Attached files
| file | filename |
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| 8-K - 8-K - WEST PHARMACEUTICAL SERVICES INC | wst-q42017form8k.htm |
| EX-99.1 - EXHIBIT 99.1 - WEST PHARMACEUTICAL SERVICES INC | exh991q42017earningsrelease.htm |
West Pharmaceutical Services, Inc.
Fourth-Quarter & Full-Year 2017 Analyst Conference Call
9 a.m. Eastern Time, February 15, 2018
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 website: www.westpharma.com
To participate on the call, please dial:
− 877-930-8295 (U.S.)
− 253-336-8738 (International)
− The conference ID is 9393569
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 22, 2018, by dialing:
− 855-859-2056 (U.S.)
− 404-537-3406 (International)
− The conference ID is 9393569
These presentation materials are intended to accompany today’s press release announcing the Company’s results for
the fourth-quarter and full-year 2017 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 |
Fourth-Quarter & Full-Year 2017 Results
Q4 reported net sales of $415.6 million, representing 4.5% organic
sales growth
‒ Excluding impact of Venezuela deconsolidation & hurricane-
related shut-downs, sales growth would have been 6.0%
Full-year 2017 reported net sales of $1.6 billion, representing 5.2%
organic sales growth
Q4 adjusted-diluted EPS1 was $0.64, representing 19% growth
Full-year 2017 adjusted-diluted EPS1 was $2.78, representing 28%
growth
3 |
(1) Please refer to ―Notes to Non-GAAP Financial Measures‖ on slides 16-20, and ―Non-GAAP Financial Measures‖ in today’s press release, for additional
information regarding adjusted diluted EPS.
Organic Sales Growth
4 |
Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 FY 2017
Overall Organic
Sales Growth
7.7% 8.7% 3.9% 3.7% 4.5% 5.2%
Biologics DD MSD MSD LSD DD HSD
Generics (MSD) (MSD) (MSD) LSD HSD FLAT
Pharma HSD DD MSD (LSD) (LSD) MSD
Contract
Manufacturing
DD DD DD DD DD DD
Abbreviations: LSD – low-single digit; MSD – mid-single digit;
HSD – high-single digit; DD – double digit
Proprietary Products Business Segment
5 |
Growth in High Value Products
Net Sales
HVP
HVP
2013 2017
Net Sales
Standard Standard
Delivery
Delivery
100%
Proprietary
Product
Net Sales
2013-2017 CAGR
HVP
11%
Delivery
18%
Standard
2%
High-value product sales grew
annually by 11%
Drug delivery business continues
to expand off of a small base
SelfDoseTM Injector—2018
PharmaPack Innovator Award
SmartDose® Platform next
generation devices introduced
in November, 2017
Growth will be fueled by volume,
price and adoption of HVP,
including new product launches
R&D Portfolio Productivity
New products launched over the past five years contributed more than
100 basis points of organic sales growth in 2017
6 |
Advancing Our Core
With technical manufacturing
advances to produce higher
value products
Delivery Devices
That integrate West’s
containment and delivery
expertise
Administration Systems
Systems that build West’s
presence in the injectable
marketplace
7 |
2013 2017
Growth in Healthcare-Focused Areas
Net Sales Net Sales
Contract Manufacturing Business Segment
100%
Contract
Manufacturing
Net Sales
Healthcare Healthcare
Consumer
Consumer
2013-2017 CAGR
Consumer
-2%
Healthcare
9%
Healthcare business grew annually
by 9%
Majority of growth is in the drug
delivery & diagnostics segments
As part of long-term strategy,
de-emphasizing consumer to make
room for additional healthcare-
related business
Future opportunity to expand
capabilities to drive future growth
8 |
Design &
Prototyping
Injection Molding
of Plastics
Product
Assembly
Project Management
Global, Large-scale Capacity
Customers’ Commercial
Products
Contract Manufacturing Business Segment
Dublin Contract Manufacturing Facility
5 consecutive quarters of double-
digit growth
Expanding capabilities & capacity
to grow healthcare business
West Contract Manufacturing Model
Improved results in service & quality to
customers
‒ More than 40% reduction in average lead
time across network
‒ Improved quality; less than 80 out-of-spec
parts per billion
Acceleration of process excellence
improvements across global network, driving
improvements in customer value stream
Streamlining our plant network to enable
investments to drive our high-value
proprietary products and healthcare-related
contract manufacturing business, and drive
margin expansion
9 |
Global Operations
2017 AWARD
FINALIST
10 |
Fourth-Quarter 2017 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 16-20 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,
2017 2016
Reported Net Sales $415.6 $382.3
Net Sales at Constant Currency (1) $399.7 $382.3
Gross Profit Margin 30.9% 32.3%
Reported Operating Profit $61.0 $54.3
Adjusted Operating Profit (1) $61.0 $54.9
Reported Diluted EPS $ - $0.52
Adjusted Diluted EPS (1) $0.64 $0.54
$415.6
$14.9
$15.9 $2.5
$382.3
2016 Volume & Mix Currency Sales Price 2017
Change in Consolidated Net Sales
Fourth-quarter 2016 to 2017
($ millions)
11 |
30.9%
(0.2%)
(0.3%)
(1.0%)
(1.3%)
0.7%
0.4%
0.3%
32.3%
2016 Volume & Mix Sales Price Efficiency Net Currency Raw Material Plant OH Other 2017
Change in Gross Profit Margin %
Fourth-quarter 2016 to 2017
12 |
Change in SG&A Costs
Fourth-quarter 2016 to 2017
($ millions)
$58.9
$0.7
$1.1
$3.1
$1.5
$1.4
$60.9
2016 Comp and
Benefits
Currency
Translation
Professional
Services
U.S. Pension Other 2017
15.9%
of Net Sales
14.2%
of Net Sales
13 |
Cash Flow and Balance Sheet Metrics
($ millions)
14 |
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
Twelve Months Ended December 31,
2017 2016
Depreciation and amortization $96.7 $90.7
Operating cash flow $263.3 $219.4
Capital expenditures $130.8 $170.2
As of
December 31, 2017
As of
December 31, 2016
Cash and cash equivalents $235.9 $203.0
Debt $197.0 $228.6
Equity $1,279.9 $1,117.5
Net debt-to-total invested capital N/A 2.2%
Working capital $464.0 $400.9
Full-Year 2018 Guidance
Full-year 2018 reported net sales are expected to be in a range between $1.720 billion to $1.730 billion*
Full-year 2018 net sales at constant-currency growth is expected to be within our long-term projected 6-8%
range
‒ Excluding 2017 net sales that will not recur in 2018, constant-currency sales growth is expected to be at the high
end of that 6-8% range
Full-year 2018 adjusted-diluted EPS is expected to be in a range between $2.80 to $2.901,2
‒ This includes an estimated positive EPS impact of $0.14 from tax benefits from stock-based compensation
‒ In conjunction with the ongoing Global Operations strategy, our Board of Directors has approved a restructuring
program that will help streamline our manufacturing plant network. These changes are expected to be
implemented over the next twelve to twenty-four months. The plan will require restructuring expense in the range
of $8.0 million to $13.0 million and capital expenditures in the range of $9.0 million to $14.0 million. Once fully
completed, we expect that the plan will provide the Company with annualized savings in the range of $17.0 million
to $22.0 million.
15 |
* Using exchange rate of $1.20 per Euro.
(1) Please refer to ―Notes to Non-GAAP Financial Measures‖ on slides 16-20, and ―Non-GAAP Financial Measures‖ in today’s press release, for additional information regarding
adjusted diluted EPS.
(2) Guidance excludes possible cost and benefits from the announced Global Operations restructuring plan.
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 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 16-20), “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)
Twelve months ended December 31, 2017
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $228.9 $80.9 $150.7 $1.99
Tax law changes - (48.8) 48.8 0.64
Venezuela deconsolidation 11.1 - 11.1 0.15
Adjusted (Non-GAAP) $240.0 $32.1 $210.6 $2.78
Three months ended December 31, 2017
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $61.0 $61.8 $ - $ -
Tax law changes - (48.8) 48.8 0.64
Adjusted (Non-GAAP) $61.0 $13.0 $48.8 $0.64
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-20), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.
18 |
Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS
($ 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)
Tax law changes - (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)
Tax law changes - (1.0) 1.0 0.01
Adjusted (Non-GAAP) $223.8 $61.6 $163.4 $2.18
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-20), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.
19 |
Reconciliation of Net Sales to Net Sales at Constant Currency (1)
($ 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, 2017 Proprietary CM Eliminations Total
Reported net sales (GAAP) $306.4 $109.2 $ - $415.6
Effect of changes in currency translation rates (12.3) (3.6) - (15.9)
Net sales at constant currency (Non-GAAP) (1) $294.1 $105.6 $ - $399.7
Twelve months ended December 31, 2017 Proprietary CM Eliminations Total
Reported net sales (GAAP) $1,236.9 $362.5 $(0.3) $1,599.1
Effect of changes in currency translation rates (8.4) (3.8) - (12.2)
Net sales at constant currency (Non-GAAP) (1) $1,228.5 $358.7 $(0.3) $1,586.9
20 |
Reconciliation of Reported Diluted EPS Guidance to Adjusted Diluted EPS guidance
2017 Actual 2018 Guidance % Change
Reported-diluted EPS $1.99 $2.80 to $2.90 40.7% to 45.7%
Venezuela deconsolidation 0.15 -
Tax law changes impact 0.64 -
Adjusted-diluted EPS $2.78 $2.80 to $2.90 0.7% to 4.3%
Stock compensation tax benefit (0.44) (0.14)
Adjusted-diluted EPS excluding stock
comp tax benefit
$2.34 $2.66 to $2.76 13.7% to 17.9%
Notes:
Please refer to ―Notes to Non-GAAP Financial Measures‖ on slides 16 to 18, and ―Non-GAAP Financial Measures‖ in today’s
press release, for additional information regarding adjusted diluted EPS.
Guidance includes various currency exchange rate assumptions, most significantly the euro at $1.20 for 2018. 2017 results were
translated at an average rate of $1.13. Each $0.01 change in the euro exchange rate results in approximately a $0.01 change in
EPS.
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 16-20), “Cautionary Statement”
(Slide 2) and today’s press release for an explanation and reconciliation of these items.