First Half 2004: Fresenius raises sales and earnings outlook

First Half 2004: Fresenius raises sales and earnings outlook

• Sales: € 3.55 billion, +9 % in constant currency, +3 % at actual exchange rates
• EBIT: € 412 million, +13 % in constant currency, +6 % at actual exchange rates
• Net income: € 80 million, +21 % in constant currency, +14 % at actual exchange rates

Business continues to develop successfully

• Earnings performance improved.
• Cashflow of € 239 million at record level.
• Fresenius Medical Care and Fresenius Kabi with excellent sales and earnings performance.
• Weak market condition continues to affect Fresenius ProServe.
• Group outlook for 2004 raised.

Group outlook for 2004
Based on the excellent results at Fresenius Medical Care and Fresenius Kabi the Company raises its full-year outlook: Fresenius now expects a high-single digit percent increase in sales in constant currency. Previously, the Company expected a mid-single digit percent increase in sales. Net income is expected to grow approximately 30 % in constant currency. Previously, the Company expected net income to grow at 25-30 %. Sales and earnings growth is expected in all business segments.

Sales
Sales in the first half of 2004 rose 9 % in constant currency. Organic growth was 7 %, acquisitions contributed 2 %. Currency translation effects had a negative 6 % effect on sales. At actual exchange rates sales increased 3 % to € 3,553 million.

Sales in North America accounted for 48 % and Europe for 39 % of total sales, followed by Asia-Pacific with 7 %. Sales in Latin America and other regions accounted for 6 % of total sales. Very good regional growth rates of 19 % in constant currency were achieved in Asia-Pacific and Latin America. We expect that Asia-Pacific and Latin America will continue to offer above-average growth opportunities for Fresenius in the future.

Sales contribution of the three business segments:

Fresenius Medical Care's lower share of Group sales is due to currency translation effects.

Earnings
The Group was able to increase earnings despite negative currency translation effects: Using actual exchange rates, EBITDA rose 4 % to € 564 million (first half 2003: € 543 million). In constant currency, EBITDA rose 10 %. Group EBIT increased 13 % in constant currency and 6 % at actual exchange rates to € 412 million (first half 2003: € 390 million).

Net interest also improved to € -104 million in the first half of 2004 compared to
€ -125 million last year. This is due to a lower debt level as well as the conversion to a variable rate from a fixed interest rate on payments on some of Fresenius Medical Care's debt. Currency exchange rates also had a favorable impact.

The effective tax rate for the first half 2004 was 40.6 % (first half 2003: 39.2 %).

In the first half of 2004, minority interests increased to € 103 million compared to € 91 million in the first half of 2003. 96 % of minority interests were attributed to Fresenius Medical Care.

Net income rose 21 % in constant currency and 14 % at actual exchange rates, to € 80 million (first half 2003: € 70 million). The excellent operating performance of Fresenius Medical Care and Fresenius Kabi as well as significantly lower interest expenses resulted in the increase in net income despite higher taxes.

Earnings per ordinary share rose to € 1.95 (first half 2003: € 1.70). Earnings per preference share rose to € 1.97 (first half 2003: € 1.72). This represents an increase of 14 %.

Investments
In the first half, Fresenius invested € 172 million (first half 2003: € 157 million) including € 111 million on capital expenditures for property, plant and equipment and intangible assets (first half 2003: € 113 million) and € 61 million on acquisitions (first half 2003: € 44 million).

Capital expenditures at Fresenius Medical Care were mainly used to construct new dialysis clinics or expand and modernize existing clinics as well as maintain and expand production sites. Fresenius Kabi's production sites were expanded and optimized. The investments at Fresenius ProServe included the purchase of technical medical equipment as well as the modernization of hospitals and clinics, such as the construction of highly modern operating theatres in an orthopedic clinic.

Fresenius Medical Care spent € 49 million on acquisitions mainly to buy dialysis clinics. € 12 million was spent on acquisitions for Fresenius Kabi and Fresenius ProServe. Europe accounted for 45 % of Group investments, North America for 44 % and other regions for 11 %.

Cash flow
Operating cash flow and free cash flow reached new all-time highs in the first-half year: Operating cash flow rose 9 % to € 340 million (first half 2003: € 311 million) due to the positive development of Group net income. Free cash flow before acquisitions and dividends increased 15 % to € 239 million (first half 2003: € 208 million). Free cash flow after acquisitions and dividends rose 6 % to € 67 million (first half 2003: € 63 million). Cash used for acquisitions was € -53 million (net) and dividends were € -119 million.

Asset and capital structure
Total assets rose 5 % to € 8,792 million (December 31, 2003: € 8,347 million) or 3 % in constant currency. Total current assets increased 10 % to € 3,031 million (December 31, 2003: € 2,744 million). This increase was due mainly to an increase in trade accounts receivable (+14 %), since receivables from the Fresenius Medical Care receivable securitization program are stated in the balance sheet starting this year following an amendment of the program.

This change impacted also group debt. Debt was € 3,188 million at actual rates (constant currency: € 3,123 million) as of June 30, 2004. In comparison, debt at the end of 2003 including liabilities related to the receivable securitization program was € 3,148 million (excluding the securitization program: € 3,023 million).

The ratio of net debt/EBITDA remained unchanged from the end of 2003 at 2.7.

Shareholders' equity including minority interests was € 3,375 million, up 5 % from € 3,214 million on December 31, 2003. The equity ratio including minority interests was 38.4 % (December 31, 2003: 38.5 %).

Employees
Fresenius had 69,128 employees worldwide on June 30, 2004, an increase of 4 % over the 66,264 employees at the end of 2003.

Fresenius Biotech
Fresenius Biotech develops innovative therapies with trifunctional antibodies for the treatment of cancer as well as cell therapies used to treat end-stage HIV infection. 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 rejection following organ transplantations.

As expected, the first results from a phase I study using the trifunctional antibodies in non-small-cell lung cancer, breast cancer and peritoneal carcinomatosis are planned to be announced during the remainder of this year.

First intermediate results of a phase I/II study reviewing the treatment of patients with end-stage HIV infection will be available in early 2005. The study is expected to show whether the mode of action functions in treating humans.

Business Segments

Fresenius Medical Care

Fresenius Medical Care is the world's leading provider of products and services for patients with chronic kidney failure. As at June 30, 2004, Fresenius Medical Care treated about 122,700 patients (+6 %) in 1.590 dialysis clinics (+5 %).

• Excellent growth in sales (+13 %) and net income (+28 %)
• Number of dialysis treatments rose 7 %
• Full-year guidance raised

In the first half of 2004, Fresenius Medical Care achieved significant sales growth of 13 % to $ 3,011 million (first half 2003: $ 2,666 million), or 10 % in constant currency.

Fresenius Medical Care increased sales by strong 9 % in its key North American market which accounts for 68 % of sales. Outside North America (International segment) sales rose 23 %, or a strong 13 % increase in constant currency.

Sales of dialysis products at Fresenius Medical Care increased 11 % to $ 826 million. Sales of dialysis services grew 14 % to $ 2,185 million. Dialysis services sales are mainly determined by the number of treatments: In the first half of 2004, Fresenius Medical Care performed 9.2 million dialysis treatments, 7 % more than in the first half of 2003, including 6.3 million (+5 %) in North America and 2.9 million (+11 %) outside North America.

Fresenius Medical Care increased EBIT by 16 % to $ 411 million in the first half of 2004 from $ 353 million in the first half of 2003. Net income at Fresenius Medical Care increased 28 % in the first half to $ 192 million.

Based on the strong performance in the first half of 2004 Fresenius Medical Care lifts its guidance for the full year 2004. After expecting a net revenue growth at constant currencies in the mid-single digit range Fresenius Medical Care now expects the top-line to grow in the high-single digits. After expecting a net income growth for 2004 in the low double digit range Fresenius Medical Care now expects net income growth to be in the mid teens.

For further information, please see Fresenius Medical Care's website: www.fmc-ag.com.  

Fresenius Kabi

Fresenius Kabi is a leading provider of nutrition and infusion therapy for critically and chronically ill patients in the hospital and ambulatory environment. In addition, the company offers products in the field of infusion and transfusion technology.

• EBIT increase of 20 %
• Excellent organic growth of 6 %
• Full-year margin forecast increased from 11.0 % to approximately 11.5 %
• Capital Market Day planned for December 8, 2004

Sales at Fresenius Kabi rose 3 % to € 738 million (first half 2003: € 718 million). Fresenius Kabi achieved excellent overall organic growth of 6 %. Latin America and Asia-Pacific performed exceptionally well, accounting for organic growth of 13 % and 21 % respectively. Pricing pressure and cost-cutting in the health care sector led to a 6 % decline in sales in Germany. Excluding Germany, Fresenius Kabi achieved organic revenue growth of 8 % in Europe. Currency exchange rates had an effect of -1 % on first-half sales. Divestments decreased sales by 2 %.

Fresenius Kabi's EBIT increased by 20 % to € 85 million in the first half of 2004. This result significantly exceeds last year's figure of € 71 million. The EBIT margin increased by 160 basis points from 9.9 % in the first half of 2003 to 11.5 %, continuing the positive earnings trend.

Based on the good first-half year results, Fresenius Kabi is raising its earnings outlook and now expects the EBIT margin to increase to approximately 11.5 % after predicting 11.0 % in February. Full-year sales at Fresenius Kabi in constant currency are expected to achieve an increase in the mid-single digit percentages.

A Capital Market Day is dated for December 8, 2004 to present in detail Fresenius Kabi's business and strategic direction.

Fresenius ProServe

Fresenius ProServe offers services to the international health care sector. The health care business includes hospital management as well as the planning and construction of hospitals. The pharma industry business focuses on the planning and the construction of pharmaceutical plants and medical technical production sites.

• Organic growth of 14 %
• Order intake increased
• Continued low bed utilization in Germany
• 2004 EBIT forecast lowered to € 15 to € 20 million before one-time expenses

First-half sales at Fresenius ProServe rose to € 383 million, an increase of 14 % compared to the first half of 2003 (€ 336 million) due entirely to organic growth. Sales growth came primarily from the positive development of the health care project business.

Order intake at Fresenius ProServe increased in the first half by 6 % to € 136 million (first half 2003: € 128 million). This increase grew out of projects both in the health care and the pharma industry business. The order backlog was € 438 million (December 31, 2003: € 435 million).

Fresenius ProServe achieved an EBIT before one-time expenses of € 6 million (first half 2003: € 10 million). Including one-time expenses of € 6 million (before tax), EBIT was € 0 million. The 79 % bed utilization rate at the German hospital business of WKA was below the 80 % in the first half of 2003. To adjust its fixed costs to market conditions, Fresenius ProServe is reducing staff and optimizing processes and costs.

The full-year EBIT target of € 25 million before one-time expenses is no longer achievable since first-half results of 2004 were below expectations and the bed utilization rate continues to remain weak. Fresenius ProServe now expects an EBIT between € 15 million and € 20 million before one-time expenses. One-time expenses are expected to be in the range of € 8 million. Sales at Fresenius ProServe are still expected to increase 10 % in 2004.

Please note:

An analyst meeting will take place today at 1.30 pm CET. This meeting will be broadcasted live over the Internet in a listen only mode at www.fresenius-ag.com.