Ladies and gentlemen, thank you for standing by. I'm Stuart your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Second Quarter 2018. 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 Dominik, Head of Investor Relations. Please go ahead, sir.

Thank you, Stuart. We would like to welcome all of you to the Fresenius Medical Care earnings call for the second quarter 2018. We really appreciate you joining on such a hot summer day. As always, I'm happy to start out the call by mentioning our cautionary language that is in our Safe Harbor statement, as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents, as well as to our SEC filings. In the previous quarter it turned out to be a good approach to limit the number of questions to two. If there are further questions, we are happy to go a second round. I hope this works for everyone. With us today is Rice Powell, our CEO and Chairman of the Management Board. Rice will give you a business update, go through some of the highlights of the quarter of course also with us is Mike Brosnan, our Chief Financial Officer, who will give you an update on the financials and the outlook. I will now hand over to Rice. The floor is yours.

Thank you, Dominik. Good morning. Good afternoon to everyone. We appreciate you're joining with us today. Let's go to Slide 4 and I'll begin my prepared remarks, if you will. We're on track to achieve our 2018 targets. Q2 is a good quarter and is an improvement from Q1 and we continue to see progress quarter-to-quarter and we will continue that through the back half of the year. As you can see on Slide 4, we had 3% growth for all of our three key measures that we share with you our clinics, patients and treatments and our quality remains on a consistently high level. And if you turn to Slide 5, you can see that we're performing at a very high level in our clinics. You see the number of key indicators that we measure ourselves against and you can see it spread out across the regions. I'm not going to make more commentary on that, if you have any questions I'm happy to take those during this Q&A. Now turning to Slide 6. What are the highlights for Q2? Not a highlight, but a fact. The results continue to be impacted by strong currency headwinds. We've had solid organic growth across the board. Congratulations to the North American products business, they continue to have a very strong performance and each of the regions performed well, in their product franchises and they made progress in their service franchises as well. Care Coordination margin improvement and revenue decline came in as expected. In the quarter, our margin for Care Coordination is 6.7% and we'll have some more color to give you on that during the Q&A and during Mike's presentation. Calcimimetics; they continue to evolve. As you remember, we're moving from Part D in David to Part B in Barry.…

Thanks Rice and hi, everybody. So continuing on Chart 14 and again using the format that we started last quarter, just to give you a sense of revenue growth and this would be on a comparable basis, year-over-year. I'll talk about that further, but you know we made some adjustment to the base period to make this comparable. So you can see we've reflected €131 million as an adjustment to the prior year revenue figures to put last year on a consistent basis with regard to IFRS 15. This gets you to a base of €4,340 million. Very small adjustment in the second quarter related to the translational effects of the VA settlement and we had 5% constant currency business growth in the quarter roughly €200 million, which is consistent with our overall guidance for the year. And then lastly you can see the currency headwinds that we're facing with the €320 million adjustment or about 7% in the quarter. Turning to Chart 15 and now looking at net income growth with the two views that we've been describing at the top of the page. It's the net income as reported on a comparable basis. We guided for the full year at 13% to 15% and when we look at the quarter's performance you can see the business growth of €58 million which gets us to constant currency growth rate in the quarter of 22%, a little bit above what we've guided to for the year. This includes obviously the tax effect associated with US tax reform on 2018 earnings and it reflects the currency developments we've seen in the quarter. In addition you're seeing the net effect associated with the sale of Sound's in the second quarter and closure of that transaction. I'll come back and talk about that…

Mike, thank you for the presentation. I hope you have pre-answered already a couple of these questions and with that. I'm happy to open the Q&A for more insights now and so Stuart, can you open the Q&A, please.

[Operator Instructions] the first question is from Tom Jones from Berenberg. Please go ahead, sir.

I do indeed have just two questions, one for Mike and one for Rice. Firstly for Mike, I was just wondering if you could just try and tease out little bit more for us what the underlying IX [ph] Calcimimetics revenue per treatment growth was in Q2 and remind sort of was in Q1. I'm just trying to get a sense of what you need to do in H2 to get to kind of flat to slightly down revenue per treatment on an underlying basis for the full year and perhaps what the key swing factors in H2 might be in that regard. And then question for Rice, on the Medicare rate proposal, the rate obviously looked reasonable this period much better than it had in recent years, but my questions was more on the potential methodology for drug add-ons going forward, whether you got any comments in terms of methodology that CMS seems to be proposing that. It seems to be aimed at the HIF inhibitors specifically. So on that topic, kind of wondered what your general thoughts around the HIF inhibitor space are at the moment and how you might see those getting folded in your business, if and when they become available.

Sure, Tom I'll grab the first one. No I was very transparent in the first quarter so I'll do the same this quarter. So when you look at the influence of Calcimimetics in Q2 and these are rounded numbers because obviously if I said I've got about $1 friction that can get lost in the rounding. But in the quarter Calcimimetics was worth about $16 for both revenue and cost per treatment rounded. And that would give you roughly $13 revenue and cost per treatment for the half year. And just to remind you, Q1 was about $11 per treatment. So we saw a bit of an uptick in the second quarter, but we still because of the volatility I'm more focused on the earnings estimate and that's why I guided for both revenues and costs excluding costs. I think that's helpful.

Sure.

Tom, its Rice. Relative to the potential methodologies. I guess I'd have two comments, one is I think everybody is rushing the HIF's along at warp speed. I just don't think we're going to be looking at them getting approved as early as some other people do and having said that, it doesn't mean we shouldn't be thinking about the methodology and how that's going to work. I would tell you that, this Calcimimetics to Dapa [ph] thing that we went through was not well work out if you will, when it first came out. We felt like there was lot of information that could have been more forthcoming, so we've kind of layered that end of discussions we've had with certain pieces of CMS. So we're still kind of working on that, but we would like to have a little smoother process that we had going around on this first one. So let me stay tuned on that and we can chat about it, probably next year or whenever you like.

Fair enough.

The next question is from the line of Veronika Dubajova from Goldman Sachs. Please go ahead ma'am.

I'll keep it two. My first one is, Mike just curious about the margin for Europe as you think about the second half. Clearly there's some one-time impact around Vifor JV but I'd like to understand some of the investments that you're making into the business and what they might mean for margin. So if you can give us some color on that, that would be helpful. My second question is actually for Rice, if you can give us an update on where you are with ESCOs and related to that, I'm going to throw in just the two legislatives Acts in US which is the Patients Act and maybe the MS Peak ascension [ph]. What your expectations for timing on both of those, that would be great?

Veronika, I think if I look at this big picture. I don't see - I think we're going to continue to invest in the business in the back half with regard to the markets that we're continuing to expand to on the Vifor - Fresenius Medical Care joint venture. So I would say, I'd expect margins to continue, there's - the cost associated with the Vifor developments is really the ramp related to the Veltassa developments in EMEA [ph] that's helpful.

So Veronika, ESCOs so we're sitting in a place today where we're roughly at about 41,000 patients in the ESCOs which we've been there for most of the quarter. We could see that going up a little bit potentially, but I think the better part of your question and answer is, we don't really see this going up expontentially if you will at any significant degree until we get release from CMS or CMMI that they're going to allow us to add more locations beyond the 24 we had today or they could do, what they did this year, which is to say, keep your 24 locations but we'll let you open up each of those locations or select locations of the 24 to grow. So we're going to have to kind of see where that goes, we're prepared and ready to continue growing, but we're going to have some understanding and some cooperation from CMMI on how they want to approach that. Now looking at the Patients Act, is the last time I think talked with you we got I believe I want to say something like 156 members of the house that have signed onto the Bill from the senate side I think we're nine or 10 senators have signed on. But I think realistically from a timing standpoint obviously this is reached opinion with mid-term elections coming on, the first over the Supreme Court. I think we've really got to find the vehicle to attach this Bill to, that could yet happen this year, but if not I would think it would be very likely we could see that coming in the beginning of 2019, but at this point I just don't see a standalone Patients Act getting done by itself as you well know that rarely…

Okay, sounds fair. Thank you both very much.

Next question is from the line of Patrick Wood of Bank of America. Please go ahead sir.

I just have a couple, if I can. The first would be on the capitated rates MA. I mean I know it's a tiny market at the moment, but I'm just thinking long-term going forward. I've seen some rumblings from insurers, but if you will I'm sure they do, would that be increased unfairly the capitation rate that they're given by CMS. I'm just wondering how you expect that MA rate to have rolled as that pool of MA dialysis patients potentially grows over the coming years, that would be the first one. And the second one is a little bit more short-term, just wondering you guys were obviously very confident about this in terms of the investment. Should we be thinking about incremental investment within California given that Bill is on the ballot and if you have any update also on the side of that on SB 1156, that would be helpful. Just getting color on those two that would be great.

Okay, Patrick what I would say on the capitated rates with the Medicare Advantage there's probably never a time that I see the insurers are happy when it comes to things like these, but when we look out into the future. I think there is going to be a lot of time and room for discussion on how we structure this. I don't think there is a well-established play book at this particular moment in time as to where this is going to go, but as you all know as we come into January 2020. One with Cures Act what's going to happen there, this is all going kind of come together, so we need to be very focused and active next year in 2019 trying to work through these things and see where they're going to go, but I don't know that I can really give you a good handicap or direction as to where it would go at this point in time. Looking at California, so what I would tell you at this point and I've said this before we've budgeted money to defend ourselves and to try to defend our patients if you will. We have not put any of that in our guidance, we feel like we can manage the situation but should it come to a place that we think we have to ramp up our spin such it would actually impact our guidance, we would obviously can't tell you that, but we're not there at this point in time. When you look at the Senate Bill 156. We're obviously trying to educate people about this, we're trying to get them to understand both in the general, public if you will and then really in the legislative halls that this is a real discrimination against patients that need premium assistance. It is too close to call just as the ballot initiative today is too close to call, we're watching and working daily. This is an industry wide set of activities that are going on, but I don't know that I can really handicap it for you right now. I think it's going to take some more time to see where we are, but rest assured we are active and busy each and every day with these two topics.

Smashing. Thank you for the color guys.

Next question is from the line of Lisa Clive from Bernstein. Please go ahead ma'am.

Two questions. First question or rather a clarification on the bundled rate rebase. So just to be clear the 2019 CMS rate proposal that was published earlier also included a rewaiting of the dialysis market basket to reflect a more updated clinic cost structure. This does effectively factor in much lower equal pricing now that you've had Mircera in the market. Correct, I'm just trying to understand because I think there's lingering concerns that CMS could have scope for another clawback and so I'm trying to understand if that risk has been largely mitigated as lower drug cost haven't been factored in now, but it was offset largely by higher wages and whether that's just the right way of looking at it. And then the second, is that the presentation mentioned lower reimbursement for cardiovascular and endovascular services. is this a new round of cuts newer in the process of transitioning the ambulatory surgery centers, how is that going and is that sort of incremental headwind to some of your Care Coordination activities?

So Lisa how about I take one and Mike, if you would take two. We think you're looking at this the right way, we do think that there's been some benefit of data if you will based on where we are and RESA [ph] usage and how that's worked through our system. So we think you are looking at the way we do similarly and as you know, as I made rounds earlier this year and I've talked to people and they ask me about the clawback and when it come, I pushed it out a couple years and I typically said, more is got to happen, i.e. Retocris [ph] got to come, some other things need to come. If we're really going to affect this to a point that there needs to be a big rebase and I think people are heartening back to 2013. Well as for next year and the way we look at that Lisa, I would agree with the way you're approaching that.

And Lisa on your second question, there is - we're not seeing any significant change over the reimbursement rates. It's more associated with the ASE [ph] conversions and the timing associated with getting the approvals from the state inspectors on those and the rates we're seeing in the national - the NCP side of the business, if that's helpful.

I'm just - follow-up on the NCP rates, is this temporary issue or are you just seeing lower rates going forward?

I think the rates are if I think in terms of fiscal 2018, we may see a little bit more as we finish up this year and then that should stabilize in 2019.

Yes, we're fairly active talking about rates with folks, but you don't move that both very quickly but we do have ability to get in and complaint if you will and try to understand why they think it should be the way it is, but I think Mike's right. We're not going to change that trajectory probably in the next five months or what's left in this year.

Okay, thank you very much.

The next question is from the line of Ed Ridley-Day from Redburn. Please go ahead sir.

First with clarification on your guidance for Care Coordination revenue, now that Sound has been divested. Just to confirm the 9% to 11% decline that is effectively and still including the big performance in the first half not a pro forma guidance. Secondly on the margin in Europe which we already made some comments on. Can you give more color on the staffing pressures where the staffing pressures are coming? And the balance of the pressure there between the investment you've just got and your increased staffing pressure. Thank you.

Okay, I'm going to jump ahead of Mike. He's got to look something up real quick, Ed. Yes, so what the European margin pressure from a staffing standpoint really comes from two countries Romania and Hungary. In the case of Romania, that was a decision we as a company made that there should be some adjustment in nursing compensation if you will. In the case of Hungary that was more dictated by the government which we don't really get to opt out of, as you can imagine but those were the primary drivers in Eastern Europe [indiscernible].

Yes and Ed just coming back to on the first question. I just wanted to clarify because when you said pro forma the 9% to 11% is the full year guidance associated with Care Coordination excluding Sound, but we made the same adjustment in terms of our margin expectations that we did for the revenues and the earnings. We adjusted the base period, the second half of last year for the Sound effect.

Okay, just [indiscernible]. Okay, thank you.

The next question is from the line of Gunnar Romer from Deutsche Bank. Please go ahead.

Gunnar Romer, Deutsche Bank. Thanks for taking my questions. The first one would be in cost per treatment quite a nice development quarter-over-quarter. I think down $7 if you exclude the Calcimimetics step up. I'm just wondering where they had some comments here on what's been driving and that decline. And then secondly on corporate cost, you keep on trailing significantly below what you indicated at the start of the year. Just curious whether you're still in the position to confirm that guidance and what should drive the increase in the back half of the year. Thanks.

Thanks Gunnar. On cost per treatment I think and I may have commented I'd say at $60,000 [ph] fee that's reduced medical supply cost that are offsetting some of our property increase and alike and I'd say balanced labor cost. So no extra ordinary developments on the labor cost side is driving that. On corporate cost, we're just thinking yes I think we'll just confirm our indication on corporate cost for the year.

Next question is from the line of Tom Jones from Berenberg. Please go ahead sir.

Thanks for taking me again. I've had a couple of some more general follow-up questions on your Asia Pac business actually. The first was just the difference in the organic and the constant currency revenue growth rate in Q2, there was only 5 percentage point difference. Just wondered, what you divested, but more specifically why and whether that represents a change of strategy perhaps in Asia Pac or it's just a bit of portfolio trend. And then some [indiscernible] you really mentioned investments in growth in China, but you didn't say much more. I was just wondering if you could expand on what you're doing in that particular market at the moment.

Sure. So let me take two Tom and we'll come back up to one and then I'll let Mike handle that. So in China I'd say there's two places where we're seeing investment one is we're putting production capability in for PD. We have been servicing the PD market in Asia Pacific out of EMEA and obviously that gives us some transaction concern. So to put it in country, we think it makes sense so there's some investment that will come into there and as you all know when you put production capacity in a factory you got to have volume and you got to give really get ramping in order to get your most ideal cost and so we try to give you a heads-up, that will some impact as we go through the next quarters. And then we've also put more people on the ground in China relative to helping us with our sales and business development and things of that nature. So it's just really us putting more resource into that particular country as we continue to go through the remainder of this year going in the next year. and as I've talked before back on the production side of this, we don't know when we don't think it's a matter of if, we think it's when we might be looking at an amount of content and our products must be local in China, so we think we need to get ahead of that, as we done in other regions over the years.

So Tom on your first question, just to help me out. Were you talking revenue or EBIT?

It was on the revenue number.

On the revenue number, and organic versus constant currency?

Yes, it was 0.2% constant currency in the dialysis Care business this is, in Asia Pac and 4.8% on an organic basis.

Yes, okay fine. Yes what's driving that is we did have some consolidation activity in some divestitures in India which we anticipate that business is going to continue to grow for us. So it's a little bit of a timing issue with regard to the second quarter.

Yes, I think our peak we were at 51 or 52 clinics and we're down around 40 now because they were in some locations, didn't make sense and were kind of rebounce in the portfolio but that number will come back, but that's Mike, spot on.

Okay, so no significant changes strategy, just a bit of portfolio juggling, you said.

That's right.

Perfect.

People in the ground no better than Mike and I, so we're listening to them.

And if I can just roughly slip one more cheeky question in. on PD products, you haven't launched much in terms of new meaningful upgrades since the [indiscernible]. And for memory you had a JV with I think it was a Swiss, sort of design house and then if my memory goes back even further you were working on some sorbent dialysis stuff, is there anything you can add obviously without giving away too much competitively about your product pipeline in the PD space?

Sure and you're correct, your memory serves you well and the Liberty cycle has really been focused in North America, we have a Salencia [ph] cycler little bit different, it's in the rest of the world that's only one you missed. Yes the JV with Debiotech is still underway it's been a little harder than we thought it would be for some of the clinical things that we're being asked to provide, but we're continue to work on that and it's coming, it will be there and then on the sorbent side of this. We have good confidence in our cartridge. It's working really well. We're less happy with what we see on the hardware side, but we're working on that. We've got some plans. I don't think [indiscernible] probably much more than that. But we've got some new members that are coming into the family here down the road that they've got some great ideas about where they might can help us, so I'll leave at that.

I think no one else getting more on that.

Good, so we have no further question. I'll hand it over to Stuart and we say thank you for participating in the call and have a great summer.

Thanks everybody. [Indiscernible] sales be safe. See you in the fall.

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