02.1
Operations and Business Environment
COMPARISON OF THE ACTUAL BUSINESS RESULTS WITH FORECASTS
Fresenius Medical Care can look back on another very successful business year. We improved our results again in all key performance indicators and achieved record revenue and earnings. As a result, we reached or in some cases even exceeded our ambitious targets for 2008, although the business environment changed significantly and even worsened in part. For example, our operating business was impacted more than usual by the strong fluctuations in the currency exchange rate.
2008 was a very successful year for Fresenius Medical Care. At the beginning of the year, we expected revenue of about $10.4 billion, 7 % more than in 2007. In fact, we grew our revenue to more than $10.6 billion, up 9 % year on year and thus above our target.
Originally, we expected our net income for 2008 to be in the range from $805 million to $825 million, which would have meant a growth of 12 % to 15 % on a year-to-year basis. At the end of 2008, our net income totaled $818 million, at the upper end of the envisaged spectrum. As expected, there were no one-time effects in 2008.
The effective tax rate was 36.6 % in the year under review, better than we had anticipated. The expected continuous growth of the dividend is reflected in our dividend proposal: pending approval by the General Meeting, the dividend per ordinary share will increase by 7 % to €0.58. More information on this can be found in the „Dividend” section.
At the beginning of the year, we expected our capital expenditures and acquisition spending to total approximately $800 million to $1 billion. $650 million to $750 million were to be used for capital expenditures, and the remaining amount for acquisitions. In line and as planned, we spent $891 million on capital expenditures and acquisitions in 2008; $673 million were used for capital expenditures and $218 million for acquisitions.
The operating cash flow – driven by earnings performance and ongoing good management of accounts receivable – was expected to be within the target range of 10 % of total revenue. In 2008, the operating cash flow totaled about $1.02 billion or approximately 10 % of total revenue, thus meeting our expectations.
According to our forecast, the debt / EBITDA ratio was to reach a level below 2.8 by the end of 2008. We already achieved this target in the third quarter. The debt / EBITDA ratio was 2.69 at the end of 2008.
At the end of the year under review, the number of employees at Fresenius Medical Care (full-time equivalents) had increased to 64,666 from 61,406 at the end of 2007, thus almost reaching our forecast figure of 65,000. The continued strong organic growth of the dialysis services business in all regions and the numerous acquisitions in Europe and Asia were key contributing factors.
Research and development expenditures – to boost and enhance Fresenius Medical Care’s ability to adapt to future requirements – were at about $80 million and within our expectations. The field of dialysis products is generally characterized by ongoing efforts to develop existing product groups. Details can be found in the „Research and Development” section.
The development of the general economy was marked by a moderate upswing in the first half of the year, followed by a significant downswing. The net gross domestic product in all important regions grew compared to the previous year. The economies of emerging markets grew more strongly than the U.S. and European markets, which are most important for us in terms of their share of our sales volume. However, Fresenius Medical Care’s dialysis business is less dependent on economic cycles than other industries. The dialysis market developed positively as we expected: the market volume was up by approximately 5 %, and the number of patients grew by around 7 %. In terms of the distribution of dialysis patients according to treatment method, there was no significant changes vis-à-vis the previous year. Hemodialysis remained by far the most important method used to treat chronic kidney failure.
