Goals and Strategy
The Management Board controls the business segments by setting strategic and operative targets and through various financial ratios. In line with our growth strategy, organic growth is a key performance indicator. Operating income (EBIT: earnings before interest and taxes) is another useful yardstick for measuring the profitability of the business segments.
In addition to operating income, EBITDA (earnings before interest, taxes, depreciation and amortization) is a good indicator of the business segments’ ability to achieve positive cash flows and to service their financial commitments. The criteria on which the Management Board measures the performance of the business segments are selected Group-wide in such a way that they include income and expenses within the control of these segments. We also control the operating cash flow contributions of our business segments on the basis of days sales outstanding (DSO) and scope of inventory (SOI).
Financing is a central Group function over which the business segments have no control. The financial targets for the business segments therefore exclude both interest payments resulting from financing activities and tax expenses.
Another key performance indicator at the Group level is the debt ratio, which is the ratio of net debt to EBITDA. This measure indicates how far a company is in a position to meet its payment obligations. The Group’s business segments hold important market positions and operate in growing and mostly noncyclical markets. They generate mainly stable, predictable, and sustainable cash flows since the majority of our customers are of high credit quality. The Group is therefore able to finance its growth with a high proportion of debt compared to companies in other sectors.
At Group level we use return on operating assets (ROOA) and return on invested capital (ROIC) as benchmarks for evaluating our business segments and their contribution to Group value added. Group ROIC was at 9.0% (2010: 8.8%), and Group ROOA was at 11.0% (2010: 10.9%). The strong earnings growth in all business segments corresponds with an increase in total assets. This increase is a result of the expansion of the existing business and acquisitions. Within the position invested capital, the goodwill of € 15.0 billion had a significant effect on the calculation of the ROIC. It is important to take into account that about 64% of the goodwill is attributable to the strategically significant acquisitions of National Medical Care in 1996, Renal Care Group and HELIOS Kliniken in 2006, APP Pharmaceuticals in 2008, and Liberty Dialysis Holdings in 2012. Those have significantly strengthened the position of the Fresenius Group. We expect a continuing improvement in ROIC and ROOA in the future.
The summary shows ROIC and ROOA by business segment:
|
ROIC
|
ROOA
|
|||
| in % |
2012
|
2011 |
2012 |
2011 |
| Fresenius Medical Care |
8.1 |
8.7 |
11.4 |
12.0 |
| Fresenius Kabi |
10.3 |
10.0 |
12.3 |
12.4 |
| Fresenius Helios |
8.4 |
8.3 |
8.2 |
8.4 |
| Fresenius Vamed* |
- |
- |
12.8 |
16.0 |
| Konzern |
9.0 |
8.8 |
11.0 |
10.9 |
* ROIC: Invested capital is insignificant due to prepayments, cash, and cash equivalents.
Strategy and goals:
The key elements of Fresenius Group’s strategy and goals are to:
- expand our market position: Fresenius’ goal is to ensure the long-term future of the Company as a leading international provider of products and services in the health care industry and to grow its market share. Fresenius Medical Care is the largest dialysis company in the world, with a strong market position in the United States. Future opportunities in dialysis will arise from further international expansion in dialysis care and products and in renal pharmaceuticals. Fresenius Kabi is the market leader in infusion therapy and clinical nutrition in Europe and in the key markets in Asia-Pacific and Latin America. In the United States, Fresenius Kabi is one of the leading players in the market for generic IV drugs. To strengthen its position, Fresenius Kabi plans to roll out more products from its portfolio to the growth markets. Market share is also to be expanded further through the launch of new products in the field of IV drugs and medical devices for infusion therapy and clinical nutrition. In addition, products from the existing portfolio are to be launched in the U.S. market. Fresenius Helios is in a strong position to take advantage of the further growth opportunities offered by the continuing privatization process in the German hospital market. Investment decisions are based on the continued existence and long-term potential of the hospitals to be acquired. Fresenius Vamed will be further strengthening its position as a global specialist provider of engineering and services for hospitals and other health care facilities.
- To extend our global presence: in addition to sustained organic growth in markets where Fresenius is already established, our strategy is to diversify into new growth markets worldwide, especially in the region Asia-Pacific and in Latin America. With our brand name, product portfolio, and existing infrastructure, we intend to focus on markets that offer attractive growth potential. Apart from organic growth, Fresenius also plans to make further small to mid-sized selective acquisitions to improve the Company’s market position and to diversify its business geographically
- strengthen innovation: Fresenius’ strategy is to continue building on its strength in technology, its competence and quality in patient care, and its ability to manufacture cost-effectively. We are convinced that we can leverage our competence in research and development in our operations to develop products and systems that provide a high level of safety and user-friendliness and enable tailoring to individual patient needs. We intend to continue to meet the requirements of best-in-class medical standards by developing and producing more effective products and treatment methods for the critically and chronically ill. Fresenius Helios’ goal is to widen brand recognition for its health care services and innovative therapies. Fresenius Vamed’s goal is to realize further projects in integrated health care services and to support patient-oriented health care systems more efficiently.
- enhance profitability: our goal is to continue to improve Group profitability. To contain costs, we are concentrating particularly on making our production plants more efficient, exploiting economies of scale, leveraging the existing marketing and distribution infrastructure more intensively, and practicing strict cost control. By focusing on our operating cash flow and employing efficient working capital management, we will increase our investment flexibility and improve our balance sheet ratios. Another goal is to optimize our weighted average cost of capital (WACC) by deliberately employing a balanced mix of equity and debt funding. In present capital market conditions we optimize our cost of capital if we hold the net debt/EBITDA ratio within a range of 2.5 to 3.0. It was 2.6 as of December 31, 2012. At the end of 2013, we expect Group leverage to be at the lower end of the 2.5 to 3.0 target range.
