Oliver Maier - Fresenius Medical Care AG & Co. KGaA Rice Powell - Fresenius Medical Care AG & Co. KGaA Michael Brosnan - Fresenius Medical Care AG & Co. KGaA.

Tom M. Jones - Joh. Berenberg, Gossler & Co. KG (United Kingdom) Michael K. Jüngling - Morgan Stanley & Co. International Plc Veronika Dubajova - Goldman Sachs International Chris Cooper - Jefferies International Ltd. David James Adlington - JPMorgan Securities Plc Lisa Bedell Clive - Sanford C. Bernstein Ltd. Gary Lieberman - Wells Fargo Securities LLC.

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 First Quarter 2016. 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..

Great. Thank you, Patrick. Much appreciate it. We would like to welcome all of you to the Fresenius Medical Care earnings call for the first quarter of 2016.

As always, I would like to start our call by mentioning our cautionary language that is actually in our Safe Harbor statement as well as in our presentations and in all the material that we've provided today. For further details, 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 also with us is Mike Brosnan, our Chief Financial Officer, who will cover with you the financials and the outlook and a little bit more detail. So, as always, that's the easy part of my end.

The floor is yours, Rice..

Thank you, Oliver. Welcome, everyone. I'm delighted that you are joining us today and I appreciate your interest in our company and our first quarter results. I'll begin my prepared remarks on slide number 5. We are off to a good start. We've had a very successful first quarter.

Four, five key points that I would like to make, although we continue to see strong growth in our group revenue and our net income around the world, North America continues to develop strongly and perform at a very high level.

EMEA, Asia Pacific and Latin America, as we've discussed in previous quarterly calls, are continuing to have an impact on the foreign currency, and we'll talk more about that later in the course of today's session. We continue to see good organic growth in Care Coordination.

Yes, we have continue – we need to continue our work on margin improvement, and we'll talk about that, but we're off to a great start in the year and good performance on organic growth in our Care Coordination segment.

And we believe that this first quarter performance is in line with what had expected as part of our development and progression through the course of the year for 2016 in order to achieve the guidance that we've given you. If you would, please turn to slide 6. Let's talk about the organic growth in all of the regions.

As we have seen in the past couple of quarters, North America is around 71% to 72% of the overall revenue, great performance with a revenue growth of 10% and organic growth of 7% in the quarter. Looking at the International region, 7% constant currency growth and organic growth of 7% as well.

So even though we do issues, we're continuing to see good organic growth across the regions. Asia Pacific, particularly at 10% constant currency growth on the revenue line with organic growth of 11%, and you can see the performance in EMEA and Latin America as well.

If we turn to slide 7, take a moment and look at our global footprint, we're treating roughly 294,000 patients through March 31 of this year. You can see the breakdown of patient counts, if you will, across the regions.

Looking at our clinic base, we're at 3,432 clinics, up about 1% from the prior quarter, and you can see the breakout of de novo activity in the first quarter versus the acquired clinics between North America and the International regions.

If we move to slide 8 and we take a moment and look at our quality outcomes, I think my key phrase here is we continue to perform in a very stable fashion. If we look at our dose of dialysis Kt/V, you can see that there is consistency among all of the regions in the performance on that critical metric.

Looking at hemoglobin, as we defined it in the U.S., at 10 grams to 12 grams per deciliter, you see consistent performance at 72% of the patient base in North America.

Then dropping down one to the convention that we report for International of 10 grams to 13 grams per deciliter, you see across those regions stable performance as well, a little movement in Asia Pacific, but by and large, very stable across International regions.

And then lastly looking at our hospitalization days per patient, again, you see consistent stable performance throughout the global enterprise. Now, if we turn to slide 9, we'll take a moment and talk about our healthcare revenue. First, let me point out that the overall global dialysis treatments improved 5% in the first quarter.

We have seen a higher revenue achievement in the U.S. as a result of favorable payer development in a number of commercial treatments performed within the quarter. And again, we said earlier, Care Coordination continues to drive strong organic growth.

Looking at $3.4 billion in the first quarter, we see growth – constant currency growth at 9%, organic growth at 7% and our same market is consistent at about 4%. And I don't think I'll go through each of the individual regions you see there, they're for your perusal. And just on Care Coordination, again, you can see $522 million in the quarter.

20% growth in constant currency, and we've mentioned previously the 17% organic growth. My last slide, perhaps the surprise of the quarter for some people, is the dialysis products performance in Q1.

You can see that, at $791 million in the quarter, we generated 6% constant currency growth; North America at 6% and the International division at 8% constant currency growth. How did we get there? We've seen very strong sales of our dialyzers, our machines and our bloodlines.

Keeping in mind that we had a very strong first half of last year in the product business, this is a very good result on top of that comparator, if you will, year-over-year. Obviously, we do have currency headwinds outside of North America. And also, our PD business is progressing nicely.

Globally, we're at 4% growth year-over-year, and then when you look at the North American PD growth, at very strong 15% year-over-year. With that, I will conclude my remarks, and it's my pleasure to turn it over to Mike, and he'll take you through the financials and the outlook.

Mike?.

Thanks, Rice. Good afternoon and good morning, everybody. Rice went through the revenues. So turning to page 12, I'll start with operating income. Our reported operating income increased $36 million to $540 million for the first quarter of this year, an increase of about 7%. It was supported by lower cost of healthcare supplies in the U.S.

and savings from our global efficiency program. As always, I'll come back with more detail on margin performance in a few minutes on the next chart. But continuing down the P&L, net interest increased $3 million.

This was almost entirely driven by the lower interest income we had in the (7:52) 2016 as the interest-bearing notes receivable from a provider in the U.S. was repaid in the fourth quarter of 2015. Tax rates show a decrease from 34.3% to 31.8%.

This decrease was, to a large extent, driven by the non-controlling interest, the growth in non-controlling interest, and a higher tax-free income from our equity method investees and lower tax rates in certain jurisdictions.

Non-controlling interest is in line with the movement in our business in North America, particularly if you look at the two pieces, Care Coordination and the Core Dialysis business coming at $69 million for the quarter. And net income attributable to shareholders was up $18 million or 9%. Earnings per share increased 8% or $0.06 a share.

All in all, we're pleased with the start of the year and the performance that we see in the first quarter. So turning to chart 13 and talking a little bit about the margin performance in the regions. As I indicated, margins have gone up about 10 basis points to 12.8% worldwide for the company.

And before I go through each region on the chart, I would just give you a sense as to how the performance for each region was weighted into the global results. So, clearly, the increase in margins for North America contribute 150 basis points to the global margins.

And then there was a decline in margins for our remaining businesses overwhelmingly influenced by foreign exchange. EMEA contributing a decline of 30 basis points, Asia a decline of 60 basis points, Latin America a decline of 10 basis points, and corporate costs reduced margins by about 50 basis points. That gets you to the 12.8%.

So now looking at the chart in North America, operating income was up just under $100 million to $436 million, a 28% increase year-over-year.

The margins increased 200 basis points from 12.3% to 14.3%, and they were influenced by the Dialysis business showing a strong improvement and our Care Coordination business showing a stronger top line growth as compared to the lower margins. More specifically in the Dialysis business, operating margins were up 300 basis points, 13.9% to 16.9%.

This was largely due to lower cost for healthcare supplies, a favorable impact from commercial payers, and lower legal expense in the U.S. slightly offset by higher personnel expenses in the first quarter year-over-year. Care Coordination earnings were down $5 million.

Year-over-year, the margins decreased from 3.5% to 2% in the quarter due to the ongoing costs we've been discussing with regard to the BPCI pilot, it's a slightly increased cost for the hospitalist business and lower margin and growth in the lower margin health plan and urgent care businesses.

This was partly offset by improvements in our pharmacy services side of the business. For EMEA, operating income was down $11 million or 8%. Margins decreased 190 basis points from 22.5% to 20.6%.

This was entirely due to unfavorable foreign exchange which had an effect that exceeded the total margin effect for the region, delaying very favorable product and customer composition, higher sales and favorable margins in the core business. Asia Pacific was down $20 million or about 23%. Operating margins decreased 650 basis points.

This was largely due again to foreign exchange and some costs associated with the changes in the announced management board positions for that region. Latin America decreased by $7 million with margins declining 190 basis points. This was due to the inflationary costs that we see in the region and unfavorable foreign exchange.

And in corporate, costs went up about $22 million to just over $100 million, an impact of 50 basis points, consistent with the way that I've guided for corporate spending for fiscal 2016. Turning to chart 14 and talking about cash flows and capital expense. Operating cash flows were 4.3% of revenues, down from a comparator of 11.3% in Q1 2015.

The lower level was driven by an adjustment in invoicing within the quarter in the U.S. and the timing of cash payroll payments also in the U.S. These timing differences will have no meaningful impact on the full year 2016 results. And this resulted in DSOs increasing by three days from 71 days to 74 days for the quarter.

Again, this was the timing effect that we anticipate will have no impact on the performance for the full year. CapEx is in line and free cash flow is obviously impacted by cash flow from operations.

As a consequence, our debt increased from $8.6 billion to $8.9 billion at the end of March, but our leverage remains unchanged from year-end and within our guidance.

Turning to chart 15, and just a few words on our outlook for 2016, we are confirming the outlook for 2016, anticipating increases in revenue of 7% to 10% constant currency and an increase in net income of 15% to 20%. The guidance considers what we know today and reflects our expectations for the operating results of the company.

As you know, the performance continues to exclude the impact of acquisitions closed in 2015 and anticipated for 2016. It includes the effects of our global efficiency program and the net income growth is off the base that we established at the end of 2015 of $1.57 billion. So, with that, I'll turn the call back to Oliver..

Great. Thank you, Mike, thank you, Rice, for the updates. And I think, Patrick, with that, we can open up the lines for the Q&A session..

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

Good afternoon. I had a couple of questions. The first was just on the transactional currency hit that you took in Q1. I know you mentioned in various different regions that currency was a factor.

But in terms of the year-on-year margin decline, how much of that was kind of ongoing currency pressure just related to the overall revenues and the impact that that's having on margins? And how much of it is just the transactional effects related to the balance sheet revaluations of foreign exchange? Basically, I'm just trying to get a feel for how much of the currency impact is a kind of one-off effect in Q1 and how much is going to come through in the following quarters as well.

Obviously, all assuming rates held, I am not asking you to make any predictions about which way rates go. My second question, maybe one for Rice. So just wondered if you could give us an update on the BPCI and your early experiences there.

And perhaps, within that, segue into what the margin outlook really is for the Care Coordination business for the rest of the year and how you see that developing. Those will be my two questions. I have one quick clarification, but I'll save that for the end..

Okay. I'll grab the first one, Tom. With regard to translation and transaction, as you know, our guidance overall hasn't changed when you look at full year results. But you do get some swings from time to time when you look at the individual quarters. We talked about this quite a bit in both Q1 and Q2 last year.

And when you look at this quarter, most of the effect in Q1 is due to the change year-over-year between currency gains on the transactions in Q1 in 2015 and currency losses on the transaction side Q1 in 2016. So you get an enhanced effect, if you will, with regard to the negative impact of transaction gains and losses in Q1.

When – if you go back and look at Q2 from last year, we saw a swing, so we'll have to see how that plays out for the second quarter. But that's what you're seeing in the first quarter this year, gains from last year, losses this year, which gives you an accentuated effect on transactions..

And maybe I'll just quickly follow up, if assuming rates stay where they are, what kind of transactional impact are we looking at for the rest of the year on the international margins?.

Well, if you assume rate staying effect, I would say that Q2 last year, because there were losses in the quarter, is a weak comparator year-over-year. So I would anticipate we'd see a lot on the net affects of FX for the balance of the year..

Sure.

And BPCI?.

Yeah. Hey, Tom, it's Rice. I would say steady as she goes. We are still believing and setting ourselves up to be in a place toward the back half of this year to give you some sense of reconciliation, if you will. But if this data is flowing and we're getting information, we're not in a place we can make much sense of that at the moment.

But I think we are comfortable that we can get something out to focus in the back half of the year. And on the Care Coordination margin, as we talked in February, we are still looking at 3.5% to 5%. Obviously, we've got to see some improvement based on where we are in Q1. But as you well know, most of our plans tend to back-end progress, if you will.

Q1 is the lower part of the year for us. So we've got work to do, but we think we can manage that work and come in within the range that Michael had given you back in February on the full year report..

Okay. That's perfect. And then just a quick clarification. On the healthcare business, there was a couple of points difference between your organic and constant currency growth rates.

Is that just the difference in dialysis days in the quarter, because if I look at the volumes, there wasn't really much of a difference between the same-store move and the organic growth rate, yet there was on a constant currency.

So was that just the dialysis days that were driving that difference or did you somehow managed to acquire something without acquiring volumes in that business?.

My gut reaction....

Sorry. Yeah, actually, Tom, I think it was the influence of the change in bad debt quarter-over-quarter. That's what it was..

Okay. Perfect..

There was a slight improvement in the bad debt expense in Q1 2016 over 2015..

Over the prior year. Thank you, Tom..

Cheers..

Our next question comes from the line of Michael Jüngling of Morgan Stanley. Please go ahead..

Thank you and good afternoon, everyone. I would like to ask three questions, please.

Firstly, on the EMEA and the Asia Pac EBIT margin development for the rest of the year, so if Q1 was a bit softer than I had hoped, and North America better, what is the realistics of trend for those two geographic regions for the remainder of the year? Secondly, on Care Coordination, can you sort of describe a little bit about – a little bit the investments that you're making this year compared to last year, because it seems to me, based on your commentary, it's more so the investments that you're making that is having this fairly flattish margin development? And the final question is on cost savings run rate, what was it at the end of the first quarter, please?.

Great. Let's see, Michael, in terms of trending for the individual regions, we typically don't guide much at that level. Obviously, when you look particularly at Asia Pacific, it's a relatively small region. So fairly small changes in earnings could drive (21:02) changes in the trending.

I wouldn't change what I said earlier with regard to FX total company. I think when you look at the individual regions, in Asia, you see a little bit more volatility with regard to the rupee and won with some mitigating effects associated – from the Korean currency.

In terms of EMEA, I think it's reasonably stable with the possible exception of the ruble. But what you do have in EMEA in some of the countries is you have customer billings in U.S. dollars, so non-local currency billings which, as I explained last year, sometimes tends to influence the movement in the quarters.

Operationally, I think both regions are doing well. So, if you look over a longer period of time, I think you can kind of level out the currency effects, and look at I think sustained growth in those regions for the quarters to come.

With regard to the Care – I think you said the Care Coordination investment in your second question, am I correct?.

Yes, that's right..

Yeah. With regard to the Care Coordination investment, I would think of that in a couple of ways. Last year, we talked very specifically about incremental cash spend of $50 million in the Care Coordination sets of activities and we indicated that we did execute against that.

When I spoke in February, I also talked about the fact that, for 2016, you really need to look at the margin performance and the investment really as the ongoing spend associated with some of those shared savings programs, because we said we wouldn't get revenue recognition on BPCI and so best case (23:03) back half of 2016 that we would not book revenues on the ESCO program likely until 2017.

So, in a way, that manifests itself in the margin as an ongoing investment. So I would think of the investments in those two ways which I think explains why you see the Q1 performance that you see. That having been said, as Rice indicated, we confirm that we still anticipate 3% to 5% margin in Care Coordination for the year.

So we obviously anticipate an improvement as the year progresses..

And some of that's people, Michael. Obviously, you've got to have hands to do the work that we're going through. So some of that's people. When you look at GEP, I won't make you happy, we're not going to break that out for you by quarter.

But let me say it this way, as we look into full year and as we've talked with you folks before about an exit rate in 2016 of $300 million, we believe we're on track for that as we look at these projects that are delivering those types of economics. They're in the process, they're moving, we don't see a lot of risk to that.

These are programs that had been around for a while. So we're pretty comfortable with that. I think I'd leave it like that versus trying to parse it out by quarter. But we're on plan, let me say it this way, Mike and I are comfortable that we're on plan and that we'll deliver full year what we've committed to..

Mike, can I just follow up on EMEA and also on Asia Pac, without giving a precise guidance, given the trend in Q1, is it reasonable to assume that the margins, the EBIT margins for both geographic regions are likely to be down year-on-year?.

We're just checking something here, Michael, hang on..

Yeah, maybe down slightly, yeah..

Okay. And then the $50 million that you spent last year on Care Coordination, is it right to assume that the $50 million will stay in the business, but there won't be any substantial increase in the $50 million..

Well, I'd say two things. The first is $10 million of the $50 million related to the integration costs associated with Cogent and Sound. So, obviously, that dissipates. But the programs that we're involved in are getting larger, so I wouldn't say that we're at a complete stop with regard to the growth in the organization to manage its businesses.

But I think from a pure cash spend, incremental head count external spend, we don't think that we're at $40 million to $50 million level in 2016 that we were at in 2015. But we are going to increase infrastructure, increase head count to make sure that we're managing these growing businesses appropriately..

Yeah. I mean, by way of example, Michael, we've just gotten some feedback from CMS that they are thinking about allowing a few extra sites in the ESCO program. So that will generate some work for us, some expense for us, not a huge amount, but we just have to react to what the opportunity presents to us..

Thank you..

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

Good afternoon, gentlemen. Thank you for taking my questions. I'm going to take a stab at Tom's earlier question. I think (26:48) just trying to understand in constant currencies what happen to the international margin year-on-year.

And so, maybe as opposed to getting tangled between transactional and translational, can you just give us either quantitatively or qualitatively some color on what actually happen to margins year-on-year in the International business? And if you are happy to go into detail, EMEA, APAC and LatAm, that would be fantastic.

But even if not, then if you can just give it to us from a group perspective international, that would be extremely, extremely valuable. My second question is just on the U.S. revenue per treatment which was very solid in Q1. And from memory, I think you have a couple of contracts on the managed care signed that are up for renegotiation this year.

And I don't know, Rice, if you can comment on how these discussions are going. And to what extent do you feel that you will or will not be able to replicate the trend on the revenue per treatment as you move into the rest of the year? And my last question is just on Mircera, I think if you can give us an update on what the switch rate was.

And apologies if I missed it in the prepared remarks just because I got on there a little too late..

No, Veronika. It's Rice. I actually just realized to myself I didn't talk about Mircera in my prepared remarks. I'm happy to do it.

Why don't I take two and three, Mike, and then you want to do one?.

Sure..

Okay. Let's do the easy one first, Mircera. So we had suggested to you back in February that we thought we would be at around 110,000 patients with multiple doses, and we've done slightly better than that. So we are at about 125,000 patients through March 31 with multiple doses.

And to do that quick math for you, if you go back to – remember, we've got 25,000 patients that get no to maybe one ESA dose over the course of the year, available pool that's available. It takes us to about 80% converted at this point. So it continues to go well at roughly 79.5%, 80% converted, 125,000 patients.

Looking at revenue per treatment, your memory is excellent. We do have a couple of our large contracts that we will be engaging in discussion with this year, but it is in the latter part of the year, back half, it will start those discussions. So let me leave it at that, but obviously, we will do everything we can do.

We like the revenue per treatment trend that we're seeing and we want to maintain that and grow it if we can, but we'll start those conversations in the latter part of the year, Veronika. And then, Mike, I'll flip over to you for question one on constant currency effect..

Yes. I think beyond what I indicated to Tom, which is that, every quarter, you get a slightly different composition in terms of transaction or translation effects. As we've always said, when you look beyond an individual quarter for the full year, about a 10% change in your dollar drives about a 1% to 2% change in earnings after tax.

And with the European countries following the euro and the Asian countries largely tracking to the dollar, sometimes you can get either a mitigating or exacerbating effect that might make that grow plus, minus 2%, either direction. So that guidance still holds true today.

As I indicated, in this particular quarter, because we had gains last year and losses this year, there's a fairly large swing year-over-year largely related to transaction effects. The....

I guess, my question is if you strip out that gain from last and the loss from this year, would the margin be comparable higher or lower year-on-year? I guess that's what I'm trying to understand..

Yeah. No, I appreciate that. Let me think about it because I don't think we see this quarter much different than what we did last Q1, that's why I'm just not sure that it helps to give the additional granularity..

As I said, qualitative commentary, fine. So with striping out the gain and the loss, do you think margins are about unchanged? That's fantastic, and I'm happy to leave it at that. It's just – that's what I'm trying to understand. I think that's what Tom was trying to understand as well..

Okay. Let's keep going and we'll come back after I....

We're pulling through some paper here, but I would say this that, fundamentally, in terms of how the business is working and pricing and things like that, we're not having huge issues. We're in a kind of a stable place short of these things. But I'll let Mike come back to you on that. They're looking at some numbers here now Veronika..

That's great.

And, Rice, any update on the FCPA investigation and progress you're making there?.

We are making progress. We continue to – what I would say look at some things, get comfortable, document it, if we need a change of practice or policy, we're doing that. So I think we're still just kind of moving through the process that we need to.

I think what sometimes seems to be taking forever, I have to remind people that when you're operating in 120-something, 130-something countries with product in 40 or 50 on the service side, it takes a while as you go through and look at your programs and what you need to do to improve on those sort of things..

Understood. Thank you so much and, Mike, if you can come back to us, that'd be great..

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

Hi, there. Good afternoon. Thanks for taking my questions. Apologies if I have missed any of these. I joined the call a bit late. Firstly, just on commercial patients, it seems as though, I guess, a message we've seen over the last few quarters is that you've begun to take a bit more share from your key competitor.

What have you changed in your approach when you're holding discussions with the private payers?.

Yes. And here's what I would say, I think that the improvement that you're seeing is really coming from a couple of places irrespective of whether it's DaVita and (33:20). I think we put ourselves in a much better position to pick up commercial patients have them come into our facilities.

I think we've made it easier for people to inquire about where they want to be. I think we're much quicker in our turnaround in accepting those patients. I think there's a fair amount of blocking and tackling or logistics that goes into this more than people might think.

When a patient is being discharged from a hospital trying to decide where they want to get their therapy and then calling local clinics to see if they have a spot for them.

I think the people that give the better customer service that are more willing and able to talk to those patients on a very timely basis is what really helps you have people move in your clinic.

Now, obviously, your relationship with the large payers is important, but it does in many cases come down to a patient-physician-discharge planner relationship, then I think it's where we've gotten better over the previous quarters, and we're continuing to see the benefit of that..

Great. Thank you. Second one, please. Just on the margin progress that you've made during the quarter, clearly, you're continuing to make that progress on the cost per treatment, but it jumped out at me that the year-on-year improvement is actually slowing despite the amount of patients from Mircera coming in well ahead of your own expectations.

I just wondered whether you're seeing a bit more personnel cost growth there as you were last quarter or whether there's something else going on as well?.

No, that's a good question, Chris. I think what you have to remember is, as you look at sequential quarter; simply, we have higher personnel expenses in the beginning of the year. We've talked about that before in other calls.

And also, we talked about we had an extra pay period in the first quarter in North America which impacts that as well, when you think about clinic staff that generate part of that cost per treatment. Year-over-year, it's a very good story.

So, sequentially, I think it's just a matter of we're in the first quarter where we have higher personnel expenses is really the effect you're seeing. But if you go back and look year-over-year, I think we've announced $7, I think..

Yeah, exactly, Rice. And we also have two fewer days in Q1 versus Q4, which we'll also look....

Yeah, that's right, correct..

...at cost differential.

So, okay, yeah, coming back to Veronika, and as you know, because we've had these discussions in the past, I don't want to make the call all about foreign exchange, but I think, qualitatively, I indicated earlier that we felt that the underlying operations of the international regions was doing quite well once you took out the currency effects.

And I'd repeat that, in response to your question, it's helpful, I think you could look – when you're looking at the International business, currency probably had a 200-basis-point depreciating effect on the operating performance for International..

Chris, we don't want to cut you off, but please any other questions?.

No, that's very helpful. Thanks for your help..

You bet..

Thank you..

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

Hi, guys. Thanks for the question.

Maybe in slightly different way, obviously, very good progress on your North American dialysis margins, and so maybe if you can give an update in terms of the progression through the year and just how those margins might develop given where you are with Mircera and the GEP, just wondered how we might be thinking about margin progression quarter by quarter through the year..

You want to flip the coin, Mike, or you want to take that?.

Yeah, no, I gave some indication last call. So I think what we had said was that we would anticipate a slight decrease in cost per treatment year-over-year 2016 over 2015, so I think we would stick with that. Obviously, you'd see a benefit in Q1, but then, as Mircera annualizes out, I think you'll see a mitigation of that.

So, full year, I think you'll see a slight decline in cost per treatment..

Okay. Fair enough. Thank you..

Sure..

Next question comes from the line of Lisa Clive of Bernstein. Please go ahead..

Good afternoon. Two questions within the Care Coordination division. First, could you just provide an update on ESCO? Rice, your comments about CMS potentially allowing a few extra sites was interesting.

Could you maybe comment on how many incremental patients you could potentially add there if that does happen? And then second, my understanding following your December Care Coordination Meet the Management event was that there's also a lot of activity going on with your plans to launch a Medicare Advantage plan, I guess, a special needs plan specifically.

Did that indeed launch at the beginning of this year? How should we think about that opportunity over the next 12 months and beyond and how is the recruitment going so far?.

Sure, Lisa. So, on the ESCO, literally, that news that CMS is considering a couple more locations is kind of hot off the press, and we really have not sat and talked about would we, and if yes, where, how many. So we may have some more color for you on that next quarter, but I don't have much more than that right now.

What I can tell you is that, if you look at the 8,000 patients that we told you we were planning for the ESCO back when we saw you in November, December, we are pretty much right at that number, just a little shy of that number, because we've had some people wash in and out. So I think we're seeing some stability on that case.

And on the C-SNPs, yes, we're moving forward there as we had planned to, and I don't have an exact number for you at the moment as to where that is, I'll have to look and see if I've got it written down somewhere. But it is in place. We're moving forward as we had planned to do. So I think we're making good progress on all of those fronts.

I just don't know enough about the ESCO to give you any more color than that at the moment..

Okay. Thanks..

Sure..

And our next question comes from the line of (39:55) Please go ahead..

Hello (39:59).

Hi (40:00).

Hey. Just two questions basically. One on the Renal Vifor joint venture whether maybe you can give us an update on Velphoro here, and also maybe the broader pipeline opportunities you would see there midterm? Second question, more broader-based, big picture on innovation in general, although related to product.

Would you see from your own 650 guys in R&D something major coming up, where we should pay strong attention, and vice versa, would you see any disruptive technology maybe out there in the market coming from competition? Thank you..

Hey, (40:41), it's Rice. I would tell you that Velphoro continues to move well in the U.S. We continue to see good progression of a number of scripts that are being written.

We're fighting the fight that you have to fight with the pharmacy benefit managers to get on their formularies and hopefully get one of the top one or two positions, and we're making progress there. I happened to listen to the (41:07) call last week and they're just not getting the traction yet that they thought they would.

So I think that's inuring to our benefit on the Velphoro side. When you look at the pipeline for the joint venture, as you probably well know, we've got a number of activities that we've gone into in terms of licensing and looking at new product opportunities. We've got a couple of different binders that we're looking at. Most of this is ex-U.S.

because, as you find many times, start-up companies with new and novel drugs want to try to commercialize the U.S. but they tend to license out in the rest of the world because they need the licensee stream in order to continue their R&D or their clinical work.

But we've got a couple of things that we're working on there and we feel pretty good about that. Now, when you think about that disruptive technology, we've got a number of products that we are going to be launching over the next 12 months to 15 months.

I'm not sure I'd say they are completely disruptive because it's a new in-center machine, new acute machine. We got some new dialyzers coming out, those kind of things. We always maintain a wide net to see what's going out there and something that we haven't talked a lot about, but we have formed a venture fund within FMC.

It's not a huge amount of money, but we're spreading money around in some of the high-tech areas around the world. We're looking at new opportunities and we're trying to give some seed money to some of the activities that are out there as a way for us to stay abreast of watching you of what could come through.

(42:48) you go back with us a number of years. Remember the Bardoxolone days when people felt that drug might put us out of business and it didn't come to fruition. We don't see that today and I don't say that confidently. I simply say that we're not seeing stuff yet today, but we're watching it, we're trying to stay abreast of it.

If it's pharmaceutical, we hope, if it's coming around that we can do the work in our clinics, get some sense of what's going on. If it's something beyond that, we try to keep our hands in the pie as best we can..

Good. Thank you..

Sure..

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

Good afternoon. Thanks for taking the question. I was hoping you could talk a little bit more about your experience with the BPCI and how it's proceeding versus your initial expectation. There has been some discussion by participants about CMS's lack of ability to get timely data to participants, which is maybe stymied it a little bit.

So would be interested to hear your experience..

Hey, Gary, it's Rice. I'd say that's a true statement. I think we are feeling that the data flows a little better now than it was three, four, or five, six months ago.

But part of why we've been very descriptive about having some sense of BPCI in the back half of this year is because that data flow has got to get – just continue to get better and we've got to be able to analyze it and react to it. So, I would say a little better.

But still more work to be done and that's why we just continue to say it's going to be latter part of the year before we can really make some sense of that is probably the best way I can comment..

And then in terms of your thoughts on growth in Care Coordination either organically or through acquisition, has your experience with the BPCI or just changes in supply-demand for different types of providers changed and what's your thinking there?.

Well, I would say when we consider BPCI we sort of – we're still of the opinion back half of the year data flow has got to get better. We signed up for the DRGs, if you will, that we're going to maintain. I think that's still steady as she goes. We're still in play there.

When I take a step back and look at Care Coordination in a bigger sense, we're still looking at opportunities. We're still pursuing some things like our polyclinics in Germany that continues to progress. I think we're up to about 30 of those in over 46 locations or 47 locations where we're doing dialysis and cardiology, things like that.

So I think we continue to look at that. We continue to think there are opportunities that are out there. And we're screening things as we go forward, Gary..

Okay, great. Thanks very much..

Sure..

Our next question is a follow-up question from the line of Michael Jüngling of Morgan Stanley. Please go ahead..

Thank you. Two more, please.

Firstly, on the earnings growth guidance for this year, given what you've delivered in Q1 and also the FX, is it fair to assume that it's more likely that you'll be coming out towards the bottom end of the range rather than the high end of the range of 15% to 20%? And then secondly, on the income from equity accountees, sort of a really strong Q1, Mike, could you give some guidance as to what that number may look like for the full year? Is – i.e., for Q1, the run rate for the full year or did something a little bit more unusual happen? Thank you..

Okay. Sure, Michael. Not ready to call the number within the range, too early in the year. So I'll stick with the range.

Relative to equity method investees, I think what you're seeing coming through in the quarter is the change we've made with regard to the pharmaceutical, so I think that probably will kind of fluctuate more or less around that level for the balance of the year..

Great. And that was all. Thank you..

Okay. Thanks..

Thanks, Michael..

Our next question is also a follow-up question from Lisa Clive of Bernstein. Please go ahead..

Hi. I have actually somewhat similar to the prior question. If we just think through the – specifically the margins as we go through the year, some of these items may be back-end-loaded. I mean, the global efficiency program continues to deliver and I guess that sort of incrementally increases quarter-on-quarter.

Perhaps there's some incremental savings from Mircera towards the back half of the year versus what you got in Q1. GranuFlo cost, I don't know how much those roll off in the second half of the year once the settlement happens.

Could you may be just talk through some of the items that potentially help that margin trajectory and help get to that 15% to 20% growth?.

Lisa, I think big picture, when we talked about 15% to 20% even going back to the beginning of 2015, we were talking in terms of the investments we were making in the retrospective shared savings program, the ESCOs, the BPCI.

I think with what we've said about BPCI potentially getting to an inflection point in the back half of this year, that should be a contributor. Wrapping up the GranuFlo and moderating a bit in terms of legal expense should be a contributor there assuming everything works smoothly through the August settlement, the inking of the deal, if you will.

And GDP, you mentioned, this is the third year and we should get towards sustained savings rate this year. And then more generally, we talked about the fact that, for the last several years, we were kind of managing three issues globally, GranuFlo being one, the FDA being the second and the compliance work being the third.

We had wrapped up two of the three of those with the GranuFlo settlement and we were optimistic that we could get to a resolution on the third this year. So I think those are kind of those elements.

I don't want to understate what we think is the strong operating performance of the core business both in terms of North America which is clearly evident, and the international businesses which operationally I said were actually doing very well and are masked somewhat by the FX that we've been talking about.

I mentioned those things but I don't do it in the context of ignoring the fact that we're seeing good fundamental operating growth in the businesses around the world..

Understood. Thanks very much..

And our next question is also a follow-up question from the line of Gary Lieberman of Wells Fargo. Please go ahead..

Thanks. I just wanted to follow up on one of the questions that you just answered. Mike, I think you mentioned that there was a change regarding how you're booking pharma in the equity income.

Is there any more detail you could provide us there?.

No, it wasn't a change, Michael, it was just – obviously the joint venture earnings come in through the income and equity investees line. So to the extent of which you have a change, you've got some additional earnings coming to the company through that line as a consequence of the Pharma JV. So there's no change. It's just....

Got it.

So it's just increased sales of Mircera essentially then?.

Yeah..

Or any number, though, that run through that line, Gary, that's it..

Because that is a significant contributor. Yeah, exactly..

Okay. Got it, thanks..

Hey, Patrick, I don't see any more questions actually.

Do you have any more questions actually in the pipeline?.

There are no further questions from the phone lines..

Okay. Great. Thank you so much..

Thanks, everyone. Thank you..

Thanks for your interest. Thank you..

Take care. Bye-bye.

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