Fresenius Medical Care AG & Co. KGaA (FMS) Q4 2013 Earnings Report, Transcript and Summary

Oliver Maier - Head of Investor Relations & Corporate Communications Robert Maurice Powell - Chairman of Management Board for Fresenius Medical Care Management AG and Chief Executive Officer of Fresenius Medical Care Management AG Michael Brosnan - Chief Financial Officer of Fresenius Medical Care Management AG and Member of Management Board of Fresenius Medical Care Management AG

Lisa Bedell Clive - Sanford C. Bernstein & Co., LLC., Research Division Michael K. Jungling - Morgan Stanley, Research Division Kevin K. Ellich - Piper Jaffray Companies, Research Division Veronika Dubajova - Goldman Sachs Group Inc., Research Division Martin Wales - UBS Investment Bank, Research Division Christoph Gretler - Crédit Suisse AG, Research Division Gary Lieberman - Wells Fargo Securities, LLC, Research Division Alexander Kleban - Barclays Capital, Research Division Holger Blum - Deutsche Bank AG, Research Division Ingeborg Øie - Jefferies LLC, Research Division David Adlington - JP Morgan Chase & Co, Research Division Edward Ridley-Day - BofA Merrill Lynch, Research Division Konrad Lieder - equinet AG, Research Division Anita Vasu - Redburn Partners LLP, Research Division Thomas M. Jones - Berenberg, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Fresenius Medical Care Earnings Call for the Fourth Quarter and Full Year Results of 2013. [Operator Instructions] I would now like to turn the conference over to Oliver Maier, Head of Investor Relations. Please go ahead, sir.

Thank you very much, Patrick. I would like to welcome all of you to the Fresenius Medical Care's earnings call for the fourth quarter and fiscal year 2013. Also a warm welcome to the ones joining us on the web today. We very much appreciate your interest. As always, I would like to start our call by mentioning the cautionary language that is in our Safe Harbor Statement of our presentation, the material that we've distributed today. For further details concerning risks and uncertainties, please refer to our filings, including our SEC filings. With us today are Rice Powell, our CEO and Chairman of the Management Board; and Mike Brosnan, our CFO. And this is already everything from my end, so the floor is yours, Rice.

Thank you, Oliver. Good morning, good evening, good afternoon for those of you on the phone and on the webcast. Welcome to our full year and fourth quarter comments and presentation. First, let me just thank our employees who are with us today. Thank you for a strong year in 2013, all your hard work and effort in taking care of patients and producing product and getting things in the places they needed to be gotten to at the right time. I appreciate it very much. We have achieved our guidance for the fiscal year 2013. If you would just take a moment and look at the blue shaded area, a couple of key figures for you. Net revenue at $14.6 billion, 6% growth over the prior year. Our earnings before interest and tax or EBIT at $2,256,000,000, generating 2% growth over the prior year. Net income, $1,110,000,000, just slightly ahead of what we had guided you to back in the third quarter earnings call. And as you can see, that is a drop of 6% year-on-year on the net income line and same for the EPS line. I think important to the commentary for the full year figures, we did get to our top and bottom line guidance. We told you that we needed to have a strong Q4, and we delivered that. You'll get more detail on that from myself and Mike as we go through the next few slides. It was a difficult year. As many of you know, we spent pretty much all of our time with you talking about Washington, D.C. and reimbursement and what might or might not happen at this point. Sequestration was, obviously, an impact. The medical device tax as well. Mike will give you some commentary on that later. But I would say to you that through all of those things, we continue to carry on, delivering high-quality care and working ourselves into a position to achieve our guidance for the full year. If we take a look at Slide 5, let's take a moment and look at the revenue breakdown for the fiscal year '13. Starting with the bottom half of the slide, again, we are consistent in the 66% of our revenue. It comes from North America, just slightly over 20% from Europe, Middle East and Africa, and then you see the respective percentages for Asia Pacific and Latin America in terms of proportion of revenue. Looking at North America at $9.6 billion in the year, revenue growth of 6%, organic growth of 4%. And then looking at the International side of the business, just shy of $5 billion in revenue, 6% constant currency growth and organic growth of 5%. Nice performance from the International side of the business to complement what was done in North America. Looking at Slide 6 and our global service franchise. What have we done through the calendar year of 2013? If you look, you can see that we, as of December 31, now have 3,250 clinics. That's a 3% increase over the prior year. And you can see that the breakout North America to the International business segment is generally 2/3, 1/3, with 2,100 clinics in North America and the resulting 1,100 clinics internationally. I think there is worth commenting when you look at the de novo in the acquired clinic numbers. You can see as we had told you a year ago when we were beginning 2013, that we intended to have more de novo clinics through the course of the year. We've done that. You see the relative split on de novos, just a little over double in North America versus International. And then looking at the acquired side, as we had guided you last year, more acquisition activity in International and a little less on the North American side. We delivered 40 million treatments on a global basis last year, 5% growth over the prior year. And again, the number of patients that we care for at 270,000 patients. We are just shy of 100,000 patients in the International region. And again, that generated 5% patient growth. So 3% growth in clinics, 5% growth in treatments and a resulting 5% growth in patients as well. If we continue to Slide 7, and looking at the dialysis services side of the business and looking at our revenue growth, first, let's look at the fourth quarter. You can see that we were just shy of $2.9 billion in our revenue growth. Constant currency growth of 4%, and you see a very strong 8% International growth in constant currency on the services side and 3% in North America. Looking at organic growth, you can see the fourth quarter has an anomaly there. It certainly is probably confusing to you so if I will -- if I may, we do have it footnoted, simply to say that when you look at the year-over-year comparison, please remember in the fourth quarter of 2012, we had a special collection of $90 million, which was well in excess of what we typically see, as Mike had pointed out back during that day. And if you exclude that rather extraordinary $90 million collection from the fourth quarter, you can see that the organic revenue growth for the fourth quarter of 2013 in North America is 5.7%. So it's a very different picture when you understand those dynamics. And then looking at our same market growth for the quarter, coming in at 3% in both respective regions. On a full year basis, $11.1 billion in dialysis services revenue, constant currency growth of 7% in both regions, organic revenue -- organic growth of 5%. And you see the respective splits between North America and International and the same market growth at 4% for the dialysis services business. Looking at our quality outcomes, I would highlight probably 4 of the 8 or 9 metrics. If we look at our dose of dialysis, you can see that we were steady across all the regions from sequential quarters Q3 to Q4. Looking at hemoglobin from a 10 to 12 grams per deciliter. That's the way it's looked at in the U.S. You see a little bit of movement, nothing significant in the U.S. And then looking at the 10 to 13 reporting, the way we measure it internationally, again, you can see consistency with some slight improvement in Asia Pacific, but EMEA being consistent, as well as North America. And then lastly, I would mention our hospitalization days, and you can see that there's consistency in North America at 9.4, little improvement in -- or actually just a little bit of creep in EMEA at 9.4 versus the prior quarter at 9.3, and consistency again in Asia Pacific. If we look at our products growth, again, we're only going to look at the external products growth. Looking at the fourth quarter, you can see at $972 million, we are 8% constant currency growth for the fourth quarter. And respectively, you've got North America at 6% constant currency, International at 8% and a rather strong performance. And I think you will recall that we had given you the idea that when we were together last at the end of Q3, that we had anticipated we would see some acceleration of our growth. And in fact, that performance did come to pass. Looking at the full year at just approximately $3.5 billion on the products business. And you can see constant currency growth of 5% and the North America at 4% in constant currency, and International at 5%. So we've been able to see the acceleration there that we had been hoping for. If you look at our employee base, we are just shy of 91,000 employees. That's a 5% increase over the prior year. You can see the actual breakdown of where our employees sit, approximately 60% in North America, about 24% in the Europe, Middle East, Africa, and then Asia and Latin America, respectively. I think what's important and what we feel good about is in the last 10 years, we've added roughly 41,000 jobs. So we are a net job creator, and I feel good about that. Obviously, doing our part for the global economy as best we can. If you look at Slide 11, we are proposing our 17th consecutive dividend increase. We're showing you here on the slide, look at where we started in 1997. Very nice progression from there. And we're looking at a 3% increase in dividends, what we're proposing for '13 versus 2012. And I think the point I would make here is if we were to do this just based on looking at the performance of EAT, with that being down 6%, I suppose one could argue that we could have had a decrease. Obviously, we didn't think that was going to make anybody happy and it's not the way we want to run this business and deliver value to the shareholders, so thus, we are proposing a 3% increase at $0.77. Slide 12. In summary, we continue to be focused on improving the quality of lives for our patients that we treat directly, as well as those patients that we provide products to other providers to take care of. We continue to have our leadership position in this market. It continues to grow on a global basis. There is no question that we're going to continue to probably talk about the U.S. and continue to talk about reimbursement and where we go. We do have a little more clarity today than we did at the end of third quarter. But the clarity doesn't make the task any easier. We still have work to do there, as you well know. Our global efficiency program, I would like to point out, we continue to work on that program. I'm sure we'll have questions about that today, but as we've always said, this is a program that we'll engage in over time. It was never meant to be a 1-year hit and be done. This will be a multi-year program, and we think that we have to take the appropriate steps and measures to make that happen over the next foreseeable years as we try to make ourselves more efficient. In the long run, our opportunities are certainly are going to outweigh the challenges that we face. Not a particularly easy time today, but tomorrow will be a better day, and we will get bigger. Happy to talk about that some more a little later. And at this point, I'd like to turn it over to Mike, and he will take you through the financials and the outlook.

Okay. Thank you, Rice. And turning to Chart 14 to talk about the fourth quarter profit and loss statement. Rice spent time on the revenue, so I'll move to the operating earnings and margins. Our operating margins were up 18% or $102 million from $559 million to $661 million, and this represents an improvement of margins of about 200 basis points. North America contributed 40 basis points; International, 100; and corporate costs improved, contributing to 60 basis points to the performance in the quarter year-over-year. And this is really 4 fundamental elements. First, we had very strong product sales around the world in the fourth quarter, as Rice commented. We also had very strong results from our manufacturing operations on a global basis, with globally, a reduction and our overall cost to manufacture; second, we sold property in Columbia, which generated about $32 million of pretax earnings. This was partly offset by some additional bad debt expense that we took in International; Third, we do have a beneficial carryover from the base period of about $20 million, which we can get into the details of in the Q&A if it's not readily apparent; and last, indeed, the net increases that I just articulated were partly offset by sequestration, a reduction in commercial mix and lower commercial reimbursement rates in North America. In terms of interest and taxes, earnings benefited from lower interest costs in 2013 largely due to the onetime cost that we took in the fourth quarter of 2012 related to the renewal of our credit agreements. In addition, interest costs in general have been slightly better year-over-year due to lower rates and a slightly higher average level of debt for the fourth quarter. Interest income was also higher in 2013 due to an investment we made in the form of a loan in the third quarter of 2013. The fourth quarter also benefited from a reduced tax rate due principally to 2 things: a beneficial tax rate associated with the sale of lands in Columbia and a beneficial tax rate associated with our earnings from our pharma joint venture. As a consequence, the reported earnings for the quarter were up 36%, and earnings per share is up 38% to $1.16 per ordinary share. Turning to Chart 15 and looking at the full year. Our operating earnings as reported were up 2% or $37 million to $2,256,000,000. This was due to improvement in the operating results, partly offset by 2 significant effects: The first being a decline in earnings related to sequestration of $56 million or roughly 2.5%; and the second, as I've already indicated, was a gain on the sale of Columbia for $32 million. The remaining increase of $61 million or roughly 2.7% is operational. This change was driven by an improvement in North America's operating earnings of $65 million, excluding sequestration, and increase in International earnings of $17 million, and an increase in corporate spending of $21 million for the full year. With regard to interest and taxes for the year, earnings benefited again from net interest costs as being slightly better due to lower rates. In this case, particularly the result of the expiration of interest rate swaps, which expired at the end of 2012 into the first quarter of '13, lower average debt for the period, and again, the avoidance of the onetime cost in '13 related to the renewal of our credit agreement in 2012. Our tax rate year-to-date increased from 31.3% to 32%, this being largely due to the non-taxable gain that we experienced in 2012. If you were to look at our effective tax rate excluding that gain, our tax rate decreased from 33.8% to 32%, again being influenced by the Colombian land sale and by the joint venture earnings from our pharma JV. Net income as reported decreased 6% when adjusted for the investment gain. We essentially had a 6% earnings increase on a 6% increase in revenues. Turning to the next chart, 16, and beginning the discussion on cash flows. You can see our days sales outstanding, a very positive trend in International and a benchmark level in North America continues. North America did 53 days, up just a bit from the third quarter and favorable to year end 2012 with 55. International is 110 days, improved 4 days sequentially, as well as over last year, and that was largely driven by collections we experienced in Spain and Italy in the fourth quarter and over the course of fiscal 2013. We're at a level where we may see days move up or down a bit as time progresses, but there is no extraordinary development being reported here as we look into 2014. Turning to Chart 17 and looking at cash flows. Our underlying performance in the quarter was strong in both years. Cash flows from operating activities in '13, as well as 2012 were 15% of revenues. So there's nothing of concern to note in terms of our cash flows on a quarterly basis. CapEx as a percentage of revenues was in line with historical trends, and the split between maintenance, capital and expansion capital is roughly 50-50. Turning to Chart 18 and looking at debt-to-EBITDA. Nothing new on this front. $8.4 billion in debt. It's a slight increase over 2012, and roughly flat with the third quarter. Our leverage is as expected and within our guidance. And as you can see, nothing extraordinary to report from a rating agency perspective. This brings us to Chart 19 and into the -- and discussing the potential outlook for 2014. You can see the overall numbers that we're indicating. Revenues of approximately $15.2 billion, representing an increase at roughly 4% in terms of prevailing exchange rates at the beginning of the year. Earnings of approximately $2.2 billion and net income in the range of $1 billion to $1.50 billion. We believe this represents an adequate level of performance at this point in time for our business. 2014, we expect to see growth in same-store treatment, similar to our experience in 2013. We also expect to see continued pressure on ASPs in our products business and our reimbursement rates on a worldwide basis. For the U.S., you will see a modest but negative effect associated with the rebase, and you will see the rollover effect of sequestration for the first quarter of 2014. Concerning acquisitions, we're not including the potential performance of our acquisition guidance in our operating results. I would say we have a base guidance of $400 million, which is consistent with our historical practice. Regarding commercial treatments in the U.S., we had growth in this category in 2013, but at a lower rate than the overall growth in our treatments for that calendar year. For 2014, we've assumed this pattern will continue. We've had good results in the last few years managing the cost of pharmaceuticals and we've made no extraordinary assumptions regarding drug usage or pricing for 2014 in our guidance. As opportunities present themselves for commercial piloting in 2014, we believe we are very well-positioned to respond. We met our guidance in 2013, but during the year, I remarked, each quarter on the headwind we were experiencing in increased spending as we invested in our quality systems in the U.S., that we were incurring legal and consulting costs related to our global compliance program and that we were addressing the management and the Granuflo legal action in the U.S. As we look into 2014, we expect to incur incremental cost to address these matters. Taken together, while the legal and compliance, we believe we could spend up to an additional $60 million in fiscal 2014. We've included half of this in our guidance figures. We also anticipate that these issues will take us into 2015 before some or all of them can be fully resolved. We are fully committed to address each of these matters appropriately, and we believe we have the right resources dedicated to do so. With that, I will turn the call back to you, Oliver.

Great. Thank you, Mike. Thank you, Rice. Any closing remarks before we start with the Q&A?

Probably the one thing I would say is I had a chance to look at some of the commentary from the investor community with our guidance, and I would just simply say to you, let's remember, the fundamentals of our business are strong. We continue to see the patient pop at work. We'll talk more about those growth rates when we have our capital markets day, but we continue to see a high demand for our provision of care and our products. We definitely have some headwinds that we have to deal with. We have some external issues that we have to deal with in terms of the continuing of sequestration looking at the rebase, et cetera. But there's no reason for anybody to push a panic button or think that we don't have the management team and the will to work our way through this and continue to run this business for long term and be on the kind of growth trajectory that we'd like to be on once we get through some of these tough waters.

Great. Thank you. I think, Patrick, with that, we can open up the lines for the Q&A.

[Operator Instructions] And our first question today comes from the line of Lisa Clive of Sanford Bernstein. Lisa Bedell Clive - Sanford C. Bernstein & Co., LLC., Research Division: Rice, 3 questions for you. My first question is on your private patients in the U.S. A few years ago, before bundled pricing, you indicated that private payer rates generally went up around 3% to 5% each year. There's obviously been a lot of change to your contracting since then due to switching to bundling, but now, it sounds like you've bundled most of those contracts. Can you just give us a guide on what we should expect average private rates to do over the next few years? And then second question on International reimbursement. You've had some pretty good quarters where you've seen increases in a number of territories, but the commentary in today's press release and presentation seemed a bit more cautious. So has something changed in your outlook there? That would just be helpful to think about the overall reimbursement environment outside the U.S. And then lastly, on your ancillary services businesses in North America, given comments you've made on prior conference calls, I'm estimating that pharma and vascular access, between the 2 of them together perhaps represented about $500 million of sales in 2013. Is that reasonable? And more importantly, how much more growth should we expect from those combined businesses in 2014 and beyond?

Okay, Lisa, thanks. I'm writing feverishly. I think I got them, but I might need to get you to refresh one of the questions for me. But when we look at pricing with private patients, and again, as you've pointed out, we're in a bundled situation in many of these large contracts. I would say to you that we are still working through the opportunity we have by the multi-year contracts with inflation adjusters coming in some of the outer years. That will continue. Not sure I'll get into what is the inflationary adjuster and what's the percent increase there. The good news is there is one. I just won't tell you exactly the detail. When you look at the more regional payers, we are still looking at our ability to put some price increase through. I think what I would say to you is it's certainly is not at the 4% to 5% range any longer. It's certainly more in the 2% to 3% range, perhaps 4% in certain cases. But it is certainly de-accelerated from where we were probably 3 or 4 years ago in that perspective. Looking at reimbursement, non-U.S., I would say to you that we still see a little bit of a mixed bag in that there is still some pressure. One of the experiences we've had here in Germany is we're told that the cut could be as much as 10%. And then by the time it's finally settled, we find that the cut has come several quarters later than anticipated and only somewhere in the case of perhaps 2% to 3%. So it's not nearly as bad as we expected from the very beginning of those discussions. We've seen a little bit of good news in Asia in that the reimbursement in Taiwan did not drop as much as we had anticipated it was going to. And Japan really has not changed. As you know, it's about every other year, we see a cut coming in Japan. And then in Latin America, we still see large increases. But again, they're inflation-adjusted based on the inflationary nature of what's going on in that part of the world. But hopefully, I'm giving you enough color there. And then on the ancillary businesses and what we're seeing there, yes, we've talked about that before. Let me do it this way. What I would say to you is when you look at the Rx business, they were just shy of $300 million in '13. And if you look at vascular access, I think I've told you they were going to be around $200 million, and they were really darn close to being there. When we look at the growth for those, we do expect good growth in both of those businesses as we look out to this year, in '14. But remember, we're not really talking earnings here, but let me make the point that we see the faster-growing revenue opportunity with the pharmacy, but it carries a lower margin than we see with the vascular access business. But your math is very good. We're going to be in that $500 million to $600 million range if we go according to plan in '14. And it's closer to the high number than the low number is what I would say. But that would be the range. You're pretty close. Lisa Bedell Clive - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And just follow-up. So just to be clear, that would be somewhat margin-dilutive given that particularly the pharma side is lower-margin than dialysis services?

Yes. You've got that correct, Lisa. That's true.

And our next question comes from the line of Michael Jungling of Morgan Stanley.

I have 3. Firstly, can you provide a reconciliation of the sales growth guidance of 4% to a net income guidance sort of on clean numbers of minus 4%? I can see, for instance, that you include some additional quality and so forth costs, which appeared to be, I think you said $30 million. You've included half of the $60 million, so $30 million. That's only a minus 2% headwind. So how do we get from plus 4% to minus 4% from sales to net income? The second question is on U.S. wage contracts for your staff. Are you able to reflect some of the payment you're taking from U.S. reimbursement cuts on to your cost inflation for the labor. And then the last question I have is on drug cost inflation. Can you give us a sense of what your expectations are for 2014?

Okay, Michael. Thanks. Let me kind of do this, this way. Mike, do you want to do some reconciliation for Michael on the sales growth and net income? I'll pick up the wages and then we can figure out who's going to talk about drugs.

Yes, I'd say just very broadly, keeping in mind that we had some onetime benefits in fiscal 2013 that we can carry into '14, that's something that needs to be carefully considered, particularly as it relates to the land sale in Columbia. And then beyond that, you're correct. Roughly 4% sales growth when you look at -- when you look at our cost structure, we are including some incremental spend associated with the 3 specific things that I mentioned. And then beyond that, just addressing the overall cost structure in the business, cost increases in the business and the challenging environment we think we're facing in terms of ASPs and reimbursement globally.

So Mike, if I look at the delta of 8% between sales and net income minus 2%, the additional spend, I think, from quality, legal and compliance, the reminder of minus 6 delta -- percent delta is really your cost inflation running higher than your revenue per treatment inflation. Is that a fair summary?

Yes. And I would come back to the comment that Rice made in respect to Lisa's question, which is that some of the revenue growth is at lower margins than the historical margins of the base business.

And then on the wages and drug cost inflation, please?

Michael, let me do the wages. What I would tell you is that we generally take survey data. We look at what we think is a fair wage across the U.S. Obviously, it varies from certain geographies to the other. We do have the ability to damp that down, and what you'll find is our ability and our willingness to do that generally probably comes more in areas that are not direct patient care. We are extremely sensitive to how we manage that situation. As we've talked before, Michael, you and I privately, you can tell when patients like being in the clinic, and when the nurses are happy, the patients are happy. So we're very judicious in how we would look at direct patient care wage increase to how we handle it. I'd say we have more flexibility in the non-care side of the business. But be that as it may, we have tightened up and we will tighten up, but we try very hard to be fair and to have the right level of motivation. But we had pretty frank and open discussions with our people in the U.S. about where reimbursement is and what we think we can stand to bear in terms of wage increase. Hopefully, that gives you enough color on that. And Mike, you want to pick up the drug inflation piece?

Yes, nothing really extraordinary to say there. I think we indicated that we made no extraordinary assumptions with regard to the drug side of the business. I think when you look historically, we've been able to manage pretty well cost increases and the overall efficient utilization of the drugs. So I think that our guidance essentially assumes that we'll be able to continue to balance those 2 in fiscal '14.

Hey, Michael, one thing I'd come back to, just full disclosure, one of the things you may stumble across or hear, we are looking very hard at new hires. We discussed putting a hiring freeze on and really limiting the incremental hires that come into the company. I'd much prefer to take care of the folks I've got versus bringing more people on. So that's something that we're going to manage very aggressively. We'll be talking with our people about that, in fact, probably tomorrow. But you should know that because I didn't want to do stumble across that somewhere and feel like I didn't tell you. We are clamping down on our incremental hiring as we look at 2014.

Great. And the final question is on the efficiency measures of the $60 million. Is that $60 million that you will save in 2,000 or -- that you may save in 2014? Or is that the exit run rate at the end of the year, the $60 million?

The $60 million is what we may be able to save in the course of calendar year '14. And as we've talked about GEP, as you know it's a multi-year project, and so there'll be different figures for the different years. And obviously, we hope they're way bigger each and every year. But you've read this correctly. It would be the $60 million potential for this year.

So the $60 million for the potential for this year, I'd expect that the run rate is going to be very small at the beginning of the year and will increase throughout the rest of the year. And therefore, for 2015, that $60 million number can actually be a much larger number. Is that reasonable?

That potential certainly exists, yes. That's -- your logic is very good.

Our next question comes from the line of Kevin Ellich of Piper Jaffray.

Three questions. First, could you give us more details on the property sold in Colombia? What was that related to, and are there other properties that you're looking to sell? Second, wondering what was behind the reduction in commercial mix and if you're seeing any impact from the exchanges and Health Care Reform in the U.S. And then lastly, does your guidance contemplate any impact from increased competition in your pharma business, coming from new players like Keryx and Rockwell? Mike, I think you commented on pressure that -- pressure on ASP in the pharma business.

Okay. On the property sale in Columbia, we essentially, Kevin, sold a plant. We were located in an area that in the early days it made sense to be there, but as time went on, it became to be a very ineffective area, inefficient area for us to be in, the location. So we've sold that property and we're moving to a better space for us in order to handle the ingress and the egress of raw materials coming in, product being shipped out, et cetera, et cetera. Mike, you want to take commercial mix and exchanges?

Sure. With regard to commercial mix, I think that we've reported for a while that the commercial treatments had been growing, but they're growing at a lower rate than the overall business. So essentially in our guidance for '14, we're just indicating that we are forecasting that to be essentially a steady state environment. So we would anticipate to continue to see commercial treatments increase, but we have not made any extraordinary assumption about it increasing in a different rate that it did in fiscal 2013. And in terms of our experiences with exchanges, so far we don't see a difference in terms of how we're dealing with the exchanges than we are with our other commercial contracts in terms of behaviors.

Yes. I would say, Kevin, there's not a lot of exchange negotiation going on because there's not many of them up and running effectively yet. As I know you're aware, many of them are much delayed. But it seems to have been fine for the ones that we've negotiated with here of late.

And then the last question on the competition in the pharma business, guidance...

Yes, let's kind of divide this by region. When you look at the competition, I think you're referring to it's -- really in the buying there. You're coming in the U.S. And what I would say is we always take that into consideration as we look at our plans. But the thing we don't know is when these things are going to get approved and exactly how they're going to come to market. So we're prepared to compete. We've made some assumptions about how and when they will come. But I wouldn't say that it's done anything to really drive down that book of business appreciably for us. We're aware of it, but we've not really made any huge adjustments. I think for clarity, the ASP pressure that Mike was referring to is in products or devices, if you will. And we see that much more intensely in Europe and in Asia. We do see some of it in the U.S., but not nearly as much. But that was really a medical device pressure as opposed to a pharma pressure, Kevin.

And our next question comes from the line of Veronika Dubajova from Goldman Sachs.

My first one is on the International, say, market treatment growth rate. And Rice said, more and more [ph] , when the growth rate decelerated last year, you said you were working on some efforts to drive that higher. I'm just wondering if you can give us a sense for where you are and if you think about 2014 and beyond, what we should be assuming about that market going forward. And I appreciate there are a lot of moving pieces there, but if you could give us some color, that would be helpful. My second question is as you do think about the savings from the global efficiency program, I'm just wondering if you can give us a sense for how much back-end loaded these might be relative to the number that you guided to for 2014. And my last question is, Mike, any comments for expectations for U.S. cost of treatment growth rate? That would be very helpful.

Okay, Veronika. So on International markets, same market, if you will. '13 was around 3.3%. What I would -- what I'd like to say is, I want to break this up for you, we're seeing a little bit different performance if you look in Europe versus where we are in Asia. We've seen a little pressure in Asia, a little slowdown there. Europe not so much. So I think if I'm going to guide you, I would say to you that I would believe we would be somewhere in the 3s. I'd like to be in the high end of the 3s as possible. We could round it to 4%. But realistically, I think we would like to be somewhere in 3.6%, 3.7%, 3.8% range, if possible. Much of that is going to depend on can get some turnaround in Asia as opposed to what we're seeing in Europe, probably coming from Eastern Europe. So that would be the color I would give you. Hopefully, that would be helpful for you as you think about how you want to project outward. On the savings, Mike, you want to pick up that one? And I guess, cost per treatment as well?

Yes. I think in terms of the efficiency program, I would agree that it'll be more back-end loaded rather than radical over the course of the year. Because these are specific projects, they're not as predictable as the normal operating activities you have based on revenue generation. So back-end loaded, I would say. And revenue per treatment and cost per treatment, I think it's nothing specific in terms of guidance on that metric. I haven't done that now for a couple of years. I think the comments I made relative to sequestration and the albeit slightly negative rebase effect, coupled with what Rice said with regards to commercial payers, is probably sufficient.

Understood, Mike. And can you give us a sense in terms of the phasing? Is it low 2/3 and 100%? Anything that you could tell us about that?

No. I think just that we anticipate producing net of about $60 million for the year. So somewhat reluctant to tell you which quarter it's going to be in.

And our next question comes from the line of Martin Wales from UBS.

Right. First question in terms of your global efficiency program. Can you give us some indication of how many costs you've actually taken so far and when you took them? Also what you're going to take in 2014, and whether there will be the further cost beyond that? The second question, you've obviously talked about product projects for drugs that have been in competition. By Immersion 2014, you appear to be referring to MIRCERA. I was wondering what your thoughts were on that. Renagel and Renvela, which also -- the patients' patent expired this year, and certainly, there will be some competitor drugs available. Would you need to do a pilot program there? Could you use those generics immediately, give them rather simple and cheaper? I guess my third question is on the mix again. You did talk early last year about trying to improve the commercial mix and try to drive up the commercial mix. That doesn't seem to have happened in 2013, though you've made some gains that you basically don't think is going to happen in 2014 either, sort of coming back to the previous question. Is that a function of anticipating more impact from health care exchanges across the year? Or why do you -- don't you think -- why don't you think you're doing better in terms of driving your commercial payments?

Okay, Martin. Thank you. What I would say in terms of the GEP and cost, I would say to you that we're looking at generally some cost that we incurred in '15, and then we will have some spillover of that to '14, and then we should be able to go beyond that on most of the projects. There were a couple of projects that will be in a different ballgame than that, and we can probably give you a little more clarity on that in the Capital Markets Day. But to give you a little bit of sense, think in terms of in 2013, the cost that we incurred somewhere in the $15 million, $18 million range, if that helps you there. Relative to pilots, I don't really have anything new to add on MIRCERA, and we've continued for this to be a theoretical discussion about when we would perhaps do a pilot. What I can tell you is that we know how we would do it, we're prepared to be able to do it I think, as Mike commented earlier. So we feel comfortable that when that opportunity should arise that we could take advantage of it on a theoretical basis, if you will. In terms of Renagel and Renvela, I agree with you. Those are products that are well used. As you know, they're not used through the clinic. They are really used through individual sales initiatives and talking to the physician, and they're prescribed that way. Should we have the generic opportunity, I would say to you that, that's something that we wouldn't see being run in a large pilot. That would be handled more on an individual patient basis through physician prescription. But generally, my experience is that would not be something that we would pilot as you suggest. I would agree with you. And then let's be clear on commercial mix and commercial treatments. Our reengineering process was all about trying to put us in a better position to improve the number and grow the number of commercial treatments that we do. Now mix factors into there, but keep in mind that I'm a lot more focused on the number of treatments that I do than what I get paid for those treatments than just worrying about the mix in and of itself. And in some cases, I'm not sure how easily we can control if, let's say for instance, the Medicare Advantage population is growing great guns. There's going to be some outgrowth or overgrowth of those areas perhaps than the commercial side. But as long as we're seeing quarter-to-quarter growth in commercial treatments, I think we believe that we're getting accomplished what we would like to. Mike, anything you want to add on that?

No, no, I think that was complete.

But you're not seeing -- you're not anticipating any big increase in impact from exchanges going forward? Or do you think it will have an impact going forward?

I would say as we've looked and tried to guide for '14, we're not anticipating a big impact there. We'll know more about '15 as we get further into '14. But yes, I think your statement is correct. We're not looking at any big impacts as we look at this calendar year.

Very quickly, back on drugs, on the phosphate binder Velphoro, which I believe you are selling. What -- to what extent do you expect that to contribute to the overall growth you talked about for drugs in 2014? Is that a big contributor or a small contributor? How should we think about that?

It was approved December 1 in the U.S. We will launch at March 1. What I would say is it will be a contributor. We've probably been rational and conservative. I'd even use that word as to what we think the contribution will be for North America, keeping in mind that we don't think we'll see an approval internationally in Europe until probably midyear because there were some additional questions that we were answering for the authorities, the approval authorities. So in the U.S., I think it's going to be a conservative start for us. It's the way we've looked at it. But we are ready to go. And in fact, we will be selling and detailing that product March 1.

Our next question comes from the line of Chris Gretler of Crédit Suisse. Christoph Gretler - Crédit Suisse AG, Research Division: Actually, most of my questions have been answered. Just basically one follow-up on this efficiency improvement program. I mean, can you discuss that a bit more in detail? I mean, you must have already known some pretty good understanding, given that you actually come up with no specific guidance in terms of dollars. And how would such a program actually differ from just ongoing efficiency improvements that you put in place anyway?

Yes. Chris, let me see if I can help you here. What I would say to you is the following: We have always tried to be efficient. We've tried to look at taking cost out of our system. We've generally thought about that in terms of our manufacturing facilities. I think we have a long track record of doing that. What we're looking at here and the reason that I am not going to give you sort of chapter and verse of the projects that we're focused on is that in many cases, working through this project, it involves moving work or changing work from one location to the next, doing the work differently than the way we've done it in the past. And those are things that take a little more time, a little more thought than perhaps some of the programs we've done in previous years. So we're not trying to hide all of this or keep it away from everybody, but we're not ready at this point because we obviously have employees and we have people we need to speak with and talk to. We have to do some of these things before we really kick these programs off and get them running in a meaningful way. And that's the way we've tried to approach our guidance for this year. And then obviously, we'll have more clarity as we go through time. And we'll give you some more idea of this or some more view of this in April as well. Christoph Gretler - Crédit Suisse AG, Research Division: Okay. And maybe one follow-up question on this. I lately looked at your company and the cost structure and obviously, you have a lot of cost involved in running your clinics in the U.S. I was wondering, I mean, maybe if you could discuss at least theoretically. And you mentioned I think this morning in the press conference also that you might be looking to closing some more clinics. But basically, how would that grow up and how do you think you can capture actually some of your patients at least in your system? I mean, this capping in the network is actually, I guess, now a pretty delicate thing. How do you see that in your business particularly?

Yes, so if we look at this, couple of things. We will be closing some clinics in the U.S. this year. Not sure it's helpful to guide as to how many at this point in time, but we will be doing that. But the approach that we would take, the standard approach that we would take to that, Chris, is we look at where the clinic will be closing. The first thing we'll do is make sure there are places for the patients to go. Generally, we think in about 8 out of 10 cases that we would be able to put those patients in another FMC clinic. This is all location-driven obviously. We would also look to continue to work with the physician if he wanted to move from the clinic that he was in. If it was closing, would he like to move to another clinic and have privileges? So we have a fairly well thought-out process for how we would do this. And again, generally, the opportunity to consider closing clinics comes in the large urban areas, more so than the rural areas. And generally, our footprint is large enough that we have the ability to move patients from a clinic that might close on the north side of Boston, if you will, to move them into a clinic on the west side or the east side of Boston. But that would be the approach that we would take with this.

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

A couple of questions. I just -- as I look at the gross profit per treatment at the U.S. Dialysis business, it looks like it went down about $12 year-over-year, which seems like a relatively large decrease. Can you talk maybe in some more detail about some of the specifics? Is it -- was it drug pricing increases that drove that up? Was there some onetime expense that ran through there?

Sure. Gary, we're shuffling a little paper here because we need to put our hands on some information we want. I rarely do this, but can I invite you to ask another question while we are looking for some of the material we need?

Okay. Yes, I guess, when you've talked about the commercial pricing trends and it seemed like over the past couple of quarters, there have been some discussion at least of -- within the industry of maybe you taking share and maybe some price competition. Is -- was that a strategy and did that not work out? Or is it something you're reconsidering? Because it sounds like the commercial pricing growth continues to be below where it has been over a longer period of time, and it's not clear exactly why that would be.

Sure. So let me answer your second question, and then I'll let Mike get to your first question. I think generally, my comment's going to be that we've certainly seen commercial pricing tighten over the last 3, 4, 5 years. I don't think there's any question about that. We certainly see that commercial payers have gotten much more sophisticated in managing their dialysis patients and understanding the number of patients they have and where they are. Hadn't always been the case in previous years. But in specific reference, Gary, I think I'm going to call this a FUBAR, this thing that got thrown out back in the summer that it would appear that FMC was dropping price in order to try to pick up share. We just didn't do that. That's never been our strategy. I think we looked at doing that about 7 or 8 years ago, and it didn't work out so well for back then. So I just think that was some garbled communication, if you will, that kind of got out amongst the investment community. It is clearly something that we're not going to do, which is go in and drop our pricing to the point to try to just take share volume. Not in our game plan. Mike, do you want to...

Guys, I just have a follow-up on that before we go back to the first question. So do you feel like your pricing is sort of in line with the industry and not at a discount to anyone in the industry?

I think we're competitive, yes. I think we're kind of where we need to be. This is best we can tell. One never knows the exact detail, but I think we're in a competitive position, yes.

Gary, in line with your question about -- I think the operating earnings per treatment -- unfortunately, I have to take you back a little bit into the special billing arrangements we had last year because that increased the revenue per treatment last year. And I kind of explained that in detail, if you recall, in Q3 and Q4. But if you look at our revenue per treatment increase from $355 to $359, and I'm talking about the year, not the quarter, I think that's probably what you're interested in, at $4 per treatment. If you go back and look at what I said last year in terms of how those special collection efforts would spread over the course of the year, that would be worth another $4 per treatment in terms of the year-over-year comparison with 2012. So you'd be looking at increase in revenue per treatment, if you normalize the 2 years, of about $8, $9 a treatment. And on the expense side, we're looking at about $10 a treatment year-over-year. So you are seeing some compression, and that's really related to the fact that we're getting very high growth in some of the businesses that are carrying lower margins than the base business.

And so I guess just to ask a follow-up on that, is it -- is the growth in the cost per treatment -- I mean, how -- the big one of your expenses, obviously, pharmaceuticals on the domestic U.S. Dialysis business, and it would seem like your pricing probably isn't as good there as it has been in the past. Did you see significant increases in the most recent quarter? Do you expect to see them or did you see them at the beginning of the year? Is there any additional detail you can give us there?

You're talking about the cost side of the equation?

Exactly.

No, I'd say, generally, we don't see a lot of variability quarter-to-quarter. What I would say broadly speaking is as we make investments in some of our new businesses, we've had good success historically looking on the core business in terms of mitigating labor increases with the net effect of what's happening on the pharma side of the business. That's price increases and pharma net of utilization. So those tend to offset each other on the cost side.

Next question comes from the line of Alex Kleban of Barclays.

Just 2. So first one, can you give us a sense or your view on what you think is an appropriate market basket adjuster for the 2015? Sorry to go far out -- go so far out, but just in light of what you're seeing on the input cost changes over the last year or 2, and maybe just a sense of at least relative to what you got in 2014 where that would go? And then second one, I'll just go and give it a try, but we've got some 2017 numbers out of Fresenius assets, so just trying to get a sense of whether you can give us some idea of what you're going to give us at the Capital Market Day or at least give a sense of whether or not you've even looked out that far, given all the uncertainty. Do you have at least for '15 and '16?

Yes, Alex, it's Rice. Let's take your second question first, and I think you did a very good job of answering it. It would just be very difficult for us to try to give you any kind of view of that, given that we're sitting here today truly not knowing if the remainder of the rebase cut's coming in '16 or '17, or they're going to split it between the 2 years. I just wouldn't know how to handicap that 6 weeks into 2014. So I don't think there's much I can tell you there. In terms of the market base adjuster, the best, first of all, I can give you there for '15 is we would sort of assume it's going to be about the way it was in '14 and see where we go from there. We're not heading any real discussion with anybody in D.C. that could tell us any differently at this point, and they wouldn't even if we asked. So we're just going to assume it's very similar to what we're going to experience this year.

Okay, great. And if I could just follow up quickly on the 2017 question. Have you given at least a very, very low base case of what you can do in 2017, assuming a worst-case outcome, and that's what's factored into their numbers, so you kind of have a view of the worst case in the world and then there's maybe upside to that, or is that a no comment?

Yes, I think at this point, it wouldn't do me any good to try to give any comment on that, Alex.

Next question comes from the line of Holger Blum of Deutsche Bank.

Holger Blum, Deutsche Bank. Just a question backwards to 2013. If you sum all special items up, I think you had some Liberty divestment gains, Columbia plant, special billing. What would be the total amount of nonrecurring gains in '13? And maybe by that, if you then look out from the real basis into '14, you mentioned higher corporate spending on the legal stuff. Where would you see most of the EBIT growth or EBIT, let's say, growth, where does decline come from in '14? Is it more from products, was it clinics, more U.S. or international? Maybe you can shed some light on that as well.

Thank you, Holger. Mike, why don't you take number one?

Yes. I'll tell you, Holger, it's a challenge to go back into 2012, particularly since I know you didn't like the way we characterized 2012 to start with. But I think we've done our best to articulate the onetime effects in '13 I think because we didn't do a large deal in '13. The number of these effects is substantially muted. An awful lot of '12 had to do with the fact that we closed the Liberty deal, which was a $2 billion acquisition. So '13, I think, is a much cleaner year, top of mind. I probably wouldn't comment on anything beyond the Columbia sale, which we disclosed. And for '14, I would say, again, also relatively clean year. Nothing more beyond what I've indicated in terms of some of the costs we're incurring.

Holger, to kind of give you a sense when you look at EBIT and if you want to look at it from a perspective of decline, where does it come from, I'm going to give you a little bit of color on this. I think we certainly are going to have some increased spending in the product area because much of the quality activity that we're doing is in our factories and in our distribution system, if you will, the way we handle products. So I think that's accurate. When you look at some of the legal spending that we've had and that continues into this year, again, because that revolves around some product issues, we've still got some patents out of Baxter that we're going through. Again, I would say the product is probably where you're going to see the lion's share of that. If we look at it regionally, I'll tell you, we have work to do all around the world. I can't say that there's any one place better or more challenged than the other. I think we're looking at this from a very balanced standpoint that we have challenges around the world and just trying to maximize our efficiency. But if I had to lean in any one direction, I would say many of the things that we're looking at revolve around the product business. And that should make some sense, I think, to folks when you consider that we sell product in 128 countries as opposed to providing care in 40 countries or so.

Our next question comes from the line of Ingeborg Øie of Jefferies. Ingeborg Øie - Jefferies LLC, Research Division: One quick one on the investments and the savings. I just confirmed that the additional investments of $30 million should be ongoing and, therefore, we're talking about maybe a net number of kind of $60 million minus $30 million. The second is taking a step back and thinking about some of the initiatives that we used to talk about such as integrated care, which could obviously change the trajectory from where we are today. Where is that currently standing?

Sure. So Ingeborg, let me do this. Mike, do you want to speak to the investment piece, and I'll come back and comment on the integrated care?

Okay. Just in the interest of clarity, I think we're talking about 2 $60 million numbers. For the global efficiency program, we've indicated outside of our operating guidance that we would anticipate producing on a net basis $60 million of improved earnings associated with the projects in the global efficiency program. In the operating guidance, I indicated that we expected to see some incremental spend in the area of improving our quality systems in terms of our global client compliance review and with regard to managing some of our legal issues in fiscal '14. And I said that, that incremental spending in the operating guidance could be up to $60 million more, half of which I included in the outlook. So that $30 million is in the operating earnings forecast, if that's helpful.

Ingeborg, on the integrated care, I think the last time that we spoke during the third quarter call, we had commented that we were beginning to see some willingness at CMS to make some changes to the pilot. They have recommended certain construct to architecture of the pilot back in February of last year. A number of us end providers were not happy with that, and we were pushing for some changes. What I would say to you is everything did, in fact, get delayed or pushed out, if you will, as a result of the rebase. The last information I can give to you is that we've heard from CMS toward the latter part of the year that they had to finish up with the rebase work. They didn't want to come back and talk about integrated care, and they were now pondering how to potentially make some of the changes that we were looking for and get this back on track. But quite honestly, we've heard nothing from them to date in calendar year 2014 yet. I think it's a practical manner, having spent as much time as I do in D.C. They've been pretty consumed for, as you can imagine, trying to get the exchanges up and getting that to work appropriately. But I do expect we'll hear from them at some point, but I think there's some fires that they've been putting out, if you will, Ingeborg, that have not let them get back to this. And we'll be checking to see when we might be able to get back in and talk to them about it. I just have not done that in the first 6 weeks or so of the year.

And our next question comes from the line of David Adlington of JPMorgan. David Adlington - JP Morgan Chase & Co, Research Division: Two points of clarity and then I have a longer-term question. So first thing, Mike, I think on the Q3 call, you mentioned that you were looking to book a gain of $15 million to $25 million on the sale of some clinics in Q4. I just wonder if that had happened within these numbers on whether the $32 million on Colombia was an addition to that. Secondly, you pointed towards recognizing half of the potential $60 million in cost in this year related to compliant systems. What would drive that up towards that $60 million, sort of up to a number from the $30 million you recognized? I guess an ongoing cost, I just want to bring up Ingeborg's point, is that a one-off cost, or is that something we should be factoring going forward? And then just in the longer term, obviously, Mike, we're kind of looking for margins to be down, down, maybe up slightly with the cost savings this year or sort of any flat. How should we be thinking about margins going forward, given that the headwinds you've got in the U.S. in terms of reimbursement?

Thanks, David. Mike?

You want me to comment?

Yes, go ahead.

Yes, in terms of the Q3 call, the $15 million to $25 million related to an asset sale, which is in fact what Columbia was. So it did turn out a little bit better than we had thought, but that was a reference to what we did in Columbia. Relative to the spending on the quality compliance and legal matters, I indicated that we anticipate seeing an incremental spend in '14 and that it might take us into '15 to resolve some of these matters. So I think that putting about half of this in the guidance is just a rough indication from a timing point of view. That could move around a little bit between '14 and '15 depending on the progress that's made, and that would influence the spend. It's really the timing associated with those set of activities that we need to undertake for each of those 3 things. And lastly, I would say, and I'm sure, given the timeframe I just laid out, we'll talk about this again as we go forward, I think realistically, some of that will be onetime costs and some of it may be incremental spend associated with just putting in a stronger infrastructure, for instance, if you think in terms of quality initiatives, doing things a bit differently going forward to meet the requirements of the FDA. So I'd say that's probably the best way to characterize the $60 million, the timing and why we put about half of it in the guidance. And some of it will be onetime and some of it might be -- I'd say the bulk of it will be onetime and there's some that might be some piece of it that's ongoing when we finally settle up the issues. Okay. In terms of your last question in terms of margins going forward, I think with the Capital Markets Day coming up, that's probably the best place to deal with that question.

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

Referring to your guidance for 2014, Mike, could you detail the impact of FX, particularly emerging market devaluations on that guidance, 10% of sales in Latin America? Obviously, we saw the Bolivar impact from that devaluation last year. Could you give us color on the impact of the Bolivar peso devaluations and obviously Turkey as well. That would be my first question.

Okay. Yes, Ed, I think that in the range of guidance we provided, we've considered the effects associated with FX in '14 and in particular, somewhat what we're seeing in the emerging markets. So I think you should view the $1 billion to $1.5 billion inclusive of those effects.

As best we know today.

As best we know today, yes.

That's very clear, yes. But last year, you gave us also quite clear guidance on the impact of the Bolivar into the basis point both for the first 6 months and 9 months, and that was very helpful. Clearly, on your -- expose to us until it's higher and then in Turkey. So I was wondering if you would be repeating the sort of clarity you gave us last year on the breakdown of that impact for your margins.

I can consider it when we report our results. The Bolivar was somewhat particular because it literally occurred, and we took the charge in Q1. And the timing of it wasn't quite as -- it didn't sit as well to the guidance that we had provided. But I'll keep that in mind as we report our actuals.

Just one quick follow-up on the costs and the investment. Obviously -- thank you for the guidance of $60 million net cost savings, I don't think you gave a number in terms of the total investment that you see this year to drive that. Obviously, your investment in systems and the people required to implement the cost savings, that would be helpful.

Yes, I think and as we develop this, we'll sort through the best way we think to report it, maybe at Capital Markets. But at least the way we're thinking of it here internally when we're talking about what we're actually going to deliver on a net basis so it's net of the costs associated with delivering those savings. And then as we move into looking at this over the 2- or 3-year period that we hope it will benefit, you'll obviously have, as you come out of each year, kind of a sustainable savings level that's not burdened by the implementation cost.

I'll wait. Okay, I'll wait until April.

Okay. And Rice's comment that for 2013, there was about a net cost of $15 million.

Yes.

And our next question comes from the line of Konrad Lieder of equinet Bank.

I've got one question on the e-procurement. If I'm correct, then your contract is up for renegotiation. And maybe you can give some color on how you vouch what the strategy is of concerning EPO and where you want to procure it. And if there may be price discounts associated with renegotiating such a contract. Furthermore, I have a question on integrated care. I understand that it may take a bit longer for you to set it up for CMS, but what is the focus of private payers? And maybe it's a different name than its [indiscernible] management. So what's the focus on the side? That's it for now.

All right. Let's see. Let me answer this. So yes, you are correct. In the U.S., our contract with Amgen is up at the end of this calendar year, as well in Europe as well. It's very first time ever that we've had contracts ending at the same time. From a strategic standpoint, obviously, we have many options in Europe. There are a number of products on the market, biosimilars, as well as branded. And so we will evaluate those opportunities. And we do use multiple products today. In the U.S., we are clearly looking at how we would want to go forward. The first opportunity for a different ESA than EPO would be the potential for Roche to bring MIRCERA into the U.S. If they could do that in the mid of the year, if they come into the market directly themselves, and then their patent settlement with Amgen was structured in such a way that should they decide to out-license that product to work with a partner, then they're not allowed to come in until the middle of '15. So as we said earlier in our call today, we would certainly and we are in a position to take advantage if they were to decide to come in to the market, then we would be ready to respond to that. But having said that as well, let me say that we know, clinically, we're very comfortable clinically that there is always going to be some amount of our patients today that will need to stay on Amgen's EPO because they simply function better on a short-acting product versus the newer EPOs that are coming are longer acting. So I could see us in a situation where we could perhaps have more than one ESA on our formulary. We can have the vast majority of patients on one version, but we would still need to have some on the other. But that's probably about as much cover -- or color as I can give you today on the EPO situation in the U.S. In terms of integrated care, you're right. We can only move at the pace with which the government is willing to engage on the Medicare side. But on the commercial side, as I have said before, we've had some discussions with the commercial carriers about structuring something like integrated care. We've done a little bit of pilot work with that. Those opportunities are still there, but I would say at this point, not far enough along for me to really give you any more color or commentary on that, Konrad.

Okay. Maybe one follow-up on the EPO. And if I remember correctly, your cost line should be still roughly like $1 billion for EPO gene. Maybe can you confirm this? Is this one thing?

Yes, what I would simply say is that number is a little high. It probably wouldn't do me any good to get into the very specific side. But you're running a little high for the spend on EPO in the U.S. That's a little bit high, Konrad.

But in the whole group, it's roughly...

On a global basis, you know what, I'd have to get back to you.

Yes, maybe it's too many details. And when I look at your guidance, you said you do not include any extraordinary assumptions for drug usage or pricing. But I assume that the renegotiation for contract in 2014 could be -- would be a positive effect may be coming from the side.

It certainly could be. Keeping in mind that even if we were to begin a negotiation and get that completed, it would probably be well into the year before that were to happen. So I think Mike's comment still stands that we don't see anything extraordinary right now. And also a point that I should make is just remember in the international segment, we do not offer EPO in every country to every patient, and that's the reason I'm struggling to give you a consolidated number because I'm just not sure. I'd have to really spend some time and look at the international contribution to that.

And our next question comes from the line of Anita Vasu of Redburn.

I just had a couple of clarifying questions. The $60 million cost savings that you guys have targeted, in terms of any more update on this figure at the Capital Markets Day, I mean, can we expect that you might give longer-term savings, or is this all you plan to provide now for this year? And my second question is the 2014 guidance was a bit lower than what we and I think the market was expecting. Can I just confirm, we have seen some German companies report where conservative guidance has been issued because of new German laws that required a full year guidance despite a lack of visibility. Has this also affected your outlook for 2014? Or is this purely operationally driven based on what you've said before?

Anita, it's Rice. So let me say this. As we think about April and what we're going to be able to sit and share with you, I'm not totally clear as to exactly how much detail. We'll try to give you as much color as we can. Obviously, from today to that point in time, we have some work to do. And we approached it today the way that we did. In terms of the guidance for 2014, I would say it this way, Anita. The guidance is really the guidance. We're not feeling pressure from being located here in Germany or anything of that nature in terms of how we approach the guidance. I think we've just tried to do as best we could to give you an accurate sense of what we think we can do with the exclusions that we've highlighted for you.

I would just add, Anita, for your benefit, because we are trading here in Germany and also in the New York exchange and we file a 20-F. They have expanded what you need to say about your guidance, and we've mirrored those disclosures. So you don't need to go on a hunt for them. They'll be in the 20-F as we file it.

And our last question for today comes from the line of Tom Jones of Berenberg.

I have 3 actually. The first is just on a more operational mundane matter. Your products business is very strong in Q4. Growth in that business has been kind of trending up all year. Have we kind of reached the high-mark watermark for growth in the products business? Or were there any kind of tenders that lifted things in Q4 that probably won't recur? Just trying to get a sense for kind of what the ongoing growth rate in the products business, both in the U.S. and international, we should be thinking about. The second question is even despite the guidance, I suspect you're still likely to generate a fairly healthy level of free cash flow this year. And assuming no major acquisitions pop up and there's not an awful lot on the horizon, just interested on your thoughts on what you might do with that catch-up. I guess I'm asking you if you're going to do a buyback because you're not going to say that, but maybe I can ask the question as to why didn't you propose another buyback this year? And then the third question really is just a more conceptual one about your guidance at the global efficiency program and the organization as a whole. With the costs that you've offered within your guidance, you pitted giving yourself even with the caveat of the various one-offs and nonrecurring items you've given us. You seem to have given yourself quite a lot of leeway on the cost side. And I just wondered as you were thinking about guidance, you're thinking about the business for this year and next, how much of that leeway on costs did you allow yourself in order that you've been in a position where you didn't have to squeeze the organization down too hard in the short term with a view to the global efficiency program, gathering statement the second half of this year and onto next? Having seen those kind of restructuring programs or cost saving programs in a number of other businesses, that can be quite demoralizing for the employees. And I just wondered how much of the guidance is kind of, part you saying to the organization that we appreciate this is going to be difficult for you going forward, but we're not really too mean in the early part of this year for you and not going to squeeze down too hard all over the place on costs because of what we might be doing later in this year and next.

Tom, hi, it's Rice. So let me see if I can at least get started here, and I'll have Mike jump in and help me. When we look at the products business and where does it go beyond Q4, I would say this, the improvement in the robustness that you've seen in the U.S., I think, we'll see some continuation of that. But remember, a big piece of that is extraordinary growth beyond kind of market growth came from us being in the right side place at the right time to pick up some incremental business when Gambro hit some issues or Baxter, if you will, as we call today. So there will be some modulation of that because we picked up that business. It's in the run rate. And so I think you'll see a little bit of moderating there. I don't really have a number to give you just at this point. On the international side, as we had talked in the summer, we did, in fact, win some tenders. We fulfilled those tenders. That will carry on. But I remain bullish on the product side for the foreseeable future. Will it run at exactly these high percentage increases year-over-year, quarter-over-quarter, I think not, because just by the sheer nature of the tender business, now that we've picked some up, the pressure will increase. People are going to -- probably the competition will look at dropping prices, so there'll be a little more pressure there. But I think we still should maintain market growth to maybe a little bit better. But I think you would agree with me, Tom, we've been well above market as you look at where we were in the fourth quarter. On the free cash flow, Mike always has ideas about money, but I'll turn it over to him to let him talk to you a little bit about what we're thinking. Go ahead, Mike.

Thanks, Rice. Appreciate the question, Tom. I think you answered it in part by yourself. We haven't guided to anything in terms of the share buyback, and we don't have any current plans to execute one in fiscal '14. We did something that we demonstrated with what we did this past year that we will look at whether or not that makes sense for the business and for the shareholders and then to the extent to which I think it's appropriate to bring it up and consider it as we go forward. But I have to say, in terms of where we are today, no current plan for share buyback.

So should we just be thinking about incremental free cash flow going just from a short-term debt paydown or...

Well, I think that that's a fair statement to the extent to which that we have maturities coming up and consider doing that. Also, I would say, I think our historical practice has been that with regard to guidance, we always provide a baseline guidance in terms of our acquisition spend. But as opportunities present themselves, we've also said that we'll be optimistic. And so I can adjust that for 2014.

Yes, Tom, on the GEP, the way you and I might define the leeway on comp, that might be a little different. But I think you're coming to a point that I think is very well made. It's a big organization. We're culturally very diverse. And to look at the global GEP program, get people on board, line them up to execute on something like this is a pretty large effort. And the same time that you are providing life-saving treatment for people and trying to do it in the most humane way possible. So I would say to you that yes, we've tried to give ourselves some leeway from a motivation standpoint and from trying to approach us in a way that we never ever put product safety or patient care at risk. And at the same time, and you've heard me say this many times, our first priority is patients, but a very, very close second to that is employee. And that in and of itself creates some fiction when you try to manage one of these programs. And so I appreciate you given me the chance to say this, we're not trying to necessarily be cute or nontransparent in some of these matters, but we're also trying to manage our employee base because that's what I think I'm paid to do beyond return the kind of value to you that you're looking for.

Sure. And maybe one last follow-up, probably not the last, but I've got a [indiscernible] your closing comments was you talked about returning to the certain growth trajectory once you get through these troubled waters. Do you have any sort of conceptual comment you can give us about how steep that growth trajectory might be once you get through these challenging periods, or we can do it for ourselves?

I think, Tom, that there's probably not a lot of value in me going there today. Happy to think about that as we go through time. It's something that we're really looking and studying. But the key point I'll come back to is just simply I think we are in a troubled stretch of water at this point, but we will get through it. We're trying to do it as prudently as we can, and we just appreciate people's patience and understanding with that as best you can.

There are no further questions at this time. I'd like to turn the conference back over to Mr. Maier for any closing comments.

Thank you so much. Thank you very much, everybody, for participating and for the questions today. Much appreciated. Looking forward to talking to you soon. Thank you.

Ladies and gentlemen, that now concludes today's conference call. You may disconnect your lines. Thank you for joining and have a pleasant day. Goodbye.