Fresenius Medical Care AG (FMS) 2005 Q3 法說會逐字稿

Okay everybody. Good afternoon also from our side for Fresenius Medical Cares Q3 and nine-month analyst meeting. I would also like to comment on some housekeeping items on the Safe Harbor statement. This presentation, like Bergit(ph) mentioned for their presentation, includes certain forward-looking statements. Actual results could differ materially from those included in the forward-looking statements due to various risk factors and uncertainties.

The risk factors and uncertainties are described in the company's reports filed with the Securities Exchange Commission or the SEC and with the Deutsche - exchange commission Deutsche Bersia(ph). So please refer to these filings for the risk factors.

In compliance, like in the past with the section 401 of Sarbanes-Oxley we're also providing you with a complete bridge for any non-US GAAP measures that we use and we compare them to the nearest US GAAP measures available. So please, like in the past, make us of that information.

Just another housekeeping items for - let me point out for the ones participating via audio lines, please note that you are in a listening also - listening-only mode during the presentation and that you may ask questions in the Q&A session via phone after the presentation.

So, with us today like Bergit mentioned in the beginning is Ben Lipps our Chief Executive Officer of Fresenius Medical Care. Ben will give you a general overview, show you some segment highlights and make some statements on some of our strategic projects. And also Larry Rosen, our Chief Financial Officer, who will give you a little bit more detail on the financials for Q3 and the first nine months. So these are the housekeepings for Mike and Ben, so the floor is all yours.

Thank you Oliver and welcome everyone. We're pleased to have you with us today, either in the am or the pm, wherever you are. As Oliver said, I'll cover the business update and Larry will cover the financials for Q3 and the nine months.

Before I start I'd like to indicate this was a very difficult, busy, but satisfying quarter and as Mark has mentioned and someone from the audience has asked, we clearly had the challenges in North America. We had three hurricanes this season, two of them in Q3 and one in Q4 so far. And I want to say that no, they did not affect the financial results basically for us or RCG but I would like to thank the employees of the products division, the service division.

During that time we basically worked day and night to make sure that the patients who needed dialysis received dialysis. We worked very closely with RCG, with all of the clinics in those affected areas and with our own trucks, our own people, we delivered basically water, food, gas, whatever was required to have people operate. And so again, it was one of those areas, yes we prepare for hurricanes every year, we expect them, but this was one of the years that we actually had to scramble more than ever before but the group was ready and it was great cooperation among RCG, FMC and all the dialysis communities. So, again, I want to express my appreciation and the appreciation and thanks of everyone who was affected.

Now, as we move forward, let's talk about the financials. We had an excellent quarter. I think we showed you in the preview, pretty much the same. We saw an 8% constant currency growth, 9% actual currency growth. Our net income, when you basically correct for one-time effects, was 18% and we saw 14% including the one-time effects. So it was a very strong quarter. It was led by North America and Europe. However the other divisions also did very well and you'll see -- Larry will talk a little more about that as - in his part of the presentation.

Now, taking a look at the breakdown of the revenue, you can see that we essentially operated with about 1.7 billion of revenue for the quarter. North America was close to 1.2 billion, again, growing at 8% international at about 550 million, growing at 10% constant currency, 12% actual currency.

We were very pleased with the results in Asia-Pacific. You can see that there was a turn around in our Asia-Pacific numbers also. Even though it represents about 5% of our business, we clearly saw good growth in terms of revenue in the Asia-Pacific area. We also outside of Japan, in the Asia-Pacific area we saw a 22% constant currency growth. I'm very pleased with the turnaround that we've seen in that area.

With respect to Europe, which represents 23% of our overall business and about 72% of the international business, we continue to do very well growing above the market with a 9% constant and actual currency growth. So Europe did very well and the other two regions followed up in a strong manner.

And you can see in Asia - in Latin America, we grew around 16% in terms of constant currency and again that's pretty much organic growth. So all of the divisions did well but the two main divisions, large divisions - Europe and North America - pulled and powered forward in the third quarter.

Now, this is an overview of the nine months numbers. We hit almost 5 billion in terms of revenue and you can see the growth here in North America is about 7%. So, in third quarter we've actually accelerated our growth in North America. The same in international, the growth in terms of the first nine months was 8% but if you'll notice the third quarter, we were - or 8%, in third quarter we were 9%. So in all of our divisions then we've actually seen an acceleration of growth in third quarter which is very rewarding and very gratifying for us because usually third quarter, because of the vacations, because of the various aspects around the world, it usually is not our strongest quarter in terms of revenue growth.

So, we've kept the same pattern then through the year in terms of the - staying in the 7 to 8% constant currency growth across all divisions.

Now, let's turn to the dialysis services division. We clearly, in the dialysis services division, saw a 9% growth in terms of the worldwide numbers. Corrected for currency that's 8%, again growing above the market in terms of organic growth. North America had a 7% growth and international had a 20% growth. Corrected for currency, 17. So you can see that our service business continues on a worldwide basis to do very well and to grow the top line and we're quite pleased with it.

Looking at some of the other metrics that we cover here in terms of the, in terms of the service business. We had a very strong organic revenue growth in the international, almost 13.8%. Underlying that was a 9% growth in same store plus a 3% constant currency growth in revenue. So we've seen expanding revenue in our international business and we're quite pleased with the performance there.

We also - in the US area, we saw 5.5% growth in terms of organic growth. Again, our target is from 5 to 6, we were right on that number. As far as the same store treatment growth, we see the market growing between 3 and 3.5. Because of all the disruptions this quarter, I'm not able to put a whole lot of emphasis on that number but we're very comfortable as we look around the US that we're growing at or above the market. However with respect to revenue per treatment. We took another step up to $299 per treatment, again, most of that is from contracting and so we're quire pleased with it.

So, all in all, we operated at around a 7% organic growth in our services division on a worldwide basis and each one of the areas continue to go forward with respect to increases in revenue per treatment and also growing above the market.

Now, this slide shows a little bit more graphically our pattern in North America in terms of increasing our revenue per treatment. You can see that we had a nice increase here in third quarter but we're clearly on a trend. We had targeted between 1 and 2% revenue growth. We're above that, we're around 2.5% now, so we're really quite pleased we're operating above the top end of the curve. And I think as we go through the year we'll clearly stay in the, above the target of 290 which we talked about at the beginning of the year and we'll probably end up the year somewhere around the 300 mark.

Now, again, I'd like to emphasize that from a quality standpoint, you can see this in the investor news. We clearly are delivering excellent quality in all metrics. With respect to anemia management, we clearly are guiding ourselves by the doki(ph) standards. I'll talk a little more about that with some of the things that CMS has just done, but we're really staying right on the targets in terms of the quality and we're continuing to grow the business.

We did see a one-day reduction in hospitalization year over year. Again, we have to see if that trend continues but if it does it's clearly a trend in the right direction and even though we don't talk about mortality because essentially everybody measures it slightly different. But if you look at it on a like for like basis we continue to track the 5, the 50 to 70 basis point reduction that we said we would get three years ago.

So, from the quality standpoint, very pleased with the North American operations and everything else about them with respect to the growth of revenue.

Now, let's go to the products business. Very strong quarter for us in the products business. This is absolutely not what we normally see in the summer because of the, basically the summer vacations or the various things that go on in the summer time, the third quarter, but we had a very strong revenue growth of 11% in our products area, 10% constant currency. And if you look at the international business it was clearly driving forward at 10% constant currency, 11% actual currency. And that's total sales, if you look at the external market sales we're clearly in the range of 8% in terms of constant currency. So we've had a very strong international effort, international result this year in our products.

In North America we continue to go forward at 9%, clearly above the market in terms of total sales and a very impressive 16% for this quarter, which again, I don't expect that to continue but we did see a major interest in our machines this quarter. We had a record sale of our machines in the third quarter. And single use continues to basically go forward, drive forward in the independent market. Since 2004, third quarter, the number of - or the percent of independents now utilizing single use has jumped from 46 to 56%, so clearly we continue to see that trend.

So the products business had a very strong third quarter and we're very pleased that each of the various segments within the geo - within the global area performed quite well.

Now, to give you a little highlight on some other things in North America. Again, you can see here in this slide, looking at the product side, the two drivers for the growth was really the machines and the dialyzers. Looking at the service side, you can see that we clearly grew above our target, 2.5% revenue increase and at the same time we maintained our cost structure, maintained our cost discipline to only 1.6%. So we're doing very well and that's why you see in North America the EBIT margin expanded by almost 40 basis points year over year.

Now, I wanted to give you a CMS update when I did these slides about a week ago. However in the past 18 hours I've had to change my update because it seems like everything's coming out of CMS here in the past 18 to 24 hours. So what I will try to do is give you a little bit of a view of what I see coming out at this point in time but I cannot give you a lot of details because by the time I went to bed at midnight last night it was still flowing into my blackberry or basically my fax machine.

Now, what I'd like to comment on is after two years we finally have been awarded the demonstration project and that was announced early this week. That is particularly of interest to us because it allows us to essentially apply what we've been applying in the commercial side for almost five years to Medicare, where our margins are not that strong and see if there's some way to use disease state management and essentially the integrated care to maximize the value to the government, to the payer, to our patients and to ourselves.

Now, embedded in that, if you look at the announcement, is our own enhanced bundle program because we have a number of other capabilities that we would like to evaluate with the government in terms of what would be the right payer package in the next few years in terms of an integrated company. So, anyhow, that program actually did come out and it's actually -- will be starting at the end of this year.

Now, in addition to that, over the last 18 hours, two other final rules have come out, except I've only seen abstracts of them and one of them was the HMA which is the hemo - hematocrit measurement audit procedures. It however was on the Web site for no more than a couple hours and then pulled off. It's my understanding that the actual document will come out Friday. So I can't comment anymore on that document because it didn't stay on the Web site long enough to see the rest of it come out.

But the positive part of that discussion is we've seen a very credible working relationship between the providers in the US and CMS, and I'm very proud of the fact that we've been able to work together and now what we'll see come out will be, I believe, a document that everyone has had input into and it will clearly level the anemia management floor in the US.

Now, in addition, the final MMA rule came out last night. And again, we have to analyze it, I can't give you much detail on it, but again it appeared that the working relationship between the industry, between the providers and CMS was credible. The -- basically the ideas or the proposals we had or the ways to improve the document. It looks like they were considered, I can't say in great detail. But the bottom line is, I believe there's a good working relationship between CMS and the providers in the US and all these programs that we've talked about for the last couple of years appear to be coming out this quarter.

So, those are sort of the highlights for North America, basically running in real time at this point - at this point in time.

Now, looking at international. We continue to see strong revenue growth with strong profitability. If you look at what's driving our products in Latin America and Europe, it's clearly the FX dialyzer. We continue to see very strong double digit growth 40, 44% and our peritoneal dialysis business is growing way above the market. We're actually adding patients at about 8% per year.

In addition, we launched, since we met last, the 5008 product. The father of it, Dr. Gatti, is here today. And so we have over 1,000 machines already installed in the field, which is really quite a nice undertaking or a nice product launch.

In the service area, we see organic growth in Europe and in Europe we have 317 clinics treating around 22,000 patients. So we have a very major presence in the service side in Europe, it's very strong, I think it would be number three in the world in terms of size.

We're seeing a 16% organic revenue growth in that business and eastern Europe is a focus for us, it's privatizing, it's an excellent opportunity for us to, basically develop our service business and as you can see that we clearly are developing it. We're growing it around 57, around greater than 50% per year.

So, in the European theater we continue to do well and we're quite proud of the performance.

Now, let me turn to the strategic projects. These are projects that, again, we are working on them daily. The first one is what we call moving towards one chair and this is the KGAA or the, basically the transformation and the conversion. As you know, all of our agenda items were approved at the extraordinary meeting in August. As we also - I want to point out because it's been confused. This project is totally independent of the RCG acquisition. They're not tied together. We have the financing arranged for the RCG acquisition so these are parallel projects that will run in parallel.

Now, as we expected there would - we expected some legal challenges, we clearly got a few legal challenges, but let me point out they are not of the merit that we believe they will interfere with the resolutions passed by the EGM and with the overwhelming majority support at the EGM we are very confident that we will expeditiously solve those and move on with that project and we will complete that project.

Now, I can't give you any more information at this point in time because I think it would be counter productive because we need to resolve these challenges. And again, I'm very confident we'll do that in an expeditious manner and we'll move these projects to completion.

The second strategic project is the acquisition of RCG. First I'd like to mention than the shareholders of RCG voted overwhelmingly in favor of this transaction in August. We have been requested - we have received our second request by the FTC, it was expected - a transaction of this size always has a second request. We are in the process of providing the information to the FTC that they requested in the second request. We believe that we will need to divest clinics that treat between 2 and 3% of the patients. Again, this is within the targeted scope that we had planned.

I also wanted to mention if you heard the RCG analyst meeting last night, you'll see they had an excellent quarter, their management is doing an excellent job of keeping the company moving forward during this very difficult transition phase. So we're quite pleased that both sides of the equation are doing what needs to be done to make this a successful transaction.

We have moved very - moved forward in terms of our planning for the integration. We've reconfirmed with detailed planning of the synergies that we expected and at this point in time, we are still targeted to close this in Q4 2005. But I have to tell you that the FTC process really drives the timing and so it may flip over into early 2006. I can't sit here and tell you that won't happen, but everything is on track, we're quite comfortable with the acquisition and we will get it completed basically in due time. So, from that standpoint we believe that process -- that transaction is on track also.

Now, just to summarize my part of the presentation, we did see strong organic growth of 7%. The industry is probably growing at somewhere around 5% organic revenue because there's always some price attrition in the products area. In fact, we see the service area growing at about 7%, 6 to 7%. Revenue growth in the products area worldwide, growing more in the 4 to 5%.

We also saw strong revenue per treatment increase worldwide. Very gratifying we are being rewarded for providing high quality. The payers understand that. And of course the bottom line, we like that also, we clearly at 18% excluding one-time charges we feel very proud of that. And Larry will talk more about the cash flow, but we had a solid cash flow month.

So, the sum and substance is that we believe we will stay in the 6 to 9% constant currency revenue growth. We do believe that we will operate in the year towards the high end of our net income guidance, the 12 to 15%. So at this point in time, that completes my part of it. If I could turn it over to you Larry and go through the financials.

Thanks Ben and good afternoon to everybody. I'm pleased to report on another very good quarter in terms of both operating and financial results. Just to close the circle. We recorded preliminary results on October 14th. I'm pleased to tell you that our actual results after the consolidation were slightly better, about 2 million better on operating income and around 1 million better on net income. So we're pleased about that.

Now, let's look at our performance first on the P&L. Ben has given you a lot of insight on our top line but I think it's worth repeating that we've got 9% reported revenue growth, 8% constant currency growth and 7% organic revenue growth.

What you see on this chart is a presentation both including one-time costs and excluding one-time costs. Those are the green figures on the bottom. The one-time costs that we had in the third quarter were $7 million pre-tax, $4 million after tax and they represent the costs of the KGAA transformation project including the costs of the extraordinary general meeting that we had on August 30th.

We think the important comparison is before one-time costs and here we had an excellent progression. EBIT margins increased by 60 basis points year over year. And we had a - we had great leveraging down through the PNL with revenues increasing 9% operating income 14% and net income increasing by 18%. That also reflected the good performance on interest expense, which was reduced year over year primarily because of a lower debt level and that led to the very good growth on the bottom line.

Looking now at the nine-month performance, the revenue trends were just the same as the third quarter -- 9, 8 and 7% respectively with the last being organic revenue growth. And for the whole nine months we increased EBIT margins by 50 basis points. I think that's very, very impressive and I think it's a little bit ahead of the kind of informal guidance that we've given you in past quarters and past years that we'd be able to make incremental improvement in the 20 to 30 basis point range year by year on EBIT margins. So, so far this year, 50 basis points increases and we're very pleased by that.

And you'll also see again, the progression down through the P&L with 17% growth on the bottom line, again reflecting both a very good operating performance but also reduced interest expense because of lower debt levels and lower average interest costs.

Let's take a look in a little bit more detail and I'll spend some time with this slide on the margin trend by region. First in North America on the left side, I think the primary thing here to consider is that we've had an increase of about 2.5% year over year in revenue per treatment and our costs per treatment have only increased by around 1.5%. That reflects the very good operating efficiencies that we have in our clinics and also leveraging the fixed costs that we have in our clinics due to the growth that we have in the number of patients.

It also reflects the very good product sells, as Ben showed you, and along with that very good manufacturing efficiencies in our plants in the US. So we're able to substantially increase margins for those reasons in North America, even through we needed to offset some cost increase. In particular, fuel and delivery costs were significantly higher in Q3. We also had higher insurance costs and also some higher employee health care costs. So the margin increase that you see are including covering all of those increases.

Now, let's look at international for a minute. Here we've seen also some very good pricing increases but this has two components. One is that we've seen some reimbursement increases in some key countries -- examples are France, Portugal and Turkey. We've also seen some mix improvement where we've had better growth in some higher margin countries. So those two things together have led to a nice increase in our revenue rate and international.

We've also had excellent performance in our manufacturing plants. And this was including summer shutdowns that we typically have, especially in Europe, but it especially reflect the efficiencies that we're getting in our machine production as we ramp up the large scale production of the 5008 machine, the new machine that we introduced in mid of this year.

Finally, in international we're seeing substantial improvement in Japan. We told you about the restructuring program that we implemented earlier this year. We're starting to see the benefits of that program and we're starting to see substantial improvement in the operating margins in Japan. The rest of Asia-Pacific continues to form well, so overall Asia-Pacific is making a good contribution at this point. In summary, an all around significant improvement and an acceleration of what we already saw in the first half on margins.

Let's turn now to cash flow performance and then the balance sheet. We've seen further improvement in DSO performance, Day Sales Outstanding. In the U.S. we've been able to reduce another two days, and we really have to compliment the team, to 63 days which is now the leading level in the industry in the U.S. International reduced by one day and basically stayed in the range that we've seen in the last several quarters. So overall we are able to reduce by one day and I remind you that one day represents now about $18 million of cash flow. So this is really one of the key drivers of our cash flow performance and how we've been able to reduce debt in the last quarters.

Now let's look at cash flow for Q3. We had a very good quarter. We were able to be well above our target of 10%. On operating cash flow we see the 11.8% performance. We were slightly down on a year over year basis by 7 million also on free cash flow and this reflected both the higher CAPEX level and also some variation in some other working capital accounts. Acquisitions also began to ramp up in Q3 so we had $103 million of free cash flow after acquisitions.

Now for the nine months we are almost at our 10% target. We're at about 9.5% with $470 million of operating cash flow. This is down $90 million from last year's level, as you can see, but remember we talked about the one-time tax payments -- Stefan(ph) also mentioned it in his presentation -- of $43 million so correcting for that we'd be very close around the 10% level. We also had some build up of some other working capital accounts compared to last year.

Also even though DSO has improved two days so far this year in the first nine months of this year we compare it to nine months of last year where we had a four day improvement. So we've talked about continuing improvement, but a slowdown from a very fast improvement that we saw in 2004 and the beginning of '05.

This is a kind of busy slide but I want to direct you first to the bottom right and in particular to the 1.92 number which is our current debt to EBITDA ratio. I think it's very, very impressive because about three or four years ago we set a goal for the company to be at 2.5 in 2005. So here we are at 1.92, so below the 2 level, and this reflects both a very good working capital management in particular DSO but also the increases that we've seen in operating income performance that you see on the top right.

If you look in the middle of the page you see that we've reduced debt by over $200 million this year, so that together with the increasing EBITDA performance has led to this fast decline in the ratio.

We did have some tailwinds from two kind of special items. The first is the foreign exchange translation effect of $111 million, and then we had with our increasing stock price this year an increase in the number of stock options exercised and that contributed about $50 million of liquidity to the debt reduction.

Now to wrap up my part of the presentation I'd like to talk about guidance. We mentioned that we were at 8% constant currency growth for the first nine months -- for the quarter and for the first nine months. Our guidance has been 6 to 9% and we're going to keep that guidance given the performance that we've had and what we can see in Q4.

For net income the first nine months are at plus 16%. Our guidance has been 12 to 15% and we're confirming that we'll clearly be at the high end of that range.

For the capital expenditure and acquisition investment budgets we're reducing guidance by 100 million in CAPEX and by about 25 million in acquisitions. And this is really a reflection of two things. One is as we've looked more closely at the integration with RCG at what our network is going to look like in the U.S. as far as our clinics we've seen that we really don't need to be as aggressive either in terms of de novo spending or acquisition spending as we would've been on a stand alone basis.

And the second item is that in international it's simply a timing issue -- some deferral of some CAPEX projects -- but not an overall reduction in investment plans. So with that I'd like to conclude my presentation and I think we open the floor now for Q&A.

Thank you Ben, thank you Larry for the presentation and for the insight. We start with the questions actually here in the audience on the web and then we open up the audio lines. So who wants to start -- yes Andreas wants to start first.

Andreas (inaudible - accent) from Merrill Lynch in Frankfurt. Ben I was also not having the details on HMA and the thing. But if I see it right there was something about that Epo(ph) usage and they want to have in a band of 34 or 35 hemocrit to 39. Now I would assume that almost all your patients are in that band but the question is is that also from RCG and also is that for the industry? And if the industry is not in that band let's say, could that trigger something (1) in the way that they have to struggle to make it - could come under competitive pressure; or (2) that they for example have to use more Optiflex stylizers(ph) to meet the criteria or other things so that it could give some excellent opportunities for you?

Andreas what I saw in the preview that again lasted for a few hours it looked as though they had defined the range broader than the 33 to 36 which we know variability wise required and then once the patients basically move above 36, then there was a -- it looked like there was a mandatory 25% reduction of the dose which is basically part of the FDA product literature. So from that standpoint we really have to study that it's a slightly different algorithm than we normally would use but I think it is a more realistic and it is -- what the industry recommended was to broaden the range and then have some sort of upside monitoring program. So at this point I can't say anymore than it appears to be a step in the right direction.

But you don't expect that you'll have any problems to meeting these guidelines?

Well I think to be careful today since I haven't seen all the details, we feel that since this was part of our recommendation when we looked at this a year ago that we clearly would be able to meet these. It would probably be neutral to maybe slightly positive on a revenue standpoint but clearly we believe we can make this.

Is this the same for the industry?

I have not seen responses from anyone else because like I say, this hit last night. The part that is gratifying - I believe should be gratifying to the industry is that CMS did listen to the input that we had and now we should have some sort of level playing field as far as anemia -- monitoring anemia management.

(Inaudible - accent) Deutsche Bank: Although the CMS proposal isn't the track(ph) add on rate increased from 11.3 to 14.7%?

Yes that was another gratifying piece of email that few through last night. The final MMA rules -- but again there are 60 days for comment but generally they hold -- they again adopted the program. They listened to some of the complaints or problems we had in terms of how they calculated the add back and I think that what I see was a fair approach to this in terms of how they're handling it.

Okay. Anything else? Maybe something negative that would complicate the positive impact?

You noticed I didn't say positive impact. I said I was pleased with the intention of working with the industry. No, the other side is there is a adjustment of the labor rate and again it depends on where your clinics are and that -- they extended that out to four years now rather than two years which I think was a reasonable discussion. But we've not really added all that up and see what it means. I do believe I can sit here and tell you it'll be neutral. It'll be at least neutral.

(inaudible - microphone inaccessible).

Yes. There were two parts to the final rules that were presented or the proposed rules that were presented in August. One of them of course was the drug add back and the second one was the labor rates -- there was a new formula for adjusting labor rates regionally around the country, and things have changed in terms of how they - the amount of labor in a dialysis treatment is different than it was 10 years ago. And so at first blush they were going to try to make all these changes in two years which is disruptive in terms of the models that you have and it depends on where your clinics are.

It's now my understanding from reading it last night that they will give a four-year basically lead-in to this which gives you time to basically readjust your labor patterns. So that's the negative for - it depends on where you're operating in terms of what price level you're operating at and I don't know the exact numbers but that could be a potential small negative. But by and large for FMC and I believe also for RCG we checked early this morning it should be clearly neutral going forward -- or slightly positive.

Okay. Then another question with regard to your same store growth rate of 3% in the U.S. Were there any impact from the hurricanes or would you have a comparable figure or best guess for competitive growth rates?

Yes, I looked at that pretty carefully with Motts (ph), and basically if you look at the presentation last night from the government they're saying the growth rate is in the range of 2.6 to 2.9% from 2005 to 2006 if you look at their numbers. If you average everyone in terms of the four major chains you're in the range of 3.2 so I still believe the market is growing in the 3 to 3.5 maybe closer to 3.2 and I believe that there was some - I mean we did have an impact but I can't tell you exactly what it is. But I still believe that we clearly will grow at and above the market and I think the market is closer to the low end of the 3 to 3.5 than it was, say, a year ago.

I mean that sounds a bit more cautious than previous statements where you committed to 20 to 30% growth above the market.

No, I'm still there but if the market keeps dropping each year than what is 20%? Twenty percent above 3 is 3.6 and yes we're clearly going to do that.

Okay. And a final question. You provided the growth rates for HD machines on the single use stylizers. Could you also give us the absolute number, not only the growth rate?

We normally don't provide the absolute numbers. But clearly don't change your models as someone mentioned on the other - what Mark mentioned. Don't change your models to a 16% growth rate in products. I think we saw some one-offs as obviously people like our machines and they may well have been buying ahead. So from that standpoint I think it was just a very, very extraordinary quarter.

No more questions in the audience? I don't have any on the web, so operator maybe you can open up the audio lines, actually, for further questions from everybody joining us via the audio.

No more questions here in the audience? I don't have any on the web. So, operator, maybe you can open up the audio lines actually for further questions from everybody joining us via the audio.

[Operator Instructions] You have a question from Habib Connors(ph) with Argus Partners.

Hi, good morning. I just had a question in terms of - can you tell us how many Medicare treatments Fresenius does a year in the U.S? and then if you had it can you give it to us pro forma for the RCI acquisition?

Yes I believe we can. Larry why don't you take this one. `

Let me just give the pro forma number. After the acquisition it would be somewhere approximately 12 million treatments.

Permanent. And so are you saying - I think CMS last night on the physician fee schedule added on a composite of 14.7%. Are you saying that's not at all a positive for you?

No. What I said was we have to study the document but at this point I can only say that it would be neutral to slightly positive and of course we will look at it in more detail and share with you -- when we talk about our guidance in February we will share with you more of the information.

If you don't mind me asking what could be the negative? I mean to me it seems like a positive but what detracts from the positive?

Well as I mentioned there is a labor redistribution component and we need to study that more carefully and basically we have not seen the final HMA which clearly we think we know what it's going to be but I would like to hold anymore thoughts on this until I see the final HMA come out later this week. But I can just say with confidence it's neutral to slightly positive if that will satisfy you today.

Okay, thank you.

Okay. Thank you.

Your next question comes from Alon Catawick (ph) with Redmond Partners.

Good afternoon gentlemen. Three questions. First to relate to the disease site management demonstration project I was wondering if you could let us know how many patients are currently enrolled in the pilot project. And secondly when you be providing the market with some sort of clinical and economic viability data on first stage -- when you're hoping to come out with that, if at all. And third question as we've seen elsewhere in the healthcare space in the U.S. that has been pressure from -- in terms of pricing from private payers. You've actually said in this quarter that a lot of your reimbursement increases were due to a private payer contract re-negotiation. I was wondering is that sustainable and if not, I mean, could we see that rate of growth decline or even go into price cutting?

Yes thank you. As far as the Medicare disease management program we -- the program will start fourth quarter enrolling patients. Our first year target would be between 500 and 1,000 patients. I would expect -- and of course we'll ramp that up depending on the results we see -- I would expect it would be towards the end of 2007 before we could tell you quite clearly that this is a model financially or financially medically that would work for us. So I think that's the target range and again these things take a lot of time to get started but they're the types of projects that long term can be very influential.

With respect to the private payers, yes, I've - obviously there's always a demand on the part of the private payers to get value for cost or for expenses paid. We still are in a space where if you'll notice at 299 we're still behind most of the other payers so we've got a little headroom. But more than that most of the private payers would like to reduce their costs, increase their quality of care, and so we are essentially using our disease management piece of the business which has been operating now about five years in the commercial side as a way to offer another product to them so we can keep our revenues up and grow our revenues and at the same time satisfy their needs to control our costs. So we do have a couple of products in that we think long term will give us some upside potential here.

Thank you very much.

There are no further questions.

Okay if there are no further questions, I have one more from the web. I think there is one question asking about the key drivers for the increase in the revenue for treatment which you covered actually, Ben, in your presentation and also I think that one is for you Larry. When do you expect the XDryt (ph) most notably the Shorin (ph) system having a positive impact?

So we'll be investing already in 2006. We actually began a little bit in 2005 on some of the preparation for the Shorin (ph) System and we'll begin to see the first meaningful benefits in 2007 accelerating and ramping up and probably getting the full benefits by 2008.

Okay. Are there anymore questions actually in the audience or on the audio lines? That doesn't seem to be the case, actually. So thank you very much everybody for your attention here in the audience and actually on the web.

One more comment. Since that is the last time actually we will see you officially in 2005, I would like to thank also in the name of the management board of Fresenius Medical Care and the supervisory board of Fresenius Medical Care and I think I'll also talk in favor of Fresenius AG, everybody personally, everybody on the web and everybody on the audio lines for your questions and for your interest and your support during 2005 for our company. We are looking forward to seeing you here next year and working with you. Thank you very much.

Thank you.