Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the Fresenius Medical Care earnings call on the second quarter 2018. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead, sir.
Thank you, Stuart. We would like to welcome all of you to the Fresenius Medical Care earnings call for the second quarter 2018. We really appreciate you joining on such a hot summer day. As always, I'm happy 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. In the previous quarters, it turned out to be a good approach to limit the number of questions to two. If there are further questions, we are happy to go a second round. I hope this works for everyone. With us today is Rice Powell, our CEO and Chairman of the Management Board.
Rice will give you a business update, go through some of the highlights of the quarter. Of course, also with us is Mike Brosnan, 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. Good morning. Good afternoon to everyone. We appreciate your joining us today. Let's go to slide four. I'll begin my prepared remarks, if you will. We are on track to achieve our 2018 targets. Q2 is a good quarter. It's an improvement from Q1. We continue to see progress quarter-to-quarter. We will continue that through the back half of the year. As you can see on slide four, we had 3% growth for all of our three key measures that we share with you, our clinics, patients, and treatments, and our quality remains on a consistently high level. If you turn to slide five, you can see that we are performing at a very high level in our clinics.
You see the number of key indicators that we measure ourselves against, and you can see it spread out across the regions. I'll make more commentary on that. If you have any questions, I'm happy to take those during the Q&A. Turning to slide six, what are the highlights for Q2? Not a highlight, but a fact, the results continued to be impacted by strong currency headwinds. We've had solid organic growth across the board. Congratulations to the North American products business. They continue to have a very strong performance. Each of the regions performed well in their product franchises, and they made progress in their service franchises as well. Care coordination, margin improvement, and revenue decline came in as expected.
In the quarter, our margin for Care coordination is 6.7%. We'll have some more color to give you on that during the Q&A and during Mike's presentation. Calcimimetics, they continue to evolve. As you remember, we are moving from Part D in David to Part B in Barry, pharmacy to the clinics. We believe that we're probably two quarters in to a three to four quarter process in order to get this sorted out with great clarity and detail. Let's keep in mind that this is a medical decision. It's an algorithm based on focusing to the highest outcomes for our patients. This is a titration or a step-up situation where we start with low doses and we move up over time in a very safe and effective way, as determined by our patients' physicians. We had a very efficient divestment of Sound.
I know that a number of you have some questions on the gain. Mike will be happy to take you through those details, but we're glad to have this accomplished and behind us. The ESRD prospective payment system draft rule for 2019 came out on July 11th, about 10 days later than we thought it would, but that's okay. It came out with a proposed increase of 1.7%. I personally thought we'd have had a lot more favorable discussion about that. A little disappointed that we didn't talk more about it since it was such an overhang going into it. We'll take it, and we'll see where we end up in the early days of November as we move to the final draft. Turning to slide seven. I won't cover this slide.
What Mike and I wanted to do was to give you a reconciliation document that you could look at as we go through today's call. This originally was in, I think, slide 30. It was in the backups. We wanted to move it forward. You have it. Hopefully, you can look at it as you need to. I will make my commentary on slide eight, if you will. For the second quarter, our net income growth came as we expected. Yes, you will notice that there are three views or looks on revenue, three on EBIT, three on net income. We are consistent, if nothing else. I will speak to the comparable basis. You can see constant currency growth on the revenue on a comparable basis at 5%. We're looking at EBIT on a comparable basis at 4% constant currency.
When you look at net income on the comparable basis line, we are up 22%. A little more commentary here. Obviously, the very large gain that you see has got the Sound divestment in there. We have backed that out and that gives us the 22%. We have also taken out the tax savings effect, if you will, and you are looking at net income adjusted at 6% in the quarter. Looking at H1, which we are not really going to talk about, but we are at 7%. Just wanted to give you that color as to how the net income has unfolded over the course of Q2. If we turn to slide nine, looking at the organic growth across the regions, everybody had a hand in progressing over Q1 into Q2. You can see the numbers.
I am not going to read them to you other than to say Latin America is doing a very nice job at 10% constant currency, and you can see the contributions from the other folks. I will say it, just to give you a reminder, the North America growth is impacted by the currency headwinds and obviously the lower expectation that we had for care coordination revenue. If we turn to slide 10, looking at our organic growth, as I am not likely to want to do is to take you through each of these numbers. We have laid them out for you, as you can see. I would just simply say for North America, I think it is important to note that if you look at the dialysis care revenue that is buried in some of the other schedules we have for you, that is up 4% on a constant currency basis.
If we exclude IFRS 15 and the VA, you see a 7% constant currency basis in our core business, and I think that is worth noting. I also think it is important that we just take a look and see how well care coordination in Asia Pacific is doing. About 20% of that is acquisition, the other 12% is organic, and we are happy with both those numbers. With that, I think I will move on, and I am sure we will have some question and answer dialogue on some of the other pieces on this particular slide. Turning to products. Solid growth continues. Let us go back and just let me make the comment that Mike and I guided you to 6% growth in the dialysis products for 2018, and we look to be right on schedule here. As you can see, 6% constant currency growth.
North America at 10% is doing quite well. EMEA, Asia Pacific are doing well. Latin America is down at 2% constant currency, but let us give them some credit. In Q1 2018, they were at 25% constant currency growth, and exiting Q4 last year, they were at 15%. I think we will give them a little bit of a slowdown here in Q2, see what the remaining quarters bring us. I won't go through the details on the product mix, if you will, across the regions. If you have questions on that, feel free to ask me, and I am happy to give you some more color if you like. Slide 12. In conclusion, we have solid underlying business growth. Yes, we are going to have to accelerate our growth in the second half. We forecasted that, and we expect that to happen.
I would say the products franchise is moving solidly to delivering on what we have said they would. The services businesses are accelerating around the globe, we feel good about what we have to do. We will be busy. We have work to do. It would not be the first time that the second half of a year has been very busy for us. We still believe the NxStage closing is on track for the second half of this year. You have seen from our press release that we extended the merger agreement out 90 days. We moved it from August 7th to November 5th, we believe that is a viable timeframe for us to see a closure of this business. We continue to work with FTC. I am sure you will have some Q&A on this, we are happy to speak to it there.
I would leave you with the fact that we are on track to deliver on our revenue and net income growth targets. With this, I will turn it over to Mike.
Thanks, Rice, and hi, everybody. Continuing on chart 14, again, using the format that we started last quarter, just to give you a sense of revenue growth. This would be on a comparable basis year-over-year. I will talk about that further, but you know we made some adjustments to the base period to make this comparable. You can see we have reflected EUR 131 million as an adjustment to the prior year revenue figures to put last year on a consistent basis with regard to IFRS 15. This gets you to a base of EUR 4.340 billion. Very small adjustment in the second quarter related to the translation effects of the U.S. Department of Veterans Affairs settlement. We had 5% constant currency business growth in the quarter of roughly EUR 200 million, which is consistent with our overall guidance for the year.
Lastly, you can see the currency headwinds that we are facing with the EUR 320 million adjustment, or about 7% in the quarter. Turning to chart 15, now looking at net income growth with the two views that we have been describing. At the top of the page, it is the net income as reported on a comparable basis. We guided for the full year at 13%-15%. When we look at the quarter's performance, you can see the business growth of EUR 58 million, which gets us to a constant currency growth rate in the quarter of 22%, a little bit above what we had guided to for the year. This includes, obviously, the tax effect associated with U.S. tax reform on 2018 earnings. It reflects the currency developments we have seen in the quarter.
In addition, you're seeing the net effect associated with the sale of Sound in the second quarter and the closure of that transaction. I'll come back and talk about that in a little bit more detail when I talk about North America and its margin development. The view on the bottom of the chart considers the 2017 base earnings of €1.204 billion. This was adjusted, as you know, for matters that we considered last year. The most important effect on a quarter-to-date basis or for the second quarter is the VA adjustment that we made in the first half of 2017. Continuing, you can see the business growth at €17 million, roughly 6% constant currency growth, just a little bit shy of what we've guided to for the year. You see this coupled with 8% growth excluding special items in Q1.
On a first six months basis, we're still on track with our guidance at 7%. Currency effects of EUR 18 million and the divestiture gain, as I mentioned before and as I'll cover in more detail in a few moments. Turning to Chart 16 and looking at the development of our margins on a regional basis. I would just say overall, in terms of our global margins, what you've seen, excluding IFRS 15 and the VA settlement as well as the gain associated with care coordination activities, our margins overall were nearly flat at 13.5% compared to 13.6% in the second quarter of 2017. When you move into the regional developments, you can see in North America operating income was up €316 million to €1.286 billion in the quarter. Obviously, this is a consequence of the gain associated with the Sound divestiture, which was €833 million.
This gain is slightly higher than what we announced back in June. The principal elements driving the change are an increase due to the cumulative foreign currency considerations, partly offset by a true-up of the net working capital as of the closing day. Excluding this gain, our margins were 15.2%, essentially unchanged from the comparable period last year. Our dialysis business operating margins decreased 110 basis points. And considering the implementation of IFRS 15 and the VA agreement, the margins decreased by 170 basis points. Lower revenue per treatment from commercial payers, higher implicit price concessions, which as you know is the new term under IFRS 15 for what you anticipate you'll collect with regard to your billing arrangements on the services side of the business.
The implementation of the PAMA oral only or the calcimimetics, a small cost increase in property and other occupancy costs, and these were partly offset by lower costs for healthcare supplies. Adjusted for the implementation of the VA agreement and IFRS 15, revenue per treatment increased by $13 from $341 per treatment to $354, and cost per treatment increased by $14 from $272 to $286. As I discussed in our Q1 call, we will see some volatility in the development of calcimimetics over the year, which is why I guided revenue and cost per treatment in the U.S. net of this effect. I indicated we expected the operating earnings effect of calcimimetics on a net basis to be around a dollar loss for the year. I'm continuing to indicate that as our expectation for 2018. Our guidance still holds.
We expect revenue per treatment will be flat to slightly down for the year, cost per treatment will be flat to slightly up, excluding calcimimetics. Talking about the care coordination margins for North America. You can see in some of the supplemental material we provided, obviously a substantial increase. This reflects the gain, again, associated with our care coordination activities. Beyond that change, the margin has improved in the second quarter, both year-over-year and sequentially. This was driven by the prior year effect associated with the valuation of our subsidiary share-based compensation. It was driven by our pharmacy services in the current year, partly offset by the implementation of the calcimimetics, lower bad debt, and the effect of reimbursement for our cardiovascular and endovascular businesses.
While we are discussing care coordination, I would comment that with the sale of Sound, I would revise the indication that I gave you in February for the year. With Sound in the figures, I indicated our care coordination globally that revenues would decline from 4%-6%. This was being principally driven by the change in calcimimetics as well as generic sevelamer. Now that Sound has been divested, I would indicate our revenue growth would reflect a decline of 9%-11%, but that our margins should improve from the 7%-9% we indicated in February to, I would say at this point in time, high single digit to low teens in terms of margin and care coordination globally for the year. Turning to Chart 17 and looking at the profile of our other geographic regions.
For EMEA, operating income was down EUR 8 million or about 7%, both in current and constant currency. Margins decreased from 17.6% to 16.1%. This was principally driven by lower income from equity method investees, higher personnel costs in certain countries, and an increase in bad debt, partly offset by a favorable effect of foreign translation. In Asia Pacific, operating income was unchanged at EUR 78 million. It is up 3% in constant currency. The margins were impacted by the unfavorable effects associated with foreign currency transaction and some increased costs related to our business growth in the region, partly offset by translation effects. Care coordination margins in Asia Pacific improved from 9.1%-11.8%, obviously positively impacted by the continued development of the Cura acquisition that we accomplished last year. Latin America operating income was slightly down by EUR 1 million, with our margins unchanged at 6.8%.
This was essentially a wash of higher bad debt expense, which was nearly offset by currency translation impacts. Turning to Chart 18, looking at cash flows. The cash flow in the second quarter was very strong, but compared to cash flows in the prior year, it has been affected by payment delays, especially by increased accounts receivable related to the addition of calcimimetics. Underlying this, we also had a reduction in our DSOs, which was larger in the second quarter of 2017 than the comparable period in 2018 for North America, which favors last year's cash flow from operations. We had an increase in DSOs in our international business, which created a small headwind in the second quarter of 2018. The result, once again, is still very strong cash flows as a percentage of revenues at 15.6% for the quarter.
Turning to Chart 19 and touching on our Global Efficiency Program. We indicated that we would update you twice a year on this. We continue to make progress in fiscal 2018. Our goal continues to be to generate sustained savings of at least EUR 100 million by the end of 2020, with an upside potential of up to EUR 200 million. We have launched the projects in the organization, and I am very proud of how the employees around the world are working together to contribute to the initiatives you see on the page. We are advancing with the program. I had indicated earlier in the year that I anticipated our sustained savings that we generate in fiscal 2018 would likely be offset by implementation costs. That continues to be the case.
I will provide an update in February with regard to progress we're making, and particularly a view towards what we would expect in fiscal 2019 in this area. With that, I would turn to Page 20, which is the basis for our targets with regard to the continuation of fiscal 2018. Very similar to the chart that Rice showed but did not discuss in detail at the beginning, which related to the second quarter, this shows you the impact for each of the things we've guided to, both revenues and net income on a comparable basis, as well as revenues and net income on an adjusted basis. You see, for 2017, we continue to carry the impact of IFRS 15 on last year's numbers.
That figure is unchanged, we've now added the fact that with the sale of Sound in June, we have adjusted the base period to make it comparable to our expectations for the full year, taking out about EUR 559 million of Sound's revenues for the back half of 2017. On that basis, we are continuing to confirm our guidance in the range of 5%-7% constant currency for the year. With regard to net income, you see a similar adjustment to the base period for Sound of EUR 38 million to come up with a new baseline for net income on a comparable basis of EUR 1,242 million. We're confirming our expected growth of 13%-15% constant currency.
Net income as adjusted, you see the impacts associated with all of the elements from the prior year, including tax reform, to get to an operational level of earnings guidance of a growth of 7%-9%, which we are also confirming for the fiscal year. Turning to Page 21, I've now more or less explained in detail the basis for the numbers that we're confirming on the page. For convenience, what you see now on the right-hand side of that page is the new adjusted base for fiscal 2017. We're continuing to indicate that our targets for 2020 are unchanged, as is explained in the footnote, we recognize that we have yet to close the NxStage transaction.
We have now divested Sound, we also have the longer-term impacts associated with the tax reform in the U.S. that will influence these numbers as we move forward. I would add just a couple of more detailed updates with regard to our guidance that came up in our Q&A in the February call. I had guided to interest for the year in the range of EUR 320 million to EUR 340 million. I would just slightly adjust that guidance in part as a consequence of the proceeds we've received on the Sound transaction. I would revise that guidance to EUR 310 million to EUR 330 million, so a EUR 10 million change off the top and the bottom of the range. I would just indicate we had a favorable effect associated with the Sound transaction from a tax rate perspective.
The underlying tax rate, I would indicate our range is unchanged, 23%-25%, but I would tell you we're probably leaning more towards the low end of that range as we come into the back half of the year. With that, I would open it up. I turn it back to Dominik, we can open it up for questions.
Mike, thank you for the presentation. I hope we have pre-empted already a couple of the most pressing questions. With that, I'm happy to open the Q&A for more insights now. Stuart, can you open the Q&A, please?
Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. In the interest of time, please limit yourself to two questions only. Anyone who has a question may press star followed by one at this time. The first question is from Tom Jones from Berenberg. Please go ahead, sir.
Good afternoon. I do indeed have just two questions, one for Mike and one for you, Rice. Firstly, for Mike, I was just wondering if you could just try and tease out a little bit more for us what the underlying calcimimetics revenue per treatment growth was in Q2 and remind us what it was in Q1. I'm just trying to get a sense of what you need to do in H2 to get to a kind of flat to slightly down revenue per treatment number on an underlying basis for the full year, and perhaps what the key swing factors in H2 might be in that regard. The question for Rice, on the Medicare rate proposal. The rate obviously looked reasonable this period, much better than we've had in recent years.
My question was more on the potential methodology for drug add-ons going forward, whether you've got any comments in terms of the methodology that CMS seems to be proposing there. It seems to be aimed at the HIF inhibitors specifically. On that topic, kind of wondered what your general thoughts around the HIF inhibitor space are at the moment, and how you might see those getting folded into your business if and when they become available.
Sure, Tom, I'll grab the first one. I was very transparent in the first quarter, I'll do the same this quarter. When you look at the influence of calcimimetics in Q2, and these are rounded numbers, because obviously if I said I've got about a USD 1 of friction, that can get lost in the rounding. In a quarter, calcimimetics was worth about $16 for both revenue and cost per treatment rounded. That would give you roughly $13 revenue and cost per treatment for the half year. Just to remind you, Q1 was about $11 per treatment. Because of the volatility, I'm more focused on the earnings estimate, and that's why I guided for both revenues and cost excluding calcimimetics. If that's helpful.
Sure.
Okay.
Thanks.
Tom, it's Rice. Yeah, relative to the potential methodologies, I guess I'd have two comments. One is I think everybody's rushing the HIFs along at warp speed. I just don't think we're going to be looking at them getting approved as early as some other people do. Having said that, it doesn't mean we shouldn't be thinking about the methodologies and how that's going to work. I would tell you that this whole calcimimetic to that thing that we went through was not well worked out, if you will, when it first came out. We felt like there was a lot of information that could have been more forthcoming. We kind of layered that into the discussions we've had with certain pieces of CMS.
We're still kind of working on that, but we would like to have a little smoother process than we had going around on this first one. Let me stay tuned on that, and we can chat about it probably next quarter or whenever you like.
Okay. Fair enough.
The next question is from the line of Veronika Dubajova from Goldman Sachs. Please go ahead, ma'am.
Good afternoon, gentlemen. Thank you for taking my questions. I will keep it to two. My first one is Mike, just curious about the margin for Europe as you think about the second half. Clearly there is some one-time impact around the Vifor JV, but I'd like to understand some of the investments that you're making into the business and what they might mean for margin. If you can give us some color on that would be helpful. My second question is actually for Rice. If you can give us an update on where you are with ESCOs. And related to that, I'm going to throw in the two legislative acts in the U.S., which is the Patients Act and maybe the MSP extension, what your expectations are for timing on both of those. That would be great. Thank you.
Okay, Veronika. I think if I look at this big picture, I think we're going to continue to invest in the business in the back half with regard to the markets that we're continuing to expand to on the Vifor Fresenius Medical Care joint venture. I would say I'd expect margins to continue. The cost associated with the Vifor developments is really the ramp related to the dialysis developments in India. If that's helpful.
Veronika, ESCOs. We are sitting in a place today where we're roughly at about 41,000 patients in the ESCOs, which we've been there for most of the quarter. We could see that going up a little bit, potentially, but I think the better part of your question to answer is, we don't really see this going up exponentially, if you will, at any significant degree until we get release from CMS or CMMI, that they're going to allow us to add more locations beyond the 24 we have today, or they could do what they did this year, which is say, "Keep your 24 locations, but we'll let you open up each of those locations or select locations of the 24 to grow." We're going to have to kind of see where that goes.
We are prepared and ready to continue growing, but we're going to have to have some understanding and some cooperation from CMMI on how they want to approach that. Now, looking at the Patients Act, is the last time I think I talked with you, we've got, I believe, I want to say something like 156 members of the House that have signed on to the bill. From the Senate side, I think we're at nine or 10 senators that have signed on. I think realistically, from a timing standpoint, obviously this is Rice opinion, with midterm elections coming on, the fight over the Supreme Court, I think we've really got to find a vehicle to attach this bill to. That could yet happen this year, but if not, I would think it would be very likely we could see that coming in the beginning of 2019.
At this point, I just don't see a standalone Patients Act getting done by itself. As you well know, that rarely ever happens. It's going to ride on another bill, I just don't know how much focus we're going to get out of the Senate at this particular point in time with everything that we've got going on. We'll have to see where it goes. On the MSP extension. MSP extension is in the House bill for paying for the opioid crisis, as you know. The Senate has not put a bill together yet. We hear that's going to be worked on in the remainder of the year. We don't know what they're going to do about MSP in their specific bill.
My guess would be once they get their bill done and they go to committee, members of both houses come together, we'll have a better idea of where this may go. At this point, don't know how to tell you to handicap that, since we haven't seen the Senate take up a bill that would have the opioid situation in there, and we don't really know what they would do on MSP just yet. We're obviously pro. We'd like to see that, but we're going to have to kind of see what those two bodies do over the course of the remainder of the year.
Okay, sounds fair. Thank you both very much.
The next question is from the line of Patrick Wood of Bank of America. Please go ahead, sir.
Perfect. Thank you for taking my questions. I just have a couple if I can. The first would be on the capitation rate for MA. I know it's a tiny market at the moment, but I'm just thinking long-term going forward. I've seen some rumblings from insurers where they feel, I'm sure they do, that they're being treated unfairly, the capitation rate that they're given by CMS. I'm just wondering how you expect that MA rate to evolve as that pool of MA dialysis patients potentially grows over the coming years. That'd be the first one. The second one is a little bit more short-term. Just wondering if, you guys are obviously very confident about it in terms of the investment, but should we be thinking about incremental investment within California, given that bill is on the ballot?
If you have any update also on the side of that on SB 1156, that'd be helpful. Just to get your color on those two, that'd be great.
Okay, Patrick. What I would say on the capitated rates with the Medicare Advantage, there's probably never a time that I see the insurers are happy when it comes to things like this. When we look out into the future, I think there's gonna be a lot of time and room for discussion on how we structure this. I don't think there is a well-established playbook at this particular moment in time as to where this is gonna go. As you well know, as we come into January 2021 with Cures Act and what's gonna happen there, this is all gonna kind of come together. We need to be very focused and active next year in 2019, trying to work through these things and see where they're gonna go.
I don't know that I can really give you a good handicap or direction as to where it would go at this point in time. Looking at California, what I would tell you at this point, and I've said this before, we have budgeted money to defend ourselves and to try to defend our patients, if you will. We have not put any of that in our guidance. We feel like we can manage the situation, should it come to a place that we think we have to ramp up our spend such that it would actually impact our guidance, we would obviously come tell you that. We're not there at this point in time. When you look at the Senate Bill 1156, we're obviously trying to educate people about this.
We're trying to get them to understand, both in the general public, if you will, and then really in the legislative halls, that this is a real discrimination against patients that need premium assistance. It is too close to call, just as the ballot initiative today is too close to call. We are watching and working daily. This is an industry-wide set of activities that are going on, I don't know that I can really handicap it for you right now. I think it's going to take some more time to see where we are. Rest assured, we are active and busy each and every day with these two topics.
Smashing. Thanks for color, guys.
Next question is from the line of Lisa Clive from Bernstein. Please go ahead, ma'am.
Hi, two questions. First question, or rather a clarification on the bundled rate rebase. Just to be clear, the 2019 CMS rate proposal that was published earlier also included a reweighting of the dialysis market basket to reflect a more updated clinic cost structure. This does effectively factor in much lower EPO pricing now that you've had Mircera in the market, correct? I'm just trying to understand, because I think there's been lingering concerns that CMS could have scope for another clawback. I'm trying to understand if that risk has been largely mitigated as lower drug costs have indeed been factored in now, but it was offset largely by higher wages, and whether that's just the right way of looking at it. The second is that the presentation mentioned lower reimbursement for cardiovascular and endovascular services. Is this a new round of cuts?
I know you were in the process of transitioning to ambulatory surgery centers. How is that going, and is this a sort of incremental headwind to some of your care coordination activities?
Lisa, how about I take one and Mike, if you would-
Sure.
you can take two. We think you're looking at this the right way. We do think that there's been some benefit of data, if you will, based on where we are in our ESA usage and how that's worked through our system. We think you are looking at it the way we do similarly. As you know, as I made rounds earlier this year and I've talked to people, and they asked me about the callback and when would it come, I've pushed it out a couple of years, but I've typically said more has got to happen, i.e. Retacrit's got to come, some other things need to come if we're really going to affect this to a point that there needs to be a big rebase, and I think people are harking back to 2013.
For next year and the way we look at that, Lisa, I would agree with the way you're approaching that.
Lisa, on your second question, yeah, we're not seeing any significant change over the reimbursement rates. It's more associated with the ASC conversions and the timing associated with getting the approvals from the state inspectors on those, and the rates we're seeing in the NCP side of the business. If that's helpful.
Just to follow up on the NCP rates, is this a temporary issue, or are you just seeing lower rates going forward?
I think if I think in terms of fiscal 2018, we may see a little bit more as we finish out this year, and then that should stabilize in 2019.
Yeah, we're fairly active talking about rates with folks, but you don't move that boat very quickly. We do have ability to get in and complain, if you will, and try to understand why they think it should be the way it is. I think Mike's right. We're not going to change that trajectory probably in the next five months of what's left in this year.
Okay, thanks very much.
The next question is from the line of Ed Ridley-Day from Redburn. Please go ahead, sir.
Thank you. Yes. First of all, just a clarification on your guidance for care coordination revenue now that Sound has been divested. Just to confirm, the 9%-11% decline, that is effectively still including the performance in the first half, not a pro forma guidance. Secondly, on the margin in Europe, which you already made some comments on, could you give us a bit more color on the staffing pressures, where those staffing pressures are coming, and the balance of pressure there between the investment you've discussed and your increased staffing pressures? Thank you.
You do one, I'll do two? Okay. I'm going to jump ahead of Mike. He's got to look something up real quick, Ed. Yeah. What the European margin pressure from a staffing standpoint really comes from two countries, Romania and Hungary. In the case of Romania, that was a decision we as a company made that there should be some adjustment in nursing compensation, if you will. In the case of Hungary, that was more dictated by the government, which we don't really get to opt out of, as you can imagine. Those were the primary drivers in the Eastern Europe-based countries.
Yeah. Ed, just coming back to you on the first question. I just wanted to clarify, because when you said pro forma, the 9%-11% is the full year guidance associated with care coordination excluding Sound. We made the same adjustment in terms of our margin expectations that we did for the revenues and the earnings. We adjusted the base period, the second half of last year, for the Sound effects.
Okay, yeah. It adjusted the second one. Okay, thank you.
Okay?
Sure.
Now Gunnar comes from Deutsche Bank.
The next question is from the line of Gunnar Romer from Deutsche Bank. Please go ahead, sir.
Gunnar Romer, Deutsche Bank. Thanks for taking my questions. The first one would be on cost per treatment, quite a nice development quarter-over-quarter, I think down $7 if you exclude the calcimimetics step up. I am just wondering whether you had some comments here on what has been driving that decline. Secondly, on corporate cost, you keep on trailing significantly below what you indicated at the start of the year. Just curious whether you are still in a position to confirm that guidance and what should drive the increase in the back half of the year. Thanks.
Thanks, Gunnar. On cost per treatment, I may have commented, I'd say, at 60,000 feet, it's reduced medical supply costs that are offsetting some of the property increases and the like, I'd say balanced labor costs. No extraordinary developments on the labor cost side is driving that. On corporate costs, I think we'll just confirm our indication on corporate costs for the year.
Okay.
Okay.
Okay. Next question is from the line of Tom Jones from Berenberg. Please go ahead, sir.
Hi, thanks for taking me again. A couple of more general follow-up questions on your Asia Pac business, actually. The first was just the difference between the organic and the constant currency revenue growth rate in Q2. There was a near five percentage point difference. Just wondered what you divested, more specifically, why, and whether that represents a change of strategy, perhaps in Asia Pac or it's just a bit of a portfolio trim. Somewhere in the release, you mentioned investments in growth in China, didn't say much more. Just wondering if you could expand on what you're doing in that particular market at the moment.
Sure. Let me take two, Tom, we'll come back up to one, I'll let Mike handle that. In China, I'd say there's really two places where we're seeing investment. One is we are putting production capability in for PD. We have been servicing the PD market in Asia Pacific out of EMEA, obviously that gives us some transaction concern. To put it in country we think makes sense, there's some investment that'll come into there, as you well know, when you put production capacity in a factory, you've got to have volume, you got to really get ramping in order to get your most ideal cost. We've tried to give you a heads-up that that'll be some impact as we go through the next quarters.
We've also put more people on the ground in China, relative to helping us with our sales and business development and things of that nature. It's just really us putting more resource into that particular country as we continue to go through the remainder of this year, going into next year. As I've talked before, back on the production side of this, we don't know when. We don't think it's a matter of if, we think it's when, we might be looking at an amount of content in our products that must be local in China. We think we need to get ahead of that as we've done in other regions over the years.
Sure. Tom, on your first question, just to help me out, were you talking revenue or EBIT?
It was on the revenue number.
On the revenue number. Organic versus constant currency?
Yeah, it was 0.2% constant currency in the dialysis care businesses in Asia Pac.
Right. Okay.
4.8% on an organic basis.
Yep. Okay, fine. Yeah, what's driving that is we did have some consolidation activity and some divestitures in India, which we anticipate that business is going to continue to grow for us, it's a little bit of a timing issue with regard to the second quarter.
Yeah, I think our peak, we were at 51 or 2 clinics, and we're down around 40 now because they were in some locations, didn't make sense, and we're kind of rebalancing the portfolio, but that number will come back. Mike's spot on.
Okay.
Okay. No significant change of strategy, just a bit of portfolio juggling?
That's correct.
Correct.
Yep.
Perfect.
People on the ground know better than Mike and I, so we're listening to them.
If I could just slip one more cheeky question in. On PD products, you haven't launched much in terms of new meaningful upgrades since the Liberty cycler. From memory, you had a JV with a, I think it was a Swiss sort of design house. Then if my memory goes back even further, you were working on some sorbent dialyzer stuff. Is there anything you can add, obviously without giving away too much competitively, about your product pipeline in the PD space?
Sure. You're correct, your memory serves you well, the Liberty cycler has really been focused in North America. We have a SILENCIA cycler, a little bit different that's in the rest of the world. That's the only one you missed. Yeah, the JV with Debiot ech is still underway. It's been a little harder than we thought it would be for some of the clinical things that we're being asked to provide, but we are continuing to work on that, and it's coming. It'll be there. Then on the sorbent side of this, we have good confidence in our cartridge. It's working really well. We're less happy with what we see on the hardware side, but we're working on that. We've got some plans. I don't think I can probably say much more than that.
We've got some new members that are going to come into the family here down the road, that they've got some great ideas about where they might can help us, I'll leave it at that.
I think I won't ask any more on that.
Okay, good. We have no further questions. I'll hand over to Stuart. We say thank you for participating in the call. Have a great summer.
Thanks, everybody.
Thanks, folks.
Enjoy your sales. Be safe.
Appreciate it.
We'll see you in the fall.
Yep. Bye now.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.