Post #26: German road trip and kidney dialysis - Heptagon Capital – Production

On what was the hottest day in Europe so far this year, your intrepid Fund Manager spent over 4 hours in a bus (fortunately airconditioned) on a 360km round…

Post #26: German road trip and kidney dialysis

On what was the hottest day in Europe so far this year, your intrepid Fund Manager spent over 4 hours in a bus (fortunately airconditioned) on a 360km round-trip in Germany. Why, you may justifiably ask? The answer: to visit the largest production plant for kidney dialysis machines and consumables in the world, owned by Fresenius Medical. This was the first time the investment community had visited the venue in 15 years and so it was a privileged opportunity to learn more about the complexities of kidney dialysis and the importance of this future trend.

Located in St Wendel, the site is 140m square metres in size and includes a 13-storey high warehouse which can handle 30,000 pallets of product. Annually, the site produces some 61m filters and 30m dialysis machines with a total production value equivalent to ~€400m (the sale price would obviously be higher). Some 17,000 tonnes of plastic alone (notwithstanding other material costs) are required each year to produce these products. 

Given the scale and magnitude of operations, for such a factory such as this to work efficiently, two key things appear essential: good logistics and a high degree of automation. It was highly impressive to see that over 95% of internal transportation around the plant is done using autonomous trucks and at each production station our group visited, humans were, for the most part, absent, with robots completing many of the tasks. 

This all matters since every 0.7 seconds of the day someone, somewhere in the world is being treated using a dialysis machine, most likely one made by Fresenius. Demand is likely only to grow going forward given a combination of ageing western populations, improving mortality rates and growing levels of obesity. Pre-emptive of these trends, when we visited St Wendel, Fresenius was in the very process of installing an additional production line for finished goods. Meanwhile the prevailing mindset across the whole factory was to find ways of improving output productivity. Sadly, dialysis is a non-discretionary treatment for the chronically ill.   

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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