RESULTS OF OPERATIONS
Sales
In 2007, we increased Group sales by 5 % to € 11,358 million (2006: € 10,777 million). Organic growth reached 6 % and acquisitions contributed 6 % to the growth in sales. Divestitures had an impact of -2 %. Currency translation had an effect of -5 %. The table shows the various influences on Fresenius’ Group sales. There were no significant consequences from the changes in product mix. Price effects in the dialysis care business contributed positively. In the foreseeable future no significant changes in these items are anticipated.
The largest regions in the Group were North America and Europe, which contributed 43 % each to total sales. These were followed by Asia-Pacific with 7 % and Latin America and Africa with 4 % and 3 %, respectively. Germany contributed 22 % to Group sales.
We increased sales significantly in all regions of the world. In North America, sales rose 10 % in constant currency. This was driven by organic growth of 5 % and the full-year consolidation of Renal Care Group. In Europe, organic growth of 5 % was the main driver. We again achieved strong organic growth in Asia-Pacific with 9 %, in Latin America with 10 %, and in Africa with 26 %.
Sales performance by business segment was as follows:
- Fresenius Medical Care achieved a sales increase of 5% to € 7,093 million in 2007 (2006: € 6,768 million). This was mainly driven by very good organic growth of 6%, as well as by acquisitions (7%). Currency translation had an effect of -7%. Divestitures had an impact of -1%. Fresenius Medical Care achieved strong growth both in dialysis care and in dialysis products.
- Fresenius Kabi increased sales by 7% to € 2,030 million
(2006: € 1,893 million). The company achieved strong
organic growth of 8%. Currency translation had an effect of -2%. This was mainly attributable to the weaker
currencies in South Africa, China, Mexico and Canada.
Performance in Asia-Pacific was excellent. Here,
Fresenius Kabi achieved strong organic growth of 22%.
- Fresenius ProServe achieved sales of € 2,268 million in 2007 (2006: € 2,155 million). Organic growth was 3%. Acquisitions contributed 7% to the growth in sales, while among others the divestiture of Pharmaplan and Pharmatec had a negative effect of 5%. € 1,841 million of Fresenius ProServe’s sales were generated by Fresenius Helios (2006: € 1,673 million). The company achieved very good growth of 10%, with organic growth contributing 3% and acquisitions 9%. Divestitures had an impact of -2%. Fresenius Vamed contributed € 408 million to Fresenius ProServe’s sales (2006: € 392 million), an increase of 4%. Order intake in Fresenus ProServe’s engineering business was € 418 million (2006: € 407 million). The deconsolidation of Pharmaplan and Pharmatec was largely responsible for the only moderate increase. Order backlog rose 19% to € 510 million (December 31, 2006: € 428 million). Order intake attributable to Fresenius Vamed was € 395 million, an increase of 17% (2006: € 337 million). Order backlog at Fresenius Vamed rose 32% to € 510 million (December 31, 2006: € 387 million).
Earnings structure
We achieved excellent growth rates in net income in 2007: Group net income rose 24% to € 410 million. Currency translation had an effect of -4%. Growth in constant currency was 28%. All business segments contributed to this success. Net income in 2006 had included one-time expenses of € 22 million mainly associated with the acquisition of Renal Care Group and the early refinancing of Group debt. Adjusted by this amount, net income would have increased 16% in 2007. Inflation had no significant effect on results of operations in 2007.
| Sales by region | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in million € |
2007 | 2006 | Change | Organic grow th |
Currency translation effects |
Acquisitions/ divestitures |
% of total sales |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 4,852 | 4,536 | 7% | 5% | 0% | 2% | 43% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | 4,932 | 4,862 | 1% | 5% | -9% | 5% | 43% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asia-Pacific |
802 | 696 | 15% | 9% | -5% | 11% | 7% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Latin America | 488 | 452 | 8% | 10% | -3% | 1% | 4% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Africa | 284 | 231 | 23% | 26% | -4% | 1% | 3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 11,358 | 10,777 | 5% | 6% | -5% | 4% | 100% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales by business segment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in million € |
2007 | 2006 | Change | Organic growth |
Currency translation effects |
Acquisitions/ divestitures |
% of total sales |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius Medical Care | 7,093 | 6,768 | 5% | 6% | -7% | 6% | 62% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius Kabi | 2,030 | 1,893 | 7% | 8% | -2% | 1% | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius ProServe | 2,268 | 2,155 | 5% | 3% | 0% | 2% | 20% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - thereof Fresenius Helios | 1,841 | 1,673 | 10% | 3% | 0% | 7% | 16% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - thereof Fresenius Vamed | 408 | 392 | 4% | 4% | 0% | 0% | 4% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statement of Income (Summary) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in million € | 2007 | 2006 | Change | Change in constant currency |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | 11,358 | 10,777 | 5% | 10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | -7,680 | -7,351 | -4% | -9% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 3,678 | 3,426 | 7% | 12% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses |
-2,069 | -1,982 | -4% | -9% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBIT | 1,609 | 1,444 | 11% | 17% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest | -368 | -395 | 7% | 2% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | -448 | -414 | -8% | -14% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Minority interest |
-383 | -305 | -26% | -32% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 410 | 330 | 24% | 28% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per ordinary share (in €) |
2.64 | 2.15 | 23% | 27% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per preference share (in €) |
2.65 | 2.16 | 23% | 27% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 2,030 | 1,843 | 10% | 15% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
421 | 399 | 6% | 10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group EBITDA increased 15% in constant currency and 10% at actual rates to € 2,030 million (2006: € 1,843 million). Group EBIT increased 17% in constant currency and 11% at actual rates to € 1,609 million (2006: € 1,444 million, or € 1,448 million adjusted for the gain from the divestitures of dialysis clinics in the United States and one-time expenses associated with the acquisition of Renal Care Group).
EBIT of the individual business segments developed as follows:
| in million € |
2007 | 2006 | Change. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius Medical Care | 1,153 | 1,050 | 10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius Kabi | 332 | 291 | 14% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fresenius ProServe | 181 | 154 | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - thereof Fresenius Helios | 155 | 133 | 17% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - thereof Fresenius Vamed | 26 | 23 | 13% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Fresenius Medical Care increased EBIT by 10% to € 1,153 million (2006: € 1,050 million, or € 1,054 million adjusted for the gain from the divestitures of dialysis clinics in the United States and netted with one-time expenses mainly for the integration of Renal Care Group). The very good increase in operating profit was driven by the performance of the dialysis care business as well as by significant improvements in the international business. In addition, currency translation had a negative effect of 7%.
- In 2007, Fresenius Kabi sustained the excellent earnings performance achieved in 2006. EBIT increased by 14% to € 332 million (2006: € 291 million). The EBIT margin increased to 16.4% (2006: 15.4%). This growth was driven by a good operating performance in all regions, by cost optimization and efficiency improvement measures, and by changes in the product mix.
- Fresenius ProServe achieved a very good EBIT performance. In 2007, this business segment had an EBIT of € 181 million (2006: € 154 million), an increase of 18%. Fresenius Helios contributed € 155 million (2006: € 133 million) and Fresenius Vamed € 26 million (2006: € 23 million) to Fresenius ProServe’s EBIT.
| VALUE ADDED STATEMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in million € | 2007 | % | 2006 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Creation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company output | 11,489 |
100 | 10,799 | 100 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - Materials and services purchased | 5,314 |
46 | 5,064 | 47 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross value added | 6,175 |
54 | 5,735 | 53 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| - Depreciation and amortization | 421 |
4 | 399 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net value added | 5,754 | 50 | 5,336 | 49 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employees | 4,052 | 71 | 3,804 | 72 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Governments | 541 | 9 | 502 | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lenders | 368 | 6 | 395 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders | 103 | 2 | 89 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company and minority interest | 690 | 12 | 546 | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net value added | 5,754 | 100 | 5,336 | 100 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Development of other major items in the statement of income
Group gross profit increased to € 3,678 million, exceeding the €3,426 million in 2006 by 7% (12% in constant currency). We improved the gross profit margin to 32.4% (2006: 31.8%). The cost of goods sold rose 4% to € 7,680 million (2006: € 7,351 million). This is 67.6% of Group sales, compared to 68.2% in 2006. Sales, general, and administrative expenses consisted primarily of personnel costs, marketing and distribution costs as well as depreciation and amortization. These expenses rose by 4% to € 1,885 million in 2007 (2006: € 1,815 million) and, as a percentage of Group sales, were improved slightly to 16.6% (2006: 16.8%). Depreciation and amortization were € 421 million (2006: € 399 million). As a percentage of sales, depreciation and amortization was unchanged at 3.7% compared to 2006.
Group net interest expenditure was € -368 million, € 27
million below the figure of € -395 million in 2006. In 2006,
one-time expenses of € 30 million associated with the early
refinancing of Group debt were included in net interest
expenditure. Exchange rate changes also had a positive effect
on net interest expense since about 53% of the financial liabilities are in US dollars. The currency effect was € 21
million.
The tax rate was 36.1% in 2007 (2006: 39.5%, or 37.2% adjusted for the tax expenses associated with the divestiture of dialysis clinics in the United States since the goodwill attributable to the clinics was not considered for tax purposes).
Minority interest increased to € 383 million in 2007 from € 305 million in 2006, mainly due to the good earnings performance at Fresenius Medical Care. Of this, 92% was attributable to the minority interest in Fresenius Medical Care.
Earnings per ordinary share were € 2.64 (2006: € 2.15) and earnings per preference share were € 2.65 (2006: € 2.16). This is an increase of 23% for both share classes.
Profitability also improved significantly in 2007, as the table below shows:
| in % | 2007 | 2006 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA margin | 17.9 | 17.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBIT margin | 14.2 | 13.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Return on sales (before taxes and minority interest) |
10.9 | 9.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Value added
The value added statement shows Fresenius’ total output in 2007 less purchased goods and services and less depreciation and amortization. The value added of the Fresenius Group was € 5,754 million in 2007 (2006: € 5,336 million). This is an increase of 8%. The distribution statement shows that, at € 4,052 million or 71%, the largest portion of our value added went to our employees. Governments and lenders came next with € 541 million and € 368 million, or 9% and 6%, respectively. Shareholders received € 103 million and minority interest € 383 million. The Company retained € 307 million for reinvestment.