Fresenius Medical Care AG (FMS) 2013 Q3 法說會逐字稿

Great. Thank you so much, Patrick. I would like to welcome all of you to Fresenius Medical Care's earnings call for the third quarter of 2013. Also, a very warm welcome to the ones joining us on the Web today. We very much appreciate your interest.

As always, I would like to start our call by mentioning the cautionary language that is in our Safe Harbor Statement of our presentation in the material we distributed today. For further details concerning risks and uncertainties, please refer to our filings, including our SEC filings.

We also provided you with some adjusted numbers in Q3 only in the context of a year-over-year growth rate comparison on a like-for-like operational basis.

With us today are Rice Powell, our CEO and Chairman of the Management Board, and Mike Brosnan, our CFO. That's it already from my end, Rice. The floor is yours.

Thank you, Oliver. Good morning, good afternoon to everyone. Know how much we appreciate your interest in our company and your participation today as we talk about Q3 2013.

First, let me start by thanking our employees and our Management Board members around the world. I know that you worked diligently through this quarter as you have other quarters. And we appreciate greatly the dedication and amount of effort that you've put into taking care of patients in this past quarter.

I am satisfied with the performance that we have delivered this quarter. I think you can begin to see very good growth trends in some of the key areas of our business. And we've been able to do this despite several known issues that have created headwinds for us, such as sequestration, EPO price increase in the US that we talked about back in the second quarter when it became effective. But, we continue to soldier on and to make improvements in our business.

Turning to slide four, I begin my prepared remarks that the third quarter of this year, we generated 7% growth in revenue, generating a revenue number of $3.666 billion.

You can see our EBIT is down 2% year over year at $557 million. And we've also tried to give you some view of what we believe the underlying opportunities in our business are and the performance in our business by backing out sequestration.

We're not suggesting that sequestration isn't real or that it's not a headwind for us. But, we simply wanted to give you a view of how we see this business minus that situation that we obviously had no hand in creating.

And if you allow us to do that, you can see that EBIT adjusted at $576 million generates a 2% growth year over year.

Net income at $273 million, yields just slightly above 1% growth in the quarter year over year. And then on the same convention, by looking at sequestration removed from net income, we adjust to $285 million and a very robust 6% growth under that convention.

Several key highlights for us in the third quarter, organic growth in North America improved to 6%. We're very pleased with that. Same-store growth in the international regions improved to 5%. We've mentioned the impact of the EPO price increase as a headwind.

My last point on slide four would simply be we are confirming our guidance. We've stated that we need a strong fourth quarter in order to achieve that guidance.

And in looking at some of the early reports from several of you today, it would seem that this comment has made you nervous. That was not the intent. I'm simply telling it like it is.

We need a strong fourth quarter. We have plans for how we will achieve the earnings and the sales targets within this quarter.

Simply put, we need to sell to our plan. Everything that we can sell we must. Every treatment that we have planned to make, we must do that. So, we go into this quarter optimistic, knowing that we have lots to do.

But, if you do recall, Mike and I had indicated for you in the second quarter call that we knew it would be a very heavy-loaded back end. We saw improvement coming in the third quarter and a much bigger step in the fourth quarter.

And we believe we're indicating and delivering to you that's exactly the way we see this playing out.

Moving to slide five, let's take a revenue breakdown and look at it on a regional basis. North America at $2.436 billion, you see very good growth at 8%, accompanied with organic growth of 6%.

Looking internationally at $1.222 billion, that generates 6% constant currency growth and a very strong 4% organic growth.

And then as you look at the breakdown by region, you can see we continue to have double-digit constant currency growth in Asia-Pacific, in Latin America, little bit behind in where we would like to be in Europe at 2%, but we'll work our way through that.

And generally, we have not changed in our revenue split across the regions with North America at 66%. And you can see how they break out in the bottom third of slide five.

Now, if we take slide six and we take a moment and we look at the size and the scope of our franchise as it relates to our provider business, we have three key metrics, clinics, number of treatments, and number of patients. And we're seeing good progress in each of those categories.

At 3,225 clinics, it generates 3% growth nine months through the year, so, looking as of September 30 of this year at 3,225 clinics, 3% growth.

I'd like you to pay a little bit of attention and I'd like to give you a little more detail on de novo versus acquired clinics.

As you can see, we are heavily weighting our efforts toward de novo clinics nine months through the year, with 57 up and running as compared to having acquired 40 clinics. And then when you break that down further, you can see the vast majority of the activity in the US has been on the de novo side.

Now, we spoke internationally in the second quarter about the fact that we were behind with some of our de novos. We'd had some bad weather. We felt like we weren't at the pace we wanted to be at. But, we are seeing that improve. You see 22 de novos that were started in the international arena. And I'd like to break that down for you.

That is comprised of 13 de novos in Europe and nine in Asia-Pacific. And of those in Europe, two were in Poland, three in Russia, two in South Africa, and three in the UK. There are a few other individual ones in there.

But, the point I'd like to make here is Poland and Russia are places where we've gotten back on track. We've seen these clinics come up to speed. We're treating patients. So, I wanted to give you a little more clarity in how we look at those metrics.

And again, looking at treatments, we've delivered 30 million treatments nine months -- through nine months of the year, which generates 5% growth. And on the patient side at 266,000 patients, approximately that's generated 4% growth nine months through the year.

Turning to slide seven, we focus on the revenue growth in the services sector of the business. Looking at Q3, $2.813 billion in revenue, that's 9% growth in constant currency, very strong performance in North America at 9% and international slightly under that at 8%.

If you look at the organic growth at 6%, you see the breakout between the regions and then same market growth again at 4%. So, we're happy with the progression in third quarter and how we continue to see the services business perform.

Taking a look at the nine-month reporting, $8.235 billion in revenue, 8% constant currency growth, very strong performance in both regions at 8% and 7%, respectively, for North America and international. Organic growth continues to be strong nine months through the year at 5%. And our same-market growth, again, nine months through the year at 4%, equal weighted between both of the regions.

If we move to slide eight, let's take a moment and look at our quality outcomes. Hard to talk about patients being your first priority if you're not going to look at the quality of the care that you're delivering.

Now, I do want to remind you that we have a new format for this slide or chart, if you will. We are comparing our sales against sequential quarters. We're no longer doing it year over year. We think sequentially looking at it gives us a better indicator of how we're operating. The four parameters or metrics I'd like to look at today are dose of dialysis, hemoglobin, phosphate, and hospitalization days.

So, when you look at our dose of dialysis, you can see that we are very consistent across each of the regions, good stable performance, a little bit of a tick down in Asia-Pacific, but nothing that indicates there's an issue there.

Looking at hemoglobin first at 10 and 12 grams per deciliter, which is the way we view this and manage it in the US, you can see we've actually got some improvement, Q3 at 76%, where we were at 73% in the prior quarter.

Now, then looking at hemoglobin as it's measured internationally at 10 to 13 grams per deciliter, you see nice consistency in EMEA at a high 78% and a pickup and an improvement in Asia-Pacific at 67% for the third quarter versus 65% in Q2.

Looking at our phosphate management, what you see is improvement in the US. You see improvement in EMEA and stability in Asia-Pacific.

And then looking at hospitalization days, lastly, you can see that we have improved in the US at 9.4 days per patient versus 9.6 in the second quarter. You see very stable performance at 9.3 days in EMEA and then continuing improvement in Asia-Pacific at 4.2.

And again, I think I've been asked this before, but let me highlight it. These data that we're generating for Asia-Pacific are coming from seven countries, Korea, Taiwan, Australia, Singapore, Malaysia, Hong Kong, and the Philippines. So, again, Asia-Pacific's a bigger region. We don't have all this data reported. But, the key care markets in Asia are where we're capturing this data.

My last slide, revenue growth in dialysis products, very pleased with how we are continuing to develop in the products area. For the third quarter at $853 million, that's 4% constant currency growth. And you can see a very strong 5% in North America and 4% in the international area.

And on the nine-month reporting view at $2.5 billion, we are consistent at 4% constant currency growth, 3% in North America, and 4% constant currency growth internationally.

As I always do, I'll give you a little bit of a view not on the slide. One of our key measures of how well our products are selling and how well we're performing is looking at the hemodisposables that we sell, generally dialyzers, rinsing solutions or saline, concentrate, bloodlines, things of that nature.

Nine months through the year, North America is at 9.2% growth, almost three times the market growth in North America. International is at approximately 4.5%. So, we continue to see good growth. I believe you'll find these levels are maintainable and sustainable, particularly in the US. And I think we'll even see some improvement in the international area.

Last fact I will give you, it's been awhile since we've talked about renal pharma. But, when you look at our renal pharma business in sequential quarters, Q3 of 2013 versus Q2 of 2013, we're up about 3.3% in constant currency. So, we've seen some improvement there as well.

And with that, I think I will stop my comments. And, Mike, I will turn it over to you to get into more depth and detail on the numbers.

Okay. Thank you, Rice. Turning to chart 12 in the material, this is the third quarter profit. Rice spoke to the quarter on the revenues. So, I'll move to operating margins.

Despite a revenue growth, as Rice indicated, operating earnings were down 2% or $11 million to $557 million for the quarter. This was principally due to two overarching effects, the first, a 4% decline due to sequestration. This was a $19 million impact on operating earnings in the quarter.

And the second is an increase in performance of 2% operationally. This change was driven by an increase in North America's operating earnings after considering the effects I just mentioned of $15 million and improvement in international, which is up [to] $9 million.

These increases were partly offset by an increase in corporate spending of $16 million. And I'll provide some additional detail to this.

First, to the margins in North America, those margins were off about 160 basis points, largely influenced by the effect of sequestration, which contributed 60 basis points to the decline. And the remaining decline in margins from an operating perspective of 100 basis points reflects revenue improvements and cost increases.

If I look at this from a rate perspective, in North America, operating income was influenced by an increase of 3% or $10 per treatment in the US revenue per treatment, moving from $359 per treatment last year to -- about $349, excuse me, to $359 currently.

This increase was driven by continued growth in our expanded service offerings as well as the Medicare increase. And this was partly offset by the increase we had on sequestration and an unfavorable payer mix.

In addition, we had a number of pricing effects, as we've said in past quarters, that will annualize out this year. We will continue to see some of these pricing effects through the end of the year as these arrangements annualize and as patients are assigned to the contracts.

Having said that, however, on a sequential quarter basis Q2 to Q3, we saw an improvement in margin per treatment over the second quarter by $2 a treatment. And we expect to see continued improvement in this regard in the fourth quarter.

Turning to cost per treatment, first, let me talk about the sequential quarter development on the cost side from Q2 to Q3. We saw a $2 increase in cost per treatment from $293 per treatment from $291.

Again, that was associated with our expanded services to support the increased revenue rate, increased cost of pharmaceuticals associated with the Amgen price increase, as well as seasonal flu vaccines.

And that was offset by improvements in our labor. This is consistent with the indication we gave in the second quarter, where we said we would expect to see increases in the cost per treatment up slightly on a sequential basis in the second half of the year.

Looking year over year on a cost-per-treatment basis, you can see it behaving as we guided in the second quarter, with an increase of $12 per treatment.

Largest element in this cost was associated with the growth of our expanded services. Beyond that, our cost increased due to labor and the timing of some of our charitable contributions.

Last, we are seeing an increase in corporate spending in North America. And this is related to the legal costs as we respond to, increase, and prepare for the issues related to the Naturalyte and Granuflo products.

On the international side, margins were down slightly 10 basis points. This decline was due to an adjustment of our bad debt expense in the quarter and also some minor cost increases which were partly offset by favorable foreign exchange.

On a sequential quarter basis, international margins increased 30 basis points. And this was mainly due to the -- excuse me, decreased 30 basis points. This was mainly due to the summer shutdown of our production facilities.

Global corporate costs have increased $16 million. Most of this increase relates to the increased consulting and legal costs related to our global efficiency program, the costs associated with improving our global compliance program.

When these costs are combined with the preparations in North America for the Granuflo matter, it does represent a headwind to our operating results as we finish out the year.

It's not on the page, but just a brief note on interest and taxes. Earnings in the quarter did benefit from interest costs being slightly better than the prior year due to lower rates and a slightly lower average debt for the period. The quarter also benefited from a reduced tax rate due to tax benefits associated with our internal financings.

Reported earnings, as Rice indicated, were up 1%. Adjusting for the after-tax effect of sequestration, that's 6%. Earnings per share on a comparable basis were up 3% from $0.91 per share to $0.95 per share. This reflects the benefits in the quarter of our share buyback.

Turning to chart 13 and the nine-month results, you can see, as Rice indicated, growth of 7%. Operating earnings were down about 4% or $64 million to $1.595 billion. And again, you see principally two effects. The first is a 3% decline, or $45 million, due to the special items in both periods for the transactions we recorded related to the Liberty acquisition and the remaining interest of RAI. That's about $6 million and also considering the impact of sequestration, which was $38 million for the nine months to date.

The second decline of $20 million, or 1%, was operational. This change was largely driven by the increase in corporate spending for the reasons that I just indicated, an improvement in North America's operations on a year-to-date basis of 23, and a flat result in international earnings on a year-to-date basis.

Again, just quickly commenting on the margins in North America and international, we do see a 160 basis point decline in the North American margins. Again, this was largely due to the special effects of Liberty and sequestration. And the remaining decline from an operating perspective is 110 basis points.

In North America on a year-to-date basis, you're seeing a 2% increase in rate. So, we are seeing improvement in revenue per treatment as we get into the third quarter and the back half of the year. The increase was largely driven by the same factors as I indicated for the third quarter. And on the cost side, consistent with what I've guided to, you see an $11 per treatment on a year-to-date basis, again, largely influenced by the same cost factors that I've mentioned previously.

International margins were down 70 basis points. This was generally the result of foreign exchange, particularly as it relates to the devaluation of the Venezuelan Bolivar. The remaining effects were simply cost increases greater than the reimbursement increases we experienced in some of the international markets.

Global corporate costs have increased about $44 million, again, largely due to the same effects that I've mentioned for the quarter, in addition, some of the costs that we're incurring for the global efficiency program that we'll be discussing at Capital Markets Day next year.

Interest and taxes, again, the period benefited from slightly lower interest costs related to lower rates, largely a consequence of some interest rate swaps that expired in 2012.

At the same time, we did see a decrease in interest income because of the retirement of the Renal Advantage Partners note with the acquisition of the Liberty -- or in the Liberty transaction and a small benefit on a year-to-date basis from the note that we closed in the third quarter of this year.

Earnings per share, essentially flat if you look at it on an adjusted basis of $2.57 a share.

Turning to chart 14 and starting a discussion of cash flows, you can see very strong collections in the third quarter, with improvements in North American of 3 days and improvements in international of 2 days on a sequential quarter basis.

International was driven by collections in Italy, which were approximately $27 million. We are at a level where we may see days move up and down slightly. But, there's nothing really extraordinary to report here in terms of dramatic changes as we finish out the year.

Chart 15, just a short comment on the share buyback, we did complete it on August 14th. We bought back roughly 7.5 million shares with an aggregate value of EUR385 million.

That will leave us with ordinary shares outstanding as of the end of the quarter of $300.8 million. And as you know, the program was financed by cash flows and our existing credit facilities.

Turning to chart 16 and cash flows for the quarter, the underlying performance for both years is very strong. 2013 operating cash flows are 17% of revenues, slightly better than last year. This was the improvement as a -- of the DSOs that I just mentioned and the timing of some tax payments in North America. So, there's nothing of concern in terms of operating cash flows for the company, as can be seen in the quarterly performance.

CapEx as a percent of revenue is in line, the split between maintenance and expansion capital at historical levels of 60% maintenance, 40% capital expansion.

We did spend just under $200 million on acquisitions and investments in the quarter. This was principally due to an investment in a middle-market dialysis company in the US in the form of a loan, which we've disclosed in our 6-K.

Cash flow for the nine months, turning to chart 17 -- excuse me, it's at the bottom of chart 16. You're seeing a slight decrease in operating cash flows on a year-to-date basis, largely reflecting the cash payments we made in the first quarter to restructure our [IB Iron] during the -- with American region.

You're also seeing the relative performance of DSO for the two periods being slightly down in the current period. And you're seeing the offset of some tax payments that we made year over year.

Capital expense is in line with the historical norms. And acquisition spending on a year-over-year basis essentially reflects the large transaction we closed last year for the Liberty deal.

Turning to chart 17 and taking a quick look at leverage, have $8.4 billion in debt, essentially flat on a year-over-year basis and up slightly from the second quarter. Our leverage is expected -- is as expected and within guidance of 2.9 times.

Our ratings do show some activity, largely as a consequence of the acquisition contemplated by the Fresenius Group. Moody's has moved from a positive to a stable outlook. And Finch is in the process of reevaluating our ratings in connection with that transaction.

Turning to chart 18 and a quick comment with regard to our guidance. Rice has already commented that we're confirming it. Last quarter, we confirmed it as well. And we indicated we have a number of elements that we believe would improve the back half.

We are seeing Q3 earnings in line with our expectations. So, we are confirming our guidance for the full year.

Fourth quarter will be influenced by an additional dialysis day. It will be influenced by a benefit on a sequential quarter basis in comparison to quarter three because of the -- there is no manufacturing shutdown in the fourth quarter.

We will have a benefit related to the sale of some facilities in the fourth quarter. And that benefit will be in the range of $15 million to $25 million of operating earnings.

This then presents us with a performance range of revenues greater than $14.6 billion, net income of $1.1 billion to $1.15 billion. And I am indicating that I believe we'll be at the lower end of that earnings range.

So, that concludes my prepared comments. Oliver, I'll turn it back to you.

Great. Thank you, Rice. Thank you, Mike, for the presentation and for the update. I think, Patrick, we are now ready for the Q&A session. I try it again this quarter, where I would like to ask everybody to ask max three questions and then queue up again so that everybody actually has a chance to ask questions because we've seen that a lot of people actually queued up already. So, I would appreciate if we could at least try. Thank you so much.

Thank you. (Operator Instructions). And our first question today is from Lisa Clive from Sanford Bernstein. Please go ahead.

Hi. I'll keep it to three questions. Number one, your European growth at 2% constant currency, could you give us a split between services and products there and give us an idea of really where the weakness came from and how soon we should expect that to rebound?

Question number two, if you could just give us an update on your ancillary services revenues. I believe, on the last conference call, you mentioned Fresenius Rx had -- was probably going to get to 40,000 or 50,000 patients by year end. Just wanted to know how close you are to that and what we should think about for the trajectory of that business into 2014.

And then last question, could you give us an update on home dialysis? What percentage of your US patients are treated at home? And if there is a big Medicare clawback, is that something that can be accelerated in the next 12 months?

Hey, Lisa. It's Rice. I think I'll take all three of these questions that you have. So, first, on the European growth at 2% constant currency, as I know you know, I'm not going to give you a lot of detail on the breakout. But, what I would tell you is, in broad terms, we're probably not where we'd like to be on the product side of that. We're seeing better performance on the services side.

A follow-on question that I would anticipate you wanting to know is just simply that, when you look at where we are with tenders, keep in mind that tenders don't -- when you win some tenders, which we have done, we indicated to you that we had in the second quarter, you don't always begin to fulfill those immediately. We have some cases where we won a tender, and then we began to shift product a quarter or two out. That will be the case as we look at the fourth quarter of this year.

For instance, we've got about 600 machines are going to be going to Turkey on a tender in the fourth quarter, even though we've had that tender since the middle of the year. And just, it's a fulfillment schedule that they sort of dictate; we don't. But, clinics is fine. Products has to pick up. And I believe they will.

On the ancillary services revenue, you and I did chat about that last time. What I would tell you, think in terms of Fresenius Rx. We're hoping to be somewhere in that 40,000 to 50,000 patient range. I think we've got a very good chance of getting there. We're in the high 30s now.

Think of that book of business somewhere between $270 million, $300 million this year. Not sure I want to peg a number going into 2014 just yet. But, I do see good growth there as well as with vascular access in the lab businesses. They're going to contribute to us I think in a very nice way for this year stepping into next year as well.

And then your last question on home dialysis, now, as you know, when I say home dialysis, generally, we're talking 99% of that is PD. We are approaching the 10% census mark. A year ago, we were at about 9%. So, we're seeing growth there.

So, I think that that business is working well for us. And as you know, not every patient is necessarily a candidate to go into PD. You need some residual renal function. You need a lot of training. There's some things that have to go in there to -- for that patient profile to work on a home therapy. But, we're still bullish on the therapy. And we continue to see it grow.

Sorry. Just one follow-up question. You mentioned Fresenius Rx getting to the $270 million, $300 million range for full year. Can you give an update on where vascular access is as well?

Sure. I think vascular's going to be somewhere approaching $200 million in this year. And I think that's pretty consistent with what we had looked at midyear when you and I spoke about it last.

Okay. Great. Thanks.

Sure.

Our next question comes from Michael Jungling of Morgan Stanley. Please go ahead.

Great. Thank you, everyone. Firstly, I've got a question on the pending CMS decision. What are your thoughts about a one-year cut versus a phase in over three years? What is sort of the latest sense that you've got from Washington?

Secondly, also in relation to the pending CMS decision, and I'm also more so interested in the timing of the response that you could have. So, if CMS cuts at a certain rate, how quickly can you react to potential outcomes? So, effectively, do you have like a plan A, B, C, and D that you could immediately pretty much respond to?

And then the third question I have is in relation to EPO alternatives. If you wanted to switch to an EPO alternative, how much clinical data do you think you would need in the United States before you would commence a switch if there was an EPO alternative available? That's all. Thank you.

Okay. Thanks, Michael. You guys aren't working Mike hard enough today. I'll take these, Mike. And then the rest of them are going to be yours.

Thanks.

So, on the CMS decision, you know as much as we do relative to, with the government shutdown, it would appear it's going to be right before our US Thanksgiving holiday, November 27, before we really find out what the final rule is going to look like.

As opposed one year versus a phase in, as I said earlier, a really bad number, if this really goes against all the efforts of the industry and we get a really bad number, a bad number is exactly that. Phasing a bad number over three years does not do me anything, doesn't give me any favors. So, it's really going to depend on where this comes.

And what are we looking at in terms of the reimbursement cut? Michael, we just don't know. I have no more insight today than when I had a chance to visit with you over the summer as to where this may go. We're just going to have to see where it comes out.

What I would tell you is, yes, we've looked at scenarios. We've made some assumptions about dollar levels and one-year phase in, three-year, how we would approach that. We're working those things as best as we can. But, obviously, scenarios are just that. You need a real number to know exactly how you're going to react.

If it's draconian and we're looking at cuts, closures, things of that nature, we're looking at those things. We'll communicate them to you when we've been able to get our sales organized as to how we're going to do this.

The thing I think everybody has to realize is that some things that you do for mitigations are much easier than others. But, if a mitigation really means that we're going to close some clinics, we've got to find homes for those patients. We have things that we need to do.

One of our advantages, though, is the very large footprint we have in the US and being able to selectively perhaps not be in a location but be able to move patients to a closer location, if you will.

And then relative to an EPO alternative, I like how we're dealing in the theoretical on this one. What I would say to you is, yes, we would do a clinical study. Let's, for instance, say, if this was Mircera, which is a product that's already been approved in the US but hasn't come into the market based on the patent settlement, we would still run a clinical study.

I think people have to recognize that there's some significant differences in dosing in Europe versus the US based on practice patterns and the demographics of patients. Patients in Europe, average age is 64. They're a little younger in the US at 62.

One of the biggest difference is simply that 58% of the patient base in the US is diabetic. In Europe, it's about 30%. So, we would need to do a pilot, not necessarily to prove safety and efficacy, but to get dosing down, to understand what the dose titration is between European experience and the US experience. And then there's just the logistics of moving a different drug and a different algorithm into the clinic.

So, all of those things need to go into our thinking about pilot studies, Michael. And quite honestly, given what we learned with Omontys and the way we went about that and the benefit that we got from having done that study, we would always plan to do a pilot. There may be different reasons from one product to the next. But, I think there's just great experience that we'd want to get from doing that.

Rice, just a follow-up question on the different response rates. If the cut comes out, let's say, on the 27th, are you able to put everything in place pretty much to have a full-year benefit of your reactions to the bundle 1 January 2014, or could it take six months before you feel that you are ready to make adjustments post the CMS decision?

And then on the EPO alternative on Mircera, when do you think you'll start your pilot study?

All right. Let me take the second question first. We're talking theoretical, as you know. So, I really can't give you much comment on that at the moment. It would be inappropriate. But, we know how we would do it. So, let me leave it at that.

Secondly, there's not a lot on the November 28th getting the final cut and knowing what it is. There's not a lot that we can turn on a dime and have done by January 2nd. There's going to need to certainly be time that goes on in between there. And months is probably the right way to look at that.

But, keep in mind how much we do really will depend on where we come out with the cut. And is it, as I call, draconian, or is it rational or reasonable? We, like you, are anxious to know. But, we're just going to have to wait until we get it.

Good. Very helpful. Thank you.

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

Good afternoon, gentlemen. And thank you very much for taking my questions. I'm actually going to give Mike some work.

So, my first question's just on tax. Mike, I don't know if you have any guidance for the full year. Apologies if I'm missed it in your prepared remarks.

My second question is probably more for Rice than for Mike. But, payer mix, I know when we started out at the beginning of 2013, you were quite keen to see an improvement in the payer mix in the US for the full year.

Mike, I was curious by your remarks to say that it's worsened in 3Q. I don't know if you can kind of give us an update on where you are with those efforts and how we should be thinking about it for the fourth quarter and then into 2014.

And my last question's from the guidance. And if I can just follow up on a few sort of quick points, Mike, that you made in your prepared remarks for the fourth quarter, can you confirm that you had an extra dialysis day this quarter, and you also have an extra one next quarter?

And then when you set the guidance at the beginning of the year -- and I apologize for being nitpicky about this -- but were you anticipating to book this $20 million gain on the sale of the facilities? Thank you so much.

Okay, Mike.

Okay. I guess that you did me a favor, Veronika, give me something to talk about, talk about the tax rate, say that we're at about between 32% and 33% for the year in terms of the effective tax rate, just to give you a sense of how the fourth quarter will round out.

Payer mix, you want to take?

Yes, we did, as Mike pointed out, Veronika, we have been saying sequentially improvements over the last couple of quarters. And we saw a very slight dip this quarter. It is always on our radar screen. I don't think it's a trend that we're going to continue to see. But, we did see a slight dip down.

But, as Mike says, baked into our ability to finish the year strong and get to the guidance, we need to continue to see improvement there. And I know the plans are in place. And folks are working. But, we do from time to time get quarters where things dip a little bit. We're not sure why. And it comes right back where we want it to be. So, I don't know that I can give you much more input than that.

And, Mike, guidance, it was extra day and then on the facilities closure that -- our stuff that we've been working on for a while.

In terms of guidance, we do have an extra day in the fourth quarter versus Q3, which is I think what your question was related to. And that's part of the reason why we can see an improvement or a stronger Q4 in order to finish off the year and achieve the guidance.

Relative to the gain, when you look at our results, it's not unusual for us to look at the franchise and make small adjustments as the years progress. And this is a transaction that we've been working on for a while. So, it has been in our thoughts in terms of something we could do, wasn't as clear to us in the second quarter whether it was something we could get done in the back half or next year.

But, the way I would think of this is, when you -- I've been commenting about some of the increases in our corporate costs. And I view this as the costs have been a headwind to us in terms of our guidance for the year. So, we anticipated some of those costs. But, they're running at a higher rate than we had anticipated in our original guidance.

So, I think of this as a way of mitigating some of that cost increase.

Very clear. Thank you, Mike. And sorry, my question was actually year on year if you get an extra day in the fourth quarter or not.

No.

Not sequentially. No, you have the same number of days in the fourth quarter.

Many days in the fourth quarter.

We had an extra day year over year in Q3. And we will have one more day sequentially in Q4 over Q3.

Perfect. Thank you very much for clarifying. Appreciate it.

Our next question comes from Tom Jones of Berenberg. Please go ahead.

Good afternoon. I had a couple of questions. I'd just like to go back to the progression in revenue per treatment that you've demonstrated in Q3 versus Q2, the sequential improvement. I'd just be intrigued to know how much of that came from vascular, how much came from pharmacy, how much came from the lab acquisition. And then really what I'm trying to get at is, what is the trend that we're seeing in the underlying dialysis treatment beside of the component of the revenue per treatment? So, that'll be the first question.

And then the second question, a bit longer term and maybe one you probably can't answer, given the uncertainty around Medicare rates at the moment, but just wondering how you're starting to feel about capital allocation for 2014. Obviously, you did a buyback this year.

And my guess is that you're not going to be too keen to be buying a lot of clinics in North America next year if the rates aren't so hot. So, I'm just wondering, maybe some superficial thoughts about how you're thinking about deploying your not insignificant cash flows in 2014.

Okay. You want to take Tom's first one, Mike -- ?

-- Sure -- .

-- On the progression?

Yes, in terms of the progression, we are continuing to see good growth in the expanded services. We haven't broken those out historically. And I don't think we plan to do that because we do view the success of those expanded services as really being generated from our core business and our national footprint. So, we are continuing to see progression in that part of the business in terms of rate per treatment.

We also -- as I mentioned, we saw about a $2 expansion in the margin. And we're seeing a contribution in that margin expansion also from the core business, particularly when you look at the commercial business taken as a whole when you look at it both in terms of rate and mix.

Sure.

Tom, on the capital allocation for 2014, you're right. Given what we're sitting here looking at today, I'm probably not going to run out and buy a bunch of clinics in the US. But, as we've talked before, we are really interested in looking at opportunity for acquisition in the international space, as well, globally, if the right technology or product opportunity presents itself.

So, I don't think it's changed a lot since you and I spoke last. You obviously see that we're doing a little more with de novos around the world. We're going to continue to do that. We will have kind of a wait-and-see attitude as to where we go in the US from a clinic standpoint obviously.

And then as you noted, we made a lab acquisition because we really like that geography. There are 20 million people in that New York/New Jersey area. And that type of lab testing's a little bit out of the ordinary for what we do. It's molecular protein testing, kind of general testing for patients.

And with our lab right across the Hudson River, we really get to leverage the asset. We get to learn some new things. We get to form some relationships with other types of physicians. It just really kind of helps us get our toe in the water on, can we expand our lab capabilities, leveraging a very good asset that we have. And it also puts us in a place to learn some things and have some conversations with ACOs in that New York metropolitan area.

So, we think it's a nice way for us to kind of ease into the water, if you will, and look at some things that are a little different, another example of perhaps changing our outlook on capital allocation.

And maybe just the third question, one follow up to one of Michael's ones, you mentioned the term draconian rate cut as one potential outcome from CMS. I just wondered how you'd deal with it if it was truly, truly draconian. My only fear is you'd get stuck in a bit of a holding pattern because, if things are really that bad, then clearly, there might be some pressure coming from Congress to -- or you to Congress to put things right.

Is there a risk that you get stuck in a sort of limbo land where you kind of get a worst-case outcome and that you don't really get certainty about what the rate's going to be, and therefore, you're sort of stuck between knowing what to do on the cost-saving front, but you don't want to do too much in case Congress comes back and puts it all right for April or perhaps a bit later? How are you thinking about dealing with that kind of scenario?

It's a really good question. And here's a case, Tom, what I would say to you is we're really trying to be proactive.

Couple things we've talked about, but let me just update them. We're at a part now where 225 members of the 435-member House of Representatives have put two letters into CMS about how they'd like to see this reimbursement or rebase be handled. So, we've got over 52% of the US House of Representatives have weighed in.

From the Senate side, we have several key senators that have had personal visits and letters written as well. So, we have tried to position ourselves with the industry that we sort of assume worst case. And we're looking at what are the alternatives and how quickly could we try to correct a very draconian situation, if you will.

And I don't want to sell CMS short. Let's see where this actually comes out. But, we're trying to supercharge ourselves so that we can cover the ground very quickly should it come to that on November 27th because you're right. We can't really get stuck in limbo and not be moving forward. We have to be trying to stay out in front of these things and have a plan, assuming whichever scenario comes to fruition.

Great. I guess we'll just have to wait and see what comes.

I think you're right, Tom.

Mr. Jones, does that ask your -- does that answer your question?

Yes, very much. Thank you very much.

Thank you. And our next question comes from Ingeborg Oie from Jefferies. Please go ahead.

Hi, good afternoon. Two questions, please. The first one is on the corporate costs, which are running at a higher rate. What do you anticipate going into next year in terms of the ongoing Granuflo process?

And then second question is on the request for proposal in the accountable care space. Are we going to experience a delay here with everything that's been going on with CMS and with government shutdowns? Thank you.

Okay, Ingeborg. Hi, it's Rice. Mike, you want to talk about corporate cost? And I'll pick up the integrated care.

Sure. Yes, not ready to quite prognosticate corporate costs in total. But, I would say that, when you think in terms of some of the things I've mentioned, in particular the IP costs overall and the Baxter lawsuit and the Granuflo matter in the US, I think we'd expect to see some activity on those matters over the course of 2014. And so, we'll have continued spending on those two fronts.

A little too early to tell what the level of spend would be. But, I think in the case of the Granuflo matter, you're probably looking at something in the 2015 range in terms of trying to bring that to a resolution.

Thanks, Mike. On integrated care, Ingeborg, I think what I would say, generally, yes, I do think we're going to see this slip in time. But, let me come back then and tell you what we do see that I think is somewhat encouraging.

There was a note from CMS that came out a couple of weeks ago where they said they were going to hold the applications that had been turned in for a period of time and that they're going to issue a new request for application after the rebase comes out.

Now, what that tells me is they simply realized many people have been too focused on the rebase to get all the applications in. So, that's pretty commonsensical to me.

The good news is there was a meeting that was conducted this week in Washington with a number of the providers. And there was good engagement and discussion still about ways to make this proposal or integrated care pilot more effective. So, they're still listening. I give CMS credit that they're listening and talking with us. We had some representatives there.

But, if I had to guess, and I guess I will, I do think, if this all kind of sits still until November 27th, 28th, when the final rule comes out, it'll be hard to see much happen before the end of the year because Washington generally is done by the middle of December. So, I do think we may see this slip over a little bit into next year, Ingeborg.

Perfect. Thanks for the color.

Our next question is from Martin Wales of UBS. Please go ahead.

Thank you. Three questions. Well, let's start with following up on your previous comments. I believe part of what CMS was saying was they're particularly interested in tenders from smaller dialysis providers. Should we read anything into that, specifically that they're seeking more from smaller dialysis providers rather than the [elders], should be a case they didn't get enough from them in the past, or well, you tell me. Obviously, you had representatives at the meeting.

Secondly, on the acquisition perspective, you spent $279 million out of a proposed $500 million this year. You still think you'll spend $500 million, given some of the uncertainties around the US?

And finally, I was intrigued on your comments on Mircera and wanting to do a pilot study in the US. I suppose I was slightly puzzled in that, presumably, there are enough 64-year-old diabetics in Europe for you to get a sense of what the dosing looks like there. But, what are the extra factors that would make you believe you need to do a pilot study in the US?

Let me take your first question. And then I'll do Mircera. Then we'll put Mike in on the acquisition piece.

Yes, but, I think we talked about this earlier in the year that CMS was really hoping to have participation in an integrated care pilot from the smaller providers. I think I've given you guys some color all the way back to the very beginning of the year that we were making very good progress with them on the construct of that pilot. And all along, they had said, we really need to see how the smaller providers would work within this system, how they would do this.

So, I think they very much want to see more participation there. We would welcome that as well. So, I think you are right in that that's part of what is slowing us down. And they're looking for more applications.

But, anytime CMS has wanted to talk about the construct of the pilot, we're happy to be there and to give them our input into that. We'll always do that.

Let me hit Mircera, Mike. And I'll come back to you on the acquisitions.

I think, Martin, you've got to appreciate where I'm coming from here. Yes, there are diabetics in Europe. But, it's very different. There's 30 pounds difference on average in a patient in the US versus Europe. And yes, you can call me a fatty, and I won't get upset.

But, key to that is, remember, when you have 2,200 clinics and you're administering Epogen in those and, now, you're going to bring a different molecule in that has a longer-acting different dosing regimen, there's a lot of work that we want to do. And a pilot is the perfect way to do that to logistically understand how you're going to make that work. How does one patient get EPO, another patient gets Mircera, let's say, or Omontys in that case?

We have found through the years it is practical. It is commosensical. And it just makes sense to run a pilot and get to understand all of these various factors working with our physicians. It's just simply not simple enough to flip a light switch.

Many times, when we say pilot, people get confused that they think we're questioning the safety and the efficacy of the molecule. And we're not. It's much bigger than that. There's just a lot more knowledge we want before we step off in a situation like that.

How long would such a pilot have to take because, obviously, you've got access to an awful lot of patients. But, what period of time would you need to run one of them before you could realistically introduce it widely?

Well, what I would tell you is our experience with Omontys is we were able to really ramp that up rather significantly over a three- to four-, five-month period. I won't speculate on Mircera, mainly because I really need to let Frank Maddox, our Chief Medical Officer, and his medical advisory board, decide how they would do that.

But, it's months and not years, obviously. But, the Omontys experience, as I recall that, we got a lot of ground covered and a lot of knowledge -- didn't work out the way we wanted, obviously -- over like a four- or five-month period.

Okay. Thanks.

Sure. Mike, you want to pick up acquisitions?

Yes, Martin, the short answer is, yes, we will spend at or pretty close to the $500 million. But, just to give you a little bit more detail on that, you're right, $279 year to date, and that level of investment does include an investment that we made in the form of a loan in the third quarter to a US middle-market dialysis company in the form of a HoldCo toggle note.

And then with some of the announcements you've already seen in addition to some smaller deals we planned for Q4, the announcement you've seen is the Shiel Labs, which will be a Q4 close. We'll spend at or close to the $500 million.

Okay. Thanks very much.

Our next question comes from Holger Blum of Deutsche Bank. Please go ahead.

Yes, thank you. Wanted to start on the guidance for next year or for this year and the ramp up you need to show in Q4. You already alluded to some divestment gains. Are there any other elements that might be of a temporary nature or nonrecurring nature in the final quarter?

And maybe to that extent, you can speak on the corporate costs, whether that could be a major contributor in the final quarter. And also, maybe an explanation on the minority line would be helpful because those have been going down both year over year and sequentially despite a sequentially better profit. So, maybe you can say a word on that, whether that's related to Liberty weakness or your buying out minorities from doctors. Thanks.

Okay, Holger. I think -- yes, I think that has my name next to all of those. The -- in terms of Q4, no, I highlighted the $15 million to $25 million because I think that's something that would be of interest to the analyst community in terms of a one-timer. Beyond that, I don't see anything kind of of that ilk in the fourth quarter.

We do know that we have -- that Q4 will be a challenge. But, we think we see underlying run rates coming out of Q3 that will support that challenge.

Rice mentioned a number of things in terms of products growth, both in the US and on an international basis. We talked about some of the tenders that we think will be coming into the fourth quarter in terms of both awards and also shipments from tenders that have been awarded previously.

I mentioned that, coming out of Q3, we won't have a production shutdown, which should improve operating earnings in the fourth quarter as well. We mentioned the additional dialysis day on a sequential quarter basis.

So, all those things, when we look at them in the aggregate, give us -- do give us a confidence level with regard to the fourth quarter.

In terms of your question on minority interest, I appreciate that it has moved around a bit this year. It is dynamic because some of the things that we've been talking about do have an effect on the minority interest because, within the overall mix of the P&L, you can have differing effects with regard to Amgen price increases, with regard to sequestration in terms of your joint ventures versus your wholly owned clinics.

And we also continuously adjust our franchise in terms of our ownership positions with our physicians, both buying and selling.

So, at the detail level, having looked at Q3 and looked at the year-to-date run rate, I'd say, for Q4, it would be reasonable to expect a higher absolute number because the Q4 earnings will be higher and probably something on the order of maybe 9% of operating earnings as a benchmark for minority interests.

The other thing you mentioned or alluded to is the Liberty acquisition. I think that's going well. I think that's, frankly, well in hand now in terms of a run rate basis for us.

Okay. Then finally, on corporate costs, will that remain on the run rate that we've seen in the quarters earlier this year?

I think I guess my short answer would be, for the fourth quarter, that's pretty close in. So, I'd say probably fairly consistent for Q4, maybe a little bit of sunshine, but in roughly the same geographies.

Okay. Great. Then the final question from my side, more product related on your renal drugs, maybe you could -- you mentioned revenues there were up overall 3%. What were the main contributors? How did Venofer perform? And what do you expect in terms of timing of the phosphate binder approval, whether the 1st of December is still the most likely FDA decision date? Thank you.

Sure. Let me take PA21. I'll work backwards, Holger. The PDUFA date in the US is December 1. We've had no communication from my side or talking with Galenica that that has changed.

I will tell you, though, obviously, the other big piece of the US government we work with, CMS, clearly has had an issue with the three-week shutdown. And there'll be some impact there, as you well know.

So, it wouldn't surprise me that PA21 could slip a little bit because FDA I know was part of the shutdown. But, I'm not sure that we would get a formal notice of the PDUFA date. But, we'll see. I know the regulatory guys in the US think it won't be affected. But, we just don't know at this point.

Venofer is going well for us. We're maintaining our share is probably the way I would approach answering your question. We've seen, though, loss of share in that product line for us in the US. It's performed well. And we've also seen, particularly on a global basis, good performance out of some of our phosphate products, our binders as well. So, we're pretty happy with what we see at the moment and don't really know how to judge, will there be an impact in the US on PA21? We'll just have to see how that plays out.

Okay. Great. Thank you.

(Operator Instructions). And our next question comes from Gary Lieberman from Wells Fargo. Please go ahead.

Thanks. This is Ryan Halsted on for Gary. Thanks for taking my questions. I guess you guys called out as a pressure on margins an adjustment to bad debt expense. And just looking for maybe some more color on what that was and if we should expect it to -- I guess, if this is a good run rate going forward.

Okay. Ryan, I'll let Mike -- .

-- Ryan, that was in reference to the international margins, not the US margins. And it actually was a benefit that we had in the third quarter of last year. There was nothing aberrant in the third quarter of this year. But, that just put some pressure, if you will, when you look at the year-over-year numbers, so nothing that I think is worth commenting on for the current fiscal period.

Okay. That's helpful. And then I guess going back to the managed care, I know you mentioned that payer mix was I guess sequentially weaker. But, you had highlighted I guess an initiative you were undertaking. And I was just curious if you could maybe comment on if -- how that initiative is going so far.

Rice. What I would tell you is we're still happy with the way this is working, even though we did see a little bit of a dip in this particular quarter. But, having gone back in a number of quarters ago and sort of reengineered our process and looking about how we approach commercial patients, if you will, and how we interact with them, we made some changes to the process that we follow.

I still think it's working. I feel pretty good about it. One dip in one quarter's not going to make us go back and relook at that because we were pretty thoughtful and pretty intense when we went through that reengineering work, if you will, back some number of quarters ago.

So, let's see what Q4 brings for us. But, right now, we're not going to readjust our sales because of a small dip in one quarter.

Okay. And then I guess, lastly, as far as guidance, I know you've obviously highlighted a lot of the moving parts that makes the fourth quarter somewhat challenging. But, I guess, as we head into November, just curious how you're feeling so far about that guidance range.

From my perspective, if you were to ask me this question probably Friday or Monday, I'd give you more color. We haven't closed the books on October yet. So, it's a little early. I don't know. You think the way we do, let's see what October brings us. And then we'll figure out how good we feel about it or how nervous we might be.

But, what I would tell you is the one thing that I can look at daily are sales around the world for products. They looked strong. They looked good as I was looking at that. But, beyond that, we don't have a lot of clarity on the care side of the business this early in the month after we just finished October.

Mike, you got any insight you want to add to that?

No, I wouldn't add to that. I would agree with what you said, Rice.

Okay.

All right. Thank you very much.

And we have a follow-up question from Ms. Lisa Clive of Sanford Bernstein. Please go ahead, ma'am.

Hi. First question, just on thinking about potential response to a potentially large cut from CMS, if you do close clinics, obviously, lots of logistics involved, but how should we think about the proportion of patients that you would be able to retain from clinics by moving them to neighboring clinics?

I assume you would obviously want to try and keep as many of those patients as possible. So, just what's a rough estimate that we should have in our heads for the percentage of those patients that you would still be able to treat?

Second question, bundled pricing for private patients has been, obviously, a big issue this year. I think you'd indicated previously that you're pretty happy now with where you are. In 2016, the orals are going to get added for Medicare.

Are your bundled contracts with the private payers, do they include the orals? Is that something that you would seek to do sort of in lockstep with Medicare in 2016 as well? I'm just trying to understand whether we could end up in a similar situation where we have some rate headwinds due to structural changes.

Yes, Lisa. It's Rice. Let me work backwards. When you look at the private bundle contracts today, they don't include the oral drugs. We've had some discussion with some commercial payers, if you will, about the opportunity to look at this. But, let's also make sure we have a similar definition on the oral drugs.

We would be focused on renal-specific drugs only. Our pharmacy's really based on the renal drugs. It's not the full complement necessarily of drugs that a dialysis patient takes.

Let's see where the government goes in 2016, where we end up with this. But, I would tell you that we've had some discussion about it with payers. But, there's not much going on with that right now. I think there's just too many fish to fry at the moment, but certainly something you can come back and ask us later on. But, I don't know that I can give you much more color than that today.

And then on the clinic piece, obviously, should we make a decision that we were going to close a clinic, we would believe, on average, if you look around the country where we are, that the vast majority of those patients, we would be able to get them in one of our clinics versus having them have to go someplace else.

It would be probably one of the most intense looks that we would have at, if a clinic closes, how do we make sure all of these patients have a place to go and that they're going to continue to have continuity of care in some way? So, that's something we've looked at pretty intensely.

But, I would say to you, if you don't like my word vast majority, if you're looking for numbers, I'd say we're thinking 65%, 70%, 75% of them, we'd be able to manage that. And we would look at that upfront going into those kind of exercises, Lisa.

Okay. That's really helpful. And then last question on Fresenius Rx. Just thinking about the number of patients you have in that program right now, I guess, what was it, you said 40,000 or 50,000 today, are those mainly private patients? I'm just trying to understand sort of out of the 170,000 patients you treat in North America, how penetrated you are and how -- and could you get to peak penetration, or what is peak penetration? Could you actually provide Fresenius Rx services to all those patients over time?

Yes, so, honestly, Lisa, I can't tell you the breakdown between commercial and Medicare. I don't know that I've ever looked at those figures. I'm sure somebody's got them.

But, again, what I would tell you is we're hoping to finish the year somewhere in that 45,000 to 50,000 range. We certainly expect, if every patient wanted to be with FMCRX, we would find a way to be able to do that. We don't think that's probably likely because we certainly all know and have experienced that some patients are very used to dealing with their corner pharmacy. And that's where they want to be. And we're not going to upset that process.

So, we don't really ever consider the whole population's going to be available for that reason. But, we can certainly scale this as we need to. But, I really don't know what the breakdown would be of different payer types of the members of the -- within the pharmacy. I couldn't tell you that.

Okay. Thanks.

Thank you.

And another follow-up question from Mr. Michael Jungling from Morgan Stanley. Please go ahead, sir.

Thank you very much. I have three very brief questions. Firstly, on the cost savings that you may do in 2014 on the procurement side, could you just highlight very, very broadly what sort of categories of procurement you'd be focusing on?

I think you mentioned previously that procurement wasn't a huge focus. And after you've sort of appointed a new head of sort of procurement, I'm just sort of curious what these broad categories may be.

Secondly, could you highlight what the impact was on the EPO price increase in the third quarter? I'm guessing it's around $10 million, but maybe I'm wrong.

And then thirdly, if the CMS proposal came through as proposed, could you give us a sense of how many clinics you'd think you would have to close? Is it 5% or 10% of the clinics in the US? Thank you.

Sure, Michael. Let me take the first one. In terms of the types of procurement that we would be looking at, probably the simplest way to look at it is we have 43 factories. Most everything that we sell we make ourselves. So, there's a big effort going on there as you look at raw materials and subassemblies and things that go into the production of goods.

Then if you take the other side of the house, which is I think much bigger, which is the provision of care, think of all the things across 3,200 clinics that we purchase, chairs, IV poles, blankets, you name it, those kinds of things. Those are probably two of the biggest categories. And we're looking to break them down into some smaller subsegments so we can manage it more effectively.

And then obviously, you can look at procurement. We don't necessarily put it in this category. But, we do procure flights, tickets, hotel rooms, things, like, of that nature. So, there's another more of a corporate-like G&A kind of category that's in there. So, that's sort of the broad brush of how we look at breaking these things down.

And then if -- Mike, the price increase impact for EPO?

Yes, I guess I would say, just to guide you, it's between $8 million and $10 million.

Yes, so, you were close.

You were close.

And then, Michael, I hate to do this to you. Can you just repeat your third question? It was on CMS.

Yes, if you look at the proposal, and let's say it's draconian, could you give us a sense of how many clinics you would close? Is it 5% of the US clinics? Is -- just general sense of the magnitude of the clinic closure if it happened.

Yes, so, let me do it this way. I'm going to give you an industry number because I don't think I want to just give you an FMC number specifically. But, on an industry basis, we think that you're looking at loss-making clinics today somewhere in the 10% range. And then if this cut were to go through as proposed, we think you actually see that jump up into 30%, 35%, something like that. So, it's a pretty big jump across the whole dialysis industry in the US, Michael.

So, if FMC is more efficient than the industry, could it really be that you would close maybe 20% of the clinics or so in the US?

I'm not going to take you to a number because I don't want folks in other places to draw conclusions from a number I might give you. So, let me leave it at that. But, just take the industry scenario. And then you can do your own calculation or your own figuring where we might land in that. But, I'd like to not get too detailed into that at this point in time.

Okay. And then just follow up on procurement. If I look at those three categories, would you say that -- I forget who that was, but the head of sort of procurement that you've appointed, would you say that he has pretty much done is homework or she has done her homework for all three categories, meaning that you are pretty close to be able to set off on those procurement savings?

Well, couple things. What I would tell you is we've done a lot of homework. We've looked at a lot of detail of how we procure what, when, where, why. And I think the nice thing about procurement is it really allows you to go in and simply look at the facts and pull that together. So, I don't think Mike and I feel like we're way out on a limb here with what we're looking at those categories being.

There are other places. There are other pieces of this cost equation that are a little more difficult perhaps to get your arms around. This is one we think is somewhat straightforward. So, I think we're pretty comfortable.

Yes, I think we have a disciplined approach is the way I would say it.

Yes, that's good.

Thank you. Thank you very much.

There are no further questions at this time. I'll turn the conference back over to Mr. Maier for any closing comments.

Great. Thank you so much, everybody, for participating in today's call. It's much appreciated. And I'm pretty sure we're going to talk soon. I'm looking in my magic ball. I guess it's going to be November 27th. Thank you so much. Take care.

Bye, bye.

Bye, bye now.

Ladies and gentlemen, that now concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day. Goodbye.