Fresenius SE&Co. KGaA

Overview Key strengths Key risks Leading market positions within the Spanish and German private hospital segments through Helios, and intravenous (IV) generics and clinical nutrition products through Kabi. Lower business diversity after the deconsolidation of dialysis business FMC, with some lasting uncertainty on divestures within the business. Presence across the entire patient care continuum--through hospitals, medications, and medical devices--with good geographic diversity and organic growth prospects. High operational leverage and ongoing investment to sustainably improve profitability, currently burdened by high inflationary pressure and lasting effects from the COVID-19 pandemic. Track record of positive free operating cash flow (FOCF) supporting debt reduction prospects, with a well-established financial policy target of net debt leverage that supports an investment-grade rating. Sizable and highly

...The negative outlook reflects Fresenius SE & Co. KGaA's (FSE's) weak credit metrics, and our expectation of gradual recovery by the end of 2024, assuming some pressures start to abate. In the financial year (FY) 2022, we estimate FSE's S&P Global Ratings' adjusted debt to EBITDA stood at about 4.5x, with cash funds from operations (FFO) of around 16% (excluding FMC, which is expected to be deconsolidated from the group by the end of 2023). These metrics are slightly weaker than our preliminary estimates of 4.2x and about 19%, respectively, and are weak for the current ratings. This was notably due to severe cost inflationary pressures, particularly weighing on Kabi and Vamed, and an acceleration in investment under the company's cost savings program, which launched in early 2021. As a result, we estimate that adjusted EBITDA margins fell toward 14.8% (from estimated 16.5% in 2021). At Kabi the company also saw organic revenue decline (of 3% in 2022) for a second consecutive year in its...

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