Title

Presentation

Fresenius Medical Care AG & Co. KGaA reports earnings inline with expectations. Reported EPS is $0.38 EPS, expectations were $0.38.

Dominik Heger: Thank you, Alice. Good morning, good afternoon or good evening, depending on where you are. I would like to welcome you to our earnings call for the second quarter of this year. We appreciate you joining us today. As always, I do 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. The call is scheduled for 60 minutes. We have prepared a presentation and we’ll have time for your questions after the prepared remarks. As always, we would like to limit the number of questions to two in order to give everyone the chance to ask.

In case there are further questions and time left, we will gladly offer a second round. Let me now welcome Helen Giza, our CEO and Chair of the Management Board; and Martin Fischer, our CFO. Helen will begin the presentation with an update on the major developments and Martin will provide a review of the financial performance in the second quarter. Afterwards, we are happy to take your questions. With that, Helen, the floor is yours.

Helen Giza: Thank you, Dominik. Welcome, everyone. Thank you for joining our presentation today and for your continued interest in Fresenius Medical Care. I will begin my prepared remarks on Slide 4. We continue to deliver on our commitments while executing against our strategic plan and working through the company transformation and turnaround efforts. I am proud of the progress we are making in realizing improved financial performance and progress towards our 2025 group margin target. While there is clearly more work to be done and external factors to address, overall, we have made important progress to strengthen our business and position ourselves for sustainable profitable growth over the medium and long term. None of that would be possible without each and every one of our employees around the globe, for which they have most gratitude.

Within Care Delivery, while still muted, we saw a sequential improvement in same market treatment growth in the U.S., with more promising developments in June. Adjusted for the exit from less profitable acute care contracts, same market treatment growth in the U.S. was flat. During our previous earnings call, I mentioned that we were seeing higher mortality levels at the start of the year in the U.S. than we anticipated. Through the second quarter, we have seen continued elevated trailing 12-month mortality, and we saw an extended influenza season and are seeing increased COVID cases. This translated to a 60 basis point higher mortality than we had expected at the point of giving guidance. We are closely monitoring the development of mortality.

In parallel, we continue to work on the volume pieces that are in our control, such as streamlining the admissions process and reducing mistreatments. Value-based care remains an important element of our strategy in the U.S., with its focus on improving patient outcomes and reducing total cost of care for the industry. In the second quarter, our value-based care book of business contributed with revenue growth and slightly improved its profitability. Through the first half of the year, value-based care was a positive contributor to the operating income. On the international side, we continue to move at pace on our portfolio optimization plan. In the second quarter, we closed the previously announced divestments of Cura Day Hospitals Group in Australia and our dialysis clinic networks in Chile, Ecuador, Sub-Saharan Africa and Turkey.

The divestitures of clinic operations in Curacao, Guatemala and Peru were closed in July. The refocus on our high-performing core international countries is supporting a sustainable profitable growth development. Last quarter, I spoke about the important leadership changes in Care Delivery, and this was an important step to further enhance our operational excellence. Our main focus is to analyze, benchmark, streamline and implement our major operational processes to improve efficiency, speed, enhance the patient experience and reduce costs, while maintaining our already high standards of patient safety and quality. Finally, within Care Delivery, our 2025 margin outlook assumes moderate reimbursement increases. We would like to see a higher reimbursement increase for our services than the proposed 2.1%, in particular, given the level of inflation that the industry is facing.

However, that increase is within our assumption, and we are currently providing our comments to the draft rule. Turning to Care Enablement. I’m very proud of the progress we continue to make here. Driving this positive margin development is continued execution of targeted pricing initiatives. China continues to be an important and attractive market for us, even taking into account the impact of volume-based procurement. We minimized the VBP impact by restructuring our sales channel and the mix of products offered in the respective tenders. We have localized production where it gives us an advantage of the right to play in profitable market segments. VBP has now been introduced in the first province in June, and had a limited impact on our earnings development in the second quarter.

In the second half, we expect a low to mid-double-digit million euro impact on our earnings development, which is assumed in our outlook for the year. While FME25 savings benefit both segments at this stage in the program, a significantly greater proportion of savings are planned to come from Care Enablement. To this extent, the optimization of our supply chain and manufacturing footprint remains in focus. Another priority for Care Enablement is preparing for the rollout of high-volume HDF in the U.S., with the introduction of the 5008X machine. I’m excited to report that as part of the preparation, the first 5008X patient treatments in the U.S. were successfully performed in June. Part of the rollout will include education on high-volume HDF for the treatment modality.

For our capital markets audience, Dr. Frank Maddux, our Chief Global Medical Officer, will host an educational expert call on high-volume HDF from a medical perspective on September 16. Information about the call is available on our Investor Relations website. Moving to Slide 5. In the second quarter, we delivered organic revenue growth of 2%, with positive contributions from both segments. The increased operating income and improved margin were mainly driven by continued momentum in our Care Enablement business. This was supported by strong contributions from the execution of our FME25 program. FME25 contributed €57 million in additional savings. With this, we are year-to-date already above the low end of our full year FME25 savings target range of €100 million to €150 million, and I can say that we expect to hit the top end of the range.

In line with our disciplined financial policy, we reduced our net financial debt and improved our leverage ratio within the lower end of our net leverage target corridor, to which Martin will come back later. Underscoring our commitment to sustainability and reducing our CO2 emissions, we announced that we had entered into virtual power purchase agreements for renewable energy during the second quarter. This is an important step toward our goal of becoming a carbon-neutral now operations by 2040. vPPA do introduce a degree of volatility that can impact earnings. In the second quarter, vPPAs had a positive mid single-digit million euro impact on earnings, which was allocated to both segments. Given our year-to-date performance through the second quarter and development of our assumptions to date, we are confirming our full year 2024 outlook.

I will now hand over to Martin to walk you through the second quarter financial performance in more detail.

Martin Fischer: Thank you, Helen, and welcome to everyone on the call. I will recap our second quarter financials beginning on Slide 7. In the second quarter, we recorded organic growth – organic revenue growth of 2%, supported by both Care Delivery and Care Enablement. On an outlook base, revenue grew by 0.1%. Revenue development was negatively impacted by the successful execution of our portfolio optimization plan. The divestitures realized during the second quarter accounted for 170 basis points of growth. During the second quarter, operating income on an outlook base improved by 8%, driven by the performance of Care Enablement. This resulted in a meaningful margin improvement of 70 basis points, bringing us closer to our 2025 margin target band.

Divestitures realized during the second quarter had a neutral effect on operating income development. Next on Slide 8. This slide provides an overview of the 70 basis points group margin improvement on an outlook base. On the left, you see how we get from the second quarter 2023 operating impact to the starting point of our outlook based by adjusting for special items and divestiture. In the middle, the chart shows the quarterly margin contribution by segment. The decrease in profitability for Care Delivery from a high prior year basis was positively offset by meaningful increase in Care Enablement earnings contribution, which I will elaborate more in the subsequent slides. Corporate also had a positive impact driven by FME25 savings as well as positive phasing of insurance costs.

On the right, special items in the quarter include a positive humor site remeasurement effect, which was offset by costs related to FME25 and the legal form conversion as well as effects from portfolio optimization. Turning to Slide 9. Care Delivery revenue decreased by 1% on an outlook base despite an organic growth contribution of 2%. As you might recall, we decided not to adjust our numbers in the current financial year for the divestitures we are closing in this year, and to absorb this impact in our guidance range. Therefore, this decline reflected the impact of divestitures realized in the first half of this year, which had a negative 240 basis point impact on the revenue of Care Delivery. In Care Delivery U.S., revenue increased by 1% on an outlook base, driven by growth in our value-based care business, reimbursement rate increases and a favorable per payer mix impact.

As Helen described earlier, elevated mortality continues to weigh on the U.S. volume development, resulting in a sequentially improved, but flat same market treatment growth when adjusting for the exit of less profitable acute the contract. In the second quarter, we recorded an operating income decline of 7% compared to the high prior year basis. As expected, this results in a sequential margin improvement against the first quarter of this year. Our earnings development was strongly impacted by labor and inflationary cost increases, both developing in line with our expectations for the full year. In the second quarter of 2023, we had comparatively low level of labor costs, with still a large number of open positions that resulted in a tougher base comparison.

For 2024, we are still assuming a net 3% increase in labor expenses due to higher wage inflation and staffing requirements. This is in line with our expectations. Inflationary cost in Care Delivery largely relate to higher costs for medical supplies. Also, business growth was negatively impacted by elevated bad debt reserves due to higher AR associated with the vendor change post the cyber incident at Change Healthcare. Despite our flat volume development in the U.S., this was partially offset by positive business growth driven by favorable pricing and payer mix developments as well as further FME25 savings. Turning to Slide 10. In the second quarter, Care Enablement revenue grew by 3% on an outlook basis. This was supported by 3% organic revenue growth and primarily driven by continued pricing momentum.

On an outlook basis, operating income for Care Enablement quadrupled compared to the prior year basis. This increase was driven by business growth, again, reflecting the positive pricing development, savings from FME25, compensating for inflationary cost increases and negative foreign currency exchange effects. As mentioned by Helen in the second quarter, volume-based procurement in China had a slight impact on Care Enablement business growth due to the rollout of the first province. As assumed in our outlook, the impact from volume-based procurement on our operating income will be more pronounced in the second half of 2024. The meaningful second quarter margin increase for Care Enablement represents an important step forward towards our 2025 margin target band.

The performance in the first half of this year positions us very well to deliver against our plans. Turning to Slide 11. The decrease in our operating cash flow was primarily impacted by the timing of 2 developments. In response to the cyber incident at Change Healthcare in the first quarter, we made the decision to change vendors as a measure to mitigate this risk in the future. Also, the standing up of new providers resulted in a delay in collection in the second quarter, the cash impact is expected to be recovered in the third quarter. And we have made already significant progress on this in July. Our operating cash flow development was also negatively impacted by the phasing of federal income tax payments in the U.S. We do continue to enforce our strict financial policy and use divestment proceeds for further deleveraging.

Total debt and lease liabilities were reduced not only compared to the second quarter of last year, but also compared to the end of last year by €417 million. Also, total net debt and lease liabilities decreased. Our net leverage ratio improved to 3.1x, approaching the lower end of our self-imposed target corridor of 3x to 3.5x. We also paid out the annual dividend in the second quarter. In line with our 2025 strategic ambitions and current capital allocation priorities, deleveraging remains our top priority. We continue to execute against our portfolio optimization plans, and proceeds will continue to be used to further reduce that. I will now hand over to Helen to finish with our outlook.

Helen Giza: Thank you, Martin. I will pick up the slide on Slide 14 with an update on our outlook assumptions. Overall, we are well on track to deliver against our financial outlook for this year. When we compare our assumptions, which we shared in February against where we stand after the first half of the year, we are broadly in line with our budgeted phasing except for one KPI. We initially assumed U.S. same-market treatment growth of 0.5% to 2% for 2024. Given the continued elevated mortality I described earlier as well as the operational challenges like severe weather impacts, it is less likely that we will finish the year in that range. While we are encouraged by the first signs of operational progress as well as solid growth in treatment in June, it is prudent to refine our expectations for the U.S. same-market treatment growth to be in a range of flat to 0.5%.

You heard me say before that the slower recovery of the U.S.A. market treatment growth post-COVID certainly does not couple our outlook for the year, and we remain confident in the underlying fundamentals of the industry. Despite the muted volume development, year-to-date, our business growth has developed in line with our planned phasing for the year. And as already outlined, FME25 is fully on track to reach the upper end of the target range. And as you can see, our headwinds for 2024 are all in line with the expected phasing for the year. Turning to Slide 14. Based on the just outlined overall development against our assumptions compared to the planning for the year and the outlook for the remainder of the year, we are confirming our 2024 outlook of low to mid-single-digit revenue growth and mid- to high teens operating income growth for the full year.

Given the several moving pieces, I would like to see a couple of more months of development before narrowing our full year and 2025 outlook. This concludes my prepared remarks, and I will now hand back to Dominik to start the Q&A.

Dominik Heger: Thank you, Helen. Thank you, Martin. Before I hand over for the Q&A, I would like to remind everyone to limit your questions to 2. I think we have sufficient time for questions. If we have remaining time, which I guess, we can go another round. And with that, Alice, I would ask you to open the Q&A.

A – Dominik Heger: And I see the first caller is Veronika from Citi.

Veronika Dubajova: Hi, guys. Good afternoon. I hope you can hear me okay. I will keep it to the 2 questions, please. My first one is just, Helen, on same-market treatment growth rate in the U.S. I don’t think any surprises there but, if you could elaborate a little bit on what June looked like relative to the sort of minus 0.1 that you reported, for the quarter as a whole. And I guess, if I look at the guidance range, it still is pretty wide in terms of what it implies for the back half of the year. So I don’t know – I hate to ask this question, but do anyhow, which is how you feel about is the lower bound or the upper bound more likely at the state and sort of how you’re thinking through that? Excuse me. That would be my first question.

And then my second question is on the Care Enablement margin. Congratulations, nice to see some continued improvement here. Just curious if you can discuss a little bit the contribution from pricing in Q2 and how important that was, and your thoughts that you might have on the back half of the year and whether you could maintain this kind of year-on-year improvement momentum that you’ve shown in the second quarter? Thank you.

Helen Giza: Hi, Veronika, thank you. We took a bet earlier of how many times we get the same market treatment growth question different ways. So let’s try and unpack this a little bit and hopefully put more color to it. Clearly, as we are kind of getting under this data and obviously with the data lag that we get on some of the mortality, we can now see that this impact of mortality in the first half, as I mentioned, is around about 60 basis points. And that was not contemplated when we were kind of thinking about guidance at the start of the year. We obviously know as we’re sitting flat through half one, the outlook and how we think about half two is critical here. What we are seeing, we’ve obviously got this elevated mortality.

But in June, specifically, and this is where maybe kind of – I got a lot of encouragement from. The work that Craig is doing with the Care Delivery team, we knew we needed some time to get it going and get under that. But in June, we started to see some improvements in our admission time, which is terrific. We also saw missed treatments improving, and both of those areas were kind of very, very focused efforts that we’re far from John, but we’re making improvements. And I think the most encouraging piece for me is June treatment per day were the strongest they’ve been this year and actually the strongest they’ve been since June of 2023. I clearly see that work continuing. And we’ve always talked about the self-help, if you will, to kind of get this operational excellence back.

So that’s giving me some confidence that the work is meaningful and pulling through. You know we had kind of a slew of weather in Q1. Obviously, Hurricane Beryl caught our attention in July. We kind of did have clinics affected there. I mean we had about 75 clinics in the in the area affected by the hurricane, but we got those up and running pretty quick and a good testament to the team. So while there will be a weather impact kind of small, when it all kind of washes out. But I think what I can see of weekly data is that the trends are encouraging for the first couple of weeks of July. So look, that’s the kind of how we then kind of get to sizing the 0 to 0.5. What we are also assuming at this point is – clearly COVID is getting headline attention again.

We are assuming for the back half of the year that the mortality level stays kind of where it is. So in terms of how does that number change positively, it’s – if that comes down faster than we’ve been seeing or we get quicker acceleration of some of these some of these initiatives. So we feel – recognizing we had to put a new range out there because even though we were kind of hoping it would be more of an exit rate on an average rate after Q1, clearly, with the half one performance, we wanted to modify and put a realistic range out there for what we can see now. Thank you for the call out on the Care Enablement margin. We always promised it was coming, and I know it was hard to see when we had such low numbers last year. But the team is doing a terrific job, and we are delivering on the plans that we laid out there.

And to your question about how much is pricing, about two-thirds of it actually is pricing in the quarter.

Veronika Dubajova: Thanks so much, guys.

Dominik Heger: Thank you. The next question comes from Richard from Goldman Sachs.

Richard Felton: Thank you for taking my questions. Two please from me. So my first one, again, on treatment volume growth. And I suppose in context of the slower recovery that you’ve seen this year, I’d be really interested to hear your thoughts on the medium-term outlook. I think previously, you had spoken about treatment volumes gradually returning to sort of the 2% to 3% volume growth for U.S. dialysis. So my question is, do you still see a plausible path back to that level of treatment volume growth in the strategic period? My second question, maybe one for Martin is on leverage. It’s already at 3.1x, which is near the bottom of your self-imposed corridor. There’s a few tailwinds to free cash flow in the second half. So maybe in context of that, could you remind us of your capital allocation priorities, given that you’re already near the sort of lower end of that leverage corridor range? Thank you.

Helen Giza: Hi, Richard, thanks for the question. Yes, look, clearly, we have some elevated mortality, and that 60 basis points hurt. I’m not going to lie. But the – nothing has changed in our kind of belief in underlying fundamentals of this business. And we are confident that we will return to that 2% to 3% growth rate once we kind of see this normalization of the kind of the COVID effect. We – clearly still stand behind our neutral effect for the new drug class, which was also something that kind of – there was a lot of noise around and I think we’re seeing that play out. So I think we see that growth rate. I think the thing that’s been challenging is the timing of getting there. And I think that language of 2% to 3% in a normalized mortality landscape should hold.

But right now, we’re still saying 2% to 3% by the end of 2025 as an exit rate. Obviously, we’re watching this development as we all are every month and quarter, day or week. So we will see how that plays out. But nothing is telling us that, that 2% to 3% isn’t achievable. Martin, do you want to take the leverage question?

Martin Fischer: Yes, sure. Thank you, Richard. So we are quite pleased with the progress that we made to come down to 3.1% – to 3.1x. And as I outlined, we will continue to de-lever, and our focus on that will not waver. We will continue to use the proceeds from the divestiture, and we are quite comfortable with approaching the lower end of the self-imposed range, especially given the current environment that we’re in. So nothing changed in our prioritization to capital allocation in that regard.

Richard Felton: Great. Thanks very much.

Dominik Heger: Thank you. The next question comes from Graham from UBS.

Graham Doyle: Hi, guys. Thanks for taking my questions. So one on volume again, Helen, apologies. But it’s a slightly different approach, which is when you look at the business over the midterm, what is the volume rate that really makes this work? Does it need to be at least two as we go forward in order to get to what you think is the optimum margin presumably towards the upper end of the midterm range? And then just a sort of housekeeping one, was I correct in hearing that you kind of intimated you would like to narrow that ‘25 guidance at the Q3 results, just to double check that. Thank you.

Helen Giza: Hi, Graham, yes, look, I think we know in this industry that when we see that 2% to 3% growth, we can really maximize the operating leverage, and that’s kind of just the knock-on effect of all of that. Like I say, I don’t see – there’s no reason for us to believe that it doesn’t get there. I think we’ve been quite prudent, particularly these past 18 months of taking cost out where we can, both on the clinic closures and driving efficiencies and our overall FME25 program. So I think that it’s no reason to suggest that we’re not back even at that low end of 2% to 3%, and then that makes this much more kind of beneficial from an operating leverage perspective. Yes, on your question on ‘25 guidance, I had – and I’m trying to be a lady of my word.

I had thought that we would be in a position when – part this year to kind of tighten that. I know there’s a lot of questions of your range is still quite wide. If you’re tightening it, what are you doing with it? I think as we kind of start to see these developments along next quarter, if we have enough insight in to be able to call some of the pluses and the minuses that we’re seeing with a bit more certainty, we will certainly give an update. But yes, I want to have a degree of certainty into both the pluses and the minuses before we do that. So more to come, I guess, is the takeaway there.

Graham Doyle: Okay. Great. Thanks a lot.

Dominik Heger: Thank you. The next question comes from Hassan.

Hassan Al-Wakeel: Thank you. I have a couple, please. So I’m going to ask the volume question again, but slightly differently. How are you thinking about the deviation from today’s flat growth to a more normalized growth rate in terms of A, share losses; B, mortality today; C, CKD mortality; and then other SGLT2s or GLP-1s for diabetes, if at all? And why do you think 2025 will be better? How are referrals trending? And then secondly, also on 2025 margins, what to your mind today are the key drivers impacting both the upper and lower end? And I appreciate you said that treatment dynamics aren’t toppling this year’s guide, but is it driving any meaningful risk around next year? Thank you.

Helen Giza: Hi, Hassan. Thanks for your question. Look, I think it’s a fair different approach on volume. I think it’s all of the above, honestly. Clearly, we’re looking for normalized kind of – normalizing our – I’m posing or normalizing, I’m going to say improving our operations. And I think the work that we are doing on admissions, missed treatments and so on and cancellations is really playing into that. I do think this mortality that we’re seeing slightly elevated has to normalize. We’ve always been blind to what is happening up the CKD funnel, particularly in the earlier stages in CKD. So I think that has to normalize. And as I mentioned, we’re still standing behind our neutral impact on SGLT2s. The numbers that we are seeing then, I think I shared them on the last call is still low percentage number of patients taking them and the fallout rate very, very high.

Look, in terms of why do I see 2025 being better, I think there’s a lot of these things that we expect to play out over the course of this year and particularly the things in our control that we can accelerate. And look, on the key drivers, it probably doesn’t – in terms of what goes up or down and has the impact, probably not much different to the headwinds tailwind slide that you see for 2024. Those pieces are always the same pieces in play, and whether they land at the top end or bottom end is kind of can quickly get you to the bottom end or top end of your guidance. So clearly, the – and maybe the other piece I would add is as we continue to work with our [indiscernible] book of business and we get more insights there, that is also helping us drive reduced hospitalizations, improving hospital starts and obviously improving outcomes there.

So I think for me, it’s this continued path of the strategy we put out there. And as you can see, like these lots of small movements on these small numbers have an impact one way or the other. But I’m really pleased with the progress and the progression we’ve had through 18 months. And I think that volume piece and all the different parts of it normalizing, obviously, will help operating leverage and the cost structure next year.

Hassan Al-Wakeel: Thank you.

Dominik Heger: Thank you, Hassan. The next question comes from Victoria from Berenberg.

Victoria Lambert: Thanks for taking my questions. I have two. The first one is just on your clinics in the U.S. It looks like you’ve added some during the quarter. Is this because you may be cut back by too many last year? And then my second question is just on your wage inflation and staff costs. A lot of the large hospital groups, which reported in the last week or so, they’ve noted better staff availability and falling contract labor costs. So I was just wondering if you’ve seen a similar trend and if wage inflation is still around the 3% level? Thank you.

Helen Giza: Thanks, Victoria. I’ll take those both. Yes, you’re right. We do have a slight increase in our clinics in this quarter, and that’s okay. I don’t want that to sound like we closed 75 and now we’re – now we’re opening some more. We’re being very, very targeted of where we’re adding clinics. And there is still, from us approving a clinic or whether that be a de novo to actually getting it fully up and operating, that does take some time. So some of this has been – a little bit of it has been what’s in the pipe. But then secondly, us then being quite deliberate of, we’ve exited those markets or those clinics where we can’t be profitable, but we do want to add twofold, one where we are at capacity in a particular region and there’s growth to be taken by adding more volume in that area or secondly, where we have a clear line of sight into go after growth, and then we’re adding them there, too.

So it’s not that we’re closing in the same region and reopening. This is very, very targeted. And we will continue to be intentional about where we add over time. On your wage inflation question, for us, we’re still standing behind our minus – sorry, not minus – net 3% labor number. And you can see from the half year, we’re fully on track. Don’t forget that net 3% is a combination of the wage increases, plus some efficiencies. And there are some markets where we are paying a little bit higher, but I feel, you can kind of see from the results, we’re clearly managing that within the overall numbers here. So – and I think the other part of that, which you perhaps didn’t tease out, but the kind of the hiring – our open positions is still is around 3,500, which is what we had seen last quarter.

What I would say on that is there is – the mix of that 3,500 has – is showing an incremental improvement in the nursing staff. So that’s also good. I mean clearly, we still have PCT openings, but if we have less nursing openings, that’s great for the clinics too. So overall, great progress on labor and managing their cost structure there.

Dominik Heger: Okay. Thank you. The next question comes from Hugo from BNP Paribas.

Hugo Solvet: Hi, hello. Can you hear me?

Dominik Heger: Yes, we can.

Hugo Solvet: Okay, good. Thanks for taking my questions. Just a few on my end. First on value-based care. I know it’s always tricky to model that, but can you help us understand the revenue growth contribution and earnings contribution in the quarter, and how we should think about that in the back half of the year with the phase in Q3, Q4? Second, on the PPS rate, Helen, maybe – can you comment for us on the latest development and also the change in wage index or does that play a role for next year? And lastly, another unsurprising question on volume growth, but you adjust to flat to 50 basis points for the year. Does that mean that we can expect the exit rate to be at the end of the year, above 50 basis points or still below that? Thank you.

Helen Giza: Thanks, Hugo. I think we got all of that. Martin, do you want to take the BBC question, and I’ll take the PPS rate and higher finance market treatment growth.

Martin Fischer: Okay. So on the BBC or on the interval, we did see a positive contribution in the quarter that was predominantly also driven by positive program contribution from our CKCC program that we are participating. Also, when we look at the first half, we see that there is a positive volume as well as margin contribution that we do have. And so far, we are very positive with the progress. There is volatility. As you all know, there is also a little bit of lumpiness in the quarter. So we look at that holistically for the full year, but we do expect a positive contribution, as we stated before, to continue, and we are on a good track.

Helen Giza: Thanks, Martin. On your PPS rate question, obviously, we kind of saw that increase and that kind of – what it looks like a little bit of an odd adjustment on the efficiency adjusters. So we kind of see that PPS rate is the 1.8 and then the efficiency adjustor is the 0.9 and then improvements in QIP. So overall, we’re kind of seeing kind of this 2.1% net. I think there’s still work to get under on the – on what that efficiency adjuster ends up being. And of course, we’re commenting on that in the – in this kind of comment period. So I think, obviously, we will have more to talk about that in Q3, but we kind of stating it exactly how CMS is officially stating it overall, that 2.1% higher comparator. On the same market treatment growth phasing, obviously, I kind of tried to outline kind of what we see, kind of some of those moving parts there.

I think we’re kind of continuing to kind of work through our operational improvements, which we should expect to improve over the year. If we see improvement in – sorry, in mortality, we will see how that plays out between Q3 and Q4. Kind of you can hear it in my voice, I think it’s a little bit more of whatever we put out there is phasing, we will have to kind of – it’s a bit of a crystal ball. So, obviously, the trend is looking encouraging for June and early part of July, I am hopeful that, that continues. But we are probably not tearing this apart month-by-month in terms of the guidance range right now and obviously why we have a range out there. But I think we can kind of see line of sight into what takes this up to the higher end and the lower end.

Hugo Solvet: Thank you very much.

Dominik Heger: Thank you. The next question comes from James from Jefferies.

James Vane-Tempest: Hi. Thanks for taking my questions. Two if I can, please. Firstly, you mentioned KPIs are in line with budget, except volume growth. So, given this is an important KPI, given your fixed costs, I am just wondering what’s changed elsewhere to compensate, or should we be thinking more of the lower end of the guidance range for this year? And as you are assuming mortality is the same in second half, if it ends up being higher, how much risk is there you actually need to lower your guidance at nine months, given you need to wait for more visibility before narrowing it? And I will come up for a follow-up. Thank you.

Helen Giza: Thanks James. Yes, look, I think the KPIs and where you can see them in the range, and we are trying to be very transparent with how we are seeing it. The acceleration of FME25 in particular is really compensating for that volume piece. So, I think you can kind of see we are sitting right in the middle of all of those KPIs. And if you take the volume offset by FME25, which I now see at the top end, I think that’s compensating. Yes, to kind of the – how much does that mortality number play into it. I think that, honestly, is a little bit the crystal ball of how is mortality going to hold at this elevated level, or hopefully come down. If it does go higher, we would have to see how much and what that does on the guidance range.

But obviously, you know me, I am never striving for the low end here and wanted to make sure we can deliver on the expectations. So, I think this is just kind of – I know you probably expect me to say this, we are just going to take this a quarter over time, and we will have more insights for the time we get to Q3. I mean let’s not forget, we nearly generally have a strong Q4 in terms of phasing, not expecting that to look different this year. So, I just ask for some patience and grace to kind of help us kind of just keep working through these numbers as they develop over the next couple of months here until we get to Q3.

James Vane-Tempest: Thank you. And then just a second follow-up on the Care Enablement, the €33 million FME savings, should we be thinking this is a minimum per quarter for the rest of the year with the sustainable improvements to help us think about the margin there? Thank you.

Helen Giza: Yes. Martin, do you want to take that?

Martin Fischer: Yes, James. So, I wouldn’t take that as a proxy of a minimum of a quarter. There will be continued strong contribution, and we have indicated that overall, we will be hitting the high end of the €100 million to €150 million that we anticipated. And we have also said that we expect the majority of the savings to hit the P&L of Care Enablement, as we said before, as a contribution. So, we have €41 million left to the top end, if you wish, we are at €109 million currently. And I mean, €66 million, if I would take to – follow your assumption, would be a bit of too high and too ambition a contribution. So, assume a bit lower there. I think the €150 million for overall is a good guidance to reach.

James Vane-Tempest: Thank you.

Dominik Heger: Thank you. The next question comes from David Adlington from JPMorgan.

David Adlington: Hi guys. Thanks for the questions. One on volumes, again, I favor slightly different, ultimately [ph] big volume growth between the U.S. and ex-U.S. I just wondered if you are seeing different levels of mortality or something else is going on between U.S. and ex-U.S.? And then secondly, just in terms of Care Enablement, I just wonder you have any initial feedback on the 5008X and how does that take relative to your expectations?

Helen Giza: Yes. There is a little bit – sorry, I am getting an echo there. Hopefully, you can hear me okay, David. Hi. There is a little bit of a difference in the volume growth between CD U.S. and CDI, as you can know after we back out the divestitures there. So, Martin, I don’t know if you want to give a further bridge on that?

Martin Fischer: Yes. So, what we saw in CD International was a same market treatment growth of about 1.9% in quarter two, which is higher as you indicated, and also compare that to the USA market treatment growth, which was adjusted for the acute care, the minus 0.1%. And we do see, and that’s what we also, I think communicated, a difference in mortality rates or elevation of mortality rates between international markets and the U.S. markets as well.

Helen Giza: Thank you. And then, David, your question about the 5008X. Yes, I mean we are obviously very, very excited here doing that first treatment in a clinic in the Boston area. We had – we ended up doing a call with the clinic and speaking to the patients and the nursing staff, and everybody was really excited about the new machine. We – yes, we continue to get working through the strategic launch plans here and thinking through how we launch, but – yes, and kind of obviously the medical community. So, a lot more to come, we will update that in due course as we get closer to the launch next year, but the very, very encouraged by all that we are seeing there and the actual treatment itself. And I think just as a reminder, I think everybody knows that 5008 is not in our plan for 2025.

There is still the rollout planned at the end of ‘25. And I think that will also all play into our kind of capital markets update in next year for the next few years of what our expectations are there.

David Adlington: Perfect. Can I just come back on the mortality difference between the U.S. and international, do you have any idea why there is the difference?

Helen Giza: Do we have…?

Martin Fischer: So, I mean the absolutely the amount of difference or it didn’t mean the drivers of the difference behind, because we have not communicated the absolute difference in mortality range so far. There is a difference here in flu being longer in the U.S. than in Europe, and there is also a difference between what we saw in COVID cases. But I think the flu in the U.S. lasted about two months longer than it was seen in other areas in general.

David Adlington: Okay. Thank you.

Dominik Heger: Thank you. Next question comes from Falko from Deutsche Bank.

Falko Friedrichs: Thank you. Good afternoon. Sorry, I will have to go back to the same-store treatment growth again for my first question. So, right, you mentioned this encouraging trend in June and July. What are some of the risks that, that could reverse again, right? What could essentially get in the way that this trend doesn’t get better and better now as the months progress? That’s my first question. And then secondly, on the CMS rate increase, right, 2.1% potentially next year, how much of a shortcut would that still be when you consider your expected cost increases next year? Thank you.

Helen Giza: Look, I think the only thing that I would point to on the same market treatment growth is if mortality was now different to what we assumed. And I guess that could go higher or lower in terms of how we – kind of how we see the next rest of the year play out. I think I feel really good about the pull-through of our operational improvements and the fact that we are starting to see signs of that is obviously confirmatory of that. Yes, CMS, look, I think we will see where the – this 2% or 2.1% that we are seeing, we have always said we have been planning in our forecast for moderate increases. The 2% was maybe as expected, and clearly, we are going to provide commentary on that. We usually see final being a little higher than the preliminary rate, we will see.

And of course, we continue to look at that spread between the reimbursement increase and the cost increase. Obviously, this is where the kind of the utilization and efficiencies also help that story. But we will see where the final rule plays out and kind of go from there. I think that’s all we can do at this point. But again, it’s in line with our expectations for our outlook.

Falko Friedrichs: Okay. Thanks. And just a quick follow-up, if I can. Helen, you mentioned COVID a few times throughout the call. To what extent is that really a problem again in your clinics also with regards to your staff?

Helen Giza: Yes. Look, I think the – what we are seeing is definitely I saw some – I mean you all know in Germany, and I saw some headlines from the U.S. last night for California, I think. We are clearly seeing significant increases in cases. We are not seeing it as severe, but of course, our patient – the kind of the hospitalization rates are lower. But of course, our patient population is one of the most vulnerable. So, I think we are just – the fact that we have seen through the first half this elevated mortality, it also takes six weeks to eight weeks to kind of get this kind of data on what did – what’s the cause of that mortality. So, I think this combination of [Technical Difficulty], the combination of increased COVID cases, knowing we have got a delay, I think we are just definitely watching it.

And obviously, we don’t tease out. We stopped doing that last year or the year before, actually, excess deaths due to COVID. We are just now talking about the all-cause mortality, which and as I have said, in half one, we saw a 60 basis points higher. So, yes, it’s – I think obviously, as I mentioned in my talk outline, something that we are watching closely.

Falko Friedrichs: Okay. Thanks Helen.

Dominik Heger: Thank you. Next question comes from Robert from Morgan Stanley.

Robert Davies: Yes. Thanks for taking my questions. I have a couple. Just following up on that excess mortality point, I guess one question I had, is this effectively just sort of the new norm for the business? And if so, what’s your conviction getting to the kind of medium-term profitability targets if this sort of slightly slower growth level is the kind of average going forward, because obviously, you had the additional savings or the higher end of the savings, I guess this year, which has helped. I just wondered if you had this started a growth environment sort of next year and the year beyond, what would that sort of influence your view on the mid-term margin targets? That was the first question. And then the second one was, just looking at the progress at yourself versus DaVita.

Are you seeing any differences in sort of market share at all over the last sort of 6 months to 12 months? I know you called out some of the regional differences before as an explanation of why you had different same-store treatment growth in the U.S. because different parts of the U.S. at different sort of climate issues, I guess over the last sort of six months. So, I just wondered, is there anything specifically going on there, you are seeing gains and losses in certain regions of the U.S., that would be helpful? Thank you.

Helen Giza: Thanks Robert. We do believe it’s the new norm because we have seen a little bit of a spike in elevation that we can point to it being the kind of the flu season and COVID cases. Obviously, in a post-COVID world, it will come down, and now we are seeing it tick back up. So, I don’t think it’s a new high level of the norm. I think this one is just really a function of this season. And maybe the surrogate there is looking at Europe. We know that Europe has come down below this pre-pandemic mortality level. And I think we would expect the U.S. to normalize as well, and kind of looking to kind of just make that improvement. I mean obviously, there is some – kind of seeing what those play out and how it plays out over the next few quarters will be key.

And I think for me, that’s obviously a big part of why I am excited about the new innovation in 5008X. I mean I think with that come into trial, we have been showing that, that treatment can – using that therapy can also improve mortality over time by 23%. So, I think it’s also looking to see what we can do ourselves in this environment using this new innovation. In terms of the progress against DaVita, I am not going to comment on the competition. I will comment on things in our control. Yes, I would comment that regionally, we do kind of participate in the country in different ways and get affected by mostly weather, somewhat similar depending on where we are in the same regions or differently. And clearly, the fact that I have got a significant operational turnaround in place means that we have improvements to do here.

And that’s in my control and our work to do and kind of that’s also why I am encouraged by what I am already seeing as this work has really hit the ground in execution now and being addressed. So, I think we can get that back on track here over the course of the year.

Robert Davies: Understood. Thank you very much.

Dominik Heger: Thank you. The next question comes from Marianne from Bank of America.

Marianne Bulot: Hello. Thank you for taking my question. Just one, if I may. I wonder if you could give us an update on the job opening position and where you are seeing going forward into the rest of the year, and how could that potentially help your utilization in the clinics? Thank you.

Helen Giza: Hi Marianne, thanks for your question. Yes, as I mentioned, we are still sitting at about that 3,500 open positions. Clearly, in a pre-COVID world, we always talked about the optimum being around 2,500 to 3,000. That difference we are managing with kind of contract labor or kind of maybe not needing so much depends on kind of what the utilization is for volume. What we have seen – we are obviously – this shift of a little bit less open positions for nursing is good. And kind of I think the other metric that we are driving pretty hard is this un-constrained clinics, which continues to come down every quarter. So, obviously, as we un-constrain those clinics due to labor, that’s where that helps the utilization. And I think it makes the number broadly around 200 constrained clinics now at the end of Q2. So, obviously, as we are getting the labor in able to un-constrain clinics helps the operating leverage, helps the volume numbers.

Marianne Bulot: Thank you.

Dominik Heger: And the next question comes from Szegi from HSBC.

Helen Giza: Szegi, your line is now open. You may ask your question.

Dominik Heger: Okay. So, then we go to the next one. The last question comes – the second round from Graham from UBS.

Graham Doyle: Thanks guys for taking a follow-up. I suppose there is a lot of focus on volumes. So, what are the areas that does tend to surprise, at least over the last year or so? It’s just been on price mix. I am presuming a chunk of that is Medicare and sort of value-based care. Is that something that can persist? And are we may be slightly thinking about it this in a wrong way, and we should also think about not just the number of patients, but how you can generate more value for those patients, because I think it’s one of the things that we probably haven’t discussed as much. It would be good to get a sense of as we go through at least this period where mortality is normalizing.

Helen Giza: Thank you, Graham. I was hoping you weren’t going to hop back in and ask the same market treatment growth question in a different way. So, I really appreciate this question. Yes, you are absolutely right. And for me, it’s truly about driving profitable growth, right. And our mix, I am very, very pleased with how that continues to progress. Our commercial mix that you have heard me say many times, it’s staying a little sticky and going up a little bit every quarter, and the same for MA. So, I think that is a function of our contracting strategy. And yes, very, very pleased with what that is delivering on the top line. So, yes, it’s obviously, the volume, I get the many questions, but the price and the reimbursement, and the kind of mix is also important there.

And then of course, kind of our continued focus on kind of home where we kind of want to continue to drive that. And as I already mentioned, the benefits of our BBC business to also drive optimal start. So, kind of many things that we see, we see working well. And I think it’s kind of why I kind of sit here and we can kind of walk through all these moving parts. And you can kind of see where we are in the midpoint of the guidance. And I am still able to kind of confirm where we were and cover the volume piece with kind of positive contributions elsewhere.

Graham Doyle: Okay. And maybe just a quick follow-up, in terms of the additional mortality that you have seen of late, does that really stand out, if you think about the last like 10 years, 15 years, or it’s just one of those things that can happen in a for example, this year, an extended flu season?

Helen Giza: Yes. I haven’t been here 10 years or 15 years, but sometimes it feels like. But the – what I would say there is, we do know that we get these more pronounced flu seasons every couple of years. I think in a post-COVID world, we had just seen very, very light flu seasons. So, the – this is a little bit of a – when we were setting the guidance, we weren’t seeing this mortality tick up, and we were like, okay, we are kind of in this return to growth. And now we are kind of looking at this a little bit in the way of you may seeing a prolonged flu season, which we haven’t seen maybe in kind of in previous years for some time. So, it is cyclical, but I think with all the COVID and the vaccinations and people were getting flu vaccines, it had definitely subsided over the last few.

I think what we would say and probably why we are not talking about COVID mortality versus flu mortality, it’s increasingly hard to differentiate now between the causes for mortality and we are just trying to kind of look at this overall number and unpack it where we can. But we kind of – obviously, we have had some really, really bad flu years in the past. And this is not really, really bad, but kind of clearly more than what we have seen in the last few years.

Graham Doyle: Okay. Great. Thanks a lot. Appreciate the second.

Helen Giza: Thank you.

Dominik Heger: Thank you. So, we are on time, and we have no further questions, but we are at time as well. So, I would like to thank all of you for listening and asking at least differentiated question on the same market treatment growth. And I do hope you all get a sunny and relax summer break, and Helen and Martin will look forward to engage again in September with all of you being on the road a lot. Thank you.

Helen Giza: Thanks everybody. Have a great summer. Take care.

Martin Fischer: Thank you. Bye-bye.