Fresenius SE & Co KGaA
XETRA:FRE
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Fresenius SE & Co KGaA
Earnings Call Analysis
Q2-2024 Analysis
Fresenius SE & Co KGaA
Fresenius has delivered another exceptional quarter, with substantial momentum and significant progress reported in the second quarter of 2024. The company's revenue increased in the high single digits, and EBIT saw a double-digit rise, demonstrating the impact of strategic initiatives and a focus on core segments—Kabi and Helios. This performance is a strong indicator of the company’s ability to deliver sustainable growth and maintain a robust financial trajectory.
Kabi and Helios, the core segments of Fresenius, showed remarkable performances. Kabi's revenue grew by 11%, driven partly by favorable pricing in Argentina, and achieved 19% growth overall in its growth businesses (Nutrition, MedTech, and Biopharma). This segment saw a significant EBIT margin improvement, reaching 15.9% of revenues. Similarly, Helios showcased strong organic growth, with revenues rising by 6%, and an impressive EBIT margin of 11.1%, solidifying its position at the upper end of the guidance range of 10% to 11% for the year.
Operational excellence and cost efficiency have been at the forefront of Fresenius's strategy. The company has already achieved its annual target for cost savings with EUR 68 million realized in the first half of the year. Initiatives in procurement, supply chain optimization, and complexity reduction contributed significantly to these savings. Notably, the company is ambitiously pulling forward its cost and efficiency targets to be completed by the end of 2024, a year ahead of the original plan.
Fresenius reported a substantial improvement in cash flow, with operating cash flow increasing by more than 370% year-over-year. This robust cash generation has enabled the company to deleverage quicker than anticipated, reducing its net debt from EUR 13.3 billion to EUR 12.4 billion since the beginning of 2024. The leverage ratio now stands within the target corridor at 3.4x net debt to EBITDA. This financial discipline is further enhancing the company’s flexibility to refinance upcoming maturities and reduce interest costs.
Looking ahead, Fresenius remains optimistic about its financial outlook for the full year 2024. The company has confirmed its full-year guidance for organic revenue and EBIT growth at the group level. The achievements in the first half position Fresenius to target the upper half of its EBIT growth range. While some market uncertainties persist, particularly in China, Fresenius is well-prepared to navigate these challenges and continue its path of growth and value creation.
Innovation and quality remain central to Fresenius's mission. The launch of new brands and the introduction of advanced medical technologies and solutions, like AI in clinical settings and the latest biopharma products, are enhancing patient outcomes and reaffirming the company's commitment to life. The successful rollout of Tyenne in Biopharma, with significant gains in market access and payer coverage, exemplifies Fresenius’s capacity to drive growth through innovation.
In summary, the second quarter of 2024 was a testament to Fresenius’s strategic focus on its core segments, operational excellence, and innovation. The company has laid a clear path for sustainable success, marked by robust financial performance and a commitment to cost efficiency and productivity. With a simplified and stronger structure, Fresenius is poised to continue delivering value to its stakeholders and advancing in the healthcare industry.
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Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is starting now. May I hand over to Markus Georgi, Head of Investor Relations. Please go ahead.
Thank you, Sandra. 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 second quarter 2024 earnings call with me on the call, Michael and Sara.
Before we start, I would like to draw 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 you, Michael, the floor is yours.
Markus, thank you. A warm welcome, everyone. Sara and I are going to review the business and financial highlights for Q2 and first half. Plenty of time for questions, of course. Team Fresenius turned in another excellent quarter. It's been a very exciting and rewarding 2024 so far, I guess, for all of us. With continued progress on future Fresenius, particularly on simplifying and focusing everything we do.
We have effectively created a future Fresenius, a simpler, stronger company in less than 2 years deepening on our core Kabi and Helios. We see acceleration on all accounts, our focus, our improved execution and clear ambitions are evident once again in the results for the second quarter 2024. Revenue up in the high-single digits, double-digit increases in EBIT, incremental margin expansion on the back of our strong trajectory, cost savings delivered ahead of plan, leverage ratio moving quickly into the right direction, and this is having a dynamic effect on EPS growth.
In May, and we felt this is the right moment, we introduced our new brand identity. A brand offers a promise and bears responsibility. In our case, a promise to our customers and especially to patients. Our promise is committed to life. This raises up our ambitions and our goals with our focus on helping people through medical challenges, we improve and advance their lives. We are more ambitious and more optimistic about our mission. It fits with everything we do.
Today, Kabi and Helios are right there in the front lines of health care. Kabi delivering solutions in Generic Pharmaceuticals, Nutrition, MedTech and Biopharma, Helios at the side of the patient in our hospitals and clinics. By doing good, providing 1/4 of the world's [ blood bags ] stepping up to solve a chemotherapy shortage in the U.S. bringing AI into clinical settings, helping to manage critical shortages in health care staffing and by the same token, improving clinical outcome.
Fresenius is reaffirming our core values. You see great examples on this slide. All of them are reflecting our relevance. Truly, we are committed to life. Let's touch on the highlights of a very strong Q2. Really delivering on every metric, strong step-up from what was a solid or a good Q1. Sequentially, we improved. I did hint at that at the Capital Market Day of Helios. Progress in Biopharma continues with product introductions leading to positive EBIT in the quarter, also supported again by milestone payments at mAbxience.
We also saw very good cash flow progression, which allowed us to deleverage quicker. Debt reduction has been a priority, and we've made significant progress here already in our self-defined leverage corridor this quarter, more deleveraging can be expected in the second half of 2024. You may have read S&P just recently revised our credit outlook from negative to stable. Well, for those of you who have been following the company for years, that we are back on our leverage target corridor after a more than 7 years. It's a testament that we are delivering on our promises i.e., the new management team all together with all of our teams are delivering.
And we're moving fast in terms of our cost and productivity improvements. This all has led to excellent earnings per share delivery. And 2024 is shaping up really well. So we are now optimistic and really working very hard altogether to get to the upper half of our EBIT guidance range. Digging deeper into our operating companies, both delivered an excellent performance in Q2. At Kabi, revenues were up by a powerful 11% year-over-year in organic terms, which is clearly above the top end of the structural growth plan.
Revenues from Kabi's growth businesses, Nutrition, MedTech and Biopharma were up even more strongly at 19% in Q2. So it is the growth vectors this time driving the financial performance of Kabi. For EBIT, Kabi significantly expanded its margin year-over-year reaching 15.9% of revenues. Here, too, it was the growth vectors, which are shining through, now being in the structural EBIT margin band of 14.7%. And it's important to also view and maybe judge the business on an EBITDA basis. Kabi margins were on an EBITDA basis north of 22%. So congrats to Team Fresenius to this great achievement.
Helios also delivered an excellent Q2. Revenues came in at the top end of the growth band. The EBIT margin is in the middle of the now more ambitious structural range, great first half of 2024. Let's take a closer look at Kabi where our growth vectors are driving real operating performance.
Biopharma is an important cornerstone of future Fresenius and momentum is accelerating. The launches of Tyenne in Europe and in the U.S. have been well executed as planned. In the EU, our team has made significant progress in terms of market access and payer coverage. We closed multiple significant tender wins and our market share gains reflect exactly that.
The U.S. launch is progressing well with excellent feedback from payers, providers and health care professionals. Tyenne is the first biosimilar in the market, and we expect continued positive uptake. We are aiming to ensure that U.S. patients have access to lower-cost alternative treatment options. In the U.S., Tyenne is now available in subcutaneous formulation, which increases its reach into the treatment of chronic autoimmune diseases and allows for self-administration.
And we are further growing our Biopharma platform. Just recently, the EMA and FDA have accepted for review our applications for the biosimilar candidate, Prolia and Xgeva which is denosumab. Great progress also in our MedTech business. I told you they're going to come back, solid 9% top line growth in Q2. A highlight in Q2 is the completion of the clinical study for software for improved plasma collection.
And we won a multiyear tender for Agilia pumps in Italy. Overall, significant growth for our MedTech business, which has further scope for further gains and we are looking forward to their trajectory.
The Nutrition business once again delivered a steady performance. In Q2, we launched our third product in the food for special medical purposes segment in China, helping patients with an imparability to digest or metabolize food due to surgical or cancer treatment.
And we continue to strengthen the resilience of our Pharma business. We started commercial production for Infusion Solutions in our U.S. plant in Wilson in North Carolina. This really state-of-the-art facility will serve the U.S. market going forward with a full portfolio of PVC-free infusion solution product further expanding our broad portfolio offering of essential products for U.S. patients.
And this is also important for our Ivenix business because there, we now have the solutions and a large volume pump to cater this interesting market in the U.S. The progress on all -- so there's progress on all fronts, Tyenne, FSMP and improved plasma collection. These are all great examples of bringing more therapeutic solutions to more people in need. So we are indeed committed to life.
Let's spend a minute more on Pharma business. In the U.S., Kabi has the market-leading portfolio of generic injectables with a strong pipeline of IV generics in vials, syringes and ready-to-administer bags. We intend to launch more than 10 new injectables each year between 2022 and 2025. We are prioritizing launches where Kabi can be among the first to market and where we can contribute to deliver high-quality affordable drugs.
In the EU, Kabi is the IV fluids market leader beyond any doubt with a broad product offering. Reliability is a key competitive edge and Fresenius Kabi has invested significantly into its European manufacturing capacity and network. Pharma is a powerful base as we call it, for Fresenius with terrific customer relations and reputation, a source of continued success and solid cash flows.
Over to our Biopharma business. We're moving quickly here and it deserves a few comments. As you can see, we have a relevant business with an attractive pipeline. We launched already a handful of products at Kabi and mAbxience. Others like denosumab and Ustekinumab are in the starting blocks. For denosumab, EMA and FDA have accepted our biosimilar candidates applications for review.
It is an attractive opportunity for Kabi with an originator addressable market in 2023 in osteoporosis and oncology of roughly EUR 6 billion. For Ustekinumab, we have just announced last week together with our license partner, Formycon that the CHMP of the EMA issued a positive opinion for the marketing authorization of our biosimilar candidate to Stelara. Ustekinumab has an originator sales globally of EUR 11 billion.
Looking at the mAbxience pipeline, they are already in the market with beva, bevacizumab in the EU and U.S., with rituximab in Argentina. In October last year, mAbxience announced a deal with Amneal for the U.S. commercialization of denosumab. Many other attractive molecules in the pipeline with a focus on oncology, autoimmune and infectious disease. So in a nutshell, an attractive biosimilar product portfolio with strong potential, so watch this space over the coming quarters.
Over to Helios, many of you met Helios management in June. Let me touch on the highlights. Our care provision platform is market-leading in Europe. It is a system-critical, patient-centric business. Stable and reliable in terms of revenue streams and costs are rigorously managed, meaning Helios is also stable and reliable in terms of earnings quality and cash flows.
We understand how to operate in a regulated market by being part of the solution and constantly improving patient outcomes. Helios serves 26 million patients creating a strong base for Fresenius to enter the next level of health care. Digital tools, connected devices and AI will ultimately allow us to connect across patients and providers and create digital platforms for better care. So in essence, we are very well positioned for capital efficient earnings growth. At the CMD, you will recall the team moved up its ambitions.
On to Helios highlights. We are seeing steady top line growth at Helios Germany, the cluster and specialization strategy is progressing as we laid out at the CMD, along with good progress with our outpatient and emergency care program. At the same time, there is focus on costs. Energy savings targets are being delivered and now exceeded, and the implementation of more measures has been initiated.
At Quironsalud, we had another strong, I'd say, very strong operational and financial performance. We make newest front-end technologies most rapidly accessible to patients in our clinical centers. As an example, the complex technology to apply magnetic resonance guided focused ultrasound also called HIFU to treat deep brain regions for movement disorders like Parkinson's disease or essential tremor.
Even though not curing the disease as such itself, it can be a huge step forward in controlling the patient symptoms and increasing the quality of life without invasive interventions. Recognition of Fundacion Jimenez Diaz in Madrid as one of the 25 leading health care centers in Spain is yet another testimony for the high level of technological innovation skills of our medical staff and the unique range of services.
Back to our group performance. As we have said, 2024 is the year of financial progression. I'm especially pleased by our bottom line development proving the ability of our group to drive revenue and then benefit from operating leverage. We solve fundamental legacy issues after years with rising debt levels, increasing interest expenses and declining earnings, we have revitalized this great company and are back to solid positive earnings trajectory with our sharpened focus on creating and driving value.
For now, that's it from my side, I will hand it now over to Sara and I'll come back to you guys later.
Thank you very much, Michael. A warm welcome also from my side. As you've already seen and heard, Fresenius delivered excellent results in the first half of this year. And not only did we build on Q1 in almost all financial metrics we've accelerated in this quarter. And we reached important milestones on leverage and ROIC. Future Fresenius is translating into a consistently strong financial performance.
Group revenue grew by 8% organically to EUR 5.4 billion. EBIT before special items at EUR 660 million, was up by a powerful 15% in constant currency. This reflects our focus on operational excellence and execution. Earnings growth well outpaced revenue proved that our operating leverage continues to show its strength. We also saw dynamic growth on EPS, which was up by 15% in constant currency.
Interest expense at EUR 108 million was in line with expectations. It puts our total interest for the first half at EUR 220 million. For the full year, we continue to expect a range of EUR 420 million to EUR 440 million. The tax rate before special items was 26.1% in Q2 and 25.3% in the first half of '24, again, in line with expectations. Cash flow was real standout with significant acceleration since Q1 and year-over-year.
Operating cash flow increased by more than 370% year-over-year. We have been talking about deleveraging since the beginning of the transformation. At the end of the half year, we are within our target corridor, ending the quarter at 3.4x net debt to EBITDA. Our focus paid off. I'll have more on this in a minute.
As we said last quarter, we will be booking special items related to the Vamed exit. You saw some of these in Q2. All were within expectations and in line with what we communicated last quarter. We are on track.
Turning to the segment. They both had an excellent Q2. Kabi's growth at 11% was above its structural growth band, helped by pricing effects in Argentina. The growth vectors drove performance with very strong 19% revenue growth overall. Nutrition delivered good growth at 14%. Positive pricing effect and growth across the regions offset some of the developments in China.
These will probably linger more into the second half than initially anticipated. Growth was particularly strong in the U.S., driven by the good rollout of Lipid margins. Biopharma had another excellent quarter with organic growth of 102% driven by mAbxience and the Tyenne rollout. Growth at mAbxience came from both milestone payments and product sales demonstrating the breadth of its business model. MedTech delivered 9% growth in Q2. The improvement was across all regions and benefited from better pricing.
Growth was balanced across both TCT and infusion and nutrition systems. Pharma showed solid organic revenue growth of 2%, with positive growth, particularly in international markets and Europe offsetting some softness in China and the U.S. EBIT was at EUR 334 million, translating to a margin of 15.9%. This is a significant year-over-year improvement of 170 basis points and a 17% constant currency growth rate.
You can see how better productivity and improved cost base are driving earnings conversion to the bottom line. The growth vectors within the structural EBIT margin band are within the structural EBIT margin band for the first quarter, an impressive margin improvement of 640 basis points to 14.7%. Biopharma was again EBIT breakeven, helped by phasing of license payments.
Helios turned in another good quarter, nice growth, strong margins and excellent cash delivery. Revenues grew organically by 6% to EUR 3.2 billion. This is at the upper end of its structural growth band, which was raised at the Capital Markets Day in June. Spain was the key driver with impressive growth of 11% based on strong activity growth and positive price effect. The calendar helped as the Easter week, which is traditionally slow, was in Q1 this year versus Q2 of last year.
In Germany, the increased DRG inflator supported solid revenue growth of 3% and on the back of moderately increased activity levels. Helios EBIT of EUR 357 million resulted in a very strong margin of 11.1% at the upper end of this year's guidance of 10% to 11%. This is also a remarkable 18% constant currency growth. Helios Spain was the key contributor to the EBIT performance with an exceptional 14.9% margin.
Looking through the Easter effect, Helios Spain first half margin was also up 30 basis points to 13.3%. After a very strong Q1, Helios Germany delivered a solid second quarter with an EBIT margin of 8.3%, helped by energy-related government relief funding. In the first half, margin is up by a strong 110 basis points to 9.6%. Driving down costs and improving efficiency is a commitment we made early on.
In the first half of the year, we delivered EUR 68 million of incremental cost savings. Meaning that we achieved our full year target of EUR 330 million to EUR 350 million cumulative cost savings already. Much of the savings came from Kabi reducing complexity, sharpening procurement and optimizing supply chains. For the remainder of the year, obviously, we're not going to stop.
We're pulling initiatives forward. Our ambition is to realize our cost and efficiency target of 2025 already by year-end '24. That is ambitious. But given the momentum and what we've done already, it is achievable. I've emphasized this before, but it warrants repeating the cost and efficiency actions we've taken are not transitory. There are permanent changes in the way we operate. As we grow top line, these will permanently improve how much value you see at the bottom line and the margin.
And of course, how much cash we generate. That leads me to my next point. Our great operating cash flow performance in Q2. As you know, we have a rigorous focus on cash. Kabi again delivered strong cash flow development. Quarter-over-quarter, you can see how their focus on cash and working capital is paying off. Two standout areas are inventory management and a more rigorous receivable approach. At Helios, cash performance was very strong in Q2. while partially a catch-up from a weaker Q1, it is also the result of an increased focus on cash and working capital across Germany and Spain.
Group CapEx continues to be tightly managed with 3.2%, it is well below the 5% level in the first half. We expect some catch-up in the second half. Free cash flow generation for Q2 is up powerfully year-over-year from negative EUR 556 million to positive EUR 655 million. Of course, this was also helped by the required dividend suspension. Overall great results on the cash line.
We've spoken about deleveraging many times, improving our leverage ratio and reducing our absolute debt level. At the end of the first half, we are in our target corridor. This came from a combination of improved operational performance, better EBITDA and free cash flow. Dividend suspension, the Vamed exit also played a part. While maybe not as pronounced as in the first half, we are targeting a further reduction of leverage ratio for the full year.
Absolute debt levels also reduced. Since the start of '24, net debt fell from EUR 13.3 billion to EUR 12.4 billion. We are deploying our cash to refinance upcoming maturities and short-term borrowings. This will increase our flexibility and decrease the net interest drag on EPS. Improving our capital returns is another important goal. And given our sizable asset base, we are step-by-step, quarter-by-quarter, making improvements on ROIC.
In Q2, we achieved a ROIC of 6% entering the lower end of our structural ROIC band of 6% to 8%. We are moving in the right direction.
Let me give you more detail on the outlook for full year '24. We increased our group guidance in May on the back of a strong first quarter and an optimistic outlook. Just around 60 days ago in June, we raised our outlook for Helios. Today, we are confirming our full-year guidance for our organic revenue and EBIT growth on group level.
Given what we delivered in the first half, we are optimistic to get into the upper half of the EBIT growth range for full year '24. Considering Helios spend seasonality in Q3, the lessened effect of Biopharma milestone payments and energy relief funding in the second half, this is a strong signal of confidence. There are also some unknowns out there. China remains softer. And while it is improving, we don't expect to see full recovery in the second half.
From a CFO perspective, it's without question where the strong first half and an even better second quarter. We delivered improvements on almost all financial metrics and achieved key milestones on leverage and ROIC. We are accelerating and delivering the full value of Fresenius. Kudos to Team Fresenius for the momentum and focus on performance. Now back to Michael.
Thanks, Sara. We have delivered another excellent quarter, significant momentum and progress on future Fresenius in Q2. We're not stopping or slowing our commitment to building value at Fresenius. Great momentum, strong performance, operational and product milestones reached. These are foundations for sustainable success. We are a simpler, stronger and more focused company. 2024 looks to be a great year with excellent financial progression.
We are back in our self-imposed leverage ratio target and aiming to driving down leverage further and on advancing our cost efficiency and productivity programs further. This, in turn, will drive cash conversion and as we said from the very beginning, return as we measure it in ROIC. We've laid out a clear path to fully realize the value of Fresenius. This is a commitment. This is actually our commitment as strong as our commitment committed to life, which is a promise, and you can take this one as a promise as well. Now Sara and I will take your questions.
[Operator Instructions] The first question comes from Hassan Al-Wakeel Barclays.
I have 2, please. Firstly, on momentum in Helios Germany, could you talk to what you're seeing there, given 8.3% is on the softer side in terms of margins and on my math, excluding the relief payment, the underlying margin was closer to 6%. So what's driving that? How do you think about the recovery from here? And then secondly, another really strong quarter in clinical nutrition despite a very tough comp from last year, I'd love to hear more about the drivers of that and some of the softness that you highlight in China and when you expect to see some of the benefits from the 3 launches in FSMP.
Hassan. I'm going to start and then Sara can detail it even more out on Helios Germany. I'm going to start with the clinical nutrition and the China. Clinical nutrition has been strong, rightfully so. And I alluded to it, this is also an innovation-based business. So a lot of innovations have been hitting the markets on all fronts, on formularies and going more into detail and on parenteral nutrition, where we can even differentiate out what is for pediatric and what is for cancer patients.
So all of that one is driving the pipeline on innovation. That's why it was so important to structure Kabi differently in those business verticals. And obviously, we see that one also coming in growth. U.S. having been a strong driver. We see momentum in Europe and in Latin America. U.S., as we always said, from a low base. But even from a low base, every bigger business at some point, started small, and the growth rates are really high. We are introducing a lot of lipid there, lipid applications mostly in Kabi. On the Kabi side, we will be coming with the 3-chamber bag in the U.S. and in Europe and Latin America, we also see good momentum based on this innovation.
China, as Sara alluded to, we have been pointing out China as of Q3 last year that we say we expect softer trajectory in China on the back of many aspects. The general economic weakness, then the shift in the business model going to tendering and then the anticorruption campaign. We shared our assumptions that we said we at the beginning of the year would assume that in Q3, Q4, we would see an uptick also based on the technical effect because Q3, Q4, this is where the weakness started last year yet we got to say it still remains soft for the coming quarters.
That's why we highlighted this one. Midterm, long term, we are still bullish. We are adjusting also the business models as we speak because the need will be there, but we currently do not see any alleviation of the anticorruption campaign. FSMP is attractive. We launched 2 products, which I just mentioned, we will launch even more. But it's still a small segment that it will not move the needle to the extent that it is attributable to the group.
On Helios Germany before we go into details, let me maybe reinforce our what I would call meanwhile modus operandi amongst you and us, where we usually say, what are our assumptions? Very transparent on our assumptions. Where we stand, what our ambitions are and what we're going to do?
So in the Capital Market Day, I think we were very transparent that, obviously, in this fiscal or calendar year and also last year, there are these energy relief funds. There is some phasing within the quarter. Sara will go into detail in a minute but we were very transparent that obviously, the results are being supported by those relief funds.
But they are also embedded in the business, but very transparent on that one. For the full year, we said in order to get to the same margin level they have to run faster, and they're working on that front. For the let's say, beyond going into '25, obviously, the relief funds will fade. And they clearly outlined to you guys at the Capital Market Day that there's a program in place.
There are measures in place, it's even quantified as to what Helios Germany is going to do to live up to their margin ambition and expectation, which we also outlined during the Capital Market Day. Yes, Sara?
Yes. Happy to deep dive a little bit into the whole energy relief funding topic. As you know, energy relief funding started beginning of last year and kind of is with us now for a couple of quarters is expected to fade out by Q3. If I look at Helios, Helios Spain, Helios Germany. For me, it's not that much on quarter-by-quarter, but let's focus on the first half year because you always know there is some slippage and some seasonality impacts between the quarters and so on.
So if I look into the first half of '24 and compare it with the first half of '23. The first thing I realize is, obviously, it's a 100 basis point margin expansion between last year and this year. Now energy clearly played a role in that for the first half of this year. We said we have almost EUR 100 million in roughly of energy relief funding. Whereas in 2023, we said overall across the year, it's more of a EUR 200 million number, which was, however, tailored towards the second half of the year.
So if you now look at it, and you know that in Q3, energy relief funding will start to fade away clearly, what Michael outlined and what also the Helios Germany team outlined on the Capital Markets Day is that they will need to run faster to stay the course. And I think they outlined to you in terms of revenue and in terms of growth with the cluster strategy and all of that, how they are going to take that growth and how they want to drive revenue.
And on the other hand, they laid out EUR 130 million cost saving plan, which goes up across from resource optimization, operations excellence and synergies to compensate for the phase out of the energy relief funding. Now let me also remind you of one thing we didn't get the energy relief funding just for getting it. It was meant to compensate inflationary pressures and higher energy costs to start with. And this is a cost base, which we are clearly still seeing. Remember, we discussed personnel expenses and tariff negotiations, which were mainly a topic of 2023.
However, what we negotiated there was for more than a year. So these levels are still with us in 2024, in particular, when it comes to personnel costs and so on. So overall, I hope I gave you a little bit of a picture on how we look at the tailing off of the energy relief funding, our cost base and the initiatives the Helios Germany team is taking into their actions.
The next question comes from Graham Doyle from UBS.
Just firstly on Tyenne. Have you -- has the experience over the last few months given the clarity on how you'd like to tackle the U.S. market from a commercial standpoint. So more reps, fewer reps, direct negotiations with payers just to get a sense as to how much of a blueprint you now have? And then a question on the balance sheet. Obviously, the leverage has now really started to come down, and you've indicated further deleveraging in the second half. Is there actually flexibility to pay down some of the debt outright in order to reduce that interest charge? I will leave it there.
Balance sheet, I'm happy I'm happy to take the balance sheet question. And yes, the free cash flow we are delivering on quarter-over-quarter is going straight into repaying some of our longer-term maturities. We have around EUR 2 billion upcoming in 2025 but in particular, also the short-term borrowings. If you look at it, we have, in general, a EUR 1.5 billion commercial paper facility, currently, it's almost not inexistent or not drawn because obviously, we use the strong cash flow in Q2 to repay some of these short borrowings, and that go directly against our interest expense line.
Yes. Graham, on Tyenne, maybe to kind of specify that a little more. Of course, we have clarity on how we go to market. If we would not have clarity at this point in time, it would be a little late. We are actually in the midst of the execution of that one. The commercial activity has started. And obviously, we we're very confident that we can benefit and capitalize on the head start we have there.
We have the 3 forms on vials, prefilled syringe and subcutaneous. This gives us in essence, also multichannel access. You can cover Part D and Part B. But it's still early innings. We just started the activity level, which we are already monitoring and observing because we have clarity and are executing, is very promising. We posted the first revenues also, and this is going to continue.
So in this case, we will also, as I said, Part D, Part B have a multi-access strategy, still waiting for some [indiscernible] code on that one, but everything is very promising.
The next question comes from Veronika Dubajova from Citi.
I'll keep it to 2, please. The first one is a bigger question on the guidance. If I look, you've done 15% EBIT growth in the first half of the year. You're guiding to 8% to 10%, which would leave us with low to mid-single-digit growth in the back half of the year. Very much appreciate the conservatism, but just curious if you can talk through any risks that you see at this point in time that worry you as you move into the back half that would underpin that such a significant slowdown in growth. So maybe if you can give us a little bit of insight into that, that would be great.
And then second, if it's okay, a 2-parter on biosimilars. One Michael would love to hear about the formulary access that you have secured because that has been historically a hurdle for some of the biosimilar launches. So if you can talk through to that, that would be helpful. And then maybe just sort of dreaming a little bit.
Obviously, I know we have the high triple-digit million revenue target from ages ago, but I'm just curious with the run rate that you're at, are we potentially looking at biosimilar revenues that could be north of EUR 600 million already in fiscal '24?
Yes. Veronica, we'll split it again. I'll give you the first shot. I'll start with your last one. I guess this is highly likely what you said. But don't forget, we have a totally different business now. We have a mAbxience business, and we have what used to be our biosimilars business, which has also evolved and changed and so on and so forth.
So this is now kind of a different platform and best and robustness of the business model, which also derisk whole operation. And that's why we also saw in the first 2 quarters, good kind of uptick. Let me try to give it a shot on your guidance and then Sara can also add some more color. Obviously, we also understand the math and but growth rates, growth rates, mathematical growth rates or growth rates in the business to manage and I wouldn't go that much into risk. Of course, we see risks we just alluded to China.
First of all, in the second half, we have Q3. Q3 is always seasonally weak because we have our hospital business. And as we all know, in Germany and in Spain, nobody goes to the hospital in August, at least nobody who doesn't have to. And therefore, the margin is such, I would rather look at the margin pattern, like Sara did with the Helios in Germany of first half of Q1, Q2 and in Q3, Q4.
So for Kabi if you look at the first half, it was a great first half, and stepping up in Q2 from what used to be a good Q1 and then even improving the outlook.
I think if you conceptually think of the same margin print, Kabi has for the remainder of the year, that will be a good one. For Helios, obviously, Q3 will be seasonally weaker. And if I take that into account, what Sara just alluded to, to Helios Germany, maybe in Q3, there's some additional volatility to the downside, yet there are measures against that one. And all of that one taken into consideration, and we still have to compensate, for example, for that China weakness, which we now see is there to stay for the next couple of quarters.
Next year might be a different game. So we need to compensate for that one, Tyenne needs to pick up. And that one, all in all, let us make the statement on the outlook we said and I said we are optimistic and working very hard. There's real work behind getting there where we want to be. Sara, I don't know whether you want to add to that one?
Not much to add from my perspective. I mean, just remember, we always flagged in the first half, we had the benefit of the milestone payments and the energy relief, which is not going to repeat to the same magnitude in the second half. I already alluded on Helios to the fact that Helios Germany was very much driven by energy relief funding in the second half of last year as we're tempering out this year, that will be kind of an additional hurdle to take.
Michael already alluded to the Q1 seasonality, and you can also look a little bit at the pattern we have seen last year around between H1 and Q3 and Q4 on Helios. That will be my comments on that. Maybe an additional one on corporate. Obviously, also, again, you see a pattern here that H1 to H2, our corporate costs are ramping up. And this year will be no exception. We have many more projects in the pipeline, which are in the ramp-up phase, which will be ramped up.
So again, you can expect some step up. And I think the relative kind of level between H1 to H2 of last year, maybe is a good guidance for this year as well.
Yes. And Veronica on biosimilars front, and then I'll put it even into a bigger context again, you -- if I understood correctly, there was some noise in there. You wanted to get our opinion on formularies and I guess how the market is evolving. I mean on -- it is very, very dynamic, as we said. If I look to adalimumab, i.e., the originator Humira market, there is movement. If we go back a couple of months or a couple of quarters, we all said nothing changed that, it's very crowded, economically, our expectation has not changed, but you see the dynamics there that a couple of months ago, the originator market share was roughly 99%.
We now see that biosimilar uptake is roughly a 25% market share. Obviously, this is because other peers have their unbranded adalimumab [ AACS ] and [ Fresenius ] Medicare took it on the formulary. So it's already 2 more. By the way, Humira also has a play on that one as well. But on the other hand, we see -- I told you that we are playing a multichannel strategy here. We can go to providers. We can go to payers, we can go to individual health plans.
We have a new strong hire that will be a similar business, who is looking at that one and looking at different routes where we can still get at least a decent share of that cake, which is not going to move the needle, but it is important to understand how dynamic this is. On Tyenne, I think I already alluded to that we feel very, very confident there. And also outside the U.S., we are making progress.
Again, in Brazil, Brazil keeps -- which keeps on giving with the PDP program we had in place there. So making traction there. And don't forget mAbxience. They have a real great network of partners, big, big companies where they are also successful.
The next question comes from Robert Davies from Morgan Stanley.
I had 2. One was just on the overall, I guess, strategic objective of the portfolio tidy up and everything you've kind of done over the last 2 years. Maybe you could just sort of step back and give us some context of where we are, what's left to do? Is there anything within the Kabi or Helios portfolio, you either need to add to or get rid of in terms of sort of [ tightening up ] and tying up 2 [ ends ] within the business improvement?
And then the second one, was just on the procurement savings that you'd sort of highlighted before. I guess the savings in general, one of the areas of procurement. I think you'd also highlighted process optimization and SG&A, maybe you could just give us a bit more color in terms of where you're sort of ahead or behind schedule on those savings and if you see any additional opportunities looking forward.
Sure. Happy to start with the cost savings, cost and efficiency. And for me, it's important, I think, its operational excellence program in the end, which takes out cost, but on a permanent basis by changing the way we operate, by changing processes, by touching not just by holding our breath. I think that's a key important message.
I think the other important message for me is we tend to be ahead of schedule. I think we have, in particular, on these initiatives, we have shown a lot of momentum. We have taken out Vamed, obviously, from our cost savings initiatives going forward. Yet, we are keeping the overall target level of EUR 400 million. We advanced this to say, by now, we have the ambition to not only have that one in the book by 25%, but already by year-end 2024. So overall, we are well on track with what we laid out most of it so far is coming from Kabi.
And indeed, there, you can see a number of initiatives and procurement is one of them where through bundling of procurement, through procurement strategies, by category excellence management, we're taking out costs, and we're getting leaner and more organized on that one. And that drives kind of consistently cash out and productivity. If you now go on complexity reduction and so on, another big theme on the Kabi side and that goes from closing of production site, but that also goes from supply chain and so on.
So there is a whole load of activity behind it. As I said also on the Helios side. I think while there have been kind of less pronounced in the past, you can see them, in particular with what they also outlined in the Capital Markets Day to step up their game in terms of complexity reduction, in terms of stepping up process optimization and so on. So for me, our cost and efficiency program is a real success factor and it drives our productivity.
Yes. Robert, it's Michael. To your bigger question, I mean, the short answer is in a big strategic, transformative portfolio rebuild, this is done. This is over. This is what we have said. We exited businesses. We even closed a few, and we deconsolidated Fresenius Medical Care and we took care of a legacy topic and found a good solution for Vamed as we believe.
I wouldn't rule out that there are some smaller things, which I would consider normal course of business if you get out of a country in some operations or part of a factory or a manufacturing line or so, but this is nothing which moves the needle. This is normal course of operation. Paying into what Sara said that you need to have permanent continuous structural productivity, which helps you to do that. So in essence, what we now have is the more focused, simple company. And to that point, I actually like your report when you said this is now geared on several legs to grow.
This is, I think, the way you phrase it even better. But it has several opportunities, several legs to grow and it can now even grow organically. And since there is the focus now and everything else is being left aside this is how we manage the company, what we call industrial domain management that we focus on how do you develop your top line? What are your activities on pricing?
Part of the Kabi success also stems from pricing. In their innovation-driven businesses, we have been talking about nutrition, for example. A couple of years back, there was the notion that we are in a business where we cater to GPOs, there's no pricing power. Well, maybe yes, maybe no, but we see there is pricing and volume, which you can work on. So the focus and the organic growth gives us now the results we have, and I really like what you said that we have the multiple growth legs where we can grow also going forward.
The next question comes from Oliver Reinberg from Kepler Cheuvreux.
Three for me. Firstly, I wanted to dig a bit deeper on China. Can you just provide a bit more color why the anticorruption campaign is really having a kind of longer-lasting impact on what is actually kind of consumable business? And to what extent the kind of tender headwinds you talked about in the press release also play role here and maybe translating that into any kind of color. Is this something that can drag on into 2025? Or is 2025 rather seeing an easy comp versus last year?
Second question, just on Kabi Pharma. I guess, the margin in Pharma ticked down a bit. I mean there's always volatility. But I think you called out some kind of headwinds in U.S. and China. Just trying to get a bit more color what is happening there.
And then thirdly, just on the license revenues at Kabi and mAbxience. I guess this was the kind of largest swing factor in the earnings. So I guess it would be helpful to understand it. Can you just give us any kind of flavor of the 4.4 basis points of margin improvement and growth vectors in the first half. What is the share that really came from this kind of license revenues?
Thank you, Oliver. I'll try to give it a shot first. China, we said this is a mixture of many topics. It's also the general economic weakness and there is a real structural change. The nation also realizes that with the structure they have in their population and the rise of chronic disease patterns there need to be also levers to control the costs, especially if they look at other countries and geographies as to how this thing exploded.
So there is a structural change. I understand your question because it's an interesting read across for other companies. Look, we have exposure to China. It is a good market. We also like the market from its fundamentals. We are very -- with our product portfolio, we are very close to procedure growth and therefore, on a sustainable basis, we remain positive on China. By the same token, the sensitivity on that very specific region is not that big that it moves the entire group.
That's why also for the remainder of the year, we gave you the guidance, we gave you on the outlook, i.e., already trying to compensate for that one. And yes, there may be easier comps so we're going to get there when we talk about the '25 numbers. It's too early to call. As I said, we always want to share the assumptions we did at the beginning of the year.
Now we said it's still going to hold on. It's -- by fact, it's also the anticorruption campaign which is still holding on. I mean, I don't -- we don't have a crystal ball. We don't know either, and we also think and believe people need critical medicine but the fact of the matter is, it's still holding on. So there might be some relief sooner or later, probably more into '25 but there's still the general economic weakness and the structural change so much to the headwinds and the easy comps.
On the margin of Pharma little bit like Sara alluded to on the Helios Germany, I wouldn't only look at one individual quarter only. If I look at the first half, they are where they said they want to be at the Capital Markets Day. It's roughly a 20% margin. That's why it's called the 3 plus 1 strategy. It has that margin.
By the way, in there, the IV fluid is rock solid, a market leader here. There may be some volatility here and there. And depending on if there is a quarter where based on drug shortage, for example, in the U.S., we are there to grab share and capacity, then obviously, the growth is a little higher and this will hopefully then also materialize in earnings conversion or it's more normalized.
So I don't see anything to worry about. In the U.S., don't forget that we also went online. Now capacity came in online with factories, I mentioned, Wilson, North Carolina. We have Melrose Park in Illinois, Chicago. So obviously, the depreciation is also finding its way into the P&L. But that is not an excuse for us also in our business reviews because we made a deliberate decision to invest. So we need the revenues now also to fill the capacity. So that's what I would say to pharma. Anything else?
There was also a question on mAbxience. Any kind of color on the contribution from the license revenues space?
We don't break that out, actually. And this is also because of commercial partnership agreements with their partners.
Next question comes from Victoria Lambert from Berenberg.
Just a couple from me. The first one also is just on the generic pharma business. So Q2 organic growth rate was in line with targets, but margins a bit lower. Was this because of some of the ramp-up costs and the divestiture from the Norway plant. Can we expect return to Q1 margin levels in H2. Do you think you guys need to invest in more capacity for expanding growth in the North American portfolio. Some of your competitors have been doing some more bolt-on acquisitions?
And then just on the biosimilars, could you provide an update on what exactly your market share for [indiscernible] is? And then if you intend to file your Neulasta on body device with the FDA in H2?
Victoria, I'll try to give you the shot. I think part of the questions have already answered and Sara is going to come back to that one. The Neulasta or pegfilgrastim or in our case, Stimufend, OBI. It will take a little longer than what you just mentioned. We did expect to hit it earlier, but it will take some more time there. And there are some topics which need to be resolved with the supplier on mechanical topics. But we're confident that we're going to get there. Then also grab our fair share on the OBI, on the on-body injector. That was one question. The other one was on Pharma again?
Yes. Happy to add a little bit to pharma. Alluding to also what Michael said. If you look at Q1, Q1 pharma was very strong. We had a 5% growth and a 21% -- 21.4% margin. So again I prefer to look at the first half where you have done a 3% growth and a 20.4% margin. If you look like this, you can see there will always be quarters which are a little stronger and quarters, which may be a little bit softer as Michael alluded to in Q1, for example, we saw the market shortages and we could take advantage of it.
Also Q1, we had backorder reduction also supporting our margin expansion in the U.S., which was strong in the first quarter. So second quarter, we saw [indiscernible] price growth. Also there, we we're able to take advantage of some market shortages. U.S. was a bit softer because what we've seen in the Q1 didn't repeat in the Q2, and so competitive pressure was a bit higher. And yes, you alluded to it.
We have some extra costs with the start of production of our U.S. plants. We feel actually coming back to your question, do we need to even further increase capacity. We feel that with Melrose Park and with Wilson, we do have capacity in the U.S., and we do have sufficient capacity to tailor for more growth going forward.
In fact, we hope that now we get that revenue in, and it gives us some flexibility, added flexibility to capture market shortages when and if they appear. So overall, Kabi is doing exactly what we expect them to do under the 3+1 strategy with the pharma business.
Yes. And [indiscernible] it did not have a negative effect on the margin. And the good thing is we already invested and have the capacity. So if and when that market, which is a very relevant market. U.S. On the IV generics side, is in need, and it is still a need, there is drug shortage on the essential medicine list of the FDA. And then we are there with capacity. We don't need to further invest. It is rather for us now taking the next step how can we, in a flexible manner, make use of what we already have there in order to then again, drive operating leverage.
On the market share, I think you asked on Idacio, I said it is almost minute what we have. But the dynamics we see with, again, the class uptake compared to 2 or 3 or 4 months ago. And I expect further class uptake on Industrial also with the unbranded version and low WACC version. And there is activity going on at the U.S. government to further get biosimilars to be disseminated for the patient's benefit. There's regulations in the pipeline and therefore, we remain also positive for all the molecules, which we are launching going forward.
The next question comes from Falko Friedrichs from Deutsche Bank.
My first question, a follow-up on the previous biosimilar point. On your candidates, denosumab and Ustekinumab, do you believe that you can be one of the first joiners here as well? And therefore have a similarly good position than what you have for Tyenne.
Then my second question is on Helios Germany specifically, and the growth you've shown in the second quarter, can you give us a little bit of color on the mix between volume and price here because I just have in mind that with the DRG inflator being relatively favorable, just a little surprised that the growth there is not a little bit higher, but maybe you can clarify that.
And then thirdly, just to clarify the comments you made on the energy-related funding. You mentioned the EUR 100 million in the first half of this year. Is that fully booked? Or is there still something left that would be P&L relevant for the third quarter.
Sara you want to start?
Sure. Happy -- I'm happy to start on the Helios questions. And maybe let's take the energy-related first. So let me differentiate and be very clear on cash versus P&L impact because there is a distinction, right? So in last year, we broadly received EUR 300 million of cash of which the majority came from lump sum per bed payments, and then there was an individual reimbursement. And that we knew that we would only get the final calculation by this year. So in 2023 of the EUR 300 million, only around EUR 200 million were P&L effective.
Now as we now move into 2024, we received under those lump sum payments, nothing in Q1, but in Q2, broadly EUR 50 million.
So that leaves us with that around, let's say, 150-ish, of which EUR 100 million are P&L effective in the first half. It's also fair to say, however, we do expect that under the individual reimbursement scheme, we will need to pay back some of the funds received. I hope that gives you a little bit of an idea on how you need to think about energy relief funding from a P&L and from a cash flow perspective because it hits in a different manner.
Now if you discuss Helios Germany growth in Q2. You're absolutely right. We do have an all-time high DRG inflator of 5.2%. And so indeed, in Q2, our admission growth as well as our cost rates were a little bit on the softer side with low single-digit number growth. Again, if you look at the first half in total, you can, however, see that in Q1, admission growth and cost rates were stronger compared to the Q2.
Yes. On your question on Tyenne and [ Ustek ] and deno, I think it's important to understand that the situation and that head start, that's really temporary being first to market what we have with Tyenne is a very particular specific situation. So this will not be the case. But will we -- do we feel confident on Ustek for example, which by the way, is also the bigger market. And I think also profit pool is quite nice there. It's a EUR 10 billion originator market. On Ustek, we're confident to be among those at least when we look at settlement pattern.
On deno, we'll see we have submitted. You may have seen on the chart I showed you that deno is twice on there. So deno is also being catered by mAbxience with a commercial partner, especially in Latin America. But we are in the preparation of all of that. This will not be before somewhere in '25. And then Falko, we need to even dig deeper because we need to look into formularies. If you take deno, for example, I mentioned in the speech, it's for osteoporosis.
But there's also a double concentration formula, which may be for oncology use also. So you need to dig a little deeper there. There will be competition. We feel confident also with what we can build upon as said, time and again that you need a pipeline. You need to have a broad portfolio in order to get follow-on customer relationships because nobody wants to contract with a one-trick pony.
Every inning we can win, depending on the channel with also Tyenne, we will also use for pulling through other molecules depending on the counterparty on the customer side.
The next question comes from Marianne Bulot from Bank of America.
I have 2. On the first one, I was just wondering on MedTech, you had a good performance this quarter. So just wondering if you could provide some details on how that translates into the profitability for this division. I remember from the CMD, it was improving. The margin was a key focus. And just a quick follow-up as well on MedTech and the completion of the clinical study. Just wondering if you could provide any color in terms of timing and impact for your results in this division.
Yes. Look, nothing changed. It remains a key focus that they're going to need to improve their margin as they laid out in the Capital Markets Day, we said that in the first half, there was some homework they needed to do on the ramp-up on Ivenix, they got their hands around it. Obviously, that helps for this year for the profitability because they still have to work on the cost per unit to get it down. There will be a favorable run rate also for MedTech for the remainder of the year.
That's why we said, all in all, if you look at the Kabi business for the second half take roughly the imprint, which you have seen in the first half. We are not breaking out the individual margins of the growth vectors. Yes. The study is just an example on the software that we are launching innovations to the market that is such is not moving really. It just tells you that if you do many of these things, that helps you fuel growth going forward.
The last question for today's call comes from James Vane-Tempest from Jefferies.
Just a couple on group, please. From some of the restructuring divestments, which have been made so far, how much cash is still to be received from those? Secondly, just on return on invested capital. Most obviously, you raised the guidance out for this year to around 6% versus 5.4% to 6%. So how much of this improvement is just from divestments? And how should we think about cadence from here to generating your cost of capital. And then just finally, on your financial companies, obviously, for Vamed, there's a part on strategy to a full exit, but what's your latest thinking around the possible options you have for your FME stake?
Sure. I'm happy to start. Look, if I look at group and let's take Vamed out of the picture for a moment. I think it's fair most of the cash in from the sales proceeds have been received, obviously, with Vamed. If I look at the rehab business and the Austrian business, which we sold that their closing is expected in the second half of this year and obviously no cash proceeds beforehand.
You asked on ROIC, we made great progress. This kind of end of last year to end of first half, if you look at it, and around 40 basis points came from the exit of Vamed. The rest, however, was achieved by increase in profitability and some tax adjustments. If I now look into moving forward, if you look at it, we are making progress. It's obviously one of these metrics, which is in my description very sticky because it is over our asset base.
So it means moving our profitability but also moving our asset base and then the tax rate is the third lever, which is an impact of the ROIC. However, as I said, we are making progress quarter-over-quarter. It is a key metric for us, and we remain fully focused and committed in getting us further up into our range, which is between 6% and 8%, where we feel we would want to be.
Now in terms of Vamed, just to reiterate, we are on track. You saw, a, with the rehab business and the Austrian business, this is now all accounted for as IFRS 5 until closing. So this is basically out of the normal kind of P&L you look at. And then the project business, we are heading for the structural exit.
Again, here, you saw the charges being booked in Q2 or in line with expectations, maybe also there to give you some flavor. We always said the majority of that will be cash out as well on those kind of project business exits. In Q2, we have seen some negative cash impact from that. However, it will obviously also unfold in the quarters to come.
So from what we have booked around 1/3, you see as a cash impact in Q2 already. And then the hospital service business was incorporated and included in the corporate line of Fresenius group.
Yes. And then James, I'll take probably your last question as the last answer. But only adding to, if I heard it through the lines also on your question, the improved outlook of last quarter and now us saying we will be optimistic at the half to path, basically on the new structure. So everything has been taken into account, which is divestment and not divestment already last quarter when we revised the guidance, it was a nice chart from Sara alluding to that one, how it works.
Look, FMC, nothing changed on that one. We are a shareholder. We are an anchor shareholder. We are a committed shareholder of FMC. This is a financial investment. Therefore, we treat it as a financial investment, i.e., we want to see returns on our investment and therefore, we are also an active shareholder. I will be an active shareholder.
Management runs company and speaks for the company, so we don't speak about the business there. But obviously, we look at it and also compare and contrast it vis-a-vis peers and also looking forward to what others have to disclose in the coming days. And obviously, the ground rule is that we want our assets to be market-leading, like with our own assets, and it's a clear plan, which management or the other company laid out as how they can get into the margin range and we want to see that operational improvement and want them to focus on that very turnaround.
Thank you, Michael and Sara, and many thanks to all participants for your attention and joining today's conference call. If there are any further questions, please contact the IR team, wishing all of you a good summer break. Thank you, and goodbye.