Operations and Business Environment - Fresenius Medical Care

Financing
Detailed information on financing can be found in the
financial report from page 22 onwards, in the “Liquidity
and Capital Resources” section and in notes 9 and 10
starting on page 70 .
Rating
In connection with the acquisition of the Renal Care
Group, Standard & Poor’s and Moody’s have changed
their corporate credit rating for the company. Standard
& Poor’s lowered the corporate credit rating from
“BB+” to “BB” and attached a negative outlook.
Moody’s lowered the corporate credit rating from
“Ba1” to “Ba2” with a stable outlook. These downgrades
are related to the debt financing of the Renal
Care Group acquisition resulting in a highly leveraged
capital structure of the Company. The decisions to
downgrade Fresenius Medical Care by just one notch
are based on the Company‘s relatively predictable
and recurring revenue streams and the ability to a
stable cash flow generation.
Effect of Off-Balance-Sheet Financing Instruments
on the Financial Position and Assets and Liabilities
Fresenius Medical Care is not involved in any off-balancesheet
transactions that could have or will have a significant
effect on its financial position, expenses or earnings,
profitability, liquidity, investments, assets or capitalization.
Liquidity Analysis
Comprehensive information on liquidity can be found
in the “Liquidity and Capital Resources” section from
page 22
onwards.
Dividends
Fresenius Medical Care will propose to the Annual General
Meeting the tenth dividend increase in a row. For
2006, a dividend of €1.41 per ordinary share (2005:
€1.23) and €1.47 per preference share (2005: €1.29) is
proposed. This is an average increase of 15 %. The total
distribution will be €139 million (2005: €120 million).
Further information on the dividends can be found in the
“To Our Shareholders” section starting on page 39 .
Cash Flow Analysis
Fresenius Medical Care’s cash flow statement shows
a sustained development. Operating cash flow in 2006
was $ 908 million, an increase of 35 %, or $ 238 million,
following $ 670 million in 2005. The increase is primarily
due to increased earnings, improvements in working
capital efficiency and a reduction of days sales outstanding
(DSO).
A detailed description of further contributing factors
can be found in the financial report in the “Liquidity
and Capital Resources” section beginning on page 22 .
We reduced the DSO in North America to 59 days by
the end of 2006, from 63 days in 2005. Outside North
America, the DSO remained almost unchanged at
119 days at the end of 2006. The mix effect due to
North America’s increased weight following the RCG
acquisition coupled with North America’s lower DSO
is a further driver for the decrease of our DSO. Due
to this effect, we reduced the total DSO by six days
to 76 days.
As in 2005, we were able to fully finance the capital
expenditures and acquisitions without RCG last year,
as well as the dividends distributed to our shareholders
from operating cash flow.
Capital expenditures were $ 450 million in 2006. This
resulted in free cash flow before acquisitions and dividends
of $ 458 million, an increase of 23 % over 2005.
Excluding RCG, we spent $159 million on acquisitions
and paid $154 million in dividends in 2006, resulting in
75
Rating
rating
Outlook
Standard & Poor’s
Moody’s
BB
Ba2
negative
stable
Fresenius Medical Care 2006