Major risk groups

Risks that could lead to deviations from the expected development of the company of the ten most significant risk groups based on the aggregated risk position are shown in the table below. The TOP 10 risk groups with their respective aggregated risk position range between €90 million and €330 million. The respective impact of each risk group, based on their relative share on the overall aggregated risk position, is displayed in the table as well. These risk groups and the respective material risks per risk group, the significant changes and the risk mitigation measures are presented in detail below.

Healthcare Financing, Innovation and Competition

In our largely regulated business environment, changes in legislation, especially regarding reimbursements, can have a drastic impact on our business success. National healthcare systems are financed very differently. Changes in reimbursement systems and pricing in particular would have a significant impact on our assets, liabilities, financial position and financial performance. The following risks are significant components of this risk group. In China, increasing competition through the expansion of tender procedures and the associated reduction in drug prices represent significant risks.

A further expansion of tenders at national level, known as “National Volume-based Procurement” (NVBP), and of tenders at provincial level, known as “Provincial Volume-based Procurement”; (PVBP), are evaluated as likely and may lead to a severe impact. We are countering these risks with cost-saving initiatives and efficiency gains in the sales organization and in production. We are also closely monitoring individual developments at national and provincial level.

In the USA and Europe, changes in the reimbursement system in particular could have a significant impact on our business due to the high proportion of sales generated by the Kabi segment. Changes in legislation, reimbursement practices and healthcare programs could influence the scope of reimbursements for services, the scope of insurance coverage and the product business. This possible risk can have a major negative impact on our business as well as on our assets, liabilities, financial position and financial performance.

We counter these risks by monitoring possible changes to reimbursement systems at an early stage and then reacting promptly by increasing productivity and reducing costs in order to counteract them.

In the hospital market in Germany, the current system of purely volume-dependent remuneration via case rates is to be converted into a mixed remuneration system as part of the hospital structural reform. The plan is to limit remuneration based on case rates to 40%. In the future, an average of 60% of remuneration is to be distributed independently of performance via retention rates (including the care budget).

The amount of retention funding is to be linked to service groups that are allocated to individual hospitals by the federal states, and which require compliance with defined criteria. Among other things, this is intended to ensure that complicated treatments may only be carried out in hospitals that have the appropriate personnel and technical equipment. Depending on the service group and therefore relevance, hospitals will receive financial resources. The exact financial impact of the reform on the Helios clinics cannot be quantified at present, as key details, particularly regarding the planned allocation of service groups, are not yet known. This uncertainty has been evaluated as unlikely with a medium potential impact.

The requirements of the hospital structural reform confirm the necessity for initiatives to form cluster and centers of excellence that have been underway at Helios for years. In this context, especially the focus on more outpatient care and more flexibility as well as specialization is to be viewed as particularly positive.

As part of the “Nursing Personnel Strengthening Act” (PpSG), nursing care costs were removed from case rates (DRG) and the costs of patient-centered nursing care were reimbursed in full by the health insurance funds via separate care budgets. Potential discounts on our receivables resulting from ongoing negotiations with the payers pose a possible risk with a major impact on our assets, liabilities, financial position and financial performance.

We are preparing for further negotiations with the healthcare payers and are using a strategic approach here to balance the advantage of generating liquidity in the short term with the disadvantage of a discount on our receivables.

Numerous competitors are active within the healthcare sector, some of which have considerable resources in the areas of finance, marketing or research and development. Increased competition, including in the area of generic IV drugs and technical equipment for plasmapheresis, may continue to have a low adverse effect, with a possible to likely probability, on the pricing and sale of our products and services.

In the USA, Fresenius Kabi sells almost all injectable pharmaceutical products through agreements with “Group Purchasing Organizations” (GPOs) and distributors. The GPOs also have contracts with other manufacturers and the bidding process is highly competitive. For example, upcoming renegotiations of our distribution agreement for individual products are estimated as unlikely to possible with a potentially medium to major impact.

In addition, the introduction of new products and services or the development of superior technologies by competitors may make our products and services less competitive or, in an unlikely case, even obsolete and thus have a major adverse effect on their sales, the prices of the products and the scope of the services.

In order to ensure our long-term competitiveness and counteract potential competition and innovation risks, we work closely with medical professionals and scientists. Important technological and pharmaceutical innovations are leveraged and further developed at an early stage through this cooperation, also by adapting our corporate strategy if necessary. In addition, we ensure our competitiveness by continuously analyzing our market environment and the legal framework. We closely monitor market developments, in particular concerning our competitors’ products. The interaction between the various technical, medical and academic institutions within our Group also ensures our competitiveness.

Overall, the risks described have contributed to an increase in the aggregated risk position of the risk group.

Production and Services

Risks that may arise in connection with the manufacturing of our vital products, in the provision of services to our patients or in the project business have a significant impact on Fresenius.

This primarily concerns risks directly related to our production, such as potential manufacturing downtime, delays in the commissioning of new production capacities or restrictions on existing production capacities following interruptions. To minimize the risks of such failures as far as possible, we are continuously working to improve our business continuity management and thus reduce potential damage to our production and value chain. These Risks are evaluated with a possible likelihood of occurrence and a potentially medium to severe impact.

Delays in delivery can also have a negative impact on our assets, liabilities, financial position, and financial performance. In addition to direct financial risks, such as loss of sales or contractual penalties, persistent delivery delays and shortages entail a high reputational risk and can lead to disadvantages in future tenders. We evaluate those risks as almost certain with a medium potential impact. In order to mitigate the occurrence of supply shortages, we are already investing in the development of additional production capacities and are continuously monitoring our delivery routes so that we can react to any delays in good time.

Various operational risks arise from the wind-down of the international project business at Fresenius Vamed. These relate to possible risks in connection with project handling costs, the departure of key employees, the termination of important supplier relationships or unexpected project delays and risks of staff shortages, which can have a medium to severe negative impact on our assets, liabilities, financial position, and financial performance. Overall, these risks have contributed to an significant increase in the aggregated risk position of the risk group.

Sales, Customers and Product Strategy

In the long term, Fresenius aims to expand its position as one of the leading international providers of healthcare products and services. In recent years, we have expanded our company along our value chain, thereby increasing the global availability of our products and services.

While Fresenius Kabi offers a wide range of different products worldwide, many of these products are sold exclusively through a limited number of buyers, especially in the USA, which creates a special dependency on these customers. There is therefore a risk that these buyers will exploit their market position to force pricing adjustments. This results in unlikely to possible risks which could have a medium to major impact on our assets, liabilities, financial position and financial performance. In order to avoid over-relying on individual customers as far as possible, we continuously monitor our customer structure, diversify our product range and negotiate purchase agreements in advance and for long-term periods.

A potential deviation from the planned case numbers represents a significant sales risk for Helios Germany. The ongoing monitoring of the development of case numbers resulted in a likely risk with a major potential impact. To mitigate this risk, Helios Germany is further enhancing the attractiveness of its clinics through a large number of initiatives.

In order to remain profitable in the healthcare market, Fresenius Kabi has recently launched a number of new products and continues to plan to launch new products. For such new product launches, however, there is still a risk that market entry will be delayed or that products will not be absorbed by the market in the forecast sales volumes after launch. Such possible delays in market entry and sales shortfalls for new products can have a low negative impact on assets, liabilities, financial position and financial performance. Overall, those risks contributed to an increase in the aggregated risk position for the risk group.

Legal

The Fresenius Group is regularly involved in lawsuits, legal disputes, regulatory and tax audits, investigations, and other legal matters, most of which arise in the ordinary course of business of providing healthcare services and products. These risks are identified, assessed and if material, reported on an ongoing basis. This also includes risks arising from an unclear legal situation, such as the legislation surrounding the energy price compensation payments made for the years 2022 and 2023. Those risks are estimated as unlikely with a potentially severe impact. Overall, those risks contributed to an increase in the aggregated risk position for the risk group. Fresenius continuously monitors the development of laws and proposed legislation and, if necessary, also consults external bodies such as law firms.

Compliance

Fresenius’ business activities are subject to comprehensive government regulations and controls in almost all countries. In addition, Fresenius must comply with other generally applicable legal provisions that differ from country to country. New regulations, particularly from the European Union, especially in the area of potential environmental violations, together with a possible sales-based fine under corporate criminal law, represents an unlikely risk with a severe potential impact.

Other possible risks with a potentially major to severe impact are also regularly examined as part of compliance investigations. Potential breaches of laws and regulations are also regularly investigated as part of the wind-down of the international project business.

At Fresenius, risk-oriented compliance management systems are implemented in every business segment. These systems take into account the markets in which the respective business segments operate and are tailored to the specific requirements of the business segment. With our compliance programs, we set binding guidelines for our employees. We assume that we have taken sufficient precautions to ensure that national and international rules are observed and complied with. Nevertheless, even with a comprehensive compliance program, misconduct by individual employees or contractual partners that could cause damage to the company cannot be completely ruled out. In total, those risks lead to an increase in the aggregated risk position for the risk group.

Financials

Our global business operations give rise to a variety of foreign currency risks. The financing of business activities can also give rise to interest rate risks, which can affect the value of our assets, particularly firm value.

In view of the strong US business, the relationship between the US dollar and the euro is of significant importance to us. Foreign currency and interest rate risks are possible to likely and respectively could cause a medium effect on the aggregated risk position for the risk group.

To limit these risks, we use derivative financial instruments, among other things. We limit ourselves to marketable, over-the-counter instruments and use them exclusively to hedge underlying transactions, not for trading or speculative purposes.

As a globally active company, we also have production capacities in all major foreign currency areas. Further information on the management of foreign currency risk and interest rate risk can be found in the notes to the consolidated financial statements on pages 380 f.

As part of the structured exit and the wind-down of the international project business at Fresenius Vamed, there is a risk that guarantee commitments made in projects by external parties could be called. This unlikely risk with a potentially severe impact increases in particular if delays occur in the course of the project. This would result in repayment claims.

As a listed company, Fresenius is obliged to publish regular (quarterly) financial reports in accordance with current IFRS regulations. There is therefore the risk that Fresenius does not comply with current IFRS regulations and / or that our reports do not represent true and fair financial reporting due to accounting errors. In addition, Fresenius is exposed to risks due to non-financial reporting regulations. This year, the guidelines on sustainability reporting for companies and the corresponding comprehensive European standards on sustainability reporting will become binding for Fresenius. To continue to comply with the requirements for our financial reporting, we monitor changes in accounting very closely and continue to ensure the high quality of our financial statements through harmonized accounting standards. Risks in connection with our reporting remain primarily unchanged with an unlikely probability and major impact. The aggregated risk position has increased for the risk group.

Further information on financial risks can be found in the notes to the consolidated financial statements.

Cybersecurity

As one of the leading healthcare groups, digital information is a cornerstone and enabler for our global business. Fresenius is continuously digitalizing its processes, opening up new markets with digital product solutions and taking into account the fact that digitalization is associated with cyber risks that could compromise confidentiality, integrity or availability.

The main risks that affect Fresenius include the theft and disclosure of personal and patient data and confidential business secrets, as well as attacks on and associated failures of our IT infrastructures and applications, e.g. due to malware or the targeted manipulation of data. There are also cyber risks in connection with the business activities of our respective business segments: In the product business, these relate to the interruption of production and logistics processes and the theft of intellectual property. In our healthcare facilities, cyber risks relate to patients, their health data and the medical devices used. The unavailability of IT systems in critical situations or the compromise of medical devices could have a negative impact on patient safety and the effectiveness of treatment and have been evaluated as unlikely to possible with a potentially severe impact.

The loss of sensitive data or non-compliance with laws, regulations and standards could damage our competitive position, our reputation and the company as a whole. Furthermore, Fresenius or one of the Group companies could be subject to substantial fines in the event of a breach of the law.

Our stakeholders place great trust in the cyber security of our products and services. To minimize cyber risks, we have implemented security architectures and concepts that include preventive, detective and reactive measures. We can detect cyber threats at an early stage through monitoring mechanisms in our networks as well as on our devices, such as desktops, servers and mobile devices. The security of applications that process sensitive patient or personal data is regularly checked using penetration tests and red-teaming exercises that simulate targeted attacks. Critical systems, such as central communication systems or clinical information systems, are subject to special protection concepts that can, for example, compensate for the failure of a system. Our aggregated risk position in this area has not changed compared to the previous year.

Quality

The quality of our products, services and therapies is a prerequisite for optimal medical care. For the well-being of patients and the protection of our employees, we therefore apply the highest quality and safety standards to all processes. Nevertheless, violations of production regulations and quality deficits in our production may occur under certain circumstances, e.g. due to a ban on critical pharmaceutical ingredients (e.g. PFAS) or deficiencies in the research and development process. However, this has been evaluated as unlikely with a potentially severe impact. Major risks can also arise from the highly complex transfer of technologies from external partners to our own production environment. The corresponding likelihood has been estimated as possible.

Non-compliance with the requirements of the regulatory authorities at our production facilities or at our suppliers could result in regulatory measures, including warning letters, product recalls, production interruptions, fines or delays in the approval of new products. Any of these measures could possibly damage our reputation, impair our ability to generate sales and result in major costs.

We ensure compliance with product specifications and production regulations through our quality management systems. These are structured in accordance with the internationally recognized quality standards ISO 9001 and ISO 13485, among others, and take into account relevant international and national regulations. We implement them with the help of internal guidelines such as quality manuals and process instructions and regularly check compliance through internal and external audits at production sites and in sales units. This includes all requirements and regulations from management and administration to product manufacturing, clinical services and patient satisfaction. Our production sites fulfill the Good Manufacturing Practice requirements of their respective markets. They are inspected by local health authorities such as the U.S. Food and Drug Administration (FDA) or the European Medicines Agency (EMA). If an authority identifies deficiencies, Fresenius immediately takes comprehensive and appropriate corrective action.

Fresenius uses the early warning system to evaluate quality-relevant information from various risk areas to identify risks at an early stage and initiate preventive or risk-mitigating measures. Fresenius Kabi uses, for example, globally responsible safety officers, databases in which complaints and side effects are recorded, internal and external audits as well as key performance indicators that serve the internal control and optimization of quality processes. In this way, product safety profiles can be created and evaluated worldwide.

As a risk-minimizing measure, product recalls, for example, are initiated in cooperation with the responsible supervisory authority; at the same time, the cause of the recall is analyzed in detail. If necessary, corrective measures are initiated in order to avoid the circumstances that led to the recall in the future. Our aggregated risk position in these areas slightly increased.

Supply Chain

In the supply chain, potential risks arise mainly from price increases, dependencies on individual suppliers or the lack in availability of raw materials and goods due to interrupted supply chains. In particular, dependence on individual suppliers for certain products or services can have a possible to likely medium negative impact on our assets, liabilities, financial position and financial performance if the contractual relationship is terminated. We counter these risks by appropriately selecting and working together with our suppliers, through long-term framework agreements in certain purchasing segments, and by bundling volumes within the Group.

We only source high-quality products from qualified suppliers whose safety and suitability have been proven and which meet our specifications and requirements. When evaluating our risks and our control measures, we also take new requirements and legal framework conditions into account, such as, for example, the Act on Corporate Due Diligence Obligations in Supply Chains, which has been in force in Germany since 2023. The aggregated risk position for the supply chain risk group has declined slightly.

Human Resources

The shortage of skilled workers in general and the adequate recruitment of qualified personnel also pose likely challenges with a medium potential impact for the Fresenius Group. This applies in particular to our medical staff as well as to specialists in Vamed’s international project business. In order to improve to identify and manage risks in the international project business, Vamed assesses potential personnel shortages directly at the level of the individual projects.

To engage these challenges in general, Fresenius is also taking appropriate measures in employer branding and in the recruitment, retention and further development of skilled professionals.

To increase the visibility and attractiveness of the Fresenius Group, we rely on a mix of initiatives in our employer branding. The centerpiece is the multi-award-winning Group careers page with job advertisements and video, image and text information about the Fresenius Group. We are also represented on all relevant social media channels and selected online portals representing our own careers content. To promote internal career development and make internal job opportunities as transparent as possible, there is the global, internal job portal ‘stayFresenius’. We strengthen loyalty to our company by offering our employees attractive development opportunities and social benefits as well as variable remuneration and working time models. We also promote international and interdisciplinary cooperation. To ensure a sustainable supply of skilled workers, we offer, for example, target group specific programs for young academics with subsequent retention programs as well as extensive training programs for school students. Depending on their customer and market structure, our business segments pursue various concepts and measures for personnel development.

The aforemented transfer of Human Recources related risks individually to project level has reduced the aggregated risk position in this area.