Fresenius Medical Care AG (FMS) 2016 Q1 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 on the first quarter 2016.

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. (Operator instructions.)

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

Great. Thank you very much, Patrick; much appreciate it. We would like to welcome all of you to the Fresenius Medical Care earnings call for the first quarter of 2016.

As always, I would like to start our call by mentioning our cautionary language that is actually in our safe harbor statement, as well as in our presentations and in all the material that we've provided today. For further details, please refer to these filings, including our SEC filings.

With us today is Rice Powell, our CEO and Chairman. And Rice will give you a general business update and go through some of the highlights of the quarter. And also with us is Mike Brosnan, our Chief Financial Officer, who will cover with you the financials and the outlook in a little bit more detail. So, as always, that's the easy part on my end. The floor is yours, Rice.

Thank you, Oliver. Welcome, everyone. I'm delighted that you are joining us today, and I appreciate your interest in our Company and our first quarter results. I'll begin my prepared remarks on slide number five.

We're off to a good start. We've had a very successful first quarter. Four or five key points that I would like to make are that are we continue to see strong growth in our group revenue and our net income around the world.

North America continues to develop strongly and perform at a very high level. EMEA, Asia-Pacific, and Latin America, as we've discussed in previous quarterly calls, are continuing to have an impact on the foreign currency, and we'll talk more about that later in the course of today's session.

We continue to see good organic growth in care coordination. Yes, we have to continue -- we need to continue our work on margin improvement, and we'll talk about that, but we're off to a great start in the year and good performance on organic growth in our care coordination segment.

And we believe that this first quarter performance is in line with what we had expected as part of our development and progression through the course of the year for 2016 in order to achieve the guidance that we've given you.

If you would, please turn to slide six. Let's talk about the organic growth in all the regions. As we have seen in the past couple of quarters, North America is around 71% to 72% of the overall revenue. Great performance with the revenue growth of 10% and organic growth of 7% in the quarter.

Looking at the international region, 7% constant currency growth and organic growth of 7% as well. So, even though we do have issues, we're continuing to see good organic growth across the regions, Asia-Pacific particularly at 10% constant currency growth on the revenue line, with organic growth of 11%. And you can see the performance in EMEA and Latin America as well.

If we turn to slide seven, take a moment and look at our global footprint. We're treating roughly 294,000 patients through March 31st of this year. You can see the breakdown of patient counts, if you will, across the regions.

In looking at our clinic base, we're at 3,432 clinics, up about 1% from the prior quarter. And you can see the breakout of de novo activity in the first quarter versus the acquired clinics between North America and the international regions.

If we move to slide eight and we take a moment and look at our quality outcomes, I think my key phrase here is we continue to perform in a very stable fashion. If we look at our dose of dialysis, Kt over V, you can see that there is consistency among all of the regions in the performance on that critical metric.

Looking at hemoglobin as we define it in the US, at 10 to 12 grams per deciliter you see consistent performance at 72% of the patient base in North America. Then dropping down one to the convention that we report for international of 10 to 13 grams per deciliter, you see across those regions stable performance as well, a little movement in Asia-Pacific but by and large very stable across the international regions.

And the lastly, looking at our hospitalization days per patient, again you see consistent, stable performance throughout the global enterprise.

Now, if we turn to slide nine, we'll take a moment and talk about our healthcare revenue. First, let me point out that the overall global dialysis treatments improved 5% in the first quarter. We have seen a higher revenue achievement in the US as a result of favorable payer development and the number of commercial treatments performed within the quarter. And again, we said earlier care coordination continues to drive strong organic growth.

Looking at $3.4 billion in the first quarter, we see growth, constant currency growth, at 9%, organic growth at 7%, and our same market is consistent at about 4%. And I don't think I'll go through each of the individual regions you see there for you perusal. And just on care coordination, again, you can see $522 million in the quarter, 20% growth in constant currency. And we've mentioned previously the 17% organic growth.

My last slide, perhaps the surprise of the quarter for some people, is the dialysis products' performance in Q1. You can see that, at $791 million in the quarter, we generated 6% constant currency growth, North America at 6% and the international division at 8% constant currency growth.

How did we get there? We've seen very strong sales of our dialyzers, our machines, and our bloodlines. Keeping in mind that we had a very strong first half of last year in the product business, this is a very good result on top of that comparator, if you will, year-over-year.

Obviously, we do have currency headwinds outside of North America. And also, our PD business is progressing nicely globally. We had 4% growth year-over-year, and then when you look at the North American PD growth, a very strong 15% year-over-year.

With that, I will conclude my remarks. And it's my pleasure to turn it over to Mike, and he'll take you through the financials and the outlook. Mike?

Thanks, Rice. Good afternoon, good morning, everybody. Rice went through the revenue. So, turning to page 12, I'll start with operating income.

Our reported operating income increased $36 million to $540 million for the first quarter of this year, an increase of about 7%. It was supported by lower cost of healthcare supplies in the US and savings from our global efficiency program. As always, I'll come back with more detail on margin performance in a few minutes on the next chart.

But, continuing down the P&L, net interest increased $3 million. This was almost entirely driven by the lower interest income we have in the first quarter of 2016, as the interest-bearing notes' receivable from a provider in the US was repaid in fourth quarter of 2015.

Tax rates show a decrease from 34.3% to 31.8%. This decrease was, to a large extent, driven by the non-controlling interest, the growth in non-controlling interest, and a higher tax-free income from our equity method investees and lower tax rates in certain jurisdictions.

Non-controlling interest is in line with the movement in our business in North America, particularly if you look at the two pieces, the care coordination and the core dialysis business coming in at $69 million for the quarter.

And net income attributable to shareholders was up $18 million, or 9%. Earnings per share increased to 8%, or $0.06 a share. All in all, we're pleased with the start of the year and the performance that we see in the first quarter.

So, turning to chart 13 and talking a little bit about the margin performance in the regions, as I indicated margins have gone up about 10 basis points to 12.8% worldwide for the Company. And before I go through each region on the chart, I would just give you a sense as to how the performance for each region was weighted into the global result.

So, clearly the increase in margins for North America contribute 150 basis points to the global margins. And then there was a decline in margins for our remaining businesses overwhelmingly influenced by foreign exchange, EMEA contributing a decline of 30 basis points, Asia a decline of 60 basis points, Latin America a decline of 10 basis points. And corporate costs reduced margins by about 50 basis points. That gets you to the 12.8%.

So, now looking at the chart in North America, operating income was up just under $100 million to $436 million, a 28% increase year-over-year. The margins increased 200 basis points from 12.3% to 14.3%, and they were influenced by the dialysis business showing a strong improvement and our care coordination business showing stronger top line growth at comparably lower margins.

More specifically in the dialysis business, operating margins were up 300 basis points, 13.9%, to 16.9%. This was largely due to lower costs for healthcare supplies, a favorable impact from commercial payers, and lower legal expense in the US, slightly offset by higher personnel expenses in the first quarter year-over-year.

Care coordination earnings were down $5 million. Year-over-year, the margins decreased from 3.5% to 2% in the quarter due to the ongoing costs we've been discussing with regard to the BPCI pilot, slightly increased costs for the hospitalist business, and lower margin -- and growth in the lower margin health plan and urgent care businesses. This was partly offset by improvements in our pharmacy services side of the business.

For EMEA, operating income was down $11 million, or 8%. Margins decreased 190 basis points from 22.5% to 20.6%. This was entirely due to unfavorable foreign exchange, which had an effect that exceeded the total margin effect for the region, delaying very favorable product and customer composition, higher sales, and favorable margins in the core business.

Asia-Pacific was down $20 million, or about 23%. Operating margins decreased 650 basis points. This was largely due again to foreign exchange and some costs associated with the changes in the announced management board positions for that region.

Latin America decreased by $7 million, with margins declining 190 basis points. This was due to the inflationary costs that we see in the region and unfavorable foreign exchange.

And in corporate, costs went up about $22 million to just over $100 million, an impact of 50 basis points, consistent with the way that I've guided for corporate spending for fiscal 2016.

Turning to chart 14 and talking about cash flows and capital expense, operating cash flows were 4.3% of revenues, down from a comparator of 11.3% in Q1 2015. The lower level was driven by an adjustment in invoicing within the quarter in the US and the timing of cash payroll payments also in the US. These timing differences will have no meaningful impact on the full year 2016 results.

And this resulted in DSOs increasing by three days, from 71 to 74 days for the quarter. Again, this was the timing effect that we anticipate will have no impact on the performance for the full year.

CapEx is in line, and free cash flow is obviously impacted by cash flow from operations. As a consequence, our debt increased from $8.6 billion to $8.9 billion at the end of March, but our leverage remains unchanged from year-end and within our guidance.

Turning to chart 15 and just a few words on our outlook for 2016, we are confirming the outlook for 2016, anticipating increases in revenue of 7% to 10% constant currency, and an increase in net income of 15% to 20%.

The guidance considers what we know today and reflects our expectations for the operating results of the Company. As you know, the performance continues to exclude the impact of acquisitions closed in 2015 and anticipated for 2016. It includes the effects of our global efficiency program. And the net income growth is off the base that we established at the end of 2015 of $1.57 billion.

So, with that, I'll turn the call back to Oliver.

Great. Thank you, Mike, thank you, Rice, for the update. And I think, Patrick, with that we can open up the lines for the Q&A session.

Great. Thank you. (Operator instructions.) Tom Jones, Berenberg.

Good afternoon. I had a couple of questions. The first was just on the transactional currency hit that you took in Q1. I know you mentioned that in various different regions that currency was a factor. But, in terms of the year-on-year margin decline, how much of that was kind of ongoing currency pressure just related to the overall revenues and the impact that that's having on margins, and how much of it is just the transactional effects related to the balance sheet revaluations of foreign exchange?

Basically, I'm just trying to get to a feel for how much of the currency impact is a kind of one-off effect in Q1 and how much is going to come through in the following quarters as well, obviously all assuming rates hold. I'm not asking you to make any predictions about which way rates go.

My second question, maybe one for Rice, I just wanted to hear you give us an update on the BPCI and your early experiences there, and perhaps within that segue into what the margin outlook really is for the care coordination business for the rest of the year and how you see that developing.

Those would be my two questions. I have one quick clarification, but I'll save that for the end.

Okay, I'll grab the first one, Tom. With regard to translation and transaction, as you know our guidance overall hasn't changed when you look at full year results. But, you do get some swings from time to time when you look at the individual quarters.

We talked about this quite a bit in both Q1 and Q2 last year. And when you look at this quarter, most of the effect in Q1 is due to the change year-over-year between currency gains on the transactions in Q1 2015 and currency losses on the transaction side Q1 2016. So, you get an enhanced effect, if you will, with regard to the negative impact of transaction gains and losses in Q1.

If you go back and look at Q2 from last year, we saw a swing. So, we'll have to see how that plays out for the second quarter. But, that's what you're seeing in the first quarter this year; gains from last year, losses this year, which gives you an accentuated effect on transactions.

And maybe I'll just quickly follow up. If assuming rates stay where they are, what kind of transactional impact are we looking at for the rest of the year on the international margins?

Well, if you assume rates stay in effect, I would say that Q2 last year, because there were losses in the quarter, is a weak comparator year-over-year. So, I wouldn't anticipate we'd see a lot on the net effects of FX for the balance of the year.

Sure. BPCI?

Yes. Hey, Tom. It's Rice. I would say steady as she goes. We are still believing and setting ourselves up to be in a place toward the back half of this year to give you some sense of reconciliation, if you will.

But, at this point, data is flowing and we're getting information, but we're not in a place we can make much sense of that at the moment. But, I think we are comfortable that we can get something out to folks in the back half of the year.

And on the care coordination margin, as we talked in February we are still looking at 3.5% to 5%. Obviously, we've got to see some improvement based on where we are in Q1. But, as you well know, most of our plans tend to back end progress, if you will. Q1 is the lower part of the year for us, so we've got work to do. But, we think we can manage that work and come in within the range that Mike and I had given you back in February on the full year report.

Okay, that's perfect. And then just a quick clarification. On the healthcare business, there was a couple of points difference between your organic and constant currency growth rates. Is that just the difference in dialysis days in the quarter?

Because if I look at the volumes, there wasn't really much of a difference between the same store and the organic growth rate, yet there was on constant currency. So, was that just the dialysis days that were driving that difference, or did you somehow manage to acquire something without acquiring volumes in that business?

My gut reaction --.

Oh, sorry. Yes, actually, Tom, I think it was the influence of the change in bad debt quarter-over-quarter. That's what it was.

Okay, perfect.

There was a slight improvement in the bad debt expense in Q1 2016 over 2015.

Over the prior year.

Thank you, Tom.

Cheers.

Michael Jungling, Morgan Stanley.

Thank you and good afternoon, everyone. I would like to ask three questions, please, firstly on the EMEA and the Asia-Pac EBIT margin development for the rest of the year. Since Q1 was a bit softer than I had hoped and North America better, what is a realistic sort of trend for those two geographic regions for the remainder of the year?

Secondly on care coordination, can you sort of describe a little bit about -- a little bit the investments that you're making this year compared to last year? Because it seems to me, based on your commentary, it's more so the investment that you're making that is having this fairly flattish margin development.

And the final question is on cost savings run rate. What was it was the end of the first quarter, please?

Let's see, Michael. In terms of trending for the individual regions, we typically don't guide much at that level. Obviously, when you look particularly at Asia-Pacific, it's a relatively small region, so fairly small changes in earnings could drive large percentage changes in the trending.

I wouldn't change what I said earlier with regard to FX total Company. I think when you look at the individual regions, in Asia you see a little bit more volatility with regard to the rupee and the yuan, with some mitigating effects associated from the Korean currency.

In terms of EMEA, I think it's reasonably stable with the possible exception of the ruble. But, what you do have in EMEA in some of the countries is you have customer billings in US dollars, so non-local currency billings, which as I explained last year sometimes tends to influence the movement in the quarters.

Operationally I think both regions are doing well. So, if you look over a longer period of time, I think you can kind of level out the currency effects and look at, I think, sustained growth in those regions for the quarters to come.

With regard to the care -- I think you said the care coordination investment in your second question.

Yes.

Am I correct?

Yes, that's right.

Yes. With regard to the care coordination investment, I would think of that in a couple of ways. Last year we talked very specifically about incremental cash spend of $50 million in the care coordination sets of activities, and we indicated that we did execute against that.

When I spoke in February, I also talked about the fact that for 2016 you really need to look at the that, the margin performance and the investment, really as the ongoing spend associated with some of those shared savings programs, because we said we wouldn't get revenue recognition on BPCI until, in this case, back half of 2016, and that we would not book revenues on the ESCO program likely until 2017.

So, in a way, that manifests itself in the margin as an ongoing investment. So, I would think of the investments in those two ways, which I think explains why you see the Q1 performance that you see.

That having been said, as Rice indicated, we confirmed that we still anticipate 3% to 5% margin in care coordination for the year. So, we obviously anticipate an improvement as the year progresses.

And some of that's people, Michael. Obviously, you got to have hands to do the work that we're going through, so some of that's people.

When you look at GEP, I won't make you happy. We're not going to break that out for you by quarter, but let me say it this way.

As we look at the full year and as we've talked with you folks before about an exit rate in 2016 of $300 million, we believe we're on track for that. As we look at these projects that are delivering those types of economics, they're in the process. They're moving. We don't see a lot of risk to that. These are programs that have been around for a while, so we're pretty comfortable with that.

But, I think I'd leave it like that versus trying to parse it out by quarter. But, we're on plan. Let me say it this way. Mike and I are comfortable that we're on plan and that we'll deliver full year what we've committed to.

Mike, can I just follow up on EMEA and also on Asia-Pac? Without giving a precise guidance, given the trend in Q1, is it reasonable to assume that the EBIT margins for both geographic regions are likely to be down year-on-year?

We're just checking something here, Michael. Hang on.

Yes, maybe down slightly. Yes.

Okay. And then the $50 million that you spent last year on care coordination, is it right to assume that the $50 million will stay in the business but there won't be any substantial increase in the $50 million?

Well, I'd say two things. The first is $10 million of the $50 million related to the integration costs associated with Cogent and Sound. So, obviously that dissipates.

But, the programs that we're involved in are getting larger. So, I wouldn't say that we're at a complete stop with regard to the growth in the organization to manage its businesses.

But, I think from a pure cash spend, incremental headcount external spend, we don't think that we're at the $40 million to $50 million level in 2016 that we were at in 2015. But, we are going to increase infrastructure, increase headcount to make sure that we're managing these growing businesses appropriately.

Yes. I mean, by way of example, Michael, we've just gotten some feedback from CMS that they're thinking about allowing a few extra sites in the ESCO program. So, that'll generate some work for us, some expense for us, not a huge amount, but we just have to react to what the opportunity presents to us.

Thank you.

Veronika Dubajova.

Good afternoon, gentlemen. Thank you for taking my questions. I'm going to take a stab at Tom's earlier question. I think we're all just trying to understand, in constant currencies, what happened to the international margin year-on-year. And so maybe as opposed to getting tangled between transactional and translational, can you just give us either quantitatively or qualitatively some color on what actually happened to margins year-on-year in the international business?

And if you are happy to go into detail, EMEA, APAC, and LATAM, that would be fantastic. But even if not, then if you can just give it to us from a group perspective international, that would be extremely, extremely valuable.

My second question is just on the US revenue per treatment, which was very solid in Q1. And from memory, I think you have a couple contracts on the managed care side that are up for renegotiation this year. And I don't know, Rice, if you can comment on how those discussions are going and to what extent do you feel that you will or will not be able to replicate the trend on the revenue per treatment as you move into the rest of the year.

And my last question is just on Mircera and if you can give us an update on what the switch rate was. And apologies if I missed it on the prepared remarks just because I got on a little too late.

No, Veronika, it's Rice. I actually just realized to myself I didn't talk about Mircera in my prepared remarks. I'm happy to do it. Why don't I take two and three, Mike, and then you want to do one?

Sure.

Okay. Let's do the easy one first, Mircera. So, we had suggested to you back in February that we thought we would be at around 110,000 patients with multiple doses, and we've done slightly better than that. So, we're at about 125,000 patients through March 31st with multiple doses.

And to do that quick math for you, if you go back to remember, we've got 25,000 patients that get no to maybe one ESA dose over the course of the year available -- pool that's available. It takes us to about 80% converted at this point. So, it continues to go well at roughly 79.5%, 80% converted, 125,000 patients.

Looking at revenue per treatment, your memory is excellent. We do have a couple of our large contracts that we will be engaging in discussion with this year, but it is in the latter part of the year, back half, that we'll start those discussions. So, let me leave it at that.

But, obviously we will do everything we can do. We like the revenue per treatment trend that we're seeing, and we want to maintain that and grow it if we can. But, we'll start those conversations in the latter part of the year, Veronika.

And then Mike, I'll throw over to you for question one on the constant currency effect.

Yes. I think beyond what I indicated to Tom, which is that every quarter you get a slightly different composition in terms of transaction or translation effects, as we've always said, when you look beyond an individual quarter for the full year, about a 10% change in euro/dollar drives about a 1% to 2% change in earnings after tax.

And with the European countries following the euro and the Asian countries largely tracking to the dollar, sometimes you can get either a mitigating or an exacerbating effect that might make that grow plus/minus 2% either direction. So, that guidance still holds true today.

As I indicated, in this particular quarter, because you have gains last year and losses this year, there's a fairly large swing year-over-year largely related to transaction effects.

I guess my question is, if you strip out the gain from last year and the loss from this year, would the margin be comparable, higher, or lower year-on-year? I guess that's what I'm trying to understand.

Yes. No, I appreciate that. Let me think about it, because I don't, frankly, see this quarter much different than what we did last Q1. That's why I'm just not sure that it helps to give the additional granularity.

And as I said, qualitative commentary is fine. So, stripping out the gain and the loss and you think margins are about unchanged, that's fantastic. And I'm happy to leave it at that. It's just that's what I'm trying to understand. I think that's what Tom was trying to understand as well.

Yes. Okay. Well, let's keep going and I'll come back after I --.

We're pouring through some paper here. But, I would say this, that fundamentally in terms of how the business is working and pricing and things like that, we're not having huge issues. We're in a kind of a stable place short of these things.

But, I'll let Mike come back to you on that. They're looking at some numbers here now, Veronika.

That's great. And Rice, any update on the FCPA investigation and progress you're making there?

We are making progress. We continue to what I would say look at some things, get comfortable, document it. If we need to change a practice or a policy, we're doing that. So, I think we're still just kind of moving through the process that we need to.

I think what sometimes seems to be taking forever, I have to remind people that when you're operating in 120-something, 130-something countries with product in 40 or 50 on the service side, it takes a while as you go through and look at your programs and what you need to do to improve them and those sort of things.

Understood. Thank you so much. And Mike, if you can come back to us, that'd be great.

Chris Cooper, Jefferies.

Hi there. Good afternoon. Thanks for taking my questions. Apologies if I've missed any of these. I joined the call a bit late. Firstly, just on commercial patients, it seems as though -- I guess a message we've seen over the last few quarters is that you've begun to take a bit more share from your key competitor. What have you changed in your approach when you're holding discussions with the private payers?

Chris, here's what I would say. I think that the improvement that you're seeing is really coming from a couple of places, irrespective of whether it's DaVita or whomever. I think we've put ourselves in a much better position to pick up commercial patients, have them come into our facilities.

I think we've made it easier for people to inquire about where they want to be. I think we're much quicker in our turnaround in accepting those patients. I think there's a fair amount of blocking and tackling or logistics that goes into this, more than people might think, when a patients being discharged from a hospital, trying to decide where they want to get their therapy and then calling local clinics to see if they have a spot for them.

I think the people that give the better customer service, that are more willing and able to talk to those patients on a very timely basis, is what really helps you have people move into your clinics.

Now, obviously, your relationship with the large payers is important. But, it does in many cases come down to a patient, physician, discharge planner relationship that I think is where we've gotten better over the previous quarters. And we're continuing to see the benefit of that.

Great. Thank you. Second one, please, just on the margin progress that you've made during the quarter. Clearly you're continuing to make good progress on the cost per treatment, but it jumped out at me that the year-on-year improvement is actually slowing despite the amount of patients, unless they are coming in well ahead of your own expectations. I just wondered whether you're seeing a bit more personnel cost growth there as you were last quarter, or whether there's something else going on as well.

No, that's a good question, Chris. I think what you have to remember is, as you look at sequential quarter, simply we have higher personnel expenses in the beginning of the year. We've talked about that before in other calls. And also, we talked about we had an extra pay period in the first quarter in North America, which impacts that as well when you think about clinic staff that generate part of that cost per treatment.

Year-over-year, it's a very good story. So, sequentially I think it's just a matter of we're in the first quarter where we have higher personnel expenses is really the effect you're seeing. But, if you go back and look at the year-over-year, I think we were down $7.00, I think.

Yes, exactly.

Yes.

Exactly, Rice. And we also have two fewer days in Q1 versus Q4, which will also lower --.

Yes, that's right. You're right.

Cost differential. So, okay.

Yes, coming back to Veronika, and as you know, because we've had these discussions in the past, I don't want to make the call all about foreign exchange. But, I think qualitatively I indicated earlier that we felt that the underlying operations of the international regions was doing quite well once you took out the currency effects. And I'd repeat that in response to your question.

If it's helpful, I think you could look -- when you're looking at the international business, currency probably had a 200 basis point depreciating effect on the operating performance for international.

Thank you.

Chris, we don't want to cut you off but, please, any other questions?

No, that's very helpful. Thanks for your help.

You bet.

Thank you.

David Adlington, JP Morgan.

Hi, guys. Thanks for the question. Maybe in a slightly different way, obviously very good progress on your North American dialysis margins. Just maybe you can give an update in terms of the progression through the year in terms of how those margins might develop given where you are with Mircera and the GEP. Just wondered how we might be thinking about margin progression quarter by quarter through the year.

You want to flip a coin, Mike, or you want to take that one?

Yes. No, I gave some indication last call. So, I think what we had said was that we would anticipate a slight decrease in cost per treatment year-over-year 2016 over 2015. So, I think we'd stick with that.

Obviously, you'd see a benefit in Q1. But, then as Mircera annualizes out, I think you'll see a mitigation of that. So, full year, I think you'll see a slight decline in cost per treatment.

Okay, fair enough. Thank you.

Sure.

Lisa Clive, Bernstein.

Good afternoon; two questions within the care coordination division. First, could you just provide an update on ESCO? Rice, your comments about CMS potentially allowing a few extra sites was interesting. Could you maybe comment on how many incremental patients you could potentially add there if that does happen?

And then second, my understanding following your December care coordination meet the management event was that there's also a lot of activity going on with your plans to launch a Medicare Advantage plan, I guess a special needs plan specifically. Did that indeed launch at the beginning of this year? How should we think about that opportunity over the next 12 months and beyond? And how is the recruitment going so far?

Sure, Lisa. So, on the ESCO, literally that news that CMS is considering a couple more locations is kind of hot off the press, and we really have not sat and talked about would we and if yes, where, how many. So, we may have some more color for you on that next quarter, but I don't have much more than that right now.

What I can tell you is if you look at the 8,000 patients that we told you we were planning for the ESCO back when we saw you in November/December, we are pretty much right at that number, just a little shy of that number, because we've had some people wash in and out. So, I think we're seeing some stability on that case.

And on the C-SNPs, yes, we're moving forward there as we had planned to. And I don't have an exact number for you at the moment as to where that is. I'll have to look and see if I've got it written down somewhere.

But, it is in place. We've moving forward as we had planned to do. So, I think we've making good progress on all of those fronts. I just don't know enough about the ESCO to give you any more color than that at the moment.

Okay, thanks.

Sure.

Holger [Klum], DZ Bank.

Yes, hello. It's Holger from DZ Bank.

Hi, Holger.

Hi. Just two questions, basically one on the renal Vifor joint venture, whether maybe you can give us an update on Velphoro here and also maybe the broader pipeline opportunities you would see there midterm.

Second question, more broader based, big picture on innovation in general, although related to products. Would you see from your own 650 guys in R&D something major coming up where we should pay strong attention? And vice versa, would you see any disruptive technology maybe out there in the market somewhere from competition? Thank you.

Hey, Holger, it's Rice. I would tell you that Velphoro continues to move well in the US. We continue to see good progression of number of scripts that are being written. We're fighting the fight that you have to fight with the pharmacy benefit managers to get on their formularies, and hopefully get one of the top one or two positions. And we're making progress there.

I happened to listen to the Care-X last week, and they're just not getting the traction yet that they thought they would. So, I think that's inuring to our benefit on the Velphoro side.

When you look at the pipeline for the joint venture, as you probably well know we've got a number of activities that we've gone into in terms of licensing and looking at new product opportunities. We've got a couple of different binders that we're looking at.

Most of this is ex US because, as you find many times, startup companies with new and novel drugs want to try to commercialize the US, but they tend to license out in the rest of the world because they need the license fee stream in order to continue their R&D or their clinical work. But, we've got a couple things that we're working on there, and we feel pretty good about that.

Now, when you think about that disruptive technology, we've got a number of products that we are going to be launching over the next 12 to 15 months. I'm not sure I'd say they are completely disruptive because it's a new in-center machine, new acute machine. We have some new dialyzers coming out, those kind of things.

We always maintain a wide net to see what's going out there. And something that we haven't talked a lot about, but we have formed a venture fund within FMC. It's not a huge amount of money, but we're spreading money around in some of the high tech areas around the world. We're looking at new opportunities, and we're trying to give some seed money to some of the activities that are out there as a way for us to stay abreast of what's new and what could come through.

Holger, you go back with us a number of years. Remember the bardoxolone days when people thought that drug might put us out of business and it didn't come to fruition? We don't see that today. And I don't say that confidently, I simply say that we're not seeing stuff yet today but we're watching it. We're trying to stay abreast of it.

If it's pharmaceutical, we hope if it's coming around that we can do the work in our clinics and get some sense of what's going on. If it's something beyond that, we try to keep our hands in the pie as best we can.

Great. Thank you.

Sure.

Gary Liebermann, Wells Fargo.

Good afternoon. Thanks for taking the question. Was hoping you'd talk a little bit more about your experience with the BPCI and how it's proceeding versus your initial expectation. There has been some discussion by participants about CMS's lack of ability to get timely data to participants, which has maybe stymied it a little bit. So, would be interested to hear your experience.

Hey, Gary. It's Rice. I would say that's a true statement. I think we are feeling that the data flow is a little better now than it was three, four, five, six months ago.

But, part of why we've been very descriptive about having some sense of BPCI in the back half of this year is because that data flow has got to get -- continue to get better and we've got to be able to analyze and react to it.

So, I would say a little better, but still more work to be done. And that's why we just continue to say it's going to be the latter part of the year before we can really make some sense of that is probably the best way I can comment.

And then in terms of your thoughts on growth in care coordination, either organically or through acquisition? Has your experience with the BPCI or just changes in supply and demand for different types of providers changed, and what's your thinking there?

No, I would say when we consider BPCI, we sort of -- we're still of the opinion back half of the year. Data flow has got to get better. We've signed up for the DRGs, if you will, that we're going to maintain. And I think that's still steady as she goes. We're still in play there.

When I take a step back and look at care coordination in a bigger sense, we're still looking at opportunities. We're still pursuing some things like our polyclinics in Germany. That continues to progress. I think we're up to about 30 of those in over 46 or 47 locations where we're doing dialysis and cardiology, things like that.

So, I think we continue to look at that. We continue to think there are opportunities that are out there. And we're screening things as we go forward, Gary.

Okay, great. Thanks very much.

Sure.

Michael Jungling, Morgan Stanley.

Thank you. Two more, please, firstly on the earnings growth guidance for this year. Given what you've delivered in Q1 and also the FX, it is fair to assume that it's more likely that you'll be coming out towards the bottom end of the range rather than the high end of the range of 15% to 20%?

And then secondly, on the income from equity accountees, sort of a really strong Q1. Mike, could you give some guidance as to what that number may look like for the full year? Is Q1 the run rate for the full year, or did something a little bit unusual happen? Thank you.

Sure, Michael. I'm not ready to call a number within the range; too early in the year. So, I'll stick with the range.

Relative to equity method investees, I think what you're seeing coming through in the quarter is a change we've made with regard to the pharmaceuticals. So, I think that probably will kind of fluctuate more or less around that level for the balance of the year.

Great. That was all. Thank you.

Okay, thanks.

Thanks, Michael.

Lisa Clive, Bernstein.

Hi. Actually, somewhat similar to the prior question, if we just think through the -- specifically the margins as we go through the year, some of these items may be back end loaded. I mean, the global efficiency program continues to deliver, and I guess that sort of incrementally increases quarter-on-quarter. Perhaps there's some incremental savings from Mircera towards the back half of the year versus what you got in Q1. GranuFlo costs, I don't know how much those roll off in the second half of the year once this settlement happens. Could you maybe just talk through some of the items that potentially help that margin trajectory and help get to that 15% to 20% growth?

Lisa, yes. I think big picture, when we talked about 15% to 20% even going back to the beginning of 2015, we were talking in terms of the investments we were making in the retrospective shared savings programs, the ESCOs, the BPCI. I think, with what we've said about BPCI potentially getting to an inflection point in the back half of this year, that should be a contributor.

Wrapping up the GranuFlo and moderating a bit in terms of legal expense should be a contributor there, assuming everything works smoothly through the August settlement, the inking of the deal, if you will. And GEP you mentioned. This is the third year, and we should get to our sustained savings rate this year.

And then more generally, we talked about the fact that, for the last several years, we were kind of managing three issues globally, GranuFlo being one, the FDA being the second, and the compliance work being the third. We had wrapped up two of the three of those with the GranuFlo settlement, and we are optimistic that we could get to a resolution on the third this year.

So, I think those are kind of those elements. I don't want to understate what we think is the strong operating performance of the core business, both in terms of North America which is clearly evident, and the international businesses which operationally, I said, are actually doing very well and are masked somewhat by the FX that we've been talking about.

I mentioned those things, but I don't do it in the context of ignoring the fact that we're seeing good fundamental operating growth in the businesses around the world.

Understood. Thanks very much.

Gary Liebermann, Wells Fargo.

Thanks. I just wanted to follow up on one of the questions that you just answered. Mike, I think you mentioned that there was a change regarding how you're booking pharma in the equity income. Is there any more detail that you could provide us there?

No, it wasn't a change, Michael [sic]. It was just -- obviously the joint venture earnings come in through the income and equity investees' line. So, to the extent to which you have a change, you've got some additional earnings coming to the Company through that line as a consequence of the pharma JV.

So, there's no change. It's just --.

Got it. So, it's just increased sales of Mircera, essentially, then.

Yes.

Or any number, though, that run through that line, Gary. That's it.

That's the significant contributor. Yes, exactly.

Got it. Thanks.

Yes.

Okay. Patrick, I don't see any more questions, actually. Do you have any more questions actually in the pipeline?

There are no further questions from the phone lines.

Okay, great. Thank you so much.

Thanks, everyone.

All right. Thank you.

We appreciate your interest. Thank you.

Take care. Bye-bye.

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