Events Significant for Business Development
Acquisitions and divestitures
Our investment strategy remained unchanged in 2010. We stepped up investments in our future growth by continually extending our network of clinics and product business and by expanding our production capacities. In the year under review, we spent a total of $618 M on acquisitions net of divestitures, with capital expenditures (net) coming in at $507 M.
In order to strengthen our market position in the area of dialysis services in the Asia-Pacific region, we acquired Asia Renal Care Ltd. in the year under review. The company was the second largest dialysis provider in the region after Fresenius Medical Care, treating around 5,300 patients in some 80 clinics at the end of the reporting year. The takeover will contribute around $80 M annually to Fresenius Medical Care’s revenue and will already have a positive impact on results in 2011.
We also expanded our dominant position in the dialysis product business in the Republic of Korea with the takeover of Nikkiso Medical Korea Co. Ltd. The acquisition will contribute around $15 M annually to revenue and will also affect results in 2011 positively.
In the Russian region of Krasnodar, we acquired KNC (Kraevoy Nefrologicheskiy Centr), a private operator of dialysis clinics. As a result, Fresenius Medical Care is now responsible for the care of around 1,000 patients in five clinics. The acquisition will contribute around $25 M annually to revenue and positively influence results as of 2011.
During the period under review, we also acquired the international peritoneal dialysis business of the Swedish company Gambro. This should enable us to expand our activities in the area of home dialysis, particularly in Europe and the Asia-Pacific region. The contribution to revenue will be around $60 M annually with positive effects for results as of 2011. Fresenius Medical Care completed the takeover at the end of December 2010.
For further information see the “Financial situation” section.
We continued our existing cooperations in the previous year, including the licensing and sales agreements concluded in 2008 to market and distribute intravenous iron compounds. We reported on this in detail in the 2008 annual report Cooperation agreements and Dialysis Drugs.
In the year under review, we also concluded an exclusive 10-year sales agreement with the Japanese company Nikkiso Co. Ltd. for hemodialysis and peritoneal dialysis products in Japan. By combining Fresenius Medical Care’s efficient production methods and Nikkiso’s strong sales, both companies want to further increase their market share in Japan, particularly in dialyzers and products for peritoneal dialysis.
Moreover, in 2010 we founded Vifor Fresenius Medical Care Renal Pharma Ltd., a joint company with Galenica Ltd. to develop drugs for kidney patients and distribute them worldwide. Further information can be found in the “Growth strategy” section.
The Company’s business environment remained largely unchanged in 2010, as did the legal frameworks relevant for our business.
In January 2011, the United States, our largest sales market, introduced a new bundled reimbursement system for the dialysis treatment of public healthcare patients (Medicare patients). Specific products and services are now reimbursed one flat fee instead of being paid individually as was previously the case. In addition to an inflationary adjustment starting in 2012, a particular feature of this new reimbursement system is the focus on certain quality parameters such as regulation of the hemoglobin content of the blood (anemia management) and the mineral metabolism in the bones. For further information see the “Health and reimbursement systems” section.
In December 2009, Fresenius Medical Care announced changes to its Management Board of the General Partner: The contract of Dr. Ben J. Lipps, Chairman and Chief Executive Officer, was extended by a further year to December 31, 2012. At the same time, Rice Powell as designated successor to Dr. Lipps was appointed as Deputy Chairman of the Management Board of Fresenius Medical Care and CEO of Fresenius Medical Care North America effective January 1, 2010. Rice Powell joined us in 1997 and has been on the Management Board since 2004.
On January 1, 2010, Fresenius Medical Care also appointed Michael Brosnan as the new Chief Financial Officer. He has been with the Company since 1998, acting as Chief Financial Officer of Fresenius Medical Care North America for the previous seven years.
In addition, as of January 1, 2010, Kent Wanzek assumed the newly created position of Member of the Board responsible for Manufacturing Operations. In this role, he monitors Fresenius Medical Care’s worldwide production activities. Kent Wanzek has been with our Company since 1996.
In addition to his existing function as Member of the Management Board responsible for the regions Europe, Middle East, Africa and Latin America, Dr. Emanuele Gatti is now also in charge of strategy development at Fresenius Medical Care. His contract has been extended.
Board Member Roberto Fusté will continue to be responsible for the continued successful development in the Asia-Pacific region in future.
The divisions Law, Compliance, Corporate Governance and Intellectual Property will remain the responsibility of Dr. Rainer Runte, whose mandate has also been extended. Since the year under review, he has also been responsible for human resources in Germany as Labor Relations Director and has monitored the projects in the Business Development division.
You can read more about the Management Board of Fresenius Medical Care here.
No other significant events took place in 2010 that had a significant influence on the operating business or legal structure of Fresenius Medical Care. Fresenius Medical Care carried on its outstanding development in the previous fiscal year, achieving record revenue and earnings figures in the year under review. All regions and segments contributed to this success.
In the financial year 2011, a new bundled reimbursement system for dialysis was introduced in our largest market, the U.S. This concerns the dialysis treatment of public healthcare patients. The care of more than 80% of all U.S. dialysis patients is financed by the state, which means that changes to the reimbursement system are of particular significance for our North America business. We can only partly compensate for the effects of this new remuneration structure in 2011. However, as a vertically integrated provider, we are confident that we will be able to respond to the changed situation.