Fresenius Helios
In recent years Fresenius Helios has become a respected privatization partner in the
German hospital market. We have successfully continued our growth strategy with
further hospital acquisitions. In 2007, Fresenius Helios achieved sales of € 1.8 billion
and improved its earnings and operating margin substantially.
Fresenius Helios operates 60 clinics of its own with around 17,200 beds, including five maximum care clinics in Berlin-Buch, Erfurt, Krefeld, Schwerin and Wuppertal. The HELIOS Group also includes postacute care clinics. At the end of 2007, the company had more than 30,000 employees.
BUSINESS DEVELOPMENT
In 2007, Fresenius Helios increased sales by 10% to € 1,841 million (2006: € 1,673 million). Very good organic sales growth of 3% was achieved. The increased number of inpatient and outpatient admissions had a positive impact on organic growth. Acquisitions contributed 9% to sales growth. Divestitures had an effect of -2%. Fresenius Helios grew earnings substantially and improved its profitability: EBITDA increased 16% to € 220 million (2006: € 189 million). The EBITDA margin rose to 12.0% (2006: 11.3%). Fresenius Helios achieved an EBIT growth of 17% to € 155 million (2006: € 133 million). This corresponds to an EBIT margin of 8.4% (2006: 7.9%). We achieved this excellent result despite a number of negative factors: the increase in value-added tax, salary increases, and the 0.5% budget cut for the stabilization of public health costs all affected earnings. Net income rose 8% to € 64 million (2006: € 59 million).
| in million € |
2007 | 2006 | Change |
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| Sales | 1,841 | 1,673 | 10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 220 | 189 | 16% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA margin | 12.0% | 11.3% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBIT | 155 | 133 | 17% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBIT margin | 8.4% | 7.9% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income |
64 | 59 | 8% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GROWTH IN HOSPITAL ADMISSIONS AND TREATMENTS
With the introduction of Diagnosis Related Groups (DRGs), with standardized base rates in each federal state, hospitals in Germany face increasing competition for patients. The HELIOS clinics successfully adjusted to the changed reimbursement and competitive conditions. We were once again able to increase the number of inpatients we treated in Germany. These rose in 2007 to a total of 476,477, an excellent growth of 11% (2006: 428,360). Organic growth of hospital admissions, i.e. without the newly acquired clinics, was 3%.
| 2007 | 2006 | Change |
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| Inpatient admissions | 476,477 | 428,360 | 11% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acute care clinics | 442,383 | 396,301 | 12% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Postacute care clinics | 34,094 | 32,059 | 6% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Outpatient admissions | 1,127,613 | n. a. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other performance indicators also improved over the year:
| 2007 | 2006 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acute care clinics | 40 | 34 | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beds | 13,333 | 11,713 | 14% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Length of stay (days)* | 7.1 | 7.3 | -3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Postacute care clinics | 20 | 21 | -5% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beds | 3,859 | 3,972 | -3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Length of stay (days)* | 31.9 | 32.9 | -3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy postacute care clinics* |
82% | 78% | 5% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| * Germany only | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At the acute care hospitals the average length of stay was 7.1 days (2006: 7.3 days). Occupancy at the postacute care clinics was 82% (2006: 78%).
INVESTMENTS IN HOSPITAL BUILDINGS
In 2007, Fresenius Helios invested € 401 million in structural improvements and renovation at its clinics (2006: € 263 million). The large increase in own investments to € 149 million (2006: € 100 million) is mainly due to the construction of the new Berlin-Buch hospital. In this project alone a total of about € 200 million of our own funds was invested, € 75 million in 2007. HELIOS has thereby fully met its contractual obligation to the State of Berlin to construct a new building by 2008. Moreover, these investments insure the high standard of medical quality long term and enhance the clinic’s profitability. The Berlin-Buch hospital treats about 37,000 inpatients each year; the outpatient department treats about 150,000 patients.
| in million € |
2007 | 2006 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments | 401 | 263 | 52% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Own investments in property, plant and equipment |
149 | 100 | 49% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subsidies* | 78 | 50 | 56% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | 174 | 114 | 53% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| *Total of purpose-related public investment subsidies according to section 9 of the Hospital Funding Act (Krankenhausfinanzierungsgesetz). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GROUP WAGE TARIFF AGREEMENT CONCLUDED
In January 2007, HELIOS was the first private hospital group to conclude a group wage tariff agreement, valid throughout Germany, with the trade union ver.di. The agreement with ver.di means that the compensation of doctors is regulated on a standard basis regardless of trade union affiliation. A group wage tariff agreement for doctors was previously concluded with the Marburger Bund in December 2006. The group wage tariff agreements apply initially to 14,000 employees but will be rolled out successively to all acute clinics. Working conditions and compensation for employees at the postacute care clinics are regulated in a separate group wage tariff agreement, adapted to the specific requirements in postacute care. Negotiations on this agreement began in 2007 and are being continued in 2008.
FURTHER EXPANSION IN THE HOSPITAL MARKET
HELIOS’ business model is based on growth through acquisitions. One element in the acquisition strategy is regional proximity of the hospitals – sufficiently close to one another to form networks (clusters). Regional clustering enables cost-saving potential to be tapped, especially by concentrating non-medical services (for example, laundry or catering) in one hospital. Our focus is on high standards of medical quality and patient care. In the postacquisition phase, the reorganization of processes and the implementation of HELIOS’ proven quality management system lead to a focused, profitability- oriented management of the hospital. The aim is to increase a hospital’s EBITDA margin to 15% within five years of its first-time consolidation.
In 2007, HELIOS continued to expand successfully in the
German hospital market. With the acquisition of 74.9% of
the Krefeld Municipal Hospitals we are integrating the fifth
maximum care hospital into the group starting in 2008.
Together, the two clinics have 1,205 beds and treated about 40,000 patients in 2006.
| 2006 Sales | Beds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Überlingen Hospital, Lake Constance |
~ € 22 million | 191 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| St. Elisabeth Hospital, Oberhausen |
~ € 20 million | 203 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lengerich Hospital | ~ € 12 million | 130 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Krefeld Clinic/ Cäcilien Hospital Hüls |
~ € 175 million | 1,205 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
With 3,300 employees, the two clinics achieved sales of around € 175 million in 2006. First consolidation in the Fresenius Group’s balance sheet was on December 31, 2007.
In addition, HELIOS acquired another three hospitals in Germany: the Überlingen Hospital on Lake Constance, the St. Elisabeth Hospital in Oberhausen and the Lengerich Hospital. These hospitals achieved sales of € 54 million in 2006. Together, they have more than 520 beds.
In the German hospital market, the privatization of hospitals owned by the public sector or independent nonprofit organizations slightly slowed down in 2007. The improved macroeconomic climate in Germany helped in some cases to ease the pressure on municipal government and local authority budgets to some extent. This short-term relief, however, circumvents the still urgent need for new investment in public hospitals and ignores their continued poor economic situation. Experts expect the privatization of hospitals in Germany to pick up again in 2008. As an experienced partner in the German hospital market, HELIOS is excellently positioned for making further acquisitions.
GOAL: BEST-IN-CLASS MEDICAL RESULTS
In 2007, HELIOS continued with its successful program for improving the quality of its medical results. A unique quality management system, developed in-house, assures continuous improvement in the standards of patient care. For more information on quality management, please see the Management Report.
HELIOS has been working with the National AOK Association, the AOK research institute (Wldo) and the State of Sachsen-Anhalt Welfare and Health Department (FEISA) research institute to develop a methodology for quality measurement, building on HELIOS processes, that would also be suitable for health insurers. Since health insurers have very extensive databases containing considerable data on long-term medical histories, this prospect opens up much wider-reaching possibilities for quality measurement than can be obtained from the hospitals. Using the data available to the public health insurers, the methodology can examine the long-term results of inpatient care far beyond the individual hospital stay. The project partners completed the necessary technical developments at the beginning of 2007. It is expected that in the first half of 2008 the National AOK Association will introduce reports based on this method that will be made available to all hospitals.
We are therefore not only meeting the challenge of quality competition but also exposing ourselves to external scrutiny by the health insurers. This places high demands on our employees, but, in an increasingly competitive environment, will assure the long-term viability of our clinics.
Obviously, continuous quality improvement at HELIOS also requires an optimal cost-effective organization of the processes and the treatment procedures at our clinics. In 2008, we will continue to work toward our goal of achieving levels of treatment quality in all major areas that are higher than the German average and even generally accepted international standards.
For information on advances achieved in the treatment of stroke patients please see Progress at Fresenius Helios of this Annual Report.
You will find more information on the German hospital market in the Management Report and in the Outlook section of the Management Report.