Fresenius Medical Care AG (FMS) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Fresenius Medical Care Earnings Call for the fourth quarter and full-year results of 2013. Throughout today's recorded presentation all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If any participant has difficulty hearing the conference please press the star key followed by zero on your telephone for operator assistance.

I would now like to turn the conference over to Oliver Maier, Head of Investor Relations. Please go ahead, sir.

Thank you very much, Patrick. I would like to welcome all of you to the Fresenius Medical Care earnings call for the fourth quarter and fiscal year 2013. Also a 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, the material that we've distributed today. For further details concerning risks and uncertainties, please refer to our filings including our SEC filings.

With us today are Rice Powell, our CEO and Chairman of the Management Board, and Mike Brosnan, our CFO. And this is already everything from my end so the floor is yours, Rice.

Thank you, Oliver. Good morning, good evening, good afternoon for those of you on the phone and on the webcast. Welcome to our full-year and fourth quarter comments and presentation.

First, let me just thank our employees that are with us today. Thank you for a strong year in 2013, all your hard work and effort in taking care of patients and producing product and getting things in the places they needed to be gotten to at the right time. I appreciate it very much.

We have achieved our guidance for the fiscal year 2013, if you would just take a moment and look in the blue shaded area, a couple of key figures for you, net revenue at $14.6 billion, 6% growth over the prior year, our earnings before interest and tax or EBIT at $2.256 billion generating 2% growth over the prior year.

Net income $1.10 billion, just slightly ahead of what we had guided you to back in the third quarter earnings call and, as you can see, that is a drop of 6% year-on-year on the net income line and same for the EPS line.

I think important to the commentary for the full-year figures; we did get to our top and bottom line guidance. We told you that we needed to have a strong Q4 and we delivered that. You'll get more detail on that from myself and Mike as we go through the next few slides. It was a difficult year. As many of you know, we spent pretty much all of our time with you talking about Washington, DC and reimbursement and what might or might not happen at this point.

Sequestration was obviously an impact, the medical device tax as well. Mike will give you some commentary on that later. But I would say to you that through all of those things, we continued to carry on delivering high-quality care and working ourselves into a position to achieve our guidance for the full year.

If we take a look at slide five, let's take a moment and look at the revenue breakdown for the fiscal year 2013. Starting with the bottom half of the slide, again we are consistent in the 66% of our revenue comes from North America, just slightly over 20% from Europe, Middle East and Africa and then you see the respective percentages from Asia-Pacific and Latin America in terms of proportion of revenue.

Looking at North America at $9.6 billion in the year, revenue growth of 6%, organic growth of 4%. And then looking at the international side of the business, just shy of $5 billion in revenue, 6% constant currency growth and organic growth of 5%, nice performance from the international side of the business to complement what was done in North America.

Looking at slide six and our global service franchise, what have we done through the calendar year of 2013? If you look you can see that we, as of December 31st, now have 3,250 clinics. That's a 3% increase over the prior year and you can see that the breakout in North America to the international business segment is generally two-thirds/one-third with 2,100 clinics in North America and the resulting 1,100 clinics internationally.

I think there is worth commenting when you look at the de novo in the acquired clinic numbers, you can see as we had told you a year ago when we were beginning 2013 that we intended to have more de novo clinics through the course of the year and we've done that. You see the relative split on de novos of just a little over double in North America versus international. And then looking at the acquired side, as we had guided you last year, more acquisition activity in international and a little less on the North American side.

We delivered 40 million treatments on a global basis last year, 5% growth over the prior year and again the number of patients that we care for at 270,000 patients. We are just shy of 100,000 patients in the international region and again, that generated 5% patient growth, so 3% growth in clinics, 5% growth in treatments and the resulting 5% growth in patients as well.

If we continue to slide to seven and looking at the Dialysis Services side of the business and looking at our revenue growth, first let's look at the fourth quarter. You can see that we were just shy of $2.9 billion in our revenue growth, constant currency growth of 4% and you see a very strong 8% international growth in constant currency on the Services side and 3% in North America.

Looking at organic growth, you can see the fourth quarter has an anomaly there. It certainly is probably confusing to you so if I will -- if I may, we do have it footnoted simply to say that when you look at the year-over-year comparison please remember in the fourth quarter of 2012 we had the special collection of $90 million, which was well in excess of what we typically see as Mike had pointed out back during that day. And if you exclude that rather extraordinary $90 million collection from the fourth quarter you can see that the organic revenue growth for the fourth quarter of 2013 in North America is 5.7%. So it's a very different picture when you understand those dynamics, and then looking at our same market growth for the quarter coming in at 3% in both respective regions.

On a full-year basis, $11.1 billion in Dialysis Services revenue, constant currency growth of 7% in both regions, organic growth of 5% and you see the respective splits between North America and International and the same market growth at 4% for the Dialysis Services business.

Looking at our quality outcomes, I would highlight probably four of the eight or nine metrics if we look at our dose of dialysis you can see that we were steady across all of the regions from sequential quarters Q3 to Q4.

Looking at Hemoglobin from a 10 to 12 grams per deciliter as it's the way it's looked at in the US, you see a little bit of movement, nothing significant in the US. And then looking at the 10 to 13 reporting the way we measure it internationally, again you can see consistency with some slight improvement in Asia-Pacific but EMEA being consistent as well as North America.

And then lastly I would mention our hospitalization days and you can see that there's consistency in North America at 9.4, little improvement in or actually just a little bit of creep in EMEA at 9.4 versus the prior quarter at 9.3 and consistency again in Asia-Pacific.

If we look at our products growth, again we're only going to look at the external products growth. Looking at the fourth quarter, you can see at $972 million we are 8% constant currency growth for the fourth quarter and respectively you've got North America at 6% constant currency, international at 8% and a rather strong performance. And I think you will recall that we had given you the idea that when we were together last at the end of Q3, that we had anticipated, we would see some acceleration of our growth and in fact that performance did come to pass.

Looking at the full year at just approximately $3.5 billion on the products business and you can see constant currency growth of 5% and in North America at 4% in constant currency and international at 5%. So we've been able to see the acceleration there that we had been hoping for.

If you look at our employee base, we are just shy of 91,000 employees. That's a 5% increase over the prior year. You can see the actual breakdown of where our employees sit, approximately 60% in North America, about 24% in Europe, Middle East and Africa and then Asia and Latin America respectively.

I think what's important, what we feel good about, is in the last 10 years we've added roughly 41,000 jobs. So we are a net job creator and I feel good about that, obviously doing our part for the global economy as best we can.

If you look at slide 11, we are proposing our 17th consecutive dividend increase. We're showing you here on the slide, look at where we started in 1997, very nice progression from there. And we're looking at a 3% increase in dividends, what we're proposing for 2013 versus 2012, and I think the point I would make here is if we were to do this just based on looking at the performance of EAT with that being down 6% I suppose one could argue that we could have had a decrease. Obviously, we didn't think that was going to make anybody happy and it's not the way we want to run this business and deliver value to the shareholders. So thus we are proposing a 3% increase at $0.77.

Slide 12 in summary, we continue to be focused on improving the quality of lives for our patients that we treat directly as well as those patients that we provide products to other providers to take care of. We continue to have our leadership position in this market. It continues to grow on a global basis.

There is no question that we're going to continue to probably talk about the US and continue to talk about reimbursement and where we go. We do have a little more clarity today than we did at the end of third quarter but the clarity doesn't make the task any easier. We still have work to do there, as you well know.

Our global efficiency program I would like to point out, we continue to work on that program. I'm sure we'll have questions about that today. But as we have always said, this is a program that we'll engage in over time. It was never meant to be a one-year hit and be done. This will be a multi-year program that we think that we have to take the appropriate steps and measures to make that happen over the next foreseeable years as we try to make ourselves more efficient.

In the long run, our opportunities certainly are going to outweigh the challenges that we face. Not a particular easy time today but tomorrow will be a better day and we will get there. Happy to talk about that some more a little later and at this point I'd like to turn it over to Mike and he will take you through the financials and the outlook.

Okay thank you, Rice, and turning to chart 14 to talk about the fourth quarter profit and loss statement, Rice spent time on revenues so I'll move to the operating earnings and margins.

Our operating earnings were up 18% or $102 million from $559 million to $661 million and this represents an improvement in margins of about 200 basis points.

North America contributed 40 basis points, International 100 and corporate costs improved contributing 60 basis points to the performance in the quarter year-over-year. And this is really four fundamental elements.

First, we had very strong product sales around the world in the fourth quarter, as Rice commented. We also had very strong results from our manufacturing operations on a global basis with globally a reduction in our overall cost to manufacture.

Second, we sold property in Columbia, which generated about $32 million of pre-tax earnings. This was partly offset by some additional bad debt expense that we took in International.

Third, we do have a beneficial carryover from the base period of about $20 million, which we can get into the details of it in the Q&A if it's not readily apparent.

And last, these net increases that I just articulated were partly offset by sequestration, a reduction in commercial mix and lower commercial reimbursement rates in North America.

In terms of interest and taxes, earnings benefitted from lower interest costs in 2013 largely due to the one-time costs that we took in the fourth quarter of 2012 related to the renewal of our credit agreements. In addition, interest costs in general have been slightly better year-over-year due to lower rates and a slightly higher average level of debt for the fourth quarter.

Interest income was also higher in 2013 due to an investment we made in the form of a loan in the third quarter of 2013.

The fourth quarter also benefitted from a reduced tax rate due principally to two things, a beneficial tax rate associated with the sale of land in Columbia and a beneficial tax rate associated with our earnings from our Pharma joint venture.

As a consequence, reported earnings for the quarter are up 36% and earnings per share is up 38% to $1.16 per ordinary share.

Turning to chart 15 and looking at the full year, our operating earnings as reported were up 2% or $37 million to $2.256 billion. This was due to improvement in the operating results partly offset by two significant effects, the first being a decline in earnings related to sequestration of $56 million or roughly 2.5%, and the second as I've already indicated was a gain on the sale of Columbia for $32 million.

The remaining increase of $61 million or roughly 2.7% is operational. This change was driven by an improvement in North America's operating earnings of $65 million excluding sequestration, an increase in International earnings of $17 million and an increase in corporate spending of $21 million for the full year.

With regard to interest and taxes for the year, earnings benefitted again from net interest costs as being slightly better due to lower rates, in this case particularly a result of the expiration of interest rates swaps, which expired at the end of 2012 into the first quarter of 2013, lower average debt for the period and again, the avoidance of the one-time cost in 2013 related to the renewal of our credit agreement in 2012.

Our tax rate year-to-date increased from 31.3% to 32%, this being largely due to the non-taxable gain that we experienced in 2012. If you were to look at our effective tax rate excluding that gain our tax rate decreased from 33.8% to 32%, again being influenced by the Columbian land sale and by the joint venture earnings from our Pharma JV.

Net income as reported decreased 6% when adjusted for the investment gain; we essentially had a 6% earnings increase on 6% increase in revenues.

Turning to the next chart, 16, and beginning the discussion on cash flows, you can see our day sales outstanding, very positive trend in International and a benchmark level in North America continues. North America is at 53 days up just a bit from the third quarter and favorable to year-end 2012 at 55.

International is 110 days, improved four days sequentially as well as over the last year and that was largely driven by collections we experienced in Spain and Italy in the fourth quarter and over the course of fiscal 2013.

We're at a level where we may see days move up or down a bit as time progresses but there's no extraordinary developments to be reported here as we look into 2014.

Turning to chart 17 and looking at cash flows, our underlying performance in the quarter was strong in both years. Cash flows from operating activities in 2013 as well as 2012 were 15% of revenues so there's nothing of concern to note in terms of our cash flows on a quarterly basis.

CapEx as a percentage of revenues was in line with historical trends and the split between maintenance capital and expansion capital is roughly 50/50.

Turning to chart 18 and looking at debt to EBITDA, nothing new on this front, $8.4 billion in debt is a slight increase over 2012 and roughly flat for the third quarter. Our leverage is as expected and within our guidance and, as you can see, nothing extraordinary to report from a rating agency perspective.

This brings us to chart 19 and discussing the potential outlook for 2014. You can see the overall numbers that we're indicating, revenues of approximately $15.2 billion representing an increase at roughly 4% in terms of prevailing exchange rates at the beginning of the year, earnings of approximately $2.2 billion and net income in the range of a billion to a billion fifty. We believe this represents an adequate level of performance at this point in time for our business.

2014 we expect to see growth in same-store treatments similar to our experience in 2013. We also expect to see continued pressure on ASPs in our products business and our reimbursement rates on a worldwide basis.

For the US you will see a modest but negative effect associated with the rebase and you will see the rollover effect of sequestration for the first quarter of 2014.

Concerning acquisitions, we're not including the potential performance of our acquisition guidance in our operating results. I would say we have that base guidance of $400 million, which is consistent with our historical practice.

Regarding commercial treatments in the US, we had growth in this category in 2013 but at a lower rate than the overall growth in our treatments for that calendar year. For 2014 we've assumed this pattern will continue.

We've had good results in the last few years managing the cost of pharmaceuticals and we've make no extraordinary assumptions regarding drug usage or pricing for 2014 in our guidance.

As opportunities present themselves for commercial piloting in 2014, we believe we are very well positioned to respond.

We met our guidance in 2013 but during the year I remarked each quarter on the headwind we were experiencing in increased spending as we invested in our quality systems in the US that we were incurring legal and consulting costs related to our global compliance program and that we were addressing the management of the Granuflo action in the US.

As we look into 2014, we expect to incur incremental costs to address these matters. Taken together, quality, legal and compliance we believe we could send up to an additional $60 million in fiscal 2014. We've included half of this in our guidance figures. We also anticipate that these issues will take us into 2015 before some or all them can be fully resolved. We are fully committed to address each of these matters appropriately and we believe we have the right resources dedicated to do so.

With that I will turn the call back to you, Oliver.

Great, thank you, Mike. Thank you, Rice. Any closing remarks before we start with the Q&A?

Probably the one thing I would say is had a chance to look at some of the commentary from the investor community with our guidance and I would just simply say to you, let's remember the fundamentals of our business are strong. We continue to see the patient pump at work. We'll talk more about those growth rates when we have our Capital Market's Day but we continue to see high demand for our provision of care and our products.

We definitely have some headwinds we have to deal with. We have some external issues that we have to deal with in terms of the continuing of sequestration looking at the rebases, etcetera but there's no reason for anybody to push a panic button or think that we don't have the management team and the will to work our way through this and continue to run this business for the long term and be on the kind of growth projectory that we'd like to be on once we get through some of these tough waters.

Great, thank you. I think, Patrick, with that we can open up the lines for the Q&A.

Thank you, ladies and gentlemen at this time we will begin the question and answer session. (operator instructions).

And our first question today comes from the line of Lisa Clive of Sanford Bernstein, please go ahead.

Hi, Rice; three questions for you. My first question is on your private patients in the US. A few years ago before bundled pricing you indicated that private pair rates generally went up around 3% to 5% each year. There's obviously been a lot of change to your contracting since then due to switching to bundling but now it sounds like you've bundled most of those contracts. Can you just give us a guide on what we should expect average private rates to do over the next few years?

And then second question on international reimbursement, you've had some pretty good quarters, Rice, and seen increases in a number of territories, but the commentary in today's press release and presentation seem a bit more cautious. So has something changed in your outlook there? That would just be helpful to think about the overall reimbursement environment outside the US.

And then lastly, on your ancillary services businesses in North America, given comments you've made on prior conference calls, I'm estimating that Pharma and vascular access between the two of them to gather perhaps represented about $500 million of sales in 2013. Is that reasonable? And more importantly, how much more growth should we expect from those combined businesses in 2014 and beyond?

Okay, Lisa, thanks. Writing feverishly, I think I got them but I may need to get you to refresh one of the questions for me, but when we look at pricing with private patients and again, as you've pointed out, we're in the bundle situation in many of these large contracts. I would say to you that we are still working through the opportunity we have by the multi-year contracts with inflation adjusters coming in some of the outer years. That will continue, not sure I'll get into what is the inflationary adjuster and what's the percentage increase there. The good news is there is one. I just won't tell you exactly the detail.

When you look at the more regional payers, we are still looking at our ability to put some price increase through. I think what I'd say to you is it certainly not at the 4% to 5% range any longer. It's certainly more in the 2% to 3% range, perhaps 4% in certain cases, but it is certainly decelerated from where we were probably three or four years ago in that perspective.

Looking at reimbursement non-US, I would say to you that we still see a little bit of a mixed bag in that there is still some pressure. One of the experiences that we've had here in Germany is we're told that the cut could be as much 10% and then by the time it's finally settled we find that the cut has come several quarters later than anticipated and only somewhere in the case of perhaps 2% to 3%. So it's not nearly as bad as we expected from the very beginning of those discussions.

We've seen a little bit of good news in Asia in that the reimbursement in Taiwan did not drop as much as we had anticipated it was going to and Japan really has not changed. As you know, it's about every other year we see a cut coming in Japan.

And then in Latin America we still see large increases but again they're inflation adjusted based on the inflationary nature of what's going on in that part of the world. But hopefully I'm giving you enough color there.

And then on the ancillary businesses and what we're seeing there, yes we've talked about that before. Let me do it this way, what I would say to you is when you look at the Rx business they were just shy of $300 million in 2013. And if you look at vascular access, I think I told you they were going to be around $200 million and they were really darn close to being there.

When we look at the growth for those, we do expect good growth in both of those businesses as we look out to this year and 2014. But remember we're not really talking earnings here but let me make the point that we see the faster growing revenue opportunity with the pharmacy but it carries a lower margin than we see with the vascular access business.

But your math is very good. We're going to be in the $500 million to $600 million range if we go according to plan in 2014 and it's closer to the high number than the low number is what I would say. But that would be the range or pretty close.

Okay and just a follow-up, so just be clear that would be somewhat margin diluted given that particularly the Pharma side is lower margins than Dialysis Services?

Yes, you've got that correctly so that's true.

Okay, thanks very much.

Sure.

Michael Jungling, Morgan Stanley.

Thank you for taking my questions. I have three. Firstly, can you provide a reconciliation of the sales growth guidance of 4% to a net income guidance sort of on the clean numbers of minus 4%? I can see for instance that you include some additional quality and so forth costs which appear to be, I think you said $30 million, is a good half of the $60 million so $30 million. That's only a minus 2% headwind so how do we get from plus 4% to minus 4% from sale to net income?

The second question is on US wage contracts for your staff. Are you able to reflect some of the payment you're taking from US reimbursement cuts on to your cost inflation for the labor?

And then the last question I have is on drug cost inflation. Can you give us a sense of what you're expectations are for 2014?

Okay, Michael, thanks. Let me kind of do this this way. Mike, you want to do some reconciliation for Michael in the sales growth, net income. I'll pick up the wages and then we can figure out who is going to talk about drugs.

Yes I'd say just very broadly keeping in mind that we had some one-time benefits in fiscal 2013 that we can carry into 2014, that's something that needs to be a bit carefully considered, particularly as it relates to the land sale in Columbia.

And then beyond that, you're correct, roughly 4% sales growth. When you look at our cost structure we are including some incremental spend associated with the three specific things that I mentioned and then beyond that just addressing the overall cost structure of the business, cost increases in the business and challenging environment we think we're facing in terms of ASPs and reimbursement globally.

So, Mike, if I look at the delta of 8% between sales and net income minus 2% as the additional spend I think from quali-legal and compliance, the remainder of minus 6%, delta percent delta is really your cost inflation running higher than your revenue per treatment inflation. Is that a fair summary?

Yes and I would come back to the comment that Rice make in response to Lisa's question, which is some of the revenue growth is at lower margins than the historical margins of the base business.

And then on the wages and drug cost inflation please?

Michael, let me do the wages. What I would tell you is that we generally take survey data, we look at what we think is a fair wage across the US. Obviously it varies from certain geographies to the other.

We do have the ability to damp that down and what you'll find is our ability and our willingness to do that generally probably comes more in areas that are not direct patient care. We are extremely sensitive to how we manage that situation. As we've talked before, Michael, you and I privately, you can tell when patients like being in the clinic and when the nurses are happy the patients are happy. So we're very judicious on how we would like at direct patient care wage increase to how we handle it. I'd say we have more flexibility in the non-care side of the business.

But be that as it may, we have tightened up and we will tighten up but we try very hard to be fair and to have the right level of motivation, but we've had pretty frank and open discussions with our people in the US about where reimbursement is and what we think we can stand to bear in terms of wage increase. Hopefully that gives you enough color on that.

And, Mike, you want to pick up the drug inflation piece?

Yes nothing really extraordinary to say there. I think we indicated that we made no extraordinary assumptions with regard to the drug side of the business.

I think when you look historically we've been able to manage pretty well cost increases and the overall efficient utilization of the drugs. So I think that our guidance essentially assumes that we'll be able to continue to balance those two in fiscal 2014.

And, Michael, one thing I'd come back to just full disclosure, one of the things you may stumble across here we are looking very hard at new hires. We've discussed putting a hiring freeze on and really limiting the incremental hires that come into the Company. I'd much prefer to take care of the folks I've got versus bringing more people on. So that's something that we're going to manage very aggressively. We'll be talking with our people about that in fact probably tomorrow, but you should know that cause I didn't want you stumble across that somewhere and feel like I didn't tell you. We are clamping down on our incremental hiring as we look at 2014.

Great and the final question really is on the efficiency measures of the $60 million. Is that $60 million that you will save in -- that you may save in 2014 or is that the exit run rate at the end of the year, the $60 million?

The $60 million is what we may be able to save in the course of calendar year 2014 and as we've talked about GEP as you know it's a multi-year project and so there'll be different figures for the different years and obviously we hope they're way bigger each and every year. But you've read this correctly. It would be the $60 million potential for this year.

So that's $60 million for the potential for this year. I'd expect that the run rate is going to be very small at the beginning of the year and will increase throughout the rest of the year and therefore for 2015 that $60 million number could actually be a much larger number. Is that reasonable?

That potential certainly exists, yes. Your logic is very good.

Great, thank you.

Kevin Ellich, Piper Jaffray.

Thanks for taking the questions. Three questions; first, could you give us some more details on the property sold in Columbia? What was that related to and are there other properties that you're looking to sell?

Second, wondering what was behind the reduction in commercial mix and if you're seeing any impact from the exchanges in healthcare Pharma Pharma in the US?

And then lastly, does your guidance contemplate any impact from increased competition in your Pharma business coming from new players like [Carrick's] and Rockwell? Mike, I think you commented on pressure on ASP in the Pharma business. Thanks.

Okay, on the property sale in Columbia we essentially, Kevin, sold a plant. We were located in an area that in the early days it made sense to be there, but as time went on it became to be a very ineffective area, inefficient area for us to be in the location. So we've sold that property and we're moving to a better space for us in order to handle the ingress and egress of raw materials coming in, product being shipped out, etcetera, etcetera.

Mike, you want to take commercial mix and exchanges?

Sure, with regard to commercial mix I think that we've reported for a while that the commercial treatments have been growing but they're growing at a lower rate than the overall business. So essentially in our guidance for 2014 we're just indicating that we are forecasting that to be essentially a steady state environment. So we would anticipate to continue to see commercial treatments increase but we have not made any extraordinary assumption about it increasing at a different rate than it did in fiscal 2013.

And in terms of our experiences with exchanges, so far we don't see a difference in terms of how we're dealing with the exchanges than we are with our other commercial contracts in terms of behaviors.

Yes I would say, Kevin, there's not a lot of exchange negotiation going on because they're not many of them up and running effectively yet, as I know you're aware. Many of them are much delayed but it seems to have been fine for the ones that we've negotiated with here of late.

And then the last question on the competition in the Pharma business, guidance?

Yes so let's kind of divide this by region. When you look at the competition I think you're referring to it's really in the [binder] area. You're coming in the US and what I would say is we always take that into consideration as we look at our plans but the thing we don't know is when these things are going to get approved and exactly how are they going to come to market.

So we're prepared to compete. We've made some assumptions about how and when they will come but I wouldn't say that it's done anything to really drive down that book of business appreciably for us. We're aware of it but we've not really made any huge adjustments.

I think for clarity, the ASP pressure that Mike was referring to is in products or devices, if you will, and we see that much more intensely in Europe and in Asia. We do see some of it in the US but not nearly as much but that was really a medical device pressure as opposed to a Pharma pressure, Kevin.

Okay, thanks for the clarity, thanks.

Veronika Dubajova from Goldman Sachs, please go ahead.

Good afternoon, gentlemen, and thank you for taking my questions. My first ones on the international same-market treatment growth rate and we think more and more when the growth rate decelerated last year you said you were working on some efforts to drive that higher. I'm just wondering if you can give us a sense for where you are and as you think about 2014 and beyond what we should be assuming about that market going forward? And I appreciate there are a lot of moving pieces there but if you can give us some color that would be helpful.

My second question is as you do think about the savings from the global efficiency program, I'm just wondering if you can gives us a sense for how much back end loaded these might be relative to the number that guided to for 2014?

And my last question is, Mike, any comments for expectations for US cost of treatment growth rate? That would be very helpful, thank you.

Okay, Veronika, so on international markets, same market if you will, 2013 was around 3.3. What I'd like to say is I want to break this up for you. We're seeing a little bit different performance if you look in Europe versus where we are in Asia. We've seen a little pressure in Asia, a little slow down there, Europe not so much.

So I think if I'm going to guide you I would say to you that I would believe we would be somewhere in the three's. I'd like to be in the high end of the three's as possible. We can round it to four but realistically I think we would like to be somewhere in the 3,6,7, 3 eight range if possible. Much of that is going to depend on can we get some turnaround in Asia as opposed to what we're seeing in Europe coming from Eastern Europe.

So that would be the color I would give you. Hopefully that will be helpful for you as you think about how you want to project outward.

On the savings, Mike, you want to pick up that one, I guess calls per treatment as well?

Yes I think in terms of the efficiency program I would agree that that it will be more back end loaded than ratable over the course of the year because these are specific projects. They're not as predictable as the normal operating activities we have based on revenue generation so backend loaded I would say.

And revenue per treatment and cost per treatment I think it's nothing specific in terms of guidance on that metric. I haven't done that now for a couple of years. I think the comments I made relative to sequestration and the, albeit slightly negative rebase effect coupled with what Rice said with regard to commercial payers is probably sufficient.

Understood, Mike, and can you give us a sense in terms of the phasing? Is it no third, two-thirds and 100%? Anything you can tell us about that?

No I think just anticipate producing net about $60 million for the year or so somewhat reluctant to tell which quarter it's going to be in.

Understood, thank you very much.

Martin Wales, UBS.

First question in terms of your global efficiency program, could you give us some indication of how many costs you've actually taken so far and when you took them, also what you're going to take in 2014 and whether there will be further costs beyond that?

Your second question, you've obviously talked about pilot projects for drugs and all competition might emerge in 2014. You appear to be referring to [CERA]. I was wondering what your thoughts were on Renagel, Renvela, which also faces patent expiry this year and in theory there will be some competitor drugs available. Will you need a new pilot program there or could you use those generics immediately given that they're rather simpler than [EPO]?

I guess my third question is on the mix again. You did talk earlier last year about trying to improve the commercial mix and trying to drive up the commercial mix and it doesn't seem to have happened in 2013 that your mix actually gained, and you don't think it's going to happen in 2014 either in turning back to the previous question. Is that a function of anticipating more impact on healthcare exchanges across the year or why don't you think you're doing better in terms of trying to drive up your commercial pay mix?

Okay, Martin, thank you. What I would say in terms of the [GEP] and cost I would say to you that we're looking at generally some cost that we incur in 2015 and then we will have some spillover that to 2014 and then we should be able to get beyond that on most of the projects. There are a couple of projects that will be a different ball game than that and we can probably give you a little more clarity on that in the Capital Markets Day. But to give you a little bit of sense, think in terms of in 2013 the cost that we incurred somewhere in the $15 million, $18 million range if that helps you there.

Relative to pilots, I don't really have anything new to add on the CERA and we've continued for this to be a theoretical discussion about when we would perhaps do a pilot. What I can tell you is that we know how we would do it. We're prepared to be able to do it I think as Mike commented earlier so we feel comfortable that when that opportunity should arise that we could take advantage of it on a theoretical basis, if you will.

In terms of Renagel and Renvela, I agree with you; those are products that are well used. As you know, they're not used through the clinic. They are really used through individual sales initiatives and talking to the physician and they're prescribed that way. Should we have the generic opportunity I would say to you that that's something that we wouldn't see being brought in the large pilot. That would be handled more on an individual patient basis through physician prescription but generally my experience is that would not be something that we would pilot, as you suggest. I would agree with you.

And then let's be clear on commercial mix and commercial treatments. Our reengineering process was all about trying to put us in a better position to improve the number and grow the number of commercial treatments that we do. Now mix factors into there but keep in mind that I'm a lot more focused on the number of treatments that I do and when I get paid for those treatments than just worrying about the mix in and of itself and in some cases I'm not sure how easily we can control if let's say for instance the Medicare advantage population is growing great guns, there's going to be some out growth or over growth of those areas perhaps than the commercial side but as long as we're seeing quarter-to-quarter growth in commercial treatments, I think we believe that we're getting accomplished what we would like to.

Mike, anything you want to add on that?

No, no I think that was complete.

But you don't see, you're not anticipating any big increase in impact from exchanges going forward or you think they will have an impact going forward?

I would say as we've looked and tried to guide for 2014 we're not anticipating a big impact there. We'll know more about 2015 as we get further into 2014 but yes I think your statement is correct. We're not looking in any big impacts as we look at this calendar year.

Very quickly back on drugs on the phosphate binder, [Velphoro], which I believe you're selling, what's (inaudible) do you expect that to contribute to the overall growth you've talked about for drugs in 2014? Is that a big contributor or a small contributor? How shall we think about that?

You know, it was approved December 1st in the US. We will launch it March 1st. What I would say is it will be a contributor. We've probably been rational and conservative. I've even used that word as to what we think the contribution will be for North America keeping in mind that we don't think we'll see an approval internationally in Europe until probably midyear because there were some additional questions that we were answering for the authorities, the approval authorities. So in the US I think it's going to be a conservative start for us is the way we've looked at it but we are ready to go and in fact we will be selling and detailing that product March 1st.

Thank you very much.

Chris Gretler, Credit Suisse.

Actually most of my questions have been answered. Now just basically one follow-up on this efficiency improvement program, I mean can you discuss that a bit more in detail? I mean you must have already now some pretty good understanding, given that you actually come up with no specific guidance in terms of dollars and how would such a program actually now differ from now just ongoing efficiency improvements, measures that you put in place anyway?

Yes, Chris, let me see if I can help you here. What I would say to you is the following; we have always tried to be efficient. We've tried to look at taking cost out of our system. We generally thought about that in terms of our manufacturing facilities and I think we have a long track record of doing that.

What we're looking at here and the reason that I am not going to give you sort of chapter and verse of the projects that we're focused on is that in many cases working through this project, it involves moving work or changing work from one location to the next, doing the work differently than the way we've done it in the past and those are things that take a little more time, a little more thought than perhaps some of the programs we've done in previous years.

So we're not trying to hide all of this or keep it away from everybody but we're not ready at this point because we obviously we have employees and we have people we need to speak with and talk to. We have to do some of these things before we really kick these programs off and get them running in a meaningful way and that's the way we've tried to approach our guidance for this year and then obviously we'll have more clarity as we go through time and we'll give you some more idea of this or some more view of this in April as well.

Okay and maybe one follow-up question on this, another, I lately looked at your Company and the cost structure and obviously you have a lot of cost now involved in running your clinics in the US. I was wondering I mean maybe if you could discuss at least theoretically if -- and you mentioned I think this morning in the press conference also that you might be looking into closing some clinics but basically how would that work and how do you think you can capture actually the -- some of your patients at least now in your system? I mean now this cutting in the network is actually I guess pretty delicate thing. How do you see that in your business particularly?

Yes so if we look at this a couple of things; we will be closing some clinics in the US this year, not sure it's helpful to guide as to how many at this point in time but we will be doing that. But the approach that we would take, the standard approach that we would take to that, Chris, is we look at where the clinic would be closing. The first thing we'll do is make sure there are places for the patients to go. Generally we think in about eight out of 10 cases that we would be able to put those patients in another FMC clinic. This is all location driven obviously.

We would also look to continue to work with the physician if he wanted to move from the clinic that he was in if it was closing. Would he like to move to another clinic and have privileges? So we've a fairly well thought out process for how we would do this and again, generally the opportunity to consider closing clinics comes in the large urban areas more so than the rural areas and generally our footprint is large enough that we have the ability to move patients from a clinic that might close on the north side of Boston, if you will, to move them into a clinic on the west side or the east side of Boston. But that would be the approach that we would take with this.

I understand. Thanks that's very helpful. Thank you, Rice, and see you in New York.

Gary Lieberman, Wells Fargo.

A couple of questions; I guess, as I look at the gross profit per treatment at the US dialysis business, it looks like it went down about $12 year-over-year, which seems like a relatively large decrease. Can you talk maybe in some more detail about some of the specifics? Is it -- was it drug pricing increases that drove that up? Was there some one-time expense that ran through there?

Sure, Gary, we're shuffling a little paper here because we need to put our hands on some information we want. I rarely ever do this but can I invite you to ask another question while we are looking for some of the material we need?

Okay. Yes I guess when you -- you've talked about the commercial pricing trends and it seems like over the past couple of quarters there had been some discussion at least of within the industry of maybe you taking share and maybe some price competition. Is -- was that a strategy and did that not work out or is it something you're reconsidering because it sounds like the commercial pricing growth continues to be below where it has been over a longer period of time and it's not clear exactly why that would be?

Sure, so let me answer your second question and then I'll let Mike get to your first question. I think generally my comments going to be that we've certainly seen commercial pricing tighten over the last three, four, five years. I don't think there's any question about that. We certainly see that commercial payers have gotten much more sophisticated in managing their dialysis patients and understanding the number of patients they have and where they are. It hadn't always been the case in previous years.

But in specific reference, Gary, I think I am going to call this a [foobar]. This thing that got thrown out back in the summer that it would appear that FMC was dropping price in order to try to pick up share, we just didn't do that. That's never been our strategy. I think we looked at doing that about seven or eight years ago and it didn't work out so well for [them] back then. So I just think that was some garbled communication, if you will, to kind of got out among the investor community. It is clearly something that we're not going to do, which is go in and drop our pricing to the point to try to just take share volume, not in our game plan.

Mike, you want to--?

So -- if I could just follow-up on that before we went back to the first question, so do you feel like your pricing is sort of in line with the industry and not at a discount to anyone in the industry?

I think we're competitive, yes. I think we're kind of where we need to be, as best we can tell. One never knows the exact detail but I think we're in a competitive position yes.

Okay.

Gary, in line with your question about I think the operating earnings per treatment unfortunately I have to take you back a little bit into the special billing arrangements we had last year because that increased the revenue per treatment last year and I kind of explained that in detail if you recall in Q3 and Q4. But if you look at our revenue per treatment increase from $355 to $359 and I am talking about the year, not the quarter. I think that's probably what you're interested in. A $4 per treatment, if you go back and look at what I said last year in terms of how those special collection efforts would spread over the course of the year, that would be worth another $4 per treatment in terms of the year-over-year comparison with 2012, so you'd be looking at an increase in revenue per treatment if you normalize the two years of about $8, $9 a treatment. And on the expense side we're looking at about $10 a treatment year-over-year so you are seeing some compression and that's really related to the fact that we're getting very high growth in some of the businesses that are carrying lower margins than the base business.

And so I guess just to ask a follow-up on that, is it growth in the cost per treatment? I mean how -- the big one of your big expenses obviously pharmaceuticals on the domestic US dialysis business and it would seem like your pricing probably isn't as good there as it has been in the past. Did you see significant increases in the most recent quarter? Do you expect to see them or did you see them at the beginning of the year? Is there any additional detail you can give us there?

Are you talking about the cost side of the equation?

Exactly. (Inaudible) No I'd say generally -- we don't see a lot of variability quarter-to-quarter. What I would say broadly speaking is as we make investments in some of our new businesses, we've had good success historically looking on the core business in terms of mitigating labor increases with the net effect of what's happening on the Pharma side of the business. That's price increases in Pharma net of utilization, so those tend to offset each other on the cost side.

Okay thank you.

Alex Kleban, Barclays.

Thanks for taking the questions; just two, so first one can you give a sense or your view on what you think is an appropriate market basket adjuster for the 2015 rates are to go far out, go so far out, but just in light of what you've seen on the input cost changes over the last year or two and maybe just a sense of at least relatively on 2014 where that would go?

And then second one, I'll just go and give it a try but we got some 2017 numbers out of Fresenius SE, so just to get a sense of whether you can give us some idea of -- are you going to give us that at the Capital Market Day or at least give a sense of whether or not you can look out that far given all the uncertainties you have at least for 2015 and 2016?

Yes, Alex, it's Rice. Let's take your second question first and I think you did a very good job of answering it. It would just be very difficult for us to try to give you any kind of view of that given that we're sitting here today truly not knowing if the remainder of the rebases cuts coming in 2016 or 2017 or are they going to split it between the two years? I just wouldn't know how to handicap that six weeks into 2014, so I don't think there's much I can tell you there.

In terms of the market base adjuster, the best crystal ball I can give you there for 2015 is we would sort of assume it's going to be about the way it was 2014 and see where we go from there. We've not had any real discussion with anybody in DC that could tell us any differently at this point and they wouldn't even if we ask. So we're just going to assume it's very similar to what we're going to experience this year.

Okay great, and if could just follow up quickly on the 2017 question, I mean have you given at least a very, very low base case of what you can do in 2017 assuming a worst case outcome and that's what factored into their numbers so you kind of have a view of the worst case in the world and then there's maybe upside to that or is that a no comment?

Yes I think at this point I -- it wouldn't do me any good to try to get in and comment on that, Alex.

Okay well thanks a lot.

Holger Blum, Deutsche Bank.

Holger Blum, Deutsche Bank. Just a question backwards to 2013, if you sum all special items up, I think you had some liberty divestment gains, Columbia plant, special billing. What would be the total amount of non-recurring gains in 2013? And maybe by that, if you then look out from the real basis into 2014, you mentioned higher corporate spending on the legal stuff. Where would you see most of the EBIT growth or EBIT let's say growth versus decline from in 2014? Is it more from products versus clinics, more US or international? Maybe you can shed some light on that as well. Thanks.

Thank you, Holger. Mike, why don't you take number one?

Yes well, I'll tell you, Holger, it's a challenge to go back into 2012, particularly since I know you didn't like the way we characterized 2012 to start with but I think we've done our best to articulate the one-time effects in 2013. I think because we didn't do a large deal in 2013 the number of these effects if substantially muted. An awful lot of 2012 had to do with the fact that we closed the Liberty deal, which was a $2 billion acquisition, so 2013 I think is the much cleaner year. Top of mind, I probably wouldn't comment on anything beyond the Columbia sale, which we disclosed, and the -- and for 2014 I would say again also relatively clean year, nothing more beyond what I've indicated in terms of some of the costs we're incurring.

Holger, to kind of give you a sense when you look at EBIT and if you want to look at it from the perspective of decline where does it come from, let me see if I can give you a little bit of color on this. I think we certainly are going to have some increased spending in the product area because much of the quality activity that we're doing is in our factories and in our distribution system, if you will, the way we handle products, so I think that's accurate.

When you look at some of the legal spending that we've had and that continues into this year, again because that revolves around some product issues, we've still got some patent battles with Baxter that we're going through. Again, I would say products is probably where you're going to see the lion's share of that. If we look at it regionally, I'll tell you we have work to do all around the world. I can't say that there's any one place better or more challenged than the other. I think we're looking at this from a very balanced standpoint that we have challenges around the world in just trying to maximize our efficiency.

But if I had to lean in any one direction, I would say many of the things that we're looking at revolve around the product business and that should make some sense I think to folks when you consider that we sell product in 128 countries as opposed to providing care in 40 countries or so.

Okay thank you.

Ingeborg Oie, Jeffries.

Thank you for fitting me in. one quick one on the investments and the savings; we're just concerned to see additional investments of [$30 million] should be ongoing and therefore we're talking about maybe a net number on kind of $60 million minus $30 million. The second is taking a step back and thinking about some of the initiatives that we use to talk about such an integrated care, which could obviously change the trajectory from where we are today. Where is that currently standing?

Sure so, Ingeborg, let me do this. Mike, do you want to speak to the investment piece and I'll come back and comment on the integrated care?

Okay, just in the interest of clarity, I think we're talking about two $60 million numbers for the global efficiency program we've indicated outside of our operating guidance that we would anticipate producing on a net basis $60 million of improved earnings associated with the projects in the global efficiency program. In the operating guidance I indicated that we expected to see some incremental spend in the area of improving our quality systems in terms of our global compliance review and with regard to managing some of our legal issues in fiscal 2014 and I said that that incremental spending in the operating guidance could be up to $60 million more, half of which I included in the outlook. So that $30 million is in the operating earnings forecast if that's helpful.

Ingeborg, on the integrated care I think the last time that we spoke during the third quarter call we had commented that we were beginning to see some willingness at CMS to make some changes to the pilot. They had recommended certain construct to architecture of the pilot back in February of last year. A number of us [in] providers were not happy with that and we were pushing for some changes. What I would say to you is everything did in fact get delayed or pushed out, if you will, as a result of the rebase.

The last information I can give to you is that we've heard from CMS toward the latter part of the year that they had to finish up with the rebase work. They did want to come back and talk about integrated care and they were now pondering how to potentially make some of the changes that we were looking for and get this back on track but quite honestly we've heard nothing from them to date in calendar year 2014 yet.

I think, as a practical matter having spent as much time as I do in DC, they've been pretty consumed for, as you can imagine, trying to get the exchanges up and getting that to work appropriately but I do expect we'll hear from them at some point but I think there are just some fires that they've been putting out, if you will, Ingeborg, that have not let them get back to this. But -- and we'll be checking to see when we might be able to get back in and talk to them about it. I just not have done that in the first six weeks or so of the year.

Okay thanks.

David Adlington, JPMorgan.

Okay, guys, thanks for taking the questions. Two points of clarity and then a longer-term question, so first thing, Mike I think on the Q3 call you mentioned that you were looking to book a gain of $15 million to $25 million on the sale of some clinics in Q4. I just wondered if that had happened within these numbers and whether the $32 million on Columbia was in addition to that. Secondly, you're fully towards recognizing half of the potential $60 million in costs in this course in this year relates to compliance systems. What would drive that up towards that $60 million sort of up to a number from the $30 million you've recognized and is that an ongoing cost that just going up on Ingeborg's point? Is that a one-off cost or is that something we should be factoring in going forwards?

And then just in the longer term obviously, Mike, we're kind of looking for margins to be down, maybe up slightly with the cost savings this year or certainly flat. How should we be thinking about margins going forward, given the sort of headwinds you've got in the US in terms of reimbursement? Thanks.

Thank you, David. Mike?

Want me to comment?

Yes go ahead because that's a couple.

Yes in terms of the Q3 call, the $15 million to $25 million related to an asset sale, which is in fact what Columbia was, so it turned out a little bit better than we had thought but that was a reference to what we did in Columbia. Relative to the spending on quality compliance and legal matters, I indicated that we anticipate seeing an incremental spend in 2014 and that it might take us into 2015 to resolve some of these matters so I think that putting about half of it in the guidance is just a rough indication from a timing point of view.

That could move around a little bit between 2014 and 2015 depending on the progress that's made and that would influence the spend. It's really the timing associated with those set of activities that we need to undertake for each of those three things.

And lastly, I would say when I am sure given the time frame I've just laid out we'll talk about this again as we go forward. I think realistically some of that will be one-time costs and some of it may be incremental spend associated with just putting in a stronger infrastructure for instance if you think in terms of quality initiatives, doing things a bit differently going forward to meet the requirements at the FDA. So I'd say that's probably the best way to characterize the $60 million, the timing and why we've put about half of it in the guidance. And some of it will be one time and some of it might be -- I'd say the bulk of it will be one time and there's some, might be some piece of it that's ongoing when we finally settle out the issues.

That's very clear; thank you.

Okay in terms of your last question in terms of margins going forward, I think with the Capital Markets Day coming up that's probably the best place to deal with that question.

Great, thank you.

Ed Ridley-Day, Bank of America.

Thank you for taking my questions. Pertaining to your guidance for 2014, Mike, could you detail the impact of FX, particularly emerging market devaluations on that guidance [10% of sales] in Latin America? Obviously we saw the [bolivar] of our impact from that devaluation last year. Please could you give us color on the impact of the bolivar/peso devaluations and obviously Turkey as well? That would be my first question. Thanks.

Yes, Ed, I think that in the range of guidance we've provided we've considered the effects associated with FX in 2014 and in particular some of what we're seeing in the emerging markets so I think you should view the billion to the billion fifty inclusive of those effects.

As best we know today.

As best we know today yes.

That's very clear yes but last year you gave us also quite clear guidance from the impact of the bolivar into the basis points both for the first six months, nine months and that was very helpful. Clearly your exposure to Argentina is higher and in Turkey so I was wondering if you would be repeating the sort of clarity you gave us last year on the breakdown of that impact on your margins.

I can consider it when we report our results. The bolivar was somewhat particular because it literally occurred and we took the charge in Q1 and the timing of it wasn't quite as -- it didn't fit as well to the guidance that we had provided but I'll keep that in mind as we report it to our actuals.

Thanks but just one very quick follow-up on the costs and the investment, obviously thanks for the guidance of 2016 in your net cost savings. I don't think you gave a number in terms of the sort of total investment that you see this year to drive that. Obviously your investment in systems and the people required to implement the cost savings, that would be helpful.

Yes, no I think and as we develop this we'll sort through the best way we think to report it maybe at Capital Markets but at least the way we're thinking of it here internally when we're talking about what we're actually going to deliver it's on a net basis so it's net of the costs associated with delivering those savings. And then, as we move into looking at this over the two and three year period that we hope it will benefit, you'll obviously have as you come out of each year kind of a sustainable saving flow that's not burdened by the implementation costs.

And, Rice, well I'll wait; okay I'll wait until April. Thank you.

Okay and Rice did comment that for the 2013 there was about a net cost of $15 million.

Yes, yes.

Konrad Lieder, Equinet Bank.

I've got one question on the procurement and if I am correct and your contract is up for renegotiation, then maybe you can give some color on how you approach what your strategy is with concerning [EPO] and where you want to procure it and if there may be price discounts associated with renegotiating such a contract.

Furthermore, I have a question on integrated care. I am (inaudible) it may take a bit longer for you to set it up with CMS but what is the progress (inaudible) payers and maybe it's a different name than its (inaudible) management so what's the progress on this site as for now?

Konrad, let's see, let me answer this. So yes you're correct. In the US our contract with Amgen is up at the end of this calendar year as well in Europe as well. It's very, first time ever, that we've had contracts ending at the same time. From a strategic standpoint obviously we have many options in Europe. There are a number of products on the market, bio similars as well as branded, and so we will evaluate those opportunities and we do use multiple products today.

In the US we are clearly looking at how we would want to go forward. The first opportunity for a different ESA than EPO would be the potential for Roche to bring [CERA] into the US. They could do that in the mid of the year if they come into the market directly themselves and then their patent settlement with Amgen was structured in such a way that should they decide to out license that product to work with a partner, then they're not allowed to come in until the middle of 2015. So, as we said earlier in our call today, we would certainly and we are in a position to take advantage if they were to decide to come into the market that we would be ready to respond to that.

But, having said that as well, let me say that we know clinically we're very comfortable clinically that there's always going to be some amount of our patients today that will need to stay on Amgen's EPO because they simply function better on a short acting product versus the newer EPOs that are coming are longer acting. So I could see us in a situation where we would perhaps have more than one ESA on our formulary. We could have a vast majority of patients on one version but we would still need to have some on the other. But that's probably about as much cover or color as I can give you today on the EPO situation in the US.

In terms of integrated care, you're right. We can only move at the pace with which the government is willing to engage on the Medicare side but on the commercial side, as I have said before, we've had some discussions with the commercial carriers about structuring something like integrated care. We've done a little bit of pilot work with that. Those opportunities are still there but I would say at this point not far enough along for me to really give you any more color or commentary on that, Konrad.

Okay thank you. Maybe one follow-up on the EPO, and if I remember correctly your cost line should be still roughly like $1 billion for the EPO (inaudible). Maybe can you confirm this, this one thing?

Yes what I would simply say is that number is a little high. Probably doesn't do me any good to get into the very specifics on it but you're running a little high for the spend on EPO in the US. That's a little bit high, Konrad.

But in the whole Group it's roughly?

On a global basis, you know what, I'd have to get back to you.

Yes maybe it would be different but and when I look at your guidance you said you do not include any extraordinary assumptions for [direct] usage or pricing but I assume that renegotiation of a contract in 2014 would be a positive effect maybe coming from this side?

It certainly could be keeping in mind that even if we were to begin a negotiation and get that completed, it would probably be well into the year before that were to happen so I think Mike's comment still stands that we don't see anything extraordinary right now. And also a point that I should make is just remember in the international segment we do not offer EPO in every country to every patient and that's the reason I am struggling to give you a consolidated number because I am just not sure. I'd have to really spend some timing and look at the international contribution to that.

Okay that's good. Thank you.

[Anita Vasu], [Redburn].

Yes I just had a couple of clarifying questions. The [$50 million] in cost savings that you guys have targeted, in terms of any more updates on this figure at the Capital Markets Day, I mean can we expect that you might give longer-term savings or is it all you plan to provide now for this year?

And my second question is the 2014 guidance was a bit lower than what we and the market was expecting. Can I just confirm, you know, we have seen some German companies report where conservative guidance has been issued because of new German laws that require to say your guidance despite a lack of visibility. Has this also affected your outlook for 2014 or is this purely operationally driven based on what you've said before? Thanks.

Anita, it's Rice. So let me say this. As we think about April and what we're going to be able to sit and share with you, I am not totally clear as to exactly how much detail. We'll try to give you as much color as we can. Obviously from today to that point in time have some work to do and we approached it today the way that we did. In terms of the guidance for 2014, I would say it this, Anita. The guidance is really the guidance. We're not feeling pressure from being located here in Germany or anything of that nature in terms of how we approach the guidance. I think we've just tried to do as best we could to give you an adequate sense of what we think we can do with the exclusions that we've highlighted for you.

Thank you.

I would just add, Anita, for your benefit because we are traded here in Germany and also on the New York Exchange and we file a 20-F, they have expanded what you need to say about your guidance and we merit those disclosures so you don't need to go on the hunt for them. They'll be in the 20-F as we file it.

Thank you.

Tom Jones, Berenberg.

Thank you for squeezing my questions in at the end. I have three actually. The first was just on a more operational mundane matter. Your product business was very strong in Q4. Growth in that business has been kind of trending up all year. Have we kind of reached the high water mark for growth in the product's business or were there any kind of tenders that lifted things in Q4 that probably won't recur? Just trying to get a sense for kind of what the ongoing growth rate in the products business, both in the US and internationally we should be thinking about.

The second question is even despite the guidance I suspect you're still likely to generate a fairly healthy level of free cash flow this year and assuming no major acquisitions pop up and it doesn't look like there's an awful lot on the horizon, just interested your thoughts on what you might do with that cash. I guess there's no point asking you if you're going to do a buyback because you're not going to say that but maybe I can ask the question as to the why didn't you propose another buyback this year?

And then the third question really is just a more conceptual one about your guidance of the global efficiency program and the organization as a whole. With the costs that you -- or certainly within your guidance, you appear to have given yourself even with the caveat of the various one offs and non-recurring items you've given us, you seem to have given yourself quite a lot of leeway on the cost side. And I just wondered as you were thinking about guidance and thinking about the business for this year and next, how much of that leeway on costs did you allow yourself in order that you have been this for a position where you didn't have to squeeze the organization down too hard in the short-term with a view to the global efficiency program gathering steam in the second half of this year and to next?

You know, having seen those kind of restructuring programs or cost saving programs in a number of other businesses, they can be quite demoralizing for the employees and I just wondered how much of the guidance is kind of far view saying to the organization look we appreciate this is going to be a bit difficult for you going forward but we're not going to be too mean in the early part this year for you and not going to squeeze down too hard all over the place on cost because of what you might be doing later on this year and next.

Tom, hi it's Rice. So let me see if I can at least get started here an I'll have Mike jump in and help me. When we look at the products' business and where does it go beyond Q4, I would say this. The improvement in the robustness that you've seen in the US I think we'll see some continuation of that but remember a big piece of that, this extraordinary growth beyond kind of market growth, came from us being in the right place at the right time to pick up some incremental business when Gambro had some issues or Baxter, if you will, as we call them today. So there will be some modulation of that because we've picked up that business. It's in the run rate and so I think you will see a little bit of moderating there.

I don't really have a number to give you just at this point. On the international side, as we had talked in the summer, we did in fact win some tenders. We fulfilled those tenders. That will carry on but I remain bullish on the product side for the foreseeable future. Will it run at exactly these high percentage increases year-over-year or quarter-to-quarter? I think not because just by the sheer nature of the tender business now that we've picked some up the pressure will increase. People are going to probably the competition will look at dropping prices so there will be a little more pressure there but I think we still should maintain market growth to maybe a little bit better but I think you would agree with me, Tom, we've been well above market as you look at where we were in the fourth quarter.

Sure.

On the free cash flow Mike always has ideas about money but I'll turn it over and let him talk to you a little bit about what we're thinking. Go ahead, Mike.

Thanks, Rice. I appreciate the question, Tom. I think you answered it in part yourself. We haven't guided anything in terms of a share buyback and we don't have any current plans to execute one in fiscal 2014. It is something that we demonstrated with what we did this past year that we will look at whether or not that makes sense for the business and for the shareholders and then to the extent to which I think it's appropriate, bring it up and consider it as we go forward but I have to say in terms of where we are today no current plans for a share buyback.

So should we just be thinking about incremental free cash flow going just finally into short-term debt pay down or--?

Well, I think that that's a fair statement to the extent to which that we have maturities coming up, may consider doing that. Also I would say I think our historical practice has been that with regard to guidance we always provide a base line guidance in terms of our acquisition spend but as opportunities present themselves we've also said that we'll be opportunistic so I'd adjust that 2014.

Okay.

Yes, Tom, on the GEP the way you and I might define leeway on the cost side might be a little different but I think you're coming to a point that I think is very well made. It's a big organization. We're culturally very diverse and to look at global GEP program, get people on board, align them up to execute on something like this is a pretty large effort in the same time that you are providing life saving treatment for people and trying to do it in the most humane way possible.

So I would say to you that yes we've tried to give ourselves some leeway from a motivation standpoint and from trying to approach this in a way that we never ever put product safety or patient care at risk and at the same time, and you've heard me say this many times, first priority is patients but a very, very close second to that is employee and that in and of itself creates some friction when you try to manage one of these programs and so I appreciate you giving me the chance to say this.

We're not trying to necessarily be cute or non-transparent in some of these matters but we're also trying to manage our employee base because that's what I think this -- I'm paid to do beyond returning the kind of value to you that you're looking for.

Sure and maybe one last follow-up that I'd covering up the answer but I've got to chart for my own, your closing comments was you talked about returning to the certain growth trajectory once you get through these troubled waters. Any sort of conceptual comment you could give us about how steep that growth trajectory might be once you get through these challenging periods or we just have to work that out for ourselves?

You know, I think, Tom, that there's probably not a lot of value in me going there today. Happy to think about that as we go through time. It's something that we're really looking and studying but the key point I'll come back to is just simply I think we are in a troubled stretch of water at this point but we will get through it. We're trying to do it as prudently as we can and we just appreciate people's patience and understanding with that as best you can.

Sure. Great I'll leave it at that.

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

Thank you so much. Thank you very much, everybody, for participating and for the questions today, much appreciated, looking forward to talking to you soon. Thank you.