Page index

Results of Operations, Financial Situation, Assets and Liabilities

Results of Operations, Financial Situation, Assets and Liabilities

The financial year 2012 was very successful. Again, we achieved record revenues and earnings despite challenging market conditions and unfavorable currency effects.

Results of operations

Revenue

In the year under review, Fresenius Medical Care again increased its revenue significantly by 10% to $13.80 BN, corresponding to a 12% growth rate in constant currency terms. The Company’s organic growth amounted to 5%, while acquisitions (net) accounted for 7% of revenue growth. Revenue from dialysis services were up by 13% (15% in constant currency) to $10.49 BN. Revenue from dialysis products rose by 1% to $3.31 BN (5% at constant currency).

Revenue in North America, still our most important business region with a share of 65%, was $9.03 BN in 2012, 14% above the $7.93 BN generated in the previous year. The organic growth amounted to 4%, while acquisitions (net) accounted for 10% of revenue growth. Revenue from dialysis services increased by 16% to $8.23 BN (2011: $7.11 BN). Revenue from dialysis products decreased by 1% to $0.80 BN (2011: $0.81 BN).

Revenue in the International segment, which includes all regions outside North America, improved by 2% to $4.74 BN (9% at constant currency). Acquisitions had the positive effect to increase revenue by 3%, while organic growth was 6%. Revenue from dialysis services in that region grew by 4% over the previous year to $2.26 BN. In constant currency terms, this represents an increase of 11%. Revenue from dialysis products rose by 1% to $2.48 BN in 2011, corresponding to 7% in constant currency terms.

T. 2.3.1

Revenue by segment

in $ M
 
  2012 20112 Change Exchange rate effects Organic Growth Acquisitions/
divestitures
(net)
1Including revenue generated by corporate functions in the amount of $29 M for 2012 and $17 M for 2011.2Revenue of 2011 had been adjusted by $ – 224 M according to a U.S. GAAP accounting change.
North America            
Dialysis products 801 813 -1% 0% 2% -3%
Dialysis services 8,230 7,113 16% 0% 4% 12%

Total

9,031 7,926 14% 0% 4% 10%
 
International
Dialysis products 2,478 2,458 1% -6% 7% 0%
Dialysis services 2,262 2,170 4% -7% 6% 5%

Total

4,740 4,628 2% -7% 6% 3%
 
Worldwide
Dialysis products1 3,308 3,288 1% -4% 6% -1%
Dialysis services 10,492 9,283 13% -2% 4% 11%

Total

13,800 12,571 10% -2% 5% 7%

At the end of 2012, we operated 3,160 dialysis clinics, 9% more than 2011. We treated 257,916 dialysis patients in the year under review, an increase of 11%. The number of treatments rose by 12% to around 38.59 M in the reporting year.

The largest business region in the International segment is Europe / Middle East / Africa (EMEA). Revenue in this region decreased by 2% to $2.89 BN in 2012, and increased by 6% based on constant currencies. The region’s share of total revenue was 21% (2011: 23%). By the end of 2012, we were treating 48,902 patients in 608 dialysis facilities, 556 patients or 1% more than twelve months before. In 2012, we generated revenue of $1.33 BN from dialysis services in this region, up 1% over the preceding year. In constant currency terms, this represents a 10% increase. Revenue from dialysis products amounted to $1.56 BN, minus 4% compared to the previous year and an increase of 3% based on constant currencies.

Revenue in the region Latin America increased by 15% to $804 M (24% based on constant currencies). The share of total revenue slightly increased to 6% compared to the previous year. Revenue from dialysis services grew by 15% (23% in constant currency terms) to $558 M. Revenue from dialysis products was at $246 M, an increase of 14% compared to the previous year (27% in constant currency terms). By the end of 2012, more than 26,956 patients were receiving dialysis treatments in the 225 clinics in this business region.

The Asia-Pacific region recorded an increase in revenue of 6% to $1.04 BN. This corresponds to a 7% revenue growth based on constant currencies. The share of total revenue of that region accounted for 8%, same as in the previous year. Revenue from dialysis services increased by 1% (2% in constant currency terms) to $371 M. Revenue from dialysis products in this region grew by 9% (10% in constant currency terms) to $672 M.

T. 2.3.2

Revenue by region

in $ M
 
  2012 2011 Change Percentage of total revenue
North America 9,031 7,926 14% 65%
Europe/Middle East/Africa 2,893 2,948 -2% 21%
Latin America 804 700 15% 6%
Asia-Pacific 1,043 980 6% 8%
Corporate 29 17 70% 0%

Total

13,800 12,571 10% 100%
T. 2.3.3

Patients

 
  2012 2011 Change
North America 164,554 142,319 16%
Europe/Middle East/Africa 48,902 48,346 1%
Latin America 26,956 25,381 6%
Asia-Pacific 17,504 17,110 2%

Total

257,916 233,156 11%
T. 2.3.4

Treatments

in M
       
  2012 2011 Change
North America 24.41 21.61 13%
Europe/Middle East/Africa 7.49 6.60 13%
Latin America 4.10 3.68 11%
Asia-Pacific 2.59 2.50 4%

Total

38.59 34.39 12%
T. 2.3.5

Clinics

       
       
  2012 2011 Change
North America 2,082 1,838 13%
Europe/Middle East/Africa 608 600 1%
Latin America 225 218 3%
Asia-Pacific 245 242 1%

Total

3,160 2,898 9%

Earnings

Operating income (EBIT)

Earnings before interest and taxes (EBIT) rose by 7% to $2.22 BN in 2012. The operating income includes charges in the amount of $110 M related to the amendment of the agreement for our iron product Venofer in North America and a donation to the American Society of Nephrology. Excluding those charges the operating income increased by 12% to $2.33 BN. Based on the adjusted result the operating margin increased from 16.5 to 16.9%, mainly due to the increase in the North American segment. The operating income there improved by 19% to $1.72 BN in 2012. The operating income margin increased from 18.1% in 2011 to 19.0% in 2012.

T. 2.3.6

Operating income (EBIT)

in $ M
       
  2012 2011 Change
1The operating income includes special charges in the amount of $110 M.
North America 1,615 1,435 12%
International 809 807 0%
Corporate (205) (167) 23%

Total

2,2191 2,075 7%

In the International segment, we recorded an operating income of $809 M around the level of the previous year. The operating income margin decreased from 17.4 to 17.1%.

Corporate costs increased in the course of 2012, as expected, particularly due to the donation to the American Society of Nephrology and increased legal fees. The total corporate operating expenditure amounted to $205 M in 2012, after $167 M in 2011.

Net income

In 2012, net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA grew by 11% to $1.187 BN, compared to $1.071 BN in 2011. This includes a non-taxable investment gain of $140 M related to the acquisition of Liberty Dialysis Holdings, Inc. and after tax charges mentioned above in the amount of $71 M ($110 M before tax charges). Excluding the investment gain and the special charges net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA was $1,118 M, up 4% compared to the previous year.

T. 2.3.7

Condensed statement of income

in $ M
 
  2012 2011 Change
1Net income attributable to the shareholders of Fresenius Medical Care AG & Co. KGaA. The number includes a non-taxable investment gain of $140 M and after tax charges in the amount of $71 M related to the amendment of the agreement for the iron product Venofer in North America and a donation to the American Society of Nephrology.
Net revenue 13,800 12,571 10%
Cost of revenue 9,199 8,419 9%

Gross profit

4,601 4,152 11%
In % of revenue 33.3 33.0 -

Operating income (EBIT)

2,219 2,075 7%
Investment gain 140 - -
Interest expense, net 427 297 44%

Earnings before taxes

1,932 1,778 9%

Net income

1,1871 1,071 11%

Gross profit

Gross profit in 2012 amounted to $4.60 BN, up 11% compared to 2011. The gross profit margin improved from 33.0 to 33.3%. The increase in the margin is largely due to the improved gross profit margin in North America.

Selling, general and administrative expenses rose by 11% to $2.22 BN (2011: $2 BN) and from 15.9 to 16.1% as a percentage of revenues. The increase resulted mainly from higher costs in the region North America, mainly due to an increase in personnel expenses and special charges relating to the acquisition of Liberty Dialysis Holdings, Inc.

Depreciation and amortization in 2012 grew to $603 M compared to $557 M in 2011. Depreciation as percentage of revenues remained unchanged at 4.4%.

Research and development costs were at $112 M, on par with the previous year.

Net interest

Net interest expenses in 2012 amounted to $426 M, after $297 M in 2011. This development is largely a consequence of a rise in debt from issuing several tranches of senior notes to refinance the acquisition of dialysis clinics, especially of Liberty Dialysis Holdings, Inc.

Detailed information on our "Financial situation" and in the "Financial report".

Tax rate

Income tax in the year under review amounted to $605 M, compared to $601 M in 2011. This corresponds to an effective tax rate of 31.3%, after 33.8% in 2011. Excluding the investment gain and the special charges mentioned above the effective tax rate for 2012 was 33.9%.

Earnings per share

Earnings per ordinary share (EPS) rose by 10% in 2012 to $3.89, compared with $3.54 in 2011. Excluding the investment gain and the special charges mentioned above earnings per ordinary share was $3.66. The average weighted number of shares outstanding in 2012 was around 305.1 M (2011: 303.0 M), of which 301.1 M were ordinary shares (2011: 299.0 M ordinary shares). The increase in the number of shares outstanding resulted from stock options exercises. Details on how earnings per ordinary share are derived can be found in the “Financial report”.

Value added statement

The value added statement reflects Fresenius Medical Care’s total economic output in 2012. All outlays, such as the consumption by value of purchased goods and services, as well as depreciation and amortization have been deducted from the Company’s performance. The value added of Fresenius Medical Care in 2012 was $7.3 BN, up 12% from $6.5 BN in 2011. The bulk of this, 67% or $4.9 BN, was paid to staff, while 8% or $605 M went to the public sector. Lenders partook of around $470 M or 7%. The shareholders and other partners received around 6% or $436 M. $891 M from the value added remained in the Company for reinforcement of the business.

T. 2.3.8

Value added statement

in $ M
         
  2012 2011
1Assuming the distribution of 2012 profits is approved by the Annual General Meeting on May 16, 2013.
Creation        
Company output 13,839 100% 12,672 100%
Outlays (5,962) -43% (5,618) -44%
Gross value added 7,877 57% 7,054 56%
Depreciation/amortization (603) -4% (557) -5%

Net value added

7,274 53% 6,497 51%
 
Distribution1
Staff 4,872 67% 4,362 67%
Public sector 605 8% 601 9%
Lenders 470 7% 357 6%
Shareholders and other partners 436 6% 398 6%
Company 891 12% 779 12%

Net value added

7,274 100% 6,497 100%

Order situation

Order volume is not a significant indicator for Fresenius Medical Care as three-quarters of our business model are related to services that are performed regularly. Our product business mainly comprises single-use products and is not defined by project-related orders that could lead to significant changes in order volumes in the reporting period. As a result, Fresenius Medical Care does not report on the basis of this financial indicator.

Financial situation

Our investment and financing strategy did not change substantially in the past financial year. This is also due to our business model, which is based on stable and high cash flows, allowing a more consistent and higher level of debt than might be the case in other industries. We still regard our refinancing options as being very stable and flexible. We have successfully renewed our revolving credit facility in October 2012. In the current financial year, the focus of our investing activities is on our dialysis services business, with an emphasis on expanding our global dialysis clinic network.

Principles and objectives of financial management

Besides optimizing our financial costs, financial flexibility takes top priority in Fresenius Medical Care’s financing strategy. The Company ensures this flexibility by using a wide range of financial instruments and securing a high level of diversification with regard to our investors and banks. Our financing profile is characterized by a wide spread of maturities up to 2022.

The main financing instrument is the syndicated credit agreement with a revolving credit facility and a long-term loan. In addition, we use several other mid and long-term financing instruments, mainly including senior, unsecured notes in euro and U.S. dollar and to a lesser extent, senior, unsecured euro notes with fixed-rate and floating-rate tranches.

T. 2.3.9

Major financing instruments of Fresenius Medical Care

 
  Amount in M Coupon Maturity
1Original amount before amortization.
Credit agreement revolving facility ~$1,250 - October 30, 2017
Credit agreement term loan A $2,6001 - October 30, 2017
       
Senior notes 2010 – 2016 €250 5.50% July 15, 2016
Senior notes 2011 – 2016 €100 3-month-Euribor
+3.50%
October 15, 2016
Senior notes 2007 – 2017 $500 6.875% July 15, 2017
Senior notes 2011 – 2018 $400 6.50% September 15, 2018
Senior notes 2011 – 2018 €400 6.50% September 15, 2018
Senior notes 2011 – 2021 $650 5.75% February 15, 2021
Senior notes 2011 – 2021 €300 5.25% February 15, 2021
Senior notes 2012 – 2019 €250 5.25% July 31, 2019
Senior notes 2012 – 2019 $800 5.625% July 31, 2019
Senior notes 2012 – 2022 $700 5.875% January 31, 2022
       
Euro notes €451 - October 27, 2014
Accounts receivable facility $800 - January 15, 2016

With only partially drawn credit facilities and our accounts receivable, we have sufficient financial resources. Our target for committed and unutilized credit facilities is between $300 M and $500 M. Our 2013 principal financing needs are the payment of $140 M for a loan as well as our dividend payment of approximately $304 M in May 2013. We intend to finance in accordance with our described financing strategy.

In our long-term financial planning, we focus primarily on the leverage ratio, defined as total debt / EBITDA ratio. This sets our total financial debt in relation with our earnings before interest, taxes, depreciation and amortization (EBITDA). Fresenius Medical Care holds a strong position in the growing dialysis sector, which is considered in general non-cyclical. This industry is characterized by relatively stable cash flows. Our market position is further supported by a high creditworthiness of most of our customers. A substantial portion of our accounts receivables are generated by governmental healthcare institutions. While payment and collection practices vary not only between countries but also between individual authorities, governmental payors usually represent a lower to moderate credit risk. This allows us a more consistent and higher level of debt as this may be the case in other industries. At the end of 2012, the debt / EBITDA ratio was 2.83 compared to 2.69 in the previous year. Further information on this can be found in the „Strategy, objectives, and corporate management“.

For detailed information on financing, please see the “Financial report”, section “Liquidity and capital resources” and the “Outlook” section.

Rating

In the beginning of 2012, Standard & Poor’s Ratings Services upgraded the company’s corporate credit to “BB+” from “BB” and confirmed a “stable outlook”. The rating agencies Moody’s and Fitch have confirmed Fresenius Medical Care’s ratings, Moody’s with “Ba1” and a “stable outlook”, Fitch with “BB+” and also a “stable outlook”.

T. 2.3.10

Rating

       
  Standard & Poor's Moody's Fitch
Corporate credit rating BB + Ba1 BB +
Outlook Stable Stable Stable
Senior secured debt BBB - Baa3 BBB
Senior unsecured debt BB + Ba2 BB +

Effect of off-balance-sheet financing instruments on our financial situation and assets and liabilities

Fresenius Medical Care is not involved in any off-balance- sheet transactions that could have or will be likely to materially affect the Company’s financial situation, profit and loss position, liquidity, investments, assets or capitalization.

Liquidity analysis

Our main sources of liquidity are our operating cash flow and credits granted by third parties, as well as the use of other financing instruments as required. We need these resources primarily to finance working capital, to fund acquisitions, to build, expand and equip our own dialysis centers and production facilities, and to repay debt and to pay dividends. For detailed information on liquidity, please see the “Liquidity and capital resources” section of the “Financial report”.

16th consecutive dividend increase

Fresenius Medical Care will propose the Annual General Meeting the 16th consecutive dividend increase. The recommended dividend per ordinary share is expected to increase by 9% from €0.69 for 2011 to €0.75 for 2012, the dividend per preference share by 8% to €0.77 (2011: €0.71). The total dividend payout expected will amount to approximately €230 M (2011: €210 M). For further information on dividends, please refer to the „Dividend continuity“.

Capital expenditures and acquisitions

In 2012, Fresenius Medical Care spent $2.28 BN on capital expenditures, acquisitions and the purchase of intangible assets. $1.91 BN of this was spent in the North America segment, $192 M in the International segment and $175 M for corporate functions.

T. 2.3.11

Net investments and acquisitions by segment

in $ M
         
  2012 2011 of which property, plant and equipment of which acquisitions/
intangible assets and other investments
of which divestitures Absolute change compared to 2011
North America 1,914 1,047 298 1,849 233 867
International 192 1,133 195 28 31 -941
Corporate 175 165 173 2 0 10

Total

2,281 2,345 666 1,879 264 -64

Total net investment in property, plant and equipment was $666 M, up from $570 M the year before. A large portion of capital expenditures – $372 M – concerned equipping existing and new clinics. In addition, $170 M was invested in the maintenance and expansion of production capacity, primarily in Germany, North America, France and China. $133 M was spent for the capitalization of dialysis machines provided to customers – mainly in the International segment. A lesser amount of $9 M is accrued due to divestments. Capital expenditures in property, plant and equipment amounted to some 5% of overall revenue, at the same level as in the previous year.

41% of net investments were used for expansion activities, while 59% were spent on maintaining existing production sites and dialysis clinics.

In geographical terms, 45% of our net investments were made in North America, followed by corporate functions with 26%, Europe with 21%, Latin America with 4% and Asia-Pacific with 4%.

Net investments in property, plant and equipment by regions
T. 2.3.13

Days sales outstanding

in days, December 31
       
  2012 2011 Change
North America 55 55 0
International 115 121 -6

Total

76 80 -4

In 2012, around $1,879 M was spent on acquisitions, primarily for purchasing dialysis clinics. $1,849 M of this sum went to the North America segment, $28 M to the International segment and $2 M to corporate functions. Acquisitions in 2012 related primarily to the purchase of Liberty Dialysis Holdings, Inc.

Cash flow analysis

The cash from operations, also known as operating cash flow, rose in 2012 by 41% and exceeded with 2.04 BN (previous year: $1.45 BN) the mark of two billion for the first time in the history of the Company. The increase is mainly due to the favorable development of working capital. Cash flows were used for investing activities (expenditures and acquisitions). A detailed description of additional factors is presented in the “Liquidity and capital resources” section of the “Financial report”.

In 2012, we observed some regional differences in the payment patterns of our customers. The days sales outstanding, in other words the number of days that pass before customers settle outstanding invoices of Fresenius Medical Care, decreased significantly in the year under review. The days sales outstanding in the North America segment continued to be on a low level in 2012. In the International segment the improved payment behavior of individual European countries has contributed to a decline in days sales outstanding. The high days sales outstanding in this segment mainly reflect the average payment delays by government and private entities, and here particularly in European countries with relatively higher budget deficits.

In 2012, our free cash flow, before acquisitions and dividends, was $1,373 M compared to $876 M in 2011. Taking account of payments for acquisitions (net of divestitures) of $1,615 M (2011: $1,775 M) and dividends of $272 M (2011: $281 M), we achieved a free cash flow of $ – 514 M compared to $ – 1,180 M in the previous year.

For further information, please see the “Capital expenditures and acquisitions“ section.

T. 2.3.14

Abbreviated statement of cash flow1

in $ M
 
  2012 2011 Change
1A detailed representation can be found in the “Financial report”.
Cash at the beginning of the year 457 523 -13%
Cash flow from operating activities 2,039 1,446 41%
Cash flow from investing activities (2,281) (2,345) -
Cash flow from financing activities 468 793 -
Effect of exchange rate changes on cash and cash equivalents 5 40 -
Cash at the end of the year 688 457 50%
Free cash flow 1,373 876 57%
Operating cash flow

Assets and liabilities

We recorded an increase in total assets and once again improved our asset situation in the year under review. The key balance sheet indicators reflect our Company’s sustained growth and successful performance.

Balance sheet and asset situation

The Company’s total assets grew by 14% year-onyear to $22.33 BN (also 14% in constant currency terms).

Fixed assets rose by 17% (16% in constant currency) to $16.20 BN at the end of 2012. This corresponds to approximately 73% of the Group’s total assets. The increase in our assets in absolute terms is mainly attributable to acquisitions.

Fixed assets include goodwill of $11.42 BN, mainly from the acquisition of Renal Care Group in 2006 and the acquisition of Liberty Dialysis Holdings, Inc. in 2012 as well as the founding of Fresenius Medical Care in 1996. The increase in goodwill in 2012 compared to the previous year ($9.19 BN) resulted primarily from acquisitions undertaken in the reporting year, especially from the above mentioned acquisition of Liberty Dialysis Holdings, Inc. in the amount of $2.0 BN. Property, plant and equipment were up 12% to $2.94 BN in the year under review, mainly due to capital expenditures and acquisitions. Further information on this can be found in the “Capital expenditures and acquisitions”.

Other non-current assets and notes receivable decreased from $0.55 BN to $0.35 BN due to the repayment of a loan regarding the acquisition of Liberty Dialysis Holdings, Inc.

Current assets rose by 8% (7% in constant currency) to $6.13 BN at the end of 2012. Key drivers were the increase in cash (by 50% to $688 M) and the trade accounts receivable (by 8% to $3.02 BN), mainly due to the acquisition of Liberty Dialysis Holdings, Inc. and to business growth related to a reduction of days sales outstanding (DSO).

Balance sheet structure – assets Balance sheet structure – liabilities

Inventories grew by 7% (also 7% in constant currency terms) to $1.04 BN in 2012. This development is mainly due to the business growth. For further information, see the “Financial situation”.

Shareholders’ equity

The liabilities side of the balance sheet saw a 14% increase in shareholders’ equity to $9.21 BN at the end of 2012. This was mainly driven by earnings, stock option exercises and an increase in non-controlling interests without put-options. Shareholders’ equity was reduced by dividend payouts for 2011. The equity ratio amounted to 41% and thus remained unchanged from the previous year’s figure.

Liabilities increased by 14% (14% at constant currency) to $13.12 BN. Debt amounted to $8.30 BN (2011: $7.21 BN), $0.46 BN of which were attributable to short-term borrowings (2011: $1.72 BN). The reduction is attributable to the closing of the new senior credits, reported under medium to long-term debt. These increased to $7.84 BN from $5.49 BN in 2011. The increase resulted from the issuance of bonds in January, 2012 and from the reclassification of the liabilities from the senior credits. 73% of our debt is U.S. dollar denominated, compared to 70% in the previous year.

The Group has no significant accruals. The largest single accrual of $115 M covers a special charge for the final settlement of fraudulent conveyance claims and all other legal matters in connection with the National Medical Care transaction in 1996 resulting from the bankruptcy of W. R. Grace. Further information can be found in note 19 of the “Financial report”.

back