The liquidity risk is defined as the risk that a company is potentially unable to meet its financial obli- gations. The Management of the Fresenius Group manages the liquidity of the Group by means of effective working capital and cash management as well as an anticipatory evaluation of refinancing alternatives. The Management of the Fresenius Group believes that existing credit facilities as well as the cash generated by operating activities and additional short-term borrowings are sufficient to meet the Company’s foreseeable demand for liquidity (see Note 19, Debt and liabilities from capital lease obligations).
Notes
28. SUPPLEMENTARY INFORMATION ON CAPITAL MANAGEMENT
Fresenius has a solid financial profile. Capital management includes both equity and debt. A principal objective of Fresenius Group’s capital management is to optimize the weighted average cost of capi- tal. Further, it is sought to achieve a balanced mix of equity and debt. To secure growth on a long- term basis the use of a capital increase may also be considered in exceptional cases, for instance to finance a major acquisition.
Due to the Company’s diversification within the health care sector and the strong market positions of the business segments in global, growing and non-cyclical markets, high, stable, predictable and sus- tainable cash flows are generated. They allow a reasonable proportion of debt, i. e. the employment of an extensive mix of financial liabilities. Moreover, Fresenius Group’s customers are almost invariably of high credit quality.
Equity and debt have developed as follows:
Shareholders’ equity and total assets
in million € December 31, 2007 December 31, 2006
Shareholders’ equity including minority interest 6,059 5,728
Total assets 15,324 15,024
Equity ratio 39.54 % 38.13 %
Debt
in million € December 31, 2007 December 31, 2006
Debt 5,699 5,872
Total liabilities and shareholders’ equity 15,324 15,024
Debt ratio 37.19 % 39.08 %
Fresenius SEis not subject to any capital requirements provided for in its Articles of Association. Fresenius SEhas obligations to issue shares out of the Conditional Capital relating to the exercise of stock options and convertible bonds on the basis of the existing 1998 and 2003 stock option plans (see Note 31, Stock options).
Assuring financial flexibility is the top priority in the Group’s financing strategy. This flexibility is achieved through a wide range of financing instruments and a high degree of diversification of the investors. The Fresenius Group’s maturity profile displays a broad spread of maturities with a high proportion of medium and long-term financings. In the choice of financing instruments market capacity, investor diversification, flexibility, credit conditions and the existing maturity profile are taken into account.
Notes
Standard & Poor’s Moody’s
Company rating BB Ba2
Senior debt BB Ba2
Outlook stable positive
A key financial performance indicator for the Fresenius Group is the net debt/EBITDAratio, which is measured on the basis of US GAAPfigures. This ratio was 2.6 as of December 31, 2007. The aim is to reduce this further. To achieve this goal, Fresenius Group’s focus is primarily on earnings growth and sustained strong cash flows as well as debt reduction. In the medium term, the Fresenius Group plans to reach a net debt/EBITDAratio of 2.5. This target is on the assumption that no major acquisition opportunities arise.
Fresenius Group’s financing strategy is reflected in its credit ratings. Fresenius is covered by both of the two leading rating agencies, Moody’s and Standard & Poor’s. Fresenius SEcurrently has a BB
rating from Standard & Poor’s and a Ba2 rating from Moody’s.
29. SUPPLEMENTARY INFORMATION ON CASH FLOW STATEMENT
The cash flow statements of the Fresenius Group for the fiscal years 2007 and 2006 are shown on pages 118 to 119.
Cash funds reported in the cash flow statement and in the balance sheet comprise cash on hand, checks, securities and cash at bank which are readily convertible within three months and are subject to insignificant risk of changes in value.
The following summaries provide additional information with regard to the consolidated cash flow statement:
Cash paid for acquisitions consisted of the following:
in million € 2007 2006
Interest paid 388 393
Income taxes paid 323 401
in million € 2007 2006
Assets acquired 779 4,196
Liabilities assumed -135 - 402
Minority interest - 9 - 45
Notes assumed in connection with acquisitions -169 - 24
Cash paid 466 3,725
Cash acquired - 22 - 68
Notes
30. NOTES ON SEGMENT REPORTING
GENERAL
The segment reporting tables shown on pages 122 to 125 of this annual report are an integral part of the Notes.
The Fresenius Group has identified the business segments Fresenius Medical Care, Fresenius Kabi and Fresenius ProServe which corresponds to the internal organizational and reporting structures (Management Approach) at December 31, 2007.
The key data disclosed in conjunction with segment reporting correspond to the key data of the internal reporting system of the Fresenius Group. Internal and external reporting and accounting correspond to each other; the same key data and definitions are used.
Sales and proceeds between the segments are indicative of the actual sales and proceeds agreed with third parties. Administrative services are billed in accordance with service level agreements. The business segments were identified in accordance with FAS131 (Disclosures about Segments of an Enterprise and Related Information), which defines the segment reporting requirements in the annual financial statements and interim reports with regard to the operating business, product and service businesses and regions. The business segments of the Fresenius Group are as follows: Fresenius Medical Care is the world’s leading provider of dialysis products and dialysis care for the life-saving treatment of patients with chronic kidney failure. Fresenius Medical Care treats 173,863 patients in its 2,238 own dialysis clinics.
Fresenius Kabi is Europe’s leading company in the field of infusion therapy and clinical nutrition with subsidiaries and distributors worldwide. Fresenius Kabi’s products are used in hospitals as well as in out-patient medical care to treat critically and chronically ill patients. Fresenius Kabi is also a leading provider of transfusion technology products in Europe.
Fresenius ProServe is a leading German, private hospital operator with 60 facilities. Moreover the company offers engineering and services for hospitals and other health care facilities. As of January 1, 2008, Fresenius ProServe was replaced by two new business segments – Fresenius Helios and Fresenius Vamed, which so far have formed Fresenius ProServe. Fresenius Helios is focused on hospital operations. Fresenius Vamed offers engineering and services for hospitals and other health care facilities.