Nine month report January-September 2001

Nine month report January-September 2001: · Group revenues increased 21% · Operating earnings, EBITDA, up 5% · Cash flow from operations at SEK 138 M (excl. negative currency effect of SEK 819 M) · On track to meet 2001 objectives Jan - Sept Currency SEK M Excluding non-recurring 2001 2000 Change Adjusted items Revenues 19,544 16,102 +21% +9% Operating earnings before 3,191 3,044 +5% -6% depr. (EBITDA) EBITDA margin 16.3% 18.9% Earnings per share (EPS) 0.45 0.78 -42% SEK Earnings per share (EPS) SEK -1.19 3.66 n.a including non-recurring items Cash earnings per share 6.35 5.85 +9% (CEPS) SEK July - Sept Currency 2001 2000 Change Adjusted Revenues 6,745 5,588 +21% +8% Operating earnings before 1,070 985 +9% -3% depr. (EBITDA) EBITDA margin 15.9% 17.6% Third quarter business highlights: · Gambro Healthcare US focus on performance improvement and organic growth continues to pay off. · Implementation of New Order Entry System in US laboratory completed. · New and updated hemodialysis and peritoneal dialysis products launched. · Major expansion of production capacity for synthetic dialyzers and dry concentrates. · Strategic partnerships for Gambro's Pathogen Eradication Technology (PET) as well as for Gambro's Therapeutics unit. · Broad US patent approvals for Gambro's PET process. · Agreement with Dendreon to commercialize cancer vaccine therapy. Important move in cell based therapies that leverages the Group's core capabilities and competencies (after period). Key data (excluding non-recurring items) July - Sept Jan - Sept Oct Full 2000 year SEK M 2001 2000 2001 2000 - Sept 2000 2001 Revenues 6,745 5,588 19,544 16,102 25,687 22,24 5 Operating earnings before 1,070 985 3,191 3,044 4,117 3,969 depr. (EBITDA) % 15.9 17.6 16.3 18.9 16.0 17.8 Operating earnings (EBIT) 350 363 1,159 1,297 1,431 1,569 % 5.2 6.5 5.9 8.1 5.9 7.1 Earnings before tax (EBT) 139 172 610 853 740 983 Earnings per share (EPS) 0 0.06 0.45 0.78 0.63 0.96 SEK 1) Earnings per share (EPS) SEK 1) 0 0.06 -1.19 3.66 -2.00 2.85 including non-recurring items Cash earnings per share 2.09 1.87 6.35 5.85 8.42 7.92 (CEPS) SEK 2) Cash flow from operations 49 -29 -681 516 -94 1,103 3) Cash flow from operations 0.09 -0.08 -2.03 1.50 -0.33 3.20 per share 3) Net debt 9,918 7,332 9,918 7,332 9,918 7,275 1) After full tax 2) Net income plus depreciation and amortization divided by number of shares 3) Cash flow before acquisitions and taxes NINE MONTH REPORT JANUARY-SEPTEMBER 2001 In total, for the first nine months 2001 revenues were SEK 19,544 M (16,102) including a revenue growth of 21% (9%*). Group revenues developed positively on main markets in Europe, the Americas and on prioritized markets in the rest of the world. Revenues for Gambro Healthcare were up 27% (12%*). Gambro Renal Products had a good sales development with revenues growing by 15% (6%*) with a continued good development in Europe, good growth in prioritized areas in the rest of the world as well as continuously increasing internal sales. For Gambro BCT, revenues increased by 22% (9%*). Operating earnings, EBITDA, increased by 5% to SEK 3,191 M (2,264 M incl. non-recurring items). Operating margin (EBITDA) for the Group was 16.3% (11.6% incl. non-recurring items). Earnings, margins as well as revenues have been negatively affected by the changed laboratory revenue recognition methodology (see section "Other"). Also currency effects and the increased R&D investments in the PET project (Pathogen Eradication Technology) negatively affected the operating margin. THIRD QUARTER 2001 For the Group, the third quarter 2001 revenues were SEK 6,745 M (5,588) representing a growth of 21% (8%*). Overall Group revenues developed positively on main markets in Europe and the US as well as on prioritized markets in the rest of the world. For Gambro Healthcare revenues grew by 25% (11%*) including a good growth in the US and the rest of the world. For Gambro Renal Products, revenues increased by 15% (5%*). New production plants for dry concentrates and synthetic dialyzers were opened. The expansions enable the company to double its production of dry concentrates and increase dialyzer production by 5 million annually. New or updated products such as the PD cycler Serena and the BiCart SelectBag with glucose were launched. For Gambro BCT, revenues increased by 20% (8%*) thanks to good overall market development. Blood bank product offering broadened by acquisition of assets owned by Sanguistech. Pathogen Eradication Technology (PET) process received broad US patent approvals. The company entered into a strategic partnership with Sangart, including license for Sangart to utilize Gambro's PET technology. Gambro BCT reached exclusive distribution agreement with BioTransplant for Eligix product line. Operating margin, EBITDA, for the Group was 15.9%, and was negatively affected by the changed revenue recognition methodology for laboratory by approximately 1 percentage point (see section "Other") as well as legal and administrative expenses of SEK 27 M related to the subpoena received in June by Gambro Healthcare US (see section "Other"). The products businesses, Gambro Renal Products and Gambro BCT, continue to show a good performance with an operating margin (EBITDA) of 19.1% including ambitious R&D investments in the PET project. In the clinics business, Gambro Healthcare, the EBITDA margin was 14.3%, also affected by the changed revenue recognition methodology. Based on prior methodology the margin would have been approximately 1.7 percentage points higher. *) currency adjusted BUSINESS AREAS Gambro Healthcare Jan-Sept Currency SEK M 2001 2000 Nominal adjusted Revenues 11,835 9,325 +27% +12% US 10,622 8,402 +26% +11% International (non-US) 1,213 922 +32% +20% Operating earnings before 1,671 1,608 +4% -9% depr. (EBITDA) EBITDA margin 14.1% 17.2% July-Sept Currency 2001 2000 Nominal adjusted Revenues 4,146 3,313 +25% +11% US 3,713 2,973 +25% +10% International (non-US) 433 340 +27% +14% Operating earnings before 595 543 +10% -3% depr. (EBITDA) EBITDA margin 14.3% 16.4% For the first nine months of 2001 revenues amounted to SEK 11,835 M (9,325), which represents a growth of 27% (12% currency adjusted). The third quarter included a revenue growth of 25% (11% currency adjusted) and revenues rose to SEK 4,146 M (3,313). The treatment volume rose 10% (8% in the third quarter). 2001 2000 2001 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Number of treatments in Consolidated clinics (thousand) US 1,500 1,497 1,426 1,437 1,408 1,372 1,348 Rest of the World 307 290 260 261 260 216 198 Total 1,807 1,787 1,686 1,698 1,668 1,588 1,546 Revenue per treatment US (in USD) 234 233 239 229 226 227 230 September 30 Dec 31 2001 2000 2000 Number of clinics US 531 503 508 Rest of the World 141 122 128 Total 672 625 636 Number of patients US 39,800 37,750 38,330 Rest of the World 10,500 9,280 9,240 Total 50,300 47,030 47,570 At September 30 Gambro operated 672 clinics, serving 50,300 patients. 4 clinics were closed/divested during the quarter (15 year-to-date), 2 were acquired (36 year-to-date) and 6 de novo clinics opened (15 year-to- date). PATIENT OUTCOMES Jan-June 2001* United States Demographics of patients (averages) Age (year) 60 Time on dialysis (year) 2.6 Weight (kg) 76 Prevalence of diabetes 32% Outcomes Kt/V (average) 1.51 Kt/V 1.3 80% Hemoglobin 11g/dl 74% Albumin 35 g/l 77% * Latest period for which information is available. Gambro Healthcare US Gambro Healthcare US had a good revenue growth of 26% (11% currency adjusted). In the third quarter revenues grew by 25% (10% currency adjusted). Excluding laboratory operations for the nine months ended, revenue per treatment development in the US was good during the period, primarily due to improved mix of treatments (acute, peritoneal dialysis and hemodialysis), and a raise in the composite reimbursement. Labor costs per treatment remained at a stable level, but were 11% higher than third quarter last year. The general shortage of care personnel will remain. On the whole the Gambro Healthcare US performance improvement program initiated late last year has progressed according to plan. The new, decentralized organization is operating in a more efficient, reliable, quality and cost conscious way. As a result, continued improvements during the third quarter have, to a considerable degree, offset the reduced revenue and profitability contributions from the laboratory operations. During the first six months 27 important clinics acquisitions were made in the US (no additional acquisitions were made during the third quarter). The assets of the dialysis center owned by Muhlenberg Regional Medical Center in the state of New Jersey were acquired. The dialysis center provides hemodialysis and peritoneal dialysis treatments to about 150 patients. Gambro Healthcare will also provide acute renal treatments. Furthermore, substantially all of the dialysis-related assets owned by Renal Management, Inc. (RMI) were acquired. This includes 21 clinics that serve 950 patients in Louisiana, Nebraska, Iowa, Missouri and Kansas. It also includes assignment to contracts to provide acute dialysis. In June the dialysis related assets of Dialysis Service Group, Savannah, Georgia were acquired. This includes five clinics that serve 260 patients. In the US 13 de novo clinics were established during the period and 15 clinics with about 970 patients were sold or closed. The treatment volume rose 7% in the third quarter as well as year-to-date. Same store treatment growth reached 6% in the third quarter as well as year-to-date. Late June it was decided to make a provision of USD 85 M (SEK 927 M) for unbilled receivables for laboratory services in the US including USD 12 M of revenues recognized in the first quarter 2001. During the third quarter the implementation of a new order entry system that ensures that only laboratory tests meeting the most rigorous interpretation of standards for the underlying documentation would be billed was successfully completed. Effective April 1, 2001, Gambro changed its laboratory revenue recognition methodology so that it will only record tests that have been billed, rather than recording revenue when tests have been performed. Presently it results in lower revenues than historical levels. With the new methodology applied, revenues for the third quarter and year-to-date 2001 were about USD 8 M and USD 18 M respectively lower for the business area Gambro Healthcare and the corresponding operating (EBITDA) margin was about 1.7 and 1.3 percentage points lower for the quarter and year- to-date respectively. Gambro believes it will see reduced levels of reve nues and margin from the laboratory operations until the latter part of 2002 compared to historical performance, however, with a gradual improved performance over time. In April 2001 the US Department of Justice notified Gambro Healthcare US Laboratory Division that it was conducting an investigation into its laboratory Medicare billing practices for claims submitted after January 1, 2000. Gambro Healthcare International (non-US) Gambro Healthcare outside the US grew by 32% (20% currency adjusted). In the third quarter revenues grew by 27% (14% currency adjusted). The operations reported a somewhat lower financial performance level than previous quarter. Among other things this is due to the uncertain economic climate in Argentina with reduced public spending and high interest rates. During the first nine months clinics with about 485 patients have been acquired; four clinics with about 180 patients in Uruguay, two clinics with about 50 patients in France, two clinics with about 120 patients in Spain and one clinic with about 135 patients in Portugal. Two de novo clinics were established during the period. Gambro Renal Products and Gambro BCT Jan-Sept Change SEK M 2001 2000 Nomina Currency l adj. adjusted Revenues Gambro Renal Products 7,090 6,181 +15% +6% (GRP) Gambro BCT (BCT) 1,354 1,113 +22% +9% Total GRP + BCT 8,444 7,294 +16% +7% EBITDA* GRP + BCT 1,715 1,437 +19% +9% EBITDA margin GRP + BCT 20.3% 19.7% July-Sept Change 2001 2000 Nomina Currency l adj. adjusted Revenues Gambro Renal Products 2,383 2,076 +15% +5% (GRP) Gambro BCT (BCT) 464 388 +20% +8% Total GRP + BCT 2,847 2,464 +16% +5% EBITDA* GRP + BCT 545 468 +16% +5% EBITDA margin GRP + BCT 19.1% 19.0% * Operating earnings before depreciation and amortizations Gambro Renal Products For the first nine months 2001 revenues amounted to SEK 7,090 M (6,181), which represents a growth of 15% (6% currency adjusted). Revenues for the third quarter 2001 increased by 15% (5% currency adjusted) to SEK 2,383 M (2,076). Sales and deliveries have been somewhat lower than previous quarter, mainly due to temporary limitations in production capacity for certain products. Good sales growth are reported especially from the US, Canada and Korea as well as from markets in the Middle East and Eastern Europe. Internal sales continued to grow and were up by 16% (26% year-to-date) currency adjusted. The intense activities in developing and launching new products have continued. The new machine for hemodialysis, Phoenix, is launched in full in Europe and Canada and the launch in the US started during the third quarter. Also the new peritoneal dialysis cycler, Serena, is in market trials. It can be used on all automated therapies and includes a unique technology of the flow control chamber that facilitates a fast, safe and smooth flow. The new advanced versions of the AK series of hemodialysis machines are also introduced on a broader scale. Hospal is introducing a new, advanced dialyzer family, AN69ST, based on a bioactive membrane. Sales and demand for dialyzers continue to be very strong. This is supported by the increased manufacturing capacity for Polyflux dialyzers in Hechingen, adding capacity for 5 million dialyzers annually. A new plant became operational at the end of the period. In addition, pro duction capacity expansion at the sites in Hechingen, Germany and Meyzieu, France, adding close to 8 million dialyzers annually, will be operational in 2003. These expansions are proceeding according to plan. Also in other major product areas demand is increasing and new capacity is added. In the dialysis solutions division capacity for dry concentrates, including the bicarbonate cartridges (BiCart), was doubled in August, when a major new production unit was opened in Lund, Sweden. A decision to increase production of sterile solutions in Europe as well as the US was taken in third quarter. The building of a new plant in Hechingen, Germany, for production of catheters was initiated during the quarter. The new plant will triple production capacity and will become operational in second quarter 2002. Marketing and sales efforts will continue to be focused on strengthening the position on the main markets in Europe, Asia and the Americas combined with increasing efforts on new markets, mainly in Asia and Latin America. These efforts will leverage on the strong portfolio of newly launched products and new products in the pipeline. The efforts will also be supported by the substantial new production capacity, which will come on stream this and the next few years. Gambro BCT For the first nine months of 2001 revenues amounted to SEK 1,354 M (1,113), which represents a growth of 22% (9% currency adjusted). Revenues for the third quarter increased by 20% (8% currency adjusted) to SEK 464 M (388). The US market, which represents over 60% of sales, grew 9% (currency adjusted) in the quarter as well as year-to-date. Sales in the European market for the quarter developed well, with good growth in the major markets of UK and Spain. The Americas (excluding the US) and Asia world area continued double-digit growth, currency adjusted, for the third quarter. Blood Banking Technology Gambro BCT continues development of its leadership position in the blood banking technology market, through automated blood collection, leukoreduction and development of pathogen eradication technology. More than 750 Trima systems operate in more than 350 blood centers in 37 countries throughout the world. Market expansion includes the approval of the Trima system by the Japanese Red Cross and successful introduction of Trima in Korea this year. The Spectra system continues to be a leader in automated platelet collection. During the third quarter, Gambro acquired the assets of SAAB Technologies' subsidiary Sanguistech AB. Both Sanguistech's products and patent estate will enable Gambro BCT to expand its participation in blood banking technology beyond Automated Blood Collection. Sanguistech's OrbiSac System automates the separation of manual whole blood collections in the blood center laboratory. Currently 3 sites in Europe are using the OrbiSac System to separate buffy coat platelets. Future product development to leukoreduce and separate red blood cells, plasma and platelets from manual whole blood collections is being explored. Therapeutic Specialties Gambro BCT, with the Spectra system, is the worldwide leader in cell separation and collection technologies that help clinicians deliver therapies requiring plasma separation and the collection of white blood cells (adult stem cells). Earlier this year Gambro BCT established a new business unit to specifically focus on new areas of cell based immuno therapies. Its mission is to deliver a broad range of cellular and plasma therapies and support for the treatment of cancer, congenital and immune disorders, through innovation in cell collections, ex vivo cell manipulation and graft engineering. In July Gambro BCT extended its participation in the therapeutics marketplace by entering into an exclusive distribution agreement with BioTransplant for the distribution of the Eligix Cell Separation product line. The Eligix products are designed to remove unwanted cells in cancer therapies thereby improving clinical outcomes for patients. The territory will be worldwide, exclusive of the US, Canada and Japan. Sales of the Eligix product line will begin in Europe in the fourth quarter 2001. Pathogen Eradication Technology (PET) Overall the PET program is progressing according to plan. The R&D spending during the third quarter was about SEK 40 M (15), year-to-date SEK 99 M (22). Pre-clinical work continues to bring us closer to a reliable process for inactivating viruses and bacteria in donated platelet products while maintaining the integrity and therapeutic viability of the platelets. Significant progress has been made in assembling an Investigational Device Exemption in preparation for submission to FDA for permission to conduct a Phase I clinical trial. Slated to commence in the first half of 2002, this will be the first human PET trial. Phase I is the first clinical step toward submission of a pre market approval for the PET platelet process to the US FDA. The global market size for pathogen inactivation of platelets, plasma, and red cells is estimated to exceed USD 3 billion. In August Gambro BCT was awarded an additional US patent for derivatives of riboflavin for inactivation of pathogens in blood components, bringing the total to three patent issuances involving the use of riboflavin. Additional applications are pending. Gambro BCT entered into a strategic partnership with Sangart, Inc., which involves a license for Sangart to utilize Gambro BCT's PET technology for inactivation of viruses in its production of hemoglobin- based products from human red blood cells. In addition to the license, Gambro BCT will supply disposables for the PET process to Sangart. The scope of investigation into PET efficacy for pathogen inactivation has been expanded to include blood-borne parasites. Preliminary results from our cooperative research and development agreement with Walter Reed Army Institute of Research have demonstrated promising results toward the effectiveness of the PET process in neutralizing malaria-infected red blood cells that warrant progressing to additional studies. Malaria is a leading parasite killer in many developing countries. INVESTMENTS Group investments during the period amounted to SEK 1,770 M (1,184). Included is SEK 141 M of development costs capitalized (see also "Other"). Third quarter investments amounted to SEK 513 M (514), including development costs capitalized amounting to SEK 44 M and technology investments in Sanguistech and Eligix. ACQUISITIONS AND DIVESTITURES Group acquisitions during the period amounted to SEK 1,415 M (1,034), third quarter acquisitions amounted to SEK 106 M (215), including technology investments in Sangart (SEK 34 M). Divestitures amounted to SEK 58 M during the third quarter. FINANCIAL POSITION Net debt (loans and accruals for pension less cash and short-term investments) amounted to SEK 9,918 M at the close of the period, which represents an increase of SEK 2,643 M for the period. The increase is explained by cash flow from operations SEK 138 M, acquisitions SEK - 1,415 M, taxes paid SEK -20 M, dividend paid SEK -379 M, divestitures SEK 218 M, currency effects SEK -726 M and other SEK -459 M. Net debt during the third quarter was reduced by SEK 12 M. Average net debt during the period amounted to some SEK 9,000 M, resulting in an average interest rate of approximately 7.4% (adjusted for interest not attributable to items in the net debt). The economic situation in Argentina had a significant adverse effect on the interest net in the third quarter. The incremental impact was approximately SEK - 28 M. The average interest rate on Gambro's loans in Argentina exceeded 36% at September 30. The equity/assets ratio at the close of the period was 57%. PERSONNEL The total number of employees in the Gambro group increased by 1,353 during the period, mainly due to acquisition of clinics. By the end of the period the total number of employees was 19,647. OTHER Since January 1, 2001 the Gambro group applies all recommendations by the Swedish Financial Accounting Standards Council. January 1, 2001 twelve new recommendations were introduced, five of which will not be mandatory until January 1, 2002. The introduction of the new recommendations has had a positive effect on the earnings of SEK 141 M (see "Investments"). Effective April 1, 2001 Gambro has changed its laboratory revenue recognition methodology so that it will only record tests that have been billed, rather than recording revenue when tests have been performed. With the new methodology applied, revenues for the third quarter 2001 were about SEK 82 M lower (about SEK 182 M year-to-date). On June 18 Gambro Healthcare US received a subpoena from the United States Department of Justice requesting information concerning its business activities and operations as part of an investigation by the US Attorney's office in St. Louis, Missouri. Gambro Healthcare, Inc. intends to respond appropriately to the request for information as required by the Department of Justice. Gambro has met with the government and started to gather documentation. Gambro believes the investigation is focused principally on Medicare and Medicaid billing practices and relationships with physicians and pharmaceutical manufacturers. The contingent liabilities and contingent assets of the Group have not changed significantly since year-end. PARENT COMPANY The revenues of the parent company were SEK 55 M, earnings before appropriations and tax amounted to SEK 3,371 M and net income SEK 3,640 M. Liquid funds amounted to SEK 39 M. AFTER THE CLOSING OF THE PERIOD In October Gambro entered into an agreement with Dendreon Corporation to commercialize Dendreon's cancer vaccine therapy. Stockholm, October 25, 2001 Sören Mellstig President and CEO This report has not been subject to examination by the Company's auditors. For further information please contact: Lars Granlöf, Senior Vice President, CFO, tel. +46-8-613 65 00, +46-70- 513 65 48 Karin Avasalu, Vice President, Corporate Communications, tel. +46 8 613 65 00, +46-70-513 65 99 Pia Irell, Director, Investor Relations, tel. +46-8-613 65 00, +46-70- 513 65 91 Kevin Smith, President Gambro Inc., Investor Relations US, tel. +1-303 231 4750 Gambro's financial information is also available on the Internet: www.gambro.com Coming reports and events: Year-end report 2001:February 13, 2002 Annual General Meeting:March 25, 2002 Three-month report:April 25, 2002 Six-month report:July 25, 2002 Nine-month report:October 24, 2002 Year-end report 2002:February 13, 2003 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/25/20011025BIT00390/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/10/25/20011025BIT00390/bit0002.pdf The full report