Ladies and gentlemen, thank you for standing by. I am Patrick Wright, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Fourth Quarter 2015. Throughout today's recorded presentation, all participants will be in a listen-only mode.

The presentation will be followed by a question-and-answer session. I would now like to turn the conference over to Oliver Maier, Head of Investor Relations. Please go ahead, sir..

Thank you very much, Patrick. We would like to welcome all of you to the Fresenius Medical Care earnings call for the fourth quarter and full year of 2015.

As always, I would like to start out the call by mentioning our cautionary language that is in our Safe Harbor statement as well as in our presentation and in all the material that we've distributed today. For further details concerning risks and uncertainties, please refer to these filings, including our SEC filings.

With us today is Rice Powell, our CEO and Chairman, and Rice will give you a general business update and go through some of the highlights of the quarter and for the full year. And of course, we have with us Mike Brosnan, our Chief Financial Officer, who will cover with you the financials and the outlook. So that was the easy part for me.

Rice, the floor is yours..

Thank you, Oliver. Hello, everyone. Thank you for joining us. A warm welcome from my side. And as we traditionally do, I think we'll start on slide five with my prepared remarks. My headline for you today is this should have come as a no surprise announcement for you this morning.

Given that the big change in the quarter we announced last week on February 18 with the GranuFlo settlement, I think that what you've seen today has a little more detail obviously than we gave you on February 18, but generally, everything is consistent with what we told you back a week ago.

And hopefully, today, we'll be able to give you as much clarity as you might like on any questions that you have. Starting with slide five, we continue to see excellent business development in North America, doing very well, nice job, really getting things done in a way that we appreciate.

Our Care Coordination organic revenue growth, again, is very strong and, I believe, 23% in the quarter, 25% on the full year basis. Our International business was driven by very good constant currency revenue growth in Asia-Pacific. We'll touch on that and the other regions in a few slides.

You obviously have seen the improved cost structure due to the GEP program and our lower cost for health care supplies, and that is code for the success that we're having with Mircera and the conversion to Mircera.

Not on the slide but I would comment that as you go through the investor news, you will find that both on the fourth quarter basis and our full year basis, you see that our revenue per treatment in U.S. is increasing and our cost per treatment going down.

So we are heading in the right direction on both of those metrics, and I'm sure we'll have some questions on that as well. And then, lastly, the agreement in principle on the GranuFlo case, I think I'll wait, and we'll just take your questions, if you have them, as we go through the Q&A period.

Moving to slide five, taking a moment to look at our revenue breakdown, as we traditionally do. Not a lot has changed from the last quarter, meaning that North America is still generating 70%, 71% of the revenue, and you see the breakout among the other divisions.

Again, good performance in North America with organic revenue growth of 6% and general revenue up at 13%, internationally 9% constant currency growth and our organic growth of 7%. And as I highlighted on the previous slide, you see Asia-Pacific delivering 20% constant currency growth with an organic growth rate at 9%.

Moving to slide seven, as we traditionally do giving you some sense of how the franchise has developed. As of the December 31 of 2015, we have performed 45 million treatments in fiscal year 2015 which is treatment growth of 4% and 294,000 patients, were up 3%, and then our clinic base is right at 3,400, a little above that and that's a 2% growth.

And we've given you the breakdown in the year 2015 of our de novo activity versus the clinics that we acquired over the fiscal year. Now moving to slide eight and taking a look at our healthcare revenue. Looking at it from the global business, you can see 13% constant currency growth, approximately $13.4 billion in revenue for fiscal year 2015.

Organic growth, a very strong 7% and our same market at 4%, actually I think it's more like 4.2% or 3%, but we rounded it down. Focusing on North America, it's just shy of $11 billion, again good constant currency growth at 13%, you see organic as well as the same market.

Now Care Coordination, we are at approximately $1.9 billion for the full year, huge growth on a constant currency basis, organic growth at 25% as I mentioned. And if you look through the investor news and you get to the fourth quarter, you will see – I think it's around 23%.

So a nice tick-up from where I believe we were in the high teens in the last quarter. And as I said, the core dialysis business has performed very well. We continue to see accelerated growth in North America based on some of the acquisitions that we made.

And again, our Care Coordination business is growing organically as we had committed to you we thought that it would. Now, looking at dialysis products, on a global basis, at $3.3 billion. Growth in constant currency at 4%, international at 6% constant currency growth and North America coming in at 4%.

I've had a chance to look at some of your written statements this morning. Some of you I think are a little surprised or perhaps disappointed with our product growth. What I would say to you is as we predicted the very hot rate that we were running in Q1 and Q2, we didn't think we would sustain that and we didn't.

A little bit better rate than we saw in Q4. But if you want to get my view of this, the machine business is a little off. We have seen people particularly in emerging markets want to hang on to their capital. But the one thing that seems to continue fairly well are the hemo disposable supplies that we're selling.

We're accessing very good PD growth but I would acknowledge that we're not near where we were in the first half of the year. But I would also tell you that we may look up in Q1 and see that it's running a little hot again as people decide they need to replace equipment but we'll see how that plays out over time.

Looking at slide 10, we are proposing a 19th consecutive dividend increase. Our Annual General Meeting is May 12 of this year. We're proposing a 3% increase, €0.80 for 2015 up from €0.78 in the prior year.

And yes, if you think about it in that context, we are recommending a dividend payout in excess the growth of what our actual income growth was, net income growth. And this continues at a payout ratio of around 25% and you can see the actual exchange rate that we pegged at.

So coming to my last slide, before I turn it over to Mike, I'd say in summary, North America, good revenue and profit growth throughout the whole year. Care Coordination continues to do very well in the organic revenue growth.

We continue to make investments as we told you we would, as we talked about in November when you had a chance to meet the management, or most of the management for the Care Coordination businesses. The conversion of Mircera continues to go right in line with our expectations.

So as we closed Q4 2015, we had 95,000 patients that had had multiple doses of Mircera. And then, if you want to ask me and you will, where do you think you'll be at the end of Q1. We should be at around 110,000 patients, as best we can estimate at this point, at the end of Q1.

All right? Now, looking internationally, good organic growth in the healthcare segment. Product business in the first half, as we talk, was strong, but it's been a little disappointing in the fourth quarter, more normalized, if you look at it on a full year basis.

And obviously, the currency headwinds have given us some room to pause, if you will, and unfortunately, we've talked about this now, Mike and I, for the last couple of quarters. Our global efficiency program is well on track. We delivered what we had told you would be about $200 million net of cost as we exited 2015.

And we are on track to deliver the $300 million as we exit 2016, and the projects are coming to fruition and things are working according to plan. And with that, it's my pleasure to turn it over to Mike, and he'll take you through some more of the financials..

Okay. Thank you, Rice. Hello, everybody. Glad you joined today. I'm on chart 13, looking at the fourth quarter and the fiscal year. So, starting with the left hand side of the chart and moving down, we'll talk a little bit about the quarter. Our reported operating income was virtually unchanged compared to last year.

That's the $662 million versus $663 million. But as you can see on the chart, we've adjusted for a few special items. These are detailed in the Attachment 3 that was posted within the presentation this morning.

But in short, we're adjusting for GranuFlo, the sale of the European market rights to our joint venture with Vifor and for the plants that we closed in 2014, consistent with our past discussions. So based on this, our operating income increased $35 million or 5% for the quarter.

Following this through to the margins, our reported margins year-over-year decreased 20 basis points. Our adjusted margins improved to 16.2%, or 70 basis point increase. We'll come back to talk about the margins in a bit more detail in a moment. Net interest expense decreased $29 million. About half of this decrease was due to lower average debt levels.

A small amount comes from translating our euro debt, and the rest of the decrease comes from interest income associated with the repayment of an interest-bearing note that we had with a provider in the U.S. Moving to the tax line, the tax rate shows an increase from 26.2% to 31.4%.

Q4 this year is in line with our guidance, and we benefited in 2014 from a favorable court decision we had with regard to an old civil settlement. Our non-controlling interest, as you all know, is a North American story. The other regions combined have only a minor $2 million effect.

North America non-controlling interest broadly tracks with the EBIT development, at deferent rates for the dialysis business and Care Coordination business as we've discussed in the past. So, considering those drivers, the non-controlling interest is in line at $77 million for the quarter.

Reported earnings and earnings per share for the quarter were down 6% as reported. Adjusted for the special items, there was a $6 million increase or 2% growth in earnings after tax and a 1% improvement in earnings per share. Going down the right-hand side of the page and taking a quick look at the full year.

Operating income increased by $72 million, up 3%, or adjusted $117 million or 5%. Margins year-over-year on an adjusted basis were flat at 14.3%. Net interest expense, you can see about a $20 million decline year-over-year, still favorable, like the quarter, but with a bit of a different weighting.

The decrease for the year was mainly driven by favorable translation of our euro bonds, then the benefit from the early repayment of the note receivable followed by benefits from our tiered pricing and our credit agreement and overall for the year an increase in the average debt level.

Tax rate as seen is in line with our guidance from 32% to 33%, so no surprises there. And our non-controlling interest consisting with the quarter is in line with the drivers as we've discussed them, at $284 million. So, reported earnings and earnings per share for the year.

Reported is down 2% or $0.08 a share, adjusted for the special items were showing an increase of 2%, which is slightly favorable to the guidance that we brought you to for fiscal 2015. So turning to chart 14 and looking at our segment performance. As I indicated a few minutes ago, the adjusted margins increased 70 basis points to 16.2%.

And before I go through each region on the chart, I would just make the comment that the weighted contributions to the worldwide margin were an increase in margins from North America, contributing 100 basis points to the global improvement.

An increase in margin for EMEA, contributing 70 basis points, a decline in the margins in Asia-Pacific, which reduced margins by about 40 basis points, a decline in margins from Latin America for about 10 basis points and corporate cost reduced margins by 50 basis points. So, now looking at the numbers on the chart.

In North America, operating income excluding the settlement was up $81 million to $574 million or 16% increase in earnings. Margins increased to 140 basis points.

And as Rice has already indicated, the margins were greatly influenced by the dialysis business showing a strong margin improvement and our Care Coordination business showing a stronger top line growth at comparatively lower margins. More specifically, in the dialysis business, operating margins were up 300 basis points to 21.7%.

This is largely due to lower cost from healthcare supplies, favorable impact from our mix of payers, partially offset by higher personnel expenses in the period. The Care Coordination earnings were down $17 million.

Year-over-year margins decreased from 7.6% to 2.5% in the quarter, due generally to support growth and expand our programs and our initiatives. So we're continuing to invest in Care Coordination as we finish up 2015 and move into 2016. Generally, the investments we're making were partially offset by increased earnings in our pharmacy services.

For EMEA, excluding the sale of the European pharmaceutical rights, operating income was up $11 million or 8%. Margins increased from 18.7% to 22.9%, largely due to favorable manufacturing costs in the region and a favorable currency development looking at both translation and transaction. Asia-Pacific was down $21 million or 21%.

The operating margins decreased to about 20% and this was largely due to a write-off of an old customs duty receivable in India, increased cost just associated with continuing to invest in the region in sales growth and an unfavorable currency development.

Latin America decreased by $12 million to about $23 million in earnings with margins declining to 12%, and this is due almost entirely to higher net inflationary costs in the services and then manufacturing side of the business, partly offset by some favorability in FX for the quarter.

I'll make one forward-looking statement here, while we're talking about Latin America. We are keeping an eye on the countries in that region.

We do anticipate revenue growth will continue for us in 2016 and going forward, but it is difficult to anticipate what effect economic conditions, political developments and fiscal policies in these countries may have over the course of the next year or so particularly as these developments synthesize into the foreign currency exchange rates.

In corporate, excluding the effects in 2014 from closing the manufacturing plant, we had an increase in spending by $24 million with a 50 basis point impact in the quarter as I mentioned before. This increase in spending was due to increased R&D and an increase in the legal and compliance costs, partially offset by favorable translation effects.

We did finish the year with corporate spending a little bit higher than we would have liked. I'll comment on this in our outlook for 2016. Turning to chart 15 and moving to cash flows.

All the operating cash flow measures as you can see are strong and in line; 12.6% for the quarter and 11.7% for the year with regard to operating cash flows as a percentage of revenue was very strong performance. Our cash flow development was supported by stable DSOs at 71 days worldwide.

I would comment, we saw a slight increase in North American DSOs, which we think will settle down over time. Steady days in EMEA, an improvement in Asia and increase in days outstanding in Latin America. Our capital spending is in line and free cash flow is strong. Turning to chart 16.

Our debt has come down from $9.5 billion at year-end 2014 to $8.6 billion at the end of 2015, reflects our strong cash flows and a relatively quite year with regard to acquisitions. As a consequence, our leverage has improved and is within our guidance at 2.8 times. So turning to chart 17, getting ready to talk about guidance.

I think the first question is, what is the base against which our 2016 guidance should be measured. And this is a fairly straightforward chart, but just to make sure that everyone is on the same page. We've reported earnings of $1.29 million.

We have taken the charts associated with the agreement in principle for GranuFlo which was not contemplated in the guidance when we gave it for 2015 or 2016 relative to the settlement, so that's an adjustment of $37 million and then to get to $1.066 billion.

And then we had also indicated when we provided guidance at the beginning of 2015 that we would provide it excluding acquisitions. We did this for the two years because we wanted to emphasize as we thought about our longer term plan. We were demonstrating that what we were telling you we were going to do would be done organically.

So here you see that the acquisitions that we did close in 2015 had an accretive effect to earnings of $9 million, so we're backing that out to get to the base for our 2016 guidance of $1.57 billion, and we're following the same approach with regard to 2016 guidance. You can see on the page that our acquisitions were accretive in 2015.

So that should dissuade any concerns you might have relative to why we're excluding acquisitions. And I would tell you relative to the guidance we're providing for 2016 that those will also be from a planning perspective marginally accretive in the year.

So, let's see, before I move to the actual guidance page, I do want to make one additional remark on 2016.

And I had to put this in the context of – towards the back half of 2015, Rice was routinely simply commenting on the timing associated with the GranuFlo matter and what the trial schedule will look like, so people had an awareness of the set of activities and the fact that something might happen.

And in this case, it did and we think positively put that behind us, recorded the charge. But I think it does present itself to reflect a little bit on the three matters that we've been talking about for the last few years.

We've been commenting with regard to cost and with regard to managing the processes on GranuFlo, the FDA and our quality investments and our compliance investigation and review. So taking the moment, I would say, first, we've already made the investments in our quality systems over the last several years. They are already in our cost base now.

But in particular, we're very pleased that in 2015 we saw three so-called close-out letters from the FDA regarding the matters that they raised in 2010, 2011 and 2012. So the first of the three matters we've been talking to is resolved.

Second, as Rice mentioned and as I'm sure we'll take your questions in Q&A, we have an agreement in principle on GranuFlo, which we think will bring this matter to a close over the next several months. So obviously, we have one more to go. And that is our compliance investigation and review.

I want to be clear that on this, the work continues as we enter 2016. But we are optimistic that we may bring this matter to a close in the calendar year. So as we did with GranuFlo, we're trying to give you a sense of timing and we felt it was appropriate to mention this possibility at this point.

Consistent with our past practice for all three of these matters, whatever our thinking was on the cost of managing it was in our guidance. But we think and we believe you will understand that any cost we might incur as we wrap things up with our discussions – in our discussions with the government is not included in our guidance for 2016.

We've made no determination and we have no definitive sense of the timing or the amount as we sit here today. So, finally turning to chart 18 and going through our 2016 outlook. And I'm sure you'll have some additional questions for me, shortly. But we're showing you 2016.

We are guiding to an increase in revenues of 7% to 10% on a constant currency basis and an increase in net income of 15% to 20%. This does confirm the expectations for 2016 that we've provided you previously. And the guidance considers what we know today and reflects on expectations for the operating results of the company.

This performance, as I mentioned a few minutes ago, continues to exclude the impact of acquisitions closed in 2015 and anticipated in 2016. It is not on the page, but I will comment for those of you that have seen it in some of the other published materials.

We are anticipating about $750 million in acquisitions for 2016, which is a tick-up from what we did in 2015. In addition and as always, we will be opportunistic should larger assets come to the market and make an appropriate decision at that time. So, that's the conclusion of my prepared remarks. I'll turn the call back to you Oliver..

Great. Thank you, Mike; thank you, Rice for the presentation. That was great, lots of detail. So, Patrick, I think we can now open up for a Q&A..

Thank you. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. And our first question today comes from the line of Tom Jones of Berenberg. Please go ahead..

Good afternoon. I had a couple of questions. The first was on the Care Coordination business. I was just wondering if you could give us a bit more of a sense of the outlook for 2016. I guess we can continue to expect some fairly robust revenue growth, but I was thinking more specifically on the margin side.

On that note, I think the Q4 margins came in a little bit light of what we were expecting in the Care Coordination business and certainly below what I was looking for.

I was just wondering if you could shed a bit of light on that whether there was any kind of one-off spending that went on there or anything else? And then final question just a quick sort of housekeeping one for Mike really.

I was wondering if you might be able to give us some kind of guidance or at least some thought based on your current earnings guidance and your CapEx and acquisition spending plans, where you think interest expense might go for 2016..

Tom, I'll take both. Relative to Care Coordination, what I would tell you is we'd expect a top line growth in the area of 25% to 35% in 2016, which I think would put you kind of in the mid-$2.5 billion to a little bit more than that, $2.5 billion to a bit more $1 billion in revenues for Care Coordination..

Sure..

On the margin side, I think what you're seeing in the fourth quarter is a little bit more of investment, particularly as we got ready with the C-SNPs and the spending that needed to take place before we went live on that, on January 1, additionally investing in our ESCOs and the BPCI, in particular.

But I think that puts us in a position when we look at 2016, I would say from a margin perspective, we'd be looking for margins in the range of 3% to 5% in fiscal 2016 because we're going to continue in investment mode in that business, so a good strong revenue growth and 3% to 5% in margins.

Relative to interest expense, we – against the guidance, I would say, we'll have slightly higher interest expense after you adjust for the interest income associated with the paid-off note. So just simple numbers, if you take this year's, add about $10 million, I think we'd see something slightly higher than that.

That is without the financing costs associated with the acquisitions. So given the $750 million we've guided to, I would say you'd probably want to add another $15 million to $20 million to cover the cost of acquisitions assuming that we close on average at the half year mark, at the $750 million..

Okay. That makes perfect sense. And then just one follow-up maybe for Rice. Just on the ESCOs and the BPCI, I mean I think we've all kind of mentally put the ESCOs on the backburner given the scale of that project. But the BPCI does seem to be a much bigger project that's gained a lot more traction in the U.S.

Where are we with that new and what are your thoughts over the next sort of 12 months to 24 months for the BPCI program?.

Yeah. Tom, I would – I think you're right, the way you're parsing that out, I think it's correct. We are looking and expecting that on BCPI (sic) [BPCI], we'll have a better idea of revenue and what's going to happen there in the back half of this year. We think it's going to take us some time as we talked about back to November.

So we're thinking that's a back half of 2016 opportunity for us to get our arms around and give you some more definition about what we think it's going to be worth and what that revenue opportunity is going to look like. And I think you're right with ESCOs, it's going to be 2017 before we really have a good handle on that.

But I will take a moment just to tell you that on the ESCOs, we're at about 8,000 patients at this point. If you recall, we had thought we could do maybe 9,000 patients or 10,000 patients knowing that in some months you could be up to 8,000 patients and that could drop a little bit because you do have washouts periodically.

But we're pretty much tracking to playing on that, so we feel good about that. But it's going to be a 2017 exercise before we can really see what the shared savings which is going to look like and what the medical loss ratio might be..

Sure.

I mean just on the ESCOs since you mentioned it, I mean one of the so great hopes with that was that you'd be able to get a lot dual-eligibles into that program, and of that 8,000 patients, how many if you can share that with us are dual eligibles and how many are not?.

Tom, unfortunately, even if I wanted to tell you, I don't have that answer. I can get it before the day is out. So let me come back to you on that. I just honestly haven't thought to ask somebody about that..

No, that was a fairly picky question. So I'll get back in the queue..

Thank you..

And yes, you were picky..

And our next question comes from the line of Lisa Clive of Bernstein. Please go ahead..

Good afternoon. A few questions. First, just sticking on the ESCO topic. So my understanding in this was one of the reasons for the change in revenue guidance that you did at some point last year. With the ESCO accounting, it's now not a about capitated amount, it's shared savings.

So it's going to be retrospective and so effectively you won't get to book any revenues until I suppose 2017. But if you do, I assume it will be sort of 100% EBIT.

Could you just walk me through the math on that and the mechanics on that and whether that's roughly right? Second question, you've talked about the progress of switching patients onto Mircera. But I'm just wondering the patients who are left on Epogen over this time period.

My assumption was – my understanding was that you were getting very significant volume rebates for having so many patients on Epogen, I mean potentially something up to sort of 35%.

And if you've been massively decreasing your numbers of patients on Epogen, have those volume rebates been going down and therefore have most of the savings from Mircera kind of been washed out up until this point and when do we actually start seeing the savings coming through? And then the third question is, at your Capital Market's Day in 2014, I believe you talked about something like $2 billion of incremental cash returns over the 2015 to 2020 period.

I think you had talked about potentially share buybacks, potentially special dividends, potentially just de-levering.

Could you give us an update on what your thoughts are on how you may do that and when you may do that?.

Sure, Lisa. It's Rice. Mike if you would take three and I'll take a stab at one and two. On the ESCOs, you're exactly right. Lisa, it's a shared savings program.

So it will be in 2016 or 2017, I'm sorry, before we get a sense of where that stands and obviously, we've got to get data from the government, we've got to look at that figure out what the medical loss ratio is to be able to compute that. So it will take us into 2017 to get that. It is not a revenue play if you will under that scenario.

Anything you want to add to that, Mike?.

Yeah, I might just add couple of things, Rice. I don't disagree at all with you, Lisa, that ESCOs were in the mix when we talked about this mid-year or last year, but it was also BPCI and in particular what we had said because the ESCOs hadn't even started yet. But what we said having just started BPCI a month or two prior was that probably best case.

BPCI would be first half 2016. The ESCOs weren't even on the map yet, because they didn't get started until Q4. So, I think with Rice's comment earlier as we've seen the BPCI develop, we're now thinking that's probably more or like the back half 2016, ESCOs pretty clearly are going to be 2017. And I can't resist when anybody talked about 100% profits.

We're very anxious to get started and we're very anxious to get the savings that we think we can achieve with good management of patients and their outcomes from a value based care perspective. But we are making investments in that business. We do have real people. They are doing real work. So there is a cost base that that savings will go against..

Yeah. And so Lisa, on Mircera, a couple of things. So yes, we have only kind of put in perspective for you, if you consider 180,000 patients in the U.S., 25,000 of them really get no ESA or they maybe get a odd dose through the course of the year that gives us a population of patients that we can affect of a 155,000.

So at 95,000, by end of Q4 of last year, we've converted about 62% of our patients. If we get to 110,000 patients by March 31, we'll be at about 71%. So what I'm trying to get you a little sense of is yes, we do have a pricing arrangement with Amgen.

Obviously, they're not altruistic enough to continue to provide us big rebates given where this is going but what should give you some comfort is that the guidance that we are giving you has factored all of that in. So we are getting the benefit on the one hand from one supplier.

There is somewhat of an offset, yes, but that's a dwindling population of patients is the way I would leave that. And then at this point, Mike, I will turn it over to you on the CMD..

Thanks, Lisa. Thanks, Rice. Lisa, relative to the expectations of the incremental cash flows, you're absolutely right. I'd indicated that we'd spend about $11 billion in CapEx and acquisition over the planning period which was 2014 though 2020.

If you look at where we are in 2014 and 2015, we've spent just a little over $2 billion in acquisitions, most of that in 2014, as you know. And I would say, CapEx of about $2 billion. So think of that as $4 billion out of a potential $11 billion spend. I believe, we have dry powder.

I think that we've ticked up the acquisitions a bit in 2016, because we're very focused on continuing to strive towards the aspiration that we shared with you last April. As we get farther into the planning period, if we're continuing to see that we have available cash, then we can consider some of those other alternatives..

Okay. Thanks very much..

Thanks Lisa..

And our next question comes from the line of Gary Lieberman of Wells Fargo. Please go ahead..

This is Ryan Halsted on for Gary. Follow-up question regarding Mircera. If I look at the, sort of, the change in the profitability per treatment, sort of just revenue per treatment minus the cost per treatment, I'm looking at about a little over 200 basis points I guess of margin expansion in North America dialysis.

I was hoping you can maybe reconcile that with the 300 basis points that you noted in our comments.

And how much, I guess – is there some other place where the transition to Mircera might show up outside of the cost per treatment?.

Yeah. So Ryan, well, a couple of things. I'm not sure about the 300 basis points. We talked about $300 million is part of what the GEP say we should generate or you.....

Yeah..

Fair enough. Well, go ahead. I'll let you answer Ryan, on the first piece of that and since you're one that laid out..

Yeah. No, I mentioned a couple of things about – I said largely due to the healthcare supplies, so I think lion's share of that was related to it. But then I also mentioned a favorable impact associated with our mix of payers and that that was partly offset by some higher personnel cost.

So I typically wouldn't get more granular than that, but there were some other things contributing to the 300 basis points margin performance..

Yeah. I would say Ryan, we're seeing nice performance on our commercial book, guys are doing a good job with improving the number of commercial treatments, et cetera, so that works to our advantage in addition to what we're seeing with the move to Mircera, probably the best way to characterize it..

Yeah. I mean and I would say, because I'm sure you've kind of poked at this and someone else will ask on the call as well.

So just relative to 2016 to make sure we started off the year with the right context, I'd just make a couple of remarks, not surprisingly given that Medicare, the reimbursement increase is going to be something on the order of 0.2%, if you do the math, so extremely modest.

On the cost per treatment side, we'll have the usual labor increases that will be buffered by our cost management and that will include some of the actions we've taken this year with regard to healthcare supplies. So I think in total, cost per treatment will be slightly lower in 2016 versus 2015. We will have some seasonality.

But nevertheless we do think that it will be slightly lower in 2016 versus 2015 on the cost side..

Okay. That's helpful. Maybe just a modeling question. The corporate expenses was a little bit higher than what I had modeled and I guess a little bit higher than recent quarters.

What was included in that?.

The corporate spending you're looking at is, the spending in corporate headquarters here in Bad Homburg and some of the corporate activities, including R&D and some of the overhead spending in our manufacturing organization, so that's based here in Bad Homburg.

As I commented, it was a little bit higher than I would have liked to, just a bit, I think that mid-year I've guided to about $360 million. So if that's in your model, you can blame me, and we finished a bit higher than that.

When I think about 2016, I would say, you should probably plan that flat at around $400 million, and that reflects an increase spend in R&D and the continued spending on the compliance investigation that we mentioned earlier as well as some of the investments we've made particularly in legal and compliance that we'll assess as we go forward..

Yeah. Ryan, it's Rice. We've got a couple of new products that are coming out. And so we're spending a little more as we get on the eve of that. We've got a new in-center dialysis machine. We've got acute care or ICU machine coming out.

And then we've got a newer version of our CRIT-LINE which is the actual device which used to be separate, is now going to be integrated into the machine. So we've got a couple of these things that will roll out over the next 12 months, 13 months, 14 months. And so, that's a little bit of hot spending that you're seeing there.

And I think Mike mentioned this earlier, but just to remind you that the GranuFlo expense was sitting in North America because that's where this all really occurred. So, that's not part of that, Bad Homburg, Germany, if you will, expense..

Okay. Got it. Thanks for taking the questions..

Sure..

And our next question comes from the line of Alex Kleban of Barclays. Please go ahead..

Yeah. Thanks for taking the questions. First one is just for phasing on the quarters this year and just thinking about earnings and growth. Given where we've finished with cost-for-treatment in the Q4 and assuming some of those kind of inflationary increases don't hit until later on in the year.

Is it safe to say that we have more of a front-end loaded 2016 relative to what we've seen in the past? Second question is a bit more detail on the modeling, but it's just really around income from investees which I guess is mainly to Vifor and such.

Is kind of $40 million to $60 million range about right for that next year, just given where you are with Mircera and with Vifor? And just going to take a stab at this and see if you will answer, but in terms of the trend into 2017, which I know is pretty far at this stage, but you are kind enough to give us two years, last year, how do you see that and how do you see that relative to the kind of high single digit earnings after tax guidance you'd given for the long-term? Are we reverting back to that mean point, or would we still be a little bit ahead of that in 2017 given that some of the GEP and such is going to carry over into 2017? Thanks..

So Alex, it's Rice. I think what we'll do is, I'll take that third question. Mike will take one and two. Nice try on 2017, but I think that we just really aren't in a place to try to walk you through that at this point. Obviously, as we look out in the future, we've got to see where foreign exchange and some of those things go.

It's just kind of early for us to really try to prognosticate that. And as we had said earlier, two-year guidance is a rarity, it won't become the normal practice. So, I don't think you should expect we'd continue to do that.

But – Mike you want to take the phasing question and the investee income?.

Sure, yeah. In terms of phasing, I think you'll see a tick-up in Q1 off of Q4 relative to cost per treatment, which is normal. Typically, there is always that bump in the first quarter. But having said that, Q1 of 2016 will be a little bit less than Q1 of 2015, if that's helpful. Income from investees, to be honest, don't typically guide to that level.

So, I'll just take a pass on that. Yeah..

Okay.

And just for the phasing in terms of the earnings growth, will it be faster than the 20% or 15% to 20% in H1 and then slower in H2? Is that a fair assumption?.

I think actually with everything we're doing, I think it would be the reverse..

Yeah. We think it will ramp more towards the back half..

Yeah. It will ramp more towards the back. I think – typically our Q1 is never our strongest quarter, so I'd expect that pattern would continue and then as the year progresses....

Get better..

...get better..

Historically, if you look out, Alex, you will see that's kind of the way it plays..

No, that's why I was thinking this year could be exceptional just because of what we've seen in terms of the step-down in cost per treatment. And I was thinking maybe you'd have some gradual rise in that over the course of next year. But I guess you're saying we'll see the rise in Q1 and then maybe some decrease sequentially through the year.

Is that how we should think about it?.

Well, I think not focusing on just the U.S. and just taking a look globally, I would say just in terms of what was commented on today, we do think the cost per treatment will be slightly better.

We've mentioned the fact that we are continuing to make investments in Care Coordination, and as Rice commented, some of that Care Coordination benefits will be more towards the back half of 2016, and we are also continuing to deal with the headwind of foreign exchange..

Okay. Okay, great. Thanks. I'll get back in the queue. Thanks..

Sure..

Our next question comes from the line of Chris Cooper of Jefferies. Please go ahead..

Hi, there. Thanks for taking my questions. I think you may have just covered it, but if I could just clarify please on the corporate EBIT. It sounds as though the strategic investments into the legal and compliance and the R&D functions explains some of that increase there.

Should we think about that as a step-up and then from there, it's just incremental increase? Or is this kind of the sort of rate of – the run rate that we should think about going forward? Secondly, on Mircera, it's very kind of you to give the 110,000 number.

Should we be thinking that it could get to 135,000 patients over the longer-term? And I'll come back with the third if that's okay..

So Chris, let me take number two and Mike can take one. Mike's looking at his papers, so I'll just answer quickly on Mircera. Keeping in mind that I don't really get to control – I wish I did – exactly how many patients are going to convert.

I don't think it's out of the realm of possibility that we could be up around the 135,000 patients, but it's hard for me to predict because there's just a lot of different variables that go into that. So I'm just going to kind of leave it sort of that range and say it's possible.

We'll probably have better clarity on that as we go through Q1 and we can kind of get a sense of where this is going to play out. It's not impossible. But I can't peg it for you right now. I just don't think it would be appropriate..

Yeah. And I would say, I pretty much covered it for 2016 with flat at about $400 million. I think over time that might moderate a bit.

But at this point with the variables we have in there trying to balance one-off legal spending against R&D investments, I'd probably leave it there for a bit and then maybe take it down slightly as we move out in years..

Sure. Thanks. And just one follow-up, and please more of kind of a bigger picture question I guess.

Can you just give us a sense please about homecare and as we stand today what proportion of your dialysis sales makes – is made up of homecare revenues and I guess what your aspiration there might be over the next sort of three years to five years, please?.

Sure, Chris. It's Rice. I would tell you that we're probably somewhere as a percent of patients on home treatments in the 12% range, something like that. The vast majority of that 12% sits in the PD book of business, if you will. So that's kind of where we are. I've often said I didn't see a reason that we couldn't be somewhere in the mid-teens.

I think it's going to take better technology. I think quite honestly, we need some more user-friendly equipment if you will to make that happen and we're working on that now. But I think that's kind of where we sit today. We're not quite yet into the teens, but I think it's doable and we could get there over time..

Great. Thank you..

Our next question comes from the line of Ian Douglas-Pennant of UBS. Please go ahead..

Yes. Thank you very much for taking my question. Just going back to the topic of ESCOs because I'm afraid I disagree with Tom, I do think this is important.

Could you give us an update on your – any negotiations that you're having with private providers, or just any commentary you could make there where this is likely that we would see any kind of arrangement come into place either this year or even next year? That would be great. Thanks very much..

You are right, it is important. But what I can tell you at this point is that we're still in the process, running the pilot that we have with Aetna, that still continues. I don't really have any clinical data that I can share with you.

Beyond that, we have discussions with some other folks, but there is no real change from the last time we spoke about it. I think I would say it's sort of still in a steady state if you will, but if something should change there in the next quarter, we'll certainly let you know..

Okay.

And those other discussions you're having at are relatively early stage still or...?.

That's correct, yes..

Thanks very much..

Our next question comes from the line of Veronika Dubajova of Goldman Sachs. Please go ahead..

Good afternoon, gentlemen. And thank you for taking my questions. I have three please. I'm afraid they are mostly for Mike. The first one is just on the GEP program, and I appreciate you exited at $200 million.

But can you actually tell us the number what was the actual realized saving in the full year relative to the run rate at year end just so we can think about what the progression is through 2016? My second question is just on the Care Coordination margin in the medium-term, I think you previously discussed something in the low-teens.

Is that still something you feel comfortable even though obviously, you're making some big investments at this stage, but would you still be comfortable with people thinking of a medium-term low-teens margin for Care Coordination? And my last question is just quickly at tax rate guidance for 2016? Thank you..

What was the third question?.

It was tax rate guidance..

Okay..

Hang on, one second, Veronika, Mike is going to come back to you. We just held that question for him. Okay..

Let's see, I think on the GEP, we'll look at some stuff and maybe come back to you on that shortly. With regard to the tax rate, I would say 32% to 33% for 2016, so consistent with what I indicated for 2015.

On the Care Coordination, I would say that when – at the CMD in April when we were talking about what the behavior of the different parts of our businesses margins might be or business in Care Coordination, we had not closed anything at that point in time in Care Coordination.

And then subsequently, what we said is given the nature of the business is that we've now put in Care Coordination. We have the businesses that everyone knows very well that let's say are high-single to low double-digit margins. Then we have the insurance businesses which traditionally are lower margin businesses.

So I think where we land on Care Coordination is very much going to be a function of the relative weighting of the growth of those businesses as we go forward. So I tend to think of it myself as maybe eventually – I'll let Rice do the counter-point here, I would say mid to high single-digit. Rice would probably push it into double-digit territory..

Yeah. I want to see us get to double-digit. But I think Mike's given you a pretty good scorecard on it. And look at – as you well know Veronika when you look at the set of assets, and I've said this before, the vascular businesses look kind of like the dialysis business does in the core.

When you look at the pharmacy is doing a good job, the pharmacy distribution businesses generally are in the mid single-digit. Sales can improve and I think they will. That's where you're really going to see I think the opportunity for improvement.

And when you look at the health plan, as Mike said, we don't know exactly what to tell you because we are in such a ramp-up phase and sort of a discovery phase if you will. So, we're not trying to be evasive. We just don't want to get into trying to parse out each one of those, we don't know enough right now to do that.

But rest assured given the way we've broken out the segments, we're always going to be talking about this and we'll get better at giving you some kind of prognostication..

Yeah. And I'd just add, we still – coming into 2016, we still had got about five years left in terms of our mid-term plan. So, there is a fair amount of run rate left for us to develop this business along the lines that we'd like to. And we're also looking at the fact that this generally is a lower capital intensity than dialysis business.

So, we're looking to improve the ROIC as a consequence of lower margin if you will to balance it out from an investor's point of view..

Understood..

And then GEP?.

We're still looking. We may not be able to get to that number on the call, Veronika. But generally, we feel very good about GEP. We think we're on track for the $300 million. In 2016, nothing really extraordinary to report there other than the fact that we're pleased that we've been able to materialize those savings over the planning period..

That's great, Mike.

And are you able to comment on whether you'd uncovered further opportunities beyond the $300 million as you've been through the process? And as you'd look beyond 2016 into, let's say, 2017 to 2019, are there other big saving opportunities that might appear during that timeframe?.

Yeah. Veronika, it's Rice. What I would tell you is, it does get a little harder. We've got some projects that we are definitely working on.

Predictability is not as easy as this, what I'd call first phase, which is when you're consolidating purchasing and you're taking four suppliers down to one, et cetera, it gets pretty granular as to what you're going to say.

We are not looking at things like, how best to take our new equipment and can we have our equipment drive the lights, gas and water in the clinic; can we get to a point where remotely we can turn on in clinic and get it up and ready to run, so nurses don't come in an hour and a half early, they come in 30 minutes ahead of the shift, things like that.

We don't know enough right now. And it's sufficiently difficult, technically to see if this is really going to work for us. I don't want to try to give you a guess, but what I would say is the concept and the focus on improvement is going to continue. And wherever we can find wins we're going to take them.

Some of the bigger things we're looking at are going to take us a little more time to try to see what we're going to be able to do..

Understood. Thank you. I'll jump back into the queue..

Sure. Thank you..

Thank you, Veronika..

And our next question comes from the line of David Adlington of JP Morgan. Please go ahead..

Thanks for taking the questions. Two please. So firstly, just in terms of the one-off costs you recognized last year associated with both the cost savings program and the legal cost on GranuFlo. I just wonder if we toss all those up, how much that would have come to and I'm presuming they mostly drop out during 2016.

And then secondly, you also pointed towards the pickup in acquisitions. I would just love to get some color on timing and what areas we might expect those to be? I mean, clearly, Care Coordination is going to be a focus, but I suspect also dialysis services. Just any color you might be able to share with us there, please..

Yeah. So David, I'm going to ask Mike to help me on this. What I will say though first is, we really can't give you a sense of the GranuFlo. Having just reached a settlement, I really don't want to get into that kind of detail, because you don't want people to feel like they could have done better in settlement if you will.

So I think we're going to have to leave that alone. In terms of acquisitions, if we say anything whatever it is we're thinking about, the price is going to go up considerably between now and the next week, so we probably won't do that, other than to say, we are looking globally.

We are looking at care as well as the core business and I think we'll leave it at that. I think anything else probably doesn't help us. And then relative to the GEP cost, Mike in terms of implementation cost, I don't really remember what the – if we had it – what the number was for 2015..

We never separated it out between the two, other than to acknowledge that we had some. In 2014, it was a net cost exercise....

Yeah..

...yeah – 2013, it was a net cost exercise. 2014, 2015 we started to show a net benefit. So I think we're well enough into the program that the one-off costs are pretty de minimis. It's more about reaping the – harvesting the saving..

Yeah. I think one thing we can just remind you of, back in the very beginning – Mike's right, we said we're going to spend $100 million to try to get at the $300 million. But we're out of place now where it's not a big number in terms of what the implementation costs are..

Right..

Okay. Fair enough.

And maybe just a follow-up on the acquisitions, maybe timing and also in terms of your guidance, if you do make any dilutive acquisitions, is that captured within the guidance?.

Well, the guidance is without acquisitions. So I think it's our intention to have it accretive. If it's not, then I'll certainly be talking about it, but I can't – yeah, just that..

Yeah. And we just don't think it's smart, David. I know you'd like to know. We just don't think we can start to give you a sense of when we think something is going to pop or we're going to do a deal and close because it's just not that easy. So I just don't think we can go there..

Okay. David, I took your question along the lines of, can I have my cake and eat it too..

Nice try..

Am I correct in that?.

Fair enough, guys. Thanks very much..

Thank you..

Thank you..

There are no further questions from the phone lines..

Okay. Great. So thank you very much everybody. Thanks for the questions. Thanks for participating today. Looking forward to seeing you soon and talk to you soon..

Thank you. Thank you for your interest..

Take care. Cheers, bye-bye..

Thanks, bye-bye now..

Ladies and gentlemen, the conference is now concluded. And you may disconnect your telephone. Thank you for joining, and have a pleasant day. Good bye..