Excellent sales and earnings growth - Fresenius raises earnings outlook

H1 2011:

• Sales €8.0 billion, +4% at actual rates, +6% in constant currency
• EBIT €1,207 million, +8% at actual rates, +11% in constant currency
• Net income1 €363 million, +20% at actual rates, +22% in constant currency
• Group earnings1 outlook raised to 15% – 18%
• Fresenius Medical Care fully confirms guidance
• Fresenius Kabi posts excellent growth, raises sales and earnings guidance
• Fresenius Helios raises earnings guidance
• Fresenius Vamed revises guidance due to project delays

Ulf Mark Schneider, CEO of Fresenius, commented: „Fresenius achieved excellent financial results in the first half. We are very pleased with Fresenius Kabi's growth in North America and in emerging markets, in particular in China. Based on the results of the first half of 2011, we raise our 2011 earnings guidance. Fresenius Medical Care's significant M&A activity this year shows that our Group's double-barreled growth strategy combining organic growth and acquisitions remains fully intact."

¹Net income attributable to Fresenius SE & Co. KGaA; adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) related to the acquisition of APP Pharmaceuticals. Both are non-cash items.

Group outlook 2011
Fresenius now expects 2011 net income to increase by 15% to 18% in constant currency. Previously, the Company expected net income1 growth of 12% to 16% in constant currency. Fresenius confirms its sales guidance. Sales are expected to increase by 7% to 8% in constant currency.

The Group plans to invest approximately 5% of sales in property, plant and equipment.

In 2011, the net debt/EBITDA ratio is expected to stay in the range of 2.5 to 3.0. Also for calendar year 2012, Fresenius Medical Care's announced and entirely debt-financed acquisitions are not expected to cause Group leverage to exceed that target range.

Strong organic sales growth
Group sales increased by 4% (6% in constant currency) to €8,004 million (H1 2010: €7,686 million). Organic sales growth was 5%. Acquisitions contributed a further 1%. Currency translation had a negative effect of 2%. This is mainly attributable to the average U.S. dollar rate decreasing 5% against the euro in the first half of 2011.

Sales growth in the business segments was as follows:

Organic sales growth was 3% in both, North America and Europe. Prior year sales in Europe were positively influenced by Fresenius Vamed's large medical supply contract to the Ukraine. Organic sales growth reached 15% in Latin America, 19% in Asia-Pacific and 23% in Africa.

¹Net income attributable to Fresenius SE & Co. KGaA; adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) related to the acquisition of APP Pharmaceuticals. Both are non-cash items.

Continued strong earnings growth
Group EBITDA grew by 7% (10% in constant currency) to €1,526 million (H1 2010: €1,428 million). Group EBIT increased by 8% (11% in constant currency) to €1,207 million (H1 2010: €1,121 million). The EBIT margin improved by 50 basis points to 15.1% (H1 2010: 14.6%).
Group net interest was -€276 million (H1 2010: -€281 million).

The other financial result was -€151 million and includes valuation changes of the fair redemption value of the Mandatory Exchangeable Bonds (MEB) of -€156 million and the Contingent Value Rights (CVR) of €5 million. Both are non-cash items. As the CVR were delisted in March 2011, the effect relates solely to the first quarter of 2011. The MEB will come to maturity on August 14, 2011.

The Group tax¹ rate was 30.9% (H1 2010: 31.9%).

Noncontrolling interest increased to €280 million (H1 2010: €270 million), of which 93% was attributable to the noncontrolling interest in Fresenius Medical Care.

Group net income¹ increased by 20% (22% in constant currency) to €363 million (H1 2010: €302 million). Earnings per ordinary share increased by 20% to €2.23.

A reconciliation to adjusted earnings according to U.S. GAAP can be found on page 14 of this Investor News.

Group net income¹ (including special items) reached €257 million or €1.58 per ordinary share.

¹Adjusted for the effect of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) related to the acquisition of APP Pharmaceuticals
²Net income attributable to Fresenius SE & Co. KGaA; adjusted for the effects of mark-to-market accounting of the Mandatory Exchangeable Bonds (MEB) and the Contingent Value Rights (CVR) related to the acquisition of APP Pharmaceuticals. Both are non-cash items.

Continued investments in growth
The Fresenius Group spent €286 million on property, plant and equipment (H1 2010: €320 million). Acquisition spending was €857 million (H1 2010: €151 million), mainly due to the acquisitions of Euromedic's dialysis service business as well as a minority stake in Renal Advantage, Inc., both by Fresenius Medical Care.

Cash flow development
Operating cash flow was €650 million (H1 2010: €805 million). Strong earnings growth was more than offset by increased DSOs (days sales outstanding), primarily related to the introduction of the new Medicare end-stage renal disease prospective payment system in the U.S. dialysis service business, and raised inventory levels. The cash flow margin was 8.1% (H1 2010: 10.5%). Net capital expenditure was €292 million (H1 2010: €320 million). Free cash flow before acquisitions and dividends was €358 million (H1 2010: €485 million). Free cash flow after acquisitions and dividends was -€791 million (H1 20102 : €58 million).

Solid balance sheet structure
The Group's total assets increased slightly to €23,909 million (Dec. 31, 2010: €23,577 million). In constant currency, the increase was 6%. Current assets increased by 5% (9% in constant currency) to €6,752 million (Dec. 31, 2010: €6,435 million). Non-current assets were €17,157 million (Dec. 31, 20010: €17,142 million). In constant currency, the increase was 5%.

Total shareholders' equity decreased by 2% to €8,704 million (Dec. 31, 2010: €8,844 million). In constant currency, however, shareholders' equity increased by 4%. The equity ratio was 36.4% (Dec. 31, 2010: 37.5%).

Group debt grew by 3% (8% in constant currency) to €9,012 million (Dec. 31, 2010: €8,784 million) primarily resulting from acquisition financing. Net debt increased by 5% (10% in constant currency) to €8,404 million (Dec. 31, 2010: €8,015 million).

The net debt/EBITDA ratio increased slightly to 2.66 as of June 30, 2011
(Dec. 31, 2010: 2.62).

¹Net income attributable to Fresenius SE & Co. KGaA
²Does not include a €100 million cash out for a short-term bank deposit by Fresenius Medical Care in Q2 2010.

Number of employees increased
As of June 30, 2011, Fresenius Group increased the number of its employees by 4% to 142,933 (Dec. 31, 2010: 137,552).

Fresenius Biotech
Fresenius Biotech develops innovative therapies with trifunctional antibodies for the treatment of cancer. In the field of polyclonal antibodies, Fresenius Biotech has successfully marketed ATG-Fresenius S for many years. ATG-Fresenius S is an immunosuppressive agent used to prevent and treat graft rejection following organ transplantation.

Fresenius Biotech sales increased by 11% to €14.6 million in the first half of 2011 (H1 2010: €13.1 million). ATG sales increased by 9% to €12.8 million and Removab sales by 29% to €1.8 million.
In the second quarter of 2011, Fresenius Biotech received approval from the Austrian Federal Office for Safety in Health Care for the use of ATG-Fresenius S in stem cell transplantations. Austria is the fifth country to approve the immunosuppressive agent in this indication, following Germany, Portugal, Argentina and Thailand.

In June 2011, the Italian Medicines Agency, AIFA, has added Fresenius Biotech's trifunctional antibody Removab to its list of reimbursable medications.
In July 2011, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) recommended a variation of the existing approval of Removab. The infusion time of currently 6 hours can now be reduced to 3 hours, which facilitates the use of Removab in an out-patient setting. Moreover, the CHMP recommendation allows marketing of follow-up results for the pivotal study in patients with malignant ascites showing that the 1-year survival rate in Removab-treated patients was more than four times higher than in the control group (11.4% Removab group vs. 2.6% control group).
In the first half of 2011, Fresenius Biotech's EBIT was -€13 million (H1 2010: -€15 million). For 2011, Fresenius Biotech expects an EBIT of about -€30 million.

Business Segments

Fresenius Medical Care
Fresenius Medical Care is the world's leading provider of services and products for patients with chronic kidney failure. As of June 30, 2011, Fresenius Medical Care was treating 225,909 patients in 2,838 dialysis clinics.

• Acquisitions with a total annual sales volume of more than US$1 billion 
• 2011 outlook fully confirmed

Fresenius Medical Care achieved sales growth of 7% to US$6,230 million (H1 2010: US$5,828 million). Organic sales growth was 3%, acquisitions contributed a further 2%.
Sales in dialysis services increased by 6% to US$4,647 million (H1 2010: US$4,395 million). Dialysis product sales grew by 10% to US$1,583 million (H1 2010: US$1,433 million).

In North America sales were US$4,005 million (H1 2010: US$3,986 million). Dialysis services sales increased by 1% to US$3,610 million. Average sales per treatment for U.S. clinics was US$348 in the second quarter of 2011 compared to US$356 for the corresponding quarter in 2010. This is a result of the targeted implementation of the new Medicare end-stage renal disease prospective payment system. Dialysis product sales decreased to US$395 million (H1 2010: US$408 million) as increased sales of dialysis products could not entirely offset lower pricing of renal drugs.

Sales outside North America ("International" segment) grew by 20% to US$2,218 million (H1 2010: US$1,842 million). Sales in dialysis services increased by 27% to US$1,037 million. Dialysis product sales increased by 15% to US$1,181 million.
EBIT increased by 7% to US$955 million (H1 2010: US$892 million). The EBIT margin of 15.3% remained at previous year's level.

In North America, the EBIT margin increased to 16.5% (H1 2010: 16.1%). This increase was mainly favorably influenced by the development of pharmaceutical costs and higher income from the joint venture with Vifor Pharma.

In the International segment, the EBIT margin was 16.9% (H1 2010: 17.6%), primarily driven by unfavorable currency effects.

Net income¹ increased by 5% to US$481 million (H1 2010: US$459 million).

Acquisition of Liberty Dialysis Holdings, Inc.: Fresenius Medical Care has executed a merger agreement with Liberty Dialysis Holdings, Inc., the holding company for Liberty Dialysis and Renal Advantage. The investment including assumed debt will be approximately US$1.7 billion. In addition, Fresenius Medical Care previously invested approximately US$300 million in Renal Advantage. The transaction is expected to close in early 2012. Liberty Dialysis Holdings, Inc., has annual sales of approximately US$1 billion and operates approximately 260 dialysis clinics. Fresenius Medical Care anticipates that facilities may need to be divested to secure regulatory clearance of the transaction.

Acquisition of American Access Care Holdings, LLC: Fresenius Medical Care has executed an agreement to acquire the U.S. based company American Access Care Holdings, LLC (AAC) for US$385 million. AAC operates 28 freestanding out-patient interventional radiology centers primarily dedicated to serving the vascular access needs of dialysis patients. The transaction is expected to close in the fourth quarter of 2011. On completion, the acquired operations would add approximately US$175 million in annual sales.

Both acquisitions will be financed from cash flow and debt and are expected to be accretive to earnings in the first year after closing of the transactions. Both transactions remain subject to clearance under the Hart–Scott–Rodino Antitrust Improvements Act.

Fresenius Medical Care fully confirms the outlook for 2011. The company projects sales of more than US$13 billion. Net income¹ is expected between US$1,070 million and US$1,090 million.
For further information, please see Fresenius Medical Care's Press Release at www.fmc-ag.com.

¹Net income attributable to Fresenius Medical Care AG & Co. KGaA

Fresenius Kabi
Fresenius Kabi offers infusion therapies, intravenously administered generic drugs and clinical nutrition for seriously and chronically ill patients in the hospital and outpatient environments. The company is also a leading supplier of medical devices and transfusion technology products.

• Strong organic sales growth of 13%, EBIT margin increase to 20.9%
• 2011 outlook raised – Organic sales growth ~8% on challenging 2010 base - EBIT margin ~20%

Fresenius Kabi achieved excellent financial results. Growth in North America was driven by new product launches as well as continued supply constraints in the injectable drug market. Ongoing high demand from emerging markets contributed strongly to Fresenius Kabi's excellent organic sales growth.

Sales increased both organically and at actual rates by 13% to €1,971 million (H1 2010: €1,745 million). Acquisitions contributed 1%. Currency translation had a negative effect of 1%. U.S. dollar weakness was largely offset by the strength of the currencies in Switzerland, Brazil and Australia against the euro.

In Europe, sales grew by 9% to €909 million (H1 2010: €836 million), driven by organic sales growth of 7%. In North America, sales increased by 17% to €519 million (H1 2010: €445 million) with excellent organic sales growth of 22%. In Asia-Pacific, all-organic growth of 19% drove sales to €332 million (H1 2010: €279 million). Sales in Latin America and Africa increased by 14% to €211 million (H1 2010: €185 million) with organic sales growth contributing 12%.

EBIT grew by 18% to €411 million (H1 2010: €347 million). The EBIT margin improved to 20.9% (H1 2010: 19.9%), mainly attributable to the strong development in North America.

Net interest was -€143 million (H1 2010: -€141 million).

Net income1 increased by 33% to €181 million (H1 2010: €136 million).

Fresenius Kabi's operating cash flow increased by 8% to €205 million (H1 2010: €189 million). The cash flow margin was 10.4% (H1 2010: 10.8%). Given increased capital expenditures, cash flow before acquisitions and dividends of €124 million remained unchanged from previous year's level.
In the second quarter of 2011, Fresenius Kabi announced the expansion of its Grand Island, New York, manufacturing facility. A total of US$38 million will be invested over the next two years, adding six additional production lines for I.V. drugs in order to secure the future growth of the business.
Fresenius Kabi further raises its outlook for 2011. The company now forecasts organic sales growth of ~8%. Previously, Fresenius Kabi targeted organic sales growth of >5%. The EBIT margin is now expected to be ~20% with net income clearly surpassing 2010 earnings. The previous guidance was 19% to 20%.

Special items relating to the acquisition of APP Pharmaceuticals are included in the segment "Corporate/Other".

 

¹Net income attributable to Fresenius Kabi AG

Fresenius Helios
Fresenius Helios is one of the largest private hospital operators in Germany. Helios owns 64 hospitals, including five maximum care hospitals in Berlin-Buch, Erfurt, Krefeld, Schwerin and Wuppertal. Helios treats more than 2 million patients per year, thereof approximately 650,000 inpatients, and operates approximately 19,000 beds.

• Solid organic sales growth at 4%, 50 basis points EBIT margin increase to 9.5%
• 2011 earnings outlook raised – EBIT of ~€260 million expected

Sales increased by 6% to €1,293 million (H1 2010: €1,223 million), mainly driven by solid organic sales growth of 4%. Acquisitions contributed 2% to overall sales growth due to the consolidation of the St. Marienberg hospital in Helmstedt/Lower Saxony.

EBIT grew by 12% to €123 million (H1 2010: €110 million). The EBIT margin improved to 9.5% (H1 2010: 9.0%).

The established clinics increased sales by 4% to €1,276 million. EBIT improved by 13% to €124 million. The EBIT margin was 9.7%.

Net income¹ increased by 16% to €72 million (H1 2010: €62 million).

The acquisition of the municipal hospital in Rottweil, southwestern Germany, was successfully completed in the second quarter of 2011. The hospital was consolidated as from July 1, 2011.

Fresenius Helios raises its EBIT outlook to ~€260 million. Previously, the company expected to reach the upper half of a range from €250 million to €260 million. Fresenius Helios fully confirms its sales outlook and projects organic sales growth of 3% to 5%.

Fresenius Vamed
Fresenius Vamed offers engineering and services for hospitals and other health care facilities.

• Sales and EBIT in line with expectations for the first half of 2011 – order backlog close to all-time high 
• 2011 outlook revised due to expected project delays in H2 – Sales and EBIT growth of 0% to 5% expected

Fresenius Vamed's sales reached €313 million (H1 2010: €338 million). Sales in the project business were €202 million (H1 2010: €230 million). Prior year sales included a substantial medical supply contract with the Ukraine. Sales in the service business increased by 3% to €111 million (H1 2010: €108 million).

EBIT was €12 million (H1 2010: €15 million). The EBIT margin was 3.8% (H1 2010: 4.4%). Net income¹ was €9 million (H1 2010: €12 million).

Order backlog of €762 million as of June 30, 2011, remained close to its all-time high (Dec. 31, 2010: €801 million). Order intake of €164 million (H1 2010: €328 million) was impacted by the postponement of orders to the second half of 2011.

Fresenius Vamed revises its full-year guidance as a consequence of project delays in Middle East / North Africa due to the unrest in the region. The company now projects sales and EBIT growth of 0% to 5%. Previously, the company expected sales and EBIT growth between 5% and 10%. Fresenius Vamed expects a significant increase in order intake in the second half of 2011 and continued sales and earnings growth following the temporary project delays.

Analyst Meeting and Audio Webcast
As part of the publication of the results for the first half of 2011, a conference call will be held on August 2, 2011 at 2.00 p.m. CET (8.00 a.m. EST). You are cordially invited to follow the conference call in a live broadcast via the Internet at www.fresenius.com, Investor Relations, Presentations. Following the call, a replay of the conference call will be available on our website.