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Dear Fellow Shareholders

Letter to the Shareholders

As of the beginning of 2013, I have been given responsibility for leading Fresenius Medical Care’s global operations. Together with our Management Board and Dr. Ben J. Lipps – my predecessor and long-acting Chief Executive Officer of our Company – we managed a demanding but overall successful year in 2012. I would like to take this opportunity to personally thank Ben for his service and his tireless dedication during more than 14 years as CEO. His leadership was an integral part of the organization’s success these past years, and it allows me to announce a strong set of numbers for 2012.

The fiscal year 2012 was once again a year of record financial results for our Company. Our revenue reached $13.8 billion, up 10% from 2011. In the same period, our net income grew on a reported basis by 11% to $1,187 million. Our free cash flow before acquisitions and dividends increased to $1,373 million in 2012 compared to $876 million in the previous year. We achieved this positive business performance in 2012 in spite of many challenges, including the integration of several large acquisitions, a much tougher economic environment for our product business and our efforts to help patients and employees following the Superstorm Sandy disaster in North America.

Our continued financial strength enabled us to adhere to our results-oriented dividend policy once again in 2012. We will propose an increase of our annual dividend by 9% to €0.75 per ordinary share. Subject to this resolution being approved, our shareholders can expect the 16 th consecutive increase since the foundation of our Company. As you might have observed, we have strengthened our mid-term dividend policy and would now like to establish dividend to grow approximately in line with the growth in earnings per share. In addition, we have established the ability to buy back stock if and when we think it is appropriate to do so.

Reflecting on our 2012 results, I am extremely pleased with how our Company performed in people terms. This really impressed me, especially since we as a Company asked for a lot from our people as I indicated above. No matter how difficult the circumstances and how challenging the events have been, our employees delivered outstanding and compassionate care for our patients and their communities by providing best-in-class products and lifesaving services.

On behalf of the entire Management Board, I would like to thank every one of our 86,153 employees around the globe for these outstanding efforts. We are proud of their ongoing commitment to make products based on the highest quality standards and their pure enthusiasm in treating our patients with great compassion. In my new role, I am looking forward to meeting many of our employees who work for Fresenius Medical Care all around the globe.

We are doing the right thing by giving our patients top priority. I believe that doing so is also ultimately advantageous for our shareholders. This patient-first focus keeps us aware of the ongoing imperative to continually innovate and improve, and to overcome potential challenges ahead. It also underscores our aspiration to make life worth living for our patients around the world every day.

However positive the long-term performance of our stock may have been, we had to realize that our stock could not repeat its huge outperformance of the DAX in 2011, when the index dropped by 16% and our share price increased by 22%. One of the reasons for this not being the case in 2012 was that the general investment sentiment has been positive and markets have been up by as much as 30%, for example the DAX. In such a positive investment environment, defensive stocks like ours are clearly not on the top of the list for investors compared to cyclical investments that profit disproportionally from such a friendly investment environment and have even more attractive valuation multiples. Additionally, in 2012 our share price was affected by speculation as to how and when the prospective payment reimbursement system for Medicare patients in North America would be further adjusted for additional savings. In the third quarter of 2012, we also posted a year-on-year earnings decrease compared to 2011. Despite having communicated the reasons for this and indicating our ability to continue to meet our full-year guidance, this affected the value of our shares.

In the fiscal year 2012, we continued to invest in our Company’s future and to expand our product and services businesses. This enabled us to secure our market-leading position around the world.

In 2013 and beyond, we will continue to focus on three areas: (1) investing in our employees; (2) maintaining quality services resulting in satisfied patients; and (3) producing outstanding and innovative products, to the benefit of people with kidney failure and our market position. The challenging demographic and megatrends surrounding diseases such as diabetes and hypertension afford us the opportunity to provide vital and impactful solutions, while at the same time doing business in a market niche that will grow consistently in coming years.

In my mind, there is no need to react to short-term influences or take on excessive risk. We are in this business, and will maintain our focus for the long run.

As I am a builder, rather than a renovator, our annual report reflects the theme of “continuity”. To me, continuity manifests itself through ongoing improvements of our products and services and a steady development of our business and related areas to provide life-sustaining treatment to the growing number of patients who live with chronic kidney disease.

Although 2013 will not be an easy year for our Company, I feel positive about the Company’s continued progress and new prospects. Challenges like the legislative overhang of a new reimbursement formula in North America, the newly introduced medical device tax and, finally, the outcome of the fiscal cliff discussions for our industry – so-called “sequestration”, resulting in a 2% reimbursement cut across Medicare – will be an issue. Nevertheless, looking at the underlying operational performance of the Company that we can influence, it is fair to say that we are well prepared to sustain development and growth in our business and retain your ongoing trust in Fresenius Medical Care.

Yours sincerely

RICE POWELL
Chief Executive Officer of Fresenius Medical Care

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