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.
The Management Board believes that, 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 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 rose to 8.2 % (2008: 7.3 %) and Group ROOA to 10.5 % (2008: 9.8 %). The marked improvement in these two ratios versus 2008 was mainly due to the very good earnings growth in all business segments. We expect a continuing improvement in ROIC and ROOA in the future.
The summary shows ROIC and ROOA by business segment:
 | ROIC | ROOA | ||
| in % | 2009 | 2008 | 2009 | 2008 |
| Fresenius Medical Care | 8.5 | 8.6 | 12.2 | 12.3 |
| Fresenius Kabi* | 7.8 | 7.0 | 10.2 | 8.9 |
| Fresenius Helios | 6.7 | 5.9 | 7.1 | 6.3 |
| Fresenius Vamed** | - | - | 22.8 | 22.2 |
| Konzern | 8.2 | 7.3 | 10.5 | 9.8 |
* 2008: Pro forma APP Pharmaceuticals and excluding special items from the acquisition.
** 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 through APP Pharmaceuticals. 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 through the launch of new products in the field of generic IV drugs and new medical devices for infusion therapy and clinical nutrition. In addition, products from the existing portfolio are to be launched on the US market while, conversely, APP pharmaceuticals products will be marketed outside the United States. 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 clinics to be acquired. Fresenius Vamed will be further strengthening its position as a 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 Asia-Pacific and Latin America. With our brand name, product portfolio, and existing infrastructure, we intend to focus on markets that offer attractive growth potential. And 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.
- To strengthen innovation in the development of new products and technologies: Fresenius’ strategy is to continue building on its strength in technology, its competence and quality in patient care, and its ability to manufacture costeffectively. 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.
- To 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. Our net debt / EBITDA ratio was 3.0 as of December 31, 2009, after rising to 3.6 at the end of 2008 as a result of the acquisition of APP Pharmaceuticals. We want to bring down this ratio to a < 3.0 again by the end of 2010.