Speech of Dr. Gerd Krick, Chairman of the Managing Board of Fresenius AG, at the Annual General Meeting

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Annual General Meeting May 29, 2002
Address to the shareholders of Fresenius AG

The spoken word is binding.

Good morning, Ladies and Gentlemen,

On behalf of the Supervisory Board and the Managing Board of Fresenius AG I welcome you most cordially to this year's Annual General Meeting. It is a pleasure to see so many of you here today and I thank you for your interest. I should also like to welcome our guests and the representatives of the press.

To start with I should like to go into the figures of the past financial year, 2001, and about the 1st quarter 2002. Then, I want to explain how the health care group Fresenius is positioned in the various markets of the world with products and services, and I will tell you how we anticipate that the markets will develop in the future. At the same time, I should like to emphasise to you our strengths and opportunities in the coming years.

Sales and earnings 2001 and 1st quarter 2002
As I already said, I will start with the year 2001. This was a year in which we again achieved an excellent growth in sales of 20 %, but it was also a year in which we had to suffer setbacks and in which earnings did not grow faster than sales, as in the past years. The charges taken by Fresenius Medical Care in connection with the transaction to acquire National Medical Care from W.R. Grace in 1996, and the substantial restructuring measures made by Fresenius Kabi, had a negative impact on our earnings.

This chart shows that we increased sales by 20 % to 7.3 billion euros. This corresponds to a growth of 1.2 billion compared to the previous year. Thus, Fresenius is one of the largest companies in our segment, health care. As you can see, 11 % of the sales increase resulted from acquisitions, but 8 % also came from organic growth, that is growth due to our own efforts. This is an particularly important figure because it clearly shows that we are growing more strongly than the market, and it also means that we are gaining market shares. This 8 % organic growth corresponds to sales of around 500 million euros. Thus, we even exceeded the organic growth of the year 2000. Currency influences contributed only one percentage point to overall growth.

In the 1st quarter of 2002 – at this point I want to inform you about the current financial year - we met our sales target of 10 %. We increased sales to 1.85 billion euros, that is, by 11 %. Organic growth was 6 %, as anticipated. We increased sales with our products and services not only in our traditional markets Northern Europe and North America but also in the region Asia-Pacific. Here we achieved a strong organic growth of more than 20 %. Unfortunately, the difficult economic situation in Argentina, where the peso was strongly devalued, had a negative impact on our business, otherwise we would have achieved a double-digit increase rate in Latin America as well.

Back to 2001:
Despite the setbacks and the negative influences caused by Fresenius Kabi and by Fresenius Medical Care, we increased operating profit by 5 %, but not, as I already said, at a higher rate than sales. Earnings were affected by the restructuring of Fresenius Kabi, especially the start-up costs for the infusion solutions production lines in the Uppsala factory in Sweden, the restructuring measures in the Friedberg plant, the costs of closing the plant in Stockholm and the sale of the production facility in Limoges. All these measures were necessary in order to create the conditions to reduce manufacturing costs and increase the profitability of Fresenius Kabi in future.

Earnings were also affected because Fresenius Medical Care in the United States has started to convert dialysis from the re-use of dialysers to single use, which is normal in Europe. This is an important measure to further improve the quality of dialysis treatment and an investment for the future. In addition, the integration of the dialysis chain Everest Healthcare caused additional costs in the United States.

Nevertheless, we achieved a net income before extraordinary charges of 369 million euros, a plus of 39 %. Taking these charges into account, net income amounted to 179 millions.

We are convinced that these accruals of Fresenius Medical Care mean that all possible risks from the NMC transaction have been removed.

As far as earnings are concerned, the start into the new financial year was more onerous than expected. Although EBIT rose by 23 % in the first quarter of 2002, this earnings increase was favourably influenced by the change in the US GAAP accounting rules, and the fact that goodwill is no longer amortized. If these effects are not taken into account, operating profit, that is EBIT of the 1st quarter 2002, was at the same level as the previous year.

The fact that goodwill is no longer amortized puts an end to companies being discriminated if they make acquisitions in order to expand their market positions. This increases the comparability between the companies and will enable the financial situation of companies, Fresenius as well, to be better assessed.

The amortization of goodwill has been replaced by an annual impairment test. We are very pleased that the goodwill of Fresenius was not impaired in the past years, despite the large and difficult acquisitions which we have made.

I should like to comment on the fact that we have changed our accounting methods in the Group to US GAAP as from the beginning of 2002. The US GAAP accounting rules are more shareholder-oriented than German accounting methods in accordance with the Commercial Law (HGB). Furthermore, our largest company, Fresenius Medical Care, has reported in US GAAP since its foundation in 1996, so that it was a fairly obvious step for the Group to follow suit.

In order to set off for tax purposes the profits of the companies Fresenius Kabi AG and Fresenius Versicherungs-Vermittlungs GmbH with the costs of Fresenius AG, we have concluded profit transfer agreements. We ask you to give your approval to these profit transfer agreements in topic 6 of today's agenda.

I should like to comment on the dividend now:
Although net income has been influenced by the extraordinary charges which I have already explained, you, our shareholders, shall have a share in the positive operating earnings situation of the Group. We therefore propose to you that the dividend for the 2001 financial year be increased by 10 % to 1.03 euros per ordinary share, and to 1.06 euros per preference share. Altogether we shall distribute 42.8 million euros for the 2001 financial year. This means that we are carrying on with our earnings-linked dividend policy and can present to you another consecutive dividend increase.

2001 was also a difficult year for our employees who had an especially heavy workload. They had to cope with many difficult changes. Nevertheless, we were able to further increase our position in the markets. For this achievement of every single employee in our company, that means all employees in the numerous locations in the world, I should like to give special thanks. I should also like to thank the representatives of the employees' bodies for their constructive support and readiness to discuss issues frankly.

Investments
In the last financial year we reached new records in the level of investments by investing 1.2 billion euros, as you can see on the left hand side of the slide. 66 % of this investment total, which is around 800 million euros, was allocated to acquisitions, and 400 million euros to investments in tangible and intangible assets.

I should like to remind you of two major acquisition projects. One was the acquisition of the dialysis clinic chain Everest in the United States – Everest treats around 6,800 dialysis patients – and the other was the purchase of Wittgensteiner Kliniken AG, one of the largest hospital operators in Germany. You approved this acquisition in the last Annual General Meeting, for which I thank you. The acquisition of Wittgensteiner Kliniken in particular marked an important step towards the management and operation of hospitals in Germany, and created the nucleus of an international hospital organisation.
These two acquisitions are reflected in the breakdown of acquisitions by region, as you can see on the right hand diagram. Almost 50 % of total investments were made in North America and 40 % in Europe.

Concerning investments in tangible assets, I should like to give special mention to the construction of a completely new plant for peritoneal dialysis products in Japan, and investments in the extension of the dialyser production capacities in the United States and Germany. We also invested in Kabi, despite all the restructuring measures, in the building up and especially in the optimisation of production plants, both in Sweden and in Germany. This high level of investments means that we have invested in the future, so that we need to spend a significantly lower amount on investments and for acquisitions in this year, 2002.

Development of the business segments
I should like to close my report on the past year 2001 with a short review of the economic development of the individual business segments. You will find detailed reports in our annual report.

Fresenius Medical Care – and I deliberately remind you of this again – was created only five years ago from the dialysis division of Fresenius. FMC increased sales by 19 % to 5.4 billion euros. About half of this increase is due to organic growth and half to acquisitions. The effects from currency conversion amounted to about 2 %. Fresenius Medical Care increased EBIT by approximately 7 % in the 2001 financial year to 719 million euros. The increase in earnings, which is proportionately lower than the increase in sales, is mainly a result of the effects which I have already mentioned.

Fresenius Kabi achieved a remarkably strong sales increase of 14 % to around 1.3 billion euros. Organic growth at 7 % is very good in view of the fact that around three quarters of these sales were achieved in Europe, in a market region which is only growing at a rate of around 2-4 %. This emphasises what a great success the rise of 7% in organic growth represents. Despite all our exertions, we did not succeed in increasing the operating profit of Kabi. It amounted to 75 million euros and was therefore 15% lower than that of 2000. I explained the reasons to you at the beginning, they are largely the restructuring and reorganisation measures both in Germany and in Sweden. Furthermore, the costs of concentrating our production facilities are affecting our earnings. These were mainly the sale of the French factory in Limoges and the factory in Potenza in Italy. Also we have suffered considerable losses at the German subsidiary ProReha.

Fresenius ProServe, our third largest business segment, achieved sales of 452 million euros, following 284 million euros in the year before. This growth was influenced by the consolidation for the first time of Wittgensteiner Kliniken, abbreviated as WKA, which contributed 134 million euros to sales. But even without WKA, growth of ProServe, 12 %, would have been a double-digit percentage. Operating profit increased to 17 million euros.

We made good progress in the year under report with the integration of Wittgensteiner Kliniken. Nevertheless, we still need to implement measures this year to counteract the permanent cost pressure in the health systems and improve profitability.

Sales of Fresenius HemoCare amounted to 223 million euros. We are pleased to report that the operating profit, although it is still small, rose 29 %, significantly more than the increase in sales. I will go into more detail later about the promising fields of activity of Fresenius HemoCare, in my strategic outlook.

Expectation 2002
For 2002 as a whole we anticipate that we shall be able to further increase our position in the markets of the world with our life-sustaining and life-saving products and services, and we expect to increase sales over the whole year by approximately 10 %. Earnings should rise by a double-digit percentage and will be positively influenced by goodwill no longer being amortized. Further great efforts will be required to compensate for the low level of investment and the continuous price drops, especially in the European markets, by continuing to optimise costs.

The Fresenius Shares
The development of the share prices of many companies, and also of Fresenius, is disappointing and has certainly caused your displeasure. Our share price development, which you can see on the slide, was worse than that of the DAX and MDAX – this we freely admit. This was the result of the negative influences of Fresenius Kabi and the charges at Fresenius Medical Care. These effects are reflected in this index comparison.

I personally am convinced that in the end, share prices follow the economic development of a company, often not immediately, but certainly in the long term. I therefore conclude that the Fresenius shares will rise again in line with our targeted earnings , and you, and we as well, will again be satisfied with our share prices.

Strategic outlook
In my following strategic outlook I should like to present to you the strengths and opportunities of our four companies, the activities of which you can see here on the slide. Our field of activity is health care. Fresenius has products which save or sustain lives. We have a firm place in medical therapy with these products. Although we have to cope with strong changes in the health care systems, especially with the enormous pressure on the prices of our products, the demand for our products and services is steadily increasing. This demand is generated in particular by the demographic development and by the demand for higher quality and better therapies.

Now I shall briefly comment on the products, services and the market position of our business segments:

Our largest company, Fresenius Medical Care, which was created from our dialysis division, is the world's largest dialysis company and cares for around 106,000 patients in 1,400 clinics all over the world.

This slide gives you an idea of the number of patients in the various regions. You can see from the relatively low number of patients in Asia-Pacific what excellent growth opportunities this region offers.

Altogether there are more than one million patients with kidney failure in the world, and this number is increasing by 6 % a year; this also corresponds to the latest projections of the American health authorities.

Dialysis treatment is given to patients with chronic or acute kidney failure. Kidney failure without dialysis treatment results in death within a week. The only alternative to dialysis is transplantation, but the number of healthy organs available is limited. Fresenius Medical Care is setting the quality standard in dialysis today with its products and services. Fresenius Medical Care achieved a market share of 60 % in the United States with dialysers and dialysis machines. If you look at the number of patients treated by Fresenius Medical Care (FMC) in the United States, we are treating more than twice as many patients than our closest competitor. Even in the Asia-Pacific region, excluding Japan due to the special circumstances in this country, the market share of dialysers is 30 and dialysis machines over 40 %.

Fresenius Kabi, with its products for infusion and nutrition therapy, is an important partner of the hospital and the number 1 in Europe with a market share above 30 %. Patients who can no longer eat in the natural way, or who cannot eat sufficiently, e.g. after surgical operations, are given our products. Patients who continue to require medical care with products and services at home, when they have left hospital, are cared for by our Ambulatory Care division. These patients very often have to undergo long-term nutrition therapy, cancer patients for instance, or people who have undergone a stomach or bowl resection.

ProServe, our service division, the company which plans and builds hospitals and operates as well as manages them commercially and medically, took a major step towards integrated patient care through its acquisition of Wittgensteiner Kliniken. The changes which are making themselves felt, above all in the German health systems, to a large extent with the introduction of case-by-case reimbursement systems, and which will mean that more and more hospitals will be privatised, open up excellent future prospects for Fresenius ProServe. It is our aim to network health care services and to offer fully-integrated patient care, as you can see on this chart. Starting from acute care in hospital wards, care is to be extended to post-acute medical care and/or long-term care in specialised clinics and private care facilities. Today our network already consists of more than 8,000 beds. Ambulatory care at home is provided by Fresenius Kabi.

In addition, we are active in the project business and in hospital management in the region Asia-Pacific. As an example I will show you a project in Malaysia. There we are responsible for the management of a 350-bed acute hospital.

In showing you the activities of Fresenius HemoCare I will concentrate on the two promising fields adsorber technology and immune therapy. Adsorber technology is a comparatively new form of therapy which is not yet accepted as a real alternative to drugs in the treatment of specific diseases. In this new field of activity, pathogenic substances are removed from the blood of a patient by means of adsorbers, and they are bound to the adsorber material. As an example, patients with hereditary hypercholesteraemia are treated by this method and blood lipidscholesterol is bound in an adsorber. Or, and this is an example where the medical effectiveness has been proved, in the case of patients with severe rheumatoid arthritis, the immune complexes which cause rheumatism are removed from the patients' blood.

At present we have great hopes in an adsorber which is used for the treatment of patients with sepsis. Sepsis is a severe bacterial blood infection. Every year, thousands of people in Germany alone die from sepsis. The clinical trial which has just been concluded has shown good results so that we are now planning a follow-up trial in which sepsis will be treated with adsorbers over a longer period of time.

In the field of immune therapy we are proceeding with the project with Trion Pharma which concentrates on the use of bispecific trifunctional antibodies in various cancers. We are carrying out phase I and II clinical trials on patients with non-small cell lung cancer and cancer of the ovaries. In connection with our project with the university in Göttingen to treat renal cell cancer, we will commence a detailed clinical trial this year when we have finished all the preparatory work. Further studies on breast cancer and cancer of the pancreas are planned.

Projects in the field of cancer therapies are of a long term nature, and normally it requires many years before a product is ready for the market. However, we are very hopeful that our immune therapy projects for the treatment of cancer will lead to convincing results and that further enormous growth potential will result both for Fresenius HemoCare and also for Fresenius. To extend our activities in the field of immune therapy we have acquired two institutes which are involved in the modification of cells, Kitaro in Hanover and Eufets, which is the European Institute for Research and Development of Transplantation Strategies, in Idar-Oberstein. Thus we are in a position to offer the necessary cells for the immune therapy of cancer.

Following this brief summary of our products and services I should like to explain to you our position in the various markets of the world. Currently, there is no other company which operates in the health care industry worldwide as Fresenius does. We generate almost 90 % of our sales outside Germany. More than half of sales are generated in North America, largely due to our activities in the dialysis field. Our second largest market is Europe with a 30 % share. Europe is our traditional home market. In Europe we are number 1 both in dialysis and in nutrition and infusion therapy. In these two large markets, United States and Europe, we achieved a growth rate of 20 % and 19 % respectively. In these two large regions, United States and Europe, which already provide comprehensive care of patients with a high standard of quality, there are further but limited growth opportunities, resulting from the increasing life expectancy of people and through new products and therapies. Very good opportunities result from long-term medical therapy being transferred from the hospital to the home environment of the patient. This significantly improves the quality of life of the patient, and also reduces costs for the health systems. We anticipate that the market for ambulatory therapies will grow annually by about 10 % in the years to come.

The growth markets of the regions Asia-Pacific and Latin America give a different picture. Here the shares of total sales, 6 % in Asia and 5 % in Latin America, are still small, but the growth rates are around 20 %.

The growth which we can achieve in these regions, especially in Asia-Pacific, will be largely determined by the following factors:
The increase in GDP, and the resulting increase in expenditure on health care. In China for instance, where we already employ more than 1,000 people, and have been manufacturing and selling for several years, GDP rose by about 7 %. Expenditure on health increased however by around 13 %, in a market which contains 1.3 billion people.

The demand for medical care is continually increasing. However, not nearly as many patients receive treatment as in the industrialised counties of the world. For instance, the number of patients receiving dialysis treatment in Japan is 1,400 per million population. In China, only around 20 patients per million population are treated. Also, better knowledge about treatment possibilities, to some extent by obtaining information from the Internet, will increase demand for our products.

We are concentrating our activities on the regions with high GDP growth and have created an excellent starting position in the important markets of the world in the past years by means of major acquisitions and a high level of investment.

We are convinced that Fresenius holds a unique strategic position worldwide. We have the right products, offer all-round services and are represented in all the growth regions of the world. This is the basis for our future sales and earnings growth.

Conclusion
I thank you, our shareholders, for being loyal to us in this tough year. I hope you will continue to put your trust in our long-term strategy of making Fresenius an international health care company.

Thank you for listening for so long.