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Outlook

Outlook

Having attained our targets once again in the last financial year, we also expect to perform positively in 2013. We consider ourselves to be well prepared to continue on our path of sustainable growth in the years to come.

Business policy

Fresenius Medical Care is the world’s leading dialysis company. We aim to consolidate and, if possible, build on this position in the years ahead. We intend to maintain our vertically integrated business model; there are no plans to make significant changes to our business policy. Back in 2005, we defined our long-term growth strategy, the basic principles of which we continue to pursue. For further information on this, see the “Company strategy” section.

Global economic growth stabilizes

After a year of slower growth, the global economy is expected to stabilize in 2013. But the high levels of government debt in many countries are furthermore dampening global demand. Overall, gross national product (GDP) is likely to grow by around 3.4% worldwide in 2013, following a rise of 3.2% in 2012.

The emerging countries will continue to lead the economic recovery in 2013

A slight economic recovery is expected in the U.S., based on falling unemployment and an associated increase in domestic demand. Spending cuts and tax rises cause negative effects.

In the overall assessment of the euro zone, a slowdown in growth is anticipated. The weak economic situation in the southern peripheral nations is countering the positive development in northern core countries such as Germany.

In Asia, the emerging countries, in particular China and India, are expected to be the key growth drivers, as in previous years.

An economic upturn is also expected in Latin America in 2013, mainly driven by domestic demand.

T. 2.12.1

Real gross domestic product and consumer prices

Expected change from the previous year in %
 
  Gross domestic product Consumer prices
  2012 2013 2012 2013
Sources: Institute for the Global Economy at the University of Kiel, “Weltkonjunktur im Winter 2012”, December 18, 2012; monthly reports of the Deutsche Bundesbank and the European Central Bank
U.S. 2.2 1.5 2.1 2.1
Germany 0.7 0.3 2.0 2.0
Euro zone -0.5 -0.2 2.5 1.9
European Union -0.3 0.1 2.5 2.0
New EU member states 0.9 1.3 3.8 3.0
Russia 4.5 3.8 5.5 5.5
Japan 2.0 0.5 -0.2 -0.3
China 7.8 8.0 2.6 2.5
India 3.8 6.5 9.1 8.5
Asia 6.6 7.3 4.3 4.2
Latin America 2.9 3.8 6.2 5.6

Worldwide

3.2 3.4 4.6 4.2

The dialysis market continues to grow

Fresenius Medical Care expects the number of dialysis patients worldwide to grow by about 6% in 2013. Some significant regional differences will probably remain. We anticipate a 2 to 4% increase in patient numbers in the U.S., Japan, Western and Central Europe. In these regions, the prevalence of chronic kidney failure is already relatively high and patients generally have reliable access to treatment, normally dialysis. In economically weaker regions, the growth rates are even higher with values of up to 10%, and in some countries even more. We expect patient numbers to continue to rise in the coming years, see chart 2.12.3.

T. 2.12.2

Expected growth in patient numbers in 20131

 
 
  Change
1Internal estimates.
North America ~5%
U.S. ~4%
Europe/Middle East/Africa ~4%
EU ~2%
Asia-Pacific ~10%
Japan ~2%
Latin America ~6%

Worldwide

~6%
Number of dialysis patients worldwide – forecast to 2020

Demographic factors are one of the main reasons for the continued growth of dialysis markets, including the aging population and the mounting incidence of diabetes and hypertension – two diseases that often precede end stage renal disease. In addition, the life expectancy of dialysis patients is increasing primarily due to ongoing improvements in the quality of treatment and higher standards of living, even in developing countries.

As a result of the anticipated differences in growth rates, a higher proportion of patients will undergo dialysis treatment in Asia, Latin America, Eastern Europe, the Middle East and Africa in future. This opens up huge potential for the entire spectrum of dialysis services and products, as more than 80% of the world’s population lives in these regions.

We do not expect significant changes in treatment methods. Hemodialysis will remain the treatment of choice, accounting for about 89% of all dialysis therapies. Peritoneal dialysis should continue to be the preferred treatment for about 11% of all dialysis patients.

The volume of the worldwide dialysis market, which amounted to about $75 BN last year according to preliminary estimates, is expected to increase by around 4%. This is based on the assumption that exchange rates will remain stable in the forecasting period. The overall volume of the dialysis market could thus reach around $78 BN by 2013.

Growth and future sales markets

In the product business, we have had our own sales organizations in key growth markets in Eastern Europe and Asia for several years and already hold leading market positions. We serve small markets via distributors. We want to continue to expand our local range of products and local production. Acquisitions can also help us to achieve our aim of strengthening our product business. At the same time, we use acquisitions to grow our network of clinics in these regions. In China, we again strongly expanded our product business and our alliances with hospitals in the area of dialysis services in 2012 and plan to continue this in the coming years. Furthermore, we opened our own dialysis center in the Chinese province of Jiangsu in mid-2012 as part of a pilot project. In addition to China, another Asian market that looks increasingly promising is India. We have been represented on this product market through distributors since the 1990s. We also plan to open 30 of our own dialysis centers in India by 2015. Regional and local health authorities in India also promote the public private partnership model (PPP). Therefore, we also intend to conclude corresponding supply contracts with larger regional and municipal hospitals. The increasing importance of the Chinese and Indian markets with dialysis patient numbers rising by considerably more than 10% annually should accelerate our growth in the region as a whole.

Business development of Fresenius Medical Care in 2013

Exchange rates

Fresenius Medical Care’s outlook for 2013 is based on the exchange rates at the beginning of the reporting year. As mentioned in the “Economic environment” section, the relationship of the U.S. dollar to the euro is especially important for Fresenius Medical Care. In its forecasts, Fresenius Medical Care also takes into account other exchange rates that are particularly relevant to the economic performance of its subsidiaries, such as the Taiwanese dollar against the U.S. dollar or the Chinese Yuan against the euro. Volatile exchange rates affect the forecast results of the subsidiaries, as well as the conversion of these results into U.S. dollars.

Revenue

We aim to further significantly increase our revenue in the current financial year to more than
$14.6 BN, which would correspond to a growth rate of more than 6%. We intend to continue this positive development in the years to come.

Net income

In 2013, we aim to achieve net income (attributable to shareholders of Fresenius Medical Care AG & Co. KGaA) between $1.1 BN and $1.2 BN. Net income in 2013 is expected to increase by 5 to 15% compared to the net income excluding an investment gain in 2012. In 2013, the operating income is expected to be between $2.3 BN and $2.5 BN, which would correspond to an increase of 4 to 13%.

At the time of this annual report’s editorial deadline, no one-time effects that might have a significant impact on net income in 2013 were anticipated.

Earnings per share

For 2013, we expect earnings per shares to grow in parallel with net income.

Dividend

Fresenius Medical Care intends to continue its profit-oriented dividend policy. At the Annual General Meeting on May 16, 2013, the Management Board will propose to the shareholders an increase of the dividend by 9% to €0.75 per ordinary share. Subject to the approval of the Annual General Meeting, the shareholders can expect an increase of the dividend the 16th year in a row since the foundation of Fresenius Medical Care in 1996. In the subsequent years, we will align our dividend development to the growth in earnings per share. Information on the proposed dividend increase can be found in the “Dividend continuity” section.

Investments and acquisitions

In 2013, we intend to spend around $1 BN in absolute terms – or some 7% of revenue – on capital expenditures and acquisitions. Investments should account for around $0.7 BN or 5% of revenue in 2013. Around 50% of this amount is earmarked for expansion investments. Approximately $0.3 BN or 2% of revenue is to be used for acquisitions and equity investments.

In addition to the ongoing modernization of our dialysis clinics and production facilities, capital expenditures will primarily be used to open new dialysis clinics and expand our worldwide production capacities as well as on dialysis machines within the framework of long-term supply contracts. Additionally, capital expenditures will be used to rationalize production processes and to improve system support of internal processes. Furthermore, the Company is planning to continue making selective acquisitions to further consolidate the global business.

Cash flow

In 2013 the operating cash flow is again expected to account for more than 10% of revenue. To ensure that cash flow targets are met, the emphasis will continue to be on the management of current assets. With revenue forecast of more than $14.6 BN, this would result in an operating cash flow of around $1.5 BN in 2013.

Debt/ EBITDA ratio

Fresenius Medical Care takes the debt / EBITDA ratio as its guideline for long-term financial planning. This ratio was 2.83 at the end of 2012. For 2013, the target figure is expected to be equal or below 3.0.

Financing

The Company’s financing strategy gives top priority to ensuring our financial flexibility. With our only partly used credit facilities and accounts receivable facility Fresenius Medical Care has sufficient financial resources. In doing so, we are pursuing a target value for secured and unutilized credit facilities of at least $300 M to $500 M. Our 2013 principal financing needs are the payment of $140 M for a loan coming due in 2013. These payments as well as our dividend payment of approximately $300 M in May 3013 are expected to be covered by our cash flows and by using existing credit facilities.

T. 2.12.4

Targets for 2013 and 2014

 
 
  Results 2012 Targets 2013 Targets 2014
1Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA. Adjusted for tax-free income from other investments to the amount of $140 M. 2Proposal to be approved by the Annual General Meeting on May 16, 2013. 3Based on capital expenditures and acquisitions. 4Pro forma numbers including Liberty Dialysis Holdings, Inc., after FTC mandated divestitures. 5Full-time equivalents
Revenue $13.80 BN > $14.6 BN Increase of 6 – 8%
at constant currency
Net income $1.047 BN1 $1.1 BN – $1.2 BN Based on revenue growth
Dividend +9% per ordinary share to €0.752 Based on development of earnings Based on development of earnings
Investments, net $666 M ~$700 M ~7 – 9% of revenues3
Acquisitions, net $1.615 BN ~$300 M ~7 – 9% of revenues3
Debt/EBITDA ratio 2.84 ≤ 3.0 ≤2.8
Employees5 86,153 > 90,000 > 92,000
Research and development expenses $112 M ~$140 M ~$150 M
Product innovations 5008 CorDiax Further expansion of product and service range Further expansion of product and service range

For further information, see the “Financial situation” section.

Legal structure and organization

The holding company of Fresenius Medical Care has been a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) since 2006. Changes to the legal form are not planned in the foreseeable future. We intend to retain our decentralized organizational structure and the division into the three operating segments “North America”, “International” and “Asia-Pacific”. To our view, this well-proven structure ensures the best-possible flexibility and adaptation to market requirements.

Future products and services

We plan to spend approximately $140 M on research and development in the current financial year. The number of employees (currently 530 full-time equivalents) in this area is not expected to change significantly in 2013.

As a vertically integrated company, we aim to offer a complete portfolio of high-quality products and services for the treatment of chronic kidney failure that can be adapted flexibly to local market conditions and to the sometimes dynamic changes in healthcare systems and reimbursement structures.

In view of the growing challenge faced by healthcare systems to provide comprehensive, high-quality yet cost-effective care for an increasing number of patients, we want to use this extensive portfolio more and more to offer our healthcare partners integrated concepts for patient care. Thanks to our business model and our long-standing experience in operating an international network of clinics, we are in a particularly strong position to offer comprehensive high- quality solutions of this kind from a single source; see “Opportunities” section in the “Risk and opportunities report”.

One focus of our research and development work will be on developing innovations that incorporate additional treatment elements into our products and services or help to better align them – always with the aim of improving the quality, safety and cost-efficiency of treatment in equal measure. For example, we will be working on devices for our hemodialysis machines that reduce the handling of the bloodline system and its connections to just a few operations, thereby easing the workload of clinic staff. We will also be looking at integrating the dosage and administration of certain drugs into the dialysis machine cycle, along with new functions to improve the quality and safety of treatment.

In the interest of more comprehensive patient care, we will also continue to focus our software development efforts on developing integrated system solutions for clinical quality data management. These will be designed to enable a larger volume of data to be captured faster and more easily, enhance the quality of the data and thus continuously improve treatment. It is feasible in the long term, for example, that these systems will not only record the complete history of a patient’s hemodialysis treatment, but also manage data as early as the preliminary stages of chronic kidney failure so that treatment can be better coordinated and possible preventive measures applied more specifically. A common data management solution for peritoneal and hemodialysis patients could also help to improve the coordination of treatment and thus its quality. These two patient groups are now normally logged in separate IT systems, although many peritoneal dialysis patients frequently switch to hemodialysis after a certain period due to the limitations of using the human peritoneum as a dialysis membrane.

In general, we will also continue to look into the issue of how new scientific and technological findings can be used to further improve the quality of life of a growing number of patients with chronic kidney failure – for example, through innovations in home therapies. Treatment safety will remain at the forefront of our efforts to continuously improve our products and services, and the concomitant diseases of chronic kidney failure will also remain a focus of our research.

A further research topic is transferring the blood cleansing process used for dialysis to other illnesses, like liver disease, septicemia or certain autoimmune and metabolic disorders. In the long term, we will continue researching new approaches to treating severe kidney and liver disease based on regenerative medicine. To do this, we work together with internationally renowned scientific institutions and universities that conduct research on adult liver and kidney stem cells.

Finally, we want to contribute further to reducing the environmental impact of our products and services during their lifecycle as far as possible.

Employees

Due to the anticipated expansion in business, we expect the number of employees to grow in all regions in the current year, particularly in the area of dialysis services. By the end of 2013, the number of people working for Fresenius Medical Care is estimated to increase to more than 90,000 (full-time equivalents).

Future use of new technologies and processes

With the assistance of the Global Manufacturing Operations division (GMO), we aim to help our regions to keep on providing their patients and customers with top product quality at the best price. At the same time, we intend to enable our regionally responsible Board Members and their teams to focus their work on developing and growing their dialysis services business. In 2013, one priority of GMO will be to diversify the global supplier portfolio even more so that we can reduce our product costs and offset currency and supply risks.

We will continue to harmonize our processes globally along the manufacturing chain, for example by migrating the current regional production systems to a common information technology system in the coming years. We will also introduce uniform IT systems in quality management, for example to document our processes internally and for complaint management.

In the current year, we aim to enhance the Fresenius Operating System (FOSY) (see the chapter “Procurement and production”) and promote its implementation in all regions. The management philosophy FOSY will enable us to increase quality in production, reduce costs and shorten lead times. In 2012, all operating units and quality management were included in FOSY. GMO finance and GMO administration will follow in 2013. In addition, we will strive to standardize improvement measures (use of same measures) or harmonize improvement measures (use of similar measures) across all regions. This will enable us to better identify best-practice approaches and use our strengths more effectively globally.

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