Earnings Call: Q2 2021

Jul 30, 2021

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Q2 2021. 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. Report. I would now like to turn the conference over to Dominic, Head of Investor Relations. Please go ahead, sir. Thank you, Emma. Report. As mentioned by Emma, we would like to welcome you to our earnings call for the Q2 2021. We appreciate you joining today to discuss reporting. Now it is my pleasure, as always, to start out the call by mentioning our cautionary language that is in our Safe Harbor statement as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents as well as to our SEC filings. We are aware that it is most likely us to keep you away from your weekend. Therefore, we try to keep the presentation short, leave time for Q and A. As always, we would like to limit the number of questions again to 2 in order to give everyone the chance to ask questions. It would be great if we could make this work again. With us today is, of course, Ries Powell, our CEO and Chairman of the management board. Ries will give you some more color around the business development. And of course, also with us is Helen Gieser, our Chief Financial Officer, who will give you an update on the financials and the outlook. I will now hand over to Reiss. The floor is yours. Thank you, Dominic. Welcome everyone and happy Friday. I don't remember the last time we did an earnings call on a Friday, but It's almost the weekend. Hang in there. Thank you for joining us today. I'll begin on Slide 4. We continue to deliver organic growth for the quarter despite the expected adverse COVID impacts. This affected the number of treatments in our dialysis business reporting and compounds in the related downstream assets as dialysis patients are continuing to be missing in our clinics and they do not need certain of our services Such as vascular access or the pharmacy. And additionally, if they're not in our clinics and they don't need renal drugs or dialysis products. We continue to see excess mortality further accumulate in the quarter, but at significantly reduced levels as we had anticipated. The 2nd quarter revenue and earnings were both adversely affected by exchange rate effects. Earnings development during the quarter was negatively impacted by phasing and a strong year prior base. This was driven by the CARES Act reporting that we received in the Q2 of last year, as you know, to cover the COVID related expenses from the start of the pandemic. We continue to make good progress on our strategic priorities in the quarter. 1st, Patients in value based arrangements accounted for approximately 10% of our total U. S. Patients with end stage kidney disease. We have approximately 20,000 CKD patients in value based arrangements. Secondly, Home dialysis experienced continued momentum in the 2nd quarter with 14.8% of our treatments in the United States performed in a home setting. Thirdly, sustainability continues to be at the heart of our strategy. In order to further support our sustainability management, We recently joined EconSense, a network of companies united in the goal of shaping the transformation to a suitable economy and society. And in parallel to all the above mentioned activities, there is the FME 25 program to transform our global operating model and sustainably reduce our cost base until 2025. We are on track with this work. We plan to announce details on FME 25 in the fall. While we are cautious and continue to watch the Delta variant Thinking ahead of 2021, I'd like to mention the proposed Medicare ESRD perspective payment system rate for 2022. The proposed 1.2% increase is roughly in line with our expectations. Please keep in mind that this report is still in draft form. The comment period is open. We expect to see the final rate at some point in the month of November. Turning to Slide 5. For the first half of the year, we delivered over 26,000,000 life sustaining treatments as a result of the impacts of the pandemic on our patients' lives. The 2% growth in our clinic network reflects our international development with the strongest growth rate coming from Asia Pacific, where we had 6% growth in the number of clinics in the quarter. Turning to Slide 6, we continue to see stable anemia as well as bone and mineral metabolism control, If you would turn to Slide 7, this slide compares the development of COVID infections worldwide Partially Vaccinated. In the U. S. Approximately 71% of our patients as well are partially vaccinated. We also know that there are somewhere between 3% to 4% of our patients that are being vaccinated outside of FMC control. When that happens, we verify the vaccination, we look at that, takes a little longer for us to get those things, those numbers crunched, if you will. We do believe we are somewhere in that 73% to 74%, but we quote 71% because we know that to be exactly in our control. While this figure is well ahead of the overall vaccination rate for adult Americans, it does simply reflect In normal times, we see about a 10% hesitancy for vaccination of just the regular current flu, if you will. So obviously, we are working hard to try to lower this vaccine hesitancy among our patient population as it relates reporting to COVID. Turning to Slide 8. As we anticipated, COVID related excess mortality on a global basis The 1489 excess deaths in the quarter were skewed to the start of the period. 635 deaths occurred in April, 449 in May pattern in the second half of the year. It is not a perfect calendar, meaning that as of June 30, we will step into July and everything will be perfect. It will take a little time, but we are optimistic that over the course of Q3, we'll see this come into the range that we have anticipated. These are global numbers and the excess mortality in North America in the second quarter accounted for less than 25% of the international experience. And I think that's significant when you stop and think about the size and scope of North America and the fact that it is a little under 25% of what we saw across the quarter. While the incremental rate of excess mortality is slow, The accumulation we have experienced will continue to weigh on performance. Globally, on a last 12 month basis, excess deaths Further accumulated to approximately 11,200. And then looking at it from the start of the pandemic, we've accumulated to approximately reflecting 2% growth in constant currency. Our net income excluding special items declined by 31% on a constant currency basis. As previously announced, costs related to FME 25 will be treated as a special item. And during the Q2, we had €6,000,000 in FME 25 related consulting costs at pretax level. I mentioned already that the pandemic negatively impacted our top and bottom line, and we continued to face headwinds from foreign currency translation. Earnings growth in the quarter was negatively impacted by a high prior year base. Please recall that the Q2 of 2020 benefited from the recovery of COVID related negative effects that we had experienced in the Q1 of last year. Moving to Slide 10. We experienced negative exchange rate effects in all of our regions. Despite the challenges related to the pandemic, we delivered organic growth during the Q2, driven by our international markets. EMEA, Asia Pacific and Latin America all contributed with positive organic growth. Organic growth was slightly down in North America. Here, we not only face negative impacts from COVID, but also lower reimbursement for calcimimetics as a consequence of them being placed in the bundle. And with that, I'll turn it over to Helen, who will give you more color on our development through the quarter. Helen, please. Thank you, Rhys. As we move hi, everybody, and I hope you're staying well. As we move to Slide 12, I'll pick up on the services development. In the Q2, Healthcare Services delivered growth of 2% at constant currency overall. Organic growth increased despite the negative impacts from the pandemic and from calcimimetics due to the organic growth in the international markets. This was more than offset by negative exchange effects. The adverse COVID impact on organic growth in Healthcare Services amounted to approximately 240 basis points for the quarter. While down year over year in the U. S, We did see sequential improvement in same market treatment growth. It improved from a decline in the first quarter to a decline of 2% this quarter. This shows that the underlying fundamentals are intact. I will now move to the Products business slide on Slide 13. Our Products business achieved 1% organic growth for the Q2. On a regional basis, both EMEA and Asia Pacific had a solid quarter with each delivering 3% organic growth. Overall, products growth in the 2nd quarter was driven by higher sales of in center disposables in EMEA and Asia Pacific, Machines for chronic treatment and renal Pharmaceuticals. This positive development was offset mainly by negative exchange rate effects. The organic decline in North America was driven in particular by lower sales of products for acute care treatments compared to a strong prior year base. Turning to Slide 14. For the Q2, total group operating income amounted to €424,000,000 which is a decline of 30% at constant currency. The chart on the left illustrates the contribution from each region as well as the corresponding regional margins. As we have discussed, we faced an adverse impact from COVID and we are comparing the Q2 margins against an inflated prior year base. In the Q2 of last year, We did recover the negative impacts from COVID that we experienced in the Q1 of last year, consequently, as indicated, report. Additionally, we had a favorability in the phasing of our SG and A expenses in the Q1 of this year that we knew would reverse in the Q2. Exchange rate effects were a headwind in all regions, but also particularly strong in our largest region, North America. And we experienced increased costs due to macroeconomic inflationary effects affecting both labor and raw materials. On the positive side, we saw an improved payer mix due to the growth in Medicare Advantage. Our Medicare Advantage mix now represents a percentage in the very high 20s relative to our entire U. S. Patient population and not just within the Medicare eligible patients. Our 2nd quarter net income excluding special items declined by 31% on on a constant currency basis, which includes a negative net COVID-nineteen impact of €74,000,000 I will now move on to Slide 15. Although the big swing between Q1 and Q2 was expected, We thought it might be helpful to look at the margin developments for the first half of the year overall. I think the half one margin development gives a Clear Review on Where We Are in This Pandemic Year. The Biggest Impact on Margins for the 1st 6 months of the year relates to COVID, report. Not surprisingly, the effects of excess mortality on both our core dialysis and downstream businesses are a large component of the COVID-nineteen impact. It is important to remember that the effect of accumulated excess mortality since the beginning of the pandemic will continue to impact our margins in the second half of the year, even if there is no further accumulation of excess mortality assumed. We also face higher costs for both labor and raw materials due to macroeconomic inflationary effects, and this is something we continue to monitor and we assume will not ease in the second half of the year. In 2020, the first half benefited from the gain we made from the sale of vascular and cardiovascular clinics. Consequently, this effect had a negative impact for the comparison of the margins year over year, But would not impact the development of H2. As previously mentioned, from the positive side, for the first half of twenty twenty one, The improved Medicare Advantage payer mix in the U. S. Contributed to the margin development. Looking at the 1st 6 months of 2021 collectively, our development is very much in line with our H1 expectations and in the middle of our guidance range. For that reason, we are comfortable confirming our outlook for the year. With that, turning to Slide 16. During the Q2, we generated operating cash flows of €921,000,000 and a resulting margin of 21.3%. The decline was mainly due to the U. S. Federal government payments in the Q2 last year under the CARES Act and the start of the recruitment of these advance payments in the Q2 of this year. €159,000,000 were recouped during the quarter. The timing of the payments of labor expenses also contributed to the lower level of cash flow. Our net leverage ratio for the reporting. Earlier this year, The €2,000,000,000 syndicated revolving credit facility includes a component that links its margin development to sustainability performance. The ratings presented at the bottom right have all been reconfirmed early in 2021 and support a solid financial position. With that, we'll turn to Slide 17. In light of the effects of COVID, the 1st 6 months of the year developed in line with our expectations. Our full year assumptions continue to hold and we are confirming our 2021 targets as defined in February. For 2021, we expect to deliver lowtomidsingledigitrevenuegrowthandadeclineinnetincomeofhighteenstomid20s. And while we are very encouraged by the vaccination progress among our patient base, we are closely watching to see how the Delta variant develops in several markets, particularly where vaccination rates are lower. It is too early to say whether this will lead to accumulation of further excess mortality or not, but we are cautiously optimistic. We are also monitoring the increasing macroeconomic inflationary impacts, which affect both labor costs, reporting and distribution costs. So in summary, from what we know right now, we are on track with our guidance. And that concludes my prepared remarks, and I will turn over to Dominik to begin the Q and A. Thank you, Rhys. Thank you, Helen, for your presentation. I'll hand it over to Emma. Please open the Q and A. Thank you. Report. The first question comes from the line of Tom Jones with Berenberg. Please go ahead. Good afternoon or good morning. Thank you for taking my questions. I have 2. The first probably one for Helen was just on Slide 15, some clarification. The 120 basis point or percentage point, 120 basis points, sorry, it's Friday afternoon. Hit to margins that you saw in H1 from higher costs for labor and supplies. Just to be clear, was any of that COVID related or is it all of the COVID related cost items included in the 230 basis point headwind that you talked of? And then secondly, a question for Rees on the ESRD PPS proposal. Not so much about the rates, but about all the other stuff that was buried in there. What should we make of some of the changes or proposed changes to the ETC models? I mean, some of them look helpful, but they don't appear to have address some of the key flaws in that program. So I'm just wondering kind of what you thought about the proposals and what else you think you might be able to get done Between the proposed rule and the final rule. Hey, Tom, it's Rhys. Helen, why don't Go ahead. I think Tom was looking for you to give him some guidance on your Slide 15 comments. Yes. Happy to. Hi, Tom. Hope you're well. So to avoid confusion, that is completely separate to any COVID related increase. That is truly that 120 basis points that you see is truly limited to wage inflation. Repurchases. You know that we estimate around 3% for that and other increases that we are seeing kind of across the business. That is contemplated in the guidance. I think the watch out for us on inflation is truly these increases that we're seeing and we're calling the macroeconomic more kind of petrochemical, lumber, things like that that have an impact on our Manufacturing Cost and Rates and Distribution. But the 120 basis points that you see here is in our guidance and normal inflation rates and separate to COVID. Okay, perfect. That's very clear. And then on the PPS? Yes. Hey, Tom. I would say we've got work to do. We are working on our commentary. I'm guessing because we've known each other a long Report. You're poking a little bit at the ETC models and what are they looking at when they say dual eligible to be preferred within home and transplant. We actually think that's sort of arbitrary. And I think you've got the CMMI folks looking at that versus the group of people that do the prospective payment work. They're 2 separate groups. And some of it's not logical. I mean, if you think about dual eligibles, are they really in the Best place to do home therapy given their station in life, etcetera, and is that really going to give them the best chance for good outcomes? So I think there's just socioeconomic questions we have about the way that reads and it doesn't really make sense. So we're still working on it. We do get the sense that there hasn't been a lot of coordination with between this branch, CMMI, and what they're proposing versus where the prospective reporting. Payment system is and how they look at these things. So we're hoping to connect those dots in our commentary and get a better read on this. Okay. That's very helpful. And on the subject of models, the CKCC model, anything additional you can share with us on that since the Q1 results? Yes. The only thing I'm happy to share that in the couple of conversations that we've had with Liz Fowler in the spring, They are absolutely committed that we will start January 1, and they're bullish on getting that started and seeing where it goes. So We are taking it at face value and we'll be prepared and ready to go. As you know, we have infrastructure and everything we need. So we're looking forward to getting started to that in the New Year. Okay. That's great, sir. I'll get back in the queue. Thanks, Tom. The next question comes from the line of Veronika Dubajova with Goldman Sachs. Please go ahead. Good morning, Helen Reese. Thanks for taking my questions. I'll keep it to 2 as well, please. One, I just want to clarify a little bit The raw material commentary or cost inflation commentary, Helen. And I guess just to follow on Tom's question, just confirm the sort of 120 reporting. That you saw in the 2nd quarter is not outside of the sort of usual bound that you would have expected to experience in the business. And I guess maybe if you're willing to comment on what is assumed for the second half within the guide that would be helpful, just to push you a little bit report on that. How you've done with that? Sorry, my second question is sort of trying to follow on from something that was actually said on your parent company's conference call, which is I think Stefan made some comments on the expected contribution from FMC to the Fresenius cost savings Report plan. And just backing out from the comments that he had made, it does suggest a fairly low run rate of cost savings from FMC I think on my math, I get to about $100,000,000 out of the up to $500,000,000 that you're targeting. Just Trying to understand whether we should be reading something into that as you guys have done more work on FME25. Is this program really that heavily weighted towards 2024 2025 or are we not comparing apples and oranges here? Thanks guys. Thanks, Veronica. Go ahead, Helen. I think you've got one and I'll take 2. Yes. Hi, Veronika. Yes, so just to kind of keep clarifying maybe this raw material commentary. What we saw in the HAP-one is in line with our expectations and the repurchases and the inflationary increases that we had built into our guidance range. You can expect that to continue through half 2. I think the watch out for us, as I said, is if there's anything significant over and above that, that we're not seeing coming at this Point. Some things have gone up and back down, some things are still running higher. But I would say the Call out year over year is not unusual from an inflationary increase, but obviously as we kind of look at the current labor market and also these broader economic increases that are being driven by supply and demand. We're just Watching it out and being cautious, but nothing that would take us off our guidance at this point, Veronika. Thanks, Helen. Hey, Veronica. Number 2, I would not read too much into that. And what I mean by this is, we are not done with our work and this program is not Just cost cutting, its operational model and looking at the business and how do we want to go forward with the business. And as we've talked with FSC about this, They would certainly like more concrete numbers and I'm not giving them to them because we are not where we want to be right now. So I would just say, I understand where they are, but I would tell you when we come to you in the fall, you'll understand where we are, where we're going and how this is going to play out. But just Keep in mind, it's not a set cost cut. And so I wouldn't run numbers and try to figure out where it is because we're going to tell you where it is when we do this in the fall, If you catch my drift. Understood. That's very clear. Thank you guys and hope you have a good rest of your summer. Thanks, Veronika. The next question comes from the line of Oliver Metzger with Commerzbank. Please go ahead. Hi. Thanks. Thanks a lot for taking my questions. The first one is on your reported vaccination level of 71%. So you made some comments, but for me at first glance, it looks not that high, particularly if you look for the age bracket. So but it's on a global level and I think there's clearly some differences from a regional perspective. So Could you give us an idea where you are, in particular, in U. S. And in EMEA? And yes, that's the first question. The second one is Also on the slide where some metrics basically patients are down year on year, treatments are down. You reported some home dialysis on record level, but still I see the number of clinics is up by 2%. So Is there anything which I do miss? Or should I just read a stronger underutilization from the clinics? Eventually, can you give us Sure, Oliver. I'll take those. So at a global vaccination rate of 71%, Finally, somebody doing better because I don't think they are. And keep in mind, that's a global rate. So that incorporates Places like South Africa where there's very little going on or Indonesia, Vietnam. So I feel very good about where we are at 71 In certain parts of the U. S. As well as in other markets that people are not getting vaccinated. I think we'll see That reduce, I think it will get better when these vaccines are FDA approved. I think that will give reporting some subset of this hesitancy population comfort that they're going to go ahead and vaccinate. And I suspect there are going to be some that no matter what we do, we won't get them there. But the U. S. Is at 71%, a little bit higher if you take those that are not in our system. So they're probably 72%, 73%. And I think if you look at EMEA, they are in the high 60s, even incorporating those emerging markets where the vaccination rates are very slow are very low, which tells you then in many, many parts of Europe, they're seeing just as good vaccination rates as we saw in the U. S. So I actually think we're not doing as well as I'd like to. Don't get me wrong, Oliver. But I think we're doing pretty well, but it could be better and we're working hard on that. On the number of clinics up 2%, that was predominantly driven by Asia Pacific. In the quarter, they were up about 6% in their number of clinics. We had some new clinics in every region. As you well know, some of these are We've been building and getting them certified and validated over an 18 month period and some of those started a while ago and they're just now coming on board. But the bulk of that 2% growth that we saw really sits in Asia Pacific in the international markets. Okay, great. May I quickly ask one follow-up on the home dialysis record level. So Could you share with us which part comes from PD, which part comes from ADHD? Sure. I don't know the specific numbers, but what I will tell you is PD is consistently growing in the mid to high single digit Single numbers and then we are still seeing double digit growth on the home hemo. And again, we had 14.8% of our Quarter to quarter and then the HHD has grown faster and some quarters it slows sometimes, but in this case I think we're pretty comfortable with what we're seeing. Okay, great. The next question comes from the line of Michael Jungling with Morgan Stanley. Please go ahead. Thank you and good afternoon. I have two questions on vaccination. Firstly, can you comment where you think the vaccination number will end up by the end of this year? And then secondly, can you comment on how effective Whether you know how effective the vaccinations are within your ESRD patient population. And in essence, I know it's a morbid topic, but do Sure, Michael. Good questions. Oh, wow. For me to speculate on where we could end up, I would hope That it would be a great outcome if we were at a 90% vaccination rate, which would mean it basically is equaling What we normally see when we do the annual, as I call it, regular influenza vaccinations that usually runs around 10% hesitancy. So I would love to see us get another 15% out of this. I think that we will get some pickup, As I said, when they get FDA approved, I think that will make a difference in the U. S. I think we're going to continue to see the rates improve in the rest of the world report short of some of the parts of the world that are emerging that we just can't get them vaccines. So I do hope that we get better. And then relative to the effectiveness, we've actually done a study within FMC. It's not a huge study, but even with the They're getting protection that we are seeing effectiveness of the vaccines. Now I think what is really the question That I have in my mind and we're talking about it with the medical offices. If you take the Delta variant, which we're all watching and everything we read tells us For non vaccinated people, it is 3 times more virulent than the others, which is very concerning. In the few cases that we are aware of dialysis patients that have been vaccinated twice and they've had a breakthrough And they've delta variant is an issue for them. Generally, they have not had nearly the severity of Symptom with that. So that's a very small sample size, Michael. But so I would tell you The real magic here is we just got to keep getting the folks vaccinated and hope that we're going to be able to withstand What if anything comes of the delta variant, but that's the way we see it at this point in time. Okay. And maybe I can briefly follow-up on this vaccination, but maybe I can ask the other way. How many do you know what proportion of Yes, I probably can't get that data. I don't have it at my fingertips, and I don't know if anybody From the medical office on the call wants to shoot me a text, I'll come back to you. I don't know that right now, but we can easily get that number. It's just not at my fingertips, Michael. Great. Thank you. You bet. Thank you. The next question comes from the line of James Van Tompas with Jefferies. Please go ahead. Report. We move on to the next question is from the line of David Idlington with JPMorgan. Please go ahead. Hey, guys. Thanks for taking the questions. 2, please. So first, sorry to revisit again. On the vaccination side, is there anything else you can do to try and Accelerate the uptake. Is it just to add to education or just some stronger levers you could pull? And if it remains about 25% to 30% unvaccinated rates. Are you running any math in terms of what that might mean in terms of the evolution of patient mortality from here? And then the second one is just on the cost evolution. I just wonder how sympathetic your customerspayers are, so your customers on the product side and the wider payers on the service side. How sympathetic are they to any sort of price increases from your side? Thanks, David. Helen, I'll take 1 and 2. I'll let you take 3, if you would, please. So relative to vaccination uptake efforts, we have particularly well, globally, but Certainly in the U. S, we have done a number of things to try to encourage people to vaccinate, educational things, Videos where myself and other people have actually been vaccinated and talking about the importance of that. It's a little bit of this situation, David that it's overly politicized in the U. S. So we're going to continue to work hard on trying to continue to see the number go up. At 75%, we have not tried to model at this point what that could mean Report for mortality because particularly, it's just something that we're going to need a little more time to try to sort our way through. And quite honestly, I'm a lot more focused on let's see if we can't get 75% to 90%, which I had said earlier. But Those are mathematics that we can run and we'll consider. We just haven't done it at this point. And then Helen, you want to talk about products and payers And how they feel about where we are. Yes, for sure. As you can appreciate, David, a lot of Our pricing is already contracted and the kind of the burden of the increased COVID cost It's obviously falling on us. There's not a lot of opportunity to pass this on or to get increases. Obviously, last year, a lot of those increases were covered from the U. S. Government. This year, obviously, we are bearing that cost. Some of that you hope will show up in future cost reports and go into the future increases. But where we have firm contracts with our customers. It's been quite challenging and difficult, I would say, to pass on any of that cost increase. Understood. Thanks, guys. The next question comes from the line of Falko Friedrichs with Deutsche Bank. Please go ahead. Thank you. Good afternoon. Two questions, please. The first one going back to FME25. Rhys, could you update us on the timelines rep. On when we will get the final details, is that still with Q3 results? Or do you plan to do a Capital Markets Day around it? Any And given that you mentioned you're sort of still working through everything, How focused should the market really be on this €500,000,000 net income savings number? And how sure are you that it will actually be the €500,000,000 or The million or could there be some variation depending on what you will find over the next few months? And then my second question is on value based care. Thanks very much for providing the patient numbers in your prepared remarks. Is there any way you can also provide a very rough revenue number Hey, Falco. Thank you for the questions. I will take Number 1, I think that's kind of an A and B part on the time line and the focus on the savings numbers. And then, Helen, if you want to pick up the value based care, that would be great. So I would do it this way. I would say fall to me is October, November, and I think you can think about If we did account the Markets Day, we'd probably try to do it sometime in the middle of October. And then obviously, we've got the earnings call, I think, on November 2. So it's a fairly small window Within that time frame, I think we just got to work our way through where we think it makes most sense and how we want to do that. So it's a pretty short window. So figure October to November, and I laid out those possibilities for you. Look, We are focused on the €500,000,000 We're going at this, looking at that and wanting, report. As I said and as we've talked about a one for one payback on that over the period of the planning period, if you will. So we're looking at it from that perspective. We're not we didn't tell you 500 and hope and be happy we're going to get 100, that'd be a disaster. So we're going at this as hard as we can looking to deliver what we've talked about and if we can do more, we will. But that's the way we're approaching this. And Helen on the value based care. Yes, happy to. Hi, Falco. So as you know, We've stopped reporting the care coordination numbers separate because we feel as the business is changing and we're moving more into BBC and more towards the capitated model that it doesn't make sense to kind of keep that separate. It's very much a key part of our dialysis services business. I also don't think that reporting the revenue number is really that meaningful because all the different models have The contracts have different models and some have passed through across some of the shared saving models do not. So I think for us we are As we're looking at the operating model work outlined with FME 25, we're also looking hard at what that means for reporting and what KPIs will make sense for BBC moving forward. So I think more to come, but recognizing that We're really going through this big change as this BBC part of our business continues to grow. So I think we'll have more updates as we move on our reporting. Okay. Thank you. The next question comes from the line of James Van Tompas with Jefferies. Please go ahead. Thanks for taking my questions. Apologies, I had some technical difficulties report. So apologies that these have been answered. Just on firstly on inflation. It's interesting on Slide 15, I think it was how the impact from was more than the offsetting factors of Medicare Advantage. And you do mention how inflation is going to continue in the second half. So is it fair to say that the Medicare report. And then my second question on vaccinations, I think you said 71%. Just wondering if you can comment on your patient population in areas which have lower vaccination rates compared to the national average. And then a final quick question, if I can, is excess mortality, I think you said it was 406 in June. I know it was nearly at the end of July. I'm reporting. Where we are at the moment, is it sort of 3.50 ish or so, will start 300? It would be interesting to know where we are coming into the summer. Thank you so much. Thanks, James. No worries about not giving me technical difficulties our way of life these days. Helen, I'll let you take number 1 on the inflation and the Slide 15, and I'll come back around on vaccination. Yes, happy to. Hi, James. It's good to hear you. The inflation, obviously, when we put out the guidance back in February. If you recall, I had a slide there that showed a lot of pluses and minuses and obviously that's what we are tracking Without doubt, the kind of the inflationary increases year over year were built in and I think it is an important driver of the change from 2020 2021 that we shouldn't forget. And of course, the Medicare Advantage is a kind of a positive offset to that. So I don't think anything untoward or we weren't truly weren't trying to signal anything concerning in Slide 15. In fact, it was We're trying to prove to be more trying to show to be more helpful to kind of understand those increases. But I think, You may have missed my comment earlier to probably both Tom and Veronika that the we just want to be cautious and watch those inflationary increases in the back half, but we have a base increase built in already. And of course, we are Happy with the Medicare Advantage performance and offset to that too. Grace? Yes. Thank you. So James, I'm not sure I understood what you were asking me relative to vaccinations, What we're seeing versus other parts of the world. Can you just run that by me again? I just want to make sure I get it right. Yes, sure. So When you look at where your patients are located, say, particularly in the U. S, I'm just wondering where the concentration of your patients lie versus where You've seen higher or lower levels of vaccination. So for example, you have more patients in less vaccinated areas than the national average, which Would basically mean it might be hard to get to that 90% level if there's sort of more and perhaps if you can take that internationally as well. Perfect. Thank you. That's helpful. So if we deal with the 800 pound gorilla, which is the U. S, I can tell you that the issue that we are seeing is in the southern states, Mississippi, Alabama, Louisiana, Arkansas, Missouri. That is where we are finding the most hesitancy among those people. And so if we're going to appreciably get Close to 90%. We're going to have to get some of the folks that are in that Southeastern U. S. Region. There's some far out west, Montana, Wyoming, Idaho. But we're going to have to see some number of those folks when these get FDA approval come into the program, if you will. And And I suspect there'll be some that won't just based off of political whatever you want to call it, ignorance, whatever. I think when you look in the rest of world, there is no question If you take EMEA, we've got to continue to get more vaccination in developed markets and when I kind of some of the medium emerging markets, but there are some places that we don't like it, but we don't know that it's going to get appreciably better, such as South Africa or if you think about India or Vietnam, Indonesia. So we have to get as much as we can from those places that are We have tried to get vaccines into South Africa and some of these other countries and we're working on it, but it's And then on your last question, I would tell you that we don't have a read If we were at 406 in June, what will be July? I hope to heck it's well south of there. But we'll get a view of those numbers probably around the mid to latter part of August. It takes us somewhere between 2 to 3 weeks when we close the month to be able to get Those numbers. So we're just not in the right place to do that just yet. That's great. Thanks so much. You bet. The next question comes from the line of Christophe Gretlow with Credit Suisse. Please go ahead. Thank you, operator. Good afternoon Good morning, Rhys, Helen. Nice to speak to you. I still have one question actually now kind of. It's on wage inflation in the Specifically, when I listen to some of the U. S. Hospitals, they called out quite some substantial increase in Wage inflation they expect and the ESRD, PPS rate looks a bit backward looking in this respect kind of rep. What's your thoughts about that? How kind of how much room do you have to accommodate More wage inflation accelerating wage inflation. Is there any discussion going on in DC? Maybe kind enough to give something extra for this year, which still seems to be kind enough a very high inflation year specifically. Maybe if you could elaborate on that and just on general kind of on the labor market situation for dialysis clinic personnel, maybe That will be great. Thank you. Sure. Happy to, Chris. Nice to hear from you. So a couple of things I would say. We are looking And we have planned for wage inflation in this year at around 3%. So I think we have some of that covered. I do think The SRD population and if you will, our clinic staff, our nurses, I'm not sure we are a perfect Equivalent to what you're seeing in the big hospital systems in the U. S. I actually think they may be experiencing things a little different than we are. Their rates may be a little higher, but we believe that we have planned accordingly for this. What we have done is, As we were in the pandemic, we utilized temporary help to help us get through spots because we've had some employees that had to go out, they were ill as well. So I think we've gotten through that okay. What I would say to you is, yes, at a 1.2 PPS Drafted number, I would have loved to have seen it higher. It was within the range that we thought it could be. I think there are 2 pieces to the answer to your question. One is that there's still $24,000,000,000 in provider relief funds that are sitting in D. C. On access. And to the degree that those funds would be available for us relative to PPE and potentially some structure, but we continue to see if there's a possibility for that. And I think that the overall labor situation in the U. S, particularly in healthcare, I think that's going to get discussed in D. C. As well, and we would certainly weigh in on that. But I think I'm less worried about where we are for the back half of the year and how we plan that. It would certainly be nice to get some PPE help as I've been a broken record on that every quarter. But at this point, we've not had any more You as well. There are no further questions at this time. So I hand back to Dominic for closing comments. Thank you, Emma. Thank you, everyone, for the lively discussion and for limiting to 2 questions. That's highly appreciated. I hope you all have a good summer, as good as you can have it at the moment. And we'll Hope to have enough time to speak to all of you during the Q3 and looking forward to speak to you again. Take care. Stay safe folks. Enjoy the rest of your summer and your weekend. Take care. Bye, everybody. Thank you. Bye bye. Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.