Ladies and gentlemen, thank you for standing by. I am Hailey, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Release for the Third Quarter 2019 Results. Throughout today’s recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead.

Thank you, Hailey. We would like to welcome all of you to the Fresenius Medical Care earnings call for the third quarter 2019. We appreciate you joining today. Now it is my pleasure, as always, to start out the call by mentioning our cautionary language that is in our safe harbor statement as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents as well as to all of our SEC filings. As we do have a hard stop after 60 minutes, I would like to limit the number of questions again to two in order to give everyone the chance to ask questions. It would be great if we could make this really work. With us today is, of course, Rice Powell, our CEO and Chairman of the management board. Rice will give you a short update on Q3 and the outlook. And of course, also with us is Mike Brosnan, our Chief Financial Officer, who will give you an update on the financials. I will now hand over to Rice. The floor is yours.

Thank you, Dominik. Hello everyone. It’s great to have you with us today. I’ll begin my prepared remarks on Slide 4 with a high level overview of our growth in the quarter. As you can see our growth trend continued in the third quarter. We’ve provided more than 13 million treatments to an ever increasing number of patients around the globe and we’re just slightly above 340,000 patients as we ended Q3. We are continuing to expand our infrastructure and education efforts to increase the number of treatments that are being performed in a home setting. I’m going to talk more about this in another slide or so. Our clinic base has now crossed the 4,000 unit mark and this allows us to capture the growth potential around the world that we see in the various markets in the medium to long-term with a ramp up of our home business, particularly in the United States, we will see a slowdown in the clinic infrastructure expansion. We’ve talked about that before, but I wanted to re-highlight that today. You should have also noticed in our press release from this morning that we have appointed Dr. Frank Maddux as our Global Chief Medical Officer coming on to our management board. Obviously, the quality of our treatments is critical, and one of the many important reasons that we appointed this role to the management board is to assure that we continue to strive for better clinical outcomes to be on the leading edge of the science and the marriage of medicine with our operations in order to provide the very best for our patients. Turning to Slide 5 and the details of our clinical outcomes, I think the key takeaway is that the quality of our care is the most important driver of…

Thank you, Rice, and hello everybody. So I’m on Chart 13 and I’ll just walk through the bridge between the Q3 2018 reported numbers over to the reported as well for the current year. So as you can see on the top of the chart with regard to revenues, we’ve reflected the $7 million adjustment that’s associated with the Sound in the third quarter of 2018. This is purely a reevaluation of the first half of Sound revenues adjusted to the year-to-date Q3 average exchange rates. You see that from time to time with our one-off effects. This gets you to a base for comparison to the current year of EUR 4.51 billion, and then you can see the 5% growth that we had in for the quarter, roughly EUR 190 million on a constant currency basis. That 5% growth reflects an organic revenue growth of 5% as well. And that 5% organic revenue growth has already been adjusted for the receivables write-off that took place in the quarter for – in the North American business. The revenue development is clearly within the targeted range of 3% to 7%. Currency translation was favorable with EUR 134 million. We’re reflecting the transition from the old leasing standard to the new IFRS standard, which is a reduction in revenues in the quarter of EUR 35 million. And you have the impact of the NxStage, a newly acquired NxStage operations to get to our reported revenues of EUR 4.419 billion on the top line. Turning to the bottom of the chart and looking at the development of our net income, same protocol. On the left hand side, you see adjustments to the gain from divestitures associated with care coordination activities in the quarter of EUR 17 million last year. You also may remember…

Thank you, Mike. Thank you, Rice, for the presentation. I am happy to turn over after a short presentation to the Q&A.

Thank you. [Operator Instructions] First question comes from the line of Sebastian Walker of UBS. Please go ahead.

Hi, there. Thanks for taking the questions. So two if I could. Just first on home, so good progress there in terms of patient growth. I was wondering if you could talk through maybe some of the challenges that you’ve learned through over the past nine months in shifting towards home and as well, if you could confirm whether you are still comfortable with investments using after the first half of 2020. That’s the first one. And then, just secondly, in terms of the Humacyte fair value revaluation, how large was that and what drove the revaluation? Thank you.

Sebastian, its Rice. I’ll take the first one and then Mike will take Humacyte. So I would say, we’re pleased with the progress we’ve made with NxStage and the integration to-date. Challenges, I think, are exactly as we stated they would be. We are trying to, as I like to say, walk and chew gum at the same time, meaning that we are trying to expand the infrastructure, we’re hiring, getting ready to continue to train more patients and so that’s always somewhat strenuous when you’re trying to do both those things at the same time. As you said, I think, the bulk of the investment in education, training and the centers that we need will be pretty much done probably by mid-year next year, where they will take some time to get into next year before we finish that. I think what we’re learning from this work is, it’s imperative that we make sure that we are in constant contact with our physician base and in listening to them as to things that we could tweak in the training, things that we could do better with educational materials, et cetera. So it’s the constant communication from what I would say the service side of the business. From the product side of the business, I’m pleased that with the growth, NxStage is doing a good job of the ramp up and being able to stay ahead of the game, if you will, from a supply standpoint. So really, really busy, lots of work, learning as we go, but at this point through Q3 really pleased with the progress that we’re making. Mike?

Thanks, Rice. Sebastian, relative to Humacyte, this is an investment that we made roughly a year ago. And so from an accounting point of view, we felt the timing was about right to take a look at the carrying value of that investment. We are obliged even for a Company that’s not publicly traded to, from time to time, take a look. And we had an independent evaluation done over the course of the third quarter. We think that supported the fact that a revaluation of the investment was in order. I think this is largely the result of – things seem to be progressing very nicely with the FDA in terms of the company’s early products registration process. So, we reflected an adjustment of EUR 76 million in current currency for the investment.

Thank you.

The next question is from Veronika Dubajova of Goldman Sachs. Please go ahead.

Good afternoon, gentlemen, and thank you for taking my questions. I will keep it to two as well. My first one is on the ESCO accrual reversals. Just maybe Rice, Mike, can you talk about the degree of confidence that you have that this is it? And then maybe just help us think about as we think about 2020. Obviously, given that your benchmarks that CMS is looking at seems to have changed, how should we be thinking about the profitability profile of Care Coordination as a whole? What’s the right number for us to bear in mind there? That’s my first question. And my second question is the Products growth in the quarter, clearly very impressive. So would love to get your thoughts on how sustainable you think that is.

Okay. Veronika, I’ll take the first. I think that was one question and two parts, and the second question is – I think that counts for three on my finger. But I’ll take the first one...

Sorry.

And then Rice can take the rest. So I appreciate from some of the early reports I was looking, folks need some clarification about the statement that I made in the second quarter. We took a $41 million charge in the second quarter. And at that time, I was asked where we stand going forward, and I said that I thought the worst was behind us. That was based on what we knew at that time. And when you look at the charge we took in Q3, EUR 46 million, there is about EUR 18 million of that that actually relates to risk we took because we were really expecting the government to see certain parts of the prior year financials, particularly year two our way. And in the third quarter, the government came out, closed out the second year at a level that was disappointing to us, as Rice said. So we had to clean that up and address that. So that actually was a relatively small part of the adjustment we took in Q3 and that’s why I said, in Q2 that I thought the worst was behind us, at least in terms of the historical periods. What was also published in the third quarter is, we received the report from the government for the first quarter of year four, that’s the first quarter of this calendar year. And we have been seeing savings in our risk-based reporting for years one, years two, and years three. And for the first quarter of this year, the government’s reports indicated that it had slipped into a cost position, so the spending for the patients in our program was slightly higher than the benchmark. We continue to struggle and have questions and have discussions with CMMI about the changes that take place from one quarter to the next in terms of the reporting we get, and also the patient attribution. So we’ve continued to have those discussions. We did make a change this quarter as a result of the struggles we’ve had over the last several quarters and we’ve decided that we will book to the report every quarter. And so in effect what that means is, if we’re showing a cost for Q1, we have adjusted our year four year-to-date results for the ESCO program to conform to the most recent reporting we have, which is a very slight cost for the program in the first quarter. So the balance of that adjustment you are seeing, it’s about EUR 28 million, basically reflects a year-to-date adjustment for the current period ESCO experience based on the first quarter report we got from the government.

Yes. I mean, Veronika, given what Mike’s taking you through, we can’t just think this is all sunshine and light. We’ve got to take a pretty cold heart look at it, which is what we’ve done. But it’s also why we’re doubling down relative to being back in DC and continue to push on this, I won’t repeat my earlier comments, but we are just not comfortable that we’re getting the full story. I’ll leave it at that. On the product performance, let’s turn to a happier note. On the product performance, how sustainable is it? I would say that we have seen really good performance in EMEA. We’ve seen some tenders turn on. We’ve seen fulfillment of tenders go our way. So I’m encouraged. Is it going to be as high in the fourth quarter this year? I can’t prognosticate that, but we’re going to continue to push forward. As you know, we’ve got a new machine out in the market in September. It won’t take off like a gunshot in the fourth quarter, but I think it will help us because it’s targeted for emerging market in particular. We took into China first. So we’ll have to see how that plays out over time. So let me say that, I expect, we should have good performance as we look at the fourth quarter and we go into next year, but I wouldn’t say it could be as good as it was this past quarter. I just don’t have a way to prognosticate that at this point, but we will obviously keep pushing and continue to be excited about what we’re seeing what the products folks be able to do. Truly around the world, everybody had a good quarter. So if we can keep every region producing in that way even if the numbers aren’t as high as they were at this quarter, it’s going to still be a great story.

That’s great. Thank you. And if I can just very briefly before I go, I want to thank Mike for all of his detailed answers throughout the years, and wish you all the best, Mike. It’s been a true pleasure. Thanks.

Thank you, Veronika. I appreciate that.

The next question is from the line of Patrick Wood of Bank of America. Please go ahead.

Perfect. Thank you. I have two pieces, if I can. The first one on the commercial mix, obviously, sounds a little bit better. I’m just curious can you guys a little bit put some flesh on the bones as to what’s driving that, how you see the mix profile going forward and what you’re hearing in general from your private payers? Just a little bit of color around that would be great. And then the second one, I don’t want to harp on, on the topic, but on the ESCO side, I mean, it feels like CMMI is almost trying to make you leave the program. How much is the aggregate value? And apologies if you’ve already given this and I missed it, but how much of the aggregate value do you have left that you’re carrying for the ESCOs in totality, should you decide to exit the program in its entirety? Thanks.

Patrick, its Rice. I’ll take the first question, and Mike is going to take the second one. So I would tell you that commercial mix has improved in a very, very nice way year-over-year. I don’t know that there is any additional color I can give you from a payer standpoint. I think I don’t have anything new to really comment there. I think it’s fair to say it was a year ago this call that we talked about the fact we thought our process was broken and needs some repair. What I can tell you is that we did go in and do the work and figured out where we needed to get better, where we needed to refocus and what are the key parameters are that we want measured and I want to see them every month. And that is happening and that’s why I am comfortable when I tell you we are considerably better than we were a year ago. I’m not the one to want to say we fixed the problem, it’s all done, never to have another issue, but what I would say is, we’ve done everything that we committed we were going to do and we’re seeing the work. And so, I’m pleased with that. And I think I would leave it at that. And Mike, on the ESCO.

Yes. Patrick, I think fundamentally what you’re asking is, what do we anticipate at this point in terms of a receivable from the government associated with the open ESCO years. Let us take a minute to see if I can give you a definitive answer. I just want to make sure that we’re looking at net receivables, not gross.

So to answer a piece of your question while we give Mike a moment here. So we are dropping a location or two in the next year’s plan. The window has already closed, so at the time, and it’s one of my complaints, is when we were looking at what we were going to do in the next year’s plan, you’re doing it in the midst of not having all the information you need, so that window closed sooner than I wish it had. But even among that, we had a location or two that we have made a conscious decision with the physician group that we were not going to continue mainly because of, at that particular point in time that practice was beginning to break off and go other places, so it didn’t make sense to keep it. Mike?

Yes. So Patrick, I’d say, just to guide you, as we look at our balance sheet position years two, years three and years four, because year two has not been paid out yet, it’s been closed, we have savings but it has not been paid out yet, we’re looking on -- we’re looking at about US$50 million or US$60 million in terms of net receivables from the plan.

That’s helpful.

Okay.

That’s helpful. That’s it guys.

You bet.

The next question is from Michael Jungling of Morgan Stanley. Please go ahead.

Great, thank you and good afternoon. I’ve got two questions please. Firstly -- they’re both in relation to home dialysis. Firstly, have your visits Washington re-home dialysis indicated how CMS will incentivize the uptick of home dialysis? Will the nephrologists, do you think, be the key focus? And then for the dialysis providers, do you think that they will use sort of a carrot or a stick approach in terms of driving this service program under the presidential order And question number two is also on home. With a push towards home, do we see -- or do you have a preference whether you push PD or HHD? Is there something that is for you more interesting, perhaps more commercial and simpler from a logistics perspective? Thank you.

Sure, Michael. So as you know, with the executive order came out the request for a mandatory study to be done, and then there were several voluntary studies that needed to be done as well. Buried in those proposals are incentive programs for transplantation as well as for home. What I would say to you is -- in your second question is are the docs key and absolutely the physicians are key. What has been going on is unanimously among the provider community and with the physician community. We have gone back all in very long, well-detailed reports, sit back to CMMI, CMS that as they’ve laid out the voluntary home models, as they’ve laid out the mandatory, they do not work. They simply have not laid them out in a way the provider community and the physicians practice matters. For instance, in one case in the ETC model proposed, which is the mandatory, they basically were going to either reward or punish the provider for the number of transplants that are done in a certain clinic. And as you well know, we are neither transplant surgeons nor organ procurement folks, so we have no dog in that fracas, if you will. So those are the types of things that we went back and explained that we need to sit down with you because as you have laid it out, it doesn’t work. I would say that CMS has been responsive to that. We’ve given them our comments. We are waiting for them to come back and talk to us about what we put in the document. Obviously, the driving date here is January 1, is when the mandatory model would begin to start and it would mean taking half of FMC’s patients, which are roughly 105,000 or 110,000. And…

Thank you.

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

Hi, good afternoon. Thank you. And can I start by asking regarding the revenue recognition adjustment? Could you just give us a bit more color about the payers involved in this legal dispute? And also, could you give us some color on -- you mentioned in the release the weakness in your internal controls on financial reporting and why you were sure that you do not expect to have to restate any of your historic financial accounts?

Okay. Ed, I’ll take that. It’s Mike. Well, first of all, it -- the overall adjustment considers our other government and commercial pay, just to give you the broad category. So this is not Medicare, Medicaid. This is really what we consider to be other governmental payers and commercial pay. And these are relationships where we made the decision that the principal arm of the company that needs to pursue collection is the legal department, not billing and collections department. So that’s the broad category. And what we’re talking about is, let’s say, very broadly speaking, almost all the value comes from a baker’s dozen, 12 or 13 relationships. And then there’s a variety of others that are for very, very small amounts. The nature of the weakness, the nature of the internal control weakness is as we looked at this, we concluded that the judgments that we were applying were a bit too heavily weighted towards the legal view and didn’t really have a stronger finance view where we might have considered to constrain the revenues. At the time, we moved the receivable into the legal review category and then constrain it again when it moves from that status into an actual legal dispute in court. So that’s the conceptual framework, and we concluded that we needed to rebalance the emphasis on who had the stronger view in terms of collectability at the point in time that we move the receivable from billing and collections into legal.

Thank you, Mike. And then -- and just -- that’s helpful. But in terms of your counterparties, why are those receivables in dispute?

Well, let me answer the second part of your first question before I do that because you asked me what our level of confidence was in terms of not requiring any prior period adjustments. So once we identified this as a material weakness, we performed a lot of additional procedures to satisfy ourselves, what value should be constrained for that book of business, and that’s how we arrived at roughly the EUR 84 million. That also included looking at all the prior periods and making a determination that there was any material adjustment related to prior fiscal years, and we’ve concluded there was not. So what I would say today on the call is there will not be a prior period adjustment related to this issue. So if you don’t mind Ed, can you go back and just restate your follow-up question? The slide there...

Yes. And thank you for that. Thank you for that. And yes, in terms of your counterparties, is there any color that you can give us on why these receivables in dispute? Ultimately, this is money that you believe you are owed?

I can’t go. Each one of these circumstances is somewhat unique. But I would say that fundamentally, services in the health care provider side in the U.S. were typically billed as a percent to billed charges, and you have various arrangements with your payers. Some of them, quite complex. And very often with your payers, you have more than one plan with those payers. So there can sometimes be some confusion between which plan relates to what percent of the charges. And I think that, in its essence, is -- creates some of the complexity where you can end up with a legitimate disagreement between the provider and the payer in terms of what’s up

In our history, Ed, we’ve had a couple of these disputes. And you can probably go back in time and see where they really truly ended up in court. And we got those things settled, if you will. Many times these things get fixed before there’s a real issue. But as Mike said, this is not a real simple piece of our business. There’s a lot of plans. A lot of work goes into it. So I think that’s probably as much as we need to say.

Yes. And while we’re on the topic, I -- just so that none of you are surprised, because we have defined this as a material weakness, you will see kind of an administrative process we go through over the course of the next several days, we will need to amend our 2018 20-F as it relates to our internal controls, SOX declarations. So we’ll essentially go back and amend that to indicate that we did have a material weakness, and you’ll see us also amend some of the narrative in Q1 and Q2 of this year. At the same time or shortly thereafter, we’ll file the Q3 6-K. So you’ll see -- if you have your systems pinging, you’ll see some activity in terms of amended reports. But there’s no change to the financial reports for any of those periods. It’s just the narrative around our internal control system.

Thank you, both. Thank you, both. I’ll get back in the queue.

The next question is from Tom Jones of Berenberg. Please go ahead.

Good afternoon, Rice and Mike. Thanks for taking my two questions. The first was on risk business. I think I can get a sense from your tone what you advocate for the risk business on the government side is. But how is the experience with the ESCOs impacted your willingness in tedious and to do risk-based business and share capital expense for in the quarter on the commercial side? And then the second question I had was related to home dialysis specifically on skilled nursing facilities, I think most investors tend to think of the analysis is either of the patient somewhere in the center’s by the result of a happy house as patient is sitting in skilled nurses facility. And you mentioned this at the time of the NxStage acquisition a while back. But I just wanted to know, you’ve owned the business for a while, how you are thinking about that opportunity in this business?

Sure, Tom. I’ll take a shot at those. So taking risks is not going to go away and it is something that we think we can do a good job of. You couldn’t tell it by this program with ESCOs at the moment, but again, that’s a shared savings and I’ll let that lay my earlier comments. What I would tell you, we are confident that we can do this. We have some commercial arrangements that are small, that we are doing this. And part of the frustration for us is when we look at how that commercial book is performing, it is working. And we take that and we inform ourselves why it isn’t working on the ESCO side and when we can have that conversation with CMMI. We just don’t get any recognition from them that, guys, we’re doing this same day we do your work with a different set of folks, and it’s going just fine. So you tell me what the difference is. So we’re not going to back out of being willing to take risk. It just depends on who you’re taking the risk with, why don’t I say it that way.

Fair enough. Maybe just a quick follow-up before we move on to the SNFs. On the risk side, it seems a little odd. But on one side, you’ve got the President and the bosses of the Department of Health kind of pushing you or trying to push you towards risk-sharing models. And then on the other side of the equation, you’ve got the more -- perhaps the more junior institution in CMS, CMMI simply doing their very best to file everything up. To what extent do you think there’s a potential for pressure to be brought on CMS from higher authorities to make this whole program work a bit better?

So two comments there, apolitical. ESCOs were an Obama administration program. The executive order is a Republican. And I think that does make some difference as to how willing they are to deal with future state and where it’s going. I don’t think it’s incongruent that we have an executive order and they want us -- to really incent us to do home and transplant and do more CKD work. We’re all for all of that. But out of the gate is they design these voluntary models and the mandatory model, they didn’t come ask us enough upfront. I call that a little bit of a junior mistake. But we’ve all weighed in. We’ve all told them we support, but you got to pay attention to how we run the business. You can’t ask us to do something that contorts the way we do the business because there are patients at the end of this process. And so we’re waiting to see how that’s going to pan out and how well we’re going to be listened to, Tom. And if we’re not, then we won’t play in the voluntary side of this. Now back to your piece on SNFs. Yes, we believe that is an opportunity for us. There has been some back and forth among regulation development on SNFs and how it’s going to be done. I would say that the whole of the dialysis industry isn’t necessarily on the same page because we have some skill sets that others don’t from the provider community because of our integration. So I think you probably know where I’m going with this. But we believe that those regulations are going to be fair, they’ll be right, they support what we’re doing. And it is to your point; it is a service that we provide by doing it in a skilled nursing facility that’s in the best interest of that patient and not loading them up into an ambulance and taking them somewhere. So we’re going to continue to push on that. We think we can do it and we can do it well. And we’re just continuing to talk about that and make sure that the regulators understand that this is a viable piece of the business that should be regulated in the appropriate way to do the right thing for the patient.

Perfect. That’s very helpful, thanks Rice.

You bet.

The next question is from James Vane-Tempest of Jefferies International. Please go ahead.

Hi, thanks for taking my question. I have two if I can please. With the cycling of AB 290 a few weeks ago in California, just curious how about -- what the impact is from here and what you’re hearing about potentially other states looking at this development? And then secondly, on the ESCOs again, I mean I understand the challenges you’re seeing in the U.S. But how does that factor into your thinking in further developing your ex-U.S. Care Coordination business in the midterm, which is currently doing quite well? Thank you.

Hey James, it’s Rice. I’ll take those. So AB 290, yes, it’s signed. Newsom signed it. As you know, we’ve been out for a while with the impact of that on us in the high single-digit millions. So we will see where it goes from there. As you recall, that bill had a whole bunch of amendments on it, mostly around, I think, trying to induce, if you will, the American Kidney Fund to go out and get another OIG opinion and figure out where premium assistance sits. AKF has said they’re not going to do that. It’s not necessary to do it because the OIG opinion we have is still alive and well. And so AKF has said they’re not going to do that. It’s not necessary to do it because the OIG opinion we have is still alive and well. And so AKF has said, they’re not going to do it. So where that deal could have been delayed in implementation, it’s now going to implement January 1, 2020, as a result of there being no work on the AKF’s part relative to revisiting something that’s been revisited a couple of times and the OIG has said, as long as you perform this way, the AKF and the providers are doing exactly what they should be doing with premium assistance. So I think for us, we are in the same place we were last quarter, quarter before that, when we gave you our estimate of high single million dollar impact. As far as the ESCOs, ex-U.S., we are not doing anything remotely close in any other part of the world to what we’ve been doing with the ESCOs. So we are still bullish and looking at opportunity. We know a lot more now than we did when we started, so if somebody in, say, Germany or Australia came to us, and said, hey, let’s do a shared service sort of thing. I’m not sure we would probably stand-in for that. But it shouldn’t color your thinking on the opportunity rest of world because we’ve always said Care Coordination is likely to be different than the way it is in the U.S. and I think that still bears itself out. But we’re nowhere anywhere close to doing something like the ESCOs in the international markets at this point.

That’s great. Thank you.

The next question is from Hans Bostrom of Credit Suisse. Please go ahead.

Good afternoon. A couple of questions please. You mentioned the increased use of ancillaries as a reason for your improving margins. I’m just wondering why that might have changed year-on-year and whether you see any changes in regulation, inclusions into the bundle in the coming year that might change that profit contribution? And secondly, it seems you had a pretty favorable deviation, certainly relative to my expectations from your both tax and borrowing costs. So I wonder whether these lower levels are sustainable on a quarterly basis going forward? Thank you.

Yes. Hans, its Rice. On the portion from a big picture and we’ll have to look and see if there’s any detail on the ancillaries, but I’m not aware of anything substantive changing there. But to your question if this is a way on calcimimetics in the bundle, or where is that going to go? As you know, that’s been pushed out to like 2024 at this point. So we always wonder when they’re going to look at, does something else going to the bundle. Haven’t had any discussion on that of late and as you know, the proposed Medicare reimbursement rates for next year, which should become final here in the next week or so, early days of November, there was nothing dealing with that at the time. So I don’t think there is a change relative to what’s moving into bundle at this point that we can see, but I don’t doubt that down the road that could come to be. And then, Mike, I’ll let you do tax and borrowing costs.

Okay. Yes, Hans, we are seeing a generally lower interest expense. Obviously, rates continue to be at historical lows, I think in particular in Europe. So we’ve been able to take advantage of that over the course of the last couple of years through the sale of Sound, which generated substantial cash, allowed us to do a substantial amount of our financing for NxStage using those funds. And where we have had to rebalance our debt portfolio, we’ve been able to do with the favorable rates over the course of the last 12 months to 18 months. So it’s hard to predict what will happen as we go forward, but I think most of the commentary that you read now anticipates lower rates continuing in Europe for some time. And as we look at refinancing activities over the course of the next, let’s say, six months or so, it would seem to me to be in a favorable rate environment for what we can get accomplished in that time. So we may continue to see some benefit in terms of year-on-year interest costs. And on the tax side, I’ve mentioned in my review of net income that we had about a EUR 20 million benefit associated with our Care Coordination divestitures. That actually was a tax benefit related to finalizing, some of the tax positions on our Sound divestiture from last year. So that’s why you see a lower effective tax rate in the third quarter.

Thanks.

The final question comes from the line of Hassan Al-Wakeel of Barclays. Please go ahead.

Thank you very much for taking my questions. I have two, please. Firstly, you’ve talked extensively about back-end loaded benefit from efficiency and cost optimization savings. I wonder if there’s been any significant benefit in Q3 or should we still continue to expect the bulk to come through in Q4? And secondly on ESCOs, apologies if I missed it, but could you comment on what you expect the 2020 Care Coordination margins to look like? Thank you.

Yes. So Hassan, its Rice. On the cost optimization, it is heavily weighted into Q4. We did see some improvement in Q3, but there is lots of work that goes on in Q4 to bring that in where we want it to be. And if you just think about, again, what are we doing, we are getting out of office space that we don’t need and we’re also looking in rationalizing our clinic footprints. And so that from the day you decide you might want to do something different with a clinic, it takes a while to actually get the okay to move the patients and get that done before you are then able to make that happen. So that’s why it’s so back end organized. And then on the ESCO, Mike, 2020 margin in Care Coordination. Yes.

Yes. So we will probably address that in February.

Yes. Why don’t you let us come back to that Hassan, because right now, it would be hard to prognosticate something that far out in time. I think we need to finish up what we’ve got going on here to come back and we will do that as part of our normal process going into the new year.

Maybe if I can then just add on that, are you able to disclose what roughly the ESCO contribution to the Care Coordination profits in the year was?

Well, I think ESCOs with the adjustments we’ve taken in the second quarter and third quarter is roughly almost EUR 90 million, so it substantially diluted the margin for the Care Coordination business this year.

Thank you very much.

So, EUR 46 million in Q2 and EUR 41 million in Q3, yes.

Puts you right there at EUR 90 million.

And there are no further questions at this time. I hand back to Dominik for closing comments.

Okay. Perfect. So we – there’s no follow-up questions. But before we close the call, I would like to hand back to Rice to check if he has maybe some comments.

Yes. One final comment, if I may. I’d like to ask all of you that are listening to join me in thanking Mike for a tremendous amount of contribution, many of which were critical to the success of FMC in Mike’s 20 years here, and we want to wish you the best as you make your transition into the next phase. Thank you.

So, thank you, Rice and thank you, everybody, it’s been a pleasure. I’ve enjoyed all 40 of my chats with all of you on the phone. Thank you very much. It’s been a lot of fun and a great learning experience for me. Take care.

Thanks, folks. We will conclude the call at this point.

Thank you. Bye-bye

Bye-bye.