A man of science, Benjamin Lipps, chief executive officer of Fresenius Medical Care, a provider of products and services for patients with chronic kidney failure, spends much of his time focused on how to deliver better dialysis care to a growing number of patients around the world. His ability to accomplish this task, while also increasing the company’s revenues and profits every year since its founding in 1996 is what most impressed sell-side analysts, who voted Lipps best CEO in the medical technologies and services sector in Institutional Investors 2011 All-European Executive Team ranking. Both buy and sell side analysts voted the firm’s head of investor relations and corporate communications, Oliver Maier, as best IR Professional in the sector. Fresenius Medical Care also won Best Investor Relations outfit in its category.
Lipps, age 70, received his PhD in chemical engineering from the Massachusetts Institute of Technology in Cambridge, MA. He has worked in the field of dialysis for almost half a decade and was part of the research team at DOW Chemical, the Midland, MI- based chemical manufacturer that developed the first commercial hollow-fiber artificial kidney in 1966.
From 1985 to 1996, Lipps served as CEO of Fresenius USA, a Waltham, Massachusetts-based provider of kidney dialysis services and renal care products. He took on the role of CEO of Fresenius Medical Care North America in 1996, serving until 1999 when he became CEO and Chairman of the Management Board of the Bad Homburg, Germany-based parent company Fresenius Medical Care.
When Lipps started his lab work at MIT, dialysis treatment did not exist. Today, Fresenius Medical Care is the world’s largest provider, with a market share of 13.1 billion euros, as of year-end 2010, up from 11.045 billion euros in 2009. The company is listed on both the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange) and the New York Stock Exchange.
Lipps’s accomplishments in the field of dialysis treatment – his office sits over a dialysis unit – combined with his keen business sense have only helped to grow the company. And grow it has. On January 4th, 2011 Fresenius Medical Care signed a purchase agreement to the tune of 485 million euros to acquire International Dialysis Centers, the dialysis service business of Euromedic International, a pan-European medical service provider. Prior to the agreement, Fresenius Medical Care had a small foothold in the Eastern European market, and had been looking for a way to increase its presence. Euromedic, by contrast, was seeking a way to unload its hemodialysis business to concentrate on diagnostics and cancer treatment.
Fresenius Medical Care expects the Euromedic acquisition to increase annual revenue by approximately $180 million and forecasts it will be accretive to earnings within the first year. The deal is scheduled to close in the second quarter of 2011.
Fresenius Medical Care will initially use the cash flow from current operations and the company’s available borrowing capacity to finance the acquisition. “This year we rolled over our bank debt and basically placed bonds, amounting to approximately $1 billion ($650 million and €300 million), so that put the initial financing in place,” Lipps says. After closing, it will look to refinance on a long-term basis.
Due to the worldwide financial crisis, touched off in 2008, with the collapse of U.S.-investment bank Lehman Brothers, many corporations have been looking for ways to downsize over the last couple years in response to a drop in revenue. Not so at Fresenius Medical Care. The lagging economy has had little effect on the need for medical attention worldwide, says Lipps. He made sure to impress this fact upon investors. “Because we are a global company, we needed to spend time with shareholders to point out the uniqueness of our business,” he says. Dialysis is “a disease of age” and as the world population continues to age and live longer, the need for dialysis should only increase, he notes. “For this reason, our business is insulated from the financial gyrations taking place around world.”
Lipps does concede that in certain area, such as the Asia Pacific region, there has been a lack of treatment for liver disease due to deep economic and financial hardship in that part of the world. But as the financial situation in many of those countries improves, Lipps believes that treatment of the disease will start to be addressed and therefore increase.
The number of patients receiving dialysis treatment should grow at a rate of 5 percent to 6 percent a year, Lipps predicts. That means that by 2020, four million people could be receiving dialysis treatment, up from the current figure of two million. In fact, the company’s strongest revenue growth area in 2010 was in the Asia Pacific region, where revenue increased by 15 percent. Revenue coming in from the European region shot up 6 percent, in constant currencies, and 7 percent in North America.
In February of this year, Fresenius Medical Care pleased shareholders again, when it announced it had exceeded its 2010 net revenue guidance by $50 million, finishing the year up 7 percent at $12 billion, compared to $11.2 billion in 2009. The company’s targeted net income of $950 to $980 million achieved the high end, finishing the year up 10 percent at $979 million.
Those stellar returns resulted in the company’s decision, pending shareholders approval in May 2011, to increase its dividend payout by 7 percent to 65 cents per share – marking the 14th consecutive dividend increase from the firm. “We have a dividend policy where we try to return to shareholders about 50 percent increase of net income,” notes Lipps. Looking ahead, the dialysis provider expects to see revenue growth in Asia rise by 10 percent to 15 percent, due to its dense population and expects single digit growth in North America.
In an effort to keep investors informed of the company’s ongoing growth strategy, Lipps spends about 20 percent of his time meeting with shareholders, often in one-to-one meetings or joined by Maier and the company’s chief financial officer Michael Brosnan. “We believe it is more important to do one-to-one meetings, face-to-face for 30 minutes,” says Lipps. “It takes time, but it’s worthwhile in the end, because we have a well informed long-term shareholders base.”
The trio partakes in 25 conferences a year throughout the US, Europe and one in Tokyo, Japan. “We have a global shareholder base, so we spend a lot of time on shareholder activities, as their questions are never the same,” Lipps notes. About one third of the company’s investors are based in the US, one third in the United Kingdom, 10 percent in Germany, and the rest spread throughout Europe and Asia.
Lipps is pleased with his company’s success and its ability to reward shareholders, but he feels just as rewarded by the company’s accomplishments in the medical field. “I’ve been lucky enough to have found an opportunity to preserve life for patients and over time grow that into a business,” he says. “That is the right focus, that is our business, and that is what we do best.”
