Executive Summary / Key Takeaways

• Strategic Transformation Driving Performance: Fresenius Medical Care (FMS) is executing its "FME Reignite" strategy, building on the successful "FME25+" transformation program, which has already delivered significant cost savings and is targeting €1.05 billion by 2027. This disciplined approach is translating into robust operating income growth and margin expansion across segments.
• Innovation as a Growth Catalyst: The U.S. rollout of the 5008X CAREsystem, featuring High-Volume Hemodiafiltration (HDF), represents a significant technological differentiator. This innovation promises substantial patient outcome improvements, including a potential 23% reduction in all-cause mortality, and operational efficiencies, positioning FMS to redefine the standard of care and drive future volume growth.
• Financial Strength and Shareholder Returns: FMS has significantly improved its financial health, with a net leverage ratio of 2.7x, well within its new target range. The company is committed to returning capital to shareholders through a proposed 21% dividend increase for 2024 and an initial €1 billion share buyback program commencing in August 2025.
• Navigating Market Dynamics with Operational Excellence: Despite persistent challenges like elevated U.S. patient mortality and a severe flu season, FMS's operational improvements in Care Delivery, coupled with its vertically integrated model and strategic portfolio optimization, are enabling stable U.S. same-market treatment growth and strong international performance.
• Value-Based Care: A Long-Term Growth Vector: The newly segmented Value-Based Care business, including InterWell Health, is experiencing strong organic revenue growth driven by expanded contracting and increased member months. While currently operating at a slight loss, its strategic importance in improving patient outcomes and lowering overall medical costs positions it as a key long-term growth driver.

Setting the Scene: A Global Leader's Strategic Evolution

Fresenius Medical Care AG (FMS), incorporated in 1996 and headquartered in Bad Homburg, Germany, stands as a global leader in providing dialysis and related services for individuals with renal diseases. The company's comprehensive offerings span a vast network of outpatient dialysis clinics, alongside the development, manufacturing, and distribution of essential healthcare products such as dialyzers, hemodialysis machines, and renal pharmaceuticals. This vertically integrated model establishes FMS as a critical player in the kidney care continuum, addressing the growing global burden of chronic kidney disease (CKD) and end-stage renal disease (ESRD).

The industry landscape is characterized by a persistent demand for dialysis services, driven by an aging global population and rising prevalence of CKD. However, it also faces challenges such as elevated patient mortality, particularly in the U.S., and inflationary pressures on labor and operational costs. FMS's strategic response to these dynamics is encapsulated in its "FME Reignite" strategy, launched in June 2025. This ambitious roadmap aims to "lead kidney care through exceptional patient care and innovation," focusing on reigniting the core business, fostering growth and innovation, and transforming its organizational culture.

Technological Differentiation and Innovation: The 5008X CAREsystem

A cornerstone of FMS's future growth and competitive advantage is its differentiated technology, particularly the 5008X CAREsystem, which enables High-Volume Hemodiafiltration (HDF). This advanced dialysis therapy, already the standard of care in Europe for a decade, is now being introduced to the U.S. market. The 5008X CAREsystem received FDA approval in early 2024, with an updated version gaining 510(k) clearance in May 2025, paving the way for broader commercialization.

The tangible benefits of HDF are significant and quantifiable. Clinical evidence from the European CONVINCE study demonstrated a 4.4% reduction in mortality over 2.5 years, with benefits observed within just three months of use. Helen Giza, CEO, highlighted the stark contrast between the 17% elevated mortality in the U.S. and the 12% in Europe, where HDF is prevalent, suggesting a potential 23% improvement in all-cause mortality for U.S. patients. Beyond patient outcomes, the 5008X offers operational efficiencies for clinics. It is simpler to use, does not require saline, boasts quicker clean downtime, eliminates time needed between treatments, and reduces training time. The Fresenius Clinical Data Exchange (CDX) feature further optimizes clinic workflows by providing "ONE-TOUCH access to providers' medical information systems (MIS) directly at chairside," reducing cross-contamination risks and freeing up clinic space.

FMS plans a phased launch of the 5008X in the U.S. starting in Q3 2025, with 30 clinics and 600 machines targeted for conversion by year-end, leading to a full commercial rollout in 2026. The company aims to replace all existing 2008T machines in its U.S. clinics with the 5008X by 2030. This technological leadership is crucial for FMS's competitive moat, contributing to higher average selling prices (ASPs), lower operational costs, and improved margins, thereby strengthening its market positioning and long-term growth strategy.

Competitive Landscape and Strategic Positioning

FMS operates in a highly competitive environment, primarily contending with DaVita Inc. (DVA) in dialysis services, and Baxter International Inc. (BAX) and Medtronic plc (MDT) in dialysis products and related technologies. FMS's competitive advantage stems from its unique vertical integration, encompassing both the manufacturing of dialysis products and the delivery of comprehensive care services through its extensive global clinic network.

Compared to DaVita, which primarily focuses on service delivery with a strong U.S. clinic network, FMS's integrated model offers superior supply chain control and potentially lower costs for its clinics. FMS also boasts a more diversified international presence, allowing it to tap into growth markets where DaVita may have less penetration. While DaVita has demonstrated strong execution in U.S. payer negotiations, FMS's end-to-end ecosystem fosters stronger customer loyalty and recurring revenue streams.

Against product-focused competitors like Baxter and Medtronic, FMS's vertical integration provides a distinct edge. While Baxter excels in standalone product innovation and Medtronic in cutting-edge device development, FMS's ability to integrate its own machines and consumables directly into its care delivery network can lead to greater operational efficiency and a more holistic patient experience. The 5008X CAREsystem, for instance, directly addresses a critical need for improved patient outcomes, a benefit that FMS can leverage across its vast network. FMS's robust R&D, particularly in HDF, aims to close any innovation gap and set new industry standards.

FMS's strategic positioning is further bolstered by high barriers to entry in the dialysis industry, including stringent regulatory approvals, substantial capital requirements, and the need for established patient and physician networks. These factors protect FMS's market position and contribute to sustained profitability. Furthermore, FMS's vertically integrated business model proved resilient during recent hurricanes, allowing it to maintain supply of IV solutions and PD products when a competitor's production was impacted, demonstrating a tangible operational advantage.

The Turnaround Story: FME25+ Transformation and Operational Excellence

FMS has been rigorously executing its "FME25+" transformation program, a three-year initiative launched in late 2022, aimed at operational excellence and driving sustainable profitable growth. This program has been a significant success, with the company achieving €567 million in sustainable savings through 2024, surpassing its initial incremental target of €200 million for that year by delivering €221 million. The total savings target for FME25+ has been raised from €650 million to €750 million by the end of 2025, and further expanded to €1.05 billion by 2027, underscoring management's confidence in continuous improvement.

These savings primarily stem from a more efficient setup of global functions (contributing approximately 50% of savings) and significant contributions from the Care Enablement business through manufacturing optimization, logistics, and supply chain efficiencies. While Care Delivery also contributes, its portion is smaller. This disciplined approach has been crucial in offsetting the cumulative effects of lower-than-expected U.S. volume growth over the past three years.

Concurrently, FMS has actively pursued a portfolio optimization plan, divesting non-core and lower-margin assets to sharpen its focus on its core business. By the end of 2024, this strategy generated €750 million in cash proceeds. Key divestitures included select assets of Spectra Laboratories, NCP, Cura, and the exit from approximately a dozen dialysis service markets, including most of its Latin America service business. This strategic refocusing, while creating a negative revenue headwind of approximately 1% in 2025, is enhancing the company's overall return profile.

Operational improvements within U.S. Care Delivery have been particularly noteworthy. Efforts to streamline the admissions process and reduce missed treatments are "really paying off," as stated by Helen Giza. This has led to accelerating patient inflow dynamics, with improving referral trends observed for five consecutive months in Q2 2025, marking the "strongest quarter 2 since 2020 from an inflow perspective" with a "closer to 2% improvement in that referral improvement in Q2." The company's robust disaster response capabilities also minimized the impact of severe weather events on treatment volumes, demonstrating the resilience of its operations.

Recent Financial Performance and Segment Deep Dive

Fresenius Medical Care's recent financial performance reflects the positive impact of its strategic initiatives and operational improvements. In the second quarter of 2025, the company delivered strong organic revenue growth of 7%, with positive contributions from all three operating segments. Operating income grew by 13% at constant currency, driving margin expansion to 9.9%. Operating cash flow increased significantly by 75%, largely due to favorable working capital development and recovery from the Change Healthcare cyber incident.

Care Delivery

The Care Delivery segment demonstrated strong organic revenue growth of 3.6% in Q2 2025, with U.S. organic growth at 3.4% driven by favorable rate and payer mix, offsetting volume impacts from a severe flu season. International organic growth was robust at 4.5%, supported by 1.7% same-market treatment growth and rate increases. The segment's operating income margin expanded to 11.2% in Q2 2025, "well within our 2025 target margin band," benefiting from positive rate and mix effects, contributions from phosphate binders, and FME25+ savings. The severe flu season in early 2025, however, led to "significantly increased mortality" and missed treatments, resulting in a revised U.S. same-market treatment growth assumption of "flat to slightly positive" for 2025, down from "0.5% plus." Despite this, management expects continued benefits from rate and mix, revenue cycle improvements, and FME25+ momentum to drive accelerating earnings in the second half of the year.

Value-Based Care

The Value-Based Care segment, now a standalone reporting unit since Q2 2025, exhibited strong organic revenue growth of 28% in Q2 2025, primarily due to expanded contracting and a higher number of member months. Revenue growth in the first half of 2025 was at the upper end of expectations. The segment currently manages approximately 148,000 patients under its programs and expects over €1.9 billion in full-year revenue. However, Value-Based Care recorded an operating income loss of €9 million in Q2 2025, driven by an unfavorable savings rate and inflation. For the full year 2025, the company anticipates a "slightly negative to breakeven earnings development." FMS's increased ownership in Interwell Health, its value-based care asset, through a €312 million investment in September 2025, underscores its strategic commitment to this long-term growth vector. InterWell Health has already achieved "best-in-class quality performance" in the U.S. government CKCC program, operating 10 of the top 10 highest-scoring kidney contracting entities.

Care Enablement

Care Enablement delivered another strong quarter in Q2 2025, with 3% organic revenue growth driven by volume increases and positive pricing momentum, even amidst volume-based procurement in China. The segment's operating income surged by 79%, pushing its operating income margin to 8.7%, further advancing into its 2025 target margin band of 8% to 12%. This impressive performance is attributed to strong business growth, FME25+ savings, and disciplined execution of footprint optimization across manufacturing and supply chain. Management expects the second half of 2025, particularly Q4, to be stronger due to seasonal sales volume. The segment is also well on track for the 5008X launch in the U.S., following FDA approval of Release 2.0 in May.

Capital Allocation and Shareholder Returns

FMS has significantly strengthened its balance sheet, with the net leverage ratio improving to 2.7x in Q2 2025, comfortably within its new target range of 2.5x to 3x. This deleveraging has been a top capital allocation priority through 2025, with proceeds from portfolio optimization used to reduce debt.

The company is now committed to returning excess cash to shareholders. It announced a €1 billion share buyback program, to be executed in multiple tranches over two years, with the first tranche of up to €600 million initiated in August 2025. This initiative, alongside a proposed 21% dividend increase for 2024 (representing the highest dividend per share in its history), signals a clear focus on enhancing shareholder value. Martin Fischer, CFO, emphasized that capital allocation priorities include "supporting the business and profitable, sustainable growth" and recognizing "the importance of shareholder returns."

Outlook and Key Assumptions

FMS is confirming its full-year 2025 outlook, anticipating positive to low single-digit percentage revenue growth and a robust high teens to high 20s percentage operating income growth. This implies an operating income margin of 11% to 12% for 2025, a tightening of the previous 10% to 14% midterm range. Both Care Delivery and Care Enablement are expected to make progress within or into their respective target margin bands.

Key assumptions underpinning this outlook include:

• U.S. Same-Market Treatment Growth: Revised to "flat to slightly positive" for 2025 due to elevated mortality from the severe flu season. However, accelerating patient inflows and improving referral trends are encouraging for a return to 2% plus growth in 2026 and beyond, once mortality normalizes.
• FME25+ Savings: An incremental €180 million in sustainable savings is expected for 2025, contributing significantly to earnings growth.
• Value-Based Care: Expected to contribute approximately €1.9 billion in revenue but with a "slightly negative to breakeven" operating income for the year.
• Phosphate Binders: The inclusion of binders in the bundle is projected to provide a net benefit of around €100 million to Care Delivery earnings in 2025, though the exact amount depends on utilization and product mix.
• Headwinds: Anticipated net labor headwind of €150 million to €200 million and general cost inflation of €100 million to €150 million.
• Tariffs: Expected to have a "very limited impact" due to FMS's local U.S. manufacturing footprint and resilient supply chain.
• Longer-Term Aspirations: The FME Reignite strategy targets mid-teens operating income margins for Care Delivery and Care Enablement by 2030, and low single-digit margins for Value-Based Care. Annual capital expenditure of €0.8 billion to €1.0 billion is planned for the core business to drive profitable growth and innovation.

Risks and Challenges

Despite the positive momentum, FMS faces several risks. The persistent "elevated mortality" in the U.S. patient population, exacerbated by severe flu seasons, remains a significant challenge, directly impacting treatment volumes. While management is confident in a return to normalized growth, the timing of this normalization is critical. The Value-Based Care segment, while strategically important, is a "nascent industry with lumpy and at times volatile financial returns," posing a risk to consistent profitability in the near term.

External factors such as the 2.7% CMS ESRD PPS reimbursement increase for 2025, while confirmed, is "still below what we would have liked to see given the inflationary pressures." The potential expiration of ACA subsidies in 2026 could also present a headwind, estimated at approximately 2% of U.S. Care Delivery EBIT. Furthermore, the "fluid situation" surrounding pharma pricing and potential tariffs, along with the inherent volatility introduced by virtual power purchase agreements (vPPAs), requires continuous monitoring.

Conclusion

Fresenius Medical Care is undergoing a profound transformation, strategically repositioning itself for sustained profitable growth and enhanced shareholder value. The "FME Reignite" strategy, underpinned by the successful "FME25+" program, demonstrates a clear commitment to operational excellence and disciplined financial management. The company's technological leadership, particularly with the U.S. rollout of the 5008X CAREsystem and High-Volume Hemodiafiltration, represents a significant opportunity to redefine patient care standards and drive long-term volume growth.

While challenges such as elevated patient mortality and a dynamic regulatory environment persist, FMS's robust operational improvements, strategic portfolio optimization, and commitment to returning capital to shareholders paint a compelling investment picture. The company's integrated business model and focus on innovation provide a strong competitive moat, positioning it to capitalize on the enduring demand for kidney care services globally. Investors should closely monitor the continued execution of the FME Reignite strategy, the ramp-up of HDF adoption, and the path to profitability for the Value-Based Care segment as key indicators of FMS's long-term success.