Renal Care — Merger or Acquisition (May 2005)
50 slides from Renal Care's merger presentation, May 13, 2005
Slide 1: The World's Leading Renal Therapy Company Analyst Meeting
The World's Leading Renal Therapy Company Analyst Meeting, May 4, 2005
Slide 2: Safe harbor statement
Safe harbor statement This presentation includes certain forward-looking statements. Actual results could differ materially from those included in the forward-looking statements due to various risk factors and uncertainties, including changes in business, economic competitive conditions, regulatory
Slide 3: Agenda
2) Summary of Transactions 3) The Acquisition 4) The Conversion and the Transformation 5) Conclusion Agenda 1) First Quarter 2005
Slide 4: 1) First Quarter 2005
1) First Quarter 2005 cy iuPraciiee aC
Slide 5: Strong start into the year - Q1 2005
9% cc Margin 13.7% Margin 6.7% Strong start into the year - Q1 2005 cc = constant currency Net revenue + 10% Operating income (EBIT) + 11% Net income + 18% Free Cash Flow - 25% $ 1,609 m $ 220 m $ 107 m $ 98 m
Slide 6: Strong revenue growth by segment in Q1 2005
Strong revenue growth by segment in Q1 2005 Total revenue $ 1,609 m + 10% Europe $ 388 m + 15% / + 9% cc Asia - Pacific $ 74 m - 3% / - 7% cc Latin America $ 59 m + 36% / + 30% cc International revenue $ 521 m * * 9% growth at constant currency (cc) North America $ 1,088 m + 9% International $ 521 m
Slide 7: Dialysis Services Q1 2005
Dialysis Services Q1 2005 North America International 2) 16% growth at constant currency 37% of total International revenue 89% of total North American revenue Total 1) 9% growth at constant currency 72% of total revenue $ in millions + 8% 899 + 22% 158 Q1 ^05 Q1 ^04 968 194 2) 1,058 1,162 + 10% 1)
Slide 8: Dialysis Services Q1 2005 Organic revenue growth
Dialysis Services Q1 2005 Organic revenue growth + 6.2% + 6.0% + 7.7% Same store treatment growth + 4.4% + 3.8% + 5.6% Revenue per treatment (US operations) $ 246 $ 293 $ 131 Treatments (in million) 4.72 3.25 1.47 Growth + 3.2% + 2.5% + 4.8% Total North America International Focus on organic growth
Slide 9: Dialysis Services - US operations Revenue per treatment ahead of target
> 290 Dialysis Services - US operations Revenue per treatment ahead of target Target '05 Rev./tmt 275 280 285 290 in $ 270 295 Q1 Q2 2004 Q3 Q4 Q1 2005 289 290 291 286 293
Slide 10: Dialysis Products Q1 2005
Dialysis Products Q1 2005 North America International 11% of total North American revenue 63% of total International revenue Total 28% of total revenue 1) Internal sales External sales $ in millions + 11% 298 327 2) 401 447 + 9% 128 40 33 88 93 2) 5% growth at constant currency 1) 6% growth at const
Slide 11: Achievements - Q1 2005
Achievements - Q1 2005 Strong operational performance worldwide Very good top and bottom line growth Good quarterly cash flow generation Good revenue per treatment development in North America Strong performance in all key metrics Re-iterate full year guidance
Slide 12: Strong top and bottom line growth
Strong top and bottom line growth $ in millions Q1 2005 Q1 2004 % Net revenue 1,609 1,459 + 10 Operating income (EBIT) 220 198 + 11 EBIT margin in % 13.7 ** 13.6 Net income 107 91 + 18 EPS per ordinary shares ($) 1.11 0.94 + 18 * 9% growth at constant currency * ** EBIT margin excl. FIN46 would have
Slide 13: Days Sales Outstanding (DSO) - impressive development
North America Group Days Sales Outstanding (DSO) - impressive development Reduction of: 11 days in 2 years 2 days vs. Q1 2004 International 2003 2004 Q3 Q4 Q2 Q1 Q3 Q4 Q2 Q1 2003 2004 Q3 Q4 Q2 Q1 Q3 Q4 Q2 Q1 2005 Q1 2003 2004 Q3 Q4 Q2 Q1 Q3 Q4 Q2 Q1 2005 Q1 * Restated for Mexico 2005 Q1 * * * * * *
Slide 14: Cash Flow
Cash Flow $ in millions Q1 2005 Q1 2004 % Net cash provided by operating activities 138 171 (19) Capital expenditures (net) (40) (41) Free Cash Flow 98 130 (25) Acquisitions (22) (42) Free Cash Flow after acquisitions 76 88 (13) 1) A reconciliation to the most directly comparable US-GAAP financial m
Slide 15: Financial ratio - continued improvement
Financial ratio - continued improvement $ in millions March 31, 2005 December 31, 2004 EBITDA (annualized) EBITDA (annualized) 1,121 1,098 Dec. 31, 2004 Debt Dec. 31, 2004 Debt 2,479 + CapEx + CapEx 40 + Acquisitions + Acquisitions 22 - FX-debt translation effects - FX-debt translation effects 46 -
Slide 16: Outlook 2005 - FME pre RCG acquisition
Outlook 2005 - FME pre RCG acquisition Original guidance Q1 2005 Outlook Net revenue 6 - 9 % + 9% confirm Net income low double digit + 18% confirm Capital expenditure ~ $ 350 - 400 m $ 40 m confirm Acquisition budget ~ $ 200 - 250 m $ 22 m confirm (at constant currency)
Slide 17: 2) Summary of Transactions
2) Summary of Transactions 7 iuPraciiee aC
Slide 18: FME to acquire Renal Care Group, Inc.
FME to acquire Renal Care Group, Inc. ('RCG') recognized for profitability and excellent clinical outcomes fourth largest provider of dialysis services in the US Respective Boards have approved offer of US$ 48 per share in cash, valuing RCG's equity at US$ 3.5 bn The acquisition will be all-debt fin
Slide 19: Strategic rationale - The Acquisition
Strategic rationale RCG: fast-growing, highly profitable company providing an excellent geographic fit and clearly enhancing FME's top-line growth and margins Combines the key success factors in the industry - attractive payor mix and cost leadership Solidifies FME's position as the leader in the US
Slide 20: Strategic rationale - Conversion and Transformation
Strategic rationale Create single share class Seek to improve trading liquidity in ordinary shares DAX ranking expected to benefit from increased index- relevant free float Increase financial flexibility to exploit future profitability opportunities High corporate governance standards and transparen
Slide 21: Envisaged timeline
Envisaged timeline 2005 RCG Extraordinary General Meeting to approve acquisition FME Extraordinary General Meeting - Ordinary shareholders to approve transformation into KGaA and conversion of preference shares into ordinary shares - Preference shareholders to approve conversion of preference shares
Slide 22: 3) The Acquisition
3) The Acquisition Z iuPraciiee aC
Slide 23: FME's strategy - GOAL 2010
FME's strategy - GOAL 2010* Total dialysis market to grow from US$50bn today to US$67bn in 2010 Dialysis Products Pre- ESRD Care Dialysis Drugs Dialysis Care Additional In-patient Dialysis Services Transplantation PD HD Attractive acquisitions are available Opportunity to improve the overall facilit
Slide 24: RCG at a glance
RCG at a glance One of the fastest growing companies in the US dialysis market with attractive payor-mix Recognized for high profitability and excellent clinical outcomes (pharma-intensity comparable to FME) Fourth largest provider of outpatient renal care and ancillary services in the US Highly reg
Slide 25: Industry leading profitability and growth
Industry leading profitability and growth 2004A EBITDA margin 2004A EBITDA per ave. patient ($'000) 2004 - 05E revenue growth (USD basis) Note: Historical figures as reported Source: Company reports, broker consensus estimates
Slide 26: Enhancing top-line growth and margins
Enhancing top-line growth and margins Revenue growth EBITDA margin EBIT margin FME = Fresenius Medical Care RCG = Renal Care Group
Slide 27: Enhancing top-line growth and margins (continued)
RCG & FME sustained high quality of care will lead to higher organic growth Potential to improve margins through the combination of service network and achieving better economies of scale / synergies Enhancing top-line growth and margins (continued) EBIT margin RCG & FME today FME = Fresenius Medica
Slide 28: Complementary service network
Complementary service network FME RCG Pro forma combined clinics in the US Clinics: FME: 1,140 RCG: 425 Pro forma: 1,565
Slide 29: Attractive payor mix
Attractive payor mix 2004 service revenues by customers FME-NA US$3,795m RCG US$1,345m Medicare & Medicaid Private payors Acute 62% 30% 8% 52% 43% 5% FME = Fresenius Medical Care RCG = Renal Care Group
Slide 30: Strengthening leading market position
Strengthening leading market position Leading dialysis service providers worldwide Note: No. of treated patients in 2004 Hardware Disposables Technology Service Attitude Customer Focus Measurable Quality The Team... The Experience... The Technology.... Leading dialysis product providers worldwide No
Slide 31: Clearly earnings accretive in year after acquisition
Clearly earnings accretive in Year 2 after acquisition G&A redundancies Purchasing Increased product business Expected level of cost synergies and restructuring costs (US$m) Synergy sources Neutral to slightly accretive to earnings in 2006 and clearly accretive from 2007 onward Attractive Internal R
Slide 32: Key benefits from the acquisition of RCG
Key benefits from the acquisition of RCG RCG is a fast-growing, highly profitable company which will enhance FME's top-line growth and margins Combination of two key success factors - cost leadership and attractive service network - under common vision of high quality of care and a shared dedication
Slide 33: 4) The Conversion and the Transformation - Disclaimer
4) The Conversion and the Transformation DISCLAIMER This presentation does not constitute an offer to convert preference shares into ordinary shares or a solicitation of offers to convert preference shares into ordinary shares, or an offer to sell or solicitation of any offer to purchase shares of F
Slide 34: The Conversion and the Transformation
The Conversion and the Transformation Convert preference shares into ordinary shares (Conversion) in combination with Change Company's legal form from "AG" to "KGaA" (Transformation) Two key interrelated initiatives
Slide 35: The Conversion of the preference shares
The Conversion of the preference shares Create one share class Simplify corporate share structure Substantially improved liquidity Increase index-relevant free float Increase flexibility to efficiently finance future growth initiatives Ability to issue ordinary shares No preference share discount Ke
Slide 36: Substantially improved liquidity
Substantially improved liquidity 34.4m ordinary shares in free float 26.4m preference shares in free float 60.8m ord. shares in free float after conversion* 302k 0.9% 81k 0.3% 0.9% ~530k Substantial increase of liquidity in ordinary shares to be expected following preference share conversion * 100%
Slide 37: Increased index-relevant free float
Increased index-relevant free float FME ordinary free float market cap (€bn) FME DAX ranking (free float market cap) * Addition of free float market cap of ordinary and preference shares assuming 100% conversion of preference shares Note: Based on Deutsche Boerse DAX ranking as of March 31, 2005 +55
Slide 38: Preference shares conversion terms
Preference shares conversion Terms Voluntary exchange at ratio 1:1 Conversion premium of € 12.25 to be paid per preference share 2/3 of average share price spread in the last 3 months Attractive discount of 10% = € 6.14 for preference shareholders as incentive to convert Proceeds for FME of approx.
Slide 39: Viewpoint of preference shareholders
Viewpoint of preference shareholders Preference shares conversion (continued) Cash Compensation (2/3 of spread) Incentive (1/3 of spread) Get a voting right Benefit from increased liquidity Benefit from DAX membership Incentive to convert Capital transactions typically done at discount Lose the righ
Slide 40: Corporate shareholding structure - now and then
Corporate shareholding structure - now and then Fresenius AG 35.6m shares Free Float 34.4m shares Ordinary shares Free Float 26.4m shares Preference shares Fresenius Medical Care AG 51% 49% 100% Fresenius AG 35.6m shares Free Float 60.8m shares Ordinary shares Fresenius Medical Care KGaA 37%* 63%* M
Slide 41: Corporate governance highlights under FME KGaA
Corporate governance highlights under FME KGaA No change of FME Management Two independent members at FME Management AG and FME KGaA Supervisory Boards (same as today) Fresenius must hold more than 25% in FME KGaA to consolidate and control through the FME Management AG In case Fresenius sells a 25%
Slide 42: Basic steps for implementation
Basic steps for implementation KGaA Transformation Preference share Conversion Ordinary shareholder's approval in EGM (75% of represented capital) Registration of change in corporate form with German Commercial Register New form of KGaA effective on registration Ordinary shareholder's approval in EG
Slide 43: Key benefits of the conversion and transformation
Creation of single share class by transformation of Fresenius Medical Care AG into KGaA : Preference shareholders can receive ordinary shares at attractive conditions while FME receives gross proceeds of approximately € 322 million Increased financial flexibility following acquisition of RCG to ensu
Slide 44: 5) Conclusion
5) Conclusion 7 iuPraciiee aC
Slide 45: Conclusion
Conclusion Again, demonstrated profitable above market growth in an attractive industry KGaA transformation & Conversion Q1 2005 Acquisition of the industry leader in profit margins with excellent fit to existing service network while being clearly accretive to earnings from 2007 onward FME = Fresen
Slide 46: The World's Leading Renal Therapy Company Analyst Meeting
The World's Leading Renal Therapy Company Analyst Meeting, May 4, 2005
Slide 47: Attachment I
Attachment I Q1 2005 Q4 2004 Last twelve months operating income (EBIT) 874 852 + Last twelve months depreciation and amortization 236 233 + Non-cash charges 11 13 = EBITDA (annualized) 1,121 1,098 Reconciliation of non US-GAAP financial measures to the most directly comparable US-GAAP financial mea
Slide 48: Attachment II
Attachment II Reconciliation of non US-GAAP financial measures to the most directly comparable US-GAAP financial measure All numbers are in $ millions External Revenue Q1 2005 Q1 2004 growth constant currency International product revenue 367 331 +11% +5% - Internal revenue (40) (33) +22% +15% = Ext
Slide 49: Contacts
Contacts Fresenius Medical Care AG Investor Relations Else Kroner Str. 1 61352 Bad Homburg v.d.H. Oliver Maier Tel.: +49-(0)6172-609-2601 Fax.: +49-(0)6172-2301 Mob.: +49-(0)173-6522-712 Heinz Schmidt Tel.: +1-781-402-4518 Fax.: +1-781-402-9741 Mob.: +1-781-760-0646
Slide 50: The World's Leading Renal Therapy Company Analyst Meeting
The World's Leading Renal Therapy Company Analyst Meeting, May 4, 2005