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Fresenius Medical Care AG & Co. (NYSE:FMS)

Q4 2010 Earnings Call

February 23, 2011 9:15 AM ET

Executives

Oliver Maier – SVP, IR

Ben Lipps – Chairman and CEO

Mike Brosnan – CFO

Rice Powell – CEO, North America and Deputy Chairman

Analysts

Holger Blum – Deutsche Bank

Marcus Wieprecht – Main First Bank

Martin Whitbread – Credit Suisse

Florian [ph]

Ilan Chaitowitz – Redburn Partners

Kevin Ellich – Collin Stewart

Frank Morgan – RBC Capital Markets

Lisa Clive – Sanford Bernstein

Martin Wales – UBSaG

Tom Jones – Berenberg Bank

Oliver Maier

Okay everybody, I think it’s time to continue. Also from my end I would also like to welcome all of you here for the Fresenius Medical Care Q4 and full year 2010 meeting. A warm welcome also from our end to everybody I see on the web. We much appreciate your continued interest in our company.

With us today here in the room are Ben Lipps, our Chief Executive Officer and Mike Brosnan, our Chief Financial Officer. I would like to start our presentation also by mentioning our cautionary language mentioned in our safe harbor statement at the end of the presentation. For further details concerning risks and uncertainties, please refer to our filings including our SEC filings.

Now with that it’s my sincere pleasure to turn over the presentation to Ben. So, Ben, the floor is yours.

Ben Lipps

Thank you Oliver. Ladies and gentlemen, all of our employees, management board and our associates around the world and those who have joined us on the internet, welcome. We’re glad you could join us and we also appreciate very much your interest in Fresenius Medical Care. As Oliver said, I’ll cover the business outlook, Mike will cover the finance and then we’ll open it for questions and answers.

I also have the privilege that Rice Powell, the CEO of North America and the Deputy Chairman will be available to us by audio. He’s in the US to answer questions at the end of the session here. So we’ll be able to hopefully handle your questions on a global basis.

All right, first slide, as you know we’re very pleased with our performance for the year and the performance of our employees. It was a difficult year because we had two balances here, one of them is obviously to continue to grow the business in, as it was mentioned earlier, an interesting economic situation but at the same time we continued to move forward our strategic objectives. We expanded our service network in international, I’ll talk about it a little later, significantly this year. You’ll see it as it rolls in in 2011. And at the same time the actual performance in North America was very satisfying, North America did very well this year with respect to the financial and also the quality metrics.

Now as you have seen from all the press releases, revenue a little over $12 billion and net income around $980 million, a gross of 10% for the year. We basically spent a little bit less in acquisitions that we had planned. You’ll see later we’re getting some real traction with our new Cyclers in terms of home treatments and [inaudible] dialysis and it stays a little bit in terms of some of the clinics. And at the same time we had excellent acquisition opportunities so we spent a little more than what we had talked about in the acquisition area.

Looking at the revenue by region; all of the regions did very well this year. North America turned in $8.1 billion in revenue, 7% growth for the year. International turned in almost $4 billion in revenue, a growth of 8% in constant currency. Asia-Pacific was a stand out again approaching $800 million in Asia-Pacific with a 15% constant currency growth. Followed, growth wise, by Latin America who continues to do very well and again turned in almost $600 million of revenue. We reached the $2.5 billion mark in Europe and again constant currency growth of around 6%. So all in all, each of the regions contributed and we’re very pleased with the performance and the growth in all the regions.

Looking now at Q4 briefly. I think, again this has been in the press release. We saw about $3.1 billion of revenue. We saw strong operating performance for the year driven by North America and we also saw net income up by 10%.

Now as you look at the revenue for the year as I go forward here I’ll talk a little bit about some of the things that we’re doing to get ready for the bundle, which impacted the revenue in North America. But basically we had a revenue growth of 5% constant currency for the quarter, which essentially would have been up by about another 2% considering some of the things we are doing in Q4 North America.

Looking now at the Q4 numbers, you can see that again North America grew at about 3% in terms of revenue as we moved into preparing for the bundle we essentially have done a number of things in terms of protocols and with our physicians which essentially you’ll see later drop the revenue for treatment if we looked at putting that aside or correcting for it, the revenue growth for North America would have been about 5% but as we look at the quarter, still a very strong quarter.

Europe grew or international grew at 10%, Asia-Pacific continued to grow at 21%, the acquisitions were kicking in, the organic growth, solid growth in China and India and Latin America double digited 14% growth. So Q4 was a very strong quarter as we completed the year in all of our regions and essentially financially it also met or exceeded our plans for the year.

Looking now at dialysis services. As you can see, Q4 dialysis services we did about $2.3 billion in revenue. We have about a $9 billion operation now and dialysis services is three-fourths of our revenue around the world and we had a very, very strong year in this area. And if you go over here and look at, for Q4, we had 8% organic growth in basically international and a very strong same market growth of 6% and we were able to add 2% in terms of revenue pretreatment.

Now again, if you look at North America there’s two parts to this. Again, our same market growth was very strong at 4.4%, basically a little bit above what we think the market is. The organic growth was less by, it was 3.3% because of Q4 so if you add a couple percent to that, which essentially I’ll show you why, then you’re in the range of 5% to 6% organic growth. Again, where we’ve been for the year and we’re quite pleased.

So if you look at our service area right now, we operate about almost 2800 clinics, 2760 clinics. We’ve got almost 1800 in the US and we’re treating about 215,000 patients or about 10% of the population. So by and large we had a very strong Q4.

We did spend, I’ll show you in the US preparing for the bundle in terms of introducing some of the protocols and running some of the pilots and so I think we prepared ourselves for 2011. And again, if you’ll think about it, Asia-Pacific grew almost 40% when it came to service growth in Q4, again, because adrenal care and the acquisitioners are kicking in and the programs around the international area, especially Asia-Pacific are growing strong and Latin America grew to about 13%. So our service part of the business is growing very strongly and at the same time we now have expanded into the international as well as the North America in a major way.

Looking at the year it’s almost the same. Again, as I mentioned, we did about $9 billion worth of revenue. We see 9% growth in constant currency for the year. And you can look again at the organic growth, it’s around 6.6% and again, what’s very encouraging is our same market growth is 4.5% and again in Europe over 5% which in the countries that we’re operating in, this is above market and in the US we averaged slightly above the market at 4.3%.

So anyhow, we’re pretty much in line with what we expected for the year and our service business then grew at about 9% and we will expect that to continue as we go into 2011.

Looking now at quality. And I think I’ve been here many times have talked about it, quality is number one. It is clearly something that we are in an industry that basically depends on providing life-saving support to patients who are very ill. And I have to say, I have here both the European data and the US data and I’m extremely proud of what our groups have accomplished around the world. And if you look at it, first of all as I mentioned, the KT/V is just a measure of how well we match the physician’s prescriptions and you can see both in Europe and in the US we’re doing 95% of the time we deliver what is being prescribed and that is really quite significant.

The other couple points I’d like to point out, if you look at the hemoglobin between 10 and 12, this is where, in the US, the new, basically, the new bundle will be pointing. There will be basically quality disincentives if you have too many patients below 10 or too many patients above 12. So this is the first time in the US where we have a pay for performance or a deduct if you don’t have the performance.

So you can see that all of these protocols and the work that’s being done in the US, we are increasing the number of patients that fall in that order and that’s really in the right direction. And you can see that we clearly have below 10, a very small number, but we’ve been pretty much there for a number of years so we watch that.

Now we still have work to do in the phosphate control, albumin, we’re getting into the range where I think it’s fairly acceptable. We’d like to get closer to 90 but we’re making good progress. I’d like to point out that we’ve added a new criteria which is catheters; how many patients do not have catheters. Now the reason this is important and I’m sure you probably know this is that essentially you have two ways to access the circulatory system of the patient in hemodialysis. One of them is basically through a catheter, which is put in various parts of the body or a fistula where you essentially is something that you transport a vein and create the anastomosis in the body. What we have found, and I think the whole industry knows this, is that there’s significant difficulties with catheters in terms of infections, hospitalization, mortality. But they are convenient to put in and they basically take far less time to put a catheter in versus maturing a fistula.

So there’s been a major progress, I think Europe is way ahead of the US in terms of lack of catheters but we’re making good progress. This is very important in the bundle because what happens in any comprehensive care, this is where a lot of your expense comes from is basically from patients with catheters. So we’re making good progress in that area.

And hospitalization, still very proud, around the world we’re less than ten days hospitalization per year per patient. And that’s probably a best in class type of example. It’s going to be difficult, these are sick patients, it doesn’t get much below that but we’re doing that in a very standard, basically around the world.

The last thing on quality, I’ve got to say that both in Europe and in North America we continue to improve our overall mortality. We have a 20 basis point improvement in the US and a 40 basis point improvement in Europe.

So all of these quality issues, our patients are living longer and it’s our goal to essentially provide them the best life. And so if you step back and look at 2010, we’ve continued to make advances in terms of quality around the world and we continue to be highly dedicated to that. And that’s one of the things that we want to look at very carefully as we go into the bundle is we do not want to trade off any quality for basically for any of the protocols in the bundle.

Now at the same time this is where we are as far as the quality systems. I’ll talk a little bit more about some of the new products that we have later on, but we’re clearly dedicated to this in a major way around the world.

Turning to the next slide, this is really Q4 and I want to emphasize, and this is the revenue for treatment in North America. When we started the year we said that we would end up with somewhere between 2% and 3% average growth revenue per treatment in North America and I want to show you from the slide there, we’re clearly accomplished that.

Now as we moved into Q4 we started to put in some protocols. We’re looking at basically how to optimize the therapy, how to optimize the pharm and utilization, how to optimize the overall quality for the patients. So we saw a slight dip in Q4 as some of these programs are put into place. I want to reassure you that, number one, that’s part of the program that we put in place. Number two; we continue to see rate increases in Q4 in our commercial areas. So this is just part of us transitioning, basically, into the bundle.

And again I want to mention that with respect to the bundle and with respect to where we are in the implementation, obviously we’re a month and a half into it, we still believe, and I personally have great confidence in CMS. We’ve worked with them now for over 15 years and we understand that CMS is basically finalizing the number of clinics that really went into the bundle, opted into the bundle or didn’t. And again, the reason I mention this is because I’ll talk about the transition adjuster here in a little bit which has been a topic that I’ve talked about for at least three sessions.

Now we believe that CMS is finally getting the precise number of clinics that went into the bundle. We also strongly believe that it should be fixed sooner rather than later because it does put a burden on the industry, a significant burden on the industry with respect to cash flow. And we think that they know this and we have heightened confidence that they will correct it. And the reason it’s particularly important is because as you go into the bundle you have to change your billing method so therefore you’re going to have a little bit of hiccup in terms of when you get paid. So Mike will talk about our days outstanding will go up slightly. But this applies to the whole industry. And so we really believe that, and the industries working with congress, working with CMS to try to essentially correct this issue. They’ve given us assurance they’ll do it in ‘12 but we’d like to see it corrected earlier for the industry.

Now what that says is, when we talk about the guidance we assume that it will not be corrected in ‘12 and so we’ll talk about that later. But we still have great confidence in CMS that they will correct it and it something that needs to be done. I just wanted to mention that here as we talk about moving into the bundle.

Okay, looking at dialysis products for Q4, we had revenue growth of around 6% when you look at the total product growth and essentially 3% external. And I wanted to mention that as we do acquisitions, as they become within our network, then of course the external revenue disappears, it goes internal and you don’t see it. So during periods of very high acquisition times, which we’re in, we need to keep a focus both on the external and the total revenue because basically that is the industry.

So again, we’re clearly at the market as we look at our markets. Asia-Pacific growing very strongly at 11% constant currency. North America is pretty much flat, slightly down. And part of that is, again, as I mentioned last quarter we see a number of our customers getting ready for the bundle and so they’re using basically a selective dialyzer that will, if they dialyze a little longer it will clearly be okay for them. So they’re selecting dialyzers that are smaller. To give you some idea, our actually dialyzer volume growth was up 7% but basically we were flat with respect to revenue because people have done the mix shift.

Now as we move into 2011, that will disappear and you’ll see us come back pretty much in the mid-single-digit growth. But those are the things that are happening and again it was a very strong quarter when you look at what we’ve accomplished as people migrated in the US getting ready for the bundle. And again the international business was quite strong especially in Asia-Pacific.

Looking at the full year, of course that effect it’s moderated a little bit and you end up seeing again that the growth is in the 5% to 6% at the total market and at 3% on the external market. And again that’s driven primarily by the US being in the 1% range versus Europe versus international, which is truly at market. So this is where we are in the products as far as 2010 and as we move into 2011 we would expect North America to basically normalize a little bit back to what we see in the past.

Okay, now, talking about the dividend. This is our 14th year of which we will propose to the AGM an increase in dividend. Our philosophy over those 14 years is to try to take half of our growth in earnings and apply that to the dividend with respect to growth rates. And so we had a 9% to 10% growth, I think 10% growth in net income this year and we’re going to provide a 7% increase in the dividend to $.65 is what we would be proposing. So this will be the 14th year in which we’ve had this consecutive increase and we’ll be proposing a 7% increase in the dividend for 2010.

Since it is 2010 and we’ve now completed 2010, I thought maybe I’d just go back a minute and talk about our Goal 10 and [inaudible] probably everyone’s forgotten it but we haven’t. Back in 2005 we set for ourselves a Goal 10 of reaching $10 billion dollars in sales by the year 2010. And of course that was before the RCG acquisition in 2006. So once we made that acquisition we upped it to $12 billion in 2010 and I want to say that we did accomplish that in 2010. We also were looking at a revenue increase or a net income increase. Actually in 2005 we had a $455 million basically net income and we did $979 this year so we doubled it over that five years. But the main point is that we did accomplish our goal ten which we set for ourselves back in 2005. And again I just wanted to point it out since we have talked about it over the years.

Now let’s talk about the demonstration project. Again, as you look at the future, I’ve talked a number of times about our comprehensive care program, about our comprehensive payment scheme, the bundle, and we think this is all moving in the right direction because we’re able to then provide the best care for the patients with basically some coordinated care in terms of the hospitalization, the dialysis, the home treatment, essentially and also the nutrition.

Now the first three years of the demo project is a five-year project where it was published by an independent source here during the first quarter. I just want to point out four different accomplishments that came from this project and this sets the stage, I think, for us trying to move to an accountable care model sometime in ‘11 or ‘12 depending on the decision of CMS.

We saw basically almost a 12% reduction in hospitalization. Readmissions was down by 16%. The cost of care, essentially, if you compare it just to the fee-for-service for these patients we saved at least 6% net. If you look at the medical loss ratio which is the way an insurance looks and that’s the cost versus the premium, this was done under Medicare advantage so there was a slight premium that they provided for this program. We had a 12% savings in medical [inaudible] or savings in admissions.

Now the good news is also over the two years, which is just the first two years of the program, we saw a 24% decrease in mortality. So this was good for the patients, good for the payers and we think we contributed to advancing, essentially, the way to treat patients long term. So those results were published, they were verified. I think the results are even better if you look at the last two years of the demonstration project.

Now as I wrap up 2010, talk a little bit about ‘11 and turn it over to Mike, I want to say that the drivers that we see for ‘10 and ‘11 are really these topics we discussed here. First of all, as we published, we acquired Asia Renal Care, about 100 clinics. But the good news is this provided us with the right critical mass in a number of countries in the Asia-Pacific area and so that basically closed mid-year and so we’ll see the full effect of that in 2011.

The second one, we are making, we have always had a dedication to basically homecare, home dialysis and again we believe that [inaudible] dialysis is good for about 10% of the patients. We were able to acquire Gambro’s [inaudible] dialysis business this year. Mainly their business was in Asia and Europe, this is fine, this supports our growth in that area and they had some products that were complimentary to some of our products. So, again, this was a dedication to the home dialysis business.

We also formed a joint venture with Galenica, again we believe that one of the fundamental issues or fundamental difficulties with dialysis patients is they’re basically iron deficient; they have iron deficiency anemia. We feel that Venofer was and is a great product and so we’ve developed a joint venture to where we’re actually now back integrated more into the API where we can work with Galenica and at the same time they have a product that we’re interested in terms of bone mineral metabolism, their PA-21 products. So we are now back integrated and totally back to the API with that joint venture and essentially we see those two products as fundamentally require, or the iron is fundamentally required over the next many, many years for dialysis patients because they’re all anemic and they need to have that along with EPO.

And finally we were able to expand our service business in eastern Europe, but in European theater with the Euromedics, acquisition very helpful because it gives us critical mass in a number of countries and at the same time I think our service business in Europe is doing very, very well and we’ve got all the ingredients in Europe to essentially continue to build a major service business with our products and with our clinics. So this was one of those opportunities that came along and the European group did a great job of accomplishing this acquisition.

Now the last thing I’ll talk about here is products. I think as you know, we basically are focusing on the home business in the US essentially with [inaudible] dialysis. We are very pleased with the results of our Liberty Cycler. We are growing basically double digit with respect to putting patients on [inaudible] dialysis. We just had our [inaudible] at Home re-approved by the FDA. And this is an example of our commitment to work with the regulatory agency. That product has been on the market for a number of years but as the regulations changed, we were asked to go back and reregister it and we did. And so it has been reregistered, it’s back on the market and we’re pleased the timing is perfect now in terms of being able to advance home dialysis, hemo or PD.

And finally we talked about the T-Machine which is a real significance of that, it has a computer interface that will work with all of the providers’ computer interfaces so that now as you move into the bundle you can essentially be much more efficient in collecting data and getting it into your clinical systems.

International, we’re introducing a new product 4008. It’s basically based on our largest seller in international, which is the 4008S Classic machine, it’s based on the 4008. Our 5008 does very well, we’ve now expanded that product line to the 5008S which is designed to run online hemo-[inaudible] filtration and clearly the medical benefits of that continue to come through as a great new therapy and doing very well and of course we’re always bringing out some models and new dialyzers.

So as we look at ‘11, we clearly have expanded service business. I think we are in a position to grow the home business up to the level, of probably somewhere 10% to 12% in the US is probably where it will level off. We basically then have the products and have advanced our strategy this year.

So in summary then, we’ve maintained our leadership, we focused on quality, clearly we have not been hesitant about growth; we spent over $600 million this year and you’ll see that we’re going to spend another $1.2 billion next year. So we’ve not been hesitant about that but at the same time we’ve been very conscious of cost controls and you can see that’s why we saw a margin pick up this year. And so we’re trying to basically not pass up opportunities but at the same time be prudent with respect to how we run the company which is obviously everybody’s objectives in any company.

So at this point in time I’d like to turn it over to Mike, and Mike will give you more insight into the finances.

Mike Brosnan

Thank you, Ben. I’d like to extend my welcome to all of the participants in the call today both here in the room and on the internet, the financial community, our employees and our board members.

Ben reviewed the details of our top line and you can see again just very quickly in terms of revenues the 4% growth, 5% on a constant currency basis, 4% organic for Q4. Our employees around the world transformed that into $539 million of earnings, or a 10% level of growth. And that was done essentially by continuing to produce efficiencies with regard to our EBIT margins from 16.2% to 17% for the fiscal year.

In North America the margins went up 20%. As Ben commented, that was the result of reduction in our Pharma costs, largely as a result of the lower dependence of pharma utilization in terms of our top line. Lower personnel costs slightly offset by higher bad debts in North America.

On the international side the margins improved by 60 basis points. That was largely the result of continued economies of scale as we grow our international business as well as favorable FX and a slight reduction associated with the lower gross margins on acquisitions that we recently completed over the course of 2010 which when they’re fully synergized, we expect will not be dilutive to the gross margins in the international markets.

If we continue to walk through the P&L, interest expense, you can see, was slightly favorable to Q4 of 2009. That was largely the result of lower LIBOR and [inaudible] rates despite the fact that year-over-year there was an increase in the borrowing.

If you look at sequential quarters, Q3 to Q4, there was an increase of about $4 million in interest expense and that was also the consequence of the restructuring we did of our credit agreement in Q3 where we extended the maturity of that by two years as well as a slight increase in borrowing to fund some of our acquisitions between Q3 2010 and Q4 2010. So we do think we’re well positioned with regard to our capitalization of the company and we’re showing good year-over-year results with regards to interest expense.

That provided some additional leverage for us with regard to income before tax. A 12% increase to $465 million dollars and obviously income tax expense, we are showing a slightly higher rate. That was largely driven by settling some one-time tax audit items. A little bit less efficiency with regard to our tax efficient financing vehicles with which we managed some of our international operations because the lower interest expense you have, the less tax efficient your financing is. And if you were to look at the effective tax rate for the year, we’re consistent with our guidance that we’ve provided you at the beginning of the year.

Lastly, that produced $271 million of net income, a 10% increase year-over-year and that drove the 9% increase in earnings per share for the quarter that Ben has already mentioned.

Moving to the full year, again you can see very strong top line growth, 7% actual, 7% constant currency, 6% organic growth for the year. Transformed to just under $2 billion of earnings before interest and taxes, a 16% operating margin, up 40 basis points from last year.

You may recall, at the beginning of the year, I indicated we would have flat margins as a consequence of some of the activity in the international market, specifically the de-evaluation of [inaudible]. We did have a strong performance in the back half of 2010 which has allowed us to overcome that effect on our margins and continue to improve the efficiency of the operations year-over-year which is traditional for the company.

Interest expense, $280 million, down about $20 million year-over-year for the reasons that I sighted in Q4 as well and income tax expense roughly at expectation, 35% for the full fiscal year. Net income of $979 million, again 10% growth which is very consistent with what we’ve been demonstrating for all four quarters of 2010.

If I move to cash flows I think you know that day sales outstanding is a key driver of our overall cash flow performance for the company. Ben has commented on this a little bit already but you can see that we did move up a bit from Q3 to Q4 from 73 days total company to 76 days. That was driven by a one-day increase in North America and a two-day increase in the international markets.

We continue to be very pleased with the operating performance on receivables in North America. We’ve been operating at historical lows for some time and we’re not concerned about the one day increase that’s largely the result of just transforming some of our billing systems in the US to the new IT system that we’ve been working on now for the past couple of years.

In the international markets the increase in day sales outstanding that you see is really the consequence of a couple of things. First, the fact that we are growing our business internationally, we’ve been very busy with acquisitions over the course of 2010. You are seeing a shift in mix relative to the contribution of various countries around the world to the receivables balance. So depending on the local customs in those countries, you’ll see fluctuations both up and down with regard to international DSOs.

In addition to that you know that we have a large base of operations in Europe and we are seeing some increases in DSOs with regard to some of our markets in that continent. Specifically we are seeing increases in DSO for Spain, Portugal and Italy. We’re very much engrained in the culture of those companies, we understand what’s happening in terms of the drivers to our business, we’re confident that there’s no extraordinary risk associated with those receivables and we do anticipate that we will collect them albeit, it may be over an extended period of time.

Moving to the next page I’ll just quickly walk you through the Q4 cash flows. You’re looking at, on an operating basis, $341 million of cash flows are roughly 11% of revenues. That is down from 15% in Q4 of 2009. The two key drivers behind that are the fluctuation in day sales outstanding that I just mentioned as well as in Q4 of 2010 we did chose to make some tax payments which changes the effect of our working capital. So due to the acceleration of certain tax payments and the increase in DSOs, you’re seeing the drop from 15% to 11% on a year-over-year basis.

Capital expenditures are in line with expectation, roughly from just under 5% to 5% which is traditionally what we spend and fairly consistent on a year-over-year basis.

With regard to acquisitions, you are seeing the evidence in Q4 of the heavier spending that we talked about in 2010. We had guided to about $500 million of acquisition spend and we did spend a little bit more than that which you’ll see on the next chart. Ben has detailed the key acquisitions we’ve gone through for the fiscal year so I won’t repeat that here other than to say I think we’ve made some very good acquisitions consistent with the guidance we gave you in the markets that we indicated; Eastern Europe, Russia and Asia over the course of 2010.

Full fiscal year you’re seeing a more common relationship in terms of the operating cash flows: 11% this year versus 10% last year. That’s largely explained by just the shift in DSOs on a full year basis.

Capital spending at $507 million is slightly below the low end of the range that we provided at the beginning of the year, roughly about 10% less.

Acquisitions for the full year, $618 million, that’s the cash effect associated with our activities over the course of this year.

We had guided to less than 2 ½ times in terms of our leverage ratio debt to EBITDA. Because of the strong earnings we’ve had over the course of the year and inclusive of Q4, we have continued to reduce our overall leverage, improving another 10 basis points both year-over-year and Q3 to Q4.

Let me talk about the outlook a bit. And when I talk about the outlook, I’ll also talk about the restructuring we’ve done of our debt over the course of 2010 and most recently in January of 2011.

As you can see, we’re providing some very strong outlook for 2011 particularly in light of the reimbursement reforms in North America in the United States. We anticipate our top line will grow to $12.8 billion to $13 billion. That is a 6% to 8% growth rate for the full fiscal year, both in terms of an actual and on a constant currency basis. That growth is coming from 3% organic and 5% acquisition.

Now to give you a little bit more insight into that number let me just talk briefly about the US. So we’re seeing good overall growth. Typically in the US we would council to expect something on the order of 5% and typically or historically that has been a roughly 3% organic treatment growth and a couple of percentage points associated with rate improvements and acquisitions. With the bundle in particular with the budget neutrality cut of 2% and the transition adjuster of 3.1%, the top line revenues in North America, Medicare revenues would come down roughly about 5%. Considering all of this and the smaller effects associated with the bundle, we anticipate our organic revenue growth in the US will be less than 1% for 2011.

We’re able to provide such a strong top line growth outlook on a global basis because our international businesses are growing very nicely and we anticipate organic growth in the markets we operate in of over 7% for fiscal year 2011.

Moving to net income, we anticipate a range of $1.035 billion to $1.055 billion. And just to be clear, our net income guidance does not include any correction for the transition adjuster of 3.1% in the US. I’ll come back to that a little bit later but our earnings growth does contemplate margin accretion consistent with what we guided at our Capital Markets stay of roughly 20 basis points of margin improvement in fiscal 2011 on a worldwide basis.

We would anticipate interest expense for 2011 in the range of $350 million. And this range considers the bond offering that we just funded at the beginning of February of this year and it also considers all of the refinancing activities we undertook last year. Our effective tax rate we anticipate will be 34.5% to 35%.

And with that, let me move to the capital side of our guidance for 2011. Consistent with what we historically guide, we anticipate we’ll be at approximately 5% in terms of capital spending for the fiscal year. That will be split roughly 50/50 between expansion and maintenance capital and it will be jaundiced in favor of continuing to build our service network on a global basis.

With regard to acquisitions, we indicated at our Capital Market stay that we expected a baseline or a minimum acquisition spend for the next three years of about $1.2 billion. That would equate to roughly $300 to $400 million a year if you assumed it was linear. We also indicated that we would be opportunistic in the marketplace as asset acquisitions presented themselves. Clearly we addressed the one such opportunity with the announcement of the Euromedic acquisition in January. And this spending level for 2011 anticipates that that acquisition will close this fiscal year and that is roughly $650 million of acquisition spend.

We also have carry over into 2011 from $200 to $300 million associated with payments related to prior acquisition is that we’ve already announced and closed. So that leaves you essentially with about $300 million to $400 million of incremental acquisition spend in 2011 that’s considered in the guidance of approximately $1.2 billion. And I would say that we have smaller opportunities that we are currently pursuing. In addition to that I would say that we have our normal pipeline that will present additional transactions to us later in the year and so that’s why we’ve created some headroom in this guidance at $1.2 billion.

Regarding our leverage, obviously with the activities that we’ve been involved in, we are going to increase our leverage in fiscal 2011. We’re finishing 2010 at 2.38 and we’re guiding to less than or equal to 2.8 times debt to EBITDA the fiscal year.

And I should also mention that we do anticipate coming back into the capital markets in 2011 to address the maturity of our trust preferred securities that will mature in Q2 of this year. We have created enough flexibility in our credit structure so that we can choose to return to the market either before or after the actual maturity of those securities.

So now let me just take a minute and elaborate a little bit on the transition adjuster. In our Q3 call we outlined our plan to mitigate the impact of the transition adjuster as one of three elements of our overall mitigation plan for the adoption of the new reimbursement rates in the United States. That plan included working with congress and the administration to ameliorate the effects of the transition adjuster in fiscal 2011. With the available information today, it’s very clear that the transition adjuster at 3.1% for 2011 over reached its targeted effect on the industry. A much larger number of clinics opted into the bundle, which clearly from a mathematical perspective would tell you that the transition adjuster would be substantially lower than the 3.1%. It has not yet been remediated and we’re going to continue to work with congress and the administration, but we thought it best to eliminate it from our guidance on earnings for 2011.

As the year progresses and as we get further information from Washington, if at such time they make any announcement with regard to addressing the transition adjuster in fiscal 2011, we’ll consider revising our guidance at that time. As Ben mentioned, I think it’s also possible that they may look at the reimbursement adjustments for 2012 and consider at that time some remedial effect or some make whole effect for 2011. So that’s why we’ve eliminated it from our earnings guidance for the current fiscal year.

So the number that we’ve used is, if you were to estimate the full value of the transition adjuster, that would be about $100 million if it all went away. There have been, there has been work done by non-government organizations that would suggest that the correct transition adjuster should be something in the .3% to .4% percent range. So therefore we took $85 million out of our revenue guidance associated with the transition adjuster. So the revenue and earnings guidance we’re providing shows we anticipate our company will have a very strong financial performance in 2011 particularly in our international markets. In conclusion, quite simply, we are acting on the opportunities we’ve identified. Our employees in the United States and around the world have been doing an outstanding job addressing regulatory and reimbursement reforms everywhere in the world, always ensuring that we operate the business focused on our patients and providing them high quality care with the best products.

Thank you. And with that I will turn the meeting back to Oliver Maier.

Oliver Maier

Great. Thank you, Mike; thank you, Ben, for the update on the presentation. And same procedure here, we’re going to start with the questions in the room. So who’s going to start?

Question-and-Answer Session

Unidentified Analyst

[inaudible] first of all could you give us some thoughts about probably changing landscape with regard to EPO and going forward beyond 2011 when contracts need to be renegotiated. [inaudible] probably getting into the markets or I think [inaudible] stated that very closely [inaudible] in the marketplace, I’m not sure on how far they would be willing to push for a price increases beyond probably the contracts which are due to expire, I think also at the end of the year.

Secondly, I just want to hear your thoughts on SFP probably and how the dollar side from Rockvalle [ph] might work going forward with regard to iron replacement which seems to be a quite interesting proposal towards treating patients, especially on the iron deficiency side and probably less used in Venofer going forward.

And last but not least, on your [inaudible], just published to my understanding, I mean the asset I think has been on the market three or four years ago already. Why the timing? I’m just trying to understand, did the purchase price come down or what happened there? Just for my understanding, thanks.

Mike Brosnan

Looks like I’ll take all three of those. As far as the [inaudible] negotiations, let me say that they’ve been a very good partner for FMC over the years. We usually do not comment on the negotiations, I’m sorry, at this point in time. But as we’ve mentioned before, our contract operates through all of 2011 and we hoped that we expect by the end of the year that we will have renewed that contract. And at this point in time I probably shouldn’t go any further than that in terms of discussing it.

Unidentified Analyst

But it was true that you said in the past that we would have liked to have a couple of years, whatever, data on a competitor product by [inaudible] of whatever’s out there in order to make a switch. Is that true still?

Mike Brosnan

Yes, the second question is as new products come to the market, how do we look at them in terms of bringing them into the clinics. Generally what we do is we have a medical advisory board and they essentially will lay out a protocol and when you have something that’s as important as EPO or iron, you generally try to get somewhere in the range of 4 million to 5 million years of experience, patient experience on these because these are something you administer continuously for these patients. But again, we do 30 million treatments a year so this is something that’s not out of line, okay. So that’s essentially what we would start doing with a new product when it came to market if it’s not got that kind of base coming in. and most of them don’t have that base. So when it comes to market, that’s the type of safety profile we need.

The next question is basically the dialysis provided iron. There’s, again, don’t want to say anything that is detrimental to the company, we know them well, but we’ve all looked at that for years and years and one of the difficulties you have is basically how do you dose it because the dosing depends on the membrane, depends on the transport, it depends on the concentration so you’re really creating for basically a situation that is much more complicated. Now if you’re just trying to repeat someone, that might be doable because you just overcompensate. But at the same time we’re looking at some very specific iron protocols to be able to optimize the outcomes for the patients and we think that’d be pretty hard to do when you don’t control the dosing.

And finally on Euromedics, I think Euromedic has certainly been, let’s say, discussed as far as availability for the last couple years. One of the situations that basically deterred us from doing something two years ago is that it was a structured financially in such a way that we would be part of the entire company which includes diagnostics. That did not make sense to us. We’re in dialysis, we’re always interested in buying the dialysis assets, so for their own reasons those came to the market in 2010.

And quite frankly because of all the synergies that are developed by the European group in terms of operating clinics, we basically just bought the facilities, okay. So when you look at the actual purchase price to EBITDA, it actually turns out to be quite reasonable for a group that’s rolled up 8000 patients. So it became very attractive to us this year because they were willing to sell essentially the dialysis section and Dr. Ghadi and his team knew them well; they’re customers and he was able to pull it off.

Oliver Maier

Okay, next question here. Holger–

Holger Blum – Deutsche Bank

I’m Holger Blum, Deutsche Bank. Just two questions; one on the same market growth where you’re seeing an acceleration again. What was driving that and why did you go above the market? What was the attractiveness there of your clinics?

Second question, on ACOs and accountable care, how was the timeline there progressing and the feedback after the [inaudible]. What can they expect over the quarter of this year in terms of news flow?

Ben Lipps

Thank you, Holger. With respect to the same growth, I assume you’re talking about the US because Europe- There’s two components to that. Again, exactly what is the market growing at and we always said between 3.5 and 4, but our mortality has continued to increase. So it’s a combination essentially of your physicians getting the representative market in their areas and at the same time the mortality improves. And I think that’s why you find DeVita and ourselves doing quite well in terms of same market growth in that 4% range because everything I can see on their mortality has been improving also. And now we have not, as an industry, agreed how to measure mortality so all we do is talk about the incremental gain. But we have gained almost 400 basis points in the last four years in reducing mortality. So sooner or later we’ll come together as an industry and provide you that information. But that’s the combination effect you’re seeing there.

Now ACOs, it’s my understanding from the latest email this morning, that the regulations are coming out at the end of February but it’s also our feeling right now is that they have not decided, CMS has not decided to include renal. It’s basically going to stay more on the primary physicians. I personally think that’s a major mistake on the part of the administration and on the part of CMS because the five year demonstration program by both DeVita and ourselves has shown that this is an industry, this is a situation where these patients can do better under accountable care concepts and at the same time the government can save money and everyone can benefit.

But somehow we have not been able to get that point across where we’ll be in the first wave but at least that’s what they’re telling us, but we hope we’ll be in the second wave and maybe the second wave will come fast. So at this point in time we are still encouraging talk with anybody who wants to talk with us about it, but we don’t get the data that we’ll be in the first wave. Which is hope is wrong, but that’s what I’m hearing today.

Oliver Maier

I think Marcus was next.

Marcus Wieprecht – Main First Bank

Yes, Marcus Wieprecht, Main First Bank. One technical question, probably for Mike. How should we model the Galenica joint venture? Who’s booking the revenues or recognizing the benefits, say, what is the impact as far as I understand with the 45% stake you have in this new company, it will be probably the profit below the EBIT line at equities of what kind of impact, what kind of guidance would you give us?

Mike Brosnan

Thank you, Marcus. We’re a 45% participant in the joint venture so the joint venture will record the revenues and we’ll record our minority share of the earnings in the venture. And you record the minority share actually in your operating earnings. So it will show up in EBIT for the 45% share of the joint venture. That’s the technical accounting associated with the nature of the investment.

Marcus Wieprecht – Main First Bank

Would you consider then slightly accretive to your EBIT, the new contract?

Mike Brosnan

Yes, absolutely.

Marcus Wieprecht – Main First Bank

Okay, thanks.

Oliver Maier

One more question in the room?

Unidentified Analyst

Could you just amplify on your comments with respect to the balance sheet and the level of floating rate data as a percentage of the total and where you see your balance sheet longer term; whether you are happy with the ratings as they stand today or whether you’d like those to change and for you to become investment grade?

Mike Brosnan

Sure, let me deal with the ratings and investment grade first and then I’ll come back to the fixed and variable structure. We’re very comfortable being just below investment grade. We believe that if we were to have, we do not have as a corporate objective to become investment grade. We believe that if we were to undertake that we would have to take a break with regard to some of our acquisition activity for at least one or two years because the worst thing you can do if you’re ready to become investment grade is achieve the objective and then because you see an opportunity in the marketplace, fall back down into high yield.

So we think that being a very high quality credit just below investment grade in terms of the high yield market is absolutely where we need to be and that is also driven by the fact that when you look at the opportunities on a global basis, we think that there is still plenty of room to grow, particularly in the international markets and the developing markets over the course of the next several years. So that’s where we stand with regard to our rating.

In terms of the structure of the debt, if you look back over the last couple of years we did have a very large credit agreement, as you know, and the notional or the core earnings or interest expense on that was variable but we had done some swap agreements back in 2006 and 2007 such that we had swapped about half of that into fixed rate debt. So our ratios for the last couple of years have been about 70/30 fixed to floating. When you look at 2011 on a higher debt balance because we just floated the billion dollars associated to the ten-year bond, which is obviously fixed, we’ll be probably in the range of 60/40 fixed to floating.

And it’s quite possible, over the course of 2011, we’ll be looking at the market, we’ll be looking in particular at what the central bankers are doing around the world and we might decide to swap more of the variable into the loading at that time. But that’s essentially the ratios we have at the moment. We have not added to our swaps pending what we see happening with short-term rates.

I think that answers all, yes, thank you.

Oliver Maier

Next question. Martin–

Martin Whitbread – Credit Suisse

Thank you. Martin Whitbread at Credit Suisse. So can you remind us what percentage of your US clinics offer the Liberty Cycler at the moment. And the second question to that is what is the CapEx, the capital cost per cycler? And then next question is on the synergies from Euromedic, what percentage of the acquired EBITDA do you think you can add to [inaudible] synergies? Thank you.

Ben Lipps

Okay, I think as far as the questions on the cycler, Rice are you, can you hear us, would you take that question?

Rice Powell

I can hear you just fine. In terms of the percent of US clinics that are offering the Liberty Cycler, we are fully engaged for those clinics that provide PD therapy, not every clinic does that, they’re not set up that way, but of those clinics, probably 1/3 of our clinics that are offering PD therapy, they all have access to the Liberty Cycler and are training and placing patients on that cycler as we speak.

I won’t go into too much detail on cost but I will say that the Cycler stays on our books in the products business. It is a rental piece of equipment, if you will, for the times that the patient is on the PD therapy. We treat it that way both internally as well as externally for our patients in our third party independent externals or perhaps DeVita, someone else. So it really doesn’t impact the capital allocation.

Ben Lipps

Thank you Rice. And again, this is in our capital projects for next year, the word is. Thank you Rice. Mike will you take the Euromedics?

Mike Brosnan

Sure. We typically don’t talk specifically about the synergies associated with an acquisition but what I will say, and I think we’ve already commented that the acquisition is accretive in year one. We have also said that, and I think it’s well known that Euromedic was actually a customer of Fresenius prior to the acquisition but we did not have 100% penetration. So there is a synergistic effect that we’ll see with regard to products but perhaps not as great as some of our prior acquisitions where they were not customers of ours prior to acquiring the clinics. And the third I would say that we are acquiring the clinics so we think that there’s a synergistic effect associated with the Legacy GNA which we don’t need to bring across.

Martin Whitbread – Credit Suisse

That’s great. Thank you.

Mike Brosnan

Thank you.

Oliver Maier

Florian [ph] next.

Florian

Thank you for taking my two questions. The first one relates to margins as we go through 2011 how would you see the phasing of [inaudible] most of the quarter. Second question, you mentioned that drug utilization was lower in Q4 versus Q3, could you give us a bit of an update sort of what changed in Q4 specifically when it comes to the utilization of EPO?

Ben Lipps

I’ll take that one first and then share it with Rice. As a process in Q4 as we’ve mentioned in the past, we were instituting a number of pilots to basically determine where is the optimum level of pharma utilization. So I think Rice, would you like to, and that’s what you’re seeing in Q4. Rice, would you like to add something to that?

Rice Powell

I think, Ben, the only comment that would be of benefit for folk is if you recall in our capital market today, I had projected that we thought we might see EPO utilization drop in the 5% to 10% range. I think I would update you that that range is more in the 10% to 15% corridor and we’re really quite comfortable with the work our medical advisory boards have done in developing the protocols and having them implemented and obviously will continue to monitor them very closely with the single minded goal of making sure that our quality stays where it has been and where we can improve it we will with our protocols for any new management.

Ben Lipps

Thank you, Rice. Let me make one comment back on Galenica and back on the question of Euromedics. Again, there’s two parts to the Galenica deal, one of them is FMC is a distributor of the product and that’s where the revenue will show up. And the second joint venture is basically at the API level and the development of new products. Another synergy that we didn’t mention for Euromedics is the European operation has a very strong pharmaceutical renal pharma program and so these are clinics then that that product could be sold to the new acquisition Euromedic used internally for more revenue.

So we’ve got a couple synergies as Mike mentioned plus an additional synergy here in the renal pharma area.

Mike Brosnan

I thought with three, Ben, I wouldn’t miss one, but I’m glad you entered the fourth. Just to respond to your question with regard to margin phasing, we actually don’t guide on margin phasing other than to say that we do expect to be an accretive by about 20 basis points on margins. But I will take the opportunity of your question to comment a little bit about earnings over the period.

I would tell you that if I just think in terms of first half/second half, I think the first half for all the reasons that we’ve been discussing in the last two, three or four calls that we’ve had, the first half will be a challenge for us. We think that the first half will still be positive on a year-over-year basis but we do see to achieve the earnings guidance I just gave you that we will build momentum over the course of the year and I would expect the back half of the year to be stronger than the first half of the year. If that’s helpful.

Oliver Maier

Any more questions here in the room? If that’s the case, operator, I think we can open up the line since we have some people actually in the queue for further questions from the audio line.

Operator

[Operator Instructions]. The first question is from Ilan Chaitowitz, Redburn Partners. Please go ahead sir.

Ilan Chaitowitz – Redburn Partners

Good afternoon, it’s Ilan Chaitowitz from Redburn Partners in London. I’ve got three questions to start off with. We heard from [inaudible] that they’re expecting vitamin D to drop 40% from their end. Wondering if we should put into our models a 40% drop in your US patient population treatments as well. With regard to your machine products, can you talk around the T-machine uptake, how that’s progressing in North America and also maybe talk a bit about your home hemo approval recently and what do you think for the prospects of that business. And finally I’d just like you to please go over the 5% reduction that you see for Medicare patients for 2011. You mentioned the 2% absolute [inaudible] of 3% transition adjustments. I was wondering if you had factored in the inflation adjustment for 2011 or the 120 day booster from early start patients. If you have factored those in, can you just go into where you might see any other ad winds?

Ben Lipps

Thank you, Ilan. I’ll take the vitamin D and then if I could, Rice, I’d like you take the T and the home machine and Mike and I will do the 3%. Again, I’d have to read the Abbott announcement but there’s sort of two things going on. Obviously there’s competition in vitamin D between Abbott and Genzyme and there might be a product mix. As far as what we see in vitamin D, yes we believe that we probably are optimizing the vitamin D at this point in time so we’re not really calling it out separately but at the same time it’s part of the pharma utilization that we’re looking at in terms of having the right [inaudible] provide the right patient care but also meeting the economic constraints of the bundle. So I think that’s my comments on the vitamin D.

Rice, why don’t I turn it over to you to do the machines and if you have additional comments on vitamin D, feel free to add those.

Rice Powell

Sure, Ilan, hi, it’s Rice. On our T-machine we sold approximately about 1300 machines in Q4 so we were very happy with that. We did our official launch in November at the American Society and Nephrology Meeting. But the machine seems to be well received. It’s functioning well so we’ve been very happy with that. And yes we do have good news on 2008K at home, that was a recent approval. We expect to be shipping that machine in Q2 of this year.

We’ve got some ramp up and a few things in the factory that we’d like to do before we start shipping those machines. I’m excited because I think it offers a great opportunity in the home hemodialysis arena because with the technology of that machine, we will be able to have home patients take three times a week treatments, they’ll get the same, if not better clearance, three times a week with our therapy proposal then having to do five or six days per week on perhaps the other home machines that are out in the market. In addition to that we learned through our demonstration project with Integrated Care that had been mentioned.

We used a home device, our kidney tail device which basically sits in the patients home, allows them to record data such as blood pressure, weight, how do you feel today, and send that into our care managers. We are anticipating to take an offshoot of that technology, use that with our K at home machine to make sure that we are getting as precise management of the hydration of the patient, do we need to pull more water off, what’s going on, it really gives us an inside day to day as to how that patient feels and what our therapy is providing or perhaps do we need to be looking at something different. So we are quite bullish and excited that we’ll be back on the market with that product.

And Ben, I think you covered that just fine. So let me turn it back to you and mike.

Ben Lipps

Okay, I think Mike and I will do the 5% and again the 5% I talked about was the 2% which was agreed upon by the industry and by ourselves because we get an automatic update starting in 2012, okay. Now there is an update in 2011, a 1% to 2% that’s in the program. The transition adjuster, as we mentioned, should really be .6% but right now it’s still 3. So if you take all that net together, there still will be commercial increases. There is the other 1%, so we’re saying on general you won’t see a total 5% reduction in reimbursement, you’ll see something more like in the range of 3%, right. Is that what we’re saying? So does that sort of layout the picture without any moderation on the transition adjuster, obviously we’re looking somewhere then in the, our projections for the revenue per treatment would be down 3% for 2011 but that’s not, again, our cost structure that we’re working with, will not drop that to the bottom line.

Mike Brosnan

I would just say that when I commented about our guidance at 6% to 8% growth in revenue. So on a worldwide basis that’s strongly positive for the company. And when I talked about the effect of the transition adjuster and the Medicare cut, I was doing it in the context of organic growth and I think you’re used to seeing an organic revenue growth number from us in the 4% to 5% range in the US and I’ve indicated it’s going to be less than 1%. So there’s two ways to look at it. I had not commented specifically about a revenue rate for a couple of reasons. Even though I know historically we typically give you growth guidance with regard to the revenue rate in the US. And I didn’t do it because when you have a common platform year-over-year in a reimbursement environment that’s not changing, it makes perfect sense to do that. 2011, everything has changed so I think the most important things for us to do is to give you guidance on what we expect the company will report. And that’s what we did.

The other reason I haven’t gotten so specific with regard to the US is in Q3 when I talked about the three areas that we would address mitigation of the bundle, the first one we just talked about several times which is the transition adjuster and because of the lack of activity in Washington, I’ve taken that out. The second was the pharma protocols and acquisition costs. The third, which was worth about 20% of the mitigation, I really took a number of different activities and categorized them as one basket of mitigation activities. I said that we would have the traditional cost reduction activities in the clinics but I also said that we had an initiative to increase our home penetration, we have initiatives around training patients on outcomes which gets to the kind of access they have.

And I said that we would improve the care at initiation of dialysis. Three of those four have a revenue affect and I can’t tell you specifically today, I can’t parse out those four different initiatives to give you more granular guidance with regard to what’s going to happen on the revenue rate in the US. So that’s why I stayed away from, I don’t want to pretend that nothing has changed and I can give you US revenue guidance with the same kind of clarity that we’ve provided historically. I think it’s better that we give you global guidance and describe the mitigation activities in the three categories that we’ve done now for a couple of quarters.

Ben Lipps

Ilan, I think we must have answered that question, right?

Ilan Chaitowitz – Redburn Partners

Well kind of. Can I just recap briefly and you can tell me if I’m on the right lines, [inaudible] I mean. Your 5% revenue reduction relates to US Medicare patients, that does include the agreed upon 2% reimbursement cut across the industry. It also includes a 3% transition adjustment but does not include any of the other mitigants including the 2011 [inaudible] inflation adjustment and the early mover benefits and other changes that you are sure how are going to play out as a booster to the revenue. Is that a clear summary?

Mike Brosnan

I think that almost. I think the only thing I’ve said absolutely categorically is we have taken out any mitigation of the transition adjuster. So it’s in the revenue rate adjustment because you’re going from 2010 to 2011 and there’s a reduction in the reimbursement rate which I’ve essentially said because congress is not acting, we will not represent, we’re mitigating for 2011.

With regard to all the other detailing associated with the 120 days and with the different rate adjusters you would get with regard to your patient population, we did look at those, we are obviously billing in accordance with the new regulations and when we prepared our budgets and those become the basis for our guidance, we did consider what our patient population was and how much they would contribute to the revenue rate in 2011. But compared, frankly, to the 2% budget cut in the transition adjuster, those are much smaller and those are frankly based on fact. As we’ve commented before, it remains to be seen in particularly with regard to some of the co-morbid conditions how successful the industry will be in terms of being able to capture the precise co-morbid conditions of the patient in order to bill for those. But we are capturing them, we have adjusted our IT systems to treat them appropriately in terms of the invoicing.

And so I think I’ve answered your question in that we’ve used our business judgment with regard to the co-morbid conditions, with regard to the initiation of dialysis and all those other smaller elements of move to the bundle.

And I’m going to make one more comment and then I’ll let Ben further elaborate on this point, I’m sure. And there’s one piece of good news which I think is worth mentioning and that is that despite all of the complexity associated with a new bundle, we did bill on a timely basis, the month of January. So we are submitting actual bills to Medicare, which is not an inconsequential thing. Thank you.

Ben Lipps

And not being the CFO with all the information, Ilan, I think the way you stated it you’re correct; and what Mike’s talking about is the things we’re trying to do to move that to basically mitigate that 5%. Is that a fair overstatement? Ilan I think the answer is your statements are correct and you can see we’re very active in trying to basically mitigate as much as we can of this haircut this year. So does that get you where you need to be?

Ilan Chaitowitz – Redburn Partners

Eventually, yes.

Ben Lipps

Okay, thank you very much.

Operator

The next question is from Kevin Ellich of Collin Stewart. Please go ahead sir.

Kevin Ellich – Collin Stewart

Thanks for taking my questions. I’ve got a couple questions for each of you. Maybe I could start with Mike, the easiest one is with the Euromedic acquisition, is that included in your 2011 guidance and if so, how much should we expect?

Mike Brosnan

Oliver’s adjusting my mic so I’m never sure when it’s on. It is included in our guidance and we would, as I think you know, some of the markets require regulatory reviews so we’ve assumed that the closing will happen sometime in the first half of the year. So it’s pretty much the back half of the year in terms of when we would anticipate it would come on board.

Kevin Ellich – Collin Stewart

So about 50% of your revenues. Okay, got it. And then you also mentioned in your prepared remarks that bad debt in the US was higher. Overall, as a percent of sales, it looked kind of flat on a year-over-year basis but can you give us some color as to how much you saw bad debt increase in the US and what was driving that?

Mike Brosnan

The way I was commenting about bad debt was more in the nature of the fact that when the business is growing, we’re providing more or less at the same level. It may change by just a couple of basis points from one quarter to the next but it was not a material change in the risk assessment on receivables in the US.

Kevin Ellich – Collin Stewart

Okay, that’s what I thought. And then maybe this is for Ben or Rice, but, Rice you mentioned that EPO utilization was down maybe more like 10% to 15% in Q4 when you guys thought it might have been 5% to 10%. How much more do you think you can continue to drive down ESA use?

Ben Lipps

Rice, I’ll let you take that one if you don’t mind.

Rice Powell

Oh, thanks Ben. I would tell you that I am fairly comfortable in that 10% to 15% range. If you’re asking me do I think it could go from 15% to 20%, I don’t think that’s practical. We seem to be in a fairly good spot in the 10% to 15%. Could it go a little over, perhaps, but we’re really in a space now where we are pushing the algorithm and the protocol through our system. We are adjusting it as necessary based on the quality outcomes we see. So let me leave it at 10% to 15% and yes, can it go a percent or two more, perhaps. But I’m not going to start out trying to say the drop will be 15% to 20%, I just don’t believe the data suggests that. Ben has looked at the data as well, he can jump in if he would like. But I’m comfortable with the range I’m giving you.

Ben Lipps

I am too Rice, I totally agree with you.

Kevin Ellich – Collin Stewart

Okay, what type of pricing increases or rate increases did you guys see in the US?

Mike Brosnan

Pricing increases on EBITDA or on?

Kevin Ellich – Collin Stewart

Revenue pretreatments.

Mike Brosnan

Well year-over-year we saw a 3% increase in terms of average revenue per treatment for 2010 versus 2009.

Kevin Ellich – Collin Stewart

Okay, so that’s pretty much what you saw in Q4 as well?

Mike Brosnan

Yes, that was within the target range that we gave you from 2 to 3 so we ended up on the high end of that range.

Kevin Ellich – Collin Stewart

And then last question, Ben. One of your presentations has a Medicare waterfall diagram if you would. It shows where you guys are able to make back, maybe mitigate some of the impact of the bundling effect and you still have a $7 [inaudible] deficit. Just wondering what’s your confidence that you’ll be able to make that up. I mean it shows a $14 add back for a case [inaudible] adjusters and $3 for outlier adjustments. Are there ways you can make up that $7 deficit?

Ben Lipps

Well I think that was the reason both Mike and I talked about the transition adjuster because that’s the size of the transition adjuster and that turns out to be a penalty for everyone in the industry and for the patents. So at this point we’re working very hard trying to find ways to mitigate that but really it’s an unfair calculation at this point and that’s why it’s not in our guidance. So we had to take it out. SO at this point we’re so active trying to get the right decision for the industry and for the patients but at this point we are trying to also find ways to make up for it if it doesn’t happen this year.

Kevin Ellich – Collin Stewart

Okay, thanks. That’s helpful.

Operator

The next question is from Frank Morgan of RBC Capital Markets. Please go ahead sir.

Frank Morgan – RBC Capital Markets

Good morning. You touched on this a little bit but I wanted to go back to the issue of the new coding requirements under the bundle payment system specifically on the documentation from other healthcare providers that are involved in the delivery process. Could you talk a little bit more about any kind of issues you may have seen in terms of getting the necessary documentation in order to recognize rates and what you think are the appropriate levels and then if there has been an issue there in terms of your ability to accrue for the rate, are you accruing it as the ultimate rate that you think you will receive or at a lower rate?

Ben Lipps

Let’s do that in two steps and maybe you and Rice. This is a problem for the industry and this is why I mentioned that this is so unfair that the transition adjuster hasn’t been fixed because we’ve got a double issue here. But again from FMC standpoint, I think Q4, Mike you want to mention we’ve come pretty close to what we would expect to see looking at the impact files, so if you and Rice want to say more on that.

Mike Brosnan

I guess I’d say two things. One is having billed one month, we did come pretty close to what our expectations were relative to the impact files but when you look at all the componentry, you don’t necessarily get there by every single item being exactly where it was pegged in the impact file. And I would say generally when you look at the co-morbid conditions that our experience is that it’s difficult to get that information from the physicians and the medical professionals that don’t work for us. They’re not obligated to provide it.

So that, so I think we’re very close to where we expected to be in terms of our actual billings in January, we’re getting there with a different componentry but I would also say with regard to your specific question in terms of the co-morbid conditions, we are not accruing for what we cannot support. So we’re billing what we can support consistent with what the requirements are for Medicare and if we can’t support it, we’re not accruing for it.

Ben Lipps

But it clearly is a problem for the industry. I think we know that, we’re working on it and that’s the additional difficulties we’ve seen.

Frank Morgan – RBC Capital Markets

To the extent that you can ultimately get documentation, is there an opportunity to go back and re-bill to catch up for any kind of incremental shortfall?

Mike Brosnan

Rice, do you want to take that? I don’t know that I have that answer.

Rice Powell

I think there is the possibility but quite honestly, we want to be very clear and very sure about a re-bill opportunity if you will, Frank. So could it happen, yes, but as Mike said, we want to be very conservative and concise in what we’re doing here. So we wouldn’t say no to that opportunity but we’re going to study it very carefully before we go after that.

Frank Morgan – RBC Capital Markets

Okay, thank you very much.

Operator

The next question is from Lisa Clive of Sanford Bernstein. Please go ahead.

Lisa Clive – Sanford Bernstein

Good afternoon. A few questions. First, on your private patient mix, yet again, DeVita mentioned that they have seen their proportion of private patients decline in the most recent quarter. Could you just us some thoughts on the trends you’ve seen in your private patient mix over the past, perhaps, 24 months and if you could possibly think of any reasons why you may or may not be having a different experience from you large US competitor.

Second question is around private patients bundling. Now given that all the patients are on the same or very similar protocols regardless of payer, from a financial perspective, if you are optimizing drug utilization that’s clearly a good thing financially on the Medicare patient’s side. But that’s potentially a head wind for revenues on the private patient side. Could you just talk through how you’re thinking about mitigating that issue or give us some sense of the proportion of your private patients that are bundled.

And then my third question, Rice, thank you for that revised guidance around potential EPO reductions of 10% to 15%. That sounds like it’s due to the changes in the protocols that you’ve been working on for the last several months. You’ve also talked about reducing the number of patients with catheters and as I remember from your Capital Markets Day, you stated that patients who have infections which are often caused by catheters tend to need more EPO. Is that something that could, over a period of perhaps a few years, give you a bit of an ability to reduce EPO even more around the fact that basically you’ll have healthier patients who need less of it?

Ben Lipps

Lisa, this will be between Rice and myself. I think as far as the long-term effect of catheter reduction, it’s really too early to speculate on that one. Let me pass on that. I think as far as the private pay bundling, we’ve religiously not commented on what percent have been bundled for various reasons. So having addressed those two, let me turn it to Rice. Maybe Rice you can talk a little bit about the private, about the mix and your suggestions on the 10% to 15%.

Rice Powell

Yes, Lisa from our standpoint we have seen a slight increase in our mix in improvement over year-to-year, ten to nine. And so we’re up a little bit. We’re comfortable with that, I don’t think it’d be appropriate for me to try to figure out what’s going on with Kent and his team because they’re very capable in their situation. Perhaps we’re just approaching something a little differently. But so our mix has improved slightly for us year-over-year. I would tell you that in the 10% to 15% utilization drop with EPO yes that was affected by our protocols and the approach we took at trying to find exactly the algorithm that we and our medical advisory boards were comfortable with. So that was a big piece of that.

And to sort of touch where Ben is, we are pushing hard for catheter reduction. There’s no question theoretically that you’re going to have some less EPO there. I think it’s very early to try to give you a proposal as to what that could do over time, we don’t know. But I think you should just be aware and comfortable with the fact that we are working hard to drop that reduction in the number of patients with catheters but I think it’s too early to try to give you any warning or any guidance of what we think that ultimately could do for a drop in EPO dose.

Lisa Clive – Sanford Bernstein

That’s very helpful. Thanks.

Oliver Maier

Okay, I think we have time for two more questions actually. I think we have two more on the line.

Operator

The next question is from Martin Wales of UBSaG. Please go ahead.

Martin Wales – UBSaG

I just wanted to understand what kind of [inaudible] your net acquisitions in Q4. As I recall there were [inaudible] three closing Q4. [inaudible] quoted a total of $386 million. What was the split between spend between [inaudible] which closed at the end of the year, I guess adrenal care and any upfront payment for the [inaudible]. Could you give me some sense of how we get $6 million of split please?

Mike Brosnan

Sure, it’s Mike Brosnan. We actually are not disclosing the specifics with regard to the Galenica transaction I think we previously disclosed ARC but that transaction closed in Q2 not Q4 and Gambro I think we previously disclosed and that was $80 million which did close in Q4.

Martin Wales – UBSaG

So [inaudible], what was the other $300 by definition must have been the upfront [inaudible]. Is that a reasonable assumption or am I missing something?

Mike Brosnan

No, I don’t think you can draw that straight a line, cause we did have a number of other smaller acquisitions around the world that closed in Q4.

Martin Wales – UBSaG

Were they all [inaudible]?

Mike Brosnan

Well I think given that I started by saying I’m not disclosing the Galenica transaction I’ve probably given you as much color as I can at this point.

Martin Wales – UBSaG

I didn’t ask you to disclose your [inaudible], I just asked you to disclose what your smaller positions actually were.

Ben Lipps

We have a number of smaller acquisitions which again, as Mike says we don’t disclose the amount because they’re clinics that are owned by people known in the industry. So I think Mike, there were some dialysis clinics closed. ARC closed at the end of the year, Galenica- Not ARC, but PDM.

Mike Brosnan

I’m sorry I misunderstood your question. I thought you were just trying one more time to come back around.

Martin Wales – UBSaG

No, no – I’ve given up on that one.

Mike Brosnan

If I misunderstood I apologize. Yeah, I think it’s safe to say in the Q4 as I’m thinking about it they were all services acquisitions. There were no products deals in Q4.

Martin Wales – UBSaG

Okay, fantastic. Thank you very much.

Operator

The last question is from Tom Jones Berenberg Bank. Please go ahead.

Tom Jones – Berenberg Bank

Thanks very much for letting me sneak in at the end. I’ve got two questions which hopefully you’ll be able to answer both of. Just on the acquisitions front, the $300 million to $400 million that you sort of got left over in your $1.2 billion for acquisitions in 2011, I just wonder how we should be thinking about the spread of that across your main business units – your international clinics, your US clinics, maybe in the products business. I only ask because I noticed that the non-same store growth in North America took up to its highest level since I think Q2 2007, so I just wonder whether that was something we should view as a sustainable trend or it’s just a one-off anomaly that happened in Q4 when a bunch of mom & pops decided they’d had enough under bundling [ph] and wanted out before it started. I just wonder whether that was a sustainable thing.

And then the second question, I just wondered if there would be any further write-downs on your Venezuelan business following the second devaluation of the currency right at the end of 2010? Or did you completely write that off in Q1 2010?

Mike Brosnan

Okay, why don’t I take the second question and then Ben and I can decide who takes the first. Yeah, with regard to Venezuela, in the Q1 of last year that was the most dramatic effect because we had to mark the balance sheet to market. So that was about a $12 million effect that had to be taken in Q1, and then as the year progressed we had to use hyper-inflationary accounting so we recognized whatever the currency effects were each quarter. And so you had a jaundiced effect in Q1 of last year with regards to Venezuela.

I guess as long as you’ve asked the question with regard to Venezuela because they did another devaluation at the end of 2010, but the government is handling that one differently in that they’re honoring the exchange rates for all prior transactions. So we will not see the kind of dramatic effect for this most recent devaluation that we did in the beginning of 2010.

Tom Jones – Berenberg Bank

Okay, so we’ve spent a bit of this to some extent but similar to what you’d expended through Q3, Q4 last year.

Mike Brosnan

Exactly. Yeah, you’ll see it will kind of drip in over the course of the year. It’s a smaller effect.

Tom Jones – Berenberg Bank

And then on the capital allocation fund?

Mike Brosnan

Yeah, are you looking specifically at Q4 or year-over-year?

Tom Jones – Berenberg Bank

No, no – for 2011. I just wondered where your preference for allocating that $300 million or $400 million of capital would go on the acquisition fund – international or US clinics, or into the products business perhaps?

Mike Brosnan

Okay, well I always think in terms of acquisitions of “acquisitions and licensing,” if you’ll give me that liberty, in the three fronts – services, products deals and potentially additional pharma deals. I was very specific at the beginning of 2010 in that I commented that I would see the acquisition activity jaundice towards Eastern Europe, Russia and Asia. We did continue to do what we’d done for many years in terms of tuck-away acquisitions in the United States.

With regard to 2011 I think we’re looking on a global basis, and when I gave you the metric with regard to organic and acquisition growth this year I didn’t specify as to what part of the world it would be in. I do think you’re going to continue to see us very active in the international markets, and that’s probably all I’d want to say at this point in terms of the guidance for the $300 million to $400 million.

Tom Jones – Berenberg Bank

And the tick up in non-same store growth in volumes in North America, I think it’s 1.4%, is that likely to continue at that level or was that just a one-off really in Q4?

Mike Brosnan

I’m just thinking for a minute to try to dovetail that into what I just told you. I think that there will always be some non-acquired growth. It is up a little bit but 1%, 1.5% is not extraordinary. So I think it’s reasonable to assume that you might see something on the order of say 0.5% to 1.5% in North America over the course of 2011 based on what I know today.

Tom Jones – Berenberg Bank

That’s very helpful, thanks very much.

Oliver Maier

Great, with that actually I’d like to thank everybody for your interest and your questions and we will talk to you soon. And I think the only housekeeping item I have is as always we have some food being served actually in the room behind us. So thank you very much.

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