Goals and Strategy
The Management Board controls the business segments by setting strategic and operating goals and through various financial ratios. In line with our growth strategy, organic growth is a key 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 financial results and to discharge their financial commitments. The operating cash flow contributions of our business segments are also controlled on the basis of days sales outstanding (DSO) and scope of inventory (SOI).
A key performance indicator at the group level is the net debt/EBITDA ratio.
Financing is a central Group function over which the business segments have no control. The financial goals for the business segments therefore exclude both interest payments resulting from financing activities and tax expenses.
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 the value creation of the Group. Group ROIC is 7.3% (2007: 8.4%) and Group ROOA is 9.8% (2007: 11.4%). The decline in the two ratios compared to 2007 is due to the acquisition of APP Pharmaceuticals. We expect an improvement in ROIC and ROOA in the future.
The summary below shows ROIC and ROOA by business segment:
 | ROIC | ROOA | ||
| in % | 2008 | 2007 | 2008 | 2007 |
| Fresenius Medical Care | 8.6 | 8.4 | 12.3 | 12.5 |
| Fresenius Kabi** | 7.0 | 14.0 | 8.9 | 17.7 |
| Fresenius Helios | 5.9 | 5.0 | 6.3 | 5.6 |
| Fresenius Vamed* | - | - | 22.2 | 22.8 |
| Konzern | 7.3 | 8.4 | 9.8 | 11.4 |
* ROIC: Invested capital is negative due to prepayments and cash equivilants.
** 2008: Pro forma APP Pharmaceuticals and excluding special items from the acquisition.
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 our market share. Fresenius Medical Care is the largest dialysis company in the world, with an especially strong market position in the United States. Future opportunities in dialysis will arise from international expansion in dialysis care and products and in renal pharmaceuticals. Fresenius Kabi is the European market leader in infusion therapy and clinical nutrition. To strengthen the position, more products in its portfolio will be rolled out to growth markets. Further market share is also anticipated from the launch of new products in the field of IV drugs and new medical devices for infusion therapy and clinical nutrition. Mid-term, Fresenius Kabi plans to market products from its existing range in the United States; similarly, products from the newly acquired American company APP Pharmaceuticals will be sold globally. 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. Fresenius Vamed will be further strengthening its position as a specialist provider of engineering and services to 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 concentrate on markets that offer attractive growth potential. Fresenius also plans to make further 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 strong position in technology, its competence and quality in patient care, and its ability to manufacture cost-effectively. We are convinced that we can leverage on 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 which can be tailored to meet individual patient needs. We shall continue to meet the requirements of best-in-class medical standards, developing and producing more effective products and treatment methods for the critically and chronically ill. Fresenius Helios’ goal is to increase 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 imposing strict cost controls. Focusing on our operating cash flow and maintaining efficient working capital management will improve 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 rose to 3.6 as of December 31, 2008 as a result of financing the acquisition of APP Pharmaceuticals. In 2010, we expect to bring down this ratio to a level of between 2.5 and 3.0 again.