Fresenius SE&Co. KGaA

The positive outlook on FSE reflects the possibility that we could upgrade the group within 12 months if it maintains its debt-to-EBITDA ratio at around 3.5x on a sustainable basis. This implies an absence of transformative acquisitions, as well as earnings resilience at a time when market trends have deteriorated for the U.S. dialysis and the German clinics businesses. We could raise our rating if FSE continues to report solid organic growth while maintaining its debt-to-EBITDA ratio at around 3.5x. This implies an absence of debt-financed transformative acquisitions in the coming two years, as well as the resilience of EBITDA to adverse market conditions. We could revise the outlook to stable if we noted any deviation from the current financial

...FSE delivers solid organic growth thanks to positive underlying growth trends in the life-saving and life-sustaining products and therapies that the group offers. These favorable trends are driven by aging populations in developed markets and increasing access to health coverage in emerging markets. This is particularly true for chronic kidney failure, where FSE is the world leader. In spite of a temporary headwind due to the trend for outpatient treatment in German clinics, which entails pressure on admissions growth, we still expect the group to report global mid-single-digit revenue growth in 2019. This resilience in topline growth also reflects the group's ability to negotiate price hikes every year. FSE generates sizable discretionary cash flows.We estimate that FSE generates about 1 billion of discretionary cash flows on average per year. This reflects the group's large revenue base and the limited impact of working capital. However, we foresee that cash flow generation will decline...

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