Year End Report 2000

Year end report 2000: Good growth but lower margins * Total revenues increased by 15% (8%*) to SEK 22,245 M. Operating earnings, EBITDA, was SEK 3,983 M corresponding to a margin of 17.9%. Earnings per share decreased by 32% to SEK 0.96 while cash earnings per share rose by 10% to SEK 7.92. Earnings per share including non-recurring items declined by 39% to SEK 2.85. * Non-recurring items, mainly goodwill impairment (SEK -1,379 M) and tax reversals (SEK +1,820 M), had a net positive effect on net income for 2000 by SEK 652 M equal to SEK 1.89 per share (a negative impact of SEK 339 M or SEK 0.98 per share in the fourth quarter). In total the non- recurring items have a positive cash flow effect of SEK 500 M, of which SEK -65 M refers to items in the fourth quarter. * Fourth quarter revenues SEK 6,143 M with good growth momentum, +18% (5%*). Operating margin reduced compared to previous period, mainly due to higher costs for drugs and labor affecting US clinics operations. Cash flow from operations improved by 65% to SEK 587 M. * Gambro Healthcare expanded by +22% (11%*), in fourth quarter +28% (9%*), mainly in Europe. New organization and efficiency initiatives in the US. * Good sales growth, +8% (6%*), in fourth quarter +9% (3%*), for Gambro Renal Products. A significant improvement from the 1%* growth in 1999, mainly due to positive impact of change program. * Strengthened sales momentum for Gambro BCT, +15% (7%*), in fourth quarter +18% (4%*), mainly due to growing customer acceptance of automated blood collection. * Continued good progress for the Pathogen Eradication Technology (PET) project, with a ramp up of spending; totally SEK 40 M (USD 4.3 M), of which SEK 18 M (USD 2.0 M) in the fourth quarter. * The Board proposes a dividend of SEK 1.10 (1.10) and authority for a share buy-back. *) 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 YEAR END REPORT 2000 For the Group, the fourth quarter 2000 revenues were SEK 6,143 M (5,242) including a continued growth of 18% (5%*). The somewhat lower currency adjusted growth compared to prior quarters is mainly explained by the very good sales in Gambro Renal Products and Gambro BCT as a result of the upcoming millennium in the prior year and fewer acquisitions in Gambro Healthcare US. For Gambro Healthcare revenues expanded by 28% (9%*) in cluding a continued good expansion in Europe. The sales momentum in Gambro Renal Products has continued, especially on markets outside Europe. Revenues for the business area increased by 9% (3%*). For Gambro BCT revenues were up 18% (4%*), with very good growth in the US. Group margin was lower than previous quarter mainly due to a drug price increase and increased labor costs affecting the US clinics operations. Fourth quarter also included a substantial reversal of previously accrued volume discounts for Epogen. Also currency effects have had a negative impact on the Group margins. The PET development project has made good progress and been supported by accelerated investments. Operating margin (EBITDA) for the Group was 15.1% (14.2% including non-recurring items). In total, year 2000 Group revenues were SEK 22,245 M (19,743) including a revenue growth of 15% (8%*). This includes an expansion in Gambro Healthcare with 22% (11%*). The pace of US clinics acquisitions has been reduced towards the end of the year. Gambro Renal Products had a continued good sales development with revenues growing by 8% (6%*) with a positive development in Europe, strong growth outside Europe, e.g. 13%* growth in Asia, as well as for internal sales which are up with 49% (38%*). Thanks to the comprehensive change program, sales growth has increased substantially from a previous level of 1%* in 1999. For Gambro BCT reve nues increased by 15% (7%*) with a strong development during the second half year. The PET project has had a promising development and has been supported by higher investments, totally SEK 40 M (USD 4.3 M). Group revenues developed positively on main markets in Europe and the US as well as on prioritized markets in Asia including Japan. For the Group, operating margin during the year has been negatively affected by the higher cost level in Gambro Healthcare, currency effects as well as by the increased R&D investments in the PET projects. Operating margin (EBITDA) for the Group was 17.8% (17.9% including non-recurring items). *) currency adjusted BUSINESS AREAS Gambro Healthcare Fourth quarter included a revenue growth of 28% (9% currency adjusted) and revenues rose to SEK 3,632 M (2,845). Expansion in Europe has included acquisitions of clinics and a good underlying organic growth. With the promotion of Larry Buckelew to President and CEO Gambro Healthcare US in November 2000, the Company has effectively completed its reorganization of the US management organization, resulting in a charge of SEK 106 M (USD 11.5 M) for severance and relocation in the fourth quarter. Operating results include a charge of SEK 1,379 M (USD 150 M) related to asset impairments in the US. This amount mainly consists of goodwill impairment, but also included amounts for write-down of leasehold improvements. The year ended December 31, 2000 showed continued revenue growth. Total revenues rose to SEK 12,957 (10,828) an increase of 22% (11% currency adjusted). At the close of the year, Gambro treated 47,600 patients in 636 clinics worldwide. Patient count in the 508 US clinics was 38,300. Revenue per treatment was USD 215 (220) or SEK 1,977 (2,023), while treatment volume increased by 13% to 6,500,000. Top line growth in the Healthcare segment has been accomplished through good organic growth in Europe and Argentina, moderate organic growth in the US and a very strong acquisition program in Europe. Operating earnings were negatively impacted in 2000 by increased costs as a result of pricing changes enacted by Amgen, the exclusive provider of Epogen in the US, by SEK 177 M (USD 19.3 M) and the discontinuance of reimbursement for Carnitor by SEK 37 M (USD 4.0 M). Also contributing to the reduction in operating margins are costs related to the ongoing nurs ing shortage in the US. By March 1, 2000, Amgen raised pricing of EPO by 3.9% and in addition the conditions for volume discounts on purchases were changed. The negative impact is split approximately 50/50 between the two. Fourth quarter includes a substantial reversal of previously accrued volume discounts for EPO. The Company has negotiated a new contract with Amgen, effective January 1, 2001, which contains more favorable terms and a new anemia management program which should result in improved patient outcomes and financial results in the area of ancillary drug administration. Under the divisional operating structure, operations personnel are implementing employee recruitment and retention programs to improve recruitment and retention of key clinic level personnel. In July definitive settlement agreements were entered into, resolving all corporate matters covered by investigations that were initiated in June 1998 with respect to certain Medicare billing practices of the Company's laboratory services up to May 1998. The total settlement was SEK 455 M (USD 53.2 M) of which SEK 167 M (USD 20.3 M) was paid in 1999. In connection with the settlement a further reserve of SEK 276 M (USD 31.5 M) was provided. In total this results in an expense of SEK 563 M (USD 64.4 M). The settlement, in which the Company admitted no liability, also included entering into a Corporate Integrity Agreement for a period of five years. Accounts receivable as of December 31, 2000 include Medicare claims of SEK 555 M (USD 58.4 M), net of reserves, representing 1998-2000 services. The ultimate amounts to be billed will be determined during the first half of 2001. To ensure that clinic customers of the Laboratory have adequate billing documentation, a new order entry system has been developed and will be implemented over a six month period beginning February 2001. Gambro Healthcare International (GHI) had an excellent performance in 2000 both operationally and financially. The integration of GHI's transplant facility into the rest of clinic operations in Argentina, together with an increased level of management systems sophistication, allowed GHI to meet its performance goals. The high growth rates in Europe were made possible as a result of the performance of country based management teams consisting of a country manager and a medical director. This partnership ensures that both patient and business issues are taken into0 consideration in all decisions. 2001 will be a year when GHI builds on its foundation of "Service Excellence" to develop plans for expansion into new countries in Europe, Latin America and Asia. Gambro Renal Products Fourth quarter included a continued healthy growth with revenues increasing by 9% (3% currency adjusted) to SEK 2,300 M (2,177) for current structure. This included a continued good development on main European markets such as Germany, Italy, UK and France as well as Portugal. Good sales growth is reported from Asia including Japan and from the US. Inter nal sales to own clinics continued to increase and reached a record level of SEK 235 M. A new dialysis machine was approved in the US and Europe. In November the dialysis machine production site in US was closed as planned. In total for the year 2000, revenues amounted to SEK 8,481 M (8,059). This represents an increase of 8% for present structure (currency adjusted 6%) compared to the growth of +1% achieved in 1999. During the year sales have continued to develop favorably in the main markets in Europe. Sales in main international markets in Asia and the Americas have increased. Good sales development is also reported from the Middle East and Eastern Europe. Internal sales grew by 49% (38% currency adjusted). Major product categories, including both equipment and disposables, had a good sales development. The strong demand for dialysis machines, both of the Hospal and Gambro brands, as well as for synthetic dialyzers has continued. Overall Gambro Renal Products has developed according to the plans and directions established in the change program initiated early last year. This program includes both short term efforts to improve efficiency and reduce costs as well as investments in new products, production capacity, etc. Also sales and marketing efforts have been strengthened and a more efficient brand strategy is under development. The positive trend during the year is mainly attributable to efforts within the framework of this change program. Increased sales and marketing activities have been supported by extended production capacity. Also production has proceeded with high efficiency and a good capacity utilization. This applies to, among others, the production of synthetic dialyzers in Hechingen, Germany, bloodlines in Mirandola, Italy and solutions in Lund, Sweden. At the end of the year the dialysis machine plant in Denver, US was closed down and production was transferred to Mirandola, Italy where capacity has been considerably increased. During the year significant launches of new products have been made. Efforts include new, innovative and platform based product families, new generations of existing products and the phase-out of overlapping products. The new products form a base for a more efficient production, procurement and logistics structure. A new machine for hemodialysis, Phoenix, was presented at the end of the year and was very well received. Sales will start during the first half year 2001. The machine includes innovative monitoring tools and biosensor capabilities as well as advanced data capturing enabling connection to Gambro's clinical information management system. The introduction means that one existing family of machines can be phased out, thereby considerably reducing the complexity and costs involved. It also means that, as planned, one production facility for machines has been closed. The Polyflux filter technology is the base for Gambro's continued expansion in synthetic dialyzers. A wide range of membrane functions can be produced in one single process. With excellent removal capabilities and superior biocompatibility Polyflux has an outstanding performance. In November Gambro received FDA approval for a Polyflux dialyzer for reuse applications in the US. To meet the increasing demand for Polyflux dialyzers the output has been increased to reach an extra capacity of almost 1.5 million dialyzers annually. Investments are also made for substantial new capacity of dialyzers based on common technology plat forms. The new capacity exceeds 5 million dialyzers annually with deliveries starting at the end of 2001. Gambro BCT Gambro BCT ended the year with strong fourth quarter sales, generating quarter revenues of SEK 447 M (378), an increase of 18% (currency adjusted 4%). US sales were particularly strong in the last quarter, due to a focused sales effort and market penetration of the Trima Automated Collection System. For the year, the US surpassed USD 100 M in sales, a significant milestone. Due to the strong finish, year 2000 revenues for Gambro BCT were SEK 1,559 M (1,356) representing an increase of 15% (7% currency adjusted). The US continues to generate 60% of Gambro BCT's revenues, while the next four countries in revenue order: Japan, Germany, France and the UK together contribute 20%. Significant expansion occurred in Korea, Australia, Brazil, and Spain, all growing faster than 20%, currency adjusted. The US grew at a much improved 8% rate, compared to the 1999 growth rate of 3%, both rates currency adjusted. Japan was the only disappointment in 2000, with decreasing sales, currency adjusted. Recent Trima approval in Japan turns Japan into a significant opportunity. The Trima System is well suited for small donors and collection requirements of the Japanese platelet market. Blood Bank Technology Gambro BCT continues to develop a leadership position within the Blood Banking Technology market through automated blood collection, leukoreduction, pathogen eradication technology and electronic business solutions. The Trima Automated Collection System is growing in market recognition, with a strong system and disposable sales during the fourth quarter. Fourth quarter disposable set sales increased by 30% over the previous quarter. Significantly, sales of the red blood cell, platelet, plasma disposable sets increased by about 50% over the third quarter, indicating that the conversion of whole blood donors to automated blood collection is gaining acceptance. Concurrent with the implementation of the Trima Automated Collection System, the customer base of Spectra users grew in 2000, and Spectra technology continues to maintain a high market share. The Spectra system sets a high standard in the platelet collection market through excellent performance and collection of high quality products. Therapeutic Specialties During the year Gambro BCT established a new group to focus on Therapeutic Specialties. Within this group, Plasma and Cell Therapies are the two business segments. Market shares within both segments surpass 50%. Sales within this segment continued to grow faster than the market. European sales advanced by 15% while US sales recovered from previous announcements (American Society of Clinical Oncology - 1999) questioning the clinical value of High Dose Chemotherapy with Stem Cell rescue for Breast Cancer patients. Pathogen Eradication Technology (PET) Inactivation of Intracellular HIV Validation studies performed at independent laboratories have successfully achieved considerable inactivation of extracellular and intracellular HIV using the new visible light only protocol. Using visible light to activate the Riboflavin achieves pathogen inactivation and, to a considerable degree, preserves the quality of the platelets after the process. Other pathogen inactivation processes have reported significant reduction in platelet transfusion quality. Gambro BCT's aim is to maintain platelet quality and deliver significant pathogen inactivation performance. PET at AABB The five PET presentations were all well received at the American Association of Blood Banks Annual meeting in Washington DC. At this meeting Gambro BCT released the first public information on PET process used to inactivate pathogens in red blood cells (RBC). This milestone indicates that photoactivated Riboflavin can inactivate pathogens in all three major blood components, platelets, fresh frozen plasma (FFP) and RBC. PET Organization The organization and management of the PET program is well established. There are now over 30 Gambro employees working on this project and close to 50 people including contract research and development activities. A PET Advisory Board, composed of physicians and scientists from the blood banking and photochemistry field, has reviewed the technology performance and process. THE RESTRUCTURING PROGRAM The restructuring program initiated mid January 1999 and affecting mainly the business area Gambro Renal Products has proceeded according to plan. As of December 31, 2000 1,191 employees had left the group through cutbacks, reorganization and divestitures of operations, and additionally 176 employees will leave in early 2001. SEK 1,038 M (of which 39% is non- cash) has been used of the provision of SEK 1,100 M that was made during the fourth quarter 1998. SEK 62 M of the reserve remains as of December 31, 2000. This refers to severance payments to staff in the US, France, Sweden, Switzerland and Asia, which will leave the company in early 2001. During the year SEK 446 M has been utilized, of which SEK 283 M during the fourth quarter. INVESTMENTS Group investments during the year amounted to SEK 1,741 M (1,529) net. Fourth quarter investments amounted to SEK 635 M (409) net. ACQUISITIONS Group acquisitions during the year amounted to SEK 1,141 M (1,050). Fourth quarter acquisitions amounted to SEK 107 M (329). Acquisitions during the year included 26 clinics with some 2,200 patients in the US and RoW. During the first quarter 2000 Gambro also participated in the HemaSure rights issue with about USD 8.9 M (SEK 85 M). Several buyouts of mino rities in partly owned clinics have also been performed. FINANCIAL POSITION Net debt (loans and accruals for pension less cash and short-term investments) amounted to SEK 7,275 M at the close of the year, which represents an increase of SEK 2,643 M for the year but a reduction of SEK 57 M in the fourth quarter. The full year increase is explained by cash flow from operations SEK 1,103 M, acquisitions SEK -1,141 M, taxes paid SEK -1,435 M, dividend paid SEK -379 M, currency effects SEK -485 M and other SEK -306 M. Average net debt during the year amounted to some SEK 6,300 M, resulting in an average interest rate of 8.3% (adjusted for interest not attributable to items in the net debt). Other financial items, SEK -198 M, mainly refer to write-down of the shareholdings in HemaSure by SEK -116 M (USD -12.6 M) and Aastrom by SEK - 29 M (USD -3.2 M) to the respective market values at year end. The remaining part mainly comes from operating results in HemaSure and MacGREGOR. A dividend from the shareholding in ABB Ltd. (disposed of in the second quarter) of SEK 10 M was included in the first quarter. During the third quarter a tax dispute in the US has been settled, resulting in an interest charge on the payment of SEK 23 M (USD 2.5 M), which is included in the financial net. The equity/assets ratio at the close of the year was 60%. TAXES Gambro applies full tax accounting, which means that the item "Taxes" in the income statement also includes deferred tax. Combined tax income (expense) for the year amounted to SEK 1,573 M (-216). The total tax rate on earnings adjusted for amortization of goodwill (which is not a deductible expense) and non-recurring items the tax rate, was 29.3% (35.3). In connection with comprehensive divestitures of companies and shares in prior years, taxes have been provided for based on conservative accounting principles. During the year Gambro concluded that, partly based on tax rulings, SEK 1,820 M were excess reserves that have been reversed as tax income in the 2000 accounts (SEK 917 M in the fourth quarter). PERSONNEL The total number of employees in the Gambro group increased by 1,008 during the year. By the end of the year the total number of employees was 18,294. ORGANIZATIONAL CHANGES On July 1, 2000 Sören Mellstig took up the position as President and CEO of Gambro after having been Executive Vice President of Gambro and responsible for the business area Gambro Renal Products. Mellstig succeeded Mikael Lilius, who left the company to become President of the Finnish energy company Fortum. Mellstig was succeeded as President of Gambro Renal Products by Alain Granger. In September David B. Perez assumed the duties as President of Gambro BCT. In November a new organization was established for the renal clinics operations, Gambro Healthcare, which was organized into two parts; the operations in the US, Gambro Healthcare US, and the operations outside the US, Gambro Healthcare International. Larry C. Buckelew, President for the Gambro Healthcare US operations, was appointed President and CEO of Gambro Healthcare US and reporting to Sören Mellstig. Terry Gilpin, President Gambro Healthcare International, is reporting to Alain Granger. This will support the overall expansion of Gambro and facilitate for the clinics and products operations to take joint initiatives, enter new markets together, etc. In December a new strategic function, Gambro Strategic Development, was created to focus on long term value added growth. Annemarie Gardshol was appointed Senior Vice President and responsible for the function. Key activities will be to support Gambro management in managing the overall corporate strategic agenda to provide business building capabilities and resources to high potential growth initiatives and to manage Gambro's venture portfolio. BOARD PROPOSALS Dividend The Board of Directors proposes a dividend of SEK 1.10 (1.10) per share, to which SEK 397 M (379) is allocated. Share buy-back In order to create better opportunities for transferring surplus capital to the shareholders and to make acquisitions, or for purposes of fulfilling the Company's obligations under current employee option programs, the Board of Directors has decided to make a proposal to the Annual General Meeting asking for renewed authority to repurchase the Company's own shares. The authority granted at the Annual General Meeting in 2000 has not been used. ANNUAL GENERAL MEETING Gambro's Annual General Meeting will be held at 6.00 pm on March 21, 2001 at the Globe Arena Annex, Stockholm. Stockholm, February 15, 2000 The Board of Directors 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: Annual General Meeting: March 21, 2001 Three month report January-March: April 25, 2001 Six month report January - June: July 25, 2001 Nine month report January - September: October 25, 2001 Annual Report for 2000 to be distributed March 1, 2001 DATES FOR FINANCIAL REPORTS, ETC. 2001 March 1 Annual Report for 2000 to be distributed March 9 Last day for temporary listing in VPC's register of shares, registered in the name of trustees, to be eligible for participation in the Annual General Meeting March 15 Last day to notify participation in the Annual General Meeting (by 12.00 noon) March 21 Annual General Meeting at 6.00 p.m. in the Globe Arena Annex in Stockholm March 21 Last day for trading in the share, incl. right to dividend March 22 The share is listed, excl. right to dividend March 26 Record date at VPC for right to receive dividend March 29 Payment of dividend from VPC April 25 Three month report, January-March 2001 July 25 Six month report, January-June 2001 October 25 Nine month report, January-September 2001 ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/02/15/20010215BIT01030/bit0001.doc http://www.bit.se/bitonline/2001/02/15/20010215BIT01030/bit0002.pdf