I'm Natalie your Chorus Call operator. Welcome, and thank you for joining the Fresenius Medical Care report on the Third Quarter Earnings and FME25. I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead.

Thank you, Natalie. As mentioned by Natalie, we would like to welcome you to our earnings call for the third quarter 2021 and for FME25. We appreciate you joining today for an extended session and hope that all of you are equipped with food and some water. We will start with our third quarter presentation, followed by a Q&A session focused on the quarter only. At around 4:30 CET, we will then pick up on FME25 with a separate Q&A session to follow. I will 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. In order to allow time for the FME25 presentation and a second Q&A session, we would like to limit the number of questions again to two in order to give everyone the chance to ask questions on each of the calls. It will be great if you could make this work again in both parts of the session. With us today is, of course, Rice Powell, our CEO and Chairman of the Management Board; and Helen Giza, our Chief Financial Officer and Chief Transformation Officer for FME25. I will now hand over to Rice. The floor is yours.

Thank you, Dominik. Welcome, everyone. Thank you for joining us today, not only for the first call, but for the second call. Before I begin my prepared remarks, I'd like to say and tell you how proud I am that we have been recognized as number two of America's most loved workplaces and health care services as determined by Newsweek. Our employees all over the world do a fantastic job in caring, innovating, producing and delivering products for our patients even during this pandemic situation and please, each and every one of you out there, please accept my gratitude and thanks for the incredible jobs that you do. I will begin my prepared remarks with the third quarter presentation, and let's start with slide four, if you will. During the third quarter, we faced a stronger-than-projected headwind from COVID effects as patient access mortality reversed trend and significantly increased as a result of the global spread of the Delta variant. Despite this significant headwind, our business delivered organic growth in the quarter of 1%. We've seen a very solid number of patient new starts around the world, which tells us that the underlying drivers are, in fact, intact. We are confirming our full year 2021 guidance. However, we now expect to come in at the lower end of our revenue and net income ranges due to the significantly higher than projected excess mortality. COVID is a challenge for our industry right now. Significant resources are rightfully focused on ensuring that our patients continue to receive the life-sustaining dialysis treatments that they need. That makes the continued progress on our strategic priorities, all the more impressive in the quarter. First, we are extremely excited about what FME25 will mean for the future of our business, not just in terms of savings,…

Thank you, Rice. Hi, everyone. I'll pick up on the services on slide 12. In the third quarter, Healthcare Services delivered revenue growth of 2% at constant currency overall. The adverse COVID impact on organic growth in Healthcare Services amounted to approximately 390 basis points for the third quarter. Nevertheless, organic growth increased despite these negative impacts from the pandemic in all regions. It was also negatively impacted by customer metrics in North America. Asia Pacific stood as a strong regional contributor in the third quarter, supported by a rebound in elective procedures and solid dialysis services. With the spread of the Delta variant and increased level of excess mortality, same-market treatment growth decreased by 2% in the third quarter, while new patient starts were on a solid level. I'll now move to the Products business on slide 13. Revenue for our Products business was stable in the third quarter, and organic growth was flat overall. On a regional basis, North America delivered growth despite continued pressure from the pandemic. Lower sales of in-center disposables, particularly in EMEA and Asia Pacific, as well as lower overall sales of peritoneal dialysis products were offset by a positive impact from foreign currency translation and higher sales of machines chronic treatment. Turning to slide 14. Here, we show the margin development for the first 9 months of the year. As we have discussed, the biggest impact on margins year-to-date relates to COVID. The effects of excess mortality on both our core dialysis and downstream businesses are a large component of the COVID impact. Higher cost for labor, raw materials and health care supplies, mainly due to macroeconomic inflationary effects have been the next biggest negative drivers of our margin in the first 9 months of the year. Wage inflation is not a new…

Thank you, Helen. Thank you, Rice, for the presentation on Q3. I'm happy to turn it over to Natalie to open the lines for the Q&A, please.

Thank you. And the first question is from the line of Oliver Metzger from Oddo BHF. Please go ahead.

Hi. Good morning. Thanks for taking my questions. The first one is on excess mortality. Could you make a comment how many or which share of the incremental the past away patients were vaccinated? Number two is financial one on inflationary and labor cost increases. So in the first month, you had reported an impact of 120 basis points on margins, which equates to around €11 million compared to last year. Now after 9 months, it's already 170 basis points, which links to €24 million or additional €13 million for the quarter. So could you comment which components drives this position the most and whether we should assume the current momentum to continue even to accelerate for last quarter?

Oliver, it's Rice and Helen. I'll take number one, and Helen will take number two. So in the quarter, the excess mortality that we saw, the vast, vast majority of that was unvaccinated patients. We know from our data that generally our vaccinated patients are somewhere around one third to almost - 30% to 50% less likely to be infected with COVID as a result of having been vaccinated. Now having said that, we had some vaccinated patients that pass away, but it would not be due to COVID, but it would be some of the other comorbid conditions, obviously, that you're well aware that they have to deal with through their chronic treatment. But I would say at this point, we believe the vast, vast majority of what we've seen in the excess mortality has been from on vaccination of patients. And I'll turn it over to Helen for number two.

Yes. Thanks, Rice. So Oliver, I would say we have two components of labor, and I'm going to separate them out because I think it's important to do so. Included in our COVID effect, we have some labor impact in that. As you can appreciate, with the number of excess mortality that we're dealing with, we're still operating some isolation clinics. We are having to adjust comp on adequate workforce, and critical pay, float differentials as we keep the clinic operational and manage our way through the COVID situation. And then secondly, I would say, in the labor bucket that you're referring to on the bridge, that's where we have kind of probably a netting effect of the positive impact from the open positions, but offset by what we're seeing on the wage compression. And obviously, it's that wage compression that we are watching closely as well as the overall labor market as we move into Q4 and into 2022. As I mentioned, it's really important for us - in my prepared remarks, important for us to see how that open position number develops as we're seeing the current trends. So yes, no, your math is right, but the compression and obviously, the wage inflation is something we're watching hopefully as we go into 2022.

Okay. Thank you very much.

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

Hi, Helen. Hi, Rice. Thanks for taking my questions, please. I have two. One, just following on, on the labor conversation, I guess. Helen, would love to understand at this point in time is the sort of pressure you're seeing primarily driving pressure in the P&L on a cost perspective? Or are you seeing any detrimental impact on revenue growth as well? And I guess, as you think about 2022 and the wage compression that you're observing between the rates you're paying and some of the other health care providers, how much more room do you have before your salaries kind of get to parity, and it becomes harder for you to recruit? So that's my first question. And then my second question is just very briefly on the weakness that you saw in the Products business in the third quarter, I would love to understand whether there is anything structural there or just some timing impacts? And related to that, I'm going to sneak in a quick follow-on on which is any thoughts the incremental reimbursement for the Tableau and whether that changes how you're thinking about home through 2022 and beyond in the next stage competitive positioning? Thanks, guys.

One, and I'll do two and three.

Sure. Yes. Hi, Veronika. So yes, on labor, look, I think a massive call out to the North America team. I think they - obviously, the open positions mean that they are juggling those operations and making sure that no patient goes without – goes without dialysis and that we keep everything running as smooth as we can. I would say so far, the impact has been more on managing the cost, as we obviously move our employees around to cover what we need to, to keep the clinics operational. Obviously, the situation in the labor market is quite unique and unprecedented for us. And we obviously keep an eye on that weight. Yes, I mean there's a shortage on health care workers in general. There's definitely a war on talent. We expect to have to put more into rate over the course of the next year. But I think it shouldn't be lost on us. In Rice's opening comments about number two of employers, sorry, in health care services, we are seeing loyalty from our employees that is helping - as we've gone through COVID and it's helping keep that turnover lower. But without a doubt, it's a challenge out there, and we're doing everything we can to kind of keep the recruiting of the open positions. I would say back in the summer, the number was much more significant than we appreciated it could ever be, but the team has done a nice job of bringing that down over the past few months. So I think it's a trend that we're watching really closely, Veronika on how it unfolds over the coming months here and obviously, a key part of our 2022 forecasting.

Hey, Veronika, it's Rice. As it relates to products, I would say I don't think we see something structural or something that's gone away if you will. I think it's just, again, the continuation of excess mortality and the knock-on effect that brings you because you don't have patients utilizing products as they're being treated. And then secondly, remember, our Acute business, our Critical Care business ran hot all of last year as a result of what was going on in the ICUs and that has kind of trailed off in some of the regions, so that's, I'd say, the two primary impacts. And then we did have some timing of a couple of things in the export side of the house that we think will come back. We don't think they're - that's missed forever. Tableau, as you guys may or may not know, so let me just kind of give you a little bit of a brief. The price differential on a Tableau machine versus an X-ray machine is almost double on the Tableau product. And so when you look at Tippani's and what it's going to provide, it is not much of a gap closure, if you will. We don't really believe or see that that's going to be something that's going to fundamentally change the trajectory of our business with our next stage product line versus what we're seeing there. It's just not going to come nearly as close to offsetting that big differential between where they're priced and where we are.

Got it. Thank you, guys.

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

Hi, there. Two questions on value-based care. First of all, is doing a significant amount of investment into 2022 to be able to handle the increase of patients in value-based care, largely on the back of the CKCC program. Can you just confirm that given your history with the ESCO program that you already have the infrastructure in place? Or if that's not the case, could you just give us an indication of what sort of investments we should be thinking about into next year? And then second, just on the trajectory of CKCC, you are - obviously, ESCO program was a significant scale at almost 50,000 patients when you shut it down. How quickly could you get to that kind of figure with CKCC?

Hey, Lisa. It's Rice. I'll take those. So we will need to invest in value-based care to the degree we need to ramp up with some extra resources if the program begins to grow like we hope it will, I'll be happy to spend some money there. But generally, the level of investment that Dave is talking about, we've been there a long time ago. So your assumption is correct, we're simply going to need to flex labor, depending on how the program is going up or down, up, we hope. But no, we don't see a lot of brick-and-mortar as we would call it, not in the traditional sense, but a lot of heavy investment. We think we have the systems and the capability to do what we need to do. So we're very comfortable there. And then looking at what happens with CKCC and how quick it ramps up and can we get to an ESCO volume? We've got some assumptions. I think we're probably trying to be conservative and wait and see how this plays out. I think what my guess would be ramp-up will start slow and then it may pick up later on. We'll have to see how that plays out. But I think we are feeling that we are going to see ramp up immediately. It's going to come. And then we'll see, is it really going to exceed where we were exactly where will the place be. But we're prepared, and we're ready for it to kind of rock and roll when we go into the New Year.

Okay. And then just a follow-up, just on the revenue recognition, given the significant delays that you saw in ESCO, as you do ramp up CKCC and get several thousand patients enrolled in that program, will you recognize the revenue - at what point will you recognize the revenue? Will it be like an 18 to 24 months delay? How should we just think about the modeling of that?

Well, they don't let me talk about revenue recognition, so let me turn it over to Helen. Go ahead, Helen.

Well, I think like with the ESCO program, we had to obviously put our best estimate of what the savings would be and then it was trued up once we got the report. So I'm anticipating it will be a similar situation, Lisa, that we will always be accruing to the latest reports that we get from them with an estimate of what we think those savings will be and obviously, the experience as we go through the quarters and so on, we'll get refined.

So at some point, the revenue recognition should roughly match up with the quarter that it's in?

Yes. Exactly, exactly. Yes. And we learned a lot from ESCO, too. So...

Okay.

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

Good afternoon. Thank you for taking my two questions. The first is just on hospitalization in COVID patients. We talk a lot about mortality. But I guess the other side of the volume coin is the issue of hospitalization. Because I know you picked some of that up through your Acute Care business, but perhaps not all. So I guess I wondered if you could make some comments around kind of hospitalization rates amongst your COVID-positive patients? And whether the same-store volume growth perhaps isn't as bad as it looks because as well as losing patients to mortality, you're perhaps losing more than usual to treatments in alternative sites. So just wondered if you could put some color around that? And then the second question was just on the final rule as it pertains to the ETC model. They seem to make some vaguely sensible adjustments to it. But I'm just wondering what your perspective on the final rule for the ESRD treatment choices model would be?

Hey, Tom. It's Rice. Thanks. I'll take those of those, and Helen will jump in when I go astray. So when we look at hospitalization COVID, cohort of patients, our acute care is down somewhere around 2.5%, 3%. So we've seen some decrement there. And then when we look at the - or looking at the ETC, we got that as you did on Friday. So we're trying to unpack how we see some of that. I do think we were happy to see that what we had believed was a little bit of discrimination about large LDOs versus smalls and some of the things that were going on there that seemed to kind of gotten rationalized, if you will. But we're going to need to do some more work on that and unpack it. As you well know, it's not the most straightforward model that we're dealing with. But we're going to see each other here pretty soon again. And I'll come back around, and hopefully, we'll get it unpacked by the end and we can chat about that. Might leave anything out, Helen?

No, no.

Sorry, just to clarify on the hospitalization thing. I was talking more about the impact of COVID-related hospitalizations from your incentive patients going into hospital and therefore, missing treatments. So I just wondered how much of a factor that was in the dip in same-store volume growth that we saw in Q3?

I'm going to be probably making a guess on that. Can I come back to you on that Tom? Because as I said to Oliver earlier, our situation on hospitalization and ultimately, the excess mortality was on the non-vaccinated. But let me come back to you on that. Maybe we can even get back to you before we get off the call, okay?

No, that would be helpful. I'm happy to hang on.

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

Perfect. Thanks. I'll keep it to one, and I'll try and make it one that's impossible to answer, if I can. I appreciate you guys - you didn't want to talk about '22, but if I think of is just the basic bridge, right, you've got a little bits and pieces like California, you've got mortality as you site co-sequestration, cost inflation. But then on the flip side, you've obviously got good patient starts and some of the cost savings. So I guess, if I ask it in as open-ended way as possible to try and fish for an answer, at this stage, when you're just conceptually looking at it from a top-down perspective, is it possible to commit to any kind of EBIT growth next year? Or is flat EBIT year-on-year or any other metric you like still on the table as a possible outcome? Thanks.

Well, Patrick, you know me well enough by now to know I'm not going to commit to 2020 guidance rates in November. But look, as you can all appreciate, there's a lot of moving parts for 2022. I think you've characterized a lot of the pluses and minuses appropriately. And Rice and I was having earlier, and we tend to talk about what we know and what we don't know. And a lot of those things that you've mentioned, I think we know. We can see the annualization of COVID, even though we don't know what Q4 truly looks like yet. We know where we are with sequestration, the ballot, we can make some assumptions on labor and inflation. And then I think on the positive side, we do expect volume to recover. And then for us, particularly, don't forget, when our volume recovers all the downstream effects that have hurt us this year should also recover as well. And then, of course, we've got the kind of the continued growth in VBC and CKCC coming online, a little bit unknown on PPE on what the protocols will be. Obviously, as you've already noted the Medicare reimbursement rate helps. And then I think we obviously have FME25 5 that we'll talk about in the next hour of the call. So a lot of moving parts, and we will triangulate all of that with you with new bridges as we get into February. But as you can appreciate, they're all on the table and all being reviewed as we are actively going through our 2022 budgeting process right now.

Perfect. I’ll just give it a try. Thanks, guys.

Thank you.

The next question is from the line of David Adlington from JPMorgan. Please go ahead.

Hey. Thanks for the questions. So firstly, just on the staff vacancies, I just wondered if you could sort of quantify how many there are currently versus you would normally have? And what sort of tailwind you've had from those open positions? And how you expect those to be filled to go on from here? Or do you just not feel them as part of the FME25 program? And then secondly, on the Products business, as you called out the cost inflation on the raw materials sort of roughly how much you spend on plastics in a given year and what sort of inflation you're seeing?

Yes. I will have a go at the - both of those, actually. The staff vacancies, I don't have the latest number other than we were seeing higher than normal early part of the year, and that's coming back and being filled as we go. But definitely, we are not and I want to reinforce that significantly. We are not leaving staff vacancies in clinics, our operations open as a result of FME25. FME25, we'll get into in a bit more detail, but that is not just leaving open positions as a path to get savings and not part of our strategy. But we can follow up on what the latest number was. I know back in the summer, we had about 6,000 open positions. I don't have the current number right now on at hand. But we definitely are doing all we can with active campaigns to recruit and fill the positions. That's really important to us. And then on your question on the plastics, I would say I don't have the exact amount of the base of plastics, but we definitely are seeing a low double-digit million euro impact in 2021. So you can kind of maybe around the €10 million impact in 2021 on those inflationary measures. But I don't have the base number to hand, David. Hopefully, those are both helpful.

Thanks. And have you entered into sort of contracts on those plastic prices or should we expect more inflation next year?

Yes. I mean they are standing contracts, but they are linked to the kind of the commodity indices. So you take the rise and the fall with those. And obviously, again, trying to predict what impact that could be next year as part of the '22 numbers.

Thanks very much.

Thank you.

The next question is from the line of Falko Friedrichs with Deutsche Bank. Please go ahead.

Hello, thank you. Two questions as well, please. Firstly, on excess mortality. So when we checked your Q2 presentation from the end of July, the excess mortality figure you gave for Q2 at that time was 1,489. When we look at your presentation today, the number for Q2 was revised up to 1,903. So that's almost a 30% increase. So maybe you can let us know what the reason was for that very steep increase here? And then related to that is, how big is the risk that your Q3 figure that you presented to us today will be revised up that significantly? Again, and all of the sudden, you might be looking at some risks surrounding your 2021 guidance. So any kind of comment here would be very helpful for us. And then secondly, on vaccinations, I think we've all been a little surprised that the number is only at 78%, given that your dialysis patients, obviously, in the super high risk group. Were there some logistical problems or other stuff that prevented some of the remaining 22% from getting a vaccination so far? Or can you already say that the 22% is unvaccinated, they are very unlikely going to go for it and they just feel like they're better off without it, that would be helpful, too? Thank you.

Hey, Falko. It's Rice. So you're absolutely correct on the change in the mortality and it really is in the case of simply, we had about 400 registered deaths come in after the quarter had actually closed. And that's really kind of just - how should I say this is not a good way to say it, but the actual passing of the patient happened within the second quarter, but we didn't get the material back from the hospital system, if you will, where the pass occurred. Now in the case of what we're looking at now, I think we believe that there's a little bit better system. It moves a little better than we had imagined. If you look at the end of Q1, we were only 60. So it's a little bit variable. So we'll have to see where that goes. But we will always catch up and report where I'm glad you asked the question, so we'll let you know what it is. I don't think at this point, we believe we have no way to judge, does it mean we're going to be off in Q4 or what's going to happen, but we'll keep - we'll give you those numbers so you can see that. Now on the case of vaccinations. We had no logistic issues. We had no problems there. This really comes down to, and this is predominantly a comment about the US. It's just simply that people have refused many religious reasons, other, I might say, foolish political reasons, whatever you want to say. As you well know, we worked very hard. We've had campaigns. We're doing everything humanly possible to get as many people vaccinated, but we cannot make them get vaccinated. So we don't think 78% is a great number either. I'd love to see it be 90%, but they're not many 90% around. So it is just simply a matter. It is an individual decision. And before COVID ever came, Falko, we know patients that would refuse to stay on their treatment for the full 3 hours and 45 minutes. They would say, I've got to go somewhere I need to come off the machine quicker. I want to get out of my treatment earlier because I have to go here or there or someplace else. So we do the best we can do to encourage, to help people understand the importance, but we don't have the ability just to force them for vaccination.

Okay. Thanks, Rice.

You bet, Falko.

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

Hi. Thanks for taking questions. Two, if I can, please. Firstly, you've highlighted an expected decline in mortality in Q4. I'm just wondering because last year, there was a spike, I think after Thanksgiving, and there's a bunch of uncertainty here. So my question is, is lower mortality in Q4 required to meet your revised guidance at the low end? And to quantify guidance as well, if there's no further FX headwinds or changes in Q4, would that be around a 5% negative impact to reported net income? And then my second question is on - I'll try my luck just like Patrick did. I guess, thinking about 2022, is Q4 a good quarter as a starting point to think about 2022? Or are there any seasonal one-offs we need to think about? And outside of the positives and negatives we've discussed in terms of the moving pieces, are there any catch-up effects we need to consider as well from trough levels this year? Many, thanks.

All right. You want to take some of that?

Yes. So James, I'll take 1 and then Helen can pick up two and three. So when we look at the expectation we have for getting a decline in excess mortality, we're really looking at that, thinking about the fact that with continuing, albeit slowly, but continuing higher vaccination occurring among our patient base with the boosters now being available and being out there, and we have a push, as I'd mentioned in the prepared remarks of trying to get all of our patients in the US boosted before November 11. And then just hoping that we continue to see kids getting vaccinated because we have pretty good data that says people haven't caught COVID in our clinics, they catch it at home, in the community, et cetera. We think that it's a fairly good expectation for us that we'll see some lessening of this. Yes, the one big risk point is what happens in the holiday season. I don't think we've blown out exactly at what percent do you think it gets in the way of guidance. As we've looked at this in the big picture, Helen, I think we believe it's manageable, if we're close to the assumptions that we've made on, what I would say, would be the improvement in not seeing as much excess mortality. And you want two and three...

Yes, yes. So James, your question on FX, not part of our guidance because we're guide in constant currency. I think the - when you think about Q4, Q4 - obviously, be in the guidance range of Q4 is looking like a big decline, and there's some things in that. Obviously, COVID effects in Q4 in 2021 looks a lot different to Q4 2020. If you can kind of - if we can all even think back that far of what COVID looking in Q4 of 2020. And then we did have some onetime favorable year-over-year impact in 2020 as well from the equity investment, which was around €25 million. So I think the phasing and that is probably not - Q4 growth rate, probably not the best 1 to be taking. And of course, we'll lay that out in much more detail in February. But to Rice's point, we have an assumption of excess mortality for Q4. We will see how that translates on what the jumping off point is in excess mortality. And I think that's the key for going into 2022 where we're starting from. But I think right now, we have a pretty - as good an assumption as we can have with the infection rates and how that four to six week lag translates into excess mortality. And then as we get closer to the end of the year and early part of next year, we'll be able to finalize those assumptions on mortality going into '22.

Thank you.

Natalie, give me one moment, please. Hey, Tom, we did some - look here and a little bit of quick math. I would tell you, in the quarter, we're thinking it's probably somewhere around 100,000 treatments or so that was the impact of the excess mortality.

So there are no more questions at this time, and I hand back to Dominik for closing comments.

Yes, it's not really closing comments. So thank you for the accident question. You have handed in and asked. This is appreciated. I hope you still have enough energy for the next agenda point, which is FME25. So we want to give you a short break. Please stay on the line or in the webcast, don't discontinue. We will be back here at 4:25 CET or 11:25 ET. And we'll mute until then.