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Ladies and gentlemen, thank you for standing by. I am Nicolas, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care report on Fourth Quarter and Full Year 2022. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by question-and-answer session. [Operator Instructions]
I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead, sir.
Thank you, Nicolas. Good afternoon or good morning depending on where you are. I would also like to welcome you to our earnings call for the fourth quarter. As always, I need 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 yesterday.
For further details concerning risks and uncertainties, please refer to these documents and to our SEC filings. Due to the deconsolidation announcement, I have to add that we will be filing a registration statement with the SEC with respect to the conversion. The prospectus for the conversion will be available on the SEC website and will contain important information. You should read the prospectus and other documents we file with the SEC for the conversion when they are available.
With the Q4 results, we traditionally share an update on our strategic ambitions. Therefore, we have more to cover than in the other quarters. I'm aware that there is a lot of information from Fresenius and us to digest today.
Given that we have only 60 minutes, we need to limit the number of questions again to two in order to give everyone the chance to ask questions. Should there be further questions and time left, we are happy to go a second round. It would be great if we could make this work again.
With us today is Helen Giza our new CEO and Chair of the Management Board. Helen will start with insights in the new strategic aspirations followed by a short review of the quarter and the outlook. Then we are happy to take your questions.
I will now hand over to Helen. The floor is yours.
Thank you, Dominik and a warm welcome to you all. It really is an honor to be speaking with you today as CEO of Fresenius Medical Care. And these are exciting times for sure as we embark on the next chapter in the company's history and there is a lot I want to cover today as Dominik already mentioned.
Before I start with my prepared remarks, I would like to take a moment to recognize the hard work and dedication of our great teams around the world. We are all united behind our common vision of creating a future worth living for our patients worldwide every day.
I would also like to express my special thanks to our teams in the Ukraine and in Turkey. My thoughts and prayers are with all of those affected and I thank you for being on location working tirelessly to provide aid and helping our patients.
I will begin on Slide five with our strategic aspiration. As the new CEO, my overarching strategic aspiration is to unlock value as the leading kidney care company and to drive up shareholder return.
Today, I will introduce the key elements of the strategy roadmap and we will also host the Capital Markets Day on April 19th to delve deeper into these topics. The right corporate structure is key in our ability to unlock value and we are taking important steps to simplify and optimize our structure.
Since the first of the year, we have fully implemented our new operating model, reorienting to two globalized operating segments: Care Delivery, our health care services business; and Care Enablement, our med tech business. This new operating model not only provides increased transparency internally, but it will also bring enhanced transparency to our external financial reporting.
We will spend time detailing the new reporting structure, along with historical figures and future expectations, during our Capital Markets Day. As you will have seen in yesterday's announcement, Fresenius is planning to deconsolidate Fresenius Medical Care. The necessary change in our legal form, will create a simplified, more agile and efficient governance structure, which will enable full independent decision-making and at the same time, strengthen the rights of our free float shareholders. I will speak more about that later.
Another critical step, is taking a more rigorous approach to capital allocation. I have implemented a disciplined financial policy, to drive the much needed improvement in our return on invested capital. I am proud of what we've accomplished today, with our FME25 transformation program, and we will further accelerate and extend it within the new operating model.
In addition, we are implementing operational efficiency and cost reduction measures beyond FME25. And with a disciplined lens and focus on the core business, and improving profitability, we are further optimizing our portfolio. I will speak about what these measures entail for both Care Delivery and Care Enablement respectively, in a moment.
Finally, I am a firm believer that culture eats strategy for breakfast. And none of these measures will be successful, if we don't have a winning culture in place. This includes fostering a clear culture of accountability, and with the successful implementation of our global sustainability program through 2022, and we have laid a strong foundation to drive integration of sustainable principles into our business.
We have decided on new global sustainability targets for the coming years, focusing on enhancing quality of care and access to health care, reducing the company's environmental footprint and building the best team to serve our patients. As part of this, we continue to promote diversity, equity and inclusion and I'm proud of the initiatives we continue to advance here.
Next on, to Slide 6. As I mentioned earlier, our new simplified operating model went into effect as of January 1. Our two global segments now have complete end-to-end P&L responsibility. This new structure provides increased transparency, and enables us to compare directly to our peers. It also provides the basis to drive targeted improvements of our business performance.
With our globalized and fully allocated G&A functions, we have the flexibility to scale these functions as needed, to provide an appropriate level of support to the respective segments. And for me, it's remarkable to see the difference the new structure has made already particularly around visibility and transparency, and it has opened up further possibilities to unlock value and improve profitability. This new model also positions us to truly realize the full extent of benefits from our vertically integrated business model.
Next on, Slide 7. After simplifying the structure we are working with, the simplification of the structure we are working in, is an important step. The announced intent by Fresenius to deconsolidate Fresenius Medical Care and the proposed corresponding change of legal form to a German Stock Corporation would significantly simplify the governance structure of Fresenius Medical Care.
With this change, we would move from a controlled structure with several decision-making Boards to a standard German two-tier system with one Supervisory Board and one management Board. This will strengthen the rights of the free-float shareholders. One clear hurdle will be overcome with this proposed change. The KGaA structure has been a challenge for many investors.
Turning to slide 8. In addition to the improved shareholder rights, there are important business relevant benefits too. This governance structure enables faster and fully independent decision-making, and it also provides more optionality on our future strategic direction. The change removes the operational and coordination burdens of us being part of a larger group organization. It frees up time and capacity of the executive and management team, and enables them to focus solely on Fresenius Medical Care.
It also avoids potential conflicts of interest within the group. The new legal structure enhances our flexibility to manage capital allocation and shareholder returns. It also provides us with an unrestricted approach to access capital markets from a financing perspective.
With the conversion of the legal form, Fresenius will not be a controlling shareholder any more. Consequently, as a large German corporation, we would move from an indirect codetermination via the Fresenius Supervisory Board to a direct codetermination where all Supervisory Board members would be committed solely to the future of Fresenius Medical Care.
With the separation, the credit ratings may not benefit from the group structure, with some rating agencies take into account. With our focused capital allocation priorities to which I come later, and our strong track record of deleveraging, we expect only limited weighting pressure resulting from the deconsolidation.
As a well-known issuer, we are confident to maintain our good access to the capital markets. We will also need to carve out in some, although rather limited areas where we share services with Fresenius in Germany such as G&A services for payroll, taxes or treasury, which are already contracted at arm's length. And there will be an additional administrative activities needed to convert to the new legal form. An extraordinary shareholder meeting is required later in the year, currently assumed to be in July.
The one-time costs associated and corresponding carve-out measures are assumed to range from €50 million to €100 million, which we will treat as a special item. And the final decision will require a 75% approval by our shareholders. We expect that the entire process of the conversion into a German Stock Corporation will be completed by no later than the end of this year.
Next on slide 9. Additionally, we are working towards strengthening our financial position, with a disciplined approach to capital allocation and improving our return on invested capital. Given our current leverage position and the high interest rate environment, deleveraging is our primary capital allocation priority.
We are committed to maintaining our investment-grade status and to managing our net financial leverage in the self-imposed range of 3x to 3.5x. Any potential divestiture gains from portfolio optimization will be used for deleveraging. We are committed to a dividend policy in line with our earnings development. Consistent with the decline in earnings in 2022 we are proposing a 17% reduction in our dividend. And finally, with a laser focus on driving organic growth in our core portfolio, our investment activities will be limited. We expect minimal acquisition activity and restrictively managing CapEx.
Turning to Slide 10. I'm very excited about what's been achieved to date with our FME25 transformation program as well as the extended opportunities to improve profitability. With particular acceleration in the fourth quarter, our FME25 program delivered sustainable savings of €131 million, well above our expected range for the year. Additionally, we have increased the scope of the program, largely comprising of additional opportunities to improve the profitability of our Care Enablement segments that continues to be heavily impacted by inflationary pressures.
We now expect sustainable savings of €650 million by 2025 with onetime costs of up to the same amount. We expect incremental €120 million to €170 million sustainable savings in 2023, which will bring us to €250 million to €300 million exiting the year. And to achieve this, we now expect onetime cost of €250 million to €300 million.
Moving to Slide 11. With our new operating model in place, we now have clear line of sight and the leadership accountability in place to drive performance and run the segments like the two separate businesses that they are. This will allow for further operational efficiencies and portfolio optimization beyond FME25. On this slide, we have outlined our path to unlock value in each of our operating segments.
In Care Delivery, our turnaround efforts are focused on productivity and efficiency measures. And in the US specifically, we have focused on labor stabilization, growth and improving our operating leverage and we have already started clinic closures. We have around 50 to 100 clinic closures in the US in our first wave. We are streamlining our portfolio by exiting unsustainable international markets and divesting non-core service assets.
In Care Enablement, our product margin has been severely impacted by macroeconomic inflationary and supply chain pressures and is falling short of our aspirations. To improve profitability, we are focused on pricing initiatives, productivity measures and reviewing our manufacturing footprint. We are also taking a hard look at our product portfolio and are in the process of rationalizing our global R&D programs and divesting non-core product lines. This will enable in the future a more focused capital allocation towards the areas of higher profitable growth in the core business.
As I mentioned earlier, the proceeds from these disposals will be used to further deleverage. With the move to the new operating segments, a reallocation of goodwill and the recoverability of goodwill is required. The current estimate indicates no impairment risk. I have flagged throughout the last year that our products business has faced significant margin pressure. And as the evaluation also takes into account interest rates, WACC and changes to the macroeconomic environment possible changes to those factors may result in a goodwill impairment in Care Enablement in the future. To be transparent about the potential risk, I wanted to share this reorientation of the goodwill calculations.
Before I turn to our financial performance, I would like to emphasize that our strategic aspiration and planned initiatives are tangible. We are actively implementing and executing on these initiatives already. This gives me the confidence for a recovery of earnings growth in 2024 and beyond, and I look forward to sharing more details during our Capital Markets Day in April.
Now I'd like to change course and move to our fourth quarter business update on Slide 13. In the fourth quarter, we continue to deliver organic growth. Currency effects extended our revenue growth to 8% reported and 2% at constant currency. In line with expectations, our operating income declined by 8% on a constant currency basis and before special items. Our net income declined by 14% on the same basis.
In the fourth quarter, our headwinds and tailwinds developed roughly as communicated. And as expected, our business development continued to be impacted by higher labor costs and macroeconomic inflationary pressures. While the US labor market remained challenging, our labor stabilization efforts continues to drive gradual improvements in our labor KPIs.
Next on Slide 14. On a constant currency basis, healthcare services delivered revenue growth of 2%. This was mainly driven by organic growth in EMEA and Asia Pacific. The North American region delivered stable organic growth and improvement from the third quarter, despite the impact from accumulated excess mortality, staffing challenges and capacity constraints in certain clinics. Revenue for the Products business was flat for the quarter, as higher sales of in-center disposables were offset by lower sales of machines for chronic treatments also resulting from delays from the lifted FDA shipment hold.
Turning to Slide 15. On a year-over-year basis, we experienced the largest margin contribution from business growth, including COVID effect. This was partly driven by reimbursement increases as well as a negative human site investment remeasurement effect in the fourth quarter of 2021.
The most significant margin detractors were macroeconomic inflationary pressures, including labor cost increases and the year-over-year headwind from applied US provider relief funds. These headwinds were partially offset by the acceleration of our FME25 program, which led to higher savings in the fourth quarter. The FME25 one-time costs which we treated as a special item was also higher in the fourth quarter. Other one-time costs consist of the remeasurement effect of our investment in human sites and impact from the Ukraine war, which included the impairment of a production plans, resulting from economic sanctions imposed on Russia.
Next on Slide 16. The year-over-year decline in our operating cash flow was mainly due to the lower net income. However, the focus on lower CapEx resulted in a stable free cash flow development year-over-year. At 3.4 times net debt to EBITDA, we were at the upper end of our target leverage corridor and it is a priority for us to stay within this self-imposed range. For me, cash is king. And as I mentioned earlier, future deleveraging is at the top of our capital allocation priorities.
Turning to our outlook on Slide 18. With our new financial reporting structure, and in line with our DAX peer group, we will now change to an annual outlook for revenue and operating profit. It's important for me to continue to be transparent about the assumptions we are making. And for 2023, I really want to focus on the key assumptions and drivers, of expected earnings development.
Despite some stabilization, we are assuming a continued headwind of €200 million to €240 million from the inflationary cost environment, resulting from the annualization impact from these costs, plus although on a lower level, a continuation of the inflationary environment. This remains a headwind in particular in Care Enablement.
As you know, we have many moving parts on labor. However, we are seeing gradual improvements in the challenging US labor market. And as outlined last year, of the defined labor cost headwind, a portion was expected to become a tailwind for 2023. And some of the permanent measures we implemented in 2022, were always expected to have an annualization effect
We are assuming a merit increase of 3% to 4% across the globe. Although we met all of these facts and assumptions it result in a labor cost headwind year-over-year of a €140 million to €180 million. In the US, we are assuming a broadly stable dialysis treatment following developments for the full year, that could range from plus 1% growth to a minus 1% decline.
As I mentioned earlier, we are assuming sustainable FME25 savings of €250 million to €300 million by the end of 2023. And last year, as we all know operating income was supported by €277 million of US provider relief funds and we do not assume any additional funds will be made available in 2023. And to provide a comparable basis for our 2023 operating income outlook, we have adjusted the base accordingly.
Next on, Slide 19. As always, our outlook is in constant currency and excluding special items. In 2023, we expect low to mid-single-digit revenue growth. On the adjusted basis that I just explained on the previous slide, we expect a flat to high single-digit percentage weight decline for operating income in 2023 and from a phasing perspective, we do expect the low point in our operating income development in the first quarter. The first quarter is expected to provide only a mid-teens percentage share of the 2023 operating income.
To help you with your 2023 modeling, we are assuming a tax rate of 25% to 27% and financial cost of €350 million to €380 million at constant currency. While 2023 will be a year of level setting, we are confident in our path to unlock value as the leading kidney care company. We expect to come out of 2023 stronger, and well positioned to drive sustainable, profitable growth with the recovery of earnings growth in 2024 and by 2025, with an improved operating profit margin of 10% to 14%.
And when you look at the 2025 margin aspiration, please keep in mind, that this includes the assumed strong revenue growth of our value-based care business, which comes with an incremental, but lower margin and therefore, dilutes the overall margin.
With that, I know I've covered a lot. And I imagine, you have some questions for me and I'll hand it over to Dominik, to begin the Q&A.
Thank you, Helen for the presentation and for many insights. And with that, I hand it over to Nicolas please open the lines for the Q&A.
Thank you, ladies and gentlemen. At this time; we will begin the question-and-answer session. [Operator Instructions] The first question is coming from Graham Doyle from UBS. Please go ahead.
Good afternoon guys. Thanks lot for taking my questions. Just one firstly on this year's guidance. So when I look to the pushes and pulls, you've kindly given us, it implies that there's maybe $130 million of business growth in 2023 to hit the midpoint of your guidance. Is that fair? And how do you go by doing that? And then the extended FME25 program, if you hit the top-end of -- if you do deliver that, so does that allow you to then hit the top-end of that 10% to 14% range? And should we assume that all cost savings drop through to the EBIT line? Thank you very much.
Maybe I'll take your second question first. In terms of the margin range for 2025, as I'm sure you can appreciate there's a lot of these initiatives that I've outlined today that will gradually pay off between 2023 and 2025. And you're absolutely right, of course, FME25 is a big piece of that. However, these underlying measures that I speak about in efficiencies on the productivity, improving the operating leverage, as well as certain pricing measures will also contribute to that margin expansion.
Additionally, we do expect some reimbursement catch up here with PPS over this period through 2025, as well as the patient growth recovery. So I think what we can see is we're looking at this three-year window is the combination of all of these measures coming and coming to fruition that gets us back closer to historical profits, but I think with a leaner more focused approach on the operations here.
With regard to the 2023 guidance, of course, the delta is business growth. Bear in mind that that labor number is a net number, which includes the merit increase as well. But, of course, what we were trying to do was just tease out the main headwinds and tailwinds, but of course there's an underlying business performance here as well. And rather than just putting that in as a -- maybe last year we had it in at a plug for everything else. We've just now, this year just trying to focus on the main pluses and minuses and it's not meant to be a complete exhaustive list as I'm sure you can appreciate it.
Okay, super. Thanks a lot guys.
The next question is coming from Hassan Al-Wakeel from Barclays. Please go ahead.
Thank you for taking my questions. I have a couple, please. Firstly, could you talk about the bridge to 2025 margin targets in the key building blocks to achieving this? What are your assumptions around pricing, wage inflation and cost out given, EBIT growth at the midpoint based on your margin target vastly outpaces revenue growth over this period.
Secondly, could you talk a bit about the potential for disposals, where these could it perhaps in the Care Coordination portfolio or maybe some of the lower growth or margin regions? How long is this list? Is anything being assumed for 2025 in terms of the margin target? And how significant could it be?
Thanks Hassan. Appreciate the questions. So we're not going to lay out a bridge for 2025 today. We will have the CMD in April that will speak to the plans for both segments and the kind of the margin building blocks if you will some more to come in April with more detail there.
When at that time we'll also roll out the kind of the segment reporting. And we'll have the historical kind of views on that as well. So you'll be able to see, projects and services in the way you've all been asking to see it for many years.
In terms of potential disposals, we've taken a hard look at the portfolio. And I guess, all I would say right now is, we're looking at what really is too far removed from the core and also what maybe isn't performing at the kind of margin level, we would expect.
So that does include non-core dialysis services assets as I mentioned. And we're also looking at International Service markets, where either the reimbursement or profitability or scale is maybe no longer viable for us.
More to come, right now, we don't have these built in. As we bring them to fruition and execution over the course of the -- probably the next 12 to 18 months with some in 2023, we'll update on those in real time.
And then, you asked a question on the -- let me get all your questions here. You asked a question on the, margin for 2025. Of course, as I mentioned, BBC will be a little bit of a driver of that dilution, as that medical costs under management grows.
We'll still get the low single-digit percentage of margin, but that does dilute the overall margin. But I think the key piece here will be what we cover in Capital Markets Day in April, on the bridges to the services and products margin improvements.
Helen, if I could just follow-up please in the absence of a margin bridge and looking forward to getting that in a couple of months. But what are your assumptions in terms of pricing and wage inflation? Do you expect a meaningful maturation of the latter? And how are you thinking about reimbursement rates next year and beyond?
Yeah. I'm not giving that today, Hassan. We'll come back as I said, in April, with more detail on that.
Thank you.
The next question is coming from Oliver Metzger from ODDO BHF. Please go ahead.
Oh, Hi, Helen. Thanks a lot for taking my question. The first one is also on your 25% EBIT margin guidance. So you have increased your exposure to value-based care, quite strongly through with pre-merger Interval Health.
So the question is, it's a highly dilutive business, but still brings some EBIT. So how many revenues have you baked into your 2025 assumption. That would be quite interesting to know. And the second question is on – I understand that you don't incorporate any potential governmental support in your guidance. That's quite prudent. I would say, while magnitude and timing is highly uncertain, how do we evaluate from a top-down perspective which that some funds will be granted as otherwise smaller dialysis centers would not survive.
Thanks, Oliver. Let me take your questions. In terms of the EBIT guidance, yes, you're right. On BBC when we talk about dilutive. We had previously said that we expect the medical costs under management to be around $11 billion by 2025. And we had said that low-single digit around 1% margin there.
Obviously, that is baked into these projections. And I don't really – I mean obviously, it's an accretive absolute EBIT contribution but it does leave the percentage. But obviously, we are seeing with all the other efficiency measures and productivity measures and pricing measures along with FME25, we do see a path to that margin range that we outlined. And of course, that's why we have published that.
In terms of government support, we really don't see any path to that. There is no funding left in any of the bills that have been issued. And of course, we continue to kind of along with many providers speak to the concerns that we have. And obviously, we know that the reimbursement system is in a lag. And obviously, we do have a benefit of the 3% PPS rate this year.
Our expectation is that that will increase in 2024 and 2025 in line with the kind of the increased costs that will get submitted. We'll get the benefit of that. Hopefully, these inflation starts to tail off. So I think you're right. It's not just a prudent assumption. I think it's a real assumption. This time last year we felt that we had line of sight into something but not here. And obviously, if anything changes we will update the market accordingly.
Okay. Thank you. And then just one follow-up. How do you evaluate the risk that some smaller operators will go out of business?
Sorry, Oliver. I did miss that. Yes, look it's a question we get asked a lot. Obviously, we are larger in scale and obviously, it's impacting us quite significantly. So we can only imagine that it's hitting the smaller operators harder. If you recall, there was more funding available for the rural providers. But of course that's used up too.
I guess the hypothesis here is that it could put stress on the smaller operators and maybe that becomes a benefit for us, if we're able to pick up those patients. But obviously, that's not built into this and I'm speculating on what duress there under. I can honestly say, we're not having them knocking at our door saying, buy us, and we're not buying any way. But obviously, it's something that we are keeping our ears to the ground on and watching carefully.
Okay. Thank you very much, Helen.
The next question is coming from Christoph Gretler from CS. Please go ahead.
Yes. Thank you, operator. Good afternoon, Helen, Dominik. First of all congratulations on this steep career from CFO to CEO and now to a fully public company. So it's quite remarkable. I have now two questions for you. The first is just on same-store market growth in the US it keeps on declining. And I was just wondering, if you could share your thoughts on what's going on there. I guess kind of the access mortalities probably kind of passed and it's still kind of not showing any signs of improvement. So that would be very interesting.
And the second question with respect to payer mix whether you could indicate if you had seen any impact from the Marietta Memorial Hospital case particularly on the small and midsized customer base. It's been a while now. So I'm just wondering whether that's, kind of, an issue or not at all?
Thanks, Christoph. It's -- I appreciate the congratulations. It's been a busy 78 days. So -- Let me unpack your questions. Same-store market growth in Q4 that was minus 1.9% and that was an improvement over Q4. And obviously to be clear that's the US. And it has been improving every quarter. Obviously as you correctly point out there is this -- the accumulation of the excess mortality, but -- and I think it's why we have been quite narrow and flattish with our range on, kind of, the growth projection for 2023.
But we're also seeing, kind of, the mortality coming down quite significantly from the peak consistently. So that's giving us the confidence that we will return to growth. I think this question of when do we see it fully back to what it was pre-pandemic. We keep talking about this 18 month to 24 month period. And every time we see an improvement that gives us confidence.
In terms of the payer mix it's been quite sticky throughout. And we've obviously spoken about that. We continue to see, kind of, slight improvements now with the Medicare Advantage book of business. So that also helps us as well with MA being in the high-30s.
And then the last comment on Marietta we're still expecting that bill to be passed in the language in the MSP amended. We had hoped it would be at the end of last year in the Lame-Duck period, but it didn't happen. But we're still confident that that will happen in 2023.
We're -- obviously all the plans were locked and loaded last year for this year. So no impact in 2023 and it's still going through the CBO scoring and we expect it to be a net cost to the government when that all gets resolved. But obviously we'd like it resolved and the overhang of the questions to go away.
That’s cool. Thank you. Appreciate your comments.
You bet. Thank you.
Yes.
The next question is coming from Ed Ridley-Day from Redburn. Please go ahead.
Great. Thanks. And I'd also add my congratulations, Helen. And thanks for what laid out today. Great to see some commentary around return on capital. Obviously, a clearly important metric and obviously something that the company has struggled with in recent years.
Can you give us some idea of your -- the level you would like to see? I know you've laid out but that would be helpful if you could give us some color about how you would like ROIC to develop? And also a second question would be, have you yet or what are your thoughts on the opportunity in PD in the US in particular following your peers exit from the market?
Sorry, I think, we had a little bit of a connection problem. Can you repeat the last question, sorry.
Sure. Your peer Baxter announced an exit within PD. And presumably that might offer an opportunity. I don't know if you have any thoughts on that at this stage.
Thank you.
Thanks, Ed. Thank you for repeating that question. We've got lost you at the back end of that. Yes, look, return on invested capital there's no question, it's disappointed, being in the 3s. I haven't put a target range out there, but clearly we need to minimally clear our cost of capital here. So you can see the financial policy I’ve put out. It needs to improve and it needs to improve quickly and concertedly.
We'll think through whether we put some targets out there for April, having really got that far on the rolling target. But, obviously, we’re so low, it needs to improve and I'm very mindful of the increase in cost of capital and the impact on our WACC. So very much a focused effort internally.
On your Baxter, yes. Look, it would be interesting to see what that -- how that all plays out. We know that some of those assets have been -- how do I say, shopped for sale and there wasn't take up on there, now they're doing the spin-off.
We'll also see how customers react to it and what that means and if there is opportunity, obviously, our team are staying close to it and looking at it. But I think, for us, we're clear where we are with our portfolio, but maybe it will help with pricing in the market overall.
And we're all suffering with the same inflationary and cost pressures on the product side here. So, yes, I think we're just watching and waiting to see what happens as they complete the spin out and whether -- yes, what kind of transaction happens as a result of that.
Great. Thank you.
The next question is coming from Lisa Clive from Bernstein. Please, go ahead.
Hi, Helen, been a while. Congratulations on the promotion and good luck with the big changes ahead. Just a few questions on just your thoughts on treatment volumes. Can you comment on what the COVID excess mortality was in Q4? And what are your assumptions for that for 2023?
Second part of that is, DaVita made a lot of noise at Q3 around missed treatments having picked up and stayed quite high through 2022, which they said was a 100 basis point headwind to their treatment volumes, which they have expected to continue into 2023. We'll see what they update us on that later. But can you just comment on how missed treatments have been trending for you and whether we should expect a year-over-year change in any way and whether it's sort of elevated?
And then the last piece relating to your treatment volumes is just around transplants. There's about 20,000 transplants in the US every year. I assume given your market share that roughly 35%, 40% of that is your patients. Has that number stayed pretty steady? Has it actually gone down in the pandemic due to lack of operating room capacity?
There was a big push under Trump initiative to try and increase transplants. Has that number been going up? I'm just sort of curious and then also in light of the regulatory change where there's now drug coverage for patients under Medicare which could help some of those patients maintain those transplants in a healthy way. Just trying to think about some of the puts and takes around patient volumes as the next few years unfold. Thanks.
Thanks, Lisa. It's great to hear your voice. Let me make sure I capture all of those. And if I miss something just tell me at the end, but I think I was scribbling furiously here. Treatment volumes in Q4 were pretty flat. So we didn't see anything untoward there. In terms of the missed treatments, and I think we saw this kind of phenomena in lower growth in Q2 to biased in Q3. And I think at this point, both of us are saying who we don't know. So we are turning that into -- okay all we can look at now is where we are with our organic growth and that's why I think we're kind of for us for sure at FMC calling it the plus one minus one for 2023.
So -- and then as it relates to COVID and the excess mortality we'd always guided 5,000 to 6,000 for the full year. We ended the year. And bear in mind these are still somewhat -- not completely final because of the data lag, but we ended the year with around 5,200. So a little less than we had expected. And it's -- at the peak we were seeing this excess mortality driving around 400 basis points. And now we're seeing that at around 250 basis points. So I think that gives you the swing of where we're seeing that.
And then just maybe as we think about our same market decrease that's been coming -- as I already mentioned, that's been coming down a little bit every quarter where we were at minus 1.9% at the end of the year. And then on transplants, you mentioned 20,000. We're seeing that a little bit higher, maybe around 25,000. So I think there's a little bit of an increase, which obviously is likely to be supported by some of the executive orders there as well, but an increase but still quite small numbers in terms of the overall patient volumes. Did I miss anything, Lisa?
No. I suppose just -- well, I guess maybe just one follow-up on the excess mortality round COVID. Essentially, the average has been that roughly 20% of your patients die to your COVID increased that by a few percentage points. Do you think we're sort of stuck at a slightly higher mortality rate just because these are such clinically vulnerable patients or just trying to think about how that looks going forward?
Yeah. Great question. And that's actually maybe a little bit of a bright spot for us because historically we were sitting around 17% through COVID. It went up to around 20%. And now we're seeing that come back down quite quickly actually to around 18%. So I think that's what also gives us the confidence on the growth recovery in the short term as well. So -- and that was obviously the numbers I'm giving you kind of more US numbers, but international normalized even quicker I would say because obviously we didn't have the same impact from COVID that we did in the US. So I think that's really encouraging for us that these -- the underlying business fundamentals that we speak about with the kind of the patients -- new patients coming in and the growth is somewhat normalizing post-COVID. I guess, it all took longer than we all ever imagined.
Yes. Great. And I know you guys have done an incredible job keeping your patients as safe as you can. So thank you for that detail. That's super helpful.
Thanks, Lisa.
The next question is coming from James Vane-Tempest. Please go ahead.
Hi. Thanks for taking my questions. It's James Vane-Tempest from Jefferies. Just coming back to 2025. Outside of your own execution and numbers, I'm just curious what you're assuming for any industry changes for your projections. So for example value-based care is progression to ESRD being delayed? So, are patients essentially joining that sicker and missing treatments. So are business models increasingly stretched over time for value-based care -- that risk models? And secondly on volumes, I'm curious, if patients flow may slow if drugs are more effective in CKD 304 is happening and or getting better overtime. And then thirdly, apologies as I mentioned earlier about DaVita reading, given we're talking about 2025, just wondering, if you are assuming in your assumptions any impact on commercial mix in 2024.
Thanks, James. So, yes, we're not really assuming anything different in the underlying fundamentals in our market situation due to the ESRD or CKD. What we are doing of course with our value-based care efforts is moving more into managing that CKD population, which we feel is an important part of our strategy that ultimately we should get healthier patients coming in into the funnel. So that feels kind of all aligned with the strategy there.
In terms of the -- what we are feeling there is that, if we are getting a healthier patient coming in then that means that, they would be on dialysis for longer. It's an interesting question on the drug piece because, obviously, we're watching SGLT2s closely. And what we see there is a cardiovascular benefit and kind of a diabetes benefit. So that means that we should -- ultimately they may still, kind of -- as it will still end up on the SRD, but again, we'll have a healthier patient for longer. But we see that impact is maybe what six, eight years away. But obviously, if we can get benefits on the CKD population, that will ultimately benefit us there.
And then, we have say, just healthier patients for longer. On the Marietta situation, we're still assuming that that will have a positive ruling and there is no impact negative assumed in this outlook. Obviously, we're just waiting to get that resolved with the MSP language.
Thank you. And just a quick follow-up on one of your slides on for '23 guidance, on treatment growth of minus 1% to plus 1%. Is that all in, or is there any impact on clinic closures that we have to consider that separately? Thank you.
That does include clear closures.
That’s great. Thank you.
The next question is coming from Victoria Lambert from Berenberg. Please go ahead.
Thanks for taking my question. I just had one on your home treatment strategy. Is the target still to reach 25% of treatments are formed by 2025. Yes, just an update on the progress of that would be useful. Thank you.
Hi Victoria, great to have you on the Berenberg team. The home target, it's still aspirational to be at 25% by 2025. And we recognize, that home growth has been impacted by obviously, the labor challenges and kind of staffing shortfalls that we had in 2023. At the end of Q4, we were at roughly just around 16%. So, it's definitely a focus for us to continue to accelerate -- and now obviously, as we see this labor situation stabilizing, we should be able to kind of get back on the training and really continue to drive that.
Like we had kind of maybe this time last year, where we're seeing that momentum come through. So, yes, still really excited about home, very much a key pillar of our strategy to kind of offset in some ways is the labor challenges that we have. But ultimately, also feed into our value-based care strategy of really improving outcomes in a home setting, which should ultimately reduce cost as well.
Thank you.
The next question is coming from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thanks so much. Hi, Helen. My first question is can you provide an update on the labor shortage situation in the US, and also the amount of open positions that you're still looking to fill at the moment. And then related to that, how important is a significant improvement in that regard, when thinking about achieving your new 2025 target. And then my second question is, whether you can provide an update on the CFO search? And can you provide a rough time line for, when the new person might be announced? Thank you.
Thanks, Falko. So labor yes, as you know, it's been a many moving pallets on that as I mentioned, which was one of our more difficult numbers to kind of size for 2023. But I'm really starting to feel, that we've got our arms around this labor situation and stabilizing it. In terms of the open positions, we are currently around 4,400 down from around 5,000 last quarter. I'm also really happy to see that, the use of temporary labor, the spend overall has come down quite significantly, and not just the volume that we're using, but the rates are declining as well which is really important.
And then, the other part that was a challenge for us, was this constant turn of labor through the summer. We're seeing some significant improvements in our employee turnover rates particularly, in the less than one year period and that is kind of a better hiring adherence, kind of longer training classes, kind of a buddy system. So we're really seeing a lot of these benefits take hold.
I think we're also seeing, maybe this is some of the inflationary measures, the hot kind of market has subsided and we're seeing that show up, in a little bit lower weights as well, overall. So, I feel really good about what we're doing there. And on top of that, not just the shortages and the cost, but the productivity improvements that we have both baked into this, kind of this midterm view on margins.
With regard to the CFO search, that is being initiated by the Supervisory Board of the MAG. That is -- it is progressing. There are slates of candidates and that will move into interview -- an interview time line, shortly. I truthfully, don't know, how long it's going to take. And obviously, it depends on anyone's availability and time line as well. So, I have no date, but I can assure you the search is ongoing. And I am, yes, looking forward to that.
Okay. Due to time, we can take one last question.
Yes. The next question comes from Robert Davies from Morgan Stanley. Please go ahead.
Thank you. My question was just on -- just in terms of the clinic closures you're doing, just if you could give us some sort of idea of the or sort of share a view over an installed base or the overall kind of clinic number that you're taking out? And is there some sort of ballpark figure per clinic or is it too big of variability as you take this out to get some idea of how much cost would come back?
And then one other thing I wanted to just touch on was just, your return on capital employed targets, how do the trends towards home care potentially impact that just from a, kind of I guess, capital employed and equipment standpoint and the way that business would run just a different structure over the medium-term? Thank you.
Thanks Robert. Yes, in terms of clinic closures, we're targeting around 50 to 100 in this first wave. And that's on a base of 2,600 in the US. And it's a pretty quick payback usually kind of 2-ish, two to three years payback there. So obviously, we're quickly accelerating that and ensuring that we keep our proportionate patient volumes as well.
And then on your second question, in terms of ROIC, I think that was always kind of part of a positive business case here with home that, home should positively impact that, because you don't need as much kind of capital infrastructure. It's quite capital-light as you don't need the clinics and so on. So, I think that's also why we want to continue to make sure we're accelerating that and making sure it reaches its full potential.
Okay. Thank you.
Thank you.
In the interest of time, we have to stop the Q&A session, and I hand back to Dominik.
So I'm sorry that we couldn't take all the questions, but we'll need to catch a plane unfortunately. So I apologize for that one. Thank you for taking the time, and the many interesting questions. That was very helpful. And thank you to Helen for doing that again on her own the third time.
Thank you, Dominik. Thank you everybody. I appreciate there was a lot of data today, a lot of information to unpack but I appreciate your continued interest and support of Fresenius Medical Care. Have a great day, and we'll talk to you soon. Take care.
Thank you. Bye.
Ladies and gentlemen, the conference has now concluded and you may disconnect. Thank you for joining and have a pleasant day.