specify how much this one-time effect was in the service business? That would be my first question.
Yes. It is almost all of the one-timers related to the services business.
Yes. But the magnitude, is this basically kind of all the loss that we see right now?
No. No, no. It's -- to be honest, there are 2 buckets, I would say, one is legacy portfolio on the project side and the other one is one-timers. I think some of the one-timers had to do with revaluations of contracts and claims, some of them, however, were also unfortunate closures, for example, on a Rehab Clinic because it needed refurbishment. So we closed it when normally, as we go through the year, we have less occupancy here, which happens to be Q1.
So some of it is, I would say, good practice and the other ones had to do with change client behavior, in particular, also in the services part as COVID and the war in Ukraine changed some of the contracts we had in terms of the executability and the time lines moving forward. And we will clearly look into that. But as I alluded to, the services business underlying and fundamentally, we see some healthy margins.
Okay. And then second question just relates to the margin in this growth vector business at Kabi is a 270 basis point decline year-over-year. I understood that there was a major investment in U.S. Biosimilars. Was this the majority of this margin decline? And if you strip that out, were actually margin improved on the key business without Biosimilars?
Yes. Look, first of all, it's a number of effects. In the growth vectors, there's also big, which is the Nutrition business, yes? And I told you also on the Nutrition business, very, very kind of pleased with the trajectory they are taking because they have been tremendously growing.
On the other hand, they also have to cope with inflationary topics on the input side. I told you about protein, milk protein products and carbohydrate. But thanks to a lot of growth and actions they took. So there are many effects on that one.
On the Biopharma, it was mainly the buildup we have in the U.S. because, as I said, we still are about to launch. And then don't forget, I also mentioned Ivenix. I said it is at very early stages. So Ivenix has a totally per unit economics as long as they are not in a, let's say, more mature state, and this was the whole game that we take over and bring down the unit costs in taking over the manufacturing, having leverage on the performance side and so on and so forth.
So they have been probably -- not probably -- by fact, dilutive to the overall development. But again, there is ample opportunity at the Capital Market Day of Kabi, which is in 2 weeks.
Great. I appreciate the comment and see you then.
So given that there are no further calls and thanks for participating in today's earnings call. Any more questions, please contact Investor Relations team. We are going on road show tomorrow in London and until then talk to you soon. All the best. Thank you.