Fresenius Medical Care AG(FMS) - 2022 Q4 - Annual Report

Financial Performance - Revenue increased by 10% to €19,398 million (2% at constant currency) in the Fiscal Year[585] - Net income declined by 31% to €673 million (-37% at constant currency) in the Fiscal Year[585] - Gross profit rose by 5% to €5,310 M in 2022, but gross profit margin decreased to 27.4% from 28.8% in 2021[429] - Operating income declined by 18% to €1,512 M in 2022, with operating income margin dropping to 7.8% from 10.5% in 2021[429] - Net income attributable to shareholders fell by 31% to €673 M in 2022, with basic earnings per share decreasing by 31% to €2.30[429] - Revenue increased by 10% to €19,398 M in 2022 from €17,619 M in 2021, with healthcare services revenue growing by 11% to €15,418 M and healthcare products revenue increasing by 6% to €3,980 M[429] - The number of dialysis treatments decreased by 1% to 52,310,131 in 2022, with same-market treatment growth improving to -1.4% from -1.9% in 2021[429] - Selling, general and administrative costs increased by 22% to €3,784 M in 2022, representing 19.5% of revenue compared to 17.6% in 2021[429] Cash Flow and Liquidity - Available borrowing capacity under unutilized credit facilities amounted to approximately €3.1 billion as of December 31, 2022, including €2.0 billion under the Syndicated Credit Facility[481] - Cash and cash equivalents decreased to €1,274 million as of December 31, 2022, compared to €1,482 million in 2021[482] - Free cash flow in 2022 was €1,480 million, representing 7.6% of revenue, down from €1,660 million (9.4% of revenue) in 2021[485] - Net cash provided by operating activities decreased to €2,167 million in 2022 (11% of revenue) from €2,489 million in 2021 (14% of revenue)[486] - Net cash used in investing activities in 2022 was €735 million, compared to €1,196 million in 2021[493] - The company utilized €497 million of its €1,500 million commercial paper program as of December 31, 2022, down from €715 million in 2021[504] Capital Structure and Investments - Total assets increased by 4% to €35.8 billion as of December 31, 2022, compared to €34.4 billion in 2021[510] - Equity ratio increased to 43% at December 31, 2022, compared to 41% in 2021[511] - ROIC decreased to 3.3% at December 31, 2022, compared to 4.9% in 2021[511] - Capital expenditures in 2023 are anticipated to be around €0.9 billion, with a focus on organic growth[496] - The company's pension commitments decreased by €2,898 thousand in 2022, with total commitments at €20,984 thousand as of December 31, 2022[723] Dividend and Shareholder Returns - The proposed dividend for 2022 is €1.12 per share, totaling approximately €329 million, compared to €1.35 per share (€396 million) for 2021[508] Operational Metrics - Days Sales Outstanding (DSO) increased to 68 days at December 31, 2022, compared to 62 days in 2021[489] Innovation and R&D - The company launched the "China CAPD" app in 2022 to assist peritoneal dialysis patients in China with therapy data entry, vital signs tracking, and consumables ordering[529] - The U.S. FDA approved the 2008-series hemodialysis machines with silicon tubing containing platinum catalysts, addressing concerns raised in May 2022[532] - The company invested in developing digitally connected 4008A dialysis machines for the Chinese market, focusing on QR codes, tablets, and cloud-based applications[531] - The NxStage VersiHD touchscreen cycler and NxStage System One continue to lead the global market in home hemodialysis products[528] - The Kinexus digital therapy platform, integrated with the Liberty® Select cycler, received FDA clearance for remote therapy programming in November 2022[526] - R&D expenditure in 2022 was €229 million, representing 6% of healthcare product revenue, consistent with 2021 (6%) and up from 2020 (5%)[545] - The company's patent portfolio at the end of 2022 comprised 10,086 property rights across 1,599 patent families, with 53 new patent families added during the year[545] - The multiFiltratePRO platform, launched globally in 28 languages, expanded its capabilities in 2022 with software version 6 enabling CKRT for infants and babies[536] - The FX CorAL dialyzer, based on the Helixone® hydro membrane, has been successfully used in multiple markets since 2021, focusing on reducing side effects and improving patient compatibility[534] - The SILENCIA APD cycler, designed for low-cost automated peritoneal dialysis, achieved positive results in South America, with planned rollouts in Asia, the Middle East, and North Africa[527] - The company's VR tool, stay•safe MyTraining VR, was nominated for the 2022 VR Award in the "VR Healthcare of the Year" category and is available in Germany, France, and the Netherlands, with further global expansion planned for 2023[542] - Collaboration with Humacyte, Inc. advanced in 2022, with the Humacyte Human Acellular Vessel (HAV) receiving approval for humanitarian use in Ukraine for vascular repair in war zones[544] - The company's R&D workforce at the end of 2022 included 1,235 employees, with over 780 based in Europe, primarily at facilities in Germany[547] - The NxStage System One introduced a "speed swap" function in 2022, allowing filter replacement during therapy without changing the treatment set, enhancing usability for clinic staff[537] - The icor technology for ECMO systems, particularly Xenios, received limited market approval in 2022, offering pulsatile ECMO therapy designed to reduce pressure on the left ventricle[538] - Research and development expenses increased by 4% to €229 M in 2022, driven by higher amortization of capitalized development costs and R&D activities at NxStage[436] Organizational Changes and Strategy - The company consolidated its health care products business, including R&D, into the Care Enablement segment starting January 1, 2023[522] - The company implemented a new global operating model effective January 1, 2023, with reporting under the new model starting in Q1 2023[565] - The company realigned its operating model under the "FME25" program, reducing Management Board departments from eight to five[588] - The company implemented a new global operating model on January 1, 2023, aimed at simplifying the organization, reducing overhead costs, and optimizing the portfolio[198] - Net income, net income growth, and ROIC will no longer be used as primary key performance indicators for internal management starting January 1, 2023[412] Compensation and Governance - The company's General Partner receives non-profit-and-loss-related annual compensation of 4% of its share capital, amounting to €120 thousand in the fiscal year[592] - Payments under the MB LTIP 2020 will be possible for the first time in 2023, with amounts to be invested in company shares and held for at least one year[587] - The compensation system for the Management Board includes base salary increases for members with expanded responsibilities, reflecting the reduction in the number of departments[590] - The short-term variable compensation for the Management Board in the fiscal year was based exclusively on group-level performance targets, as per the "Compensation System 2020+"[590] - The company's compensation system aligns with the German Corporate Governance Code, with any deviations disclosed in accordance with legal requirements[597] - The company's Global Chief Medical Officer, Mr. Franklin W. Maddux, was granted an exception to the standard age limit, extending his term by five years due to his critical role in the company's transformation phase[563] - The company's compensation system aims to reward Management Board members based on their performance and contribution to the company's long-term sustainable development[607] - The short-term incentive target amount equals 105% of the Management Board member's base salary[625] - Revenue target achievement for the Fiscal Year was 66.36%, while operating income and net income target achievements were 0%[635] - The sustainability target achievement for the Fiscal Year was 120%[641] - The overall target achievement for the short-term variable compensation in the Fiscal Year was 37.27%[643] - Performance Shares allocated under the MB LTIP 2020 ranged from 20,974 to 45,841 shares for Management Board members[660] - The company's compensation structure consists of 29% base salary, 31% short-term incentive, and 40% long-term incentive[611] - The company's long-term strategy focuses on revenue growth, net income growth, and return on invested capital (ROIC)[655] - The Management Board's compensation is 71% performance-based, with 40% of variable components tied to long-term incentives to promote sustainable corporate development[612] - The CEO's maximum compensation for the fiscal year is €12,000 THOUS or $13,434 THOUS, while the CEO North America's is €9,500 THOUS or$10,635 THOUS, and other Management Board functions are capped at €7,000 THOUS or $7,836 THOUS[616] - Short-term incentive payouts are capped at 120$1,060 THOUS for a one-year post-employment non-competition covenant[736] Risk Management and Compliance - The company faces significant risks related to regulatory compliance, medical cost management, and cyber-attacks, which could materially impact its operations[517] - The company's risk management system involves regional risk coordinators using software to identify and assess risks, with semi-annual reviews and discussions in corporate risk committees[272] Environmental and Sustainability - Scope 1 and Scope 2 emissions decreased by 10.5% in 2022, with Scope 1 emissions down by 1.6% and Scope 2 emissions down by 15% due to REC procurement and reduced energy usage[241] - The company identified a considerable number of existing sites in high or extreme water stress areas by 2030 and 2040, primarily in North America, and is incorporating this analysis into risk management systems[252] Market and Competitive Landscape - Fresenius Medical Care faced significant labor market challenges in the U.S., including staff shortages, high turnover rates, and increased costs for agency staff and retention payments, impacting growth and operating leverage[584] - The company's U.S. operations were impacted by limited patient acceptance at some dialysis centers due to staffing shortages, negatively affecting growth in healthcare services and complementary business areas[584]