Fresenius SE outlined plans to streamline its conglomerate structure, cut costs and separate from its kidney-dialysis unit in a revamp that investors shunned after lackluster earnings.
(Bloomberg) — Fresenius SE outlined plans to streamline its conglomerate structure, cut costs and separate from its kidney-dialysis unit in a revamp that investors shunned after lackluster earnings.
The stock fell as much as 4.9% in Frankfurt trading, the most in five months. “Fresenius needs this change,” Chief Executive Officer Michael Sen said, pointing to years of disappointing earnings and a 2023 outlook that fell below what many analysts were expecting.
Sen is working to simplify the German health-care conglomerate and overhaul its management to reignite growth. After taking over in October, he conducted a review during which he canvassed shareholders including activist investor Elliott Investment Management.
Fresenius will focus its efforts on Kabi, the intravenous-drug division, and Helios, which owns hospitals in Europe and Latin America, the company said in a statement late Tuesday. The plan also calls for annual cost savings of about €1 billion ($1.06 billion) by 2025 and reducing focus on Vamed, the company’s smallest division that manages health-care centers’ construction and operation.
The effort is “as a first step in a longer-term portfolio transformation story,” Robert Davies, an analyst at Morgan Stanley, wrote in a note to clients.
New Hires
Sen pointed to the company’s forecast for a probable decline in profit this year as evidence of the need for change, and said the results of his transformation will start bearing fruit in 2024.
“The company hasn’t been prioritizing in recent years,” he told reporters on a conference call.
Based in Bad Homburg outside Frankfurt, the firm on Wednesday said Sen’s previous position as CEO of Kabi will be filled by Pierluigi Antonelli, previously chief executive at Italy’s Angelini Pharma. Fresenius’ head of legal, risk and human resources, will be replaced by Michael Moser, who joins from Turkish energy company Enerjisa starting Aug. 1 at the latest.
The new hires mark yet another reshuffle on Fresenius leadership following the replacement of Fresenius Medical Care’s CEO Carla Kriwet in December, only two months into the job.
Complex Operations
Fresenius’s operations have gotten too complex in recent years, Sen told reporters, with the desire for growth coming at the expense of returns. That’s created a situation where the growing debt burden has constrained room for strategic moves, he said. Fresenius said it’s targeting savings through optimizing procurement and administrative costs and divesting non-core assets.
The company still plans to keep a 32% ownership stake in the dialysis business, Fresenius Medical Care AG. The plan calls for giving that entity more operational freedom by converting it into a stock corporation, with the change expected to become effective by the end of the 2023 financial year. The Else Kröner-Fresenius Foundation, its anchor shareholder, has expressed support.
Fresenius Medical has struggled in the pandemic amid rising costs, a higher-than-normal rate of patient deaths and staffing shortages. Still, the dialysis sector remains attractive and Fresenius wants to benefit from a potential turnaround, according to Sen.
Florian Oberhofer, a fund manager at Union Investment in Frankfurt, said the plan to de-consolidate Fresenius Medical Care marks “a step in the right direction” but the 2023 guidance shows that Fresenius’s fundamental situation remains very difficult.
Under the new structure, Fresenius will refer to the Kabi and Helios units as operating companies, while Fresenius Medical and Vamed will be considered investment companies.
–With assistance from Lisa Pham and Angela Cullen.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.