Fresenius Medical Care AG (FMS) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I am Patrick Wright, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care earnings call of the fourth quarter and full-year results, 2014.

(Operator Instructions). 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. We would like to welcome all of you to the Fresenius Medical Care earnings call for the fourth quarter and the fiscal year 2014. 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 out the call by mentioning our cautionary language that is in our Safe Harbor statement of our presentation and of all the material that we have 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 Fresenius Medical Care Management Board, and Rice will give you a general business update and go through some of our strategic initiatives, give some highlights there, and we also have with us today Mike Brosnan, our Chief Financial Officer, who will cover the financials and the outlook in more detail.

So with that, Rice, the floor is all yours.

Thank you, Oliver. Welcome, everyone. Happy to have you with us today. Before we get started with my prepared remarks, as I always do, because I think it's important, let me please thank the FMC senior management team. For those of you that are on the phone or have joined us by the Web, thank you for a great fourth quarter and full-year 2014. You worked very hard, and you were very successful, and I appreciate greatly the efforts that you made last year.

Moving to my prepared remarks on slide 5, I think the headline here is simply that our solid performance has continued, as we look back at 2014. The right part of the slide gives you a couple of key metrics graphically, revenue, EBIT, net income. I won't walk you through those numbers. I know you've seem then now for several hours.

I think my comments would be the following. You will hear more detail, later today, about the recommendation, the proposal, that we're making for our 18th consecutive dividend increase at FMC. We had sought a better-than-expected in our Global Efficiency Program. We had highlighted for you all year that we were looking at a pre-tax savings figure, net of implementation costs, of about $60 million, and, in fact, we came in around $65 million, about $40 million after tax.

We've continued to make investments in quality and compliance systems. We are now operating in five additional countries. In the service business, we're at 45 countries, and, obviously, as we move into those systems and begin to engage with payers and regulators, we have to improve our infrastructure or increase our infrastructure, and, obviously, in the developed markets, we continue to have regulation changes that drive us to have to invest and adjust.

And lastly, I would say as we get to the outlook, Mike's going to take you through that, but I would say that we've built this outlook with the continuation of success in our global efficiency program. It is on track. We're seeing what we wanted to see, and the acquisitions that we've made in 2014 will continue to support growth in the coming years. And we're considerable comfortable that will be the case.

Now, moving to slide 6, we talked a lot about sequential quarter performance throughout last year. I've tried to just graphically give you a sense of that again. Happy to remind you that it improved sequentially as we went through the year.

Just focusing on constant currency, you can see nice performance from where we started at a low point of 3.2% or 4.3% in constant-currency revenue growth in the first quarter, and having a fourth quarter performance of 15.3%, quite impressive as we go through the year.

And then, looking at our organic revenue growth, you can see both for services and products the way it played out over the course of the year, with a range of roughly 3% in the first quarter, and exiting at approximately 7% in the fourth quarter.

If we look slide 7, as we consistently show you, you can see the mix, if you will, of our revenue for the full year 2014. Not a lot of change in that about 66% came from North America, 20% from EMEA, and you can see how Asia-Pacific and Latin America played out. But, again, looking at the regions, in North America 9% revenue growth, an organic growth of 5%, and then looking internationally, a very strong 11% constant-currency growth and organic growth of 6%, and delivering $5.3 billion, approximately, in international revenue for fiscal year 2014.

On slide 8, as I generally do, just a couple of key numbers for you. Our clinic base grew 3%. We're just shy of 3,400 clinics around the world. You can see the basic split between North America and international.

The other two key figures are 6% growth in treatments. We're right at 43 million treatments for full-year '14, and our patient base grew 6%. We're at 286,000, I believe it's actually 312 patients, but roughly 286,000 in the year. So, clinic growth 3%, treatment growth 6%, and patient growth at 6%, as well.

And I'll highlight for you the de novo clinics, particularly in Europe at 31, a good number for us, a bigger number than we've seen in some of the other quarters. 16 of those de novos were in Europe, 16 were in Latin America, and then we had 9 de novos in the Asia-Pacific region, as well.

Now, turning to slide 9, a new slide. Let's spend some time, and let's talk about this, if we can. First, let me say to you that we have highlighted and we've talked about this before in previous quarters. In early May of this year, when we come to you with our first quarter results, we will be showing you some key metrics for Care Coordination, different than key metrics for the core business.

We understand, Mike and I both get, that revenue per treatment and cost per treatment don't necessarily for Care Coordination, and we had told you that we were committed to giving you metrics that you could be comfortable with in measuring our Care Coordination activities, and we will do that in the first quarter.

Now, what are we trying to accomplish on this slide? Just, again, to redefine for people two things. We're now referring to our service business revenue as healthcare revenue, and we're breaking it in two pieces.

Care Coordination, first. You can see that it now consists of vascular, cardiovascular, endovascular services. This is really the vascular access business, and, obviously, NCP is in that number. We bolted the acquisitions that were recently made in 2014.

You know about the hospitalist business with Sound and Cogent. Our pharmacy business we've had for a number of years, but it's now in this Care Coordination category. Shiel is the non-dialysis laboratory business that we acquired the last days of 2013. This is the Northeastern-based business in New York, New Jersey, running down to Philadelphia, and we're using that business as a pilot, if you will, for looking at non-dialysis lab work. And then you see Medspring and our health plan.

Now, again, to give you some sense of the progression of Care Coordination when you look at revenue, and you can see, as of the end of 2014, with the calendar effects of the acquisitions that we've made, Care Coordination was about 7% of our revenue. We were at $500 million in 2013. Approximately $1 billion last year, and we are targeting or guiding you to approximately $1.7 billion in 2015 in Care Coordination revenue.

Now, looking at dialysis care services, it's what you know us for. It is end-stage renal disease treatments in our clinics. It's the end-stage renal disease lab work that we do for our dialysis patients, and then it's also the acute services we provide in the various hospitals around the world, and that generates 70% of our revenue.

And then looking at our products business, there's really no impact or change to products and what makes that up. It's the same as it has been in previous years, but we wanted to give you the full view of 70% dialysis care, Care Coordination at 7%, again, for '14, and 23% for products.

So, you will see, even on our next slide, that we've moved in to referring to the services revenue as healthcare revenue, and it has two key components.

Moving to slide 10, looking at the quarter and full-year performance, $3.3 billion in the fourth quarter in the highlighted blue area. You can see constant-currency growth of 18%. We're very pleased with that. Organic growth of 6% in North America, 8% internationally in our healthcare business and our service business, and same market at 4%.

Now, taking a full-year view of that, you can see we're at $12.250 billion, again, 12% constant-currency growth, nice performance. You see the breakout in organic growth between the two businesses, and then the same market finishing the year on a combined basis at 4%. We feel very good about that.

Now, looking at slide 11, we've added something here. This is very US-specific. You see it on the right side of the page. This is 2013 data.

And what we're simply depicting here and reminding you of is that the rating, if you will, or the quality incentive structure that we have with CMS in our clinic business in the US. It's how the government or our Medicare/Medicaid patients measures us, if you will, and you can see that 94% of our clinics had no reduction for missing any of the quality parameters, as defined by CMS. And then you can see how it breaks out among the smaller minorities there.

But, again, with the advent of the 5-star system, and all this discussion that's going on about it, I wanted to bring you back to what really counts, beyond what we believe we're accomplishing with our patients, is what CMS is giving us for that large book of our business that's government funded, and you can see that we're doing quite well, and leading the industry.

The next thing I would point out among our quality outcomes is you see basically stable to slight improvements among all of these parameters, but let's go back. If you recall in third quarter, you see at the very bottom we were at 8.9 hospitalization days per patient in the US. We told you then we were delighted with that number, but we weren't sure if it was a trend. I don't think two quarters make a trend, but we still are pleased when you look at 9.1 days in the fourth quarter. We like the way that is developing.

And further to that, if you would move to slide 12, I wanted to come back and give you a retrospective of where hospital days per patient have gone since 2005, all the way through the end of last year.

So, looking at '05 through '07, you see the slope of that curve is significant. I would say to you that we were in the demonstration project, the integrated care project, at that time. We were learning a lot about intervention in trying to prevent hospital days and shortening hospital days, and through the waivers that we had in that program of being able to provide nutrition, being able to provide some transportation to get patients to their treatment, and just the overall focus that we had on what went on in the hospital with our patients, we drove improvement.

And now, if you move all the way out to the last three years, in ultimately seeing that we had a 23% improvement over this period of time of '05 through '14, I would say '12 to '14 has come about from a very strong focus on preventing mistreatments or patients shortening their treatment and leaving early. Fluid management is something we've been very focused on, utilizing the crit line technology. We've talked about that before. And also trying to work with our patients to avoid sodium loading during and just before treatment, as well.

So, I'm proud of this, and you may ask, well, why is it so important. Well, A) it's healthcare. You all get that. We're trying to do the right thing for our patients. But we also know hospitalizations drive cost, and if we can show this type of improvement over this 8, 9 year period, we'll continue to endeavor to drive more cost out of the system by these types of activities that we've undertaken. But I thought it might be important for you to have a chance to look at that for the last number of years.

Moving to revenue growth, in the external product market we had very good performance, both internationally and in the US or in North America. In the quarter, we were basically at $1 billion, constant-currency growth of 8%, and you can see nice performance in both businesses, North America at 8, International at 6.

I would say to you that one of the things that drove that, in the case of North America, is the independent market on machines where we had had some issues over the course of the first couple of quarters of last year. We saw 6% growth in the fourth quarter. So, it was a nice pickup. I think the independent docs and clinic owners turned loose of some of their money to buy equipment after there was some stability in the reimbursement picture in the US. So, I think it was a nice performance.

On a full-year basis, looking at $3.6 billion in that product business, and 4% constant-currency growth, I would say two comments. Obviously, 1% growth in North America on a constant-currency basis simply means we couldn't overcome some of the shortfall we saw in machines in the first quarters of last year, but I will also say to you the dialyzer business continued to perform well all year in the US at about a 5% growth.

And then, looking International, we did have some weakness, or some lightness, if you will, in some of the markets, particularly in Eastern Europe and Russia on machines. But, again, we drove those 4% constant-currency growth really on the back of very strong dialyzer growth at 9%, and then good growth, pretty much in the rest of the product lines, ex-machines, for International. So, we're pleased with that.

Moving to slide 14, we are now at just about 100,000 full-time equivalents at FMC on a global basis. You can see the split, if you will, the percentages among the regions of the world there on the chart. But I think what's important to note for you, of the 9,000 full-time equivalents that we added in 2014, 8,000 of them came to us via acquisition and only 1,000 were organic.

The basic splits of the 8,000 that came to us through acquisition, about 5,000, just a little over, came from North America. We had about 2,500 coming out of the Asia-Pacific region, and roughly around 500 or so coming out of EMEA. But, again, I thought it would be of value for you to understand that most of this is really coming through the acquisition activity that we had last year.

Turning to slide 15, we are proposing a dividend increase. You can see that, by looking graphically, we're at a 1% increase over the prior year, EUR0.78 versus EUR0.77. It has already been pointed out to me today that there's some folks who think that's rather paltry. They'd like to have seen that be a bigger number.

I can appreciate that. Keeping in mind that had we followed our earnings dividend policy, where we were down about 6% on an EAT basis, 6% down, that would have said there wouldn't have been a dividend, and, obviously, that not something that the Company's going to undertake, and so, yes, there are better numbers than 1%, but we think it's rational and prudent. If you recall, we were down in '13, and yet we proposed and paid out 3%.

And this will get better, over time, but I just want to make sure you understand we're actually outside of our policy in order to try to do the right thing here. It's a dividend payout ratio of around 28%.

My last comments before turning it over to Mike, we simply continue to focus on improving the quality of life for our patients. That's not changed. You know our priorities and we are endeavoring to maintain those priorities to the best of our ability.

We are the world leader in a growing global dialysis market. I think sometimes we throw big numbers around, and we lose sight of the fact that $10.5 billion in North America, and $5.3 billion internationally, we've come a long way over the years. It's a big business. We've got people doing great work, and just keep in mind that we are the leader in this. It's a growing market around the world.

We believe that, in the long run, our opportunities far outweigh our challenges. We gave you targets for 2020 back in April of last year, and you'll see this year, Mike will take you through it, we've tried to give you guidance for two years, because we think it makes sense to give you a view of the way we see the world as we approach this 2020 target, and, hopefully, this will be helpful for you, and Mike will walk you through the details on that. And, obviously, we see accelerated earnings growth as we go forward, and Mike will give you more clarity on that.

So, with that, thank you for your attention, and, Mike, I'm going to turn it over to you.

Thank you. Thanks, Rice. Hi, everybody, and I'll just start on the P&L in one minute.

Just -- I know you all took it the right way, but just to clarify one thing Rice said. He said that if we had followed our dividend policy, there wouldn't be a dividend, and what he mean to say was there wouldn't be a dividend increase.

They knew what I meant.

Oh, I'm sure, but with all the folks we have on the phone, I don't want it to be -- people to misunderstand that item.

So, thanks, again, and I'll just walk through at a fairly level the P&Ls, both the quarter and the full year.

Our operating earnings, because Rice has covered revenues pretty thoroughly, our operating earnings were just slightly better, $663 million. Margins, obviously, were down, year over year, about 170 basis points.

The -- overall, when you look at that 170 basis point decline, North America's margins were down and contributed to that decline to the tune of about 60 basis points. International margins were also off a bit, contributing about 20 basis points, and we did see some increase in our corporate costs, which had 100 basis point impact on the consolidated margins, and now I'll just go through each of those elements.

So, first, when you look at North America, operating income had an increase of 9%, $40 million in the quarter, to just under $500 million of operating earnings. The margin decline for North America, stand-alone, was about 90 basis points.

And it won't come as a surprise to any of you that when you look at what happened with regard to Medicare reimbursement in 2014, we saw the impact of the Medicare rebasing, and even after you consider the market basket increase, essentially the Medicare reimbursement does not cover the increased cost of care in North America.

In addition, we did have some increases in the consulting and legal expenses that we've been talking about. That's the FDA remediation, and the GranuFlo matter in the US, and those account for the more significant downsides.

That was partly offset by good results with regard to our commercial payer effects, and slightly lower cost of the pharmaceuticals from a cost and a utilization perspective.

So, as we indicated in our Capital Markets Day last April, we did plan to significantly grow Care Coordination as part of our 2020 strategy, and you've seen the aggressive actions we've taken in that direction in the second half of 2014. So, our fourth quarter revenues for Care Coordination are $395 million, just shy of $400 million, up very significantly from last year, which was at $157 million. And that would indicate a run rate that would put you in the vicinity of the number Rice commented on, in terms of 2015 being about in the $1.7 billion range.

As we also said at the CMD, this growth will be at lower margins than our legacy business. So, I'll talk more about that later in the presentation, when we talk about our outlook for 2015, and our forecast for 2016.

On the International side of our business, our operating income dropped a bit, $4 million, so the margins, when you look at International stand-alone, were down about 60 basis points.

Not surprisingly, some of that decline was due to the fact, as we reported in the fourth quarter last year, we did take a gain on a sale of real estate in Colombia. We indicated that was about $32 million last year, in our call. So, that had accounted for quite a bit of the decline, year over year.

We did see higher manufacturing costs due to labor and overheads, which, as Rice talked about in terms of particularly machine volumes being down on the International side, weren't fully absorbed.

And we did have to offset that lower provisioning of bad debts this year over last. And we also had favorable growth in Asia, and favorable FX of about 50 basis points, just to give you some perspective on that.

In our corporate costs, you do see in the fourth quarter increased spending of about $42 million, which had 100 basis point effect on the margins. This increase was mostly due to the matters we've been talking about, which is the legal and compliance spending, and some of the FDA remediation that needs to be addressed in our corporate group for global manufacturing operations, so, it's recorded here in Bad Homburg.

We did provide an indication during the year on the incremental spending with regard to these three things -- our compliance review, FDA, and preparing for the GranuFlo matter in the US. In the end, these costs were more than we anticipated in fiscal 2014. The incremental spend for '14 was approximately $100 million, rather than the $60 million that I indicated as the year progressed.

The incremental spend in the fourth quarter was roughly the $40 million that we're talking about, and we do expect our spending in these areas to continue into 2015 and 2016, albeit it at lower levels.

Net interest expense increased about 20% to $117 million from $98 million. That clearly is a result of the increase in our average debt levels, as a consequence of our acquisition program. However, also in the fourth quarter there were one-time costs associated with the amendment and extension of our credit agreement. For your benefit, that was worth about $8 million in the fourth quarter. So, I think once you consider those one-time costs, the overall interest expense will make sense to all of you.

In terms of taxes, you can see our effective tax rate was down from just over 30% to just over 26%. As we indicated in the investor news, that's mainly driven by a favorable resolution of some civil settlement payments that we took on tax returns from prior years. As a consequence of resolving that uncertainty, we reversed accruals we had on the books related to that, and took a $23 million benefit in the fourth quarter.

If you were to look at 2014, Q4, without regard to that favorable decision, you'd be seeing an effective tax around 33% for the fourth quarter. And then our non-controlling interests have increased $24 million from $43 million to $68 million. Not surprisingly, this was due to increased earnings in our joint ventures, the creation of additional joint ventures where we see the follow-on effect in '14 that were created in the back half of '13.

Our reporting earnings are down about $14 million, or 4%, and earnings per share for Q4 decreased about 5%.

So, turning to chart 19, just taking a look at the full-year P&L, again, focusing more on the operating earnings in the lower half of the chart that you see, operating earnings were essentially flat with last year. Margins were down 120 basis points.

In terms of contribution from the different elements, North America's margins were down and contributed 80 basis points to that decline. International margins were up, just a bit, favorably impacting margins by about 10 basis points, and corporate costs, when you look at the full year, had a 60 basis point unfavorable impact.

And then, providing a little bit more detail to that, quite consistent with what I mentioned for Q4, you have the shortfall with regard to Medicare reimbursement having a contribution to the full year. Here you also see that for the full year you have higher personnel costs that weren't offset by the Medicare rate increase. And costs related to the legal and consulting or the GranuFlo matter, as well as the FDA remediation.

A little bit of an effect for the tail end of sequestration, about 10 basis points, and offsetting that a bit, you have positive effects with regard to our commercial payers, and positive effects with regard to lower pharma costs.

In International, operating income increased $73 million, or 8%, margins improving about 30 basis points when you look at International stand-alone. This was largely due to the lower bad debt expense over the course of the year, favorable FX, the business growth that we've seen, particularly in Asia, partly offset by the gain recognition in Q4 of last year on Colombia.

Corporate spending also was up about $94 million to $358 million for the year, 60 basis point effect on margins, and essentially due to the same matters that I just discussed a moment ago in the fourth quarter.

Net interest expense, up only 1%, also for the same reasons in terms of the increase in average debt level, the one-time costs associated with the amendment. We did have overall increases, partially offset by the mix of our debt, and the refinancing of our credit agreement.

And we did have higher interest income on the note we have in the US to a middle-market dialysis services company.

Taxes you can see relatively close effective tax rates. I would just make two comments. First, when you think in terms of the tax rate for the full year of 2014, I'll just remind folks that while we did have the favorable impact in Q4 related to the deduction of civil settlements, we had the unfavorable effect in the second quarter with regard to reversing a benefit we took in a prior year, as a consequence of the German Tax Court decision on a different company with a similar question before the courts.

So, the combined effect of those two had a very slight favorable effect on the full-year tax rate. If you were to take those effects out of the tax rate, you'd have an effective tax rate for '14 of roughly 34%.

Non-controlling interest was up, again associated with similar effects that I discussed for the fourth quarter, and reported earnings were at $1.045 billion, down about $65 million or 6%, as Rice indicated.

So, turning to chart 20, and just starting a discussion of cash flows, as we always do, talking about days sales outstanding, in total for the Company, very stable at 72 days, sequential quarter, 1 day better than last year. North America continues to perform very, very well, 2 days better on a sequential quarter basis, 3 days better year over year. Not surprisingly, as we've reported in the past, that was due to a little bit of a slowdown in some of the Medicare payments towards the tail end of last year that we've now fully recovered this year.

International was up 6 days from last quarter, and a 4 day increase, year over year. That's higher than we would like, but we believe that we are operating within the bands that we've managed to in the International side for several years, and we've indicated that on the chart with the light-blue numbers. If you look at the last 5 years, we've been in the range of 107 to 125 days, so we think that that, albeit a little higher than we'd like, 114 days doesn't -- is not a negative in terms of managing the business.

Chart 21, looking at cash flows for the fourth quarter and the full year, top side of the chart, just for the fourth quarter. As you can see, at percent of revenue, 16.2% last year for cash flow from operations, 13.1% this year. Both quarters very high, this year slightly down on a year-over-year basis. And that reflects, essentially, a contribution in terms of earnings-related cash flows, and a slight increase in working capital.

CapEx, as a percentage, was up year over year, but the numbers you're seeing for the fourth quarter with CapEx at $282 million are within the range of our guidance that we provided for the full year, and, obviously, the net use of cash for fiscal 2014 relates directly to our acquisition program.

Looking at the full year in the bottom half of the chart, you can see that at $1.8 billion and change, cash flow from operations was down about $174 million this year. I've explained this is prior quarters. This is largely the result of making the final payment associated with the settlement of the Grace matter, that dates back to the formation of the Company, for $115 million. We did make a tax payment for the German tax audits, which we had previously provided for. So, we're just seeing the cash effect.

A little bit of an increase in inventory and accounts receivable, as I just mentioned, and this was partly offset by other elements of working capital, a supplier rebate.

And CapEx, as I indicated for the quarter, for the full year we're spot on our guidance at 6% of revenues.

We're not showing the acquisition spend, but, again, in terms of the negative free cash flow for the full year, that's indicative of the $1.8 billion that we spent in our acquisition program in fiscal '14.

Turning to chart 22, and looking at debt and leverage, our debt did increase to $9.5 billion. Leverage ratio at the end of the year at 3.1 times, and giving just an indication of what I would expect in 2015, based on the outlook that I'm providing for you in a few minutes, I'd expect that some accretion in our leverage ratio, down to approximately 3 times.

During the quarter and for the year, we successfully managed our debt portfolio, issuing permanent financing for all of our acquisitions, and, as I mentioned before, we amended our credit agreement. We have no appreciable maturities in our debt schedule until 2017.

I will just make a small note, because as we always do we include the ratings of the 3 rating agencies. S&P did upgrade us to BBB- investment grade a short while ago. I'll just make the comment, we appreciate their confidence in the franchise, and their confirmation of our ability to manage our operating cash flows and our debt effectively, but we did make a quick announcement shortly after the upgrade that we have not changed our financial policy. We will continue to manage our leverage prudently, but we will also be opportunistic in pursuing acquisitions that support our 2020 strategy.

Turning to chart 23, and now spending a little bit of time on our outlook, we are showing two years, and we're taking this approach as we consider the influences on our operating results for 2015, some operating cost investments that we're planning to make in our Care Coordination business, and to give you some perspective towards the longer view that we provided in our capital markets day, regarding what we believe we can achieve for 2020.

So, first 2015 -- we are, as you can see, on an actuals basis we're guiding to about 5% to 7% revenue growth, but currency does swing unfavorably next year, so, on a constant-currency basis, we're actually looking at double-digit revenue growth in the range of 10% to 12%.

Revenue is, obviously, influenced because, effectively, there is no Medicare, increase in Medicare reimbursement next year. As you all know from studying the information, there's a slight benefit, but certainly not sufficient to cover the cost of care.

The -- on a constant -- oh, when you look at net income, we're guiding flat to up 5%. Rice commented about the zero. I don't like it either, but we think it's prudent to give you that range for fiscal '15.

To give some indication on what our guidance is based on, as the chart indicates, the guidance considers the current exchange rate environment at the beginning of 2015. We do believe that our historical guidance on exchange rate continues to be effective for our business. For earnings after tax, we had typically indicated that the change in our two base currencies, the euro and the dollar, tend to be largely mitigated by the nature of our business, that being a service business with a large component of local currency content in the countries in which we operate, the geographic and currency mix of our business globally and our hedging policies that we've applied consistently with regard to cross-currency procurement.

Our general guidance, however, cannot anticipate outlier developments. We do Russia as one of these outlier developments that is affecting our earnings growth by between 1% to 2% for fiscal '15.

GEP is in the numbers in terms of the outlook, and there are no acquisitions in 2015 and '16 included.

So, we've moved aggressively. I'm now on the fourth bullet point on the page 23. We have moved aggressively in Care Coordination. We believe in the 2020 planning period that the natural run rate of this business will have lower margins than our legacy business.

In the near term, 2015 and 2016, we will be investing in this business in several ways. I'll just comment on a couple of those. In the hospitalist space, just as a reminder, Sound Physicians did acquire Cogent late in the year, and there are integration activities associated with that acquisition. The integration is on track, but our plan, our outlook, does include provisioning for redundancies and other costs associated with that set of activities. To give you some sense of the order of magnitude, we're talking on the order of roughly $10 million in the '15 outlook.

As you know, Sound will be participating in the BPCI program that's coming out in 2015. That's the Bundled Payment Care Initiative. It's another opportunity for us to demonstrate our capabilities in achieving the program's goals. It's a shared savings initiative.

Our preparations began in 2014, expecting the program to begin January 1st, 2015. CMS has delayed the start of the program until the second quarter. We still anticipate the program will go live in 2015, but we will monitor the developments and the investment we're making appropriately.

In our urgent care business, we're continuing to develop our footprint, working closely with regional hospitals and healthcare providers. We spent, in terms of operating cost investment, roughly $10 million in 2014, and we anticipate that investment will double in 2015, so roughly $20 million.

Then we're also investing in our set of risk management activities in Care Coordination that form part of our Care Coordination strategy that links directly to our dialysis patients. Our mission statement in North America commits to improving the lives of every patient every day.

In risk management, we believe you'll see developments in 2015 regarding our participation in programs designed to manifest this mission, providing more focused and integrated care for our renal patients, while reducing total cost to the system. We spent a little over $20 million on this set of activities in 2014, and we also expect to double our investment in this area in 2015.

The last comment with regard, a little bit forward looking, the Care Coordination represented approximately 3.6%, call it 4% of our revenues in 2013. As Rice indicated, it represented roughly 7% of our earnings -- excuse me, our revenues, in 2014. And in 2015, we anticipate it will be roughly around 10% of revenues.

As you have noticed over the course of the year, our Care Coordination activities will accentuate the effect of the financial reporting of many of the joint ventures that are part of the Care Coordination book of business. So, the absolute amount of non-controlling interest will increase. It'll increase particularly due to the lower level of our participating interest in National Cardiovascular Partners.

The historical business model for our legacy business we typically owned north of 50% of the ventures in which we participated, oftentimes being, let's say, something between 60% and 90%. And, as a consequence of NCP being less than 40%, you'll see an increase in non-controlling interest. You'll also see an increase of non-controlling interest, slightly disproportional, because the revenue growth rate of the Care Coordination business is faster than the legacy business.

So, consistent with what Rice said with regard to looking at KPIs and metrics for Care Coordination next year a little bit differently, with providing you a little bit more granularity, what we will also do in 2015 when we discuss our operating earnings is we have historically discussed the operating earnings and the non-controlling interest in a very separate and disconnected way. Next year we'll be doing that, emphasizing based on the performance that you see in our business, net of non-controlling interest, so it's more oriented towards what our -- what stays -- what portion of our operating results stays with our investors.

2016 you do see the numbers on the page, 9% to 12% growth. Given the way we've prepared the forecast, by definition that's on a constant-currency basis, because both years were based on the currency environment at the beginning of 2015. So, you're looking at another year, potentially, of double-digit growth, ranging from 9% to 12% in fiscal 2016.

We do anticipate that some of the investments that I've just talked about will produce results such that we anticipate we'll see an improvement in net income of 10% to 20% -- excuse me, 15% to 20%, for fiscal 2016 over '15.

So, with that, that's the end of my prepared remarks, so, I'll -- excuse me, actually, I'm sorry. Page 24, just, again, to emphasize a little bit more with regard to the forecast we've provided to you, and some of the positives that are in that forecast, and some of the things that we have considered and you would probably also want to consider with regard to the numbers we've given you.

So, clearly, positive drivers, as you look at -- beyond '15 into '16, the Global Efficiency Group Program continues to produce the savings, as we've indicated, and we've talked about the growth in our Care Coordination business, which we see as a strong positive.

To be considered is that we will see a modest beneficial effect with regard to the enacted reimbursement programs in the United States. And we have an assumption that there will be no meaningful change in the reimbursement and regulatory positions in all the other countries in which we operate.

Clearly, operating in 45 countries provides a significant risk mitigator with regard to the individual acts of any country in that group. We are investing in our quality and compliance systems, as we've said, and we are aware of the fact that the interest rate environment may change as central bankers and fiscal authorities around the world try to address what they anticipate in terms of inflationary pressures on various jurisdictions in which we operate.

So, that's the end of my prepared remarks. I'll turn the call back to Oliver.

Great. Thank you, Rice. Thank you, Mike, for the presentation, for the insight. I think, Patrick, we can now open the call for Q&A.

Thank you. (Operator Instructions). And our first question today comes from the line of Tom Jones of Berenberg. Please go ahead.

Oh, good afternoon, and thanks for taking my questions. I have a couple.

The first question I want to talk to you is just to get a bit more color on your 9% to 12% constant-currency growth guidance for 2016. That's a quite an acceleration on what one would expect you to be able to achieve from your core dialysis and products business. So, my guess is that quite a bit of that is going to come organically on the Care Coordination side.

But I just wondered if you could -- you could try and explain that sort of acceleration in growth in a little more detail for us?

The second question might be, in part, related to the first. I just wonder, with your expansion in Care Coordination, how much thought/consideration you'd given to, perhaps, more aggressively pursuing alternative structures within Care Coordination.

I was thinking, perhaps, along the lines of various partnership models or slightly different ownership structures to the ones that you're currently involved in. I know with NCP, there's quite a heavy partnership model within that. But I just wondered how we should be thinking about those kind of things, going forward.

And then a third question was just on the Q4 interest expense. Although the net number was basically what we expected, and if you take off the $8 million cost that you mentioned, it was bang in line with what most of us were looking at, I think.

Both the net -- both the interest expense and the interest income were significant higher than, certainly, I was expecting. And I was just wondering whether we should be thinking about the net number as the run rate for -- as a base for the run rate for full-year '15, or whether we should be thinking about the expense number as a run rate and then how those numbers might play out in '15?

Okay. So, I'll take the first and the third, and Rice will give me a break. He'll take the second question.

So, on your first question in terms of the 9% to 12% growth in revenues for 2016, I would say '15 and '16, obviously we're starting with some pretty robust growth in Care Coordination, from $500 million to $1 billion to $1.7 billion. So, we do expect Care Coordination is going to continue to contribute, generally, to a faster growth rate than when you compare it to the legacy business.

And then, on the legacy business side, thinking in terms of both '15 and '16, I think it's fair to say that if you think in terms of, let's say, on the low end, 3% to maybe 5% for the legacy business, that's -- those are two benchmarks I'd give you in terms of looking at the -- and those are global numbers for the legacy business to think in terms of the top-line growth.

On the third question, Tom, I have to start with an apology for the accounting profession. We -- as you know, we did an equity-neutral convertible bond in fiscal 2014 to take advantage of what was happening in that market, and to get very, very low cost of financing with a 1-1/8 coupon on that.

However, since it is equity neutral you have to buy a call, and then you have to deal with mark-to-market accounting on the call and the derivative in the bond. So, I would suggest, but for the loan that we have in the US to the middle-market provider, you're better off looking at the net for '15 and '16, because you're going to see, depending on what happens with the mark-to-market provisions of the call and the derivative, you're going to see a lot of volatility between interest income and interest expense. But on a net basis, essentially, we're providing for that convertible bond at roughly 2.5%.

Perfect.

Okay?

Tom, it's Rice. When we think about Care Coordination and alternative structures, obviously, we've come through a year where we didn't partner much. We did outright acquisitions, I guess you could say. But I will tell you this, we are very open to partnering. I think we're going to look at the opportunities as they present themselves, and as long as those potential partners are folks that we believe we can be on the same page with and have the same goals and things we want to accomplish in terms of how we manage these patients, and how we take care of them, we would certainly be open to that.

I would sort of say to you that the pilot we're running with Aetna, in some ways, is a partnership, trying to see how that's going to go forward, how it might progress. But we're open to both. I wouldn't take the heavy acquisition activity of '14 and assume that's the only way we view the world, going forward, because we very much will be happy and will partner. We will do some partnering with the right folks when the opportunity presents itself.

I mean, the reason I asked the question is in the past FMC has been levering two things in the past year, really, relatively cheap capital and a lot of expertise, but with the world kind of being flooded with cheap capital, that's less of an advantage than it was in terms of adding value to a system.

And then if I kind of reconcile with that your kind of very heavy investments on the goodwill side over the years, one of the less attractive features is FMC's return profile.

But I was just kind of thinking along the lines of potential ways to try and improve the return profile, over and above simply just growing earnings off a fixed asset base.

No, fair perspective, and I don't disagree with that. And, as we've talked about, back there in the Capital Markets Day, we do expect to improve our return on invested capital over the period, the mid-term period, by about 100 basis points, and, obviously, the approach that you're suggesting would be one way to help us accomplish that.

That's all very helpful. Thank you very much.

Sure.

Thank you, Tom.

And our next question comes from the line of Alex Kleban of Barclays. Please go ahead.

Hi. Thanks for taking the questions. Just three, and mostly housekeeping.

Number one, could you just clarify the amount of savings from the efficiency program in the guidance for this year?

Number two, how much do we need to take into account for legal and compliance costs?

And number three, how much biosimilar EPO or material-related cost saving or cost reduction is in the 2016 EPS growth guidance? Talking about purely cost reduction on ESA rather than any volume reduction.

Alex, hi. It's Rice. We're going to do this in reverse order. I'm going to take number three, and then I'll let Mike come back on one and two.

In 2016, we have zero planned for biosimilar. It's just two iffy, if you will, to know. We're well aware that Hospira's NDA has been accepted by FDA, but I just don't think that we know enough or we're comfortable enough to try to plan what contributions might come from there.

And, in the same sense, with Mircera, being in the pilot, having just started it in the latter part of '14, we have not loaded up, if you will, on made a lot of assumptions on what might come from that. We just aren't comfortable doing it at this point.

So, what I will tell you is, there's not a bucket of money, if you will, that's loaded in for those activities. We don't think that would be prudent, to try to project that in to 2016 at this point in time.

(Inaudible).

Okay, if I could follow up quickly on that one. Sorry, yes.

Go ahead.

Yes, I was just going to say, given you're non-exclusive with Amgen, does that hurt in '15 and '16 if you can't launch either of those products?

Well, I would say it continues to be non-exclusive, so I think we're kind of in the same position. I don't perceive that we're any worse off than we were before. So, I don't think we're in a bad place there. I think it really is incumbent on us to continue to work with Mircera and see how that pans out, and well see where things end up on the approval process for Hospira.

Okay, so net pricing, basically, net of rebate has not worsened since the last contract period?

That's correct. I mean, we're well aware, and you probably know, as well, that we see -- or we've been informed of another price increase coming in from Amgen. We had anticipated that. They're fairly regular as to when they do that, so we've put that into our calculus for the planning for '15.

Thanks a lot.

Sure. Mike, go ahead.

Yes, Alex, hi. With regard to your first question in terms of the amount of savings associated with the GEP program, we are on track with that program. So, I had indicated at Capital Markets that we would get to a sustained run rate of about $200 million by the end of '15, and $300 million by the end of '16, into '17. So, that's what's considered in the numbers.

And then with regard to the legal and consulting costs associated with FDA compliance, the corporate spend was about $258 million, call it -- excuse me, $358 million, call it $360 million.

So, I would say, as you look at '15 and then to a certain extent '16, I commented in my narrative that we expect the cost to continue, albeit at a lower level. But for '15 I would say I don't expect our corporate cost to increase beyond that figure, and I would expect that in 2015 it'll be a bit less, and then a bit less gain in 2016. And that's probably the best way to benchmark -- size that for you.

I would say from a calendar standpoint we are expecting FDA, in probably middle of the year, and so, if they come in and things go well there, obviously, that'll be some benefit to us, but it's just hard for us to predict where that will go at this point. But they're telling us they'll be in, probably early summer. So, we'll see where that goes.

Okay. Good, very clear, thanks.

Our next question comes from the line of Ed Ridley-Day of Bank of America. Please go ahead.

Thank you, yes. First of all, just a follow up on the corporate costs, can you give us some update on the GranuFlo litigation, in terms of the materiality within your overall corporate costs, and to what extent you feel comfortable with where you are, and would it be worth, shall we say, handling these -- some of these cases up front, away from the courts, and then putting that behind you? That would be my first question.

And just to look at the Russian and emerging market exposure, could you give us some idea to what extent you have reduced your Russian expectations, your business there, for this year and going forward? And, on a run-rate basis, what percentage of your business it would be now?

I'll take the last one.

Yes, Ed, hi. It's Rice.

So, as we talk about GranuFlo, what I would tell you is, as Mike had commented, that we did spend a little more on GranuFlo than we had anticipated. But let me give you some comfort on that. We basically, as you lay out a strategy for something like these types of matters, we had an estimate of the number of people we wanted to depose, the amount of work we wanted to do, and, quite honestly, we've done more than that, than we had anticipated.

As we've continued to develop our strategy of how we're going to defend ourselves against this litigation, we've decided that we've wanted more deps, if you will. We had other people involved. So, it's a little hard to predict exactly where it's going to go.

Now, what I would say to you relative to, if you're asking about a settlement strategy, I'm not ready to go there at the moment. We've got more work to do. What I would say to you is we still anticipate, consistent with what I told you in the third quarter, that this is probably a late 2015 activity, particularly as you look at the multi-district litigation in Boston, but we'll see where we go, as we continue to develop our defense and our plans and our strategies. We'll see where it takes us.

Do we look at some of these cases and, perhaps, try them early? That certainly could be an option, but we're just not ready to make a comment on that at this point in time, other than we recognize that's obviously a path we might choose to take, depending upon how we feel over the next months as we progress.

And I think --

Thank you, and just to be clear, then, in terms of your corporate cost guidance, the guidance you've given in terms of definitely no increase and potentially a slight increase, that includes enough wiggle room for the GranuFlo litigation?

Yes. Let me just comment. The global costs in corporate include the compliance consulting activities and some of the FDA remediation. North America covers, in terms of how we report the numbers, GranuFlo and then also an element of the FDA remediation.

So, from a benchmark perspective, I gave the corporate figure because I think on a worldwide basis that would be the best way to track changes. In the actual details as we report the numbers, you'll see GranuFlo show up in the US. So, I'll calibrate to that as we progress through next year, if that's helpful.

Thank you. Yes.

Mike, you want to go ahead and take Russia?

Yes, the -- we're looking around a little bit here, just in terms of -- okay, that's what I thought. So, maybe the best way to do this, because, as we've said before, when you have some volatility in some of the countries in which we operate in, because we're a service business, we have bricks and mortar in country, typically we're a long-term investor in the countries in which we have those kinds of operations.

So, we do see some volatility. We do see the impact on exchange rates, but we have no plans to materially change what we're doing in Russia. It's actually a very good market in terms of our business.

So, order of magnitude, it's a relatively small percentage of our global operations in terms of revenues, less than 2% of revenues. To give you some indication in terms of currency, if I look at 2015, I think I had said in my narrative that I saw Russia as having an impact on EAT of about 1% to 2% of our growth rate.

So, you're looking at the bottom-line effect of these -- this currency volatility in Russia having an impact of roughly on the order of $15 million to $20 million.

That's very helpful, thanks. And just one final question. If we look at the guidance you've given in terms of additional investment, the international business obviously had some great progress last year. I presume we will see additional bolt-ons or medium-sized clinic deals. Is there any further color you can give us on that?

I would say, Ed, that we're open to all of the above. We certainly are not going to starve that region, given the growth and the performance they've had. But let me just leave it at that, but know that from a capital allocation standpoint we're going to be opportunist there and make sure that we continue to invest in that area.

And, Ed, you'll also see in our regulatory filings, I didn't dwell on it today, you'll see guidance for '15 of roughly $1 billion in CapEx and $400 million in acquisitions. So, there's fuel in the tank to progress, as Rice indicated.

Great. Thanks.

Our next question comes from the line of Ian Douglas-Pennant. Please go ahead.

Oh, hi. Thank you for taking my questions. I've just got a couple.

Firstly, on the star rating system, you mentioned that today, and you've been very vocal, otherwise of talking about this, and the methodology of those ratings, and how you disagree with that. What is the risk, nevertheless, that your below-average scores that you seem to have been given impair your ability to recruit patients, whilst you manage to get this sorted out?

And secondly, you also mentioned your 100,000 FTEs. With Sound and Cogent has been staff retention been an issue? Your main competitor in this industry certainly talks about that quite a lot.

And then, I just wanted to be sure with that merger you weren't going to get significant dis-synergies after that.

Thanks very much.

Thank you, Ian. It's Rice. So, let me take those. Yes, we've been very clear about how we feel about the 5-star rating system, but what I would say, I think it's too early for me to tell you that we've seen no issue in our ability to attract new patients. I personally don't think it will be.

I think, actually, CMS has been overwhelmed with the degree of push-back, not from Fresenius or DaVita, but, really, from the patient association and physicians about how they do not like the system, and putting people on a performance system which is based on a bell curve really just doesn't seem to make sense to a number of us.

So, we'll see where that shakes out, but, again, part of why I gave you the sense of how we sit within the QIP process is because that's the way that we believe we truly get judged by potential new patients coming in, as well as just simply the simple fact of how do we treat them when they approach us about coming to the clinic, how easy do we make it for them to come into the clinic.

So, at this point, we'll take a wait and see attitude, but I think not that it's going to be a big impact. But it's important, and we're happy to talk about that in future quarters as we go through time.

Relative to Sound and I'm aware of the comments that IPC made during their earnings call, what I'll tell you is that it's not been an issue for us in terms of Sound stand-alone. They've had incredible growth organically of over around 50%. They seem to have no issues attracting and retaining people, and, as we went into looking at Cogent, and talking with Cogent, and the physicians and the people there, we asked them pretty pointed questions about how they would feel about coming in with us, because, obviously, we wanted to make sure that we would not buy an asset and then have a mass exodus.

And we haven't seen that, to date. We're early on, obviously, since we just closed in the latter part of '14, but we do watch it. We're measuring it. But I think at this point, we feel good about where we are. We think the upfront work that we did, getting to know Cogent and the management and talking with them, we feel good about it.

But I fully expect you're going to ask me this question in a couple of quarters, and we'll give you an answer when you do.

That's great. Just a quick follow-up on that one.

Have you -- I mean, what's cost inflation for this business? Are you having to increase your average salary for your guys in response to what hospitalists and, I guess, what IPC are doing, as well, or are you finding other ways to retain those people?

It's interesting, and if you look at a big piece of the growth at Sound, it really does come from us going into hospitals and actually they have hospitalists. They haven't been happy with their own program. They don't really know how to manage it well, so we step in and take that over for them, and we kind of require those physicians, and they come into Sound. We've not seen huge inflationary issues with that from a salary standpoint.

I think we bring the clinical expertise that many of these institutions are willing to accept, without having to go in and, as I like to say, get upside down, if you will, on what we're having to pay people.

That's good news. Thanks very much.

Sure.

And our next question comes from the line of Lisa Clive of Bernstein. Please go ahead.

A few questions.

First, at your CMD last year, you indicated that you expected to spend around $3 billion to build our Care Coordination, including both M&A and de novo. So, on that front, I have two questions. First, is it fair to assume that the split will be something like two-thirds M&A, one-third de novo? And second is, depending on that ratio, last year it looks like you spent, perhaps, $1.3 billion on Care Coordination. Given that you've indicated not much in the way of M&A this year, can we assume that the bulk of M&A for Care Coordination has really already been done?

And then, a further question on the Global Efficiency Program, could you give us a rough estimate of the one-time costs from '14 and what we should expect from '15? I remember you had said there would be $100 million in total, but I just would like to get a better idea of the phasing between '14, '15, and '16.

It's Rice. Let me take number one, and I'll pass it over to Mike on the Global Efficiency Program.

It would be nice -- I mean, yes, we said about $3 billion investment in Care Coordination. It would be nice if it worked out exactly two-thirds, one-third. I don't think I would lead you down that path. It may appear that way as the way we rolled out through '14, but, to be honest, we are not nearly as rigid in our thinking on where that's going to go.

I would say to you we do have other acquisitions that we're going to consider. Remember, I always remind you folks, this is not a US-only program. It's a global program, and we see opportunity out there that we're going to consider.

We, obviously, will invest de novo, but what I would say for you, particularly there is no de novo investment for Sound and Cogent, but, obviously, looking at National Cardiovascular Partners, and looking at the urgent care centers, we have a pretty good feel for what those cost to put together, given the background we've got with building our own dialysis clinics.

So, we don't have a set/set formula, yes, but let me leave you with the message that I don't think M&A is completely done, because we're looking at this from a global standpoint, and we don't want to pass on opportunities.

Hopefully, that gives you some color on what you were looking for, and, Mike, I'll pass it over to you on the GEP.

Okay. Thanks, Rice. And just to finish up, typically at the beginning of the year we guide to what I call baseline acquisitions. So, $400 million is what we tend to do year-in and year-out with regard to acquisitions. And then, as opportunities present themselves, we adjust our guidance.

Yes, with regard to GEP, I think Rice indicated the net figure of roughly $64 million, $65 million for fiscal 2014. I would say, looking at that on a gross basis, it's in the range of $90 million to $100 million. So, that's kind of what we're coming into fiscal '15 with in the GEP program.

Great, thanks. And then, one last question, or, actually, sorry, I cut you off. Could you give us an indication of the one-time costs in '16? I mean, in '15?

Actually, I guided separately to GEP at the beginning of last year, and it occupied a great deal of my time over the course of the year on road shows, so we put it all in this year and decided not to give a lot of supplemental information, because we've talked about it so much, we're in year two, and we're indicating that we're on track to the $200 million.

So, I'll probably leave it at that.

Okay, fair enough. And then, last question, for Rice. Could you just give us an update on the progress of the ESCO program? DaVita made some fairly positive comments on that, looking it may actually move forward in the near term.

Yes, Lisa, I don't know that I've got a lot of divergence from what Ken had said on his earnings call.

We, obviously, put it in, in a handful of locations. It' looks to be that this is actually going to get kicked off here in the second quarter, I believe it is, and so, we're ready to participate. We're going to see where it goes. There is work being done. We don't change the commentary about the flaws we see in the system, but it does look like we're going to get engaged, and get started here.

So, I would say that I have, pretty much, agreement with what Ken had indicated on his call.

Great. Thanks very much.

Sure.

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

Hi, thank you. I have two questions.

Firstly, on the 2016 guidance, can you sort of break down, at a high level, how the earnings growth of 15% to 20% comes into existence? So, for instance, does revenue growth account for 10 points, expense control, 3 points, interest and tax?

And question number two is, on US dialysis care, the revenue per treatment growth continues to be less than the cost per treatment. In 2015 the year where you sort of hit equilibrium, meaning both cost and revenues go up at the same rate? Or do we still see a mismatch and an inflation squeeze?

Thank you.

Michael, hi, it's Rice. Boy, I'm going to let Mike have some fun with your first question on guidance, but what I would tell you on the dialysis care side in the US, where does that line cross, you remember we made some progress on that last year. I think it was actually in third quarter.

But when you're not getting an increase at all, and we are still going to have to pay some merit increases and things to our folks, it's going to take some time. We do think those lines are going to cross. I'm not sure I can tell you exactly when, but as we've looked at our guidance, we've tried to map that out.

We're going to make progress on that. We're going to see it next year. I'm not going to tell you exactly what quarter, because I'm not sure I can do that reliably, but we're going to see progress. We have to see progress there, in the course of '15, to deliver what we're going you for '16 and beyond.

But I think I'll leave it at that, and, Mike, I'll let you speak to his question on guidance and earnings growth and mix.

Yes, Michael, I'm probably going to get into a lot more detail on breaking down the pieces, other than I think -- when you look at on constant-currency basis growth of 10% to 12% in '15, and 9% to 12%, again, on top in '16, that does provide a pretty base to growing your earnings in concert with your growth.

GEP should continue to add value on the spending side, and, as we indicated earlier, we should get more traction in Care Coordination, as a consequence of our investments. So, you should see the general probability, that business also increases in '16.

And we will see, Michael, we're planned to see a fractional increase in Medicare in '16. It could be 0.75% of a percent to 1%, but, you know, that's a big deal for us, given that '14 to '15 has been flat. So, that's going to play into that, as well.

Yes, and on the revenue per treatment side, Michael, I would say -- and we were very open about this, because as we transitioned from dialysis with the extensions, the extended services, which was the concept we used in 2012-2013, into Care Coordination in 2014, we knew that the legacy calculation of revenue per treatment included some of the elements that are now in Care Coordination, but we said we weren't going to revise those for '14. And we are looking at that for '15.

So, I would say, based on what we do in '15, if we're looking purely at dialysis services, I think you will not see kind of that appropriate relationship until we get back into the full market basket adjustment to Medicare. And you know, they're feathering that our over '15, '16, '17. You don't get back to a full market basket adjustment until 2018, and that's, hopefully, when you'd see a better relationship between revenue per treatment and cost per treatment in dialysis.

Can I just quickly --

(Inaudible) --

Can I just quickly follow up on --

I'm sorry.

So, can I just quickly follow up on -- so, for 2015 your guidance assumes at some point, if I understood it correctly, a switch over where revenues suddenly move a little bit better than costs. Is that a fair understanding of what you just said, a cross over?

Actually, we're going to -- we'll come out with revised numbers of revenue and cost per treatment for '15 that will just have dialysis services, and will not have the legacy elements of expanded services, the pharmacy and vascular access in that number. So, you'll have a better sense as to what that relationship is on just dialysis services.

I didn't make any prediction on the actual revenue per treatment for '15, but we'll have a -- we'll have a more appropriate base to look at, in terms of what's happening on a per treatment basis in the dialysis business.

And then, the second part, in terms of what would I expect in terms of when you say a more normal relationship between revenue growth and expense growth, I think what -- before you see a completely normalized relationship, we'll have to get back to a full inflationary-adjusted Medicare rate, which will happen in 2018.

Great, thank you.

Our next question comes from the line of Gary Lieberman of Wells Fargo. Please go ahead.

Good morning. Maybe just a follow up on that last question. Do you actually have the number for, excluding Care Coordination, what the revenue per treatment and the cost per treatment growth was in the quarter?

No. Well, we -- I had said in Q1 that we weren't going to adjust that particular measure because we were talking a great deal about the pieces of the business, and we felt in a transition year that was good enough, because we were growing so much in Care Coordination. So, we'll have it in Q1.

And let me just correct myself. It's 2019 when the Medicare rate is an unadjusted market basket increase. Sorry about that, Michael.

And then, maybe just to go back to some of the questions around Mircera. Have you guys set a target for the percentage of patients you would like to have on Mircera at any given point in time?

Hey, Gary, it's Rice. No, we haven't. We think it's too early in for us to try to do that.

But let me give you a little color on where we stand. We are, today, at 700 patients having had three doses of Mircera, and that's important, because now we've got them at a place where, we believe, if there were going to be any issues, if we were going to see anything that caused us clinical concern, it would begin, perhaps, to be evident at a three dose experience. But it looks very good at this point. Things continue to go well. The physicians are very pleased.

In the overall scheme of things, I believe we were at 1,400 patients in Q3, and I think we're up around -- somewhere around 2,400, maybe 2,500, I don't know exactly. But it progresses well.

It hasn't moved quite as fast, and I knew it wouldn't, starting so late in fourth quarter with the holidays in there. It didn't move quite as fast, as I had hoped it would.

But progressing. But I'm really pleased at 700 patients with three doses and no issues. That makes me feel very good.

But we have not worked into a certain percentage yet. A lot of that's going to depend on how this finishes up, how we feel about it, what a physician reaction patient output or input is.

So, we'll see where that goes, but we may be able to talk about that later, but at this point I don't think I can.

Okay. And then just update us on the relationship with Amgen. Is there any changes or any updates to your contract, or maybe even remind us what the terms are and when that expires?

Yes, so the actual contract that we've been working off of expired on December 31st of '14. We have signed a new arrangement with Amgen. It's essentially what I would call a product supply arrangement, meaning that we have pricing. We have no volume commitments that we have to give, but, obviously, with the more we buy, the better the price gets.

It's non-exclusive. So, it really is just a supply arrangement for us, as we work through these opportunities and see where we're going to end up, and as I've always said, I expect we'll always do some business with Amgen. So, we'll see how this progresses as we go through this pilot phase. But that's probably the color I would leave you with.

So, is it essentially an extension of the previous contract? Is there any dramatic changes to the terms?

Well, it's multi-year. I believe it's a four-year deal. I wouldn't call it, necessarily, an extension. There's some different aspects to that, that I won't go into, but it's not a radical departure from what we've done.

Okay, great. Thanks very much.

Sure.

Our next question comes from the line of Veronica Dubajova of Goldman Sachs. Please go ahead.

Good afternoon, gentlemen, and thank you for taking my questions. I have a couple.

The first one's just on the Care Coordination business, and I wonder, Rice, I mean, if you look at all that you've acquired to date, how do you feel about the scale of what you have, and as you're thinking -- as you think about taking the business to the next level, so you're seeing more capitated or risk-shared programs with insurers, what else do you need to add into the pie? And how quickly can that next leg of business start materializing? And I'd love to get your thoughts on that, now that you've done a lot of work around Care Coordination for 12 months?

And then I have two housekeeping questions, and apologies, Mike, if I've missed this in your remarks. But do you have any guidance for the tax rate for 2015 and also the net financial expenses, if you can just clarify the comment you made at the very beginning of the Q&A, because I'm afraid I didn't quite get it. So, that would be really helpful. Thank you.

Hey, Veronica, it's Rice. What I would say is, I think that where we sit today, from a scale size, in the investments we've made in Care Coordination, I feel good about it. I think there's more to do, and I don't know that I can tell you exactly what those activities should be.

And what I mean by that is, I do think capitated contracts are going to come. Are they four years out? Are they six years out? We're not exactly sure. But I think the asset base that we've put together allows us to anticipate this and get ready for it. Obviously, we're going to have lots of discussions with people that we would enter those kinds of arrangements with. So, we may have to do some tweaking to Care Coordination as we move through the outer years, I would say, as we're looking toward moving toward 2020.

But right now we tried to aggressively get to a critical mass that allowed us to learn, understand, and begin to try to anticipate as we think where that capitated rate opportunity might present itself.

So, let me stop there, and I see Mike's working on some things for you relative to tax rate, and then I believe it was the financial expenses.

Yes, no, I was going to work through the financial expense in a little bit different way. Yes, you didn't miss it, Veronica. So, no worries.

But the -- I would say the tax rate, if you used 33% to 34%, you're fine.

With regard to the financial expense and Tom's question, what I advised Tom, in the end, and all of you in the end, was to look at the net figure, and I had mentioned that you know it's fully disclosed in our notes that we do have the note receivable from a middle-market provider in the US.

We also disclosed the fact that they've ended their drawdown period, and there's a range of rates. So, if you just simply assume in '15 that there's roughly $20 million of income associated with that, you'll be -- there's other tos and fros with regard to the details, but they're all relatively small numbers.

So, I think if you look at our debt portfolio and look at the run rate of our net interest expense, that should be a pretty good guide, knowing that the note receivable is worth about $20 million.

Terrific. That's very clear.

And if I can, Rice, just follow up on your -- on the Care Coordination business. I mean, in the absence of any further M&A, how should we be thinking about the organic growth rate in this business as you look over the next two to three years?

Yeah, I would say, particularly when you look at the organic growth rate from the hospitalist business, I think we've talked about that in about the -- yes, somewhere, I think -- I'd say low-double-digit to mid-double-digit growth rates. NCP I don't think we've really given you a number on that, and I can't -- I'd be guessing if I tried to give you one.

So, let me do this, Veronica. Let validate that when we come back to Q1. I need to do a little more work on NCP. I think my number's pretty good on the hospitalist business, but we'll polish that up for you when we get to Q1, and metrics for you for Care Coordination. We'll be able to tie that together.

That would be great. Thank you so much, guys.

You bet.

And our next question comes from the line of David Adlington of JPMorgan. Please go ahead.

Hey, guys. Thanks for taking questions.

Just one bit of clarity around the P&Ls. The structure of your P&L is changing somewhat. I just wondered if you're willing to give us a kind of margin expectation for this year and next year?

A bit of housekeeping around minority interests. Again, I was wondering if you were able to give us a hard number for the guidance for this year?

And then finally, just in terms of your ForEx assumptions, did you use rates right at the beginning of the year, because the dollar/euro, in particular, has depreciated quite a lot since then. So, I just wondered what actual rates you'd used in terms of your ForEx assumptions?

Thanks.

Sure. So, I heard margins. I heard -- I'm not sure what was the question on non-controlling interest.

Can you give hard numbers, hard-number guidance?

Yes, okay.

Relative to margins, I think when you look at the top and bottom line, it would be fair to say maybe flat, with a small positive, potentially, given the range of our earnings I've provided, because I'm saying zero to 5% on earnings after tax, and 9% to 12% on the top line. So, I think flat to slightly positive is probably the right guidance on margin.

Relative to non-controlling interests I think I'm not ready to give a flat guidance number for that because the dynamics of the business -- the business is too dynamic. I think as a starting point for the year, just keeping in mind how much things have moved, I'd look to Q4. But I'd advise you -- I've indicated going forward we'll talk kind of more transparently about both earnings and also our earnings, net of NCI, but I'd say as a starting point for '15, use Q4.

Okay, perfect.

FX.

And then, I'm sorry, I missed your last question, David.

David, it was on FX. We didn't get it all.

Oh, FX. Why don't you repeat the question, because I missed it.

Sure, because you point towards using rates at the beginning of the year, but, obviously, there's been a material change since the beginning of the year, particularly in the dollar/euro. So, I just wondered if we used spot rates, would we see some downside to expectations?

Well, my traditional guidance is that whatever you see on the top line typically large mitigates. So, I would tell you wouldn't be too far off using current. I mean, if you used an average rate for January, you're probably pretty close.

But if you wanted to use spot rates, I think on the bottom line you wouldn't be that far off.

Great, thank you.

Okay.

Our next question comes from the line of Isabel Buccellati of Putnam. Please go ahead.

Yes, thank you very much for taking my question. I just can't remember the cost saving target of $300 million, does that include or exclude the benefit of the biosimilars? And I understand that you don't put a benefit in the guidance for 2015, but do you put in the '16 guidance benefit from the biosimilars?

Isabel, hi. It's Rice. There is nothing in the $300 million for biosimilars. We just don't believe we have enough comfort or know enough to be able to try to peg that. So, it is not included in the numbers we've given you.

So, no -- also not in the '16 guidance?

That's correct.

Okay, thank you.

Sure.

And today's last question comes from the line of Kevin Ellich of Piper Jaffray. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions.

Just a follow-up on the Care Coordination. Rice, you gave a lot of details in terms of your outlook, but wanted to see if you could expand, maybe, upon Medicare's Bundled Payment for Care Improvement initiative?

And does the low double-digit organic growth you said for the hospitalist business, does that include any tuck-in deals or pricing increases? Just wondering how you get to low double digits.

Yes, Kevin, hi. Well, a couple of things. We probably know the same thing about [BPIC]. As Mike had said earlier, it was anticipated it would come in, in January, and it's been pushed out to April. So, there's going to be some impact there. We'll have to see how that plays out.

In the range that I gave you, and part of why I was trying to range was to cover myself. I don't think I want to get too much into the exact metrics of what we think's going to help us drive that and how we're going to get there, are we going to be doing something with pricing, are there small deals in there? Let me withhold giving you that information today, and maybe we can talk more about that in Q1.

I think we'll have a little more clarity. I'd like to see where we are on point with BPCI. Not trying to be evasive, but I don't want to tell you something that we're going to find out in three weeks is different because we know a little bit more about when that's going to come into being.

Sure. With BPCI, have you guys selected conveners, and do you know which models you guys plan to adhere to? Is it model two and three, like most everyone else?

Yes. What I would say to you is yes and yes. We know how the convener is going to be. We know what we're going to do, but I think I'm just going to let it stay at that.

As you can imagine, this is pretty competitive. There's lots going on at this point, and the Sound guys told me they'd kill me if I told you. So, I'm going to have to withdraw that or not offer it, but we do know what we're trying to do and where we're going to go. But I'm respecting the confidentiality that our management team at Sound wants to maintain at this point in time.

Okay. Great.

And then my last question is, with Shiel, the non-dialysis lab business, I'm just wondering, strategically, I guess, how does that fit into the equation for you guys? Do you want to expand that to, maybe, try to compete with a Quest and LabCorp, or is it really just more about providing ancillary services for the Care Coordination business.

Think of it in a different way. This is really a geographic opportunity that we seized, given that our big lab is in Rockleigh, New Jersey, right across the Hudson River, and we have the opportunity, by this acquisition, to learn about non-dialysis lab testing. We're not looking to go out and compete with Quest and LabCorp, although we will, to some degree, just in that geography.

But it's a really a way for us, if you remember the plan we laid out for you, the facility that Shiel has will be closing. It'll be moving into the Rockleigh facility. So, we're going to leverage that asset in terms of lab folks and equipment.

So, that's going to give us some opportunity there, and we're going to learn a lot between New York, New Jersey, and Philadelphia about how this business works and what opportunity it may present, keeping in mind, Kevin, that the other big lab we have is in San Francisco. So, we could look at, perhaps, a bicoastal thing.

But we're not looking, at this point, to really try to go out on a city-to-city basis and really compete with the larger guys. We're taking advantage of geographic opportunities that we have, and synergy.

Okay, great. That's helpful. Thank you.

Sure.

Okay, gentlemen, there are no further questions from the phone line, so, please continue with any other points you wish to raise.

Great. Thank you so much, Patrick. Thank you, everybody, actually for participating. We very much appreciate your interest, and talk to you soon. Thank you. Take care.

'Bye-bye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.