Earnings Call Transcript - FMS Q1 2025

Operator, Operator

Thank you, Sandra. I would like to welcome everyone to our earnings call for the first quarter 2025. I know that this is a very tough day with many companies in the sector reporting today. Nevertheless, thank you for joining us today. As always, I would like 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 and to our SEC filings. As always, we will have 60 minutes for the call. To give everyone the chance to ask questions, we would like to limit the number of questions to two like in the past, and it would be great if we could make it work again as always. Let me now welcome Helen Giza, CEO and Chair of the Management Board; and Martin Fischer, our Chief Financial Officer. Helen, the floor is yours.

Helen Giza, CEO

Thank you, Dominik. I'd like to extend a warm welcome to everyone on the call. Thank you for your continued interest in Fresenius Medical Care. I'm pleased to report that we are off to a great start in 2025. Our first quarter performance further underscores the strength in the execution of our current strategic plan. With the start of the third and final year of our plan, I'm thrilled with our team's energy and focus, maintaining momentum and delivering continued operational and financial progress. I will begin my prepared remarks on Slide 4. In the first quarter, we delivered strong organic revenue growth of 5% with positive contributions from both Care Delivery and Care Enablement. Despite a severe flu season increasing missed treatments, we realized stable same market treatment growth in the United States. This was possible due to continuously improving underlying referral trends, which were supported by the tremendous operational improvements made within Care Delivery. Our FME25 transformation program continued its momentum, delivering €68 million in additional sustainable savings of our targeted €180 million for the year. We achieved 11% operating income growth, consistent with the expected phasing of our full year outlook, positioning us well for even greater growth in the quarters to come. Thanks to robust cash flow development and our strict financial discipline, our net leverage ratio improved to 2.8 times, which is well below our self-imposed target range. While tariffs have certainly been a prominent topic this year-to-date, recent changes in tariffs did not have an impact in the first quarter. Also, for the financial year 2025, we currently expect only a very limited impact from both U.S. and any global retaliatory tariffs. Overall, the first quarter developed well in line with our expectations, and we are therefore confirming our full year outlook. Turning to Slide 5. Here, I would like to highlight recent developments in each of our operating segments, beginning with Care Delivery. In the U.S., the stable or very slightly positive volume development reflected a 40 basis point impact from missed treatments driven by the severe flu season. We experienced peak flu impact in February and March. Prior to that, we realized relatively strong volume development in January. At the same time, we are encouraged by the accelerating number of referrals, which have helped to offset the impact from flu-related missed treatments. Throughout the quarter, we saw improving trends in patient referrals and the results of our operational improvements continuing from the second half of last year. This includes our efforts to streamline our admissions process and reduce patient cancellations. Therefore, we continue to expect same market treatment growth of 0.5% plus for the U.S. in 2025. While we have not given a specific phasing, we would expect a similar trajectory as last year with Q1 as the low point and stronger performance following throughout the year. While our same market treatment growth adjusts for the number of dialysis days, having one fewer dialysis day in the quarter creates a headwind for absolute volume development and utilization. In our international markets, we saw strong same market treatment growth accelerate to 2.5%. This is an encouraging indicator for these markets as well as an outlook for the U.S. recovery. Our value-based care business contributed to overall revenue growth. We saw lives under management increase from around 130,000 at the end of 2024 to around 148,000 at the end of March. Despite headwinds from one less dialysis day and the severe flu season, we maintained our operating income development at a stable level. Our 2025 outlook anticipated a lower contribution from the first quarter in Care Delivery, so all in line with expectations. Our Care Delivery earnings were supported by favorable rate and mix development as well as a positive impact from phosphate binders. Within Care Delivery, we are continuing to prepare for the rollout of high-volume hemodiafiltration or HDF for short. In the U.S., our first U.S. pilot program has grown from a few patients to 11 currently treated on our new 5008x machine. We are well positioned to expand that further as we approach the official launch at the end of the year. Turning to Care Enablement. After a strong Q4 last year, Care Enablement delivered a strong first quarter with solid volume growth in all regions and continued positive pricing momentum. We realized additional sustainable savings as part of our FME25 transformation program, driven by further optimization of our manufacturing and supply chain footprint. I'm pleased to report that our Care Enablement margin further improved to 8.3% for the first time it entered its target margin band of 8% to 12%. While there is more work to be done, if you remember where we came from, this is a tremendous achievement and positions this segment for further growth and margin expansion beyond 2025. Not only from a Care Delivery perspective but also from a Care Enablement perspective, we are actively preparing to bring transformational innovation to the U.S. market with the rollout of the 5008x. We are well on track for the launch at the end of the year, and we look forward to sharing more detail at our CMD on June 17. I'll now hand over to Martin to take you through the first quarter financial performance in more detail.

Martin Fischer, CFO

Thank you, Helen, and welcome to everyone on the call also from my side. I'll pick up on Slide 7. In the first quarter, we achieved solid organic revenue growth of 5% with contributions from both segments. At constant currency, revenue increased by 1%. The muted revenue development reflects the successful execution of our portfolio optimization plan. Divestitures negatively impacted our revenue development by 260 basis points. As a reminder, we decided not to adjust our numbers in the fiscal year 2024 and 2025 for the divestitures that were closed in those years. We decided to absorb the revenue and operating income effects of having sold the business in our guidance range for the respective year. Operating income, excluding special items, increased by 11% on a constant currency basis, primarily driven by growth in our Care Enablement segment. This reflects the expected phasing for our 2025 outlook. Special items negatively affected group operating income by €126 million. This mainly includes costs relating to portfolio optimization and our FME25 transformation program as well as negative effects from the remeasurement of our investment in Humacyte. Next, on Slide 8. This slide highlights the drivers of our year-over-year margin development. We realized a 90 basis point margin increase, largely driven by growth in our Care Enablement segment. This offset the slightly negative Care Delivery contribution, which reflected the impact of a severe flu season and one less dialysis day. I will review the drivers when we look at the segments in detail. Favorable contributions from corporate included the positive valuation effect of virtual power purchase agreements amounting to €3 million in the first quarter. It is worth noting that foreign exchange translation had a beneficial effect on our business in the first quarter and contributed to the growth with €11 million. Moving on to Slide 9. Care Delivery showed strong organic revenue growth of 4%, driven by both Care Delivery U.S. and Care Delivery International. In the U.S., our growing value-based care business supported revenue development along with favorable rate and payer mix development. This compensated for the muted same market treatment growth, reflecting higher levels of missed treatments driven by the flu season. As mentioned by Helen, we also realized solid international revenue growth, supported by accelerated same market treatment growth of 2.5% in those markets. The revenue development was negatively impacted by one less dialysis day. Additionally, our portfolio optimization plan negatively impacted Care Delivery revenue development by 370 basis points. We expect the headwind from our portfolio optimization to reduce over the course of the year. Despite the headwinds faced in this first quarter, Care Delivery maintained its operating income contribution at a stable level, even slightly expanding its margin to 9.3%. Earnings were supported by favorable rate and mix developments as well as a positive impact from phosphate binders. Care Delivery earnings also benefited from FME25 savings. These earnings developments were offset by labor and inflation costs in the quarter, which developed in line with our expectations. Let us have a closer look at the developments in Care Enablement on Slide 10. In the first quarter, Care Enablement continued to show strong revenue growth, supported by 5% organic growth. This development is mainly attributable to solid volume growth in all regions and continued positive pricing momentum globally. In line with our expectations, volume-based procurement in China was again supportive of volume growth, but a headwind to pricing. The segment showed a significant 49% increase in operating income, resulting in a margin increase of 240 basis points. With an 8.3% margin, Care Enablement also reached its target margin band. This reflected continued execution of our FME25 transformation program as well as improved volume and price effects, which more than offset anticipated deflationary pressures. Moving to Slide 11. In the first quarter, the relatively low operating cash flow was driven by seasonality in invoicing in line with our expectations. We realized a strong increase of 28% against last year's quarter due to improved operating working capital. Consistent with our current strategic priorities, we further reduced both our total debt and lease liabilities and total net debt and lease liabilities compared to the prior year period. As a result of our continued strict financial discipline, our net leverage ratio improved to 2.8 times. We remain comfortable being below our self-imposed target corridor of 3 to 3.5 times. Following the quarter end in early April, we took advantage of the favorable market conditions and our improved credit rating outlook to successfully place 2 bond tranches with an aggregate volume of €1.1 billion. We used some of the funds to buy back approximately EUR 300 million of bond maturing in 2026. We are planning to provide an update on our future capital allocation plans at our upcoming Capital Markets Day in June. I will now hand back to Helen to review our outlook.

Helen Giza, CEO

Thank you, Martin. I will pick up with our outlook on Slide 13. Given our first quarter performance and current expectations for the remainder of 2025, we are confident to deliver a strong performance in 2025 and are confirming our full year outlook. We continue to expect a positive to a low single-digit percent revenue development, and our Q1 operating income developed in line with our expectations as we anticipated a relatively lower contribution from the first quarter. Therefore, we expect operating income to grow by a high teens to high 20s percent rate compared to the prior year. I will finish my prepared remarks on Slide 14. Finally, I am looking forward to seeing many of you on June 17 in London for our Capital Markets Day. We plan to share the details of our strategy and capital allocation priorities. In addition, we have some interesting deep dive breakout sessions and a product show that we are excited about. If you have not already registered, please do connect with Investor Relations, as our registration will close on May 15. With that, I will now hand back to Dominik to start the Q&A.

Operator, Operator

Thank you, Helen and Martin, for your prepared remarks. I will now hand over to Sandra to open the Q&A.

Victoria Lambert, Analyst

Thanks for taking my questions. The first one is just on what you are seeing in April trading so far in the U.S.? I know Q1 was pretty volatile. So just an update on April would be helpful and how this gives you confidence to reiterate your full year guidance for the 50 basis points or more of growth? And then the second question is just on phosphate binders. What benefit did those have in Q1? And do you still expect the, I think, €50 million to €100 million operating income benefit for the full year? Thank you.

Helen Giza, CEO

Victoria, I'll take the first question, and Martin can take the second question on the binders. Obviously, the flu season hit hard in February and March. It rose pretty quickly and came back down. We are encouraged by what we see with the underlying referrals. That is a very strong leading indicator for us. I think what we'll also see in Q2 is the mortality effect, obviously, with a 6-week to 8-week lag on the flu data. Obviously, we haven't seen that kind of data fully for April yet. I think we've even closed the month, but we're encouraged by the kind of the weekly numbers that we're seeing, and we would expect that underlying inflow trends to continue. And we do feel confident with the phasing that we always see in Q1 that we will continue on a positive trajectory through the end of the year and confident with our 0.5 plus for the year.

Martin Fischer, CFO

Yes. And Victoria, on the phosphate binders. So quarter 1 developed in line with expectations, and we have outlined the full fiscal year effect. And given that with the phosphate binders going to the bundle, the ASPs used to start higher and then only being lowered as the fiscal year progresses. We did see a seasonal or a stronger start to the fiscal year and had a double-digit million effect that contributed to the positive quarter.

Veronika Dubajova, Analyst

Thank you, Dominik. And hey Helen and Martin, great to be back. Thanks for taking my questions. I'll keep it to 2, please. The first one is just the revenue per treatment trend in the first quarter in the U.S. It seems like it held up particularly well. Just curious, Helen, if you can give us an update on what you're seeing from a commercial perspective and for Medicare Advantage and whether this is something that is sustainable? And I guess, to what extent it was flattered by the phosphate binder dynamic? So that's my first question. And my second question is around Care Enablement. Congratulations on getting the margin into the target band. Martin, are you able to give us a bit of color on what was the contribution from pricing to revenue growth and profitability? And how much scope there is to do more as we go through this year? Thank you guys.

Helen Giza, CEO

Welcome back, Veronika. I'll take the first one on RPT. Yes, look, we are seeing continued price and mix improvement in development there. Obviously, with the PPS rate increase as well as what we have always spoken to this past year about kind of moderate price increases, that 1% to 2% price increase across the full portfolio of payers. So I think we're comfortable with how that trend is developing and obviously, that revenue is developing in line with our expectations for the quarter. Martin, do you want to take Care Enablement?

Martin Fischer, CFO

Yes. So Veronika, you saw from the bridge we provided that business growth was a significant contributor. We also stated that overall pricing is developing in line with expectations and globally is positive and contributing. And we also see that positive momentum that you saw last year also carrying forward in the quarter. To double-click a bit on that, this includes the China effect. And the China effect, as you remember, was in the second half last year, about a mid-double-digit number. And you see the annualization of the China effect now also for quarter 1, and you can also expect that for quarter 2 until we have the full cycle of the year. The important thing to note is that the volume contribution that we expected is developing according to our expectations. And even including the negative China headwinds, we do see a robust solid pricing momentum in the quarter as well. And I hope that gives a bit of color.

Veronika Dubajova, Analyst

Martin, maybe I can just push back on that a little bit or maybe ask for a little bit more detail. Obviously, you do have a large customer, which should be, I believe, paying some higher prices as of this year. Are you able to tell us how those negotiations have progressed and whether we're seeing the full impact of that already in Q1?

Martin Fischer, CFO

Veronika, I hope you understand that we do abstain from commenting on individual contracts.

Graham Doyle, Analyst

Hi guys, thanks for taking my questions. Just one on HDF first and then on volumes and margins. In terms of how you're thinking about pitching this to competitor clinics or service providers, is it primarily the overall mortality benefit? Or is there a nuance as to which patients might benefit? And then is there actual just operational benefit in terms of lower training costs and things like that? Just to understand, as we get closer to the launch, how you're pitching that once you go commercial? And then on margins, we've obviously had phenomenal success in the last 2 years in terms of expanding margins, but that's been effectively without any U.S. volume growth and it's kind of a rough number, but what do you think going forward when you get to a sort of normalized recovered margin, what do you think you need to grow at to sustain that margin? When does like operating leverage kick in? Is it like 1%, 2%, do we need to get back to 3%, just to understand how that moves? I appreciate both of those might be a little bit early for where we are today versus Capital Markets Day, but I thought I'd try.

Helen Giza, CEO

Thank you, Graham. I'll address both those points. They will be significant topics at our Capital Markets Day, particularly regarding the innovations and benefits we foresee for HDF. I can elaborate on that a bit. Similarly, we'll provide more details on our margin outlook. Specifically, regarding HDF, as we've mentioned throughout the past year, we are very enthusiastic about this new machine and the innovative treatment it offers. As you noted, the projected improvement in mortality from the CONVINCE trial, with a 23% reduction, could lead to approximately 400 basis points of growth. This outcome is crucial not only for patient benefits but also for improving operational efficiencies. The machine is easier to use, doesn't require saline, has quicker clean downtime, less time needed between treatments, and improved training efficiency. We’ll explore these aspects in detail in June, where we can clearly identify both treatment and operational benefits. This is why we are hopeful for widespread adoption of this treatment in the industry. Regarding your second question, we have indeed been focusing on driving efficiencies. Our new operating model has facilitated significant improvements over the past two years. You’re correct that we've experienced U.S. volume growth during this period. We anticipate that volume will continue to recover, which will enhance our operating leverage. We expect to grow above zero and even surpass 0.5. We'll provide more insights about market and volume trends in June, along with strategies for driving both top-line growth and bottom-line margin expansion. We are eager for this to unfold in just a month, and we look forward to sharing more information with the market then. Thank you for your questions, Graham.

Lisa Clive, Analyst

Hi there. It's been a strong start to the year. I have two questions. Your major competitor in the U.S. has mentioned considerable capital expenditures over the last five years, particularly focused on IT systems. Since both companies originated from a series of acquisitions, I'm curious about the status of your transformation in that area. I recall DaVita noting that it has been especially beneficial for their revenue cycle management in the private market, so I'm interested in what opportunities you see for Fresenius in that regard. My second question is about the HDF launch. How should we anticipate the ramp-up? Given the long replacement cycle for machines, should we expect the adoption of HDF to rise slowly, despite its patient and operational benefits? Lastly, what manufacturing capacity do you have to meet the demands of the U.S. market, and should we be concerned about any potential bottlenecks? Thank you.

Helen Giza, CEO

Thanks, Lisa. Martin, do you want to take the first one on the capital allocation in IT, and I'll take the second?

Martin Fischer, CFO

Yes. Happy to, Lisa. So first of all, IT and also driving automation of our processes and efficiencies and also revenue cycle management together with EHR systems, is a focused topic of ours as well because of this being a value creation level, both on the efficiency side but also on the revenue yield. So this has been for quite some time as well. And as we continue to invest into our business, we will also here give a little bit more color on our capital allocation priorities, both how we drive profitable growth and improve profitability going forward at the Capital Markets Day as well. But rest assured, this has been already a focus topic and will continue to be a focus topic also to invest into operational efficiencies.

Helen Giza, CEO

Thanks, Martin. Lisa, we will share the full rollout plan and our commercialization strategy for both Care Enablement and Care Delivery at Capital Markets Day, along with details about the capital aspects. While this innovation is exciting and unique, it also involves replacing an existing system. As you can understand, our strategic approach has involved balancing the implementation and rollout plan with the current system, but we will provide more insights into your questions from June during an in-depth breakout session on HDF, where you can also see the machine.

James Vane, Analyst

Hi, thanks for taking my questions. Just a couple please, if I may. Firstly, when we look at the operating growth of around 11% in constant currency, the EBITDA level in constant currency I think is just under 4%. So I think adjusted D&A was down materially, which is about half the margin gain. So we are at the run rate we can expect for 2025? And what are the considerations here, please? And then my second question is, again, just on the 5008x. You mentioned in terms of look getting preparations for launching at the end of the year. But just wondering when we might get more detail on either pricing, what sort of feedback you've got in the U.S. ahead of potential upgrades and how we should think about an upgrade cycle? Thank you.

Helen Giza, CEO

Yes. Martin, do you want to take the first one? And I'll come back to 5008x?

Martin Fischer, CFO

Yes, more than happy to. So on the D&A, I think it's important to note that when you look at the reported numbers, there's a significant portion and element of last year's divestitures in that, which equates to most of the reduction that we saw. And hence, when you look at it in a percentage of revenue, it is not such a large extent where it comes down. It does come down a bit in the quarter. But at the same time, the maturity, which was back then over €100 million hit coming out of that, which we also disclosed, was driven in the depreciation and amortization by the divestitures. Overall, the D&A is for us a stable development, where we do plan for, let's say, also sustainable reinvestment into predominantly our clinics as well as our machines as we place them as well next to our continued R&D investment in C&E. And also here on the capital allocation priorities for the innovation, we will give additional color also for the Capital Markets Day.

Helen Giza, CEO

Yes, James, regarding your question about the launch, we are looking forward to June 17. We are excited to have 11 patients receiving the HDF treatment at a single clinic, which is providing us with valuable real-time data. This experience will aid in our commercialization efforts with other industry players. While the pricing details are determined on a case-by-case basis and aren’t something we can publicly disclose, we are encouraged by the feedback we’re receiving. As we observed in the CONVINCE study, our patients not only show improvements in hard outcomes like mortality but also report enhanced quality of life. We plan to share more about how our patients are feeling after this treatment, possibly through video testimonials. It’s clear that patients are eager to continue with this treatment after seeing the results in the pilot. We are excited to proceed and will provide as much information as possible while protecting our proprietary data. We look forward to seeing you next month and sharing further updates.

Oliver Metzger, Analyst

Yes, good afternoon. Thanks for taking my questions. First one is about a deeper view on the same market treatment growth in the U.S. So the peak of flu season was early to mid-February. So the six-week cycle should have come to an end somewhere in April. So have you seen excessive mortality, or was the negative impact more about the patients staying longer in hospitals and were consequently not available for treatments in your clinics? The second one is on the current foreign exchange environment. Can you give us your view if the euro-U.S. dollar remains at the level as it stands right now? What will be the impact on the top and bottom line? Thank you.

Helen Giza, CEO

Sorry, I was muted. Oliver, I’ll address the first question regarding the same market treatment growth. We did observe the numbers in February and saw a spike, but we noticed it starting to decline in March. We are still gathering real-time data, so it's too early to conclude that anything has changed. We are still experiencing slightly elevated mortality rates. I don't believe we'll fully understand the complete impact of the flu season until May. By Q2, we will be able to assess how this trend is progressing. However, at this moment, it’s too early to provide a definitive answer. What we experienced in Q1 was still elevated, but the flu data, which comes with a six- to eight-week lag, will be available later.

Martin Fischer, CFO

Yes. Oliver, on the FX, I mean, obviously, in the current environment, it's very hard to predict where the U.S. dollar will go with the volatility that we see. At the same time, let me give you some color, how we think about it and how we also here specifically on the translation topic that it is for us, have started the year and see the rest of the year. In the quarter 1, for us, the average rate was about at 105. And you also saw that in quarter 1, we had a positive FX tailwind to the results. At the same time, we ended the quarter at a spot rate of 108, which is pretty much in line with the indication that we gave you for the outlook when we shared our assumptions for 2025 results. And I think currently, when you look at it today, in the last couple of days, we are hovering around 113-ish. And when you would expect that we stay at a similar level, that would, for us, mean about a 2% to 3% headwind on the top and bottom line for the full fiscal year 2025. And I hope that helps a bit of color.

Hugo Solvet, Analyst

Thanks, Dominik. Hi, guys and congrats on the quarter. I have 3 questions, please. First on tariffs. I know probably not very material for you, but could you help us understand a bit more what the impact could be, should things change at the beginning of July? Second, a follow-up on Lisa's question. Your U.S. competitor also suffered a severe attack earlier in April. Just wondering if you could comment on anything you've seen that would impact you positively more patient or increasing recourse, for example, keen to get your thoughts on that? And lastly, on volumes. If I'm not mistaken, you mentioned a 40-basis point tailwind on U.S. volumes from referral in Q1, or should we think about this accelerating potentially throughout the year? Thank you.

Helen Giza, CEO

Thanks, Hugo. I can address all those points. First, regarding tariffs, as mentioned earlier, there was no impact in Q1 and we expect it to be limited for the entire year. We have significant local manufacturing in the U.S., so most consumables are produced here. While we do receive machines from Germany and have some final assembly in Mexico, our efforts with FME25 and the rebuilding of our manufacturing and supply chain have made us quite resilient. Therefore, we anticipate the impact to be limited, especially with the USMCA agreements and other existing protocols, which give us confidence in our situation. The broader question remains how this will affect inflation or labor rates. We will monitor what adjustments we may need to make in pricing, but as of now, we feel positive looking ahead through 2025. Acknowledgment goes to the tariff task force for their excellent work. Regarding the cyber-attack on DaVita, while I won’t comment on its specific impact, we did notice some benefits in Q2 from increased patient referrals. The full implications of that will be clearer once April concludes. Our main focus is ensuring patients receive the necessary care, and the improvements we've made to our admissions process and patient inflow seem to be yielding positive results. As for the 40-basis point impact you mentioned, that resulted from missed treatments, not inflow. The accelerated patient inflow has mitigated the effects of missed treatments, primarily caused by flu. Essentially, we are facing a neutral position regarding the 40-basis point headwind from flu, which is backed by the steady inflow we are experiencing.

Marianne Bulot, Analyst

Good afternoon and thanks for taking my questions. The first one is, could you talk a little bit about the remaining FME25 savings that you expect for the rest of this year? I've noticed that you have already delivered a large chunk in Q1. So just wondering a little bit where do you see the most of the remaining savings coming from? And what do you need to deliver them? And then a bit more of a broader question on the company, and I appreciate that might be further discussed at the CMD, but as you look into your portfolio, have you identified or are you still working on identifying other assets that aren't growing as profitably as you would like and that you could potentially sell over the mid-term? Thank you.

Martin Fischer, CFO

Yes. More than happy to. Marianne, as you saw in the quarter, we had a good quarter contribution and also with the €68 million and the total year of €180 million, we feel that we started well. The phasing of that was in line with our expectations. And also when we give additional color on that, you do see further contributions from the Care Enablement, also from the manufacturing and supply chain footprint optimization that we have, but also some further contributions from the G&A functions as well as CD to a smaller extent. We continue to see that structure also holding through the remainder of the year, and the overall phasing, as I said, is in line with our expectations and should give us good confidence or gives us good confidence for the fiscal year target.

Helen Giza, CEO

Yes. In response to your question about divestiture, I am very pleased and proud of the progress the teams have made over the last two years in refining the portfolio. As you may have seen in the first quarter, we announced the full year results, including the Spectra Labs in Malaysia, which were two significant events this quarter. Overall, I believe we are mostly finished with this process. Of course, as we continue to review our country portfolio, we will remain vigilant for any changes in the environment that might affect our perspective on any smaller markets. However, I feel confident about our current position and this reflects our commitment to maintaining a disciplined approach to assessing asset performance. We are clear about what constitutes our core operations and the efforts required to drive improvements in that area. You can observe how streamlined our operations have become compared to two years ago, and we can share more details on this in June.

Richard Felton, Analyst

Thanks very much for taking my questions. Just 2 for me, please. The first one is a follow-up on the treatment volume dynamics and the strong referrals you mentioned. Could you just tell us where we are on the growth of new starts today and how that compares to this time last year? That's the first question. And then the second one, it's been a while now, but could you just comment if you've seen any changes in the competitive dynamic or potential opportunities that have been created by Baxter's sale of Vantive to Carlyle? Thank you.

Helen Giza, CEO

I’m not sure if I have the year-over-year treatment volume available right now. Let me check if we can find that information while we’re talking. Martin or Dominik, could you help with that? Regarding the competitive landscape, we both operate in different segments of the market, whether it's PD or HHD, and we welcome the competition. The perspective that Vantive is bringing is beneficial for the market as a whole. We take pride in our achievements, and the growth we’re experiencing in volume across all regions, along with pricing and margin improvements, reflects our confidence in our product assets. We hold a significant share in HHD and are the second-largest in PD, but we believe there is room for both companies to thrive. We are focused on what we can control and how to continue advancing our business, and I think our progress shows in the results. Regarding the referrals, we have observed an improvement each month, but compared to last year, referrals are down. In Q1, we faced a challenge with one fewer dialysis day, which limits our capacity to accept new patients. However, we are pleased with the strides we’re making. The work we have done to admit new patients and retain them in clinics indicates that our operational turnaround is taking effect. The leading indicators are moving in a positive direction.

David Adlington, Analyst

Hey guys, thanks for taking the questions. Most have been asked already, but maybe I could just push you a little bit more on the phosphate binders in the quarter. If you could clarify that double-digit, that's quite a wide range, how much you saw in Q1? And just to confirm, are you happy with that €50 million to €100 million still? And I suppose just on that, obviously, the €12 million improvement in Care Delivery EBIT basically did that all come from phosphate binders, just a follow-up there? And then secondly is a wider one. Are you seeing anything in the new U.S. administration on the Medicare side or on the regulatory side that is concerning? Thanks.

Helen Giza, CEO

Martin, sorry, do you want to take binders, and I'll take the administration?

Martin Fischer, CFO

Yes, I'll take the binder one. So to also reiterate a bit, we did give an indication of an effect for the full year of about €100 million. And also, I did say that for quarter 1, we have always anticipated quarter 1 to be a bit stronger contribution because of how the mechanics work and also starting out with a higher ASP assumption and then having ASPs being reduced throughout the year consistently. So also here, we have seen a double-digit contribution or double-digit million contribution in the quarter, as we called out on the profitability side. And this is across all assets in our portfolio. We have given the color that it is more a positive on the pharma and clinics business and the negative on the pharmacy business. So I hope that additional color helps.

Helen Giza, CEO

Yes, David, regarding your question about the new administration, we are all adapting to the changes. So far, we do not anticipate modifications to the foundational Medicaid or Medicare programs or any alterations in kidney care. We have noticed some specific cuts in different areas of healthcare, but our core business appears to be stable. There were some initial adjustments to models, including the notable conclusion of the ETC models by the end of 2025, which was a mandatory model. Fortunately, that had minimal impact on us. This is what we have observed and heard so far, and we are continuing to foster relationships and discussions in D.C. However, many indications suggest that the major changes the President has mentioned seem unlikely, but we will keep monitoring the situation.

Robert Davies, Analyst

Yes thanks for taking my questions. Just a couple left. One was just on the equipment business and the margin profile through the year. How should we think about that? You've seen 2 or 3 quarters now where that margin has been building quite nicely. Is there any seasonality at all in that business that we should think of heading through the year? Or can we just assume that 1Q is a sort of base level and it's upwards from here? And then the only other one I had left was just around return on capital employed. I saw you put in a slide on that towards the back of the pack, just thinking about some of the key elements that are driving that ROCE back up into the high single-digit territory where you were maybe 7 or 8 years ago, what are the key elements do you think in terms of getting there from where you are today? Is it just the operational leverage of the business as the growth comes back? Or are there other elements as well? Thank you.

Helen Giza, CEO

Thanks, Robert. I'll take the first one, and Martin can take the second one. Yes, look, we don't guide by segment within the year, but we've made it very clear that for our Care Enablement business, we have a margin band of 8 to 12. And in Q4, it's typically the strongest. So starting Q1 at 8.3, I think you can expect that target, we continue to improve that margin band kind of along the way this year. What I'm excited to show is where we go from here and where we see this med tech margin in the future. But obviously, that will be June. But I think the progression for this business over the year. And we always said, look, we were starting from a 2% margin here. And I always said, we have very definitive plans all underpinned with initiatives. It would be back-end loaded, and that's what we're seeing, but the acceleration that we're seeing is a great testament to the Care Enablement team and all that they're delivering, both on FME25, but also on volume and kind of market share as well as pricing. So across the board, I feel that we are kind of pulling on every cylinder there. So look forward to kind of showing the outlook for this beyond 2025.

Martin Fischer, CFO

So let me take the capital efficiency one. And thank you, Robert, for the question. So you have seen a nice recovery from our low in 2023. And to your point, yes, this is partially on the back of the operational transformation and turnaround and the improvement of the profitability, and you can expect us to further drive profitable growth in that regard. So yes, a major part comes from the operational performance improvement. The second piece actually is a continued stringent capital management. And yes, we do see still potential and continue to manage that capital efficiency piece also on the capital side, and when you saw the trajectory where we improved over 8 percentage points compared with 2023 that we have seen in Q1, I think you also see that those measures are taking effect, and we will continue to focus on further improving it. We are not happy with where we stand. We have been very clear that we want to further improve and drive it also above the mid-single-digit margin ROIC levels as well.

Falko Friedrichs, Analyst

Thank you for taking my questions. Just a few quick ones. Firstly, on the improving referral process that you mentioned, that's good to hear. How far away is that still from where you would want to see it ultimately? And second question on cost-cutting. Obviously, you've done a tremendous job over the recent past on that front. How much of a topic will that still be beyond this year? I know you're going to speak about that at the CMD, but maybe you can give us some initial flavor. I mean the house is still standing, you've taken a lot of cost out. Is there still a lot more to go? You've just had divestments, you're sort of done with that. So on the pure cost-cutting, what's to be expected beyond 2025? And then lastly, on share buybacks, it seems to be some excitement in the market that you might be announcing something big in terms of share buyback plans at the CMD. Is there anything you can say about that at this point, how you're looking at these, whether that's something you would at all consider going forward? Thank you.

Helen Giza, CEO

Falko, you made me smile, and yet my house is still standing, but we'll tag team these questions. Look, in terms of the improving referral process, I mean when we are all back to a 3% plus growth rate, and we're seeing all the patient funnel from CKD refill and we're snagging every patient that we can from any physician that is referring someone to us. But I think then we get to a point where we're happy, right? But until then, we'll continue to work and make sure our processes and the patient flows are getting momentum along that way. And I feel like that's where we are finally starting to see that proverbial light where our internal processes are significantly improved. The flows are improving, but more importantly, that the CKD funnel that has been a bit of an uncertainty to us through this COVID period or post-COVID period, seeing that improvement is key. We're obviously taking it a quarter at a time on what we can do there. In terms of the cost-cutting, yes, look, I feel incredibly proud of what we've all accomplished on FME25, not just cost-cutting, but really kind of streamlining the organization around the operating model or the new operating model and driving efficiencies. I think for us, where we see further opportunities to drive improvements and to invest in the company, we will take a look at those. And I think that would obviously be part of our outlook for June. And capital allocation, I know that's a big ask from everyone. A bit of a repeat answer, I'm sorry. More to come in June on what we plan to do with that capital and how we deploy it to shareholders. At the end of the day, we are focused on value creation, and we'll give you insights into how we're thinking about that.

Operator, Operator

So thank you, everyone. That's the first in 15 years of IR, we have 4 minutes left and no questions. So that is great. We answered all questions. That's good. Thank you very much for listening in to our call. We will go now very quiet until our Capital Markets Day for obvious reasons because the questions you will get answered at the Capital Markets Day. And we look forward to seeing you all. Please register, if you haven't, and we'll see you in London on the 17th of June, I hope.

Helen Giza, CEO

Yes. Thanks, everyone. Look forward to seeing you in June. Take care. Bye-bye.

Martin Fischer, CFO

Thank you. Take care. Bye-bye.