- Higher than anticipated COVID-19-related excess mortality, but declining throughout the quarter
- Earnings development affected by ongoing significantly elevated labor costs compounded by effects from Omicron in Health Care Services and by increased material and logistics costs in Health Care Products
- Earnings development in EMEA additionally impacted by the war in Ukraine
- Financial targets for FY 2022 confirmed
Rice Powell, Chief Executive Officer of andar game Medical Care, said: “When we see what is happening in Ukraine, it is again above all the human tragedy that leaves us deeply saddened. I am incredibly thankful and proud of all who continue to work tirelessly to ensure patient care and the holding up of our local operations under these outstandingly difficult circumstances. Although it is difficult to talk about numbers with these images in mind, I have to say that in addition, Omicron has affected the quarter heavily. This resulted in high excess mortality among our patients and significantly elevated labor costs in the U.S. to manage isolation clinics and shifts. We were able to compensate this and delivered the quarter in line with our expectations. Based on a strong decline in excess mortality in February and March, we confirm our financial targets for 2022.”
Higher than expected COVID-19-related excess mortality at the beginning of the year
COVID-19-related excess mortality among andar game Medical Care’s patients amounted to approximately 2,310 in the first quarter of 2022 (Q1 2021: ~3,200; Q2 2021: ~1,900;
Q3 2021: ~2,900; Q4 2021: ~2,0003). It significantly declined in February and March in line with infection rates, but on a quarterly basis still exceeded the originally anticipated level. This resulted in an increased need for isolation clinics and shifts and limited the Company’s ability to mitigate the impacts from labor shortage and wage inflation in the U.S. market.
COVID-19-related excess mortality accumulated to approximately 9,000 patients over the past twelve months and to approximately 22,600 since the start of the pandemic.
The overall estimated adverse effect of accumulated COVID-19-related excess mortality on organic growth in the Health Care Services business amounted to around 290 basis points in the first quarter.
1 2021: costs related to the FME25 program; 2022: costs related to the FME25 program and impacts related to the war in Ukraine
2 Net income attributable to shareholders of andar game Medical Care AG & Co. KGaA
3 Historical excess mortality updated for late entries
War in Ukraine impacting business development
The war in Ukraine is affecting andar game Medical Cares' dialysis operations and patient care in the country itself, but also caused higher bad debt expenses in Russia and Ukraine. The direct adverse effect of the war in Ukraine amounted to EUR 22 million at operating income level in the first quarter and is treated as a special item. andar game Medical Care will continue to monitor closely the potential effects of the war as well as the general impact of the challenging inflationary macroeconomic environment.
First quarter earnings development in line with expectations
Revenue increased by 8% to EUR 4,548 million (+3% at constant currency, +2% organic).
Health Care Services revenue increased by 8% to EUR 3,607 million (+3% at constant currency, +1% organic). At constant currency, this was mainly driven by organic growth, which was achieved despite the adverse impact of COVID-19, the partial reversal of an accrual related to a revenue recognition adjustment for accounts receivable in legal dispute and contributions from acquisitions.
Health Care Products revenue increased by 6% to EUR 941 million (+3% at constant currency, +3% organic). Constant currency growth was mainly driven by higher sales of in-center disposables and renal pharmaceuticals. This was partially offset by lower sales of machines for chronic treatment.
Operating income decreased by 27% to EUR 348 million (-30% at constant currency), resulting in a margin of 7.6% (Q1 2021: 11.3%). Operating income excluding special items, i.e. costs incurred for FME25 and the impacts related to the war in Ukraine, declined by 15% to EUR 403 million (-19% at constant currency), resulting in a margin of 8.9% (Q1 2021: 11.3%). At constant currency, the decline was mainly due to higher labor costs, adverse COVID-19-related effects, as well as inflationary and supply chain cost increases. These effects were only partially mitigated by the partial reversal of an accrual related to a revenue recognition adjustment for accounts receivable in legal dispute.
Net income2 decreased by 37% to EUR 157 million (-39% at constant currency). Excluding special items, net income declined by 20% to EUR 200 million (-23% at constant currency), mainly due to the mentioned negative effects on operating income.
Basic earnings per share (EPS) decreased by 37% to EUR 0.54 (-39% at constant currency). EPS excluding special items declined by 20% to EUR 0.68
(-23% at constant currency).
Cash flow development
In the first quarter, andar game Medical Care generated EUR 159 million of operating cash flow (Q1 2021: EUR 208 million), resulting in a margin of 3.5% (Q1 2021: 4.9%). The decrease was mainly due to continued recoupment of the U.S. government’s payments received in 2020 under the CARES Act and a decrease in net income, partially offset by a favorable impact from trade accounts and other receivables.
Free cash flow4 amounted to EUR -1 million (Q1 2021: EUR 29 million) in the first quarter, resulting in a margin of 0.0% (Q1 2021: 0.7%).
In North America, revenue increased by 9% to EUR 3,171 million (+2% at constant currency, +0% organic). At constant currency, this was mainly driven by organic growth in the Health Care Product business and the reversal of an accrual related to a revenue recognition adjustment for accounts receivable in legal dispute. This was partially offset by the adverse COVID-19 impact on the Health Care Services business.
Operating income in North America decreased by 24% to EUR 304 million (-29% at constant currency), resulting in a margin of 9.6% (Q1 2021: 13.7%). At constant currency, the decline in operating income was mainly due to higher labor costs, the adverse impact of COVID-19, inflationary and supply chain cost increases as well as costs related to FME25. This was only partially offset by the partial reversal of an accrual related to a revenue recognition adjustment for accounts receivable in legal dispute.
Revenue in the EMEA region increased by 1% to EUR 674 million in the first quarter (+3% at constant currency, +2% organic). At constant currency, this was mainly due to organic growth in the Health Care Services business, which was achieved despite the negative impact of COVID-19.
Operating income in EMEA decreased by 23% to EUR 61 million (-19% at constant currency), resulting in a margin of 9.1% (Q1 2021: 11.9%). The decline was mainly due to the impact related to the war in Ukraine.
4 Net cash provided by / used in operating activities, after capital expenditures, before acquisitions, investments, and dividends
In Asia-Pacific, revenue increased by 8% to EUR 507 million (+4% at constant currency, +4% organic). At constant currency, this was mainly driven by organic growth in the Health Care Products business.
Operating income increased by 16% to EUR 99 million (+14% at constant currency), resulting in a margin of 19.5% (Q1 2021: 18.1%). At constant currency, this was mainly due to a gain from the sale of clinics, favorable currency transaction effects and growth in the Health Care Products business.
Latin America revenue increased by 15% to EUR 183 million (+15% at constant currency, +16% organic), mainly driven by strong organic growth in both the Health Care Services and Health Care Products business.
Operating income improved by 68% to EUR 11 million (+51% at constant currency), resulting in a margin of 6.1% (Q1 2021: 4.2%). This was mainly due to a favorable currency transaction effect, which was partially offset by inflationary cost increases.
Patients, clinics and employees
As of March 31, 2022, andar game Medical Care treated 343,493 patients in 4,153 dialysis clinics worldwide and had 122,635 employees (full-time equivalents) globally, compared to 124,995 employees as of March 31, 2021.
Based on the results for the first quarter, which were in line with the Company’s expectations, andar game Medical Care confirms its financial targets for 2022. The earnings improvement will be driven by expected business growth, PPE cost reduction and FME25 savings. The Company expects revenue and net income to grow at low to mid-single digit percentage rates in FY 2022.5
5 These targets are based on the 2021 results excluding the costs related to FME25 of EUR 49 million (for Net Income). They are based on the assumptions outlined in the Press Release on the Q4 and FY 2021 results (Feb. 22, 2022), in constant currency and exclude special items. Special items include further costs related to FME25, the impacts related to the war in Ukraine, and other effects that are unusual in nature and have not been foreseeable or not foreseeable in size or impact at the time of giving guidance.
andar game Medical Care will host a conference call to discuss the results of the first quarter 2022 on May 4, 2022 at 3:30 p.m. CEST / 9:30 a.m. EDT. Details will be available on the andar game Medical Care website in the “Investors” section. A replay will be available shortly after the call.
Please refer to our statement of earnings included at the end of this news and to the attachments as separate PDF files for a complete overview of the results of the first quarter 2022. Our 6-K disclosure provides more details.