Fresenius Medical Care AG (FMS) 2005 Q1 法說會逐字稿

First, we want to just take a look at our performance for Q1. We don't want to lose sight of the fact that we have had some excellent continued operating performance and continued the great trend that we saw in 2004. And, therefore, I will go through a brief presentation of Q1, and then Ben will get into the details on the strategic initiatives.

So here is the summary P&L for the quarter. We have a strong start for the quarter, continued the progress that we had in Q4. Our revenue growth was up 9% on a constant currency basis, and we will look at the reasons for that in a minute on later slides.

Our EBIT margins were up slightly compared to last year on a reported basis at 13.7%. Actually it was quite an improvement. It was up around 30 basis points on a like-to-like basis. Remember we implemented the FIN 46 accounting rule at the beginning of Q2 of last year, and that reduced the EBIT margins by about 20 basis points. So this is the last quarter where we will have that comparison difference, but we do have it again for Q1 this year. So we are really looking on a like-for-like basis of 13.9% versus 13.6% last year.

In addition, net income was up 18% compared to Q1 of last year, and it reflected the very good operating performance, the growth in the business, but also a very good performance on interest as we got the full result of some of the financing initiatives that we had implemented last year. Our free cash flow was actually strong for the quarter, and as expected, the comparison, that -25%, does not look so good, but it does reflect a onetime tax payment that we had to make. It was fully accrued in previous years, but it had a cash impact. It was around $40 million in Q1 of '05.

Now let's take a little deeper look into the revenue growth. North America revenue growth was strong with an uptick in same-store growth combined with pricing impact from MMA. Remember that the MMA, the Medicare Modernization Act, came into effect on January 1st when we had a 1.6% increase on Medicare payments for Medicare patients.

Europe continued to grow well with contributions from Western Europe and also from recent acquisitions in Eastern Europe. Asia-Pacific was slightly down, but this was more or less expected as we had the reimbursement cut, the biannual reimbursement cut in April 1st of last year. So Q1 of last year in Japan we were still at relatively higher prices, and that has had an impact on growth.

Latin America continued very strong. It looks a little bit stronger here at plus 30%. About half of that growth is coming from the FIN 46 accounting change, but still at 15% constant currency excellent growth in Latin America, primarily in the service business.

Let's take a look at Dialysis Services. This accounts for 72% of our total business, and North America accounts for 89%. And here we add a nice 8% growth rate for the quarter, and this reflects service growth driven by the uptick in same-store growth and also the MMA pricing impact. We also had a little bit of contribution from improved contract pricing on the private payer side.

International services now accounts for 37% of the business. If you remember back to early last year, we were at 33, 34%. So services, the clinic business continues to be an increasing part of the international business and primarily reflects the fast growth in our expansion in some developing markets, notably Eastern Europe and Latin America.

Let's take a closer look at our growth rates in the service business. Our organic growth was 6.2% with same-store treatment growth at 4.4%. The organic growth rate in North America at 6% reflects again the MMA increase that we got of 1.6%. It is a minor contracting increases, and the same-store growth is picking up from quarter to quarter, and we believe that that is reflecting the success of our UltraCare program in the U.S. where we are now growing slightly higher than the market at 3 to 3.5%.

International pricing benefited from reimbursement increases in Turkey and also a favorable mix effect. We have more growth in countries that are higher reimbursement. Revenue per treatment increased both in North America and in international and international reflecting the mix effect that I just talked about. And in North America, you see that we were up $3.00 over Q4 of 2004 and $7.00 or 2.4% compared to Q1 of last year. And again, this reflects the MMA and also private contracting rates.

Let's focus for a minute on the product business. We had continued good growth in products with in particular North America increasing substantially for the first time in several quarters, and there were really two factors responsible for that. One was an excellent quarter for machine sales. I think it was a record quarter, an all-time high for machine sales in Q1. And also it reflects the fact that we had voluntarily exited some low margin business last year, and we did that at the beginning of the year. So now the quarter to quarter comparison is on a more normalized basis, and you see very excellent growth in the product business in the U.S..

In the international business, where it is much bigger part of the business, 63% of the total, we had excellent growth in the product business, in particular in Europe where the machines and filter business was up around 17% in the quarter compared to last year.

In summary, we had very strong operational performance worldwide. We had very good top and bottom line growth, good quarterly cash flow generation, again correcting for the onetime item. And good revenue per treatment development in both North America and international.

Now let's just take a quick look at some financial metrics. We have looked at the P&L for Q1, and I've made some comments on it. But let's go on to cash flow and also debt development and our credit ratio.

First, DSO. We continue the good performance in DSO. We were down one day in North America, and we stayed basically in the 120 to 125 day band that we expect for international. Again, we expect to make some minor progress on DSO for the year, about one to two days reduction.

Here is our cash flow statement. Again, we had the onetime item of around $40 million affecting our operating cash flow. So we would have been higher for the quarter correcting for that onetime item. On CapEx, we were about the same as last year and a little bit lower in acquisitions. However, this reflects pretty much only timing, and our guidance for both acquisitions and CapEx will stay the same as what we showed you at the end of the year.

Now here is our overall debt level and credit ratio. If you look at the bottom first, you see that we have come down to 2.09 for our debt to EBITDA, really a great performance almost at the two to one level. We reduced debt by about $140 million, helped a bit by currency but also by the good operational performance in cash flow. And so as our EBITDA is increasing and our debt decreasing, we get a big benefit on the debt to EBITDA ratio.

Finally, this is the guidance we showed you in February, and we want to confirm that guidance for the year. But that is pre-RCG acquisition. So if we were to continue on a stand-alone basis, we would continue with the guidance that we set at the beginning of the year, and as far as the new guidance, I think we're going to wait and look till a little bit later in the year until we have done some more detailed integration planning and we have a better idea about the timing of the closing of the acquisition.

So thanks very much for your attention, and Ben will lead us into the next subjects.

Oliver asked me to let you know that we actually had these deals ready to go about four months ago, but he wanted to wait for his birthday. So today is his birthday, and we figured that this would be the day to announce the deal. I'm kidding.

Okay. What I would like to talk with you about then is some strategic moves that we are making here that we announced today, and again I think that there are two moves. One of them is to continue to increase our presence and our profitability in North America. And the second one is we are looking at ways, at a way to change the share structure and improve our share structure in Frensenius Medical Care without basically having it be the detriment to any of the stakeholders in Fresenius Medical Care.

We have been working on this for quite a while. I have been asked over the last year or so would you consider it? We have had a team working on it. We have worked very closely with Frensenius AG and the team, so this is what we believe is in the best interest of all the shareholders. So we have an acquisition that I will talk about, and we have the conversion and the transformation then of our share structure.

With respect to the acquisition, we have looked at and are really pleased to be able to acquire Renal Care Group. They are the fourth largest provider in North America, excellent profitability, good management team, very good management team, excellent quality, and the fit is really quite good geographically. They have a better payer mix than we do. We have very good operating efficiencies that we can add to basically their footprint.

So this is a very worthwhile and very interesting combination. We have thought about it for a number of years, but we basically were able to put it together. As you probably know from the announcement, we offered $48 per share. The two boards have basically endorsed this, and we will be looking for shareholder approval later in the year.

Now in terms of the conversion, what we are looking at is converting the preferred shares to ordinary shares in combination with the transformation from an AG to KGaA, which is a partnership by shares. And I'm not an expert on German corporate law, so I will not go into all the details. But essentially our criteria here is that we did not want to go backwards with respect to any corporate governance or transparency, and this structure we clearly do not have to. And as I mentioned before, we intend to comply with the Sox 404 this year 2005 even though for foreign filers it is not required until 2006. So we feel then that this particular structure allows us to keep our high standards of corporate governance and our transparency.

The conversion from the preferred shares to the ordinary shares is strictly voluntary. We do believe it is attractive. We will -- clearly I will show you why here in a minute in terms of increased liquidity. And we essentially will ask the shareholders of both classes to approve this at a special meeting which I will talk about.

So these are the two activities that we were announcing today. We are very pleased with them. They fit very nicely in our strategic rationale for the next 10 years, and again looking quickly again at the acquisition what we're putting together here is an excellent payer mix, along with our basically excellent operating efficiencies being vertically integrated. This will solidify our position not only in the U.S. but around the world. The U.S. is the largest market for dialysis. This acquisition because of our ability basically to integrate the payer mix in with our cost structure will be slightly accretive in 2006 and significantly accretive in 2007. So we are in a position probably of the unique space of being able to do this and actually be accretive the first year.

Looking at the strategic rationale on the conversion and the transformation, our guidance here was to move to a single share class. We clearly wanted to increase then the liquidity, the trading of this one class. We now have preference shares, and I will show you we have ordinary shares. They trade differently, and we felt that 10 years ago that was a good structure. That is what we needed 10 years ago to set up the Company, and it gave us good acquisition opportunities in the early days. But clearly we think there is a better approach today.

This will help our DAX ranking. It will increase our flexibility to efficiently finance in the future, and as I mentioned paramount, it will have higher corporate -- we will maintain the higher corporate governances.

This is the timeline that we envision for these projects. We announced them today. We will file with the SEC. Again, we are listed on the New York Stock Exchange and on the Frankfurt stock exchange. There is just a change in legal structure. We will continue to be listed on both of those exchanges. We will have our general meeting on the 24th of May. The agenda has been sent out. These topics won't be on that agenda. We will after we receive SEC approval -- we will then schedule an extraordinary general meeting in which we will then vote on these issues. At that meeting, we will ask the ordinary shareholders to approve the transformation and will ask the preferred shareholders and the ordinary shareholders to approve basically the conversion. We believe all things working according to plan, we should be able to affect both of these projects during the fourth quarter, and as we go into 2006, which will be our 10th-year anniversary, we will have basically improved the capital structure and put ourselves in a very strong position going forward.

Now this does fit in. In April we had a capital markets day presentation with a number of analysts. We talked about our goal 2010 and, of course, the future, and we are very excited about the space we operate in. It is about 50 billion in size in terms of market worldwide. We see this growing by 2010. It will be closer to 65 to 70 billion in space. And our goal -- we are about 12% of that market today. Our goal would be 15% of that market and also see our operating margins as I mentioned at that capital markets day improve to around 15% EBIT margin.

Now I discussed at that meeting four different roads to get there. I won't spend time on the organic road. We said that we could continue to grow in this environment above market around 6% organically. I think first quarter was spot on in that, and that is because we've got a very fine mix of products worldwide, and we also have an integrated model that allows us to essentially operate in any part of the world with either products or products and service.

So road two we talked about also at that meeting in terms of acquisitions. Of course, at that time we were talking something a little smaller than this, but it is an acquisition. We said that our target for acquisitions would be primarily Europe and the U.S., and basically we said we were quite comfortable with each of those spaces. So the reason for that is that was the underpinning then for road three. Road three is out in the future, but the future always appears. Basically what we're looking at there is our core businesses treating dialysis patients either at home or in the clinic, and right now it is predominately in the clinic.

So we basically interface with them three times a week. We are the caregivers. We know them, they know us and we are part of their family. So we feel that anything that basically happens during that dialysis we should have probably an edge market-wise to be able to provide whatever it is -- drugs or dialysis or various different components and products. That is a space that we can operate in, and we could probably do very well financially, and it fits our core business.

So we see then road three a horizontal expansion, but it is based on having dialysis units and basically treating dialysis patients. So that is why the acquisition fits. I won't go to the home. That is really out in 2015, but right now we're talking today about road two, and this fits in very nicely with road three.

Now again, I think everyone knows, at least from the U.S. side, knows Renal Care Group. They basically started about the same time Frensenius Medical Care did in 1996. A great group of individuals. I think all of us know them. We have been in the industry quite along while. So we have always talked about the opportunity to get together.

They are one of our largest customers. We sell about them 50% of products. Respect them very much, so this is very exciting that after 10 years there is an opportunity for us to get together and basically move forward for the next 10 years.

So I think the only thing I need to add here is yes, they do have the highest profitability in the field. Yes, they have very good quality, and yes, they do not -- basically they have the same philosophy we have in terms of drug utilization. So there is a very nice compatible fit here.

There will be about 425 units dialysis clinics that we will acquire in closing. Their management will be joining us. We are looking forward to having the two best management teams combined, and we think we will be in the space of an additional 32,000 patients at the time we put the deal together or we would close the deal at the end of the year.

Now this next slide is to just show you this is not all about just growth. This is about increased profitability. And I think if you will look here, you will see that basically they are -- RCG is probably one of the most profitable in terms of EBITDA per patient per year. We're down here at about $9000, and they are at 11. Part of that is the payer mix they are involved in, but we're hoping to combine then basically the strengths of their payer mix with our operating efficiencies. So you can see then that it will lead, and of course, their growth rate, too, if you notice on the side over here, their growth rate has been quite good in terms of year-over-year growth. So we are looking then to come up with stronger growth and also increased profitability.

Now one more simply mathematical combination is if you look at the EBIT margin, we will be seeing an accretive EBIT margin from this operation, and so again what I mentioned with you at the capital markets day, our target was 15%, and basically the three to four years out, this will probably accelerate it. The target is still 15%. So if we reach the target earlier, we might reset another one, but that is where our target is in terms of the entire Corporation.

Now why does this makes sense to us? It makes sense to us because what we're looking at if you combined their service network with ours and you combine our economies of scale, which basically are obviously larger and better than what Renal Care has at this time because of our vertically integrated structure and size, we clearly will get an accretion then in terms of operating margins, and we will get the economies of scale that will apply to their units as we also blend the two networks together.

This is what the networks will look like. You can see that we are heavy on the East Coast. They are very heavy in the Midwest, and so by combining the two, we will have basically representation through most of the Midwest and the East. We have strength on the Upper Northwest as they do in California. It is primarily ourselves and other groups. And, of course, the Wyoming/Montana area, there is just mainly home dialysis at that point in a few university clinics.

So this is the footprint we will end up with. The reason that they end up with better margins and also we will be combining that, is if you look at their private payer mix, clearly we are about 30% of our revenue in North America, and they are closer to 43%. So this is one of the benefits of the footprint that we will be looking at.

Now when we put this together, it is very important -- I think all of us have been through major transactions over the last 10 years -- it is very important that we have a fit in terms of basically the visions of the two corporations and the people. And then what are we bringing together?

You can see here that RCG and ourselves share the same attitude toward service, customers, basically measurable quality. So we have on the left-hand side we have a very balanced approach to the world where they basically look at this industry the same way we do. We, of course, bring the technology to the disposables and the hardware as far as vertically integrated companies.

So this is a very good fit. On the left-hand side, it is very important that we had basically the vision fit and the soft factors fit, the people fit which we have.

Now the other right hand side to just give you some feeling for what the space will look like. Within the U.S., basically what we will see then is (inaudible) and ourselves. When these transactions close, we will be treating about 60% of the patients in the U.S., whereas today four companies are doing that. We will have about 150,000 patients that we treat worldwide, and so again that will be a little over 12% of the patients. Our goal long-term is to be at the 15%, and we will probably make that.

Products-wise this won't affect the products business. It is pretty much at 27% at this time.

Now, okay, what is basically the internal rate of return? What is the debt? How are you guys going to pay for this? You know all the questions that I always get asked, and the good part about them is I'm going to let Larry answer them, okay? No.

What we have here is we're really looking at closing this transaction in 2005, and we will have about 50 million somewhere in that range of basically onetime expenses. Now we tried to take a look at this in a fashion that if we look only at the synergies that come from costs. In other words, if we look at what we combine, you can look at what can you get in the way of synergies from costs. Those are usually very predictable because you're not counting on changing contracts with basically the payers or something like this. So this entire analysis is based on -- and it is conservative. Okay?

If you're looking 30, $40 million worth of synergies out of a $5 billion operation, you would say that is pretty conservative. Yes, we want to be conservative because it is still with each conservative approach, the internal rate of return is significantly above our cost of capital. And so at this point in time, we feel that this is a very good acquisition. We will essentially be accretive in the first year and clearly accretive in the second-year.

So what we're looking at then, in a conservative fashion, we're looking at between 30, $40 million worth of synergies the first year and 40 to 50, and they are basically from G&A redundancies, a purchasing of contracts, and also basically increased products business. We have about 50% of the products business at this point in time, so there will be some pickup there. So this even with that conservative approach on synergies, we're quite comfortable with this, and it creates Enterprise value very quickly, and so it basically is a good financial fit for us, as well as a good strategic fit.

Now this is basically a summary of some of the other acquisitions. The key benefits, I think I have talked about them. They are the fastest-growing highest profitability company. We are combining primarily the network, and the cost synergies are important. But it would not be something we would do if we did not have the same vision of quality and the same vision in terms of taking care of the people and the patients. Good fit. Basically I have talked about it is going to be accretive to earnings and slightly accretive to earnings in 2006 and clearly in 2007.

So this is the acquisition, and we will take questions at the end. I would like to now move over to the conversion and the transformation. And again, as I mentioned, we have been looking at this now for a number of months. We have looked at a number of alternatives. We believe that this alternative is the best alternative for our shareholders and for our employees and basically the customers that we serve.

Now this includes a two-part package here. They are not necessarily both interrelated both ways, but let me show you what we have. Our goal would be to move to one share and to convert the preferred shares to ordinary shares. In combination with converting the Company then to a KGaA, we need to convert it to a KGaA to basically have the conversion of the preference shares to the ordinary. But we still feel the KGaA by itself is very worthwhile because it allows us to have ordinary shares in the future for acquisitions. So from the coupling, we will go to the KGaA if we get the vote, and clearly if we do not get support or the preference shareholders are not interested, which we doubt. This is a very good deal. We could clearly not do the second part of this. So the interrelationship only works from the KGaA to the conversion.

So this is the combination. We would like to do both. We think it's very much in favor of all shareholders if we do both.

Now clearly we want to create one share. We want to simplify our structure. We want to improve the liquidity in that share, and we would like to obviously improve our position on the DAX and on the index.

Now we believe that this increases flexibility for us as a company to efficiently finance our future. With our cash flows, we do not see the need at this point in time to increase more equity. This acquisition with RCG will be all-cash, will delever over the next three to four years, and clearly we have the cash flows to handle it. So we don't have anything on the horizon that we are doing this for basically increasing shares. But over the next 10 years we would like to have that available, and basically we think the benefit then is we will have one share and it will be a very active share. And, of course, that share will have the same dividend as the ordinary share. It will not have the dividend of the preferred share.

Now why do we think this is going to increase liquidity? Clearly we see that our ordinary shares because -- and again, there is not that much difference in the 35 million free float in the ordinary, 26 million free float in the preference shares. But clearly we see a significant difference at trading, and so if you look at this one, you will see that our daily trade is about .9% on the ordinary shares and it is about .3% on the preference shares. So we think clearly if we end up converting all of the preference shares to ordinary, which would certainly be our goal, we would have about 60 million, 61 million ordinary shares, and if they trade primarily at the same rate as the current ordinaries, we would have a significant increase in liquidity, and we think that would be very beneficial to our shareholders and clearly to the Company. So this is the concept that we have, and this is basically what we believe will pay off and will happen.

Now as far as what will this do to our ordinary free float market cap? Clearly it will increase it about 50%, and that will move us up into a much more secure position in basically the index, which we think is again long-term very important to us. We certainly could operate without it. But again, we feel that we are valuable to the index, and this just increases our value.

Now what are the terms? Okay, we have steadied this. We have looked at precedents. There are legal precedents other companies have converted. I won't go into that. When we send the prospectus out to you, you will have every detail you ever wanted to know about this. But today I would like to say that basically after studying those prospectuses and the court cases, we felt that we would follow the lead, and we would actually have the conversion premium be two-thirds of the difference between the preference share and the ordinary share over some period which is really the last three months. That means then that the conversion premium for a preference shareholders is about EUR12.25, and the discount, the other third then basically goes to the preference shareholder as they buy ordinary shares, as they get ordinary shares, and that is worth about EUR6.

The proceeds from that is essentially will be somewhere in the range of around 300 million. We clearly are looking at a four-week tender period, but since we are only going to do this once and this is a onetime situation, we want to make sure that we have the flexibility, and we will decide that by the time that we send the prospectus out. So everybody has a chance in case you're on vacation or something during that time, they have a chance to tender their preference shares. So this will be a onetime offer, and we will do that then. Hopefully if everything works, we will do that in the fourth quarter.

Now this is the preference share again from a slightly different view, but essentially I have talked about it. They get voting rights, the benefit of increased liquidity, and from the incentive. Basically the incentive is to convert the capital transactions basically done at a discount, and they will basically lose the slightly higher dividend that they would normally get from a preference share. You can see there have been successful precedents in this area, and essentially that is the belief that we have followed in putting this proposal out.

The structure. It will clearly move us from ordinary shares to preference shares. We will move down to one ordinary share, and again I won't get into all the details of a KGaA, but if you look at where we are today in terms of the ownership, 50%, 51% ownership of Frensenius AG of the ordinary shares, basically those decisions they have the 50% to 51% vote, so of the ordinary shares which essentially then decides the management of the Company.

So what we have here is basically a shift over to a different structure without changing the governances that we have that we are coming from today in terms of the structure that we have. And I can go into that. I think Mark will cover that a little bit more. But basically we will end up with one share operating pretty much the way we do today, but having a tremendous opportunity for Frensenius AG to grow and also for ourselves.

So in summary, there will be no change of corporate governances or transparency, no change of FMC or FME management. We will still have two independent supervisory board members for the management company, same as today. Frensenius has committed and they did not have to do this but they did, and that is very reinsuring, they committed that they will maintain their ownership above 25%, which allows basically both companies to finance if that is the approach that we want to take using -- basically using equity. And still we do not interfere with the ability of Frensenius AG's rights as the major shareholder today and as to be able to consolidate. So everyone basically stays in place, but we give ourselves flexibility and we also give ourselves the opportunity to grow with equity, and we think it will be an exciting equity.

And finally, if there ever is a day which we don't see that someone decides to sell, these ordinary shareholders will be treated the same -- treated on equal with FAG. So that is just exactly from our standpoint, the management standpoint, we support that because essentially that is moving the structure over to a position that really will help the Company and does not in anyway basically change the value of the stakeholders.

So this is the basic steps. We will have the extraordinary meeting. We need a 75% vote. We will then register the Company, and we will form the KGaA. The preference share conversion we will also vote. We're going to have an ordinary shareholder approval. We will be requested -- we will be asked for that, and we will do the same for the preferred share. If that is essentially voted, we will then have the conversion period at that point. If they are decoupled, we will do them basically, and that is what we would like to do both at this point, and that is our plan at this point.

Now again I think I have covered this. These are the benefits, and I'm a little bit redundant, but this is a very important transformation for the Company. We are very pleased to be able to offer or to discuss this today and have the support of Frensenius AG and our supervisory board to be able to move into this next 10-year situation.

So in conclusion, again I think Larry covered first quarter. It was a good strong quarter. We sort of -- I'm afraid with all the press releases today, you got lost a little bit in the press releases, but it was a very good quarter. We're very comfortable about our business, and we are very excited about the acquisition and being able to continue to move ahead, and equally excited about the possibility of improving our share class and converting to a single share.

So this is really a very -- we did all this for Oliver's birthday. No, we're actually very excited about it. It's a lot to throw at you today, and we realize that we sort of sprung this on everybody. But you can obviously see this was something that we did not want to telegraph in anyway, which was not the case.

So I think at this point, we will take questions, and I will go back to the podium there, and we will take them from the front.

Yes, thank you, Ben, thank you, Larry, for the presentations. I just have to mention some housekeeping items since something is a little bit special today, we also have the audio participants. So what I would like to propose in terms of questions, we take the questions from the audience here first and then afterwards we take some questions from the Internet, and then we open up at the end of the Q&A session actually off of the audio lines since there might be some participants outside that have some questions via audio.

Are there any questions on Q1?

Holger Blum, Deutsche Bank. Just on the interest rate in the first quarter, it was looking very low compared to the previous quarter, down roughly 10% year-over-year, and essentially what would be the sustainable level? Is it sustainable for the full year? Stand-alone basis?

It would be sustainable except that we're in a rising interest rate environment, so short-term rates are increasing. So we might have some increase in interest expense because of that. But ignoring that, it would be reasonably sustainable.

Andreas Schmidt, Merrill Lynch. How much debt will you take over from (inaudible) additional -- if I understand it correctly, the 3.5 billion is (inaudible) debt and then on top of (inaudible). If I understood you correctly, you said more or less for this acquisition no (inaudible) increase will be done over the next three weeks. If we assume just your normal program, which will be debt level, let's say, in the (inaudible) on a combined basis? (inaudible).

And on antitrust issues, how many clinics do you expect you have to sell? Roughly, I know it is very early stage, but in terms of 3%, 4% (inaudible) or whatever? And if there was (inaudible) would it be a problem that (inaudible) away from (inaudible) those of you (inaudible) U.S. wide, you're saying that there is a dominance (inaudible) in the market with (inaudible) problem?

I will take the antitrust, and basically, Larry, if you will take the leverage ratio 2006/2007.

On the antitrust, again our footprint is not -- is actually pretty compatible. So we are looking in the range of 1 to 2% from the total package, so that is essentially what we're seeing. We don't believe, and we have looked at this pretty carefully, we don't believe that -- we believe that the antitrust issues are looked at basically through an MSA or through accounting or a very local region. So that is how we have analyzed this. We think that all of the experience that we have seen and all of the decisions we have seen would represent that that is the way they are looked at. So we feel that it will be looked at on a national basis.

(inaudible)?

We did not have discussion with authorities. We have not filed that yet, but we certainly have discussions. We have legal advice that is very familiar with what goes on, and so we have looked at this very carefully from a legal standpoint. And I think Larry will talk about the leverage ratios that we're targeting.

You're right. We will take over around 500 million of debt from RCG. So that when you add that to the 3.5 billion that we paid for the equity, it is about 4 billion in Enterprise value, and that is approximately the increase in debt that we have when we close. And in terms of how the debt level will develop over time in the next three to four years, we're very confident in being able to delever the cash flow, and the business is very strong, and we feel like we will be able to steadily delever over time. We will start out at closing with a little bit above four times debt to EBITDA and then delever over the next two, to three, to four years into the 2.5 to 3 times where we feel more comfortable.

In terms of the capital increase, there is no plans for that. Again given the strong cash flow development that is coming from the business, we see no need for a capital increase connected with the acquisition.

(inaudible)?

It is. It is financed for five to seven years. It is fully committed. We have a new 5 billion senior credit facility, which is divided equally between Banc of America and Deutsche Bank. Again, it is fully committed, and that will be sufficient for the transaction.

One other point is this is mainly going to be funded and basically the debt reduction out of the North American operations, we have continued to keep our commitments, which you certainly heard at the capital markets day to the international. So we will continue to be able to grow the international according to the same plan and the initiatives which are primarily in international. So this does not impede anything in the international area, and the cash flows in North America will clearly take care of the delevering that Larry talked about.

Does that mean that you plan another acquisition just one in Europe? (inaudible)

Remember, Europe is a different issue. We basically build clinics, and I'm trying to avoid that. We basically build clinics and de novos. Yes, we use some small acquisitions, but no, there is not a consolidated player of this size in the international theater. (multiple speakers). No, they are one of our great customers, and we're very pleased with our relationship with them.

(inaudible). My question is about your credit lines or credit agreement (inaudible) could you give us an idea of what capital will be?

And another question about the timing of the (inaudible). Can you tell us what (inaudible) this was (inaudible)? (inaudible) open to working together or (inaudible) offer or what (inaudible) right now beside the birthday? (inaudible) interest rate.

Let me talk about the cost of interest. We have made some rather conservative assumptions about interest rates. In particular, we have assumed that most of debt will be fixed via swaps because we don't want to have too much interest risk for the future. But, of course, then our average interest rates would be somewhat higher than if it was all variable at the current time.

So the summary of that is that the interest expense that we estimate is between 5.5 to 6%, and we feel very comfortable with that.

With respect to the process that led to the announcement of the acquisition, I can only give you my perspective. I cannot give you RCG's perspective. But there has been great respect between the two companies for a number of years. We knew Sam Brooks real well. We know Gary, Dr. Hakim, and like I mentioned, they are one if not our best customer, very near our best customer.

So basically when the consolidation phase happened last fall, the last phase of it started, then I think we both thought about well, maybe this is time to look at what we can do together. And so, that is about how it happened, okay?

If I may, a follow-on. You mentioned the excellent management (inaudible)?

Well, we have indications from the management team that they will be working with us and joining us, and so we have a number of opportunities. And again, we have a great management team ourselves, so we have not gone to the point where we basically have laid that out. We have just started the integration process. However, we are comfortable that Gary Brukardt will join us. So we're very comfortable that over the next before closing you will see how it fits in. But we have plenty to do for everybody, and they are a very compatible team.

On interest rates, you mentioned 5.5 to 6%. Calculating or assuming that income (inaudible) approximately 130 million and further adding the 20 million or around 20 million net in synergies, I would end up with additional net income or percentage net income (inaudible) 30 million. What is the difference between your comment of (inaudible) only neutral to slightly positive EPS (inaudible)?

Just to clarify, in 2006 we expect neutral to slight accretion, neutrality to slight accretion, and then meaningful accretion in 2007 and beyond. It basically has to do with how the synergies come in over time where we have a little bit more conservatism for '06. We may not be able to realize the full amount of synergies that we see for '07 and beyond once we fully implemented all of the integration plans. So in '07 there's a bit higher synergies and also more growth in the business.

Anymore questions? Andreas?

(inaudible) they have a subpoena (inaudible) who holds the risk (inaudible) and point conversion of (inaudible) shares (inaudible) be a little bit challenging. Why should anybody do that? They have to pay (inaudible) and don't get a voting right either, it does not change anything.

What would happen if only 10% or so (inaudible)? What would that change? And that is without (inaudible). Of course, you have to mention your (inaudible), but the argument of more free flow and things like that does not (inaudible).

With respect to the subpoena, I think that the industry has received and discussed the subpoena on the vitamin D. Basically I think that we talked about it last fall from the New York. Basically we feel that RCG along with ourselves have a very good compliance program there. So we essentially will assume that risk basically at closing. That is the only subpoena I know of at this point.

We certainly have a very good compliance programs ourselves. We are quite comfortable with our program, and of course, after the merger we would go ahead and implement our program with RCG who has a good program today.

Now as far as what I do want to mention when you talk about management, I would like to have Rice Powell and Mats Wahlstrom hold their hands up here. They are co-CEOs of the Service Business and also of the Products Business. So essentially they have welcomed Gary to the team, and it's going to be a very powerful team with Mats and Gary and Rice. So that is why I'm very comfortable with the team. Now --

(inaudible)?

Yes, yes. As far as that, we will take it over. We will put it under RCIA when we close. We have basically looked at it. We are very comfortable with what they do, and so we will take care of that.

Now as far as basically the premium, Larry, why don't you cover that one?

I think the question was, what is the incentive for the preferred shareholders to convert to the ordinaries even though they have to pave EUR12? But again, that reflects the discount that the preferred stock has had versus the ordinaries of about 30%, 28 to 30%. And so by paying EUR12, they actually get implicitly a discount of about EUR6. So the 12 is two-thirds of the average difference between the prefs and the ordinaries.

So the EUR6 is certainly an incentive for conversion. You know they pick up the value. They get a more valuable share. They get a share that has higher liquidity, has been talked about in this presentation, and also they get a voting right, which they don't have right now.

So we think it is an attractive proposition, and we think they will be a good conversion level. We have seen a couple of market precedents for that recently in Metro and in MAN, and they had very high acceptance levels approaching 90%. So we feel like it is the right relationship. It is the right one for the preferred shareholders and also the ordinaries shareholders, and it is a benefit to everyone given the increased liquidity.

(inaudible) attractive now at the share price (inaudible) and different to other deals is that this isn't concerning the KGaA where you have (inaudible) both? So they give a higher dividend and have no benefit except what they had already today at the share count?

Well, again there is still a voting right, which is valuable depending on the decision. Decisions that go to the shareholders meetings will be voted upon, and those shareholders have the value of having that vote. And again, the higher liquidity and the higher trading and the higher value of the ordinary shares should be attractive to the preferred shareholders.

Any further questions from the audience? Yes?

(inaudible) go ahead with the conversion of the preferred shares and (inaudible) anyway?

Yes, they are totally independent. So we will go down both paths, and if it turns out that basically either one of them are not doable, we will continue to do the one that is.

(inaudible) mentioned that there will be no follow-up offer (inaudible)?

No follow-up offer is planned, and of course, the shares will be less liquid, and how illiquid the shares will be will be dependent on how many shareholders do exchange. So if 90% of the shareholders exchange and there is only 10% of the shares outstanding, we could anticipate that it would be very illiquid.

And I think if you go back and look at 2001, when we before we increased the preferred shares there was about a 60% discount, and then as we increased the preferred shares, it came to 30 where we expected. And so what we tried to do is essentially give an opportunity here for people who do want to convert to convert, and obviously the KGaA can have two share structures. It is not our choice, but that we feel our obligation is to have a fair offer, and that is what we think we have done.

Another question concerning the (inaudible) of the transaction. Why not making this transactions (inaudible)?

Well, we work in phases, okay? And a half a year ago or a year ago, we clearly wanted to demonstrate to our ourselves that we could bring the leverage ratio down. That is what we were doing. So we had certainly not completed that phase, and also I don't think at that point in time we were studying a number of options here with respect to the share structure. So we were focused on looking at the share structure, and so at this point in time, it was more prudent to keep running our business and essentially also look at the share structure.

Now yes, in the year stock prices go up, but so does the revenue per treatment and so does the EBITDA. So basically they both move in that fashion.

Any further questions here? Then I will take one from the Internet actually. Then there is one question asking, does the conversion for the KGaA require 100% acceptance of the preference shareholders and the conversion? Your pictures seem to indicate that. I think that is based on the fact that we assume that 100% conversion.

Yes, the conversion to the KGaA, is that what they are asking?

Yes.

The transformation to the KGaA. That requires an ordinary shareholder vote. 75%.

No further questions here.

Again on the KGaA, I understand that the majority shareholder wants to keep it influenced as a (inaudible) ordinary shareholder. Why isn't the route going through AG, and if the majority of shareholders diluted its influence (inaudible) also an option? I don't see why KGaA (inaudible) best solution for us as an ordinary shareholder, why that would be the best corporate governance?

I think maybe we will take an answer from the side of the FMC group and FAG might want to comment on it as well. We're part of the Frensenius AG group now. We see significant value associated with that, and this is a way to continue to be a full member of the family, to continue to be fully consolidated, and that is the primary reason. I think the main shareholder probably can add to that.

Let me also put in. I looked at this carefully because we have talked over the years, and again we have a number of stakeholders which includes Frensenius AG, and we have a number of synergy programs that basically do add value to FMC. And so when we looked at it from our standpoint, even if they owned a 37% share of the ordinary, that would still be a significant block of oats. So from our standpoint, the best balance here was to go to the KGaA because we get the liquidity.

People vote with their money, okay? And so from that standpoint, we felt that it is better than to continue to have these synergies, keep the structure in place, take care of all stakeholders in this situation and still give the ordinary shares a chance to essentially grow, and you will see there is opportunities for the ordinary shares by putting the ordinary preferred shares together.

So at the end of the day, FMC felt that that was the best combination, and everybody had a chance then to succeed. We could not find the value or the other way that made that much difference.

I would also like to briefly comment, and I would simply like to say this is the best we could do for you. As Ben said, we started this in a lot of detail the last year or so. We looked at a number of options, and frankly just simply deconsolidating FMC and putting the share classes together and leaving it as an AG, we just counted that as an option because, frankly, that will be unfair to AG shareholders.

We have majority control now. Why give it away for free? As Ben said, we derive from both sides a value from being part of the group here. And so as Ben said, we needed to find a solution that is fair to all shareholders.

So what we were able to do is basically abolish that fragmentation into share classes and be sure we have some liquidity earned in the trading volume. That is basically what this (inaudible) accomplishes. It should also secure the DAX ranking and prove that as Ben pointed out. But the points that we can give you is simply letting the Company go. And so that is basically I would (inaudible) my presentation again, but that is the underlying principle here. Andreas, again?

Sorry, I don't agree on this last argument. You are not forced to have your controlling state. It is -- if it at some point in time would be diluted, it is your own decision to take part in any type of increase or not. So there is a kind of (inaudible) shares, so for (inaudible) to make a KGaA as the dominating (inaudible). The argument you should get a premium, in fact, you have a controlling stake before. There are other ways to stick to your controlling stakeholder than diluting the existing FMC ordinary shareholders, which are diluted in a way by that?

The same question would be, why wouldn't this be the right diluted ordinary shares (inaudible)? I think it's a fair offer, but it's not an argument (inaudible) I can agree on.

Well again, there are a number of ways of looking at this. But the one point we should keep in mind is since the inception of the Company in '96, the control situation was as it is, and we have never flagged to other shareholders that it was going to change at some point. So people who invest in this Company from the onset knew that this was a business that is majority controlled by Frensenius group.

So what we're trying to do here, again looking at the number of options, what we were trying to do here is to address the one shortcoming that we saw that with these different share classes we're undermining trading volume. We might be risking the DAX membership and so forth, so that is what we wanted to address. But in all other aspects of corporate governance, we wanted to come as close as possible to what we have today, and frankly I believe what this mix of measures would achieve that. So from that point of view, you are no better off, no worse off when it comes to your influence to the Company than before. But financially you benefit from the liquidity and the trading volume, and this is what we were able to give you basically.

And I will answer that also from FMC. We believe that will balance, the trading volume versus the slight dilution.

And the other thing is with your approach, I have looked at that, we would then have FMC in a situation for us to maintain that, FAG would need to invest in us rather than invest in our old business. So it is much better if each business can basically run on their own, and this structure allows us to do that. So we walked through all this, and we really felt that this is the best for FMC. It also serves the other stakeholders. So that is why i like this structure rather than keeping it the way it is.

And raising the point that it is a 50% controlling stake is something (inaudible) not all, but there is no right to have that (inaudible) and saying that you had it since '96 is not an argument why it should be in the future. And if you claim to have a premium for holding the maturity, you implement the other set of discounts. So you would agree, which was never communicated, that all three shareholders would have a discount.

Again, the control (multiple speakers) yes. No, but you mentioned it, so I would like to answer it and address it. The control situation has not changed since the first time anybody bought shares in this Company, okay? And I guess what I'm saying is we have a control situation. We will have it now with the new structure. Giving it away just like what was suggested, you know, you put the share classes together and you deconsolidate because you get diluted down, that would basically abolish the control situation, but without realizing a premium, for example, that you would get if you sell the company. And if you want to look at premiums, just look at what happened to RCG. If you buy one piece of share as of yesterday, you paid 39.50. If you buy the entire company, you pay 48. So that is the normal difference between (multiple speakers)

(inaudible) if you decide to sell the Company?

Again, a control situation typically comes with a value. In other words, (inaudible) it would not be fair to present it to these shareholders to basically do away with that without any form of compensation.

I think the other more fruitful argument to focus on is both sides do have value from being part of a group. In particular, between FMC and (inaudible), there was a tangible. I highlighted some of those in my presentation, and so I believe on a long-term basis here there is real benefit from that from both sides.

And this structure, just to finish it off, this structure will allow us to basically develop our businesses and still keep those synergies. So this is as good as basically we can put it together.

Other questions? I have the one from the Internet actually for you, Ben. Can you tell us how much RCG clinics have (inaudible) dialyzers, and how quickly would you expect the transition, the RCG clinics to single use them? Can you maintain the high margins you have seen at the RCG clinics?

I believe RCG is 25 to 40% single use. I think one of the things that we have ascertained is our cost of providing single use is less than or equal to their cost of reuse. Okay? So it is being part of FMC, the economic issue goes away for RCG. So that is all we have been able to establish at this point, so it now becomes a discussion of the medicine, and clearly we want the physicians, Dr. Hakim and the physicians to make that decision, and we will show up some of our data and we will look at theirs.

So the barrier has been economics, but being part of Frensenius Medical Care, that disappears based on what we have.

I have one more actually for Larry. If you could give some more additional detail on the committed financing, actually breaking down the 5 billion.

Yes, there is actually three tranches. One is a 1 billion revolving credit facility. The second is a five-year term Loan A facility. The third is a 2.5 billion term Loan B facility, and that one is for seven years. I think I mentioned that.

There is another question on the net. What is the projected sales growth? And I will just say roughly in the 6 to 8% range going forward.

Okay. Holger, you had another question?

Holger Blum, Deutsche Bank. Just a financial question. It would be great if you could share some of your assumptions for a slightly positive to neutral earnings impact over the year 2006? What kind of price increases or among private payers, any old increases coming from Medicare in that model and maybe also some other assumptions?

And then on a long-term outlook, when do you expect to break a 20% EBITDA margin for the combined group?

Okay. I think I would prefer not to comment specifically on the specific timing for 20% EBITDA. And I'm sorry, what was your first question again?

The first question was, what are the pricing assumptions, and we pretty much did not -- as I mentioned, this is -- the synergies we talked about are cost savings. We did not ex it. We did not basically ratchet up and assume we would get any revenue benefits that we need to look at when we look at all the contracts. So that is not in the model. (multiple speakers)

(multiple speakers) -- some longer type of (inaudible) negotiate (multiple speakers)?

Yes, as I mentioned in our capital markets day, we have assumed that we would see a revenue per treatment in the 2% range per year, and I think Mats showed that today for 2.5% over last year. So that is pretty much what we have in our model, and basically I think that is consistent in the industry.

So we have another question on the net, and Holger, maybe this answers the other question that you asked before on synergies. Just to clarify, we see the first year where we will have synergies being 2006, but at a lower-level than the following year. So we're projecting 30 to 40 million in 2006, and then 40 to 50 million for 2007 and each year thereafter.

Okay. I think we should also give the audio participants actually a chance to maybe ask a question if that is possible, if the technique works actually I should say. Now, operator, you can open up the line for questions. I'm just curious if that works.

(OPERATOR INSTRUCTIONS). Hans Bostrom (ph), Goldman Sachs.

I had three questions. Firstly, given that the Renal Care Group has been for the last five years the fastest-growing and also for that period the most profitable company in the industry, one would think there are some very good practices that you could adopt in the Frensenius group. And I wonder if you could elaborate on that, if there are any specific aspects of that performance that you would like to take on board in the enlarged company?

And secondly, if you also could give some more clarity as to when you expect FTC approval and the main sticking point that (inaudible) of gaining that?

And thirdly and lastly and slightly connected to the second point, what impact do you expect this consolidation of the industry will have on private payer contract pricing? As far as I can see, one of the potential risks there is not the private payers, but the commercial payer will be rather upset about having to deal with two rather than four providers of Dialysis Care to the patients and created quite a lot of fuss. But on the other hand, it could be a tremendous benefit to you that there only be two players in the market.

With respect to practices, yes, both companies have very good practices in a number of areas. We will be in the process of adopting the best from both companies. We have not obviously got that started yet. We have looked at only those things required in due diligence. But I'm looking forward to basically Gary and his team and Mats and his team with Rice to get together, and we will take the best from both companies.

As I mentioned, our cost structure is better within FMC, and the footprint in terms of the payer mix is better for -- basically better for RCG.

Now as far as the private payers, interestingly as the Medicare and the private payers have been doing this for a number of years looking at integrated care, it will actually turn out to be having two companies that are capable of taking care of a large number of patients and providing the integrated care to them, clearly is probably going to be more attractive than just negotiating with a number of groups just for the dialysis rate. So we think that over time, and we were already seeing this in talking with the private payers, that they will embrace two very fine companies who are focused towards patient care and who can take care of their patients in the way that they want them taken care of. These are a very small number of constituents that we're dealing with here.

Now obviously we think our vertically integrated model will provide more care, so we are excited about this in a more cost efficient manner. As far as the FTC, again I'm not a legal expert, but we would hope to be able to get clearance from them sometime in the fourth quarter. But again, we have not even started the process, so it is a little early to know that.

Could I just follow up on the second point if I may? And I would have thought that the main concern with the group would be more on the local level as opposed to the country level with regards to comparing regulatory hurdles given that you are setting the contract terms at the local level. But it seems like you're not at all worried about that?

Yes, I think I mentioned that the antitrust or the noncompetitive situations are usually looked at on the local level rather than the global level. So I agree with you, that our experience talking with experts in this field would lead us to that conclusion.

Charles Weston, Morgan Stanley.

I will just ask a couple of numbers actually. You have given us the proportion of revenue from private payer patients. I am wondering if you can give us the proportion of private payer patients themselves?

And also regarding the utilization of drugs, you said that the practice is similar between Frensenius and RCG. I wonder if you can give us an idea of whether they use more or less units of (inaudible) per treatment than Frensenius does currently?

And my last question just goes back to the 40 to 50 million of synergies. You mentioned G&A redundancies, purchasing powers, product sales -- I just wondered if you could split those out rough proportions if you could?

Thank you. No, I cannot give you the number of private payers or private patients at this point. We will have to basically stay with the revenue. That is all we want to disclose.

Secondly, as far as drug utilization, you can get a view on that with public information. One way if you look at the number of patients above 11 hemoglobin, you can see that basically we are both in the same range of high 70s, low 80s. Our experience in terms of due diligence is we are both pretty much in the same range as far as dosing of the drug. So we are very very comfortable, and I think the policies have been very close over the years between the two medical directors who actually train together or one of them was the (inaudible) or the resident, and I'm not sure. I will have to ask which one is which. But anyhow they work together, and so they have the same philosophies I think in patient care.

As far as your question on synergies, we have the three categories. G&A, we estimate to be the biggest one with a tie for number two between purchasing synergies and increased product business.

So this -- I thought that before you talked about these just being cost synergies, not necessarily increases in revenue. Obviously if Renal Care buys more products from Frensenius, it goes from 50% to 100%, say, is that included in this synergy level?

It is. That is the third category we're talking about, the product synergy. That is the incremental product business that we will do when we have ownership of Renal Care.

Gary Taylor, Banc of America.

Just a couple of questions. Most have been answered. I just wanted to be clear that the guidance on synergies, for example, the 30 to 40 million in '06, those are not net synergies, those are absolute cost synergies. Correct?

Those are absolute cost synergies, and it makes the assumption that we will be able to close the transaction in '05 with sufficient time in '05 to be able to book all of the restructuring costs that we have assumed. As you saw, that is around $50 million.

So it depends a little bit on when we can close. That depends to a great extent on the antitrust process. But we believe that we will be able to do it in time so that we will be able to book all of the restructuring costs in '05, and then what we will have left in '06 are the synergies.

And then my one other question is just on the clinical slide. What are your thoughts in terms of the potential to or the desire to move RCI towards a single use protocol? Obviously you've gone that way in the U.S.. You're the only ones that have I think. RCI has some leanings in that direction, but it is still predominantly a reuse. What are your thoughts there?

Gary, thank you. This is Ben. Basically in discussing between our group and RCG, it was primarily an economic decision, and of course, the economics are quite different on the FMC side of the equation because we're vertically integrated. So I think this is an opportunity for their medical group to relook at it in terms of basically no economic effect. We have not had that conversation. And again, we like to respect the medical wishes of the physicians, but clearly there is an opportunity they will have with us that they don't have essentially today.

Elan Ciduwitz (ph), Cazenove.

Happy birthday, Oliver.

Thanks, Elan.

I've got a couple of questions. I'm just having a bit of trouble with your earnings enhancements guidance for (inaudible), at least what you're projecting for 2006.

According to (inaudible) estimates, our Renal Care Group is expected to generate about $320 million in (inaudible) for 2006. And if you take 6% interest on the $4 billion acquisition side, that is $240 of interest. That yields a pretax boost of $81 million. As you tax that at 40%, that goes to about $49 million to boost your earnings for 2006, and that does not include any benefit of synergy. I was wondering that it is almost 10% EPS (inaudible) 2006, and that is way ahead of what you guys are saying. So can you just help me out with what I'm doing wrong there?

There is a couple of additional factors that you have to consider. One is the amortization of patient relationships so that we will not be able to take the entire value in excess of book value and call it goodwill. On the balance sheet, we will have to assign part of it, and the exact amount still has to be determined and calculated. That is an amount that you do have to amortize as an intangible over a period of years. So you have that factor.

And then we have the onetime costs associated with the transaction and the financing which we also have to amortize over a period of years. So you have to consider those factors as well.

And when we do consider those factors, and again 2006 is the first year that we will realize synergies, and we have said 30 to 40 million. When you take all those factors into account, then you get the neutral to slightly accretive situation.

Great. Thank you very much. Just a follow-on on the synergies side, my understanding from what Ben said was actually only factored into cost synergies in your estimates going forward? And that those might be conservative.

Yes, I mentioned we believe it is conservative, but at this point, it's the safest way to go because cost synergies easily you can identify it, and again when the teams get together, we will put more meat on the bones here. But that is where we are at this point in time.

Right. My current understanding is that Renal Care Group currently purchases about two-thirds of its products from FMC, and I was wondering what would stop FMC from putting in a much higher proportion, maybe 90 or 100% of Renal Care Group budgeting through FMC?

Well, we certainly respect the wishes of the physicians with respect to what products they buy. However, I think it is more like about 50% when you put everything into the calculation, and this will be something we would expect that if we have the relationship I believe we have, that over time there is more and more of our products, and we would see it go into the range of 80, 90%. But again this is a decision that we would like to leave for the physicians and the Renal Care Medical Group. So this will be fleshed out over time.

Andreas Dimagl, J.P. Morgan.

Good morning. I was hoping you could help me understand better this concept that you have of the benefits that the transaction brings to both sides. I think it is pretty intuitive that your cost structure potentially as it migrates over to Renal Care Group is something that will bring benefit to the combined entity.

My question has to do with sort of the reverse migrations. Specifically you talk about how the fact that Renal Care Group has a very high private pay percentage as a percent of revenue. That very likely and you even pointed it out has to do with their geographic footprint.

So the question basically is how do you expect that to migrate over to the Frensenius portfolio of facilities given that you operate in East Coast versus Midwest, which from a competitive situation from a pricing situation, from a managed care situation are two totally different markets?

Again, as Ben just mentioned before, we have not assumed any revenue synergies in our modeling and valuation work. We simply will increase our average revenues per treatment and our average margins simply by combining the companies together.

Where we will benefit from the combination is on the cost side, and again we mentioned what the synergy levels are. There may well be some revenue synergies that may be realized, but we have not assumed any for purposes of our valuation work and modeling.

So basically it is just in adding the footprint of RCG to the footprint of FMC. Mats, do you want to comment on that?

Well, I think it is absolutely correct what Ben is saying. (multiple speakers) companies together we will get (inaudible) automatically a better payer mix, thereby by leveraging the structure and the other cost efficiencies (inaudible).

Are there any further questions coming from the audience?

Rice, would you want to comment on anything in the product area?

Yes, I think what is a little confusing for people, we do about 80% penetration penetration on machines and dialyzers with RCG. But when you look at other (inaudible) disposables, it drops off from there. So the average is about 50. In PD we are at about 30% and growing, so that is how you end up roughly with that 50% average.

But you also have to keep in mind that 35% of RCG is on single use today. That is a combination of acute treatments, which everybody does, but as well the acquisition they made of MMA who has always been single used drives that percentage.

Thank you, Rice.

Gary Taylor, Banc of America.

Sorry to jump back in the queue. I forgot a question. Is there anything that you can do directly to improve the liquidity of the ADRs in the U.S.? Is it hoped that the potential from improved liquidity in Frankfurt translates to the U.S. ADRs with the conversion of the preference shares?

Well, certainly the converting and having one share that is more liquid in Frankfurt we would hope would also have a carryover effect to the ADR liquidity in the U.S. Maybe more important than that is to convince the RCG shareholders that the combined company is really going to create a world leader and is going to carry on in the style that RCG did before and certainly create value for its shareholders. Certainly we will do our best, Ben and I, and think with the help of Gary Brukardt, David Dill, the CFO of of Renal Care Group, to convince those investors that what a great company we're going to have in the future. We hope that we will gain some of the RCG investors as FMC investors.

There is one more actually, Larry, for you actually from the Web actually. If you have made comments regarding our credit rating, where do you expect the rating?

Okay. Clearly since we are debt financing the acquisition, our leverages going to be going up. We have already talked to the rating agencies and plan to have more intensive discussions with them over the next days and weeks. We would expect, however, to stay in the BB range. More specific than that, I don't want to be at this time.

Okay. If there are no further questions actually asked from the audio, I think we stick to the schedule. So I have to say that all the participants actually via audio please hang up and dial-in actually later at 4:30 at the same number. But since it is actually a separate call, please dial back at 4:30 at the number Frensenius AG sent out within their presentation.

And so we will now close actually the audio and the webcast. Thank you very much for participating. We really appreciate you guys coming out here so short notice, and we are going to start again at 4:30.

Thank you for joining us.