Attached files
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| EX-99.1 - EXHIBIT 99.1 - WEST PHARMACEUTICAL SERVICES INC | exh991q42016earningsrelease.htm |
| 8-K - 8-K - WEST PHARMACEUTICAL SERVICES INC | wst-q42016form8k.htm |
West Pharmaceutical Services, Inc.
Fourth-Quarter and Full-Year 2016 Analyst Conference Call
9 a.m. Eastern Time, February 16, 2017
Speakers:
Eric M. Green
President and Chief Executive Officer
William J. Federici
Senior Vice President and Chief Financial Officer
A webcast of today’s call can be accessed in the “Investors”
section of the Company’s web site: www.westpharma.com
To participate on the call please dial:
− 877-930-8295 (U.S.)
− 253-336-8738 (International).
− The conference ID is 64056104
An online archive of the broadcast will be available at the site
three hours after the live call and will be available through
Thursday, February 23, 2017, by dialing:
− 855-859-2056 (U.S.)
− 404-537-3406 (International)
− The conference ID 64056104
These presentation materials are intended to accompany today’s press release announcing the Company’s results for
the fourth-quarter and full-year 2016 and management’s discussion of those results during today’s conference call.
Safe Harbor Statement
Cautionary Statement Under the Private Securities Litigation Reform Act of 1995
This presentation and any accompanying management commentary contain “forward-looking statements” as that term is defined in the Private
Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about product development and operational
performance. Each of these statements is based on preliminary information, and actual results could differ from any preliminary estimates. We
caution investors that the risk factors listed under “Cautionary Statement” in our press releases, as well as those set forth under the caption "Risk
Factors" in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and as revised or supplemented by
our quarterly reports on Form 10-Q, could cause our actual results to differ materially from those estimated or predicted in the forward-looking
statements. You should evaluate any statement in light of these important factors. Except as required by law or regulation, we undertake no
obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Non-U.S. GAAP Financial Measures
Certain financial measures included in these presentation materials, or which may be referred to in management’s discussion of the Company’s
results and outlook, have not been calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and therefore are
referred to as non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation or as an alternative to such
measures determined in accordance with GAAP. Please refer to “Reconciliation of Non-GAAP Measures” at the end of these materials for more
information.
Trademarks
Registered trademarks used in this report are the property of West Pharmaceutical Services, Inc. or its subsidiaries, in the United States and other
jurisdictions, unless noted otherwise.
2 |
Full-Year 2016 Highlights
* Excluding the impact from translational changes in foreign exchange
Implemented market-led strategy and aligned into Commercial, Global Operations and
Innovation & Technology
Record-high net sales of $1.509 billion, representing 9.1% organic sales growth*
‒ Proprietary Products Segment organic sales growth of 9.9%
‒ Contract-Manufactured Products organic sales growth of 5.9%
Expanded capacity, reduced lead times and expanded gross profit margin by 60 basis points
Launched new high-value products; customers received FDA approvals of drugs using
Crystal Zenith and SmartDose technology
Expanded adjusted operating profit margin by 120 basis points
Record-high adjusted diluted EPS of $2.18, representing 19% growth despite $0.04 negative
impact from changes in currency rates
3 |
0%
100%
200%
300%
400%
500%
2011 2012 2013 2014 2015 20162012 2013 2014 2015 2016
Net Sales
Sustained, Consistent Growth
2012 2013 2014 2015 2016
Adjusted Diluted EPS*
(Non-GAAP)
Constant Currency
CAGR 6.8%
Comparison of Cumulative
Five-Year Total Return
S&P MidCap
400 Index
West Pharmaceutical
Services, Inc. (WST)
Sources: IR Insight, Company estimates
*Please refer to “Reconciliation of Non-GAAP Measures” at the end of these materials for more information.
Adjusted Diluted EPS
CAGR 12.1%*
$1.38
$2.18
+19%
$1.27
Billion
$1.51
Billion
+9.1%
organic
CAGR
4.5%
4 |
Full-Year 2016 Highlights
Proprietary Products, 79% of total sales
BIOLOGICS
Double-digit organic
sales growth
GENERICS
Double-digit organic
sales growth
PHARMA
Mid-single digit
organic sales growth
Mid-single digit
organic sales growth
CONTRACT-
MANUFACTURED
PRODUCTS
21% of total
High-value product organic sales growth of 20%
5 |
Global Operations
Global manufacturing network of 28 plants across U.S.,
Europe, Asia and South America
Increased industry-leading quality metrics
Increased capacity and efficiencies, reducing lead times
and backlog levels for high-value products
Global Supply Chain and Procurement drove lower costs
and increased savings
Completed 60,000 sq ft expansion of Dublin contract
manufacturing site
Planned increases of high-value product capacity with new
facility in Waterford and expansions in Kinston, NC and
Singapore
Dublin contract
manufacturing
6 |
Innovation & Technology
Expanded high-value product offerings,
including NovaPure® 1-3mL plungers
Developing new high-value product component
offerings and administration and safety devices
FDA approvals by our customers using Crystal
Zenith® and SmartDose® technology
Developing next-generation self-injection
devices and advanced formulations
7 |
STERILIZED
WASHED
COATED
ADMINISTERED
CAMERA
INSPECTED
QUALITY
BY DESIGN
CONTAINMENT
SELF
INJECTION
8 |
Increasing levels of
customer intimacy
Increasing
value to West
Next Generation of
Self-Injection
Delivery Devices
Our pipeline of new products is robust
INJECTION MOLDING
MULTI-COMPONENT ASSEMBLY
2017 Outlook
Raising full-year 2017 net sales organic sales growth to a new range
of 7% to 9%, above West’s long-term target of 6% to 8%
2017 net sales range: $1.585 billion to $1.610 billion
2017 gross profit margin of 34.4% to 34.8%, an expansion of 120 to
160 basis over 2016
2017 adjusted diluted EPS(1) range: $2.45 to $2.57
− Represents 12% to 18% growth over 2016
− Assumes approximately $0.05-0.07 EPS headwind from stronger US
dollar
− Excluding changes in FX, EPS growth would be 15% to 21%
(1) Please refer to “Notes to Non-GAAP Financial Measures” on slides 16-19, and “Non-GAAP Financial Measures” in today’s
press release, for additional information regarding adjusted diluted EPS.
9 |
Fourth-Quarter 2016 Summary Results
($ millions, except earnings-per-share (EPS) data)
(1) “Net sales at constant currency”, “adjusted operating profit”, and “adjusted diluted EPS” are Non-GAAP measures. See slides 16-19 and the
discussion under the heading “Non-GAAP Financial Measures” in today’s press release for an explanation and reconciliation of these items. Except as
noted, statements in these slides concerning comparative sales are measured on a constant currency basis.
Three Months Ended
December 31,
2016 2015
Reported Net Sales $382.3 $359.7
Net Sales at Constant Currency(1) $387.2 $359.7
Gross Profit Margin 32.3% 33.3%
Reported Operating Profit $54.3 $45.2
Adjusted Operating Profit(1) $54.9 $46.6
Diluted EPS $0.52 $0.45
Adjusted Diluted EPS(1) $0.54 $0.47
10 |
$382.3
($4.9)
$25.8 $1.7
$359.7
2015 Volume & Mix Sales Price Currency 2016
Change in Consolidated Sales
Fourth-quarter 2015 to 2016
($ millions)
11 |
32.3%
(0.6%)
(0.7%)
(1.4%)
1.3% 0.3% 0.1%
33.3%
2015 Volume & Mix Sales Price Raw Material Start-Up
Costs &
Contract
Tooling
JPY
Denominated
Materials
Plant
Overhead &
Other
2016
Change in Gross Profit Margin %
Fourth-quarter 2015 to 2016
12 |
Change in SG&A Costs
Fourth-quarter 2015 to 2016
($ millions)
$60.9
($2.9)
$1.0 $0.4
$62.4
2015 Comp and Benefits Currency & Other Incentive & Stock
Comp
2016
17.4%
of Sales
15.9%
of Sales
13 |
Cash Flow and Balance Sheet Metrics
($ millions)
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
Twelve Months Ended December 31,
2016 2015
Depreciation and amortization $90.7 $89.9
Operating cash flow $219.4 $212.4
Capital expenditures $170.2 $131.6
As of
December 31, 2016
As of
December 31, 2015
Cash and cash equivalents $203.0 $274.6
Debt $228.6 $298.2
Equity $1,117.5 $1,023.9
Net debt-to-total invested capital 2.2% 2.3%
Working capital $400.9 $359.4
14 |
2017 Full-Year Guidance
($ millions, except EPS) (1) (2)
Proprietary Products net sales $1,245 to $1,260
Contract-Manufactured Products net sales $340 to $350
Consolidated net sales $1,585 to $1,610
Consolidated gross profit margin (% of net sales) 34.4% to 34.8%
Full-year Reported Diluted EPS (1) (2) $2.45 to $2.57 per share
(1)
Guidance includes various currency exchange rate assumptions, most significantly the euro at $1.05 for 2017.
Actual results will vary as a result of variability of exchange rates, among other items.
(2)
Assumes no non-recurring items in 2017.
15 |
Today’s press release, these presentation materials and associated presentation use the following financial measures that have not been calculated in accordance with generally accepted
accounting principles (GAAP) accepted in the U.S., and therefore are referred to as non-GAAP financial measures:
Net sales at constant currency (organic sales)
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income
Adjusted income tax expense
Adjusted diluted EPS
Net debt
Total invested capital
Net debt to total invested capital
West believes that these non-GAAP measures of financial results provide useful information to management and investors regarding business trends, results of operations, and the Company’s
overall performance and financial position. Our executive management team uses these financial measures to evaluate the performance of the Company in terms of profitability and efficiency,
to compare operating results to prior periods, to evaluate changes in the operating results of each segment, and to measure and allocate financial resources to our segments. The Company
believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in comparing its financial
measures with other companies.
Our executive management does not consider such non-GAAP measures in isolation or as an alternative to such measures determined in accordance with GAAP. The principal limitation of
these financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded. In addition, they are subject to inherent limitations as they reflect the
exercise of judgment by management about which items are excluded. In order to compensate for these limitations, non-GAAP financial measures are presented in connection with GAAP
results. We urge investors and potential investors to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures, and not to rely on any single
financial measure to evaluate the Company’s business.
Net sales at constant currency translates the current-period reported sales of subsidiaries whose functional currency is other than the U.S. dollar at the applicable foreign exchange rates in
effect during the comparable prior-year period. In calculating adjusted operating profit, adjusted operating profit margin, adjusted income tax expense, adjusted net income and adjusted diluted
EPS, we exclude the impact of items that are not considered representative of ongoing operations. Such items generally include restructuring and related costs, certain asset impairments,
other specifically identified gains or losses, and discrete income tax items.
Please see “Financial Guidance” and “Non-GAAP Financial Measures” in today’s press release for further information concerning reconciling items.
Notes to Non-GAAP Financial Measures
For additional details, please see today’s press release
& Safe Harbor Statement
16 |
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-19), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.
17 |
Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS
($ million, except EPS data)
Three months ended December 31, 2016
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $54.3 $16.1 $39.1 $0.52
Restructuring and related charges 2.7 0.9 1.8 0.02
Pension curtailment gain (2.1) (0.8) (1.3) (0.01)
Discrete tax items - (0.7) 0.7 0.01
Adjusted (Non-GAAP) $54.9 $15.5 $40.3 $0.54
Twelve months ended December 31, 2016
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $196.8 $54.4 $143.6 $1.91
Restructuring and related charges 26.4 9.0 17.4 0.23
Venezuela currency devaluation 2.7 - 2.7 0.04
Pension curtailment gain (2.1) (0.8) (1.3) (0.01)
Discrete tax items - (1.0) 1.0 0.01
Adjusted (Non-GAAP) $223.8 $61.6 $163.4 $2.18
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-19), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.
18 |
Reconciliation of Net Sales to Net Sales at Constant Currency(1)
($ million, except EPS data)
(1) Net sales at constant currency translates the current-period reported sales of subsidiaries whose functional currency is other
than the U.S. dollar at the applicable foreign exchange rates in effect during the comparable prior-year period.
Three months ended December 31, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $290.0 $92.4 $(0.1) $382.3
Effect of changes in currency translation rates 4.7 0.2 - 4.9
Net sales at constant currency (Non-GAAP)(1) $294.7 $92.6 $(0.1) $387.2
Twelve months ended December 31, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $1,189.9 $320.2 $(1.0) $1,509.1
Effect of changes in currency translation rates 17.5 - - 17.5
Net sales at constant currency (Non-GAAP)(1) $1,207.4 $320.2 $(1.0) $1,526.6
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-19), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.
19 |
Reconciliation of Reported and Adjusted Diluted EPS
2016 2015 2014 2013 2012
Diluted EPS Reported (GAAP) $1.91 $1.30 $1.75 $1.57 $1.15
Restructuring and related charges 0.23 - - - 0.05
Venezuela currency devaluation 0.04 - - - -
Pension (curtailment) settlement (0.01) 0.43 - - -
Executive retirement and related costs - 0.09 - - -
License costs - - 0.01 - -
Discrete tax items 0.01 0.01 0.02 0.06 0.03
Acquisition-related contingencies - - - - 0.01
Extinguishment of debt - - - - 0.14
Diluted EPS Adjusted (Non-GAAP) $2.18 $1.83 $1.78 $1.63 $1.38