Fresenius Medical Care AG American Depositary Shares (Each representing 1/2 of an Ordinary Share)

Ladies and gentlemen, welcome to the Fresenius Medical Care Report on the fourth quarter 2024 conference call. I'm Sandra, the call school operator. I would like to remind you that all participants have been listened only more than the conference has been recorded. This recording will also be available on the Fresenius Medical Care website. Additionally, the transcript of this conference will also be published on the website of the conference. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Dominic Hager. Please go ahead, sir.

Thank you, Sandra. I would like to welcome everyone to our earnings call for the fourth quarter and financial year 2024. Thank you for joining us today. As always, I 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 and to our SEC filing. As our call is scheduled for 60 minutes, we would 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 again, as always. Let me now welcome Helen Gieser, CEO and Chair of the Management Board, and Martin Fischer, CFO of Presidents Medical Care. Helen, the floor is yours.

Thank you, Dominic, and a warm welcome to everyone. Thank you for joining our presentation today. I'm excited to speak about the remarkable progress that we have made in executing our strategic plan and the strong set of financial results we have delivered. Before I begin my prepared remarks, I want to take a moment to acknowledge that this success would not have been possible without the unwavering commitment of our employees around the world. We have set ambitious targets to turn around and transform our company all at the same time. and our employees continue to rise to the challenge. I'm especially inspired by the way our teams have stepped up in the face of natural disasters and geopolitical challenges. During our last call, I talked about the hurricanes in the southeastern United States and ongoing conflicts in Israel and Ukraine. Since then, we've also faced devastating wildfires in California, extreme ice and snowstorms, especially in Texas and Louisiana in January, and more recently in New England, as well as flooding in the Mid-Atlantic. Through it all, our dedicated teams continue to ensure our patients receive their life-sustaining dialysis treatments with minimal interruption, an incredible testament to the strength of our teams and resiliency of our operations. and recognized in this year's Net Promoter Score of 72, matching last year's very high level. This score, based on patient surveys, demonstrates very strong patient satisfaction with the quality of our services. Executing such a turnaround and transformation plan while maintaining an unwavering commitment to delivering the quality of care to our patients is no small feat. and I want to extend my deepest gratitude to our employees for their dedication and hard work. Now I'll begin my prepared remarks on slide four. Two years ago, we embarked on an ambitious plan to turn around and transform our company over a three-year period. I'm proud to say we have made significant progress on all dimensions, which is why this chart is so full, but I feel it's worth to recap all we have achieved. This serves as a reminder of our commitment to deliver on what we set out to do as it lays the foundation for the future success of our great company. In 2023, we implemented major structural changes, including the change in our global operating model, provided more transparent financial reporting, and changed our legal form. In parallel, we successfully advanced all aspects of our plan. And we did not stop there or let up the pace. In 2024, we built on this momentum, further strengthening our foundation and driving accelerated progress to position our company for sustained profitable growth in the future. We further upgraded our leadership team, including a new head of care delivery and a new head of legal, HR, and compliance at the management board level. Also, on the executive level, we have made several important changes, creating new key positions as well as upgrading our capabilities and talent bench. In 2024, we further accelerated our FME25 transformation program, achieving incremental sustainable savings ahead of plan. As a result, we have been able to compensate the lower than expected volume growth in the U.S. dialysis business over the last two years. Due to the great momentum in the FME25 program, we are now raising our total savings target from €650 million to €750 million by the end of 2025. We continued the execution of our portfolio optimization plan, ensuring our business is focused on a strengthened core with a higher return profile. And in 2024, we realized important milestones in our business. While we continue to experience elevated mortality in the United States, as is the case for the general population in the country, the work we have been doing in our U.S. care delivery operations to drive operational excellence, upgrading and standardizing and streamlining our operational processes, as well as reducing missed treatments, is really paying off. Our same-market treatment growth in the U.S. turned positive for the full year, supported by an accelerated 0.5% development in the fourth quarter when adjusted for the exit of less profitable acute contracts. Additionally, the excellence of our disaster response and clinic operations meant that despite more pronounced weather-related incidents, we only had a five basis point impact on third and fourth quarter volume development. We are further detailing the rollout plan of our high-volume hemodifiltration-capable 5008X machine in the U.S. We received FDA approval in early 2024, and we performed our first HDF treatments on the machine in our clinics in the meantime. We are excited about the opportunity this innovation brings to our U.S. market. The improvements we have made in care enablement not only supported recent performance, but strengthened the base of our operations and positioned us for profitable growth going forward. This includes rationalization of our supply chain and manufacturing footprint, as well as broad scale cost and efficiency improvements. These positive developments supported strong operational progress over the course of the year. By sharpening our focus on the core business, we delivered 4% organic growth and achieved the upper end of our earnings outlook for 2024. As a result, our group operating income margin further improved as planned. And our commitment to a disciplined financial policy and priority to deliver resulted in an improved leverage ratio, which brought us below our self-imposed range. For our shareholders, we are planning to propose a dividend increase of 21% in line with our current dividend policy. Slide 5 shows how our progress translates into numbers. This slide highlights the tangible impact of our strategic execution reflected in our strengthened financial performance and enhanced value creation. Our operating income margin has shown consistent improvement towards our target margin bands for 2025, supported by both operating segments. Care delivery has already reached the lower end of its target band, with a margin over 10% in full year 2024. This improvement reflected our turnaround efforts, including positive price and volume effect, realization of productivity gains and labor efficiency enhancements, as well as a focused international portfolio. Care enablement has improved its full year margin to 6.1%, almost tripling the margin from only a year ago. The improved profitability of both segments has been supported by the acceleration of our FME25 program, Here, we have already achieved €567 million in sustainable savings through 2024. As a result, we are now on track to realize the new increased target of €750 million savings by the end of this year. In line with our dividend policy and improving financial results, we plan to propose a dividend of €1.44 reflecting a 13% compound annual growth rate over the past two years. As outlined, our leverage ratio has improved as a consequence of our current financial policy from 3.4 times at the end of 2022 to 2.9 times, and below our self-imposed target range. S&P, Moody's, and Fitch now have us rated at investment grade with stable outlooks. Moving to slide six, we have continued to execute against our portfolio optimization plan as we look to divest non-core and lower margin assets. Just yesterday, we announced the divestiture of select assets of Spectra Laboratories, our U.S. lab service business. Collectively, in addition to exiting non-core assets like Spectra, NCP, and Cura, we have now exited around a dozen dialysis service markets. as we strategically refocus our international portfolio on growth markets with attractive returns. This includes the exit of all of our Latin America service business with only Brazil left, which we expect to close in the first half of this year. We have made significant progress since we first presented this slide at our last Capital Markets Day in 2023. By the end of 2024, we had realized total cash proceeds of €750 million. We remain focused on our core business and continue... Ladies and gentlemen, please hold the line.

The connection with the speaker has been lost. The connection with the speaker has been re-established. You may proceed with your conference.

Okay. So we actually don't know where we lost you. We will restart at slide seven. Sorry for the inconvenience. So going back to slide seven. Helen, sorry.

Thank you, Dominic. On slide seven, I'm proud of the fact that we are setting ambitious targets and delivering on our commitment to achieve them. In 2024, we realized a 2% revenue growth after accounting for a 1.6% headwind from divestments. We achieved an impressive 18% operating income growth at the upper end of our earnings outlook for the year. I will now hand over to Martin to take you through the fourth quarter financial performance in more detail.

Thank you, Helen, and welcome to everyone to the call also from my side. I will give you an overview of the fourth quarter performance beginning on slide 9. Starting with the highlights. In the fourth quarter, we delivered strong organic revenue growth of 7.4%, supported by both care delivery as well as care enablement. For the second consecutive quarter, we recorded positive volume growth in the U.S. When adjusted for the exit of acute care contracts, our same market treatment growth increases to 0.5%. We continued our accelerated progress on our FME25 savings target. With a strong fourth quarter that contributed an additional €48 million in sustainable savings, we realized €221 million for the full year. We exceeded our already increased incremental savings target for 2024 of originally €200 million. On an outlook base, Both segments delivered further improved operating income and operating income margins. This keeps us fully on track to achieve our 2025 margin ambitions. We delivered a significant improvement in operating and free cash flow in the fourth quarter, and our net leverage ratio of 2.9 times remains below our self-imposed wage. I will continue on slide 10. In the fourth quarter, We realized 5% revenue growth on an outlook base driven by accelerated organic revenue growth with contributions from both segments. As we continued to execute our portfolio optimization plans, we realized divestitures did negatively impact our revenue development by 250 base points in the fourth quarter. As a reminder, we decided not to adjust our numbers in the fiscal year 2024 or 2025 for the divestitures that we closed in those years but to absorb it in our guidance range for the respective year. We saw a significant increase in operating income in the fourth quarter. On an outlook base, operating income grew by 31%, driven by both segments. This positive development led to an improved margin of 9.6% compared to 7.7% in the previous year. Divestitures realized in 2024, as part of our portfolio optimization plan, had a neutral effect on group margin development in the fourth quarter. Special items negatively affected operating income by €230 million. They mainly included costs related to the execution of our portfolio optimization plan. Our FNB25 transformation program also added to those. The biggest impact had our portfolio optimization plan, where the sale of select assets of Spectra Laboratories was classified as an asset held for sale. Moving to slide 11. The slide provides an overview of the strong group margin improvement we achieved in the fourth quarter. On the left, you can see how we get from the reported fourth quarter 2023 operating income to the starting point of our outlook days. by adjusting for special items and 2023 divestitures, as well as the effect of the substantial TriCare settlement. We achieved a margin improvement of 190 basis points with a positive contribution from care delivery and an impressive step up in profitability from care enablement. The development of corporate income included the negative valuation effects of virtual purchase power agreements amounting to 7 million euro in the fourth quarter. As mentioned on the previous slide, special items negatively affected reporting operating income, while foreign currency translation had a neutral effect this quarter. Turning to slide 12. In the fourth quarter, care delivery revenue increased by 3% on an outlook basis. This includes a 370 basis point headwind from divestitures realized in 2024. At the same time, Organic growth for care delivery accelerated to 6% in the quarter. In the U.S., organic growth of 7% was driven by growth in our value-based care business, higher treatment volumes, with an underlying same-market treatment growth of 0.5%, as well as improved rates and payer mixes. Our excellent disaster response and clinic operations teams mitigated the severe weather-related incidents to an impact of only five basis points on the fourth quarter volume development. Care Delivery International contributed a solid 4% organic growth. Same market treatment growth in our international markets continued to outpace the U.S. In the fourth quarter, Care Delivery achieved a 10 percentage points increase in operating income, on an outlook base. The segment also saw a margin improvement of 70 basis points, leading to a margin of 10.7%. Positive effects mainly came from the business growth, driven by a lower negative contribution from the value-based care business, higher treatment volumes, and favorable rates and mixed effects. Business growth compensated for the facing of a consent agreement on certain pharmaceuticals, which we had highlighted to you in our Q3 earnings call. While the loss was reduced year over year, our value-based care business did realize a revenue of €1.8 billion and a negative contribution roughly in line with the midpoint of the communicated range of €20-40 million. Care delivery earnings growth was additionally supported by savings from our FME25 program and partially offset by labor and inflationary headwinds in line with our expectations for the year. While being margin neutral in the full year, care delivery also faced a 13 million euro headwind from divestitures realized during the year. As in the revenue line, this was absorbed in our outlook range for 2024. Next on slide 13. In the fourth quarter, care enablement revenue grew by 10% on an outlook base, with impressive 10% organic growth, driven by volume growth in all geographies and continued positive pricing momentum. As expected, volume growth in China did accelerate, As a consequence of the implementation of volume-based procurement, which has partially offset the negative pricing impacts from volume-based procurement, care enablement realized a significant increase in earnings. Compared to the fourth quarter of 2023, operating income on an outlook base grew by more than six-fold. As a result, care enablement accelerated its margin expansion trajectory with 650 basis points improvement to a 7.8% compared to prior year. This strong increase was driven by positive volume and price effects and supported by savings from the FME25 program. In the fourth quarter, we continued our organizational optimization and realized further cost efficiencies in manufacturing and supply chain. The positive drivers offset inflationary cost increases as well as the mentioned negative price impact from volume-based procurement in China. Next on slide 14. In the fourth quarter, we realized a 16% increase in operating cash flow driven by favorable development in working capital. This strong result comes on top of a tough prior year comparison, which included the TRICAS settlement payment. On a full year basis, we saw a decline in operating cash flow, mainly due to the negative impact from phasing of dividend payments that we received from equity method investments and the absence of the TRIKER settlement in 2024. In line with our current strategic ambition, we further reduced our total debt and lease liabilities, as well as total net debt and lease liabilities compared to the prior year period. As a result of our strict financial discipline, our net leverage ratio of 2.9 times continues below our self-imposed target range corridor. We are taking a holistic approach in detailing our strategy beyond 2025, including considerations of future capital needs for the profitable organic growth and the importance of shareholder returns. With that, I will now hand back to Helen to go through our outlook.

Thank you, Martin. I'll pick it up on slide 16. Now moving on to the assumptions for 2025 starting with revenue. We are assuming positive USA market treatment growth above 0.5% based on similar elevated mortality trends as in 2024. Annualization of mortality in earlier chronic kidney disease states has clearly taken longer to normalize than the industry expected. We are encouraged by the trends we saw in the last two quarters and in January. Once mortality has normalized, there is no indication that we would not see a recovery to a 2% plus same market treatment growth in 2026 and beyond. Of course, we are monitoring the current flu season, but we would expect an acceleration throughout the year. Our 2025 revenue outlook assumes headwinds from the successful execution of our portfolio optimization plan. Divestments executed in 2024 are expected to have a negative impact of around 1% in 2025. We also expect an additional 100 million euro in revenue from our value-based care business, increasing revenue in that book of business to around 1.9 billion euro. On the earnings side, we now expect an incremental 180 million euro FME25 savings, which has helped to cover the cumulative effect of the lower than expected same market treatment growth in the US in the last three years. Business growth is expected to positively contribute 500 to 600 million euros in earnings in 2025. In addition to volume growth and pricing improvements across both operating segments, the business growth range includes a benefit of around 100 million euro in our care delivery business, resulting from the inclusion of binders in the bundle. The size of this benefit in the Tdapa period significantly depends on the uptake, prescription patterns, and the mix of branded versus generic products. as well as the impact on the assets we have within our portfolio. Business growth also includes our value-based care book of business, which we assume to have a slightly negative to break-even operating income contribution in 2025. Similar to previous years, we expect a net labor headwind of 150 to 200 million euro, mainly in care delivery. In addition, we anticipate cost inflation of 100 to 150 million euro. In respect to tariffs, we recognize this is a fluid situation and we continue to evaluate the impact on our business. So far, we estimate the impact to be very limited due to the nature of our footprint and supply chain. While special items are excluded from our guidance and are hard to predict, we do expect FME25 costs of around 100 to 150 million euro, and costs relating to legacy portfolio optimization of 50 to 100 million euro. To help with your modeling, we are assuming a tax rate of 25 to 27%, a net financial result of 300 to 320 million euro, And for corporate costs, we expect 70 to 90 million euro. I will now continue to the outlook on slide 17. Against this background, we approach 2025 with confidence in our strengthened foundation and ability to further accelerate earnings growth. For full year 2025, we expect a positive to low single-digit percent revenue development, which only looks muted as it includes a 1% headwind from our portfolio optimization as just outlined. For operating income growth, we expect a very strong year. We are guiding for a high teens to high 20s percent growth range. And while this seems like a wide range, this outlook raises the implied operating income margin to around 11% to 12% in 2025. We are tightening our former 2025 midterm range of 10% to 14%, and we do expect both operating segments to make progress within or into their margin target bands. We remain laser focused on executing this third and final year of our turnaround and transformation plan, ensuring we are well positioned for our company's future strategy and to enhancing shareholder value and returns. I look forward to sharing the details of our strategy beyond 2025 at our upcoming Capital Markets Day on June 17th in London. We hope many of you will be able to attend, so please save the date and look out for future communications from Investor Relations. This concludes my prepared remarks, and I'll now hand back to Dominic to start the Q&A.

Thank you, Helen and Martin. Thank you for your presentation, and to the listeners, apologies for the disruption. Before I hand over for the Q&A, I would like, again, to remind everyone to limit your questions to two. We have 12 people in the line. So give everyone a chance, please. If we have remaining time, we'll go another round. So with that, I hand it over to Sandra to open the Q&A, please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions only. You may proceed with the Q&A.

Thank you, Sandra. The first caller is Hassan from Barclays. Hassan, the line is yours.

Hi, good afternoon. Thank you for taking my questions. A couple for me, please. Firstly on margins, it would be great to get some color on your expectation on segment margins in 2025 as well as phasing. You're already in the 10% to 14% initial range provided for care delivery. So how are you thinking about incremental improvement here versus care enablement where there's a bit more to go but presumably a lot more pricing benefits coming through? And then secondly, can you talk a bit about your expectations for same-store growth throughout 2025? How is Q1 trending and any expectations given a delayed flu season? And appreciate your giving guidance for at least 0.5% growth, but you've also in the past talked about an exit rate of 2% coming out of 2025. So any color on phasing would be helpful. Thank you.

Hi, Ahsan. Thanks for your question. I'll take both of those. We're not guiding to margin segments for 2025. We've obviously given the total group guidance there. But that color that you rightly played back to me is, you know, we do expect both segments to move along that margin band in 2025. As you can imagine, we are really excited and encouraged by the progress, and a big step up we saw in CE in Q4, and they're sitting at 7.8 for Q4, so really just right at the tip of that margin band of 8 to 12 that we put out there. So we do expect to just continue to move along that, and obviously we'll provide updates as we go through the year. Same market treatment growth. Let me unpack that because I'm expecting a lot of people to have a similar question. Look, we are feeling really good about the progress that we have made over the last couple of quarters, moving from 0.2% in Q3 to 0.5% in Q4, turning the full year positive. The work we are doing is really paying off, and we've clearly talked about that turnaround plan in CD for quite a while. The work on streamlining admissions, reducing mistreatments is really helping our processes. The other thing that we are seeing is a sequential slight improvement in referrals on new patient starts. We clearly see that mortality remains elevated, and our view here is that's clearly, you know, once that normalizes, there's no reason for us to not believe that the 2% returns We're watching the flu season closely. Obviously, we didn't see much of an impact in January, and our underlying growth looks good in January. We're clearly watching the spikes. We're all probably following the same flu tracker. We saw it really spike in, I think, week seven and kind of came down as quickly the following week. So we're kind of watching that to see what effect that would have in the quarter. But as far as our volume growth of 0.5% plus for the year, we expect for that acceleration to continue through the year. I feel really good about the resilience of our operations. I mean, I think the industry has had more than its fair share of weather, but for that to only impact us for five basis points, I think that really shows. not just are we rebuilding core processes, but we're building more resilient core processes as well. And then, you know, maybe the other thing I would say is, you know, for us we're not really seeing – we didn't get the headwind, excuse me, for IV and PD. So, you know, I think that clearly that's probably, you know, a question that comes into that in terms of for us, you know, when we look at our PD patient numbers, our analysis would show that we picked up, you know, less than 100 patients. So that's also why I feel really good about the underlying, you know, volume trend here that it's, you know, it's pretty, you know, So the mortality is obviously what we are, what we're watching. And again, you know, once that mortality normalizes, no expectation for us that we don't return to the 2% growth rate in 2026.

Very helpful. Thank you.

So the next question comes from Jiang from Citi. The line is yours.

Hello, I hope you can hear me and thank you for letting me ask questions. Two questions, please. I suppose the first one is I have noticed that you have been talking about recovery to a 2% plus volume growth in 2026 and beyond. Is there anything that you could comment on where you are expecting the U.S. to exit? In 2025, are we still talking about a 2% rate that we have been talking about for the last few quarters? Otherwise, how do you envision the ramp that we're expecting through to 2025, you know, once after Q1? And I guess just a second question is looking at slide six under the assessed area on the graph, can you make any comments on the other assets that are within that bubble? Thank you.

Thanks, Jiang. Yeah, I'll take those questions and maybe just picking up on the back of the answer to Hassan's question as well. Yeah, look, we do expect volume to ramp up as we go through the year. I think the... You know, the exit rate obviously will be dependent on that elevated mortality and when that normalizes. So that's why, you know, I think Dominic would say, does exit rate mean 1231 or does it mean 11 of 26? And not to be flip with that comment at all. is that we just feel we'll continue to see volume momentum as we go through the year, and we'll see that 2% normalizing in 2026. You know, what we're looking at and encouraged by is the, you know, the kind of the positive trend quarter after quarter. You know, obviously that elevated mortality is there, but we're also encouraged by what we're hearing from nephrologists on terms of mortality waiting lists filling up and patients waiting to see their physician after kind of this normalization of the earlier stages of CKD. On your question on divestitures, obviously there was a lot that we put out there at last Capital Markets Day and you can see the check marks of what's been done. It wasn't meant to suggest that if they were in that bottom mark that they were all going to be divested. I think you can see the assessment of them in terms of growth potential and strategic value to FME. We like those assets. Some of those assets that are in there that haven't been divested and they're kind of part of our overall strategy and portfolio. Obviously we continue to to evaluate that portfolio and would provide a further update of how we're thinking about, you know, the growth opportunities on this portfolio when we get to Capital Markets Day in June. And as you can appreciate, we revisit this periodically as we refresh our strategy.

Thank you.

Next question comes from Lisa Clark from Bernstein. Still need to practice on that.

Hi. I've got two questions. Number one, while there is still a lot of uncertainty in D.C. on just about everything, I just wanted to ask about the potential impact from the increased ACA insurance subsidies that were created during COVID, which potentially end in December of this year. Your main competitors indicated this has been a tail end to private payer mix over the last few years, and they've quantified the impact of a cumulative $75 million to $120 million hit to EBIT by 2028, which they expect to be phased over three years. Do you have any thoughts on how this could affect your payer mix and any quantifications? And then second question, given the shift of phosphate binders into the clinic reimbursement, could you talk about Fresenius Rx, which also used to be quite a bit bigger before Sensapar went into the bundle, and just how we should think about that part of your formerly sort of care coordination initiatives. Thanks.

Thanks, Lisa, and thank you for those questions. I'll take both of those. Yeah, on the ACA, we had kind of estimated that to be about below a 2% hit to EBED if they all went to Medicare instead of anywhere else. I think we had sized that overall number as smaller than what you quoted, but it's about 2% EBIT for us on that CDUS book of business. On binders in the bundle, it's a bit more complicated or complex for us because we do have three assets in that portfolio. Clearly, the part that's gone into the bundle and the extra assets payment into DAPA, that benefit is hitting the FKC business. And then, as you rightly said, there is an impact to the pharmacy where the shift goes from pharmacy into FKC, so negative on the pharmacy. And then depending on how the prescribing habits play out over the course of the year and what drugs are being taken by the patients. We're also estimating a positive impact on our pharma business there. So taking all of those three businesses into account, we're estimating that to be around 100 million benefit in 2025. And if you want to kind of get at the comparable level just for the FKC piece, we would see FKC at about half of that estimate of the 100. Thanks.

Of course. Okay, good.

Then our next caller is Victoria from Burns.

Thanks for taking my questions. The first one is just about guidance. Does this include a contribution from the 5008X launch due later this year? And then just how you guys are thinking about CAPEX this year and in 2026 as it relates to the 5008X? And then just clarification question on the excess mortality rate. In Q3, I think you mentioned, Helen, that there was a 60 bps headwind from excess mortality in H1 and that you expected a similar negative impact in H2. Can you confirm that it was around that negative 60 bps and that you expect that same rate for 2025. Thank you.

Thanks, Victoria. Why don't I have Martin take the 5008 question for one and two, since it has some financial connotations, and I'll take the third question.

Yeah. Hi, Veronica. So on the 5008X, since we are starting our commercial launch in 2025 and more also towards the second half of 2025, there is not much of an impact into our guidance out of that launch. That would be too early for it to have an impact. We are ramping up through the year, and the full commercial launch is then in 2026. Similar on the capex, I would say there is a, let's say, lower capex involved in the ramp-up, but also when we look in 2026 and beyond, I would not expect this to be massive capex. It's more like a, let's say, regular medium-sized topic that when you think about the 900 million that we normally have in our guidance outlook that we also published, it's more towards, let's say, a mid-double-digit capex number I would think about in 2025.

Thanks, Martin. Victoria, on your question on excess mortality, Yeah, look, we're still seeing it elevated, a slight improvement in H2, but I would say slight. You know, even on a full year basis, we are still seeing, you know, kind of a much higher number than we would like to see at this point, but a slight improvement from half two to half one, but still more elevated than prior. Great. Thank you. Of course.

Thank you. The next question comes from Oliver Metzger from AutoBHF.

Good afternoon. Thanks for taking my questions. First question on the care enablement. So we saw quite good growth and also a nice margin accretion. So how should we think about the volume price mix for 2025? So do we expect a similar price contribution in 25 compared to 24. Second question on value-based care. You named for 24 a 1.8 billion in recognized revenues or 100 million more for next year, but you mentioned also negative contributions of 20 to 30 million on the bottom line. In the past, you talked only about the medical costs under management. And you had set a few years ago the target of $11 billion medical customer management for 2025. Can you first provide some credit where this $11 billion is still a valid number? and also what is needed to achieve a positive bottom line contribution because initially you talked about more above 1% EBIT margin for the medical cost under management. There seems to be a gap. Thank you.

Thanks, Oliver. I'll snag both of those questions. Yeah, look, on CE, we're very, very pleased with the performance there. And as you rightly point out, we will expect to see continued volume and pricing going into 2025. I mean, I think, you know, the color that Martin gave on value-based procurement for China, you know, we've also kind of guided to the fact that we would see that annualized into next year, but also see the volume pick up in China. So, you know, not just price and volume on the top line for CE and very positive developments, but I think also the whole P&L is being worked there and the progress that the team is making on manufacturing, supply chain, efficiency is remarkable. You know, we'd always said for the care enablement business that, you know, while we've guided to 8 to 12 through 2025, our goal, particularly as we continue to launch new products and drive the innovation, that we would, you know, our goal there is to get back to a We all met check margins, even though we're making significant progress. We also, as a reminder, also said that it would always be back-ended, and some of those benefits that we'll see in 25 will obviously continue to pay off in 26 and 27 as their sustainable savings. And we really look forward to showing that progress at Capital Markets Day in June. On value-based care, yeah, I mean, you're remembering the numbers correctly, and I you know, this is kind of still, it's an important business, but it's still a nascent industry. And obviously, we, you know, continued, you know, we had hoped to be positive in 24, and we were still negative. I think the growth that we're seeing is real. But this is still, you know, an industry, you know, the nascency of it still means that we are obviously getting a lot of adjustments and true-ups, both in the government program and with the payers. So I think for us the revenue that we book, I think that's an important measure. I think also the margin piece, so you can all see the overall dilutive nature that it has on the margin. So I think I don't have the 2025 expected medical cost under management number to share, but I think for us we're thinking about that kind of, you know, booked revenue number and the margin number, which, you know, because of the nature of the type of contract and the volatility there, we feel that that is, you know, perhaps a better statement on EBIT contribution and revenue in absolute. So, again, I think value-based care is an area that we will go into in more detail at Capital Markets Day in June as we, you know, kind of think about how we see this evolving. as an important strategic lever for us supporting our clinic business in the U.S.

Okay, great. Thank you very much. Thank you. The next caller is Graham from UBS. Graham, the line is yours.

Afternoon. Thanks, guys. Just one question sort of short term and one sort of longer term. In terms of this year the phasing just of margin or either contribution, Usually kind of helpfully give us the cue and sort of rough sense as to how we should think about that contribution. And given the flu season, it would be quite helpful just to understand that. And then just like longer term, I suppose, you had this 10 to 14 percent midterm target range for margins for 25. That's been narrowed for this year, but you've obviously talked about more cost savings and we'll get more information, I suppose, the capital markets day. But if we think about volume growth maybe coming out at that one to two rather than two necessarily, what is the sustainable margin once you've extracted the bulk of the cost, I suppose, from FME25 at a lower growth rate, just to understand what's kind of bedded in and from what you can build in terms of we think about the optionality of volume growth going back to 2% plus? Thank you.

Thanks, Graham. We're smiling on the phasing question because normally in our script every year we talk about Q1 is traditionally lower. But, you know, it is definitely, you know, kind of the weaker quarter. But, you know, other than that, we don't have anything more to provide in terms of color on phasing for 25. Obviously, you know, as you've rightly said, we're watching the flu season and feel good about where we're seeing January end. So, you know, more to come, I guess, once we report Q1. But, you know, kind of similar phasing, I would guess, to the traditional pattern. For your tough question on question two on the margin bands and how that's going to move, clearly we'll show the building blocks of what we see post-2025. And as you can imagine, you know, both care delivery and care enablement have a lot of levers. specific to your question on, say, market treatment growth, and if that was lower, what would it do? Obviously, that's not our current assumption. We would also look at what the cost structure would be there to support it. Look, I think the other thing that we're super excited about, which would also play into that future growth potential, is clearly HDF, and that is... kind of the implementation plan of getting those machines in our clinics and then seeing the improved mortality that we see in Europe for having HDF treatments and that 23% improvement. There's still, I think, a lot of moving parts on the volume to unpack. Clearly, we're not seeing an impact of the new drugs, or you could argue mortality would be would be lower. We're excited about what we think we can bring to the, you know, the HDF in volume. So I think more to come at CMD. And I think also the, you know, the kind of the guardrail, how we're thinking about it.

And maybe just a quick one on HDF. In terms of, as you roll that out, would you expect to see just new patients benefit? Or do you think everyone benefits to some extent as they switch over, even if they're, say, halfway through their treatment course as you'd expect in, say, year two and a half of the therapy.

Yeah, we believe everyone could benefit. In the study, no patient lived less as a result of being on HDF.

Perfect. Thanks a lot, guys.

Yeah.

Thank you. Next question comes from David from J.T. Morgan.

Hey, guys. Thanks for the questions. First one is, it might be my maths, but I think there's a bit of a disconnect between the 11% to 12% margin and the high teens to high 20s expansion. 12% seems unlikely unless you don't get much revenue growth at all. I'm just wondering what I'm missing there. And then secondly, just on the phosphate binders bit, also a bit surprised to see you getting 100 million euros additional profit from going to the bundle. We've seen before with bundle changes that CMS quite quickly claws back any benefits that the industry gets. I just wondered how sustainable you thought that 100 million euro benefit was.

Yeah, look, I think David has grabbed both of those. In terms of the 11% to 12%, clearly we have a wide OI range, and obviously the 11% to 12% is reflecting that. So I don't know how else to answer that question other than, you see the building blocks of how we get there and the range that that would provide. On binders in the bundle, yeah, clearly, right, there is a benefit of having these assets. Actually, you know, an unfavorability, too, of having some of these assets. So, you know, it's not just FKC. We do have a pharma business and we have a pharmacy business. So that's why I wanted to put color on, you know, the $100 million is a proportion of that is there's two positives and a negative, if you will. And overall, it's netting to 100. Obviously, you know, as the binders utilization changes, we may see that, you know, the kind of utilization going down and the cost of those drugs changing. So I think that's why we have this data period to monitor what happens to the utilization. Look, this is a little different, I would say, as well to calcium emetics, which is the other you know, kind of bundle edition. We all recall, well, maybe before my time, but you all recall. In binders in the bundle, there is, different to calcium and medics, is that there's already generics and branded in the mix. So we'll see how this plays out, obviously, over time. But we feel, you know, we feel good about the assumption across the entire portfolio. And that's why we will also keep looking at the assets in the portfolio as that evolves over the Tdapa period.

Okay. Thank you. The next question comes from Robert from Mobile Stanley.

Afternoon. Thanks for taking my question. I had one around just on the additional savings that you announced. Could you kind of break it down, the components of where that's coming from, and just in terms of the phasing and timeline, how you expect those to play out through 2025? And then just the second one was around the commentary you provided on labor and cost inflation. Just perhaps could you give us a little more detail? What's the sort of main areas of sort of labor cost inflation? Is it bringing in new nurses? Is it higher sort of turnover and bringing people back? I know you'd mentioned previously that it sort of started to settle down. So I just wondered if we get a bit more color where the remaining bite points are. Thank you.

Yeah, thanks, Robert. I'll have Martin take the first question on the FME25 question. additional value creation, and then I'll take the labor costs.

So when we look at the program, we have accelerated the execution quite a bit, as you saw also in our quarter four results, where we ended with the $221 million. Main drivers in that, when you look at the savings, is number one being anchored in our more efficient setup of the functions which contribute about 50 percent of the savings and we see more potential as we doubled down on those and drive efficiency in our processes as well as a significant contribution to our care enablement business and this is on the back of continued manufacturing optimization logistics supply chain and those are the bulk of the initiatives also for the 100 million additional savings And lastly, there is a smaller portion of about 10% being with the care delivery business when we think about the clinic network.

Yeah, and Robert, on the labor cost, thank you for asking that. We're assuming in that headwind around a net 3% increase. You know, there's two pieces of that. Obviously, we say net because we're continuing to drive efficiencies and managing wage inflation. But I think the other piece to think about that for 25 is as we have now normalized our headcounts, and open positions have reduced again further. So we're pretty normal now on open positions. It means we have more people, which is great for keeping our operations running. So that's the way to think about the labor headwind, a net 3% of efficiency and growth, and we're managing through that accordingly.

That's great. Thank you.

Thank you. Next question comes from Marianne from Bank of America. Marianne, the line is yours.

Hello, good afternoon, and thank you for taking my question. The first one is, could you please remind us how much debt is coming up to maturity in 2025 and what evolution we should see for the net debt to EBITDA ratio given you're already below the self-imposed target for next year? And as a quick follow-up, can you talk a little bit about the capital priorities for 2025, especially you were mentioning the CAPEX, so just wondering how how is the order looking between CapEx and cash return shareholders? Thank you.

Thanks, Marianne. Let me take those two. So number one is the maturities. It's about 500 million that we have upcoming in 2025, and then we have a bigger tower upcoming in 2026 with about 1.9 billion. We feel well-positioned, as you saw. Also, we are a strong cash generator, both in quarter four as well as the full fiscal year. With that, capital allocation priorities. We will give a more comprehensive update at the capital market day together with the strategic priorities of the company. But you saw that we came down on the back of the strong cash generation, which we expect to continue in 2025 as well, in the leverage ratio to the 2.9 and are already below our current self-imposed ratios. we have limited upside from further improving our investment grade rating. For us, it was important to keep the investment grade rating, and we have accomplished that, which is good. Now, when we think about a comprehensive update of capital allocation, I think there's two main focus points. Number one, supporting the business and profitable, sustainable growth in alignment with the strategy as I pulled out, and make sure that we cover that. And number two, then also with the strong cash generation, we are thinking about how to... Well, we think about the importance of shareholder returns as well. And I think you can expect us to get more crystallization about that in the capital markets.

Okay. Thank you very much.

Yep. Thank you. The next caller is James from Jefferies. James, the line is yours.

Yes, hi, thanks for taking my questions. Just a couple on FME25, if I may. I guess if we just take a step back, when you first sort of announced the program, there's sort of 500 million in savings, I think it was, and now we're sort of sitting at 750 million. Given it was such a comprehensive review at the outset, can you help us sort of understand how this has evolved? Was it initial conservatism to the market on the scope? Was it a forward impact of some savings which you made which had a better benefit to the business or additional programs which perhaps, you know, were kind of announced sort of down the line? I know you sort of spoke that this is sort of, you know, evolutionary rather than kind of revolutionary from here, but just a sense in terms of how that's evolved and how we should think about sources of incremental improvements from here operationally. Thank you.

Thanks, James. Great question. And I know when I kind of architected this program, I think people had thought I'd lost my mind when I sized it at 500 million. So it does feel good to sit here today and say we're clearly at 567 and achieved that and so much more. Look, James, what I would say, it's not just about the cost program and the efficiencies. This is all kind of embedded in the reorientation of the company into the operating model. And that real visibility into end-to-end P&L, every line item, the financial transparency to look at where we have opportunities, I think has clearly outperformed our own initial expectations. Obviously, with a program that size at the beginning in the 500, we had hoped we could do more, but we didn't have any living experience of running the company this way. So I think clearly as we have now been running this company as the segment for a little while, we are continuing to go deeper. And I think that's really important with the color that Martin gave you of where it's coming from. So I think you're right. It continues to evolve, and we will continue to look for every opportunity we can. We know what we're trying to get to, to be leading industry margins and improve the margins that we had, and I think that progress is visible. So very, very excited about the momentum and the sustainability of those savings into 2025 and beyond. So, yeah, I'm happy to upgrade it and actually put the execution behind it. So thank you for the question.

No, thank you. And I guess maybe just in terms of delivering the $750 million, I mean, it's obviously cost, you mentioned in the release, $700 to $750 million to get that. And I think related to FME, it's about $164 million or so in 2024. So I'm not expecting you to go beyond $25 today. And I know you're going to be talking about stuff at the Capital Markets Day. But should we think that this sort of, you know, what you've been having in terms of related to this program of $130, $160 million of costs, whatever, will essentially kind of disappear? Because as we get into next year, those sort of sustainable savings have kind of come through, just to help us sort of understand what basically will be considered adjusted?

Capital markets day.

Okay. Okay. Thank you. Thank you. Next question is from Hugo from BNP Paribas.

Hi, hello. Thanks for taking my question. I just left with one. On the 5100X, the clinical benefits are impressive. Just conceptually, Hélène, maybe how critical do you think this platform is to drive volumes maybe back to 2%? Should volumes remain netted beyond 2026 or maybe help drive volumes higher than that? And what's the timeline here? Thank you.

Yeah, look, this is part of why I'm so excited about this opportunity. You know, we're obviously all looking for mortality to come down and, you know, volumes to normalize, which we fully expect them to. What we haven't had in this industry is the kind of innovation that drives this significant improvement in mortality that 5,008X and the HDF treatment can do. Look, when we talk about elevated 17% mortality in the United States, We do need to compare that to the 12% that's in Europe, where HDF has been on the market for a decade, and it is the standard of care. So, you know, with a convinced study really supporting that 23% improvement in all-cause mortality, there's no reason to believe that we don't get that in the U.S., and that's the exciting opportunity. So... you know, taking that on average to the end degree, you could say it's a 23% improvement in volume, not a 2% improvement in volume. Now, obviously, that needs to ramp up over time, and we'll see how the numbers really stack up in the United States, but I think that is obviously the opportunity that we're excited about. So, you know, the volume growth there, we're clearly, you know, want to plan for, and I think you know, understanding how that all impacts our footprint will be key, and also why HDF will form a key part of our CMD update in June.

Thank you, and congrats on the results.

Thank you. Thank you. I really appreciate that.

Thank you. And as we are out of time, we'll take one last caller who hadn't had a chance to ask a question so far. So, Falco from Deutsche Bank, the line is yours.

Thank you very much. I'll ask one. On the same market treatment growth, do you feel like you are gaining a little bit of market share again here in the fourth quarter and feel like you're in a position to potentially gain a little bit again throughout 2025? Thank you.

Yeah, thank you for the question. I think a little bit of both. Obviously, you've seen our results from what we posted today. You've seen some other industry numbers. I think, you know, our work is paying off. Clearly, we had been, you know, kind of lagging where we wanted to be operationally. So I think the, you know, our work in terms of accepted referrals, improving our processes, and better disaster management is clearly enabling us to get those patients, but keep those patients as well. So it's probably a little bit of both, but it's very complex where all the patients coming in, but also keeping those patients. So I feel the team is doing a terrific, terrific job, which is what gives us the confidence going into 2025 from what we've seen the last couple of quarters and even January. And, you know, you know we wouldn't be guiding if we didn't kind of see that that was the, you know, the kind of the projections that we have because it is an element of our own work and that strength in our performance.

Thank you.

Thank you.

Thank you. And thank you, Helen, Martin, for running over. I apologize to everyone who couldn't make it in the queue. So thank you very much. We'll be out on the road in many conferences, road tours, and calls. So I guess you get more opportunities to learn more about our exciting 2025. And with that, thank you.

Thank you, everybody. Take care.

Thank you.

Bye.

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