Financial position

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  FRESENIUS SE & CO. KGaA

   

   

   

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  • Annual Report 2020 (PDF, 10 MB)
  • Factsheet FY/20 (PDF, 452 KB)

Financial management policies and goals

The financing strategy of the Fresenius Group has the following main objectives:

• Ensuring financial flexibility
• Optimizing the weighted average cost of capital

Ensuring financial flexibility is key to the financing strategy of the Fresenius Group. This is achieved through a broad spectrum of financing instruments, taking market capacity, investor diversification, flexibility, credit covenants, cost of capital, and the current maturity profile into consideration. This strategy has proven reliable even in volatile times, particularly amid the COVID-19-related uncertainties on the capital market. The Group’s maturity profile is characterized by a broad spread of maturities with a large proportion of mid- to long-term financing. We also take into account the currency in which our earnings and cash flows are generated when selecting the financing instruments, and match them with appropriate debt structures in the respective currencies.

The Group’s main debt financing instruments are shown in the chart on the right. Sufficient financial cushion is assured for the Fresenius Group by unused syndicated and bilateral credit lines. In addition, Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA maintain commercial paper programs. The Fresenius Medical Care accounts receivable securitization program offers additional financing options.

Another main objective of the Fresenius Group’s financing strategy is to optimize the weighted average cost of capital by employing a balanced mix of equity and debt. 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, predictable and sustainable cash flows are generated. These allow for a reasonable proportion of debt. A capital increase may also be considered in exceptional cases to ensure long-term growth, for example to finance a major acquisition.

In line with the Group’s structure, financing for Fresenius Medical Care and the rest of the Fresenius Group is conducted separately. There are no joint financing facilities and no mutual guarantees. The business segments Fresenius Kabi, Fresenius Helios, and Fresenius Vamed business segments are financed primarily through Fresenius SE & Co. KGaA, in order to avoid any structural subordination.

Corporate rating

The credit quality of Fresenius is assessed and regularly reviewed by the leading rating agencies Moody’s, Standard & Poor’s, and Fitch. Fresenius is rated investment grade by all three rating agencies. There were no rating changes in 2020.

Financing

Fresenius meets its financing needs through a combination of operating cash flows generated in the business segments and short-, mid-, and long-term debt. In addition to bank loans, important financing instruments include bonds, Schuldschein loans, convertible bonds, commercial paper programs, and an accounts receivable securitization program. The financing mix also includes lease liabilities.

Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA each maintain Debt Issuance Programs which enable the companies to issue bonds up to a total volume of €10 billion each in various currencies and maturities.

¹ As of December 31, 2020 and based on utilization of major financing instruments, incl. Commercial papers and excl. Lease liabilities
² Fresenius’ €450 million and US$300 million bonds due in February 2021 as well as Fresenius Medical Care’s €300 million and US$650 million bonds also due in February 2021 were redeemed at maturity

Financing activities in 2020 were mainly carried out to refinance existing financial liabilities, to optimize financing costs, as well as to improve terms and the maturity profile, and to expand the financial scope.

• In January 2020, Fresenius SE & Co. KGaA issued bonds with a total volume of €750 million with a maturity of eight years.
• In April 2020, Fresenius SE & Co. KGaA issued bonds with a total volume of €750 million with a maturity of seven and a half years.
• In May 2020, Fresenius Medical Care AG & Co. KGaA issued bonds with a total volume of €1,250 million in two tranches with maturities of six and ten years.
• In September 2020, Fresenius Medical Care US Finance III, Inc. issued bonds with a total volume of US$ 1,000 million with a maturity of ten years and five months.
• In September 2020, Fresenius SE & Co. KGaA issued bonds with a total volume of €1,000 million in two tranches­ with maturities of six years and twelve years and four months.

Further details are presented in the Notes.

Moreover, the syndicated credit agreements, Schuldschein loans, and the equity-neutral convertible bonds are instruments in the long-term debt financing. The revolving credit facilities under the syndicated credit agreements assure liquidity and were unused as of December 31, 2020.

For short-term financing needs, Fresenius SE & Co. KGaA and Fresenius Medical Care AG & Co. KGaA maintain commercial paper programs under each of which up to €1.0 billion in debt can be issued. As of December 31, 2020, €30 million of Fresenius SE & Co. KGaA’s commercial paper program was utilized. Under Fresenius Medical Care AG & Co. KGaA’s commercial paper program, €20 million were outstanding.

In light of the COVID-19-related general uncertainties, we further enhanced our financial cushion and increased our committed bilateral credit lines with banks. These additional credit lines were largely unused as of December 31, 2020.

Detailed information on the Fresenius Group’s financing can be found in the Notes. Further information on financing requirements in 2021 is included in the Outlook section.

Effect of off-balance-sheet financing instruments on our financial position and liabilities

Fresenius is not involved in any off-balance-sheet transactions that are likely to have a significant impact on its financial position, results of operations, liquidity, investments, assets and liabilities, or capitalization in present or in future.

Liquidity analysis

In general, key sources of liquidity were operating cash flows and cash inflow from financing activities including short-, mid-, and long-term debt. Cash flowCash flowFinancial key figure that shows the net balance of incoming and outgoing payments during a reporting period. from operations is influenced by the profitability of the business of Fresenius and by net working capital, especially accounts receivable. Cash inflow from financing activities is generated from short-term borrowings through the commercial paper programs, and by drawing on bilateral bank facilities. Additionally, Fresenius Medical Care can sell receivables under its accounts receivable securitization program. Mid- and long-term funding are mostly provided by the syndicated credit agreements of Fresenius SE & Co. KGaA and Fresenius Medical Care, as well as by bonds, Schuldschein loans, and equity-neutral convertible bonds and leasing. Fresenius is convinced that its existing credit facilities and proceeds from other financing activities, as well as the operating cash flows and additional sources of short-term funding, are sufficient to meet the Company’s foreseeable liquidity needs.

Dividend

The general partner and the Supervisory Board will propose a dividend increase to the Annual General Meeting. For 2020, a dividend of €0.88 per share is proposed (2019: €0.84 per share). This is an increase of 5%. Despite the challenging year, this is intended to maintain dividend continuity. The total dividend distribution will also increase by about 5% to €491 million (2019: €468 million).

Cash flow analysis

Operating cash flow increased by 54% to €6,549 million (2019: €4,263 million), with a margin of 18.1% (2019: 12.0%). The excellent cash flow development was mainly due to U.S. government assistance and prepayments under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) at Fresenius Medical Care in the United States and due to shortened payment terms under the law to ease the financial burden on hospitals in Germany at Fresenius Helios.

Cash provided by operating activities exceeded financing needs from investment activities before acquisitions, with cash outflows for capital expenditures amounting to €2,406 million and cash inflows from disposals of non-current assets of €40 million (2019: €2,459 million and €26 million, respectively).

Cash flow before acquisitions and dividends was €4,183 million (2019: €1,830 million). This was sufficient to finance the Group dividends of €1,060 million.

Group dividends consisted of dividend payments of €468 million to the shareholders of Fresenius SE & Co. KGaA, payments of €351 million by Fresenius Medical Care to its shareholders, and dividends paid to third parties of €354 million (primarily relating to Fresenius Medical Care). These payments were partially offset by the dividend of €113 million that Fresenius SE & Co. KGaA received as a shareholder of Fresenius Medical Care.

The cash outflow for acquisitions was €645 million, mainly for acquisitions at Fresenius Medical Care and Fresenius Helios.

Cash flow after acquisitions and dividends was €2,478 million (2019: - €1,545 million).

Overall, cash used for financing activities was - €2,057 million, (2019 cash provided by financing activities: €468 million). Cash and cash equivalents increased by €183 million to €1,837 million as of December 31, 2020 (December 31, 2019: €1,654 million). Cash and cash equivalents were negatively influenced by currency translation effects of €238 million (2019: positive effect of €22 million).

Working capital decreased by 8% to €8,104 million, mainly due to advance payments received from MediCare at Fresenius Medical Care and tax deferrals in North America as a result of COVID-19.

Acquisitions and investments

The effects of the COVID-19 pandemic led to temporary delays in some projects. Overall, however, the Fresenius Group was able to continue its investment programs to a large extent.

In 2020, the Fresenius Group provided €3,300 million (2019: €5,086 million) for investments and acquisitions. Investments in property, plant and equipment decreased to €2,398 million (2019: €2,463 million). At 6.6% of reported sales (2019: 7.0%), this was below the depreciation level¹ of €2,520 million. A total of €902 million was invested in acquisitions (2019: €2,623 million). Of the total capital expenditure in 2020, 73% was invested in property, plant and equipment and 27% was spent on acquisitions.

¹ Before special items

¹ Before special items; 2016 – 2018 before IFRS 16

The cash outflow for acquisitions is primarily related to the following business segments:

• Fresenius Medical Care’s acquisition spending was mainly related to the acquisition of dialysis clinics.
• Fresenius Kabi’s acquisition spending was mainly for already planned acquisition-related milestone payments relating to the acquisition of the biosimilarsBiosimilarsA biosimilar is a drug that is “similar” to another biologic drug already approved. business from Merck KGaA.
• Fresenius Helios’ acquisition spending was mainly for the acquisition of clinics and outpatient clinics in Colombia and the purchase of hospitals and outpatient clinics in Germany.
• Fresenius Vamed’s acquisition spending was mainly for the purchase of rehabilitation facilities.

Acquisitions at Fresenius Helios

In February, Fresenius Helios signed an agreement to acquire Clínica de la Mujer in Bogotá, further expanding the com­pany’s presence in Colombia’s private hospital market. The hospital puts a special focus on gynecology, pediatrics, and obstetrics, while also offering a broad range of other medical specialties and services. It has approximately 80 beds and 5 operating rooms, and generated sales of about €20 million in 2019. The transaction was closed in August 2020.

In May, Fresenius Helios announced the acquisition of the Malteser Hospital (“MKHB”) in the city of Bonn. The 400-bed acute care hospital generated sales of about €66 million in 2019. The MKHB offers a wide range of medical services, with specialties in general surgery, pulmonology, and oncology, including palliative care. With certified centers for prostate, intestinal, and lung cancers, it will complement the existing Fresenius Helios hospital in the neighboring city of Siegburg, which specializes in cardiovascular medicine and oncology.

In August, Fresenius Helios announced the acquisition of three hospitals and four connected medical care centers in the cities of Duisburg and Krefeld from the Malteser humanitarian aid group. The facilities have a total of 870 beds, and sales in 2019 were about €160 million. The two Malteser Hospitals in Duisburg cover specialty areas including general surgery; internal medicine; ear, nose, and throat medicine; oral and maxillofacial surgery, and geriatrics. Special expertise in hematological oncology is offered. At the Malteser Hospital in Krefeld, a comprehensive range of medical services includes oral and maxillo­facial surgery, general surgery, and internal medicine as the main specialty areas.

Both Malteser transactions closed in November 2020.

In December, Fresenius Helios announced the acquisition of Eugin Group, one of the leading international fertility groups. Eugin’s network comprises 31 clinics and an additional 34 sites across 9 countries on 3 continents and offers a wide spectrum of state-of-the-art services in the field of fertility treatments. In 2019, Eugin Group generated sales of approximately €160 million. The United States, Spain, Brazil, Italy, and Sweden are Eugin Group’s largest markets. The company also operates clinics in Denmark, Argentina, Colombia, and Latvia. With the acquisition of Eugin Group, Fresenius Helios becomes a leading player in this dynamic growing market and establishes a strong basis for further expansion. Fresenius Helios acquires Eugin at a valuation of €430 million, including approximately €80 million of minority interests and assumed debt. The transaction is, among other things, subject to regulatory approval by the relevant antitrust authorities and is expected to close in H1/2021.

The main investments in property, plant and equipment were as follows:

• modernization of existing, and equipping of new, dialysis clinics at Fresenius Medical Care.
• optimization and expansion of production facilities for Fresenius Medical Care and for Fresenius Kabi.
• new building and modernization of hospitals at Fresenius Helios. The most significant individual projects were, among other locations, hospitals in Wiesbaden, Duisburg, Wuppertal, and the construction of a proton beam therapy center in Madrid.

Investments in property, plant and equipment of €507 million will be made in 2021, to continue with major ongoing investment projects on the reporting date. These are investment obligations mainly for hospitals at Fresenius Helios, as well as investments to expand and optimize production facilities for Fresenius Medical Care and Fresenius Kabi. These projects will be financed from operating cash flow.

Investment program at Fresenius Kabi

In the United States, Fresenius Kabi continued its extensive investment program at its production facilities. The aim of these investments is, among other things, to further increase the degree of modernization and automation and thus to make a significant contribution to the continuous increase in efficiency and to further raise our quality standards in these plants. In the reporting year, we made progress with our investment program and continued to work on equipping our plants with state-of-the-art technologies for the manufacture of pharmaceutical products; this enabled us to take into operation a filling line for anti-infectives at our Grand Island site. Fresenius Kabi will continue its investment program in the United States over the coming years.

Due to the demand for enteral products in China, we are expanding our production capacity there. In the reporting year, we continued our work on a new production building on our Wuxi Campus, where we will manufacture enteral nutrition products in the future that have the status of Foods for Special Medical Purposes. At the same time, Fresenius Kabi is expanding its enteral nutrition research and development activities in Wuxi.

In the reporting year, we started to expand our production and logistics site in Graz, Austria. The plant manufactures sterile drugs and has specialized in complex process requirements and innovative technologies. The product portfolio includes intravenously administered drugs as well as large-volume parenteral nutrition products. We will further expand this site in the coming years based on investments of about €110 million.