Fresenius Medical Care AG (FMS) 2007 Q4 法說會逐字稿

Everybody's back in here. So I would also like to welcome everybody actually here in the audience, as well as everybody joining us on the Internet for Fresenius Medical Care's Analyst Meeting covering Q4 and the full year 2007 results and achievements.

My normal procedure is to comment on the Safe Harbor, so this 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. I cut it sure. These and other risks and uncertainties are reported in detail with the Company's filings with the SEC and the Deutsche Borse.

Like as in the past, be aware that in compliance with the Section 401 of Sarbanes Oxley, we have provided you with a reconciliation for any non-U.S. GAAP measure that we utilize.

As mentioned before, with us today is Ben Lipps, Chief Executive Officer for Fresenius Medical Care, who will give you a business update on Q4 and for the fiscal year; and Larry Rosen, our Chief Financial Officer, who will brief you on the results for Q4 and the full year for 2007. So that's it from my end. Ben, the floor is yours.

Thank you, Oliver. And again, welcome, everyone. We are pleased that you joined us in person and on the Internet and we will give you a brief outline of the year 2007 and the fourth quarter. We're very pleased with the results of the fourth quarter and the year. I will cover the business update and Larry will cover the actual financials.

As we look at fourth quarter, we had a very good quarter, but let me tell you it was not easy. It was a very interesting quarter. We thought the headwinds on the EPO headwinds would die down a little bit in fourth quarter. They didn't. They just changed vectors or changed direction. And so we had a very interesting situation. I want to compliment the U.S. team, the service part of the team, who did an excellent job in contracting, continued to maintain excellent contracting -- commercial contracts, cut back on the expenses and basically watched our costs during that time. And also the products group had an excellent quarter in terms of products. And our renal pharma group, PhosLo, did very well. So the team pulled together in North America and turned in, as you'll see from Larry later, a very good result. On top of that, very pleased the rest of the Company, Europe, Latin America, Asia-Pacific, turned in a great performance also. So we had a good quarter in spite of a number of headwinds in the U.S. and essentially, turned in a good year. So I want to say that that was one of those interesting quarters that everybody came through when they needed to.

Now, looking at the year, we did exceed our guidance for the year. Before I go into that, I would like, though, just one more time to stop and thank the management board. Again, we've got a very stable management board. We've got about 125 years of dialysis experience on that board and it's times like fourth quarter where it really shows through. Again, I would like to thank Emanuele Gatti, CEO of Europe, Latin America; Mats Wahlstrom, a co-CEO of North America, CEO of the service business; Rice Powell, co-CEO of North America and also the CEO of the Renal Therapy business; Roberto Fuste, CEO of Asia-Pacific; Larry Rosen, who you know; and Rainer Runte, who is head of Legal, a Board member for Legal and Compliance.

The team did very well and also I would like to thank the 61,000 employees who pulled 2007 through as an outstanding year. We had excellent quality, excellent service during the whole year and very, very proud of that, and it was a great year.

You can see from the numbers we exceeded our revenue. We did about $9.7 billion of revenue, and our net income was $717 million, again, slightly ahead of the high-end target. We're very pleased with that.

Now, if you look at the revenue breakdown, interestingly, about two-thirds of our revenue in fourth quarter came from North America and the other one-third came from international. We had, as you can see, about a 3% growth in the U.S. Again, with the EPO headwinds, we've only had a 2% organic. Expect that to come back. And if you look at Europe, we had in Europe an 8% constant currency. And also the products were about 5% and service 13%. I'll show you some of the growth that we are generating in the international section in terms of revenue in the service area. Asia-Pacific was the leader in fourth quarter, again growing at 35% constant currency. We made a major acquisition at the beginning of the year. I think we talked about it. I'll show you what it has done for our leadership position in the service. But we also had a very strong 12% constant currency growth in the products business in Asia-Pacific. So delivered quite well. And Latin America came through, again, with a very strong performance of a 10% constant currency growth.

So fourth quarter had all of the earmarking of a very good quarter. We had a little headwind in North America, which the management teams handled. But as you look at the year then, it was a very successful year in 2007. And again, you can see that basically North America turned in around $6.7 billion in sales. Again, somewhere in the 5% organic range, and you'll see that then the other groups turned in, essentially in the international area, we had products growing at 10%, service growing at 23% and, again, Europe double digit in the overall performance for the service and growing at 9%; Asia-Pacific, again, at 40%; Latin America, 14%. So revenue-wise for 2007, all the regions did very well and I think you will see here as we go through 2008, we're looking forward to it and encouraged by what we see for 2008.

Let's look now at the Dialysis Services on a global basis. I think the point I would like to make here is if you look at the international portion, for fourth quarter, we did over $330 million worth of revenue. 22% growth in basically in constant currency and organic growth in the revenue for the service business was 10%, growing very well, and we did about $1.8 billion for the quarter. So again, we're seeing contributions in the service business, growth in the service business in the international.

Now, let's look at it on a full 2007. Again, you will see that international service grew at 23%, again, largely driven by Asia-Pacific and Europe. And you can see that we had a 12% organic growth in international and obviously we had acquisitions then in the 10 to 11% range. Very good growth.

The service business accounts for 74% of our revenue in 2007, and that's about where we have been because the products business again continues to grow at double-digits, so we've been able to keep that balanced for the last couple, three years, 75/25.

Now, let's take a little closer look at some of the metrics in the service area. And I think I would like to go over and highlight the same market growth in the international was 6.2%. Again, that's right in line with what we expected. However, if you go a little below that and look at the actual increase in revenue per treatment, we had a very strong increase in revenue per treatment of 4% for the quarter constant currency. So the international section of the service business did very well at 10% growth in organic revenue. As I mentioned, in the U.S. area, we actually hit our target of same market growth of 3%, but because the EPO headwinds, we basically lost some revenue per treatment through the year and we ended at about 1%. So we ended up then about a 2% revenue, organic revenue growth, which we expect to actually start to recover.

Now, interestingly, we are well on our way for building additional de novos. We did 80 de novos last year, 51 of them in the U.S. and 29 in international. Our target for 2008 is approximately 130 de novos. We're planning to do about 80 of them in the U.S. and about 55 international. So we are poised, and it takes about a year to develop these de novos, and so we are very much poised for additional growth in this area with the clinics being available in both the international region and in the North American region. So that's essentially where we are for the overall metrics then for the service business.

I would like to talk about the revenue per treatment in the U.S. and talk a little bit about what we're seeing in the EPO area. As I mentioned, our revenue per treatment in the U.S. essentially was 1% down fourth quarter last year to fourth quarter this year and it was down about $2 from third quarter to fourth quarter. Now, what we saw is that the underlying non EPO rate continues in the -- around the 4.5, so our contracting is -- the team is doing an excellent job. We continue to essentially have a good response from the commercial contractors, commercial payors, but essentially what we're doing dealing with was the EPO affect.

Now, we saw a slightly different EPO effect, I'll show you a couple of minutes, in fourth quarter, as basically our positions prepared for the EMP or the EPO monitoring program, that starts the 1st of January of this year.

Now, I believe we have passed through the low point as far as the EPO issues. Basically the FDA advisory committee in October pretty much came back and substantiated where we were. A year ago, they separated the oncology thoughts from the ESRD thoughts. So I think this is behind us in terms of it's been a turbulent year in this area but I believe that we passed through the worst at this point.

Now, how quickly will it respond and how will it respond? I think that's still a little bit open, but I will show you where we are at this point in a couple more slides.

Now, one of the key issues, and again, I think that has been the hallmark for the last few years, is that we focus on quality in the clinic area. We focus on doing the right things. And that's why after all the discussion, it pretty well -- the anemia management came back to where we were a year before. But I would like to point out some of the parameters that we follow here in terms of quality. You can see that we're delivering both in the international and basically in the European and the U.S. area, 93 to 95% of the time we are delivering the prescribed therapy. And that's not easy. That takes a lot of education, a lot of devotion and expense to make sure that happens. But clearly, if you go down and look at the hospital days, we continue to make progress in terms of keeping the patients well and out of the hospitals, and that's very important for the patient and the payor.

Now, interestingly, you will see that over the last year, looking at fourth quarter last year and fourth quarter this year, we dropped from 83% of our patients above 11 to only 80%. And that represents about an 18% of the patients below 11. There is an increase of about 18% of patients below 11, which all of our medical data would say that that's not the right spot to be. But that was really a consequence of all the discussion during the last year.

Now, in Europe, we are at 72%, but we're making progress. A year or so ago we were in the 60s. In terms of nutritional status, Europe has a definite edge over the U.S. in nutritional status; that's very important. But again, that's restricted by the payment situation in the U.S.

So the long and short of it is we continue by basically good anemia policies, working with nutrition when we can, providing excellent dialysis, again, as far as the prescription, and we end up with -- we're now at about 9.9 days; in the U.S., 9.6. We did change our metric to fit the CMS metric, and so that's why essentially I think if you look back, it was about a 1-point difference, but that's essentially what CMS would like us to use.

Our mortality essentially also is pretty common, pretty much the same across both groups in terms of mortality. We're down clearly in the U.S. less than 17 and less than 15 for those non-diabetics. So by and large then, we're very pleased with our quality on a worldwide basis. And clearly with Europe and North America, they're doing an excellent job.

Now let's talk about anemia management. Again, I think over the past year, I talked about our policies are clearly consistent with trying to provide the best outcomes for our patient, but not over-utilizing. And you can see that on the right-hand side, during the last year, we've seen an increase in the number of patients below 11. This clearly was a result of all the discussion. I think you will see that now start to turn back up. However, if you look third to fourth quarter, we actually saw it stabilize at about 80. And what we were seeing there is a number of the physicians were preparing for the EMP, where they were actually reducing on the non-responders the dose, and so it did not affect the -- basically the number of patients below 11. And, of course, through all this time there has been an ASP change, which is under the new ASP plus 6.

So again, I feel comfortable that we're doing the right thing. We will clearly then I think as we go through 2008, we will see this start to respond and come back pretty much where we were at the beginning, subject to basically the new regulations from CMS, which are actually good regulations. And that is there's a limited dose that they will provide for the non-responders and for those patients that are over 13, they will only allow you to be over 13 for three months. And now we've got a bracket on both sides of this. And so I think it's pretty well defined in the U.S. as basically the anemia management programs going forward. I think by a year from now, it will be pretty much -- you won't be talking about it or asking about it. Okay.

Now let's look at the products business. Again, we had excellent product sales in fourth quarter. Again, we're growing on average basically at 10%. This is external revenue, twice the markets and we essentially in the U.S. are growing around 17%. That includes both the renal pharma as well as the products. We sell the pharma as a product. We'll sell PhosLo to basically any other clinic or any -- it goes through Part D. But we essentially treat all of the pharma business as products business and it's not -- it's for all of the participants in the clinic scenario.

The products business in the U.S. grew at 9%, which is 2.5 to 3 times the market. Again, led by machines and dialyzers. And in the international area, we grew at 7% and again, that clearly is a higher than the market; again the gross greater than the market. And you have to look really not at just one quarter in the international because you have a number of tenders that basically show up quarter by quarter. So the real number as far as how the products did during 2007 is really on this slide and we saw excellent growth. External business grew 12%. The U.S. continued in the 17 to 18% range, and international grew at 10%, which is clearly double the market. Again, led by international, led by all of our products -- machines, primarily 5008 very well received dialyzers and PD solutions, PD products in the in the U.S. led by machines and dialyzers. And so it's been a very good year for the products and that's one of the reasons that you will see, when Larry discusses his program and discusses our CapEx, we need to make additional investments in both the -- in all three regions -- Asia-Pacific, Europe and the U.S. to increase our capacity in the dialyzer area and our production. And that's a two to three-year program, so we're now our second year into it and it will carry on into 2008.

So summing up then the year, it was a very, very good year. It had a number of challenges, which we have met, and I think the teams did a very good job of basically meeting those. But more than that, we also made some strategic initiatives this year or basically moved our strategic initiatives forward. We ended up I think in the renal pharma area. We are making very good progress in terms of our binder programs, and we also are clearly -- I believe we have the therapy developed in the U.S., so we've seen a very good acceptance or increasing acceptance of that. Also, we made a move at the end of the year purchasing Renal Solutions. It's a U.S., small U.S. development company, but they had the rights for the sorbent system, that has been on the market for many years and pretty well worked out in terms of its safety. And we felt that as we look into the next generation of equipment in the next 10 years, there's going to be an interest in regenerating dialyzate. This clearly does it. And so we've taken some very major steps with respect to increasing our platform for new products say five years from now.

And also, we will be introducing in 2008 in the U.S. our new liberty cycler. We'll be introducing the next generation, the fourth-generation machine in the U.S., the 2008T. So essentially we have not lost sight of the future. We continue to move very aggressively in the products area because that's the underpinning in many cases for vertical integration.

Now, in summary, for the regions, Larry will show you, we basically -- North America had even in fourth quarter, which is a very difficult quarter, 70 basis point improvement. I talked about the products and I talked about where that came from in terms of cost control. Europe continues to be the margin leader, a very strong margin development, 8% organic, and we had a 76% increase in our 5008 machines, very well accepted. And one of the very exciting things that the European team pulled off this year is they basically worked with Portugal, and as of, I think March or so of this year, Portugal will be offering a bundle. And it will be the first country in the world to actually offer to pay the provider as a bundle. Now what does this mean? This means that basically we will be paid essentially a composite rate for the entire treatment. There's a number of quality checks that I think were very intelligently worked out. But this opens the field in Europe for us to clearly increase our revenue per treatment of about 50%. And more than that, it really sets the stage for Fresenius Medical Care to continue to move into integrated care, and we are just real pleased that the team was able to pull this off with Portugal and essentially get it started. We're hoping that basically the rest of the world will look at this as -- in the next few years as a model, and time will tell.

Asia-Pacific, again, I think I talked about it. We had a very strong product sales growth. We are growing about 21% organically in China. Again, that's a market that's just developing for the dialysis field, but it's an interesting market.

So the long and short of my presentation is we had a very good year, and now we're going to pass it -- a little bit of it back to the shareholders. We're going to increase our dividend 15% for -- we're recommending that for 2007. That's slightly above our average of 12% over the last 10 years, but it follows our earnings-driven dividend policy, where we take a percent of the earnings and we pass it back to our shareholders. So we're very pleased to be able to recommend a 15% increase in the dividend for 2007. And that will be presented at the AGM on May 20.

So now let's talk about 2008. What are the growth drivers? I think I've given you a background on '7. Basically, we've got four growth drivers, and they are really mid and short-term gross drivers. And product market share, we see opportunities in Europe and Asia-Pacific. We have about and 90+% machine business in the U.S. and about an 80% dialyzer business, so the U.S. is basically in what I would call a defensive mode, maintaining their market share.

Now, in order to do this, we have increased R&D about 30% during 2007 with the acquisition of RSI, we have committed that we will now increase it another 30% in 2008. So we are investing in the next platforms, and I think we are excited about it because clearly we've got enough experience in our own clinics and essentially we've -- we are in our third or fourth-generation products, so we clearly kind of know what not to do and what to do.

Now, along the same lines, I think I've talked about the new products that we are introducing, so basically our first growth driver and our primary one through 2008 will be increasing market share in the products area. We also see, as we mentioned, we saw an increase of 4% in the revenue per treatment international. We did not get an increase in the U.S. this year from Medicare. However, we certainly will be working with them, trying to make sure that something happens in 2009 because the quality that we're offering the government and we're offering the payors improves year after year.

We will continue to essentially acquire clinics. Like I say, we're building 130 new de novos around the world this year, so we will continue our expansion of our clinic network. And the renal pharma, we're at about $130 million worth of sales around the world in the pharma area. And so we are still going to continue to focus on that. Our target is 400 million in 2010. We've got a ways to go, but it's an exciting field. So those are the four growth drivers for 2008 and they carry also into '9 and '10.

So at this point, I would like to again thank you for your interest and turn it over to Larry, who will talk about some of the financial numbers for the year. Thank you.

Thank you, Ben and good afternoon, everybody. I'm very pleased to report on an excellent finish to a historic and record year for Fresenius Medical Care.

Our financial performance has been consistently good in 2007 and we've been picking up momentum as we move through the year. And I think the fourth quarter was a great finish to the year. So I would like to talk about the highlights for 2007, and we will finish with guidance for 2008, but first, we will look at our performance for Q4 in 2007.

So we had net revenues of $2.6 billion. That was a reported 9% growth, 6% constant currency growth and 4% organic growth. I won't spend too much time on the revenue growth, because I think Ben has covered that in a lot of detail. But I will talk about our EBIT performance, $428 million of operating income, 13% growth above 2006 fourth quarter, and a 50 basis point improvement in the margin. I will talk in some detail about the components of that margin improvement. But we can already say that it was really across all regions and all segments that generated this margin improvement, and we're very pleased with that.

Interest expense came down to $90 million. This reflected primarily lower variable interest rates in Q4 on about the same level of debt. Our tax rate at 40% was a bit higher than the trend that we had in the first three quarters. This reflected a few minor reserves that we took in Q4 for some anticipated audit findings, and audit results that will come up in the future. But we've already booked them because we were confident that they are going to come up, so we took the opportunity in Q4 to book those. Nevertheless, we were still, for the year, clearly within our target range, between 38 and 39%. You'll see in a minute we were at 38.5% for the year. And we do expect some improvement from there.

Net income at $197 million was an improvement of 16% before onetime items in Q4 of 2006. And in Q4 of 2006, we had significant onetime effects, primarily from the RCG acquisition. And so after onetime items, it would have been an increase of about 30%, so an excellent performance on the bottom line in Q4 at almost a $200 million or an $800 million per year annualized run rate.

Now, let's take a look at the full year, where you see that we were at $9.7 billion of revenues. This was a 14% reported growth, 12% constant currency and 6% organic growth for the year. The primary difference between the 12% and the 6% in addition to the normal level of acquisitions was having Renal Care Group for four quarters in 2007 compared to three quarters in 2006.

We ere very pleased with the EBIT margin at 16.3% for the year. This 80 basis point improvement was about half or 40 basis points underlying improvement in the business, about a quarter or 20 basis points was the completion of the integration program with Renal Care Group and the other 20 basis points was just the mechanical combination and the addition of one more quarter of having Renal Care Group, which had higher margins, and so that added about another 20 basis points. And so an 80 basis point increase for the year, an excellent performance.

Interest expense improvement at $371 million was pretty much in line, if not slightly lower, than our expectations. Again, as variable rates decreased towards the end of the year, we benefited from that, especially in Q4. And the tax rate, as I mentioned, 39% rounded but 38.5% exactly for the year. So pretty much in line with our expectations despite those few minor reserves that we had in Q4. And the $717 million was a 25% growth before onetime items and 34% growth on a reported basis, so after onetime items in 2006. A very good performance and above the last guidance that we had given at around $705 million.

Now let's take a look at the regional margin performance. In North America, we had a 70 basis point improvement in Q4 up to a record level of 17.8% and 17% for the full year. So up 110 basis points for the full year. And the same factors that benefited us during the whole year were also evident in the Q4, and they were really treatment and product volume growth, especially including an increasing over the year, a strong contribution from the PhosLo acquisition, which we did right at the end of 2006, and it just continued to contribute more and more as we went throughout the year and has been a very successful acquisition for us.

Also evident was very good manufacturing performance throughout the whole year, a very high level over of run rates in our manufacturing plants in particular in Ogden, our main manufacturing plant in Utah. And also very good cost control in our clinics in terms of labor hours and also in our plants, as we got scale effects from producing more and more products.

In the International segment, we had a 70 basis point increase in Q4. This, again, came from revenue growth and the associated scale effects, especially in emerging markets as we have been making investments for years in the basic organization and fixed cost infrastructure that you need in the emerging markets. And now, as we build up the clinic business, we spread those fixed costs over a bigger and bigger base. So for the full year, we were at 17.8%, the same level as in 2006, but this is really despite the mix of effect of having more and more investments in emerging markets which initially have lower returns, but yet we were still able to maintain almost 18% EBIT margins while expanding dramatically the business, both in mature markets, but especially in emerging markets.

Now let's turn to the balance sheet or some highlights of the balance sheet and cash flow. Our DSO remained constant in Q4 with the Q3 level, but this is an excellent performance in that it's down two days for the full year and is industry-leading, we believe in international and we know in the U.S. at 58 days. We clearly are leading the industry in terms of the number of days. One day is worth more than $20 million of cash flow for us at this point, and so we're continuing to manage our DSO very, very well. And I would like to highlight that we had a four-day decrease in the International segment, down to 110 days. This is a level that we've really never seen before and is an excellent performance from the international teams.

Now here's the full cash flow statement for Q4. We had $309 million of cash flow again, an excellent 12% of revenue. As you know, we try to target more than 10% on a consistent basis. And again, this is due to income, growth and also very good management of working capital. CapEx was at the relatively high level of $184 million, and this really reflected our continuing ability to invest in growth, as Ben talked about, in our manufacturing facilities, but also de novo investments and in our clinics, where we are expanding to take account of growth that we are experiencing in all our markets.

So free cash flow was $125 million. We had the pretty big RSI acquisition at about $100 million of cash in Q4, bringing the acquisition level to $118 million, so just about break-even on free cash flow after the RSI acquisition. But before the RSI acquisition, which was kind of a strategic, special acquisition, and so we talk about it a bit separately. We had about $100 million of free cash flow generation.

And you see for the full year, it was pretty much a reflection of what we had done in Q4. $1.2 billion of cash flow, 12.3% of revenues, so a very good, consistent performance over the year and a 9% increase over the 2006 level before onetime costs. We took the opportunity to increase CapEx as expected to about $550 million, and that took up the additional $100 million of free cash flow or operating cash flow generation. So on the free cash flow level, we were at about $650 million, about the same level as 2006 before onetime items. Acquisitions, including RSI, $230 million and $420 million of free cash flow after all acquisitions and $540 million excluding RSI, so about a 10% increase over 2006.

So our debt was relatively constant, as you see on the left-hand side here. That was primarily due to currency. We had some currency headwind because of the euro valuation of debt. Otherwise. we would have had a small debt reduction, but the strong increase in EBITDA has allowed us to improve our leverage ratios even further. And you see we are now comfortably in the range that we have set, in the target range that we set. We've achieved clearly our target for 2007 and are somewhere in the middle of our range, between 2.5 and 3, where we feel very comfortable.

Now let me talk about a few highlights of some current issues that you might be asking questions about, at least asking yourselves if not us. So let me talk about those.

Our debt portfolio and interest expense. First of all, we're largely insulated from interest rate and liquidity risk. Now, following the payback of our trust preferred securities on February 1st, we don't have any near-term maturities in the next couple of years. In addition, our debt portfolio is 75 to 80% fixed, and so we have relatively small exposure to changes in interest rates, should rates go up. We have a declining overall interest rate as we've paid down now the maturing Trust Preferred Securities and we've replaced them with much lower cost debt as compared to the second half of 2007. And we have benefited, even though we have only 20 to 25% of our portfolio in variable-rate debt, we have benefited because of the strong reductions. And you see that about a 1% benefit on EAT or $7 to 8 million on EAT is what we could expect from 100 basis point or 1% reduction in short-term interest rates, which we have seen lately.

On currency, we benefit from our business strategy. Our global diversification strategy lets us have costs where we have our business, where we generate revenues. So we have manufacturing and other costs in the same places that we do business, globally diversified, in North America, in Latin America, in Europe and in Asia. And we are following that strategy and it's been a real benefit to us and a real competitive advantage because no one else has the global breadth that we do in terms of both manufacturing and organization on the ground and also where our clinics are located.

In terms of taxes, German tax reform provides minor benefits for us. Last year, the guidance was 38 to 39% for our tax rate. We were right in the middle of that. Our guidance for this year is 37.5 to 38.5%. The small benefits that we got from German tax reform are factored into that guidance. And we do expect over future years to continue to be able to make incremental improvement in our effective tax rate.

I think something to highlight, especially in this Q4, is our success in cost management. We've talked about the improved scale economies in emerging markets, especially, where we've invested long ago in the basic administrative organizations, the regulatory quality organization, distribution in those countries so that now when we add clinics, we're really benefiting tremendously from those scale economies. But this is occurring also from growth in the mature markets, just to a lesser extent.

The Nursing Academy is something that we announced this year and we hope to help us control costs in the future in terms of being able to source [RL] nurses hopefully at a lower cost than we do now in some part from agencies. Our new clinic IT system is going to reduce our costs in the U.S. in addition to having some other clinical benefits. We've had labor hour per-treatment reductions in particular in the U.S. and we expect to continue to be able to get incremental improvement in that area. And again, excellent manufacturing performance there, again, scale effects and efficiency effects.

Now our guidance for 2008. Our guidance is for more than 7% revenue growth to about 10.4 billion. So we will be clearly achieving what originally was our goal 10 target for 2010 already in 2008 and we practically achieved it in 2007.

The 7% growth reflects about 5 to 6% organic growth. We still have slight headwind from EPO because remember that the EPO utilization issue was primarily a second half 2007 issue, whereas it's a full-year issue for 2008. So on average, we will have slightly lower utilization, and that's factored into our 5 to 6% organic growth and our 7% overall growth rate for 2008.

Net income, very consistent with our mid-term guidance of 12 to 15%. Net income growth a range of 805, $825 million of EAT for 2008. Leverage ratio below 2.8. You saw that we were at 2.84 at the end of 2007. We expect to be below 2.8 by the end of 2008. So slightly down, and that's reflecting the next bit of guidance, which is on an investment for 2008 where we expect CapEx at 650 to 750 million and acquisitions at 150 to 250. So in total, 800 million to $1 billion of investment, and that's reflecting very good growth opportunities worldwide for our business. We are seeing more and more growth opportunities as we go along. And now that we are in our comfort range in terms of leverage, we want to be able to take advantage of those. Of course, we look at each one intensively, make sure that they make sense, but we feel that at this point we can and will invest a bit more than we've been doing in the past. So again, another strong year ahead and the investment budget increase driven by the strong growth opportunities that we have. In that range of $800 million to $1 billion of investment, about 65 to 70% would be for growth and about 30% would be for maintenance.

Now, I will conclude by again confirming our medium-term targets. We believe we are clearly on track to achieve greater than $11.5 billion of revenues by 2010 and to achieve each year earnings after tax growth of low to mid-teens. So thanks for your attention and Ben and I will be happy to answer any questions that you have.

Great. Thank you, Larry. Thank you, Ben for the presentation. So the first question comes from Oliver Reinberg over here.

Thanks. I have two questions firstly on the EPO issue. You report in the fourth quarter a difference between the reported rate and the adjusted rate for the EPO effect of 5.3%. Could you probably split that up for us? And how much of that is coming from price reduction last year and how much of that is actually the underlying decline in the EPO volume we've seen? And the second part of the question would then be do you think you are seeing the trough in the actual volume of EPO being [ablniss in] patients him or is it still crash level? Or have you actually seen with the label confirmation last year that that's also marked the trough there?

The second question would then actually be on the private payor side. You obviously have seen or have delivered a very strong impressive performance last year. Do you expect this to continue in 2008? And what do you think what are you doing better than your competitor, which obviously seems to struggle a bit more there? Thanks.

So on the difference that we saw for EPO, about a third is due to the reimbursement reduction, the so-called ASP reduction, and about two-thirds was due to utilization. I think that was the whole question. I think you also asked have we reached the trough or can we confirm that we've reached the trough and yes we do. And I think Ben -- second question was on private payors and whether we expect to continue the trend.

Yes, as far as the private payor mix, again, there's no question that it's always a challenge, but I think we've demonstrated over the last couple years a continued increase in the mid single-digits and that's what we showed you here. So again, it's not easy. It's a day by day activity, but we see that we are comfortable that we've got the team that can do that, and we are continuing to expect that type of reimbursement.

Just as a quick follow, can you comment what do you -- or can you offer more to private payors in comparison to DeVita, who obviously is charging more there?

I don't think I should. I think DeVita has a very good team also. Again, it's in the best interests of both companies to be paid fairly for the services that we're providing. And I think at the same time, as you can see from our quality numbers and you can see it from DeVita's quality numbers, we're actually saving the payors considerable expense by decreasing the hospital days. So I think we're all lined up on this issue, and that is that we want to be paid fairly for services and it is in their best interest to do that because we can save them additional costs since we are only a third of their cost to treat these stations.

Oliver Kammerer.

Three questions on the Renal Solutions acquisition. First of all, as far as I'm aware, the alien system isn't yet approved for home use. When are we going to expect or are you expecting that to happen so that you can market it actually at home? Secondly, you are quoting a quite extensive patent estate around the sorbent technology. Now I've read that [Corporal] is also developing a machine based on sorbent technology. Is that just wishful thinking from their side or is there anything to it? And as well at Eastern, I've heard some noise in the U.S. that the next stage together with DeVita is doing away with some of the your private payors over to their home dialysis machine next stage one. Is that gossip? Is there anything to it?

Okay. Let me answer those in reverse order. I think that might have been the objective, as you can see from our -- basically our underlying increase in revenue per treatment. We believe that that's probably not been that effective at this point. As far as the company that you mentioned who has intellectual property in the sorbent area, I didn't catch the name, but we looked pretty carefully at the package, the intellectual property of Renal Solutions, and it's a very good package.

And finally, the reason that we basically are interested in Renal Solutions or were interested in it is that we have the very extensive machine technology that we would like to couple with the sorbent technology that's been basically proven for the last 20 years. However, their alliance system is basically in a IDE study phase right now, qualifying it for the home and that program has been running very well.

So essentially, we will continue that because, again, we're very interested in getting the sorbent understanding, the current system they developed and also improving on it with our own technology.

Next question comes from Holger.

Holder Blum, Deutsche Bank. Just quick P&L questions. On corporate costs which had been quite high in the fourth quarter, is it the end business or any special numbers in there? All the R&D was fairly high, does it put to rest that you would rather have a little bit of space left in terms of earnings flexibility although going forward with regard to the SG&A line maybe as well, it was very low. Is that percentage-wise sustainable going forward?

I'll let Larry take that one, okay?

Okay. I think a couple of things that are common to both the corporate line and the R&D line is currency effects. So as the euro strengthened throughout Q4, that certainly had some effect. In addition, in corporate, we have -- as part of the R&D increase, we have begun to have some global R&D projects that are now flowing into corporate and more so than we did in the past. We always had a minor amount of R&D included in the corporate budget and the corporate expenses, but that's been increasing over time as we have identified, and we now have more and more global R&D projects. And one such project is RSI, and we started to see that in Q4 and we will see that as we go through 2008.

In terms of the R&D line, we did have again RSI just towards the end of '08. We also had the currency effect. We also had significant expenses associated with launching new products, among those some final launch costs for the 5008. We also had some increased costs related to the renal drug initiative to Renal Pharmaceuticals, one of which was a milestone payment for the PhosLo acquisition. So it was really a number of things affecting the corporate line and the R&D line.

The SG&A line is perhaps a little bit misleading. It looks like it's kind of come down dramatically from Q4 of 2006, but in Q4 of 2006, we had very substantial onetime effects, in particular most of the restructuring costs that we booked for Renal Care acquisition came in Q4, and so the progression was not as dramatic as it looked like.

However, I will say we are making substantial progress on SG&A in terms of controlling costs, and I think we're doing that very well in the international area as well as in the U.S., and that's one of the contributors to the margin improvement that we've had.

And Holger, as we look at 2008 going forward, we will break the corporate R&D out of corporate so you can see that because it's now becoming a more visible package.

Next question for the audience if there is any. M. Possienke over here.

Martin Possienke, Equinet. Just a follow-up on costs. A strict cost management has been one of the most important margin drivers in Q3 and Q4 at least in North America. Maybe you can comment on what drove the cost per treatment down to minus 1% to $263? And maybe you can speak about the future, what or how shall we expect this figure to develop in the next couple of quarters?

Actually the primary factor, it was about a 2% reduction compared to Q4 of last year. The primary factor again was EPO utilization. Not only did we have slightly lower revenues because of that, but of course, lower costs because as we use less, we have to buy less. But other factors were, again, the incremental improvement in labor hours per treatment and also the mix within the labor hours per treatment was quite good. And we also had a benefit in terms of employee health costs in Q4.

In terms of the future, I talked about the carryover effect in 2008 of the lower utilization that we've seen in 2007 of EPO and that is going to limits cost increases again in 2008 so that we might expect on average for the year only about a 1% increase or potentially flat in terms of costs for the year 2008.

Next question from the audience? There is no further question in the audience, so I think, operator, we can open up the audio lines for questions from the Internet.

(OPERATOR INSTRUCTIONS). Ed Ridley-Day, Lehman Brothers.

Thank you very much. First of all, the follow-up on some of the points made previously regarding the U.S. performance. Relative to your competitor, would you say that you -- you've been able to take share from them in some areas? There have been some fairly well publicized areas where DeVita have had problems and can you comment on that? And also in terms of the bundling in Europe, Portugal obviously is a very positive step. Could you give us an update on where you see the situation in France and Spain and Italy and how soon you can see some of the moves in those countries?

Yes. This is Ben. Let me take the -- I don't think -- again, if you looked at DeVita's same market growth, it was 4.6%; ours was 3. This is not about cannibalizing anyone's footprint, so I don't think there is any issue at this point between the two companies on that one.

As far as the, where will the bundling program go, I think Emanuele Gatti and his team did an excellent job in Portugal. We clearly would like to see the activity move to Spain. We have a very significant service market share in Spain. So we're really looking at where we have a position of significance in terms of the service business. That's the governments that we will work with trying to bring this improvement in payor mix. So we are not focusing on every country. We are only focusing where we've got a significant presence.

Okay, thanks. But just a quick follow-up on the de novos. I think Larry highlighted it, but can you just repeat the number of de novos you worked on in the U.S.?

The de novos in the U.S. for 2007 was 51, I believe, and we have a target of 80 for 2008. Again -- 138 for the whole country and basically 80 in the U.S.

That's right; thanks very much.

Jack Scannell, Sanford Bernstein.

A couple questions. First, just trying to understand the EPO dose reduction in the U.S. Now I'm just trying to do a quick sort of back of the envelope calculation based on your slide 11, showing the rate increase without and with EPO. And it looks like EPO revenues have come down by something in the sort of high teens range. Now there has been clearly a bit of a price reduction, but I would suggest a sort of -- at least a double-digit decline in EPO dosing year-on-year, and I would just be interested to know whether that's kind of broadly in line with your assessment. And then secondly, I'm just going to ask the sort of periodical, standard questions about political issues in the U.S. I know there have been no comments so far and I wonder whether I should interpret that as meaning that we should basically ignore Washington D.C. until after the presidential election.

This is Ben. I don't believe that EPO calculation we're at that point at all. We see year-over-year about a 3% I think change in dose; so I'm not sure how you get to 15, but we can do that off-line.

As far as the U.S. government, as far as legislation goes, we feel that there will be some legislative vehicle between now and July, we believe, for the physician fee fix. The question is really whether there will be an extended Medicare bill go along with that. We certainly have I think some bipartisan support for some of the programs we talked about last year, but it's just too early at this point to see what type of vehicle is available. That probably will become more visible in March or April of this year. So definitely we believe that we would like to see an increase in 2009 as far as Medicare, but at this point, it's too early to really know how this is going to develop.

So maybe I just will make a comment on the EPO dose because I think people tend to always think about the reduction in utilization, and that has occurred, but there's been an important second effect, and that's been a reduction in the ASP plus 6; so the reimbursement level based on the ASP plus 6 formula from Medicare, which was reduced about 5 to 6% as the government in the middle of the year decided to factor in Procrit, which is only used in oncology, but is also a form of EPO, together with Epogen, and that reduced the overall reimbursement rate by about 5 to 6%.

That effect, in addition with the utilization, are the two effects that you have to consider when you think about the whole EPO matter for 2007 and going into 2008.

Just quickly coming back to the Washington D.C. thing, are you suggesting that a modest inflation adjustment may be more likely than anything more substantial this year, or are you suggesting that essentially it's clearly unclear until next year?

Clearly, I'm saying it's unclear. But I think MedPAC came out last year and recommended a 1.2%, and MedPAC again recommended around a 1% this year. So, not having received an increase in 2008, we believe that there will be some interest in what MedPAC is recommending, and that is that there will be something in the 1% to 2%. The vehicle that it could be attached to is a physician fee fix, which is a midyear-type activity. But it's just too early for us to know how this will unfold. But that's the reason that I believe their own independent studies would indicate that there should be at least some increase in 2009.

Ilan Chaitowitz, Redburn Partners.

A few questions -- just with regard to your bottom-line guidance, if we incorporate the tax benefit, the currency gains and also the more favorable interest rate environment, that's about a 3% boost, again on a back-of-envelope calculation, to this year's bottom line. Then you've got some acquisitions factored into your top-line guidance, which will be another 1% to 2%. So that is about a 5% boost from nonoperational drivers. Does that, then, imply that you see the core business slowing down on an operational basis in 2008? That's the first question.

Related to that, I guess, is what sort of margin improvements do you think are likely for this year and going forward? That's it for now. Thank you.

Ilan, what I would do is say we're not giving specific guidance on operating margins, but I will reiterate the guidance that we gave on our capital markets day of a 20 basis points on average per year improvement in operating margin. So that might be somewhat more, as it was in 2007. Again, I mentioned the underlying improvement was about 40 basis points. Some years, it could be slightly less, but on average, 20 basis points.

I'm not sure that I can replicate the exact calculation that you've done. I'd be happy to go over it with you off line. I think all those factors have been considered, and I would not necessarily think of 2008 as being a slowdown compared to 2007. Remember, in '07, that we had the benefit of having, for the first time, RCG for the four quarters of the year compared to three quarters in '06. We also were not done with the integration program and so had not completed getting all the synergies that we would get until mid to late 2007. So that's something that won't repeat again in '08. But nevertheless, I think the underlying business for '08 is quite strong, and that's evidenced by our EAT guidance.

Just one last question, then, on the hemoglobin uses -- even with the recent pullback in the U.S. on EPO, there still seems to be quite a big disparity between dosing levels as you report, where the U.S. is and in Europe. Can you give a bit of color as to why those discrepancies exist and why there shouldn't be a further pullback to where European levels are currently?

Yes, this is Ben. I think that, as far as the guide or the target, most of the physicians would shoot for a 11 to 12 hemoglobin level and, of course, essentially try to get as many patients above 11. If you notice the chart, in our European theater, we're clearly at 72% above 11. So we still have some room to go and that is the reason that we are working with Amgen and the European Group, is essentially working on programs to continue to improve the outcome. So I believe, in the U.S., and you notice that from the CMS final EMP, they basically have pretty much completed their review of this. They're comfortable that whatever we do to get the patients above 11, we save expenses in Part A. And so this has been totally vetted. So I think the U.S. is pretty much done in terms of what's going to happen in EPO utilization over the next few years.

Now, we certainly have opportunity to improve in Europe. But at the same time, we have much better nutritional status in Europe, and those two play off, also, in the actual utilization of EPO. So our feeling is that we're pretty much over discussion in the U.S. for ESRD as far as, essentially, EPO utilization.

Martin Wales, UBS.

Could you just talk a little bit about where you go next with your renal drug initiative? Obviously, you have had some success in getting the price of PhosLo up. But what should we look for from here, in terms of achievements, both at the existing franchise? And what would you look to add next?

Yes. As I think I mentioned in third quarter, we have, in the U.S., been actively trying to maintain market share and increase the value of PhosLo with the additional calcium balance opportunities, closer to the competitor, and we've made good progress in that area.

As far as going beyond basically the phosphate binders, we felt that, during 2008, our target would be to see if our therapy, our pharma-tech therapy, were capable of essentially getting those points across with the physicians. I think we're making progress in the U.S. in that. So I think, right now, we have a pretty full plate for 2008. However, if something came along that was exciting to us, we wouldn't hesitate to do something with it. But at this point, we're pleased with where we are with the phosphate binders, but we've got more work to do.

The second question on the product side -- I'm sorry if you said this and I missed it, but what are you seeing as a result of Gambro's return to the U.S. marketplace?

That's a hard question to answer without seeming arrogant, and I don't want to seem that way. Basically, their return to the marketplace in the U.S. hasn't been totally visible to us at this point in time. Now, that doesn't mean that they're not planning to return, and we certainly would welcome a good competitor in the U.S. in the machine business. So at this point in time, it certainly didn't influence our machine sales during 2007, and we haven't seen an indication, based on the orders we have for 2008, that it will impact us short term.

The final question is your major competitor has made reference to 2008 being a period of above-average uncertainty, to quote him, in the dialysis service market in the U.S. You don't seem to see it as any more or less uncertain than previous years. I'm just trying to reconcile the two statements. I know it's perhaps unfair to ask you to reconcile them, but what are your thoughts on the level of certainty in the U.S. marketplace in the dialysis services area?

I think that, again, that statement is probably credible because one of the uncertainties that we have is what will be the return ramp in terms of dosing of EPO. I thought it would basically start to return in fourth quarter, but it didn't; it bottomed in fourth quarter, we think. So I think that's part of the uncertainty.

Clearly, we have a legislative opportunity again in 2008. Also, I think there is a -- sorry, that's a credible statement. However, I think that FMC, with essentially a products business and a very strong international business, is in a different space maybe than a pure service provider in the U.S. So there's certainly credibility, then, on your interpretation of both companies.

(OPERATOR INSTRUCTIONS). Gary Lieberman, Stanford Group.

At the risk of beating a dead horse, I'll ask you another question on EPO. You pointed out that, in the fourth quarter, the percent of patients with hemoglobin greater than 11 stayed roughly flat at about 80%. Also third-quarter/fourth-quarter ASP was pretty much flat as well. So can you just help reconcile for me I guess this decrease in EPO utilization that we're seeing there, despite the number of patients that have a hemoglobin greater than 11? That would be helpful.

Actually, when we saw that in December, it was perplexing to us, too. What we finally were able to uncover was that, because the EMP was essentially known to start January 1 in terms of reducing the nonresponders from 500,000 units a month to 400,000 units, and clearly CMS had come out and talked that their program is, after three months of being above 13, you essentially have to put it on hold, the patients on hold, with respect to EPO.

So what we found is in many of the physicians, once essentially the FDA advisory committee was done, was completed in October, they knew where they wanted to go but they clearly knew that we were facing, in January, this EMP program. So, what we found is that the dose on the nonresponders, which were already below 11, was reduced. So you didn't see it in your basically sub-11 for third quarter to fourth quarter. Then there were some held doses that, at the top end, which didn't knock them out of the sub 11 either. So that's really what we finally determined happened in fourth quarter.

Then just as a quick follow-up to that, you're not concerned that you continue to see I guess this sort of exaggerated impact, for lack of a better word, on this hypo-responder class or this class that has a hemoglobin greater than 13?

Actually, we have been tracking it pretty carefully. What we found is that we will probably go back to what we did a few years ago and run hemoglobins every week because what happens is that you can then essentially titer closer to the 13. We feel that, at the low -- the nonresponders, most of the physicians clearly are very much interested in providing the EPO because, clearly, it's a better outcome for the patients. But if we are restricted at 400,000 units, that's where they are. We think that has washed through and we're starting to see basically doses tick up in January.

Just one quick follow-up -- I think I heard a comment that there was an employee health cost benefit, I believe, in the quarter. Can you just follow up on that and maybe give a little bit more detail?

Yes. We self-insure for the employee healthcare cost coverage in the U.S. Of course, we have a level of reserves that cover the anticipated costs for those, for items that have been -- have already occurred but we haven't yet paid for. As we go along every quarter, we review the level of those reserves for their appropriateness. Sometimes they're a bit too much, sometimes a bit too little. In the fourth quarter, they were a bit too much and so we were able to take some benefit to the P&L.

Is there a dollar amount you can give on that?

I'd prefer not to give an exact amount. It's not a material amount. It's in the single-digit million dollar amount.

Hans Bostrom, Goldman Sachs.

Good afternoon. I had three questions. First, under the caption "Patients, Clinics and Treatments" in your press release this morning, I'm having some trouble reconciling the 3% growth in clinics, 3% growth in patients and then the 9% increase in treatments. Can you help me out how that is possible?

Secondly, you have talked about your dividend payout ratio being -- you're obviously increasing the dividend. But if you look at the dividend payout ratio, it has declined quite significantly from nearly 30% some five years ago to 22%. Is 22% a ratio that we should forecast for the future? Is there a risk for a further decline in the future years?

Lastly, if you could quantify the basis point improvement you expect in average borrowing costs for 2008 over 2007, that would be very helpful. Thank you very much.

Basically, the first question was the 3% growth in patients, the 9% growth in treatments?

Yes.

Okay.

Hans, I think we have to just take a look at what you're looking at and maybe come right back to that.

But in terms of the dividend payout ratio, this year, with the 15% increase, we're pretty consistent with previous years at being right around the 30% level, in fact right around 33% payout ratio for 2007. So I'm not sure where you are calculating the 22% from.

In terms of the interest rate benefit that we expect for this year, we were in roughly the 6.75% range, on average, during 2007. In '08, we anticipate, if variable rates stay where they are now, to be in the 6% to 6.25% range for the year.

Come back on the treatment numbers. Thank you.

What we saw was a clinic growth of about 6% for the year, and I believe the treatment was in a similar number. So the 9% doesn't ring a bell with me at this point in time. Okay?

I tried to read it through in the statement, but it didn't read as if -- I'm talking about the North American performance, not the global performance.

Yes --

Hans, again, I can't quite locate what you're referring to, but we had 3% same-store growth and also about a 3% increase in the clinics in North America.

I suppose what my drift is -- there has been no change in the number of treatments that each patient is eligible for. That obviously would be the consequence, if my numbers are correct.

[If] that's the case, there are a few patients with every-other-day treatment in the U.S. But it's not that significant, so it's pretty much still three times a week. Go ahead, Larry.

I'll have to come back to you on an exact answer for that.

The last question we had from the Internet audience -- I have one question, actually, for Larry from the Internet, and that's the last question we have, in terms of, if you could comment, actually, on what kind of foreign currency exchange rate expectation has been factored into our guidance for 2008?

The answer to that is right about the current level at EUR1.47 and pretty consistent in terms of other currencies, but the most important one is clearly the Eurodollar assumption, and that's what is assumed for our guidance.

Okay, if there are no further questions, I would like to close the meeting, actually, for today. Thank you very much for coming. Ben?

Hans, this is Ben again. Basically, what you're dealing with is we had one quarter of essentially RCG in there, and that's why the treatments. But the same-store growth essentially was the 3% same-market growth, and essentially that's the number. So the 9% reflects the first quarter of RCG, first quarter including RCG, for the first time. So there has been no change in, basically, number of treatments.

The last point, I think -- did we answer as far as the interest rate? So, again, I think that's what it is. If you have other questions, please give us a call afterwards.

Okay, again, no further questions. So thank you very much for coming. Have a safe trip back. That's it for the meeting.

I have one more housekeeping item. Since we love to entertain you, there's been food and beverages actually being served behind this meeting room. Thank you very much.