Filed
by Fresenius Kabi Pharmaceuticals Holding, LLC
pursuant
to Rule 425 under the Securities Act of 1933
Subject
Company: APP Pharmaceuticals, Inc.
Commission
File No.: 333-152690
FORWARD
LOOKING STATEMENTS
This
transcript contains forward-looking statements that are subject to various risks
and uncertainties. Future results could differ materially from those described
in these forward-looking statements due to certain factors, e.g. changes in
business, economic and competitive conditions, regulatory reforms, results of
clinical trials, foreign exchange rate fluctuations, uncertainties in litigation
or investigative proceedings, and the availability of financing. Fresenius does
not undertake any responsibility to update the forward-looking statements
contained in this transcript.
NO
OFFER
This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of securities in any jurisdiction in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such
jurisdiction.
ADDITIONAL
INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
In
connection with the proposed merger, Fresenius Kabi Pharmaceuticals Holding LLC
and APP has filed relevant materials with the SEC, including a registration
statement that contains a joint prospectus and information statement dated July
31, 2008. Investors and security holders are urged to read these
documents and any other relevant documents filed with the SEC, as well as any
amendments or supplements to those documents, because they contain important
information. Investors and security holders may obtain these
documents free of charge at the SEC's website at
www.sec.gov. Investors and security holders are urged to read the
joint information statement/prospectus and the other relevant materials before
making any voting or investment decision with respect to the proposed
merger.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
|
|
Conference
Call Transcript
FSNPF.PK
- Q2 2008 FRESENIUS SE Earnings Conference Call
Event
Date/Time: Jul. 30. 2008 / 2:00PM CET
|
CORPORATE
PARTICIPANTS
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
BIRGIT
GRUND
Fresenius
SE - IR
Mark
Schneider
Fresenius
SE - Chairman, CEO
Stephan
Sturm
Fresenius
SE - CFO, Labor Relations Director
CONFERENCE
CALL PARTICIPANTS
Alex
Surla
Merrill
Lynch - Analyst
Mishi
Yana
ECM
- Analyst
Francis
MacDonnell
JPMorgan
- Analyst
Nick
Reedy
Goldman
Sachs - Analyst
Mariya
Gancheva
Merrill
Lynch - Analyst
Nitin
Dias
JPMorgan
- Analyst
Marcus
Wieprecht
MainFirst
Bank - Analyst
Martin
Whitbread
Morgan
Stanley - Analyst
PRESENTATION
Good
afternoon, and welcome to the conference call of Fresenius Investor Relations,
which is now starting. May I hand you over to Miss Birgit Grund, Investor
Relations. Please go ahead, madam.
Birgit
Grund
- Fresenius SE -
IR
Good
afternoon in Europe, and good morning in the US, and welcome to our first half
and second quarter earnings conference call and webcast. I'm very pleased to
introduce to you Mark Schneider, CEO of Fresenius SE, and CFO, Stephan
Sturm.
Before
we get started, I'd like to mention that today's call is being recorded, and I'd
like to draw your attention to the forward-looking statement and disclaimer
wording on page two of the presentation. And this cautionary language applies to
the presentations and comments to be made today.
By
now, we hope that everybody has had a chance to take a look at the presentation
on our home page. Mark Schneider will now start and present you a general
overview, and Stephan Sturm will later on take you through the financials. And
afterwards, management is prepared to answer your questions, and with that, let
me hand it over to Mark. Mark, please?
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Thank
you Birgit, and a warm welcome to our call participants today. As always, we
very much appreciate your interest our firm. Our summary financial results were
issued about two weeks ago, so I guess that took some of the suspense out of
today's release. Still, I think it is important to review with you in more
detail where our business segment stands and how we're doing on some of our
strategic initiatives.
Birgit
has mentioned the Safe Harbor statement to you so let's move right to our group
results on Page Three. We're very pleased with our financial results in the
first half of 2008, and these numbers are very much in line with our full-year
guidance, which we herewith concern -- confirm fully for the corporation and
also for each business segment.
We're
particularly pleased with the good Group rate in constant currency, 9% on sales,
8% on EBIT, and 14% on net income. In actual currency, we're still slightly
ahead of the first half of 2007, which is no small feat in an environment where
our most important foreign currency, the US dollar, which accounts for almost
50% of our revenues, has been declining on average by 15%.
As
you can see from the EBIT development, our EBIT margin is slightly down from the
first half of 2007. This is the effect of, in particular, three Group
initiatives, which we undertook, which I believe are going to strengthen our
business going forward. One is work FMC, the increased R&D spending in
connection with our acquisition of Renal Solutions.
The
other one is our Kabi acquisitions that were announced at the end of 2007, most
notably the [Antoine] nutrition business in France and Spain. As you know, these
businesses entered our corporation at less than average operating margins. This
is something that we address now in the first year, but in that first year it
has a slightly dilutive effect on our margins.
And
thirdly of course, we acquired the Krefeld Hospital at the end of 2007, so 2008
is the first year of full consolidation for that hospital. As you know, it's a
fairly massive operation there. It's HELIOS' fifth maximum care provider, and it
entered the network on a loss-making basis, and while we're making good progress
with the turnaround, obviously that also dilutes first-year margins for Helios
and for the company overall.
Moving
now to page four and the financials by business segment, I was particularly
pleased with the double-digit sales growth that we have seen across the board,
10% for Fresenius Medical Care, 14% for Kabi, 17% for Helios and 11% for
VAMED.
This
is supported, again, across the board by very strong organic growth of 6% for
Fresenius Medical Care, 10%, which by the way is the all-time high-water mark
for Fresenius Kabi, 5% for Fresenius HELIOS and 11% for Fresenius
VAMED.
EBIT
performance was particularly strong for Kabi and HELIOS, but I think we're also
seeing very positive signs here when it comes to the EBIT development for FMC
environment when it comes to the full year.
Before
moving to the business segments in more detail, in particular Kabi, HELIOS,
VAMED and Biotech, a brief word on FMC. We were very pleased with the strong Q2
and first-half performance and also the progress that the company has made on
some of its strategic initiatives.
We
were in particularly pleased with the legislation that was passed in the
all-important North American market, which will finally give certainty to the
reimbursement picture [form] forward after 2009. It will provide for
reimbursement increases in this really important market, starting from 2009 to
compensate for some of the cost inflation that everybody's facing and at the
same time and very importantly, starting from 2011, it finally paves the way for
bundling.
As
you know, the company has been moving in that direction and getting ready for
this day and age for over ten years now, and so I think finally we are going to
be in a reimbursement environment where some of the particular strengths that
FMC brings to the table, i.e. controlling the major technology pieces that go
into the treatment will fully come to play out their advantage.
Let
me also say, and this a very important part of our message here today in
connection with the mandatory exchangeable that we placed two weeks ago, that
they should not be interpreted as a lack of confidence in the future of
FMC.
We
have deliberately chosen an instrument that lets us participate in the stock
price development of FMC going forward, and this will -- again, I'd like to
underline that this will not be the first step in a process of further selling
down on FMC. We have no plans to do this. FMC is going to be a core business of
our company going forward.
Now,
moving on to Kabi in the first half of 2008, I'd like to point out again, the
excellent organic sales growth of 10%. This was particularly supported by very
strong performance in the second quarter, which benefited from a larger number
of working days and also, as you look at the regions and the business segments,
by very strong organic performance in the Chinese market where organic growth in
the first half was at 29% and by very strong performance in our transfusion
technology business where first-half organic growth amounted to
19%.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Now,
we're very pleased with this performance. However, as you build your models and
update your models, I would still caution you to stay with a more conservative
organic growth rate going forward. I think 8% is certainly going to be more
adequate than the 10% you've seen here. Keep in mind that transfusion for
example, as we noted in the past, typically has very project-driven and
therefore lumpy sales development. The double-digit organic growth quarters
might be followed by actually single-digit or sometimes even negative growth
quarters.
And
when it comes to China, while we're extremely pleased with the growth that we
have seen, do keep in mind that there has been extensive ordering to head off
the Olympics, for example, to be ready for emergencies and also that there was
extensive emergency ordering in surroundings with the earthquake earlier this
year. So, while we have constantly seen growth rates in China that are at or
above 20%, certainly with the sort of the performance that we've seen in the
last three quarters, which was nearer to 30%, might be a bit of a positive
exception.
I'd
also like to confirm that our 2007 acquisitions, Ribbon in Italy, Nestle,
Novartis in France and Spain and Sanderson are fully performing in line with our
expectations, so the integration process is moving as planned with all of these
three acquisitions. And we're quite pleased with their
contributions.
Regarding
Dabur Pharma, we've announced this acquisition, which will strengthen our
generic IV drug sector in the oncology area, in April. We have now in July,
successfully concluded the public offer, and this should pave the way then for
an August closing, which would be in line with the Q3 timeframe that we had
given out to you earlier.
And
finally of course, the major event for Kabi in this first-half year was the
acquisition of APP Pharmaceuticals, which we announced on July 7. This is
clearly a once-in-a-lifetime opportunity for Kabi to position itself in the very
important North American markets and to introduce some of the Kabi products to
the North American market while actually over time also introducing some of the
APP products to the rest of the world and to benefit from the strong sales and
distribution presence that Kabi has in many of the territories.
So
that is in nutshell, the strategic rationale, and I think we covered that in
quite some detail in our conference call on July 7. What I'd like to do today
is, on the next page, give you somewhat of an -- transaction update. And then
Stephan, later in the presentation, will give you the more detailed financing
plan, which I think we had announced for you for today.
So
regarding the financing package, while Stephan is going to cover the details,
let me just say I'm very pleased that in July already we were able to put the
first step of the equity financing in place. This was very important to us to
takes some of the uncertainty of the market and also to address any concerns
that there might be an oversize Fresenius SE capital increase in the works. This
is clearly not the case, and I think we limited it now to a maximum of EUR300
million.
And
also, the one other concern that I'd like to address here is that the APP
acquisition and the financing plan around it would limit our growth
opportunities potentially in other business segments. That's clearly not the
case. We would never agree to a financing package that limits our growth
opportunities in other segments. We have certainly cautioned in our July 7
conference call that we're not intending in the near term major Kabi
transactions, because now we'd like to be focused on integration and
execution.
But
clearly, when it comes to the other segments, most notably the hospital sector,
we need to be ready and able to participate in those privatizations, and we
certainly left enough of a head-room for us financially to be able to do that
going forward.
Regarding
the SEC filing, I can confirm that that has been submitted and we have also then
started our integration planning. Obviously, one of the easy benefits here of
this integration is that we are dealing with largely complementary
structures.
There's
virtually no overlap between the Kabi organization and APP Pharmaceuticals, so
this should be an easier and less complex integration job than, for example, the
integration of Renal Care Group into the Fresenius Medical Care North America
business in 2005.
You
don't have competing structures here. Basically, integration means defining of
the interfaces of where the APP Pharmaceutical organization links into the
Fresenius Kabi organization to derive some of the synergies to basically enable
proper reporting and business control. But, this typically does not involve any
compromises on the positions of the people involved, and it should be actually a
fairly straightforward process.
I
think clean integration and clean execution jobs are one of the hallmarks of our
organization, and so we're going to be working very diligently on a very
detailed integration plan. And as you know, this is right now on the drawing
plan -- on the drawing board. It's not something we can execute on yet, but we'd
like to have it detailed as much as possible so that after closing, we can then
move in and pretty much put this in place as quickly as
possible.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
I'd
also like to confirm that there's a very strong cultural fit between the two
companies as we get to know each other better. And as I develop a very deep and
strong respect for this experienced and driven and accomplished leadership team,
I think some of the core values, in particular the deep conviction about medical
quality and medical excellence and also economics like, you know,
straightforward manufacturing processes, lean overhead structures, on all of
these dimensions, the company does actually feel and act very much the same way
as Kabi does, and I think such a strong cultural fit will pave the way then also
to a smooth integration process.
I'd
also like to confirm that, as mentioned in our July 7 conference call, this
transaction should be EPS neutral in Year one after closing and accretive in
year two. This is, as Stephan had mentioned at the time, before
transaction-related expenses. And everything that we have put in place since is
very much consistent with those statements from July 7.
As
I mentioned at the time, this does include any revenues or additional upsides
that would come from cross-selling, so from bringing Kabi products to North
America, or APP products to the rest of the Kabi organization.
Some
people, after the July 7 call, mentioned that this was a fairly conservative
approach, and that's certainly right. However, we felt that it's a more solid
and a more prudent approach here to not just give you headline numbers but
rather to wait for a little bit longer and then, as part of the integration
process, work bottom-up plans with both management teams at APP and Fresenius
Kabi.
And
then really, once we have these plans with a large degree of confidence and
buy-in from both management teams, at that point to present them to you. So
these upsides we will detail later, most likely in the first half of
2009.
This
brings me to Fresenius HELIOS, which also had a very strong first half and
second quarter 2008, and I congratulate the management team on a superb
execution job. In particular, I think we've seen very strong organic revenue
growth of 5% on a like-for-like basis.
And
then on the established, i.e. not recently acquired clinics, we've seen a 1.8%
EBIT margin progression year-over-year in that half-year period, so very strong
execution. And at the same time, the company has been making a lot of progress
on all the integration projects at hand, in particular the one on the Krefeld
maximum care provider.
Regarding
Krefeld, we have seen a 9% increase in hospital admissions already now in the
first half of 2008. As you know, this transaction closed only in late December.
So basically now in the first half, we already were able to drive a 9% increase
in admissions. And we've also detailed and shared with the city, the
construction plans for the new facility that HELIOS has committed to as part of
this privatization.
On
the right-hand side on this slide number seven, you see an artist's rendering of
the new facility, which is going to be state-of-the-art. And I think the fact
that such a hospital project, which had been under discussion for a long time in
the city, was detailed and put out and committed to in such a quick manner after
the transaction that it's built a lot of confidence in HELIOS as a
partner.
And
overall, as you look at the medical concept here that's driving a 9% case
increase and the fact that we're making good on our promises in such a quick
way, I think it's a showcase and a model for what privatization can do in the
German hospital market.
As
you can see, the hospital project will involve investment, about -- of about
EUR180 million. However, that amount will be stretched out over about seven
years since with all the permitting and the construction process, we are looking
towards a final completion in the year 2015.
On
that occasion, let me also before moving to Kabi -- to VAMED, confirm that
finally we have set a date for the Capital Market Day where we would like to
showcase the HELIOS and the VAMED business. This will be on December 2nd, and
it'll take place in Berlin.
And
I think this will be a great occasion to introduce to you the management teams
of HELIOS and VAMED, to have them present to you their business models in
greater detail and also to see one of the flashier facilities that HELIOS has,
which is our Berlin [Bruh] Hospital, during a tour.
Moving
on to VAMED now, VAMED also had a very successful first-half period and is fully
on track to meet its 2008 guidance. As you know, this business tends to be
somewhat more back-loaded than the others, so when it comes to the EBIT results,
we have full confidence that the second half of 2008 is going to be very
successful.
Regarding
the first half, I'd like to point you to the very strong quarter intake of
EUR170 million, which is about double the level from last year. There are two
projects I'd like to focus on in particular. One is a EUR25 million hospital
extension near Salzburg in Austria.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
This
is of interest because it's not just a three-year extension project, but over
and above that, it will also lead to a management contract, which will then give
us long-term service revenues. And as you know, VAMED is really active in both
sides of these, on the project side and the service side, with the service side
of course having the benefit that it's not subject to some of the fluctuations
we're seeing on the project side. So, this is really the entry point then to a
longer-term service contract and to longer-term extension that goes far beyond
the EUR25 million that the project is measured at right now.
The
other project I'd like to point out is the equipment of medical technical
supplies for 25 hospitals in Sri Lanka. This is our first-ever project in Sri
Lanka, and I think it confirms and underscores that VAMED has a footprint that
doesn't just cover these tapist European markets and some of the emerging
markets but also developing countries. And as of course over time the quality of
healthcare facilities is going to get upgraded in many of these emerging markets
in developing countries, I think that franchise and that footprint is going to
be particularly important.
I
would also like to confirm that our German HERMED acquisition from February is
on track. We announced this deal in February. It's a great fit to strengthen our
German service business and also to give us better access to mid-sized German
hospitals.
And
I think from a Fresenius perspective when you look at the German market, we
really offer a two-pronged strategy where if a not-for-profit owner or a
government owner wants to part with the ownership of the hospital, then clearly
with HELIOS we're one of the partners of choice, and we can run very successful
privatizations, as evidenced by the Krefeld project.
If
however, an ownership change is not contemplated and nonetheless these owners
would like to upgrade their hospitals and would like to outsource certain
services to become more efficient, then through VAMED and HERMED I think we're
also a partner of choice. And to my knowledge, we're the only company that has
that dual approach and clearly, when it comes to shaping up the German hospital
landscape and over time improving the performance in this environment, not all
hospitals are going to be privatizing and so to have that second opportunity to
participate in this process is very important.
Finally,
before handing it over to Stephan, a brief update on Fresenius Biotech, we did
not have a separate slide on this. By and large, everything that you've seen
from our Q4 2007, or Q1 2008, presentations still applies. The all-important
process for this year of course is our approval process with EMEA. I can confirm
that at the end of May, we have received the so-called 120-day letter from EMEA
that details some further questions.
We're
now in the process of answering those questions. We expect to submit them to
EMEA very likely now in August. Then the clock will start ticking again, and
we're still basically on time for an expected decision by EMEA by the end of
2008, early 2009.
I'd
also like on this occasion to confirm our anticipated spending level of up to
EUR50 million negative EBIT for this year. So this concludes my remarks, and let
me hand it over now to Stephan. And then, we'll be back for Q&A later. Thank
you.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Thank
you Mark, and good afternoon or good morning, wherever you are. I would have
thought it's in your interest if I cut short my coverage of the standard items
and so we can gain some time for a discussion of our APP financing plan as well
as for Q&A.
Regardless,
I will briefly guide you through our group P&L and also through Kabi's
divisional P&L. I will touch on group cash flow and credit metrics and
before I come onto APP financing, I will review our guidance for the
year.
A
quick word on ForEx to start with, the year-on-year between the average
euro/dollar rates was $0.19 in Q1 and $0.20 for the first half, so in absolute
terms, foreign change effects have reduced our EBIT in the first half by EUR60
million and our earnings after tax by EUR10 million. So as you can see our
rule-of-thumb sensitivities, they still generally work. However, as I indicated
now in the Q1 call in particular that EBIT sensitivity is now trending more
towards EUR6 million per US dollar cent.
Enough
on currencies and over to the group P&L and to start with sales and sales
growth, and both reported growth of 2% and constant currency growth of 9% are up
one point from the respective Q1 metric. And I had indicated at the time already
that we were seeing room for improvement.
Group
organic growth was a massive 8% in the second quarter, partially driven by the
Easter effect. The blended 6% for the first half, that I will describe as fairly
clean and therefore, from my perspective, that's a good proxy for the coming
quarters. All divisions have stepped up the pace from the first quarter, FMC and
HELIOS by two points and Kabi even by three.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
The
gross margin in the group was 32.2% in the second quarter, 20 -- 30 basis points
up from Q1, and that improvement was driven primarily by FMC and by HELIOS. The
group EBITDA margin was up 40 basis points to 17.7%, and given that depreciation
is stable, as predicted on the Q1 call, at 3.8% of sales, the group EBIT margin
is also up by 40 basis points from the first quarter. It's now 13.9% for the
second quarter and 13.7% for the first half.
You'll
hear everything on Fresenius Medical Care from Ben and Larry in an hour or so,
and I'll come back to Kabi a bit later. So for now, just a snapshot on HELIOS,
VAMED and the corporate segment over and above what Mark just explained to you,
HELIOS, as you heard from our perspective, has had an excellent second quarter
driven by very strong organic growth. The EBIT contribution was EUR45 million in
the single quarter, and the margin came in at 8.5%.
VAMED
showed a very nice pick up from the first quarter and made a contribution of
EUR5 million, relative to the EUR4 million it had in Q1 and the $9 million EBIT
for the first half, that is at a par with the first half of '07. Margins in both
the project and the service business were up. However, given the higher share of
the project business in the second quarter, Vamed's margin was slightly down
from the first quarter, but this is really just a mix effect.
The
corporate segment came in a negative $15 million, driven by Biotech spending.
The first-half result is at minus $26 million and that's fully in line with our
full-year guidance. Mark just told you that we confirmed the spending level for
Biotech, and I also would like to confirm my guidance for the EBIT level in the
corporate segment at approximately EUR60 million.
Net
interest of EUR83 million in the second quarter is $1 million down from Q1, and
I had told you to expect a slight pick up, given growing CapEx and also our
dividend payment. At constant currency, that slight pick up actually
materialized, although it was smaller than anticipated, given that we had some
tailwind from variable interest rates. And the pick-up effect was more than
offset by US-dollar weakness, so for that quarter we're down $1
million.
Going
forward, I continue to stick to my guidance of around EUR350 million for the
full year, and for the avoidance of doubt, that estimate includes Dabur Pharma
acquisition, but it's obviously pre any effect related to APP.
On
to taxes where the group tax rate in the first half is at 34.9%, and that is
fully in line with my guidance of 35% for the full year. And for the bottom
line, net income in the second quarter was $112 million, so $1 million ahead of
the preliminary results we were showing two weeks ago. Growth at constant
currency is up by one point from the first quarter to 14% and therefore, we're
very comfortably more at the upper end of our 10% to 15% guidance
range.
We're
done with the group P&L now, so let's have a brief look at Kabi. Kabi has
further accelerated growth from an already high base, and after four consecutive
quarters with 8% organic growth, Q2 has come in at a remarkable 11%. And that
took organic growth for the first half to 10%, and Mark already told you that's
a high-water mark for Kabi.
Constant
currency growth, so including the contributions from Kabi's recent acquisitions,
that is striking at 17% for the first half, so well ahead of our 12% to 15%
guidance. From a regional perspective, Germany has come in at 4% organic growth
in the second quarter. To me, that is unsustainable, remember the Easter effect
that I was talking about earlier, and I do believe that the 2% organic growth
that we're showing for the first half, that that is a much better proxy for the
run rate in the second half.
The
rest of Europe has also stepped up the pace, 9% organic growth after 6% in Q1,
and in principle, my comments about the performance in Germany, they also do
apply to this region.
It's
tough to maintain high percentage growth rates on an ever-growing base, but it
seems that Asia-Pacific is mastering that challenge quite nicely. And Kabi's
growth engine mode is on. Mark told you about some special effects in the last
quarters, but that doesn't alter that fact that Asia-Pacific and China in
particular remains Kabi's growth engine. As far as Latin America is concerned,
we're generally happy with the performance, and with the exception of one single
country, we're seeing growth rates in the teens and above.
From
a product perspective, Mark already told you about the transfusion business, but
Kabi has also stepped up the pace in both the infusion and the nutrition
business, taking organic growth rates for the first half to 6% for Infusion and
13% for Nutrition business.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Over
to EBIT where Kabi has turned in EUR94 million of EBIT in the second quarter,
and that's a margin of 16.3%, up 30 basis points from Q1. And as to the two
major regions, I told you in our Q1 call that the margin gap between Europe and
international would narrow. It was seven points in Q1. It's now down to 5.5
points for the first half, given that it was down to just four points in the
second quarter.
To
wrap up Kabi, as far as I can see, the business is humming and all recent
acquisition projects have been pursued from a position of strength. Those that
have closed in the meantime, and Mark alluded to that, they are in the process
of being smoothly integrated and absolutely no nasty surprises. And for Dabur,
we're looking at a closing later this quarter.
Over
to group cash flow and to Q2 operating cash flow performance that was generally
a repeat from Q1, there are two exceptions -- number one, HELIOS where the
operating cash flow is nicely up given further improved profitability despite
growing depreciation and also some received subsidies.
And
number two, VAMED where operating cash flow is down, given that we've had a
lumpy prepayment in Q1 that we've started to amortize now. Given our general
organic growth and acquisition growth, we continue to have to make under
proportionate investments in working capital. I'm sure Larry will give you an
update on FMC, receivables and DSOs later on.
For
inventories we're looking at the typical seasonal pattern that has some
inventory build ups ahead of some scheduled, planned shutdowns during the summer
break. And specifically for Kabi, inventories remain well under control. We've
actually managed to reduce Kabi's SOIs by about 10% year on year.
CapEx
is basically also a repeat performance from Q1 and with some anticipate year-end
loading we're well on track for our full year guidance. Given CapEx, acquisition
payments and also the dividend payment in Q2, net debt, as predicted, has gone
up and therefore net debt to EBITDA is up slightly by ten basis points to
2.7-times. But on the other hand, and you'll find that in the appendix, interest
cover has continued to improve by a further 20 basis points from the end of
March.
That
takes me to our divisional guidance and across-the-board we're tracking quite
nicely relative to each of the targets that we've set ourselves. And honestly, I
can't see any dark cloud on the horizon, so we continue to be very comfortable
with our guidance levels. VAMED revenue growth, there we're tracking above the
guidance range of 5% to 10%, but you will recall that the second half of '07 was
a particularly strong one. So I wouldn't have thought that it's particularly
prudent to revise our guidance now.
For
HELIOS, let's just see how the organic growth is going to continue in the third
quarter. And for Kabi revenue growth, we're at 17% after the first half relative
to the 12% to 15%. I'd say, given where we are right now, anything but the upper
end of that guidance, that would really be a surprise.
For
the group as a whole, we're bang in the middle of our 8% to 10% constant
currency revenue guidance and, as I said earlier, more towards the upper end of
our net income guidance. Again, we're not aware of any negative developments and
we remain cautiously optimistic. We also remain generally conservative people,
so I'd say please bear with us.
That
concludes my coverage of the Q2 results. Let me turn over to APP and the
financing plan that we have there. Upon announcement on July 7th I had given the
commitment to shed some more light on our financing plan by today at the latest,
but you know that we have created some facts in the meantime. First of all, I
just wanted to say that there has been a financing plan all along and also now
there is one with various alternatives.
When
talking about our plan, I need to carefully balance the legitimate interest of
my stakeholders to be properly formed, on the one hand with my duty to protect
the company against initiatives from market participants that may be less well
meaning than you. So also for today's conference call I'm asking for your
patience that I would like to leave a little bit of flexibility on our financing
plan, but on the other hand I want to assure you that a proper plan with various
alternatives does exist.
First
of all on that slide, rating agencies, I had shared my plan with the rating
agencies pre announcement. I do know that they listen in today and I would
expect them to agree that we're having a trustful dialogue. Fitch as well as
Standard & Poor's have confirmed their respective ratings in the meantime
and I do understand that Moody's decision is imminent. But even ahead of that
final conclusion, I would generally say mission accomplished. The mission was to
minimize any ratings impact and I would say that we're broadly
there.
As
far as the long-term financing plan is concerned, that foresees broadly four
components. And the first component you have seen in the market already and that
is our exchangeable bond into shares of Fresenius Medical Care. The issue size
there was EUR554 million and I just want to deal
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
with
a myth that appears to be going around in the market by saying that EUR550
million of proceeds from that has been my financing plan all along.
When
we were talking about an issue size of up to EUR600 million in our press
release, that was simple math calculated on the closing share price of Fresenius
Medical Care on the night before launch with a maximum number of shares that I
was prepared to make available. The target, though, was EUR550
million.
And
the reduction to 16.8 million shares, that was truly voluntary from our side,
given that we really hated to see those Fresenius Medical Care shares go, as
Mark said earlier. On the other hand, we do believe that it's for a good purpose
and therefore we felt that this was the best way to go about financing of the
overall acquisition.
As
part of the exchangeable issue, I was particularly pleased to see that Dr.
Patrick Soon-Shiong, the founder of APP, made a substantial investment of EUR100
million at broadly the same terms that all the other exchangeable investors did
receive.
The
second constituent part of the financing part is a potential capital increase
and we did announce that simultaneously with the launch of the exchangeable bond
to take care of the overall equity component that we would be looking for. We
were saying, just to remind you, that we may consider a capital increase of up
to EUR300 million and that we would be looking to execute that over the next 12
months.
So
I'd say the initial concerns that were floating around in the market about
potentially excessive dilution of our shareholders, that should have proven to
be unfounded. In the meantime, we felt at the time that by commenting on initial
EPS neutrality and clear accretiveness the second year of the closing after the
closing of the transaction, that those concerns should be taken care of. But I
do believe that now, stating the amount, that position should be even
clearer.
The
third constituent part is a syndicated facility and that then already takes us
to the debt side of things. And many of you may have seen that there are some
rumors and speculation going around on the wires already, so yes that is work in
progress as we speak. We have launched the second phase of
syndication.
Just
to remind you, the initial guarantee was provided by Deutsche Bank exclusively,
the first level of syndication. Then Credit Suisse and JPMorgan joined Deutsche
Bank and now we're looking at the next level of syndication. And I'm happy to
report that, as of last night, with the commitments that we have received from a
substantial number of lending banks, the amount that we were looking for is
covered.
We
have received strong indications from a further number of banks that they will
come in with their commitments in the coming days and therefore we're looking at
a comfortable over subscription.
The
overall amount that we're looking for calls for US$2.4 billion. Out of that we
would like to use $1.9 billion for the financing of the APP purchase price. A
constituent part of that US$2.4 billion overall facility is going to be a
revolving credit facility in the amount of US$650 million. Out of that revolving
credit facility we would like to initially draw US$150 million, the balance
US$500 million we would like to leave in place as a safety cushion.
US$1.9
billion minus US$150 million out of the drawn revolver, that leaves us with
US$1.75 billion. That is made up of two different term loans. Term loan A is an
amortizing one and that foresees an initial credit spread of 2 7/8. Term loan B
has a very low amortization and that therefore foresees a higher spread of
initially 3.5 points.
The
balance of the overall financing package is going to be made up of other debt
instruments. That may well be public bonds, either in U.S. dollars and/or in
euro denomination. It might as well be other debt instruments. However, as far
as the other equity contribution to the overall financing package is concerned,
that is not going to be increased over and above what you see on this
page.
A
final comment on the 8% cost of debt that I mentioned in the conference call on
July 7, that was actually meant to instill some comfort by saying that, even
with the 8% that I deduced for our model, the model stacks up and EPS neutrality
and clear accretion can be accomplished. I do recognize that it may have
confused people. Nothing that we have put in place so far, I just want to
reiterate what Mark has said, has altered any of our underlying assumptions. And
I continue to believe that 8% is a conservative estimate.
Overall,
as far as the financing plan is concerned, we're fully on track. We do get a
very favorable response. As you can see, we were covered as of last night with
our syndicated facility and we do expect to conclude the financing of the
acquisition sometime ahead of the closing of the acquisition. That concludes my
remarks. Thank you and Mark and I will be available for your
questions.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
QUESTION AND
ANSWER
Operator
We
are now starting the question-and-answer session. (OPERATOR INSTRUCTIONS). We'll
now take our first question from Alex Surla from Merrill Lynch. Please go
ahead.
Alex
Surla
- Merrill Lynch -
Analyst
Good
afternoon, maybe just on that last point with APP financing could you give us a
time line on these various debt instruments as to when those would be finalized?
And also, would those then amount to about EUR600 million, if I back out the
total purchase price including that and then take out the exchangeable
syndicated loan and the capital increase? I think I'm left with about EUR600 to
EUR700 million, is that correct?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Alex,
as I just said, I would like to conclude the financing ideally ahead of the
closing of the APP acquisition, so in quarters three and four of this year.
Until then I'm asking for a little bit more patience.
Alex
Surla
- Merrill Lynch -
Analyst
Okay.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
And
I think your calculation is broadly correct. If you back out the EUR300 million
of the capital increase where I would still say it's a potential capital
increase.
Alex
Surla
- Merrill Lynch -
Analyst
Okay.
And the term A and B loans, that LIBOR is the merit, the US LIBOR -- one-month
LIBOR, plus the then 2 7/8?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
That's
US dollars six-month LIBOR, plus 2 7/8 and 3.5 respectively.
Alex
Surla
- Merrill Lynch -
Analyst
Okay.
And then moving on to HELIOS, could you tell us more as to where is this organic
growth rate of 5%, 6% in Q2, and what is that driven by? Also a little bit more
maybe on the regulatory environment in Germany political and regulatory, how do
you see that for the rest of this year and going into 2009?
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Yes
Alex, let me take that. I think what we've seen, just like in the case of
[Createl], across-the-board we've had very favorable case developments at our
facilities, which is very pleasing to me, but nothing in particular that I could
pinpoint that justifies the number. I think going
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
forward,
just like we cautioned on the Kabi overall quote rate, I think it is better for
your model-building purposes to stick with the good organic development of
around 3% that you've seen in past quarters. So it's important not to go
overboard on the quote rate.
Regarding
the regulatory environment, there are various under discussion, nothing really
negative that we would need to be concerned of. In fact there was part of the
items that would provide further support to hospital construction, hospital
finance. However, all of this needs to be fitted into a fairly tight budget for
2009.
So
the final decision is yet unclear, I think it'll become clearer in the second
half of 2008. But as of now I'm not aware of any real negative development or
game changer that would really fundamentally change reimbursement for
2009.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
And
Alex, sorry to come back to your first question, I did just a quick calculation
and I think your number is too low. And what we're looking for is also a
refinancing of APP's existing debt and I don't think that you have taken that
into account.
Alex
Surla
- Merrill Lynch -
Analyst
So
on the various debt instruments, we should look for that amount to be in what
range then, EUR600 million to EUR1 billion?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
You
would be looking at approximately EUR1 billion, yes.
Alex
Surla
- Merrill Lynch -
Analyst
And
then the US$2.4 billion, that is a syndicated loan that you're only going to
draw about 1,900 and there will be 500 on --
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
The
syndicated loan of US$2.4 billion that we're marketing at the moment -- and let
me come back to your question about the residual debt instrument, I want to
calculate that once again in a minute so that I give you a proper number. The
syndicated loan of US$2.4 billion that we're marketing just at the moment, just
to reiterate that, that includes a revolving credit facility of US$650 million
where we'd like to keep US$500 million as a safety cushion and where we'd like
to draw initially on US$150 million.
It
has two term loans with differing amortization schedules and in aggregate there
we're looking at US$1.75 billion, plus the US$150 million you're looking at
US$1.9 billion that would go towards purchase price and refinancing of existing
APP indebtedness. And let me come back to the missing component in a
minute.
Alex
Surla
- Merrill Lynch -
Analyst
Okay.
And maybe the third question, I guess it's connected, the US$500 million that
you're going to keep in reserve, is that more than enough to cover any
contingencies in terms of acquisitions in HELIOS German hospitals?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
As
Mark said earlier, we don't think that we're going to be particularly
constrained for HELIOS acquisitions going forward. And do also bear in mind that
we have some other credit lines still in place.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Alex,
that point is important to me that there are existing instruments in place that
we're not maxed out on. And again, as you look at the financial characteristics
of a typical run-of-the-mill German hospital privatization, the up-front
purchase price tends to be not the major element.
Just
look at the Createl case study where you see that now in the construction of a
new hospital that's a major component of the purchase price. And that gets
spread out in this case because it's a big project, over seven years. In other
cases it might be less than seven years for smaller projects, but nonetheless
those things are drawn out over time.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
And
Alex, I just did a quick calculation again. I would expect that that is going to
be in the EUR900 million to EUR1 billion range if we did the capital
increase.
Alex
Surla
- Merrill Lynch -
Analyst
Okay.
Thank you.
We'll
now take our next question from [Mishi Yana] from [ECM]. Please go
ahead.
Mishi
Yana
- ECM -
Analyst
Hi,
just going back to US$1.75 billion of syndicated loan question, what is actually
the breakdown between term A and term B? And what are the [teners] please? The
eventual maturity that is.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
850
term loan A, five years, it's 900 term loan B, six years.
Mishi
Yana
- ECM -
Analyst
Okay.
And are they secured?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Yes
they are secured.
Mishi
Yana
- ECM -
Analyst
Right.
I presume you're borrowing at a C level as opposed to Kabi, but what assets are
actually included in the clutch or package? Is it just for Kabi or is for the
entire group? Or is it the group excluding Fresenius Medical Care?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Generally
we're only looking at the group excluding Fresenius Medical Care that provides
guarantees and also security. Guarantees are provided by various group entities,
securities are only provided by Kabi and APP.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Mishi
Yana
- ECM -
Analyst
Okay.
And did you actually have to renegotiate the terms that you have with
(inaudible) at the Fresenius Medical Care level?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
No.
Fresenius Medical Care is out of this.
Mishi
Yana
- ECM -
Analyst
All
right. Okay thank you very much for clarification.
Operator
We'll
now take our next question from Francis MacDonnell from
JPMorgan.
Francis
MacDonnell
- JPMorgan -
Analyst
Yes
hi, just two further questions on the financing package. I'm just wondering, the
debt of APP, are you planning on refinancing that at APP itself? And then the
other question is just with regards to the entities under which you might think
of issuing the various debt instruments on your residual financing.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Question
number one, yes part of the debt financing is going to be done at the APP level,
replacing the existing indebtedness that we have on that level. And B, over and
above that, we're looking at some SPVs that are in the process of being founded
just for that purpose.
Francis
MacDonnell
- JPMorgan -
Analyst
Okay
thanks.
Operator
We'll
now take our next question from [Nick Reedy] from Goldman
Sachs.
Nick
Reedy
- Goldman Sachs -
Analyst
Hello
thank you, just a very quick question about your accounting for the costs of the
CVR and for the mandatory exchangeable bond. I guess this could amount to
anything up to US$1 billion, I just wonder how you're going to account for this
in the '08/'09 [of].
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Well
let's talk about the CVR to start with. There in the opening balance sheet we
will have to put in a value. And fluctuations, given that the CVR is going to be
a publicly instrument, public fluctuations to the trading level of the CVR, they
will have to go through the P&L as a non-cash charge.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
And
pretty much the same is true for the mandatory exchangeable bond. So we're going
to see a little bit more of the volatility, at least that needs to be expected
in our P&L. And we have every intention of making, in particular, the
effects of those two instruments very transparent and stripping them out on a
quarterly basis.
Nick
Reedy
- Goldman Sachs -
Analyst
Okay
thank you.
We'll
now take our next question from Mariya Gancheva from Merrill Lynch.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Hello?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Mariya?
Mariya
Gancheva
- Merrill Lynch -
Analyst
Hi.
I'm sorry, I was on mute. Just back to the financial package that we have been
discussing, am I understanding right that the syndicated loan is actually
sitting at an SPV in Fresenius SE?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
That
is correct.
Mariya
Gancheva
- Merrill Lynch -
Analyst
And
that is ranking ahead of the current outstanding bond, is that
right?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
It
is a senior secured facility that we're looking for, whereas the bonds are
senior.
Mariya
Gancheva
- Merrill Lynch -
Analyst
Yes
okay. And did you actually have a chance to come up with any approximation of
the remaining amount we're looking for?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
As
I said, we're looking at approximately EUR900 million to EUR1
billion.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Mariya
Gancheva
- Merrill Lynch -
Analyst
Okay
so that's final. Thank you.
Operator
We'll
now take our next question from Nitin Dias from JP Morgan.
Nitin
Dias - JPMorgan - Analyst
Good
afternoon, gentlemen, a couple questions and I'm not sure if I want to say it
right, so I just wanted to clarify. So you said that the syndicated debt would
be at [MSP rein] and not as Fresenius SE. Can you confirm if the syndicated debt
has a guarantee from Fresenius SE? That is my first question.
My
second question is on the residual financing. Would you be able to confirm or
give us a sense of which entities are going to issue that? Is it going to be
Fresenius SE or is it going to be Fresenius Finance B.V., which issued the other
bonds with a guarantee from Fresenius Finance SE?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
I'm
not sure I got your second question. The answer to the first question is yes.
And the second question you were talking about the other debt instruments that
we may be issuing?
Nitin
Dias
- JPMorgan -
Analyst
Yes.
I'll confirm the first question, just saying the secured debt is guaranteed by
Fresenius SE.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Yes it is.
Nitin
Dias
- JPMorgan -
Analyst
Okay.
The second question was, the other debt instruments, which is the entity which
is going to issue them? Can you give us a sense of that?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
That
is going to depend on the type of instrument that we're looking for. And in
particular, if we may be looking at bonds, that in all likelihood would be
SE.
Nitin
Dias
- JPMorgan -
Analyst
That
would be SE is it? Okay because --.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Excuse
me, finance would be SE through Finance B.V.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Nitin
Dias
- JPMorgan -
Analyst
So
essentially the issued bonds are out of B.V. with a guarantee from Fresenius
SE.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Yes.
Nitin
Dias
- JPMorgan -
Analyst
Okay
all right.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
If
we were doing that.
Nitin
Dias
- JPMorgan -
Analyst
Yes
I understand that, that's very helpful. Thank you so much.
Operator
(OPERATOR
INSTRUCTIONS).
Birgit
Grund
- Fresenius SE -
IR
Okay
Marion, if there are no further questions -- do you have another
question?
Operator
Yes
if you'd like to take a next question. We'll take the next question from Alex
Surla from Merrill Lynch.
Alex
Surla
- Merrill Lynch -
Analyst
Just
a follow-up question maybe on Kabi. I know you've briefly mentioned the last two
or three acquisitions that integration is going according to the plan, but could
you give us a little bit more in terms of was there any disynergies or
disruptions that you've seen in those first few quarters? Or vice versa, have
you seen any better-than-expected results in France, Spain et
cetera?
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Alex,
let me take that, this is Mark. I think for all three of them they're very
pleased with them. What we don't want to do on relatively minor transactions is
to get into micro guidance on specifically how they're performing. I don't see
any significant negative deviations and, as Stephan said, no nasty
surprises.
So
for now, what we said at the time absolutely stands and that is we will use 2008
to trend them up to the Kabi operating margin level so that they don't allude
down the operating margin. And this is absolutely on track.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
As
you're looking for potentially something that's been going even better than
expected, I think the entry and integration facilities in France and Spain are
performing very nicely, so we're happy with that. But none of these items
individually is large enough to move the meter overall when it comes to Kabi, so
that's why we typically refrain from commenting on too much detail.
Alex
Surla
- Merrill Lynch -
Analyst
And
the final question for Stephan, I'm sorry I keep going back to these various
debt instruments. You said that EUR900 million to EUR1 billion would be required
in a further capital increase. Does that --?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Oh
no, no, Alex, careful. If we did the capital increase then EUR900 million to a
EUR1 billion would be required as debt.
Alex
Surla - Merrill Lynch - Analyst
So
that would include up to EUR300 million of capital increase, plus EUR900 to a
EUR1 billion of debt.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Yes.
Alex
Surla
- Merrill Lynch -
Analyst
Okay,
yes.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Very
clearly what I also said earlier is that the equity components that you see on
this page would not increase.
Alex
Surla
- Merrill Lynch -
Analyst
Okay
thank you.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
As
far as the other debt instruments are concerned, just to point that out as well.
Those are obviously guaranteed by the three key lending banks. And I would just
say that if Deutsche, JPMorgan and Credit Suisse are comfortable with giving a
guarantee on these instruments, then I would hope that you can gain confidence
in that as well.
Frankly,
given the reception that we have been given on our syndicated loan, I am very
comfortable about the residual financing package.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
And
Alex, this is Mark, let me just comment on that because it's very important to
us that there are no misunderstandings here. On the equity, with the step one
that we have done, mandatory exchangeable, and a maximum of up to EUR300 million
of FSE stock, this is it. No more.
Alex
Surla
- Merrill Lynch -
Analyst
Yes.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Mark
Schneider
- Fresenius SE -
Chairman, CEO
And
so I think this is deliberately designed to give you guys the floor and some
certainty that there's not going to be some significant dilution. And I hope
that is going to do its job. And then what Stephan is saying here is, on the
debt syndicated loan going is truly well. We're very pleased with
that.
And
then the second piece is -- and this is exactly what Stephan meant, that we need
to leave ourselves a little bit of wiggle room here as to the precise amount and
precise instruments that we're going to be using for these various debt
components. And those might be, then, up to about EUR900 million to a EUR
1billion, in case we do EUR300 million of equity in FSE.
Alex
Surla
- Merrill Lynch -
Analyst
Okay
thank you.
Operator
We'll
now take our next question from Marcus Wieprecht from MainFirst
Bank.
Marcus
Wieprecht
- MainFirst Bank -
Analyst
Yes
good afternoon, Marcus Wieprecht from MainFirst Bank, I have a Kabi related
question on the pricing situation in Western Europe. Is there anything you can
tell us in terms of how the market changes? Is there any price pressure we may
have seen in other industries, particularly generics, is there anything you can
see for your kind of products with increasing pressure on the healthcare systems
there that impact your Kabi business?
The
second question, how do you see actually the Heparin prices developing in the
second half of 2008, maybe also into 2009, with now having a closer look at APP
pharma? And last but not least, what actually determines the timing of your
expected capital increase of up to EUR300 million? I guess what I'm trying to
find out is why don't you do it straight away? If you wait for up to 12 months,
as you indicated, does that mean you expect a price to go up in the future? Or
what can we read out of that? Thank you.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Marcus,
let me take the first two and then I'll hand the last one to Stephan. So on Kabi
and pricing, I think to my knowledge in Western Europe nothing significant has
changed. We're seeing in most of the mature Western European markets slight
price erosion and then in Germany maybe somewhat stronger price erosion. But
that's a picture that you've seen over the last two years which resulted then in
about mid single-digit organic revenue growth for Western Europe outside Germany
and low single-digit organic growth for the German market.
And
that price erosion for Germany typically is maybe in the maximum 1% to 2% range
per year and then Western Europe maybe around 1% or less than 1%. But it has not
accelerated. There is nothing particular that's on the horizon that would drive
it. And we have typically been able, in the past, to address that price erosion
with continued efficiencies in the manufacturing and distribution side to still
maintain and, in most cases, expand our margins and that's not
changing.
On
Heparin I'm asking for your understanding that as of now APP and us are still
two independent companies. We are under contract but the deal has not closed
yet. So that puts a limit as to how far I can comment on their pricing
behavior.
All
I can clarify is that to our knowledge, over the spring and summer there have
been two price increases in the North American market, one in the late April to
early May time frame and then another one that kicked in at about July 1. As for
the future, again I wouldn't want to speculate.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
And
Marcus, as to your question, it's a legitimate one but on the other hand I'm
sorry, I can only reiterate what I said as part of my discussion. There are
other market participants out there who are less well meaning than you are. And
putting all my cards on the table and basically going out there with all my
guards down, that would make the company somewhat more vulnerable. And therefore
I'm asking for your understanding that here I cannot go any further as far as
shedding light on what we're up to.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Marcus,
to build on that, nothing is as near and dear to us as good old equity. And so
giving it away, we want to be sure we get proper value for
it.
Marcus
Wieprecht
- MainFirst Bank -
Analyst
Well
that's fair enough. Is it right APP reports tomorrow Q2 results, so we get more
clarity on the US situation there?
Mark
Schneider - Fresenius SE - Chairman, CEO
That
is correct. To our knowledge APP will report their Q2 results tomorrow and then
obviously anybody who has a chance to follow that, either on the APP website or
otherwise, that will be an important data point.
Marcus
Wieprecht
- MainFirst Bank -
Analyst
All
right, thanks very much.
We'll
now take our next question from Martin Whitbread from Morgan
Stanley.
Martin
Whitbread
- Morgan Stanley -
Analyst
Hello
there, a question on EVS and that is, do you see the potential regulatory
changes in hospitals for 2009, do you see that as benefiting margins at HELIOS
potentially? Or do you see these changes as a necessary condition for keeping
within your prior guidance? And in particular I'm just thinking about the
significant wage inflation that we're seeing in Germany at the
moment.
And
a second question rather specifically, is have you seen any significant pick up
in activity for VAMED in particular in the United Arab Emirates? And I know
that's specific but just a question.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
Yes
regarding the regulatory change, because it's so hard to say exactly what
they're going to do in the second half, I don't know whether it has an impact on
us at all. And if it does have one, whether it'll be on the margin side or on
the finance side by supporting basically some of the investments. I simply don't
know because there are so many competing different ideas out there from the
various parties that they now need to agree on that there's little
visibility.
So
that's why we have to leave it for now with the statement that nothing that I'm
seeing is a negative. So as you think back two years ago when we traveled with
these three negative impacts for the year 2007, this is a very different
situation now because we're looking at potential positives. But we just don't
know what they are, if they'll ever come into play and how exactly are they
going to impact our financials.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Sorry
I can't be more specific, but that's just the way the political decision making
goes. And I think over time what we've seen in Germany is that some of these
decisions get pushed back later and later into the year and then take effect
right at the beginning of the following year. And so this is something we just
have to accept.
Regarding
VAMED, yes clearly a lot of money is being spent in the Gulf right now. And we
do have a couple of exciting projects there and it's a region where VAMED has
been doing business in the past and has been quite successful. But it's not in
itself a large enough component of the business to totally fundamentally change
the business prospects of VAMED, so I think for now, with the kind of guidance
we've given, 5% to 10% on revenue and EBIT, that still holds.
Martin
Whitbread
- Morgan Stanley -
Analyst
Okay
thank you. Just a follow up on HELIOS, which is I guess indicative of wider
market conditions in German hospitals and that is, have you seen any new
negotiations starting with the public sector in the past three months? Or is
this a continuation of prior discussions as relating to
privatizations?
Mark
Schneider
- Fresenius SE -
Chairman, CEO
I
think there have been a few deals announced and a few new ones being kicked off.
But the overall level of deal-making activity remains quite low. And so I would
not expect any game-changing transactions to happen later this year. Frankly,
for us, given that we can really focus on this massive integration job as
Createl and really to do a model job in this.
This
might just be as well, so we're concentrating on that delivering good results
for you. And then as and when the next round of more significant privatization
happens, which is inevitable, then we'll be ready and we'll be in fighting
shape.
Martin
Whitbread
- Morgan Stanley -
Analyst
Okay
many thanks.
Birgit
Grund
- Fresenius SE -
IR
Marion,
we have time for one more question.
Operator
Now
we'll take our last question from Mishi Yana from ECM.
Mishi
Yana
- ECM -
Analyst
Hi.
Sorry to come to back to the APP financing again, but the last time I checked I
recall that APP had bank facilities probably around $1 billion, thereabout. Am I
correct to understand this is not included in the US$2.4 billion syndicate? So
that's to say if you were to replace that's a separate negotiation you need to
do?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
No
you're not correct and, as I said earlier, we're using the US$2.4 billion that
we're raising now also to refinance APP's existing debt.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
Mishi
Yana
- ECM -
Analyst
So
actually what I really want to find out is, is there going to be a borrowing at
the APP level? Or is everything going to be migrated at the SE
level?
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Part
of the overall syndicated facility is also going to be drawn at the APP
level.
Mishi
Yana
- ECM -
Analyst
All
right. Okay thank you very much.
Birgit
Grund
- Fresenius SE -
IR
Okay.
Mark
Schneider
- Fresenius SE -
Chairman, CEO
And
with that I think we're concluding today's call. Obviously a lot of interest in
the financing of APP, which is understandable. I hope we were able to give some
clarity on that and especially, as Stephan said, that from day one we've had a
very well rounded and thought out plan behind that.
Let
me also reiterate, as you see from this quarterly update and the first half
update, the company is in fine shape to take on such a real big project. So this
is very comforting to us because it gives us the time and the concentration
required to focus on pulling off this transaction and doing a very good
integration job for the business. So I think this is probably one of the best
moments in time we probably could have undertaken that.
With
that let me hand it over to Birgit to close out the call and we'll see you at
Q3.
Birgit
Grund
- Fresenius SE -
IR
Okay
thanks for joining our conference call today. We appreciate your time and your
questions and goodbye.
Stephan
Sturm
- Fresenius SE - CFO,
Labor Relations Director
Thank
you.
Operator
We
want to thank Fresenius and all the participants for taking part on this call.
Thank you, goodbye.
Final
Transcript
Jul.
30. 2008 / 2:00PM CET, FSNPF.PK - Q2 2008 FRESENIUS SE Earnings Conference
Call
|
DISCLAIMER
Thomson
Financial reserves the right to make changes to documents, content, or
other information on this web site without obligation to notify any person
of such changes.
In
the conference calls upon which Event Transcripts are based, companies may
make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may
differ materially from those stated in any forward-looking statement based
on a number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the
companies mayindicate and believe that the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate or incorrect and, therefore, there can be no
assurance that the results contemplated in the forward-looking statements
will be realized.
THE
INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF
THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS,
OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE
CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE
COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY
INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE
INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT
TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
©
2005, Thomson StreetEvents All Rights Reserved.
|
App Pharmaceuticals (MM) (NASDAQ:APPX)
Historical Stock Chart
From Apr 2024 to May 2024
App Pharmaceuticals (MM) (NASDAQ:APPX)
Historical Stock Chart
From May 2023 to May 2024