Three month report January-March 2001: Good growth and improved margins

Three month report January-March 2001: Good growth and improved margins Total revenues increased by 21% (10%*) to SEK 6,180 M. Operating earnings, EBITDA, amounted to SEK 1,046 M corresponding to a margin of 16.9%. Earnings per share increased by 14% to SEK 0.32 and cash earnings per share rose by 13% to SEK 2.14. The good Group revenue increase includes a well balanced growth with each of the three business areas showing a good, mainly organic, growth in the 9-11% range. Gambro Healthcare expanded in Europe and US and had a revenue growth of 25% (11%*) with slightly improved margins. Change program runs according to plan. Important US clinics acquisitions (after the period) adds 22 clinics with 1,100 patients. Gambro Renal Products showed a continued good revenue growth of 16% (9%*) including good sales in both Europe and RoW. New product launches and investments in extended production capacity. Gambro BCT had a strengthened sales momentum achieving a revenue growth of 20% (9%*). Products business areas showed a significant margin improvement with an operating earnings margin, EBITDA, of 21% (preceding quarter 16%). Continued good progress for the Pathogen Eradication Technology (PET) project, supported by accelerated R&D program of SEK 28 M (1). *) currency adjusted For further information please contact: Lars Granlöf, Senior Vice President, CFO, +46-8-613 65 00, +46-70-513 65 48 Bengt Modéer, Senior Vice President, Investor Relations, tel. +46-8-613 65 00, +46-70-513 65 33 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 THREE MONTH REPORT JANUARY-MARCH 2001 For the Group, the first quarter 2001 revenues were SEK 6,180 M (5,114) representing a growth of 21% (10%*). The revenue growth was almost entirely organic with few acquisitions and includes a well balanced business area growth with each of the three business areas showing a good growth. For Gambro Healthcare revenues increased by 25% (11%*) including a good growth in Europe and the US. In Gambro Renal Products the strong sales momentum established during year 2000 has continued, resulting in a revenue growth of 16% (9%*) with growth both in Europe and RoW. Capacity expansion has continued as has efforts to launch new products. Gambro BCT revenues increased by 20% (9%*) thanks to a good overall market development. The Pathogen Eradication Technology project had a continued good development accompanied by increased R&D investments. Overall Group revenues developed positively on main markets in Europe and the US as well as on markets in Asia including Japan. Operating margin, EBITDA, for the Group was 16.9% compared to 15.1% the preceding quarter. This includes a significant margin improvement for the products businesses, Gambro Renal Products and Gambro BCT, where the EBITDA margin was 20.7% vs 16.1% the preceding quarter. Excluding the R&D investments in the PET project the margin was 21.8%. In the clinics business, Gambro Healthcare, the EBITDA margin was 14.6%, which repre sents a slight improvement compared to the previous quarter (14.1%). This is thanks to initial impact of the ongoing change program. *) currency adjusted Key data, present structure (excluding non-recurring items) Jan - April Jan - March 2000 - Dec SEK M 2001 2000 March 2000 2001 Revenues 6,180 5,114 23,311 22,24 5 Operating earnings b. depreciation 1,046 985 4,030 3,969 (EBITDA) % 16.9 19.3 17.3 17.8 Operating earnings (EBIT) 420 432 1,557 1,569 % 6.8 8.4 6.7 7.1 Earnings before tax (EBT) 263 321 925 983 Earnings per share (EPS) SEK 1) 0.32 0.28 1.00 0.96 Earnings per share (EPS) SEK 1) including non-recurring items 0.32 0.28 2.89 2.85 Cash earnings per share (CEPS) SEK 2) 2.14 1.89 8.17 7.92 Cash flow from operations 3) -430 461 212 1,103 Net debt 8,443 5,169 8,443 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 BUSINESS AREAS Gambro Healthcare The first quarter 2001 included a revenue growth of 25% (11% currency adjusted) with revenues reaching SEK 3,692 M (2,948). The clinics business outside the US, the international operations, expanded by 23% thanks to a good underlying growth and some clinics acquisitions. In total the international clinics operations continued to show a good financial performance. The US operations had a good revenue growth exceeding 10% thanks to a good non-acquired growth. No clinics acquisitions were made. At the close of the period the total number of patients treated worldwide in 653 clinics owned, operated or managed by Gambro was about 48,800. In the US Gambro owns, operates or manages 526 clinics with 39,500 patients. The total number of treatments given to patients in clinics consolidated by Gambro was 1,686,000. Treatment volumes rose by 9%. The average revenue per treatment in the US increased substantially to USD 239 compared to USD 229 the previous quarter. For Gambro Healthcare focus is on improving performance in the US and continue the market expansion in RoW. Late last year a reorganization was made in the US clinics operations including the strengthening and recruitment of new management. To improve business performance and raise internal process quality, a change program was launched late last year and early this year. During the period priority has been given to the implementation of the change program and reorganization. This includes decentralization moves with more responsibilities and support for the individual clinic. Stronger emphasis is given to the development of personnel and a consistent quality of care. Special focus is set on improving the business performance. During the period revenue per treatment development was strong, pri marily thanks to a favorable ancillary administration and a raise in the composite reimbursement. In addition the mix of treatments, acute, peritoneal dialysis and hemodialysis, has been managed in a more efficient way. Labor costs have remained at a rather high level, partly due to intense training and education in connection with the reorganization activities. The general shortage of care personnel will remain resulting in increased labor costs for the industry in the future. The new organizational structure is now in place and almost all positions are filled. Personnel turnover has been reduced. In the US three de novo clinics were established during the period and seven clinics with about 400 patients were sold or closed. After the period two important clinics acquisitions were made in the US including one clinic in New Jersey with 150 patients and 21 clinics in five states with a total of about 950 patients. The international clinics operations had a continued good development including a revenue growth of 33% (23% currency adjusted). Organic growth was good but was lowered a bit due in part to lack of capacity in some of the fastest growing clinics in Argentina. One clinic in France and one in Spain were acquired with a total of 95 patients. During the first quarter 2001, Jim Booth, an experienced executive in the healthcare service provider segment, was appointed as President of Gambro Laboratory Services (GLS). During this same period, GLS began to implement a new laboratory order processing system. The roll out was started in February and is expected to be completed by the end of the second quarter. The purpose of the system is to ensure accurate communication and documentation of physicians' requests for lab tests. During the implementation period, GLS will continue to record as revenue, the amounts which the current system indicates should be billable. Accounts receivable at March 31, 2001 includes Medicare claims of SEK 690 M (USD 66.3 M), net of reserves. The ultimate collectibility of this amount will be determined only after completion of a com prehensive review of supporting documentation that was commenced during the quarter. By letter dated April 16, 2001, the US Department of Justice notified GLS, that it was conducting an investigation into its Medicare billing practices for claims submitted after January 1, 2000. The Company has contacted the Department of Justice to arrange a meeting and intends to fully cooperate with the investigation. The impact of this investigation on the ultimate ability to collect the amounts referred to above is unknown at this time. Gambro Renal Products Revenues for the Business Area increased by 16% (9% currency adjusted) to SEK 2,283 M (1,976). Sales have continued to develop favorably in Europe and RoW. In Europe especially positive sales development is reported from Italy, Spain and the Benelux. Good sales are also reported from other important markets including the US, Japan and Korea as well as from markets in the Middle East and Eastern Europe. Internal sales, which have grown continuously for ten quarters, grew by 25% currency adjusted. Major product categories, including both equipment and dispos ables, had a continued good sales development. At the end of last year a two year change program was formally finalized. The change effort has increased the competitiveness and strengthened the global leading position of the business area. The program included both efforts to reduce internal complexity and cost levels as well as consolidation and ambitious investments in sales and marketing, new products, production and logistics. Initial impact of the change program was noted during last year with new product launches, improved sales, etc. For Gambro Renal Products focus is on a continued global market expansion, new product launches and new market entries. The overall positive trend established during 2000 has continued. Increased marketing and sales efforts on established and new markets have continued. As a result certain new markets like Mexico, India and countries in Eastern Europe have shown a good sales development. The intense activities in developing new products and launch efforts have continued. The new machine for hemodialysis, Phoenix, will be launched in full during the second quarter this year. Also new versions of the AK series of hemodialysis machines are introduced. Production of dialysis machines was consolidated at the end of the previous year by closure of one site in the US and is now performed in Lund, Sweden and Mirandola, Italy where production has been increased considerably. In the dialyzer field the Polyflux filter technology is the main base for Gambro's continued expansion in synthetic dialyzers. Sales of dialyzers have continued to be very strong. Deliveries of the new FDA approved dialyzer for reuse applications in the US have started. To meet the overall increasing demand for Polyflux dialyzers the output during the last year was increased by about 1.5 million units annually. Substantial new capacity exceeding 5 million units annually will be added with deliveries starting end this year. Furthermore, additional production lines will be added at the sites in Hechingen, Germany and Meyzieu, France. This includes capacity close to 8 million units per year to meet the growing demand worldwide for both the Polyflux and Arylane synthetic dialyzer families. Deliveries will start reaching the market within 24 months. Also in the other major product areas, solutions and bloodlines, demand is increasing and new capacity will be added. In Mirandola, Italy the production of bloodline cassettes is increased. In the solutions division substantial capacity for bicarbonate cartridges (BiCart) will be added during the third quarter this year when a major new production unit in Lund, Sweden will be started. The program for establishing an entirely new European inventory and logistics management system will be concluded during the next quarter. This means that, by the end of the year, the system has been converted from 56 separate small inventories into 6 modern, strategically well positioned logistics centers over a few years. The last and largest logistics center was recently opened in Italy. The efforts to improve the corresponding systems in the Americas and Asia continue. Going forward, 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. Marketing and sales efforts will also 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 Gambro BCT began the year with strong first quarter sales of SEK 422 M (352), an increase of 20% (9% currency adjusted). First quarter revenues were the third highest in BCT history. US sales were strong, continuing the momentum of the last quarter of 2000. Sales increased in the major markets of the UK, Germany, and Canada, and expansion continues in Brazil, Korea, and Eastern Europe. The recent Japanese Red Cross's approval of the Trima Automated Collection System provides a significant opportunity. The Trima system is well suited for the collection requirements of the Japanese platelet market. Gambro BCT sold its 7% ownership position in Aastrom Biosciences, Inc. in March. For Gambro BCT focus is on expanded presence in the blood-banking arena through new products and new markets, expansion in the therapeutic specialty field and continued development of PET. Blood Bank Technology Gambro BCT continues to develop a leadership position within the Blood Banking Technology market through automated blood collection, leukoreduction, and pathogen eradication technology. Blood Bank Technology disposable unit sales volumes grew 10% over Q1 2000. Trima system and disposable revenues showed continued growth in the first quarter. Gambro BCT is selling, validating or awaiting Trima regulatory approval in all major countries. Over 500 Trima systems are collecting valuable blood products around the world, an increase of about 200% in the past 12 months. In the US alone, Trima is now in place in over 60 blood centers. Gambro BCT's exclusive purchasing relationship with the Pall Corporation allows Gambro BCT to offer Pall's advanced leukoreduction filtration technology integrated in the Trima system. Availability of the integrated leukoreduction filtration technology from Pall is imminent. During the quarter, Gambro BCT also entered into a mutual agreement with HemaSure, Inc. that concludes Gambro BCT's relationship as a distributor of HemaSure products and resolves all outstanding issues between the parties. Therapeutic Specialties Sales for BCT Therapeutics met the first quarter goals for 2001. Highlights included a 17% growth over prior year. Advances were particularly noted in Europe and the US. Gambro BCT is the worldwide leader in technology that helps clinicians deliver therapies which require plasma separation and collection of white blood cells. This later segment showed particular strong increases, as physicians continue to develop "Cell Based Immunotherapy" applications. Transplantation of Peripheral Blood Stem Cells after high dose chemotherapy for Hemato logical Diseases has become a standard of care for many patients. Future medical advances are centered around cell-based vaccines and other immunotherapy approaches. In these areas Gambro technology can be used to collect the base white cells (mononuclear cells). Pathogen Eradication Technology (PET) In total the PET program is progressing according to plan. The R&D spending during the period was about SEK 28 M (1). Pre-clinical work has progressed, demonstrating the efficacy of the Gambro BCT PET process to inactivate a full spectrum of viral and bacterial species, including non- enveloped parvovirus - an especially difficult pathogen to inactivate with methods on the market today. The research partnership with Sanguin, the blood authority of the Netherlands, continues to bear fruit. Studies of the Gambro BCT PET process in platelets and plasma are ongoing. Pre liminary results are encouraging with regard to pathogen inactivation levels and blood component quality. The organization and management of the Gambro BCT PET program is expanding to meet the needs of the aggressive pre-clinical and clinical development program. Additional staff has been added to support red blood cell pathogen eradication, toxicology work and market preparation. The PET development group now involves about 30 persons as well as external consultants and scientists. INVESTMENTS Group investments during the period amounted to SEK 594 M (275). Included is some SEK 50 M of development costs capitalized (see also "Other" on page 6). ACQUISITIONS Group acquisitions during the period amounted to SEK 338 M (287). This includes prepayments of USD 22.9 M (SEK 220 M) for US clinics acquisitions finalized April 1, 2001. Including these acquisitions 24 clinics with about 1,195 patients were acquired. FINANCIAL POSITION Net debt (loans and accruals for pension less cash and short-term investments) amounted to SEK 8,443 M at the close of the period, which represents an increase of SEK 1,168 M for the period. The increase is explained by cash flow from operations SEK -430 M, acquisitions SEK -338 M, taxes refunded SEK 219 M, dividend paid SEK -379 M, divestitures SEK 164 M, currency effects SEK -516 M and other SEK 112 M. Average net debt during the period amounted to some SEK 7,900 M, resulting in an average interest rate of approximately 7% (adjusted for interest not attribut able to items in the net debt). The equity/assets ratio at the close of the period was 58%. PERSONNEL The total number of employees in the Gambro group increased by 222 during the period. By the end of the period the total number of employees was 18,516. OTHER 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 about SEK 50 M (see "Investments" on page 5). 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 17 M, earnings before appropriations and tax was SEK 115 M and net income SEK 83 M. Liquid funds amounted to SEK 1 M. During the period the dormant subsidiaries Förvaltnings AB Norra Kungstornet, Persöner AB and Athena AB have been merged into Gambro AB. AFTER THE CLOSING OF THE PERIOD Early April two important clinics acquisitions were made by Gambro Healthcare in the US. 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 dialy sis treatments to about 150 patients in the Plainfield, New Jersey area. Gambro Healthcare will also provide acute renal treatments to Muhlenberg Regional Medical Center and JFK Medical Center in the central New Jersey area pursuant to separate Acute Services Agreements for each location. Furthermore, substantially all of the dialysis-related assets owned by Renal Management, Inc. (RMI) were acquired. These assets include 21 clinics that serve 950 patients in Louisiana, Nebraska, Iowa, Missouri and Kansas. Prior to this acquisition, RMI also held contracts to provide acute dialysis services to 16 hospitals and skilled nursing facilities whereby approximately 11,000 acute treatments are performed annually. Stockholm, April 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, +46-8-613 65 00, +46-70-513 65 48 Bengt Modéer, Senior Vice President, Investor Relations, tel. +46-8-613 65 00, +46-70-513 65 33 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: Six month report January - June: July 25, 2001 Nine month report January - September: October 25, 2001 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.bit.se/bitonline/2001/04/25/20010425BIT00170/bit0001.doc http://www.bit.se/bitonline/2001/04/25/20010425BIT00170/bit0002.pdf