Fresenius Medical Care AG & Co. KGaA (FMS) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I am Timo [ph], your chorus call operator.Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the First Quarter 2020 Results. [Operator Instructions] I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead, sir.

Thank you, Timo [ph]. We would like to welcome all of you in this very different time to the Fresenius Medical Care earnings call for the first quarter 2020. We hope you and your families are healthy and safe and 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 our SEC filings. As we only have 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 work.With us today in a virtual way, Rice Powell, our CEO and Chairman of the Management Board. Rice will give you some more color on the challenges with COVID-19 and the business development in the first quarter and of course also with us in a similar virtual way is Helen Giza, our Chief Financial Officer, who will give you an update on the financials and the outlook.I will now hand over to Rice. The floor is yours.

Thank you, Dominik. Hello, everyone. It’s great to have you with us today especially under these trying circumstances. I very much appreciate your interest in Fresenius Medical Care and let me echo Dominik’s comment. I hope that you and your families are safe and extremely healthy.Before I begin my prepared remarks on the business development in the quarter allow me to say thank you to the Fresenius Medical Care employees that are on this call. For months now, within 120,000 of FMC have been working tirelessly to ensure that our patients receive their life saving dialysis treatments in a safe environment and with same high degree of quality that they’ve become accustomed to.For the FMC employees on this call, thank you. Please pass my thanks on to all your people. You’re healthcare heroes. We could not do this without you. As Dominik said, we’re doing something very unique today. He’s in Bad Homburg, Helen is in Chicago and I’m in Boston. This is a new experience for us and I think it’s probably one that we will continue with for another quarter or two.I’ll begin my prepared remarks on Slide 4. In these unprecedented times our business model has proven its resilience. Our first quarter results show that our business model is solid and our outstanding performance continued. We delivered strong revenue growth of 9% with contributions from each region. Our earnings grew despite the impacts from COVID-19 pandemic, excluding this negative impact the first quarter results are at the top end of our target range for 2020.Our cash flow development in the first quarter was extremely strong. Helen will have more commentary for you on that, in her prepared remarks. I’m happy to confirm our targets for 2020. We excluded the impacts from COVID-19 in this. We’ll talk more about this I’m sure as the course of the day progresses. Moving to Slide 5.Our first absolute priority are our patients, providing the life-saving, high quality treatments in the safest environment commands our undivided attention. An example of creativity and excellent performance at Fresenius Medical Care in the first quarter goes to our government relations team in Washington DC. We saw very early on in March that people that needed vascular access surgery didn’t know what to do, was it elective, should we put it off, can we get it, can we not? And this team went to work had very detailed conversations with health and human services in CMS and we were able to clear up a very troubling situation and have it very clearly communicated the dialysis patients need to have vascular access surgery and t is essential, it is not elective, just a way that our people have risen above the confusion and the issues in this delicate time.Our global medical office I thank them greatly, we’ve taken wide ranging measures across the Fresenius Medical Care Enterprise and we took these measures at a very early stage. We initiated our pandemic protocol, we took protective measures such as PPP or personal protective equipment, mask for our patients and everybody obviously understands that we would do this in our clinics. But we went a step further and we made these same conditions for our manufacturing facilities in order to make sure that we could protect the environment in which our products are made and we can continue supply to our patients and our customers. And despite countries locking their borders down and making moving products and goods difficult. We were able to do so our manufacturing facilities have not had any disruptions and our supply chain is functioning and we’re very thankful for that.Due to the pandemic we had to absorb a sizably higher cost in the first quarter. This is fully reflected in our reported numbers. There is no benefit from the CARES Act included in the reported results for the first quarter. The benefits of the CARES Act were only initiated in April and I’m sure we’ll have more discussions on that as we go through Helen’s presentation and the Q&A.In the US, Fresenius Medical Care is cooperating with other dialysis providers to create isolation clinics and dedicated shifts for COVID positive patients. A critical aim of this collaboration is to keep dialysis patients out of the hospital whenever possible. In these times, it is so incredibly important to free up the limited hospital resources to deal with the severe cases of COVID that are not necessarily dialysis related. This is the way that we believe, we’re making a positive contribution to the healthcare situation in the US in general.Moving onto Slide 6, in the first quarter we provided more than 13 million treatments to more than 348,000 patients in more than 400,000 clinics worldwide. The slower growth of our clinical infrastructure which you can see is at 1% is the result of several things. Please recall, in 2019 we did a dedicated restructuring that optimized our clinical infrastructure specifically in the United States.We’re growing our home business considerably. This requires fewer clinics to be build. And thirdly, in the Asia Pacific region we had a legal interpretation that changed in one of our markets which led us to make the decision that we would deconsolidate some 20-odd clinics that we had consolidated for a number of years, but with the government change and a different view of this we decided it made sense to deconsolidate these clinics, but we have kept the product business. But those three items have contributed to the 1% growth in clinics.We consistently deliver very high level of quality in services in our products and our dialysis paid for our patients worldwide. Turning to Slide 7, if you would. This is our quality indicators. I think you see stable performance in the first quarter. You can see we made progress in the number of hospital days per year on a patient basis. We will see what Q2 brings, but at this point we feel good about what we’re able to deliver from our quality standpoint and we like the sustained performance that we’re contributing.Turning to Slide 8. Our business performance in the first quarter was very strong despite the pandemic. Revenue increased by 9%, with solid organic growth of 3.8%. We delivered growth in both dialysis services and products. As already mentioned despite the impact of the pandemic we saw a positive operating performance with an increased and operating and net income. Helen as she typically does will take you through the details of that in her prepared remarks.Moving to Slide 9. All regions contributed to an overall organic growth of around 4%. The highest growth contribution in absolute terms came from North America with a 10% revenue increase. EMEA, Asia Pacific and Latin America followed with a 4% growth. Now please if we take a look at the next slide, we’ll focus on health care services. The COVID-19 pandemic did not affect revenues in our health care services businesses in the first quarter. As you can see, we delivered strong growth organic as well as same market. The increase was supported by acquisitions and an increase in dialysis days as well.In North America same market growth continued with a 3% increased. As planned and we discussed we did close a number of clinics as part of our 2019 cost optimization program and obviously that has a negative drag on the growth rate. In EMEA, we realized organic growth of 4%, and Asia Pacific’s growth of 6% was supported by an increased in the core dialysis business as well as Care Coordination.Moving to Slide 11, my last prepared slide. The products business delivered strong reported growth of 10%, to be taken into account as the acquisition effect from next stage that helped here. In the light of the COVID-19 pandemic, the organic growth of 2% is a solid number. The strong organic growth in dialysis products in North America was not only driven by higher revenues from renal pharmaceuticals, renal disposables and home hemodialysis products, but also by higher sales of products for acute care of treatments in the intensive care units.At the same time, we saw a decrease in Asia Pacific mainly due to lower sales of dialysis machines in China in particular. This is a consequence of the pandemic. Here the higher sales of acute products cannot overcompensate for the lower sales of the dialysis equipment. Revenue from non-dialysis products increased significantly year-on-year. Mainly due to the higher sales of Novalung machines which can be used to treat COVID patients in the intensive care units and this is from our Xenios acquisition of several years ago.At this point, I’ll end my prepared remarks and gladly turn it over to you Helen, please.

Thank you, Rice. Hi, everyone and a warm welcome from Chicago. I hope you’re all doing well wherever you maybe dialed in from today. As we embrace this new virtual world and ways of remote working. I would also like to echo Rice’s comments and extend my own thanks to our employees who have worked tirelessly and selflessly these past few months to ensure our patients continue to receive uninterrupted dialysis care. I’m so proud of our efforts and to be part of the FMC family.Rice has already outlined the very positive revenue development. I will focus my comments on giving you more flavor on the earnings side. I know Rice said it already but I want to reinforce that we continue to deliver our operating income growth despite this very challenging situation, the world is in at the moment. And we’re on track to deliver what we promised.In my first call of Fresenius Medical Care in February which now feels like a lifetime ago, I outlined a couple of priorities that are important to me. One, you’re all already aware of which is, simplify. In the spirit of that and to leave more time for the Q&A today. I summarized the regional development for you in one slide without losing any relevant detail and this is shown on Slide 13.In the bar chart on the left you see the regional contributions and corresponding margins. The Group operating income improved by more than EUR30 million to EUR648 million. This number increased the size of negative impact from the COVID-19 pandemic that we absorbed in the first quarter. There is no positive contribution from the CARES Act or any other government support included in these results.The decline in operating income margin for the quarter of 60 basis points is mainly driven by the cost impaired to COVID-19 where there was varying impact across all the regions. These higher costs in our operations are driven by an increased spend for personal protective equipment for staff as well as masks for patients. Higher personnel expense due to additional shift, overtime and emergency pay for our employees along with child care expenses in the US. And by increased patient transportation requirements and more difficult distribution logistics for our products.In addition to the derived cost impacting our business the fear of a worldwide recession and the corresponding capital market reaction resulted in an unfavorable valuation impact on some of our investments. Our underlying business fundamentals are strong and we are performing remarkably well. One of the main positive drivers in the quarter was the reduced cost of pharmaceuticals. We have been able to benefit from improved pricing on some pharmaceuticals as well as higher percentage of generic drugs.Additionally, we’re continuing to optimize our Care Coordination portfolio. As part of this process, we divested in January some clinics in the cardiovascular space in North America and realize the positive contribution of EUR24 million to the margin development. The 2019 prior year reduction of a contingent consideration liability related to Xenios with a known impact to reported performance in EMEA in the first quarter of this year.Some short key comments in our regional developments. In North America we realized growth on the top and bottom line despite the COVID-19 impact. This resulted an improvement in the margin of 160 basis points. The most important drivers on the positive side were already mentioned, lower cost to pharmaceuticals, the divestiture of Care Coordination activities. But additionally, we saw continued improvement in our commercial mix contributing to the development along with higher sales of acute products.On the negative side, an unfavorable effects in cost for COVID-19 which I outlined and a reminder that we have not received any compensation under the CARES Act in Q1. The compensation will be in effect we’ll be talking about in Q2. As we’ve previously discussed with you, we’re seeing lower ESCO savings than last year. And additionally, we had a lower contribution from pharmacy services.In EMEA, we already mentioned effect from Xenios in 2019 impacted the year-over-year growth the most and we also have a COVID-19 cost impact here. But we benefitted from positive contributions in acquisitions. The margin in Asia Pacific was affected by unfavorable foreign currency transaction effect, by lower product sales in particular to dialysis machine in China due to COVID-19. But they will partially offset by acute sales. And by our continuous investments and ramp up by dialysis service business in the region.Latin America includes some economy with deteriorating and challenging macroeconomic environment which is becoming worse due to the COVID-19 pandemic. Here we saw margin declines were mainly due to unfavorable foreign currency impact.I will now move onto Slide 14. Our cash flow focus and deleverage target is another key priority to me with significant increase in our operating cash was largely driven by working capital improvements in the quarter. This was triggered by a couple of very actively managed cash that resulted in a positive effect in cash flow actions with lower DSO and include timing of payments as well as changes in year-over-year inventory levels.The strong cash flow developments resulted in operating cash flow of EUR584 million or 13% of revenue. CapEx amounted to EUR280 million and is in line with our planning for the first quarter. As a result of the strong operating cash flow, free cash flow includes significantly year-over-year to EUR304 million. And just as a reminder, the free cash flow after investing activities in Q1, 2019 included the acquisition of NxStage.And lastly when you look at the leverage ratios on the bottom left of the page including IFRS 16, the leverage ratio was broadly stable, with 3.3 times net debt to EBITDA. The ratings are unchanged and as you can see Fitch reconfirmed its rating with us in April.Let’s turn to Slide 15. Here you can see our target for 2020, which remain unchanged and are confirmed. As previously guided our 2020 target excludes the impact of COVID-19 pandemic and special items. Our current assessment to COVID-19 on our earnings is not so significant and is absorbed in our guidance range. Should the pandemic developed further, we will continue to review the impact on earnings and whether we utilize the use of special items.The net effect of the COVID-19 pandemic in the first quarter was not material and we expect to the full year performance. Taken into account the committed supports from the US Government in particular by the CARES Act, we anticipate most of these costs will be covered. Based on the definition of these targets which means excluding the negative effects from the COVID-19 pandemic, our first quarter results are clearly at the top end of our net income guidance in the first quarter. This makes us very comfortable in terms of our underlying business performance.With that, I close my prepared remarks and turn it back to Dominik Heger in Bad Homburg.

Thank you from Chicago. So thank you Rice, thank you Helen for your presentation and I’m happy to turn it over to the Q&A and we have 40 minutes left. That’s great.

[Operator Instructions] the first question is from the line of Veronika Dubajova from Goldman Sachs. Your question please.

Good morning, good afternoon and thank you for taking my questions. I’ll keep it to two. My first one is of guidance. Actually I’d love to clarify the comment that you have just made in terms of saying that your current assessment of COVID that it’s not so significant and can be absorbed in your guidance range. Is this the comment inclusive or exclusive of the CARES Act funding? And kind of how are you thinking about how the incremental cost and the funding offset each other that would be really helpful to understand on a full year basis. So that’s my question number one.My question number two, is the commercial mix in the US. I’d love to hear one, where you are with respect to fourth quarter if you’ve seen any change sequentially. And two, kind of bigger picture if we do go through a period of higher unemployment in US. What are your thoughts on? What might happen with commercial mix and what that can mean for your business in the second half of the year in 2021? Thank you.

Helen, why don’t you take number one and I’ll take number two, the two parts.

Thanks Rice. Thanks Veronika, hope you’re well. With regards to the guidance, we have estimated what the impact of these ongoing costs are for Corona particularly as we incur the increased cost in the US. We do feel that the guidance is inclusive of the CARES funding. We do expect to receive that and we attest to the fact that these costs are in keeping with in terms of the CARES Act which is to reimburse providers to keep clinic operational and keep the continuous care for dialysis patients.I think we have proved that we have done over the last two months and we have kept our patients out of the ICU and out of hospitals and we have uninterrupted care in our clinics. I think we feel very proud of that. But yes, our expectation is to benefit with the receipts from the CARES funding to cover the additional costs. Obviously, we’re all reconciling how those costs are ongoing and how the government aid will help us with that. We know that - with the attestation we have to reconcile it. So on a full year basis, we still feel that we can absorb that within our guidance range.What I would say is, we don’t know how like everybody we don’t know how long and how deep this is going to last. If we are facing a second surge towards the back half of the year. I think we have to evaluate the impact on earnings for that and I think the whole word is going to know more when we come back to the round of earnings for Q2. But right now our assessment is pretty strong.

Veronika, its Rice. One thing I would add, it probably gives you a little bit of clarity. We saw the Q1 COVID expense at around $40 million in Q1. So that probably gives you some help in that regard. Commercial mix as it relates to sequential quarter Q4 to Q1 improved. We’re still seeing improvement in our commercial mix and so we’re pleased with that. Unemployment is a big topic and let me try to address it this way. What we know and what we don’t know. What we know is, that in 2008 and 2009 when we had the financial crisis. We didn’t know what to expect in terms of commercial mix and we didn’t see a big shift there. So it was fairly stable through that period. Long time ago, different time.The way we think about this is, it depends on who is unemployed. If these are people that are in the gig economy or they’re not the type of people that are going to have company sponsored plans. If they were going to come to us, they’re going to come to us as a Medicare patient anyway. People that are working, that have health plans many of those people are getting furloughed and so their benefits are still intact, so that will have some impact as to what happens.And then lastly obviously if people are actually getting laid off, there’s the option for COBRA, which you know about. So I think it’s too early for us to prognosticate. We won’t do that. But we know that they’re different slices of unemployment’s. We have to work that, we have to understand it and see where it goes. And keeping in mind that if we’re seeing something go on that gives us a trend and we’ll report on and we’ll talk about it, we’ll figure it out. But right now I think it’s simply too early for us to understand that. But that’s how we’re thinking about it, if you will, a couple of different levels.

That’s very helpful. If I can just clarify and I understood your answer correctly. When you think about the guidance including the additional COVID cost and including the CARES funding, you say it’s effectively unchanged? Is that a fair interpretation of what you just said?

That’s correct, Veronika. As we see it right now.

All right, that’s fantastic. Thank you, guys, very much and stay safe out there.

Next question is from the line of Sebastian Walker with UBS. Your question please.

I’ve two as well, if I could. So the first one is just thinking about volumes. Do you - what you’re hearing from your Chief Medical Office on how COVID maybe impacting the patients volumes going forward. The second one was on the products business, could you maybe comment on how you see demand for both the dialyzer products, but also the consumables used for Acute Kidney Injury patients going forward. Thanks.

Sure Sebastian, I’ll take these two. Helen, chime in whenever you would like. When our medical office and we talk about where does it go patients volumes, treatments, what’s coming. We go back to what do we know versus what do we not know. And we obviously know that looking today in Asia Pacific. I have to do this globally. If you look at it in Asia Pacific. It would look like China has come through and beginning to stabilize.We’re seeing a rebound of the virus in Hong Kong and we don’t know how big that rebound or what the duration will be. We’re seeing some stability in France and Italy and Spain. You’re seeing the positive count is sort of plateauing, but we’re not seeing it come down particularly quickly. We know that it has migrated into parts of Eastern Europe, Russia, Romania, etc. So it’s still tracking up.In the US, largest market. It does appear that we’re seeing some tabling or tableauing if you will. But what we are concerned about is simply the fact that, how will that curve come down, it shot up very quickly. Now it’s sort of plateau, what happens. How long will it take for it come down? That’s really important to us because we get into the fall and influenza of the general kind is going to come back. So what happens with that mixture? So it’s these unknowns that keep us from being able to try to predict or prognosticate where the volumes will end up, but we’re looking at it, but we just got to have more time and see where this goes.And relative to the products business, we’ve not seen an impact on our disposable business. It’s fairly as we haven’t expected it to be, obviously the hemodialysis equipment is down. But we think that can back at some point. We’re seeing an upsurge in our acute business. But it’s not enough to overcome everything. So we’re going to see how this plays overtime. The longer this pandemic continues, I think there could be more upside in the acute side of the house simply because we do know that roughly the COVID patient’s non-dialysis related. But about 20% of the COVID-19 patients end up with acute kidney injury and they need to be treated. So the longer this goes there may be more volume that we see in our ICU business.

Great, thanks Rice.

The next question is from the line of Lisa Clive with Bernstein. Your question please.

I’ll start with North America Care Coordination very robust growth at 9% organic. What is the main driver of that? Have you signed any integrated care contracts with private insurers or MAs at this quarter? Second question, Asia Pac the deconsolidation as I think 22 clinics, does that relate to a 2014 acquisition in the big market that cannot be named? And then just lastly very quickly, Cura in Australia just was wondering how that business is doing, have they had to stop or slow down their procedure volumes given the COVID situation? Thanks.

Lisa, its Rice. I’ll take those and Helen, please jump in when you like. So the biggest drivers in Care Coordination it’s really, we’ve gotten the very best that we can get relative to reimbursement for vascular care. As you know, we were working very hard to get our site 11 [ph] sites move to ASC’s. We got better reimbursement rates than we had anticipated getting, so that’s been helpful and driven some of that. Our pharmacy has worked as we thought it had. So it’s not that we’ve done anything new if you will at this point in the game as it relates to Q1.Different part of Asia Pacific, I will just tell you that these clinics that are deconsolidated are coming out of South Korea. You know there was a change there so different view of the government and so we felt it was most prudent that we would deconsolidate those, maintain the product business and go from there. And in Cura in Australia there has been some impact and Helen will jump in here and help me. I want to say that there were some impact in the month of March on elective procedures.The government did not want people doing that, it moved into April for a week or two, I believe and then in fact it’s going to click back. They’re allowing. But I maybe off on the March comments. I’m going to let Helen jump in. But beyond that, beyond electives being not allowed for a period of time, everything else is pretty much working as it needed to. Helen, am I wrong on the months? Did I get them wrong?

No, I think the Cura it was two weeks in early April. It may have struggled right at the end of March, but I think the first two weeks of April where the government would intervene and said no elective. But that turned around very, very quickly and we don’t expect that to have an impact. Again maybe what I would add as Lisa, we’ve obviously talked about the CARES Act. So right now, we have no favorable reimbursement impact built in for rest of world. And as you can imagine, we’re in discussions with other governments and care providers to make sure that the additional cost or government interactions are not affecting us in a negative way.

Thanks very helpful.

The next question is with the line of Patrick Wood with Bank of America. Your question please.

Just two quick ones from me. The first one, how should we think about MA enrolment as we move through the latter part of this year and into next? And does the current environment change anything associated with that? And then the other one would be equally similar sort of topic, but how do we think that this might change the structural shift to home. Is this an accelerator for that trend and how we’re thinking about that internally? Thanks.

Patrick, its Rice. I feel like I should just give these to Helen because I’m doing all the talking. But I’ll go ahead and have Helen jump in, when she would like. On the Medicare Advantage enrollment as we talked Open Enrollment is coming in the fourth quarter. So I can’t tell you that we’ve really worked our way through, what an impact maybe or not. I think we’re just going to play this out and I keep saying it. But I mean it, it’s the known and the unknown. So we’ll get through Q2. We’ll understand where this is going. We’re going to have a pretty good idea. Hope from our global medical team about. Okay, what does Q3 and Q4 look like in terms of the pandemic? And then we’ll have to see where that is.I think it’s just early for us at this point to have any more to contribute to trying to answer that question. And then on shift to home. I was asked this a couple of weeks ago, we’re in a place where we are currently training 400 to 500 people to go home. They’ve got to complete that training. We have to move them to the system. We’re not really in a position that just because of COVID today what has been sized and money spent to be able to move those people through the system that we can just decide to go double that right now because doubling that concerns me, to the quality of the training that they get. So we need to have this work at kind of the par value that we’ve looked at it for.I do think post COVID and people learning and seeing what’s going on in the pandemic. Certainly there may be more people that want to look at, can I do training at home, can I do my therapy at home and we will react to that. But it’s not like we can just a flip a switch and say hey, we’re going to do 425 over the next six weeks. So let’s just double that.I think there’s a quality concern with that and secondly. We got a lot of our manpower going and doing things to attack COVID and helping out and moving around. We’ve had people come out of home training centers, nurses that be able to go help literally in ICUs and things like that. So we’re maintaining the growth and the plan. But it’s not a time to rush it right now. I think that would be ill-advised.

Understood. Thanks for the answers and stay safe from the murder hornets.

Thank you.

The next question is from the line of Michael Jungling with Morgan Stanley. Your question please.

I had two questions. Firstly on North America. Can you comment on a relative basis, how the calcimimetics profits compare in Q1 of this year versus Q4 of 2019 in terms of relative comment on how the development has been? And then please, question two is on the CARES Act. Can you comment on the degree you want to accept the benefits from the CARES Act and what limitations that might place on your business flexibility and as part of CARES Act just sort of 250 million [ph] benefit kind of similar proposed to what your main competitor proposed. Is there a number that one could work with respect to what the CARES Act benefits could be in 2020? Thank you.

Sure, Michael. Helen, do you want to take number one, please?

Yes, sure. Hi, Michael. I hope you’re well. So calcimimetics as you know we have not guided on the calcimimetics impact in last year or this year either. What you do know is that we do see a benefit in Q1 of 2020 versus Q1 of 2019 because of the timing of the generic? So year-over-year for the quarter you’d see a benefit, we won’t disclose that. But as the year goes on, it will continue to be the headwind that outlined when we did our guidance at the end of last year. Rice, are you going take the CARES Act question?

Sure, so. Yes, no I’ll comment. So Michael on CARES Act. We’ve made a decision back in March on these additional expenses in our pandemic protocol and what we were going to do. Elder care, child care, emergency pay etc., emergency pay for our drivers that go into people’s home to deliver home product. We had several discussions with executive management at HHS. And it was very clear to us that Medicare providers that were incurring excessive expense. We’re trying to do the right things here in the midst of COVID that was exactly what CARES was being developed to take care of.So I feel like we’ve done exactly what needed to do. I think it’s in the best interest of our patients, our employees and our shareholder that we take the availability of this. And the way we look at this is simply, it’s reimbursement for the extraordinary expenses that we’ve incurred, no more, no less. We will attest to the nature of the expenses and how we generated them and that attestation is due to start I think it’s in early - in July. So we’re pretty comfortable that this process is understood. We’ve stayed close to the folks that are administering the CARES Act which is HHS and so we feel good about that.I will comment on the benefit relative to what the other guys tell you, they got. I don’t see a lot of value in walking you through that. Of course the other piece of this not related to CARES Act is simply that the back sequestration is going to be put on hold from May 1 through December 31 that will have an impact for us somewhere probably in the $50 million to $55 million range. But I think that is where we kind of stand on this. We think its prudent activity for us.

Great, thanks for the clarity. And with respect to calcimimetics, can I just understand how calcimimetics compared to the fourth quarter of 2019. Did it take a substantial hit or a little bit of hit just some sort of high level of guidance, please on that?

Yes, we did see, go ahead. No I was going to say, you know we won’t dispose a number. But we did see a reduction in that from Q4 to Q1.

Great, thank you so much.

The next question is from Ed Ridley-Day with Redburn. Your question please.

First of all just on the acute care part of your business. We don’t get talk about this enough. Could you update on what proportion of particularly your US revenues are in the product size are related to CRRT and acute care? That will be my first question. And secondly, a follow-up on the question related to revenue per treatment in the US. And given the sort of puts and takes revenue per treatment year-on-year was a little bit light of what I had. And as I was wondering, was that primarily the impact of the [indiscernible] closures or are there other given the positive update from Medicare and as price improvement in mix even with calcimimetics negatives, are there some other puts and takes that we should be aware of?

Helen, if you wanted to, yes please.

Yes, I’m sorry the joys of remote working [indiscernible], sorry Rice. I was going to say on the acute care revenue, we don’t disclose that level of detail in our America segment. And on revenue per treatment, as you know when we gave guidance at the end of the year, we’re not going to disclose the detail about the PT and PPT moving forward. But we do have, we do have that positive trends on revenue which was up 2%. So I don’t know where you’re getting your negative calculation from, but we could follow-up on that offline.

No, it was obviously was positive, I was just thinking it, might have been slightly more positive. Thank you. And just a quick follow-up as well on the timing of the support from the US government. Rice, you highlighted that obviously, it’s being discussed just in terms of how does that come through, it would presumably be lagging and therefore perhaps just in terms of modeling it should be more second half weighted?

No I think there’s been some fund flow that started in April, so it’s not like it’s all pent up and hasn’t come in yet. So there’s been some. I think there will be some lag, we’ll have to true that up. But I think it’s not going to be back half of the year before we see that. I think we will see relief reimbursement if you will in Q2. It may not cover everything obviously but I think it will get started and we’ll be able to work our way through that process.The other thing here just real quick, two things I want to say the acute business in the US is predominantly NxStage business. We did not have an acute business in Fresenius pre- that in the US. Rest of the world has had a very vibrant acute business. Number one, number two. Just so you guys understand, we’ve gotten several emergency use authorizations from FDA, that have allowed us to also bring in Xenios equipment so we could join the fight against COVID relative to doing ECMO membrane oxygenation for COVID patients in the ICU.And we’re also getting some FMC, if you will pre- NxStage European equipment like the multiFiltrate pro and the classic in, all in an effort to be able to help these institutions be able to treat these COVID patients when they end up in ICU and they got this is that 20% I was speaking off, that developed acute kidney injury. So, we’re working very hard handing glove with US government to try to be able to support as much of that as we can.

Great, thank you.

The next question is from Tom Jones with Berenberg. Your question please.

I had two questions actually more about life after COVID-19, to be honest. The first was just on all the various models that are floating about, the kidney care first, chronic kidney care contracting model and the ETC model. Where are we with all that stuff? Is it just kind of on hold and probably likely to stay that way until after the election and we’ll see where we are? Or is there any possibility there anything could happen sooner than that?And then the second question was just on - I’m not asking for too much into specifics, but the nature of your commercial contracting discussions at the moment. From memory, you had one of your larger commercial contracts coming up for renewal this year. Maybe you could just make some comments about how those discussions are going in the context of what might happen with MA numbers next year. The different insurers seem to be making different noises, some of them seem to think this is a bit of an opportunity and that they can manage these patients well. Others seem to be like rabbits in the headlight and terrified of a potential wave of dialysis patients. So some color around how those discussions are going, what the framework is and potentially how that might influence your business going forward, would be helpful.

Sure, Tom. I’ll take both of those. I have to say my hats off to you. You’re the only person to ask me about anything life after COVID. We haven’t seen that far in advance. But here’s what I would say. It’s a really fair question. Everything in Washington today is COVID focused with the folks that we deal with, CMS, HHS, FDA at the moment as well. There’s been no official word coming out. My gut tells me that the voluntary models are very likely to be pushed out.It is just such a gargantuan effort that everybody has been undertaking to try to make sure they’re doing everything they can in this COVID situation. We are still - we’re late with ESCO getting the - I think its third quarter report from plan year four. Just things like that. It is really everybody’s focused on COVID. So when I have a better update for you, I’ll let you know. But right now, we’re just keeping our heads down and going forward. But I suspect pragmatically, it’s going to end up getting pushed out.And on the contracting status, the very end of last year, the one big commercial contract we had to do this year got taken care of. So that was really done before COVID hit, if you will. And on the Medicare Advantage discussion, there are people all over the place. I think this is the way we view it. It’s a rate negotiation. We are very comfortable with our capability and the outcomes that we are giving people and many of these payers have history with us and they know that we provide good outcomes and we can manage these patients in a tighter band than probably anyone else. So we’re just going to have to see how it plays out over time. But I would confer to you that, yes, you do see very different perspectives, one Medicare Advantage provider or commercial versus the other. So it’s a little bit of a smorgasbord, if you will, but we think we can work our way through that.

Okay, perfect and just, I did have one very quick follow-up on the previous question about Home HD. I know you’re not going to be keen to expedite claim trending at this current time. But maybe just a kind of predictor of the future. What kind of level of patient inquiry have you seen during the COVID outbreak? Has it created a spike and interest in Home HD or is that people just focus on staying alive at the moment?

So I would say and this is from my opinion. I don’t think that I can give you a perfect answer. But I think people are much more in the mode of they don’t want to out of house or don’t have to have, don’t have to, don’t want to start something new. I think ultimately, we’re going to see a lot more interest in home because as people begin to understand doing it in home. I can self-isolate versus the clinic etc. So I think that will come later. But I think right now there’s just a huge focus on people trying to stay healthy as they exist today. More so than they’re thinking through do I want to jump and start training right this day. I think folks are trying to understand where this is all going to go because it’s so vastly different from one part of the world to the next.

Nice perfect, thanks. Thanks very much.

The next question is from Oliver Metzger with Commerzbank. Your question please.

First one is on the compensation from the CARES Act. So the benefit comes in the second quarter, however we do not know how long all of the safety measures have to last. But can you give us any indication for how long the CARES Act benefits would cover your incremental cost? My second question is on the non-dialysis product. So you have a very strong growth. You already mentioned Xenios. So could you elaborate on the contribution of this ECMO console from a Xenios to this development? So was it major contributor? I’m asking because I’ve seen this business as comparatively small in mind and yes it would be really surprised by such a strong contribution.

Sure, Oliver so again it’s a fair question on the CARES Act. And it’s what we know versus what we don’t know. So without knowing how long this is going to go on. We really haven’t had discussion with the government about that. Everybody has their own opinion from the President all the way to other people about how long this is going to go on. But the one thing we do know is the government has been extremely responsive and so if we see there’s a resurgence or this goes longer then we would obviously engage and talk to them and see how it happens.I think the best way to think about this is, we think we know enough about Q2 and where it is and we’ll update you when we get there. And then we’re kind of looking at this quarter-to-quarter. I would say there’s probably no more greater need for information then understanding anywhere in the world, how long is this going to go. We’re trying to do that, but we’re not there today. So there’s a little bit that we’ll have to take this as it comes. But there’s also comfort in my mind having been in on the phone for hours, with people in the US government how much they want this to be taken care of and work done appropriately.And as Helen said earlier, we’ve got no assumption about the rest of the world and is there going to be help there or relief. It’s been talked about. But we just haven’t done anything because we don’t know where it is at this point. So that’s out there as well. And the one thing that I would remind people of is, Latin America is trailing even the US in terms of the pickup of COVID and the rates beginning to climb in some of the markets in Latin America. So I just think we’re going to have to work our way through this in that regard.Now on Xenios, it’s a small factory. They’re doing great things. People are working very hard to try to crank up as much product as we can. I would never do justice medically to try to explain to you the value of ECMO. But let me just say as simply as I can. What you’re doing is you’re getting oxygen pushed through the body. You’re getting into places that helps speed, the recovery if you will and we can get your more information on that from the medical office. But we do believe and what we’ve seen and that work that’s been done in Europe and we had discussion with the FDA on this.We do think that building for us to be pushing oxygen through the membrane and getting more oxygen into the body is what is making the difference. But let me stop there before I get way out over my skis. And if you still have more question. We can get you some better answer once I have a chance to coordinate with our medical people who understand that much better than me, obviously.

Okay, great. Thank you very much.

The next question is from Hassan Al-Wakeel with Barclays. Your question please.

I’ve a couple. So firstly on the products business, are you starting to see any signs of normalization in acute machine sales in the month of April? And what was the magnitude of the decline on the HD side in Q1? And secondly, can you talk about the ESCO patient population and how increased COVID-related costs will be treated here? Please. Thank you.

Hassan, its Rice. Sorry I was writing really quickly. What I would say on the acute side of the house, no it’s not normalized in April. There is a huge need in Europe and the US and I suspect it’s going to end up being in Latin America as well because none of these markets as far long as Asia Pacific is. So it has not normalized. I suspect that will continue for a while. Then when you look at HD, I don’t think we can really size that for you. Obviously as you know just couple things keep in mind, Asia Pacific that region is a very product heavy region, China is a large market that’s essentially a product market today and so when your machines, you’re not selling them just because you can’t even get into the hospital and have a sales call. Nobody wants to see you anyway. There is impact there but I don’t think I will take it much beyond that.We do think there is a chance that this will come back as we talk about capital equipment. You can a miss a quarter or two and then pent up demand comes to you. Again it’s really around what we know versus we don’t know. And how big is the rebound potentially going to be in Asia and what challenges will that present. And on the ESCO. Our ESCO population is pretty consistent in terms of numbers of patients on ESCO and I honestly don’t know the detail on the interventions that we’re making, on them. But I don’t think - I’ve not heard that we’ve seen a big increase there in terms of ESCO patients that are COVID positive that we’ve got a big expense there. That would sort of fall in the same category I think as just the general population in terms of dynamics there.

And a follow-up, where that to change would you expect a change in the benchmark potentially?

Well that would result in us having some conversations with the government and at this point, given that everybody is focused on COVID and we are well behind on getting that third quarter report for planned year four. I suppose it’s possible we could have that discussion, but at this point there’s been nothing going on that I’m aware of.

Thank you very much.

The next question is David Adlington with JP Morgan. Your question please.

Questions, most of have been answered. But one technical one and one follow-up on Novalung. So just on the $40 million additional cost in the first quarter, would you be able to kind of go back and kind of reclaw that back under the CARES Act. And if so, do you expect to recognize that in second quarter? And then second just on Novalung just wondered what interest you’re getting incoming from healthcare authorities across the world and what sort of capacity could you ramp up to because I suspect there’s a quite a lot of demand out there for the moment in that. Thanks.

Hi, David. I’ll take the first question.

Please.

Sorry, Rice. Hi David, on the $40 million, to just to clarify and just to make sure everybody on the call understands that. The $40 million is [indiscernible] basis. It does cover broad range of things not just US cost, but costs incurred elsewhere. Also we know all of the costs incurred and not eligible for the CARES Act as well. And then there’s also this investment impact which is more to do with the market, kind of economy if you like, that we expect to reverse as the year goes on. So anything that is eligible in direct costing with US. We will expect to being reimbursed and I would say between half to two-thirds of the cost incurred in the Q1 falls into that category. We’ll then get reserves in Q2 when we get the benefits from the CARES Act.

Okay, thank you.

David on Novalung from a capacity standpoint. What I would tell you is, we’re ramping this quickly as we can. Think about this, you’ve got a piece of equipment that console as we call it, then you’ve got the disposables. You actually got the membrane that you do the oxygenation with. So all of those components are being worked on, trying to be ramped up. Yes, there are number of those pieces of equipment in the supply we’re in Asia Pacific, big market in Europe because it’s been there, people understand the product, etc.And the US really came through some herculean efforts that our people made to get FDA aware that we have some equipment, we want you to use it. We’re trying to ramp up as quick as we can and when FDA understood - talking with our medical people. They were very interested. It’s a great problem to have, but we’re moving as fast as can. But your instincts are good. This is not a factory where this stuff is being produced. It’s anywhere of the size and scope of our dialyzer factories or our main machine factory in Schweinfurt. So we’re just going to have to continue to push to get our capacities up.

Okay, thank you.

The next question is from the line of Falko Friedrichs with Deutsche Bank. Your question please.

I only have one quick question, left. So you talked about the creation of these isolated clinics for COVID-19 patients. How occupied are these clinics currently and is everything functioning smoothly so far?

Falko that’s a really, really good question. The clinics are functioning well. They are all being used. They’re maxed if you will and it is an incredible effort that we have people going into these COVID positive clinics everyday delivering the care that they are. My hats are off to the entire industry but particularly my team in North America, they pushed hard to do this as an industry team and get this done. Bill Valle was instrumental in that. Our CEO here North America, so it has been probably one of the most significant things that we’ve done in order to make sure that we’re trying to keep everybody as safe and well treated as we can.

Okay, thank you.

And we have a follow-up question from Veronika Dubajova with Goldman Sachs. Your question please.

Thank you so much for squeezing me in at the end. I just had one please. Rice, just curious to get your thoughts. We’ve seen a pretty high incidents for acute kidney injury in one of COVID-19 patients who aren’t getting hospitalized. Are you seeing these folks arriving in your clinic now that they’ve recovered and do you think this is something that could be permanent and drive some incremental volume growth for you guys over the next couple of quarters?

Veronika, not at this point. As I understand is and this is back to the 20% of the general COVID positive population. These folks have to be in the ICU. And we are treating them fair. We do any number of different or any number of derivations of dialysis, it can be slow flow, a whole bunch of different things as physicians believe what’s best for that individual patient. I would say right now these patients aren’t well enough to be considered to be coming out an AKI situation in ICU and then end up in the clinic.It’s not to say that may ultimately end up happening. But I think we got to see a real change in the severity if you will Veronika. What we’re understanding and what our nurses are seeing when they’re going into these hospitals to work in the ICU to try to help particularly in New York. We’ve had over 500 nurses just volunteer from all over the country to go over the hottest spots possible and treat patients because they thought it’s what they want to do.I don’t think they’re takeable [ph] of coming out of AKI and the ICU and continuing that right now. So we need a little more time on that and if I’m completely outpaced. I will check with Frank Maddux and will come back to you. But I think this is the right answer at the moment.

Understood. Thanks.

There are no further question at this time and back to Dominik for closing comments.

Okay, perfect. So thank you everyone. We almost made it in time three minutes over it’s close to perfect. Thank you so much for the discipline and your interest, that you had so many questions and with that I think the three of us will say, thank you very much, stay safe and goodbye.

Thanks everyone, stay healthy.

Bye, bye everyone, stay safe.

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