Earnings Call: Q4 2019

Feb 19, 2020

Hello, everyone, and welcome for the first time from my end, and thank you for joining us to review our Annual Results 2019. With me today are Adit Mazimsen, our CEO and Doctor. Bernd Metzen, our CFO. As we did in the past, we are presenting a set of slides that accompany our remarks on this conference call. The annual report, slide presentation and the press release are posted on the Investor Relations page of our website. Please note that this call is being webcast live and will be archived on our website. Before we start, I would like to remind you that the presentations and discussions are conducted subject to disclaimer. We will not read the disclaimer, but propose we take it as read into the records for the purpose of this conference call. Our agenda for today starts with a presentation by Dietmar Simmsen and Doctor. Bernd Metzner. After that, we will enter into a Q and A session. Now it is my pleasure to turn the call over to Dietmar. Yes. Good afternoon, and also, of course, good morning to those joining us from the U. S. And welcome from my side also to our fiscal year 2019 results conference call. Yes, what happened in 2019, which was a pretty exciting year, in 2019, we laid the foundation to make our customer and employee focus and will continue doing so. We invested a record amount into growth, capacities, optimization of processes and also digitalization. Our clear target, profitable and sustainable growth. For our future growth, we focus on new segments like full solutions for biotech drugs, innovation as mentioned a couple of times sales growth in fast growing markets. A quick look at the main KPIs for 2019. We have reached our guidance. Underlying sales was around €1,400,000,000 underlying EBITDA, €293,000,000 In 2019, we have invested 12% of sales into innovation, optimal processes, digitalization, quality capacity and growth. We will propose another year of dividend increase from €1.15 to €1.20 One remark, the change in the strategy of our customer Sanofi affected us as they canceled the development project for the diabetes micro pump. The result is a one off effect with some implication on our numbers, and Bernd will later elaborate that in more detail. Independent from the pure financial figures, overall, you clearly see that the company is changing and started to change. In 2019, there has been a tremendous level of positive dynamic in the whole company. The shift towards what I call a growth mindset is more and more obvious. A lot of initiatives have been launched, and we will see more of that. This makes us very optimistic about the future development. Going forward, and you hear this again and again from my side, we go for a stable a stable profitable growth. I will show you how we reach it in the following charts. We see in principle 3 key enablers for our growth story. The excellence, the investments and of course innovation. As well as 3 big growth levers, the market dynamics or market growth, but also the growth in so called growth segments and of course, new products. In the following slides, I will elaborate on these enablers and levers. Picking the first one, the implementation of a mindset for growth. The mindset for growth and excellence is very important. Only with the right mindset, we change our company into what we call innovative, excellent and customer focused with profitable growth. Within the implementation of this mindset, we focus on 6 key areas. Customer optimize all customer touch points, enhance our services, regulatory and quality support, strengthen our customer field engineer teams and launch more and more initiatives in that direction. We are strengthening our global key account customers. A key cultural change is really the Act as one customer. We are tearing the silo walls down. All business units are joining forces to offer a broader and better service and an Cross divisional and cross BU thinking is opening new opportunities. Management Board and senior managers from all areas met on a regular You can already see a lot of energy, cross divisional thinking and projects, which will drive future growth and change in our company. Excellence in all what we do. The better is in the end the enemy division, which shown good progress already today and are one of the reasons why we show better and better figures in the glass sector. And it's very promising going forward. The same applies for plastic and devices. From small batch production to high volume lines, process innovations are driving our excellence. Digitalization is actually another key enabler for our excellence improvements. Driving Driving digitalization will be a focus in the future across all divisions and all business units. Quite relevant, the optimal investment is crucial to foster our growth. Every euro spend shall result in maximized impact and contribution. We see that the CapEx spend currently is high. A strategic program was started in 2019 with a clear target to drive the company towards higher efficiency in CapEx spend and a stronger translation of this CapEx into real growth. Next topic, quality. Quality is a key enabler for our customer satisfaction. We have a very broad production footprint globally and are able to offer our broad product portfolio to our customers in all regions. With our worldwide identical quality standards and processes, we are able to serve our global customers with the same high level of quality independent from the region or the delivering plant. Last point of the 6 is the performance culture in our company. We are changing the mindset towards what I call commitment and delivery. Performance is key in all we do. Changing this mindset or changing the mindset and culture of a company is still not easy. It does not come overnight. The successful implementation is key for our very ambitious plans for the future. Looking at the second enabler the investments for future growth. You saw it in 2019 and also in 2020, we are executing large investment programs. We are spending around 12% of our sales on CapEx in 2019, and you will see the same in processes, digitalization and very important, more capacity. By doing so, we are becoming stronger, more agile and absolutely more competitive. With this, we are setting the pace for our future growth. A few examples. The new furnace with extended capacity in Essen and lower additional lines for syringes in Bunde or the extension of the Esoskiv Tin plant in Czech Republic. The aim for the future is to come back to the proven historic formula, which actually capital expenditure. The simple formula is around 4% of CapEx is needed for maintenance and other basic business. But any additional percentage point of CapEx should translate 101 into sales growth. We will see this again from 2021 on. Innovation will be another essential driver to materialize our growth. New and innovative products solutions are key to attract new customers, get a higher share of wallet and accelerate growth. We are pushing a culture of innovation throughout the whole company. 1 of the activities to drive innovation is to leverage the innovation power of our newly acquired Sensile. In cross divisional teams, we stimulate innovation and drive projects in all areas of our business. Another great step forward is in this regard is the bundling of all our glass expertise in the new glass and Innovation Technology Center in Weyland and U. S. But innovation is not only future. Two examples of innovation, which are ready for commercial launch are the following. We are moving up the value chain by introducing our ready to fill vials, which are great solutions for immediate filling at customer filling lines. We enhance our value chain by washing, sterilizing and packing the vials ready for filling. We offer our ready to fill vials in various packaging solution in both Europe and also North America. The other example is our new product Eliteglass. Eliteglass is ready for commercial delivery. First orders are successfully in our books. The new Elite Glass is superior glass quality in several aspects and significantly reduces the customer total cost of ownership. These are just two examples. The innovation pipeline, of course, is filled much better than this. Next topic. We are leveraging the technology of Sensile Medical. With Sensile Medical, we have bought an excellent technology, and we have a clear road map. The SQ Innovation project on heart failure is progressing as planned. The design has been finalized end of 2019. SQNOVATION is progressing well towards their launch target. This project in the therapy field of heart failure has definitely the potential for a real game changer, not only for excavation, but especially also for The pipeline. We are working with several customers on feasibility studies for future application in several and different therapy areas. We merge our innovation and product expertise of Sensile with the industrialization expertise of medical systems. Strong combination at the end where we simultaneously engineer, develop new product and process solution, 2019 2020, we further optimized our global footprint. A few example. South America is an an attractive and large market. We want to grow with our pharmaceutical plastic packaging portfolio and therefore enhance production facilities in Naples, Brazil. The plant that we set up in 2019 is filled as we talk with market and a large country. Following the success of our plastic packaging business out of Kuntli near New Delhi, we increased our footprint by building a second facility to better provide the large country with our for this business and have recently opened our new production plant in Zhengzhou, China. A breakthrough for expanding our packaging footprint in the U. S. Is in the U. S. The first local business wins are in the books, and we are now leveraging on our strong presence of center and Berlin, Ohio, where we start commercial production of plastic packaging in a close by new facility in 2020. A major add on for capacity, you will also see in our new facility in Skopje, North Macedonia, where we plan to produce medical plastic systems in the second half of twenty twenty and also later prefilled syringes. And by the way, last night, I received the first picture of the first part produced on the facility. So we are fully on plan, on track with our project plan. Biotech is a very promising and fast growing market. The majority of the new formulations are actually biologic. These are typically parenteral drugs and need very specialized primary packaging and drug delivery solutions. The launch of our new unit GX Biological Solutions aim to serve the customers' needs in these important segments. We bundle our cross division experts expertise, service and product portfolio into an organization with a sole focus on this customer group. We have actually the broadest portfolio of primary packaging and drug delivery devices in the whole industry, which can be adapted and customized to the special needs of the new biotech market. Our ability to offer a broad range of services, especially for smaller and midsized biotech companies, enables them to focus on their core competence, the development of drugs. We offer services for product requirements for each clinical stage, product specifications, regulatory and qualification support, lab service, all bundled in this new team, which has access to the whole talk about innovative products, innovative services and value adding solutions. Some of these new products are evolutions of existing products, but others are real game changers and are completely new. As are launched in the future. Now we come to the guidance, yes? Our sales outlook of mid of foundation of our growth story for the coming year is driven by the interaction of the mentioned enablers and growth levers. How do we see the impact of these levers in 2020? We expect around 1.5% growth by the underlying market supported by the underlying underlying market growth as estimated by IQVIA another 2.5% by utilizing our growth segments and another percentage point by new products. This in the end results in our guidance of mid single digit growth. With this, I hand over to Bernd, who will give us more insight in the numbers in detail. Thank you. Bernd, it's on Jurg. You have to almost in Textamalen. Many thanks, Dietmar, and welcome from my end as well. Dietmar gave already the big picture for the financials. With our underlying performance in Q4, we achieved our full year 2019 guidance. Not part of the underlying performance are 3 extraordinary effects around Zenzai in 2019. These effects have to be put into a broader context. 1st, they do not affect our underlying business. 2nd, they do not affect our free cash flow. 3rd, the net income impact is negligible, better even slightly positive. To explain these 3 extraordinary effects in detail. 1st extraordinary effect, the effects from the cancellation of the project by Sanofi. The cancellation led to a contract modification and so to a cumulative adjustment of revenues in the amount of €17,000,000 The €17,000,000 are revenues linked to the exclusivity commitment, which were recognized prior Q4 2019. Without this exclusivity commitment, we are now free to sell our developed pump in the therapeutic field of diabetes to other customers. In addition, the adjusted EBITDA was also reduced by €9,000,000 due to the contract cancellation by Sanofi. On the back of our extraordinary effect, the effects from the derecognition of contingent purchase price components. We had a positive extraordinary impact from Sensile. We recorded other operating income of €130,000,000 in the financial year 20 19 due to the recognition of contingent purchase price components from the acquisition of Sensile Medical. Thereof, €11,000,000 per day €15,000,000 due to the cancellation of the diabetes project. If you sum it up, we paid finally 2 €18,000,000 for Sensai Medical and hence €130,000,000 less than what we expected at the time of the acquisition. With this in mind, it shouldn't come as a surprise that Sensile's carrying amount exceeds the recoverable amount and hence, as a third extraordinary effect, we recognized impairment losses of EUR 117,000,000 in Q4 2019. Quite interesting and worth noting, combining all three extraordinary effects after tax, the net income impact is overall with €5,000,000 still slightly positive in extraordinary effects of Sanofi before, I will now focus on the underlying performance in Q4 19 in comparison to Q4 2018. On the left hand side, you find the Q4 2019 performance both at constant exchange rates and on a reported basis. Adjusted for extraordinary effects occurred during the reporting period, you end up find a detailed presentation on the composition of the adjustments for both periods in the appendix of this presentation. This gives you a very transparent way to look at our business. Let me highlight the following points for you. As already discussed, revenues in Q4 2019 were negatively impacted by €17,000,000 due to the project cancellation by Sanofi. To get to the underlying revenues for Q4 2019, we had to add them back to the actual numbers. The same method applies to the adjusted EBITDA. What are the key takeaways for our underlying performance? Our underlying FX neutral revenues declined by 2.3 percent. This decrease is mainly caused from lower revenues from Zenzai by €6,000,000 versus Q4 2018. Our core business, that means plastic and devices and primary packaging glass combined, remained, as already guided and expected, almost flat in Q4 2019. Our underlying FX neutral adjusted EBITDA declined by €5,000,000 which is driven by the Advanced Technology division with minus €6,000,000 versus for this fully. Let me now dig into the details by division, Plastics and Devices. In Plastics and Devices, the underlying revenues at constant exchange rates declined from €225,000,000 in Q4 2018 by 4.5 percent to EUR 215,000,000 in Q4 2019. This decrease of EUR 10,000,000 is linked to lower tooling revenues. For full year 2019, revenues within our tooling business amounted that there are intra year fluctuations within the tooling business. In Q4 2019, BRIG recognized tooling revenues of €21,000,000 which were €10,000,000 less than in Q4 2018. For the financial year, the division Plastics and Devices percent meaningful implications on the adjusted EBITDA, which was with €69,000,000 almost flattish compared to €70,000,000 in Q4 2018. Now let's go to Primary Packaging Glass. Primary Packaging Glass showed a strong growth and increased from €158,000,000 in Q4 2018 by 4.7 percent to €166,000,000 in Q4 2019. The reason for this stellar growth are twofold. The cosmetics business continued its strong demand seen in the prior quarters. Additionally, tubular glass in the U. S. And Europe increased significantly. The adjusted EBITDA grew from €31,000,000 by 10.9 percent to €35,000,000 The adjusted EBITDA margin increased from 19.8% by 120 basis points to 21%. This improvement has to be seen in light of a favorable product mix and our efficiency initiatives like the reduction of cost of non quality. Let's go to Let's go to Advanced Technology division. The Advanced Technologies division is our innovation driver and longer term investment case. We invest in this division and will see the return in later years. In this respect, Q4 2019 shows €4,000,000 underlying FX neutral revenues and corresponding minus €1,000,000 underlying FX neutral adjusted EBITDA. We are expect a similar financial pattern within this division in the following quarters of 2020. Let's go the strong cash flow in Q4. We had a remarkable strong cash flow appearance in Q4 2019, probably the strongest ever in the history of our company. We were able to almost double the quarterly cash flow from 36,000,000 euros in Q4 2018 to €62,000,000 in Q4 2019. The key reason for this achievement was our net working capital management. Our leverage decreased from 3.1 in 2018 to 2.4 at the end of 2019. This development is surely influenced by the derecognition of contingent purchase price components, which were mentioned of €190,000,000 due in November 2020. I am confident that we will be able to participate from the actual beneficial market conditions and lower our financing costs slightly further. Let's look at the full year 2019 underlying performance. The analysis of the underlying performance follows the same concept discussed on the earlier slides. We look through the extraordinary effects in 2019 20 18 to get a comparable picture. This rounded €1,400,000,000 underlying revenues, we achieved the lower end of our revenue guidance of FX neutral revenues between €1,400,000,000 to €1,450,000,000 The underlying FX neutral adjusted EBITDA amounts to €293,000,000 and is also in line with our guidance of €295,000,000 plusminus 5,000,000 euros We do not guide for our net income. However, supported also by lower net finance expenses, we realized a very good underlying net income growth by 8% from €190,000,000 to €128,000,000 in 20 19. Let's go to the accounting retrospective first time application. That means that the financial year 2020 will be presented will be presented according to the new set of rules according to according to EIS 17, like the other companies do this as well. The overall impact is somehow negligible on our operations overall. Adjusted EBITDA will be positively affected in a range of €9,000,000 to €11,000,000 from the transition to IFRS 16. Additionally, the balance sheet total as well as the net financial debt will increase in a range of €27,000,000 to €30,000,000 Allow me a final remark. We know that this was, given the sensor adjustments, a quite challenging quarter to grasp the underlying performance. For the future, we will reduce our adjustments significantly going forward. 1st, we will not adjust our underlying performance in a new comprehensive exceptional guideline and eliminate the old ones, which led to various adjustments in the end. I'm convinced this will support our transparency and allow us to focus more on the underlying performance going forward. And now I'm handing back to Dietmar. Yes. Thank you, Bernd. With this, I can't find it as a guidance. What do we expect for 2020? We expect 2020 to be the 1st year where our positive activities translate into financial results and Gerasimo is back on a growth path. For 2020 and also midterm, we expect sales growth in mid single digit percentage. We expect the EBITDA margin to be at the level of 21% in 2020, steadily improving towards 23% over the planning period. 2020, CapEx is planned to be around 12%, another time, and should be between 8% 10% on the midterm. Don't forget the formula I mentioned in my earlier presentation. Today, being already mid February, we expect our new growth strategy showing impact and being visible in our Q2 2020 numbers with further progress in Q3 and also in Q4 for profitable growth and switched gears. We significantly improved culture and dynamic in the company. We invest and work on our innovative and innovation pipeline. We expect 2020 to be the turning point for our growth. We will grow a with you, our investors, the communication dialogue, we are planning a Capital Markets Day end of 2020. By then, we will also have a better picture of the developments of 2020, and we can give you further And we received the first question from Veronika Dubajova, Goldman Sachs. Your line is now open. Please go ahead. I will keep it to 2 big picture place and one financials, if that's all right. I want to start big picture. If I look at Garaheimer, your predecessors have often promised growth acceleration and it sort of never materialized for of reasons. So Dietmar, can you maybe give us a little bit of insight into what gives you the confidence that this time around as we move through the year, you will indeed see the growth accelerate. Is it contracts you've already signed? Kind of how much visibility do you have on that growth acceleration way and how confident are you in that? That would be my first question. My second question is on the medium term margin guidance. It would be great to get a little bit of insight from you on the cadence of the improvement, especially as it relates to the core business, so excluding Advanced Technologies, sort of what is the margin potential? How should we be thinking about that? And maybe if you give an update related to that on the ongoing restructuring. I noticed you took some personnel reduction costs in the quarter. Maybe you can talk about the savings opportunity that you see in PPG. And then my final quick financial question is just net working capital movements. Good to see some progress. Maybe tell us can we see more as we move into 2020? And I also noticed there was some discussion of factoring when it comes to receivables in the annual report. So maybe if you can help us understand how helpful or meaningful that was in the context of a networking capsule move? Thank you. Yes. I actually like the first question because this is a question of what I called commitment and delivery. And that's something the company, Gerosimo, definitely has to learn. Because if I go to the market and I tell you guys I want to grow 5%, nobody believes me, which is a mess. How do I see the year 2020? Or let me start differently. I am completely convinced about the midterm growth that will come. Let's talk about 2020. 2020, the Q1 will start compared to 2019 where we we were relatively strong, relatively flat. That's what we see already. But in the Q2, we clearly see the growth to come. And in the end, why is it coming and why are we more confident in this growth because as we see this, I come back to the one of the charts we showed in the presentation. There is, called a tailwind out of the market that is growing, and we will grow with the market. The next aspect, which is around 2.5% of the growth, which we see 2.5% growth this year is really coming out of, yes, the materializing of the growth in key markets where we are today with products. And that's I can give you example. That is the inhaler for in our Soske TUNE. That's additional syringes. That's glass that are coming actually out of the additional capacity that we on the one side on the one side generated an ethanol. On the other side, you also see, for example, from the cosmetic business. The next point where we spoke about roughly 1% of growth that we expect out of new products, it's also not hope and pray. It's really things we have on the books. I bring back the examples of the Elite glass. We have the first contracts here. We clearly have new plastic packaging products that we are selling in South America, for example. And not to forget the ready to fill vials where we had not only contracts in the books, but we really start to deliver with the Q2 and that gives us a certain evidence in this regard. Yes, for the medium term margin guidance and Bernd might also later elaborate on this or answer this, the most difficult thing is actually to turn the company into growth at all, coming off a period of almost 5 years of very little growth. And once this is done, you will also see the growth coming. What is important, if you remember the guidance that we gave in beginning of 2019, we spoke about this 4% to 7% of organic growth. We have slightly changed the terming, but not the terms, yes, mid single digit. What we do and that's in principle better than what we have before, take all the Sensai business aside, we will be able to show you solid growth and fulfill this guidance with our core business. You will see the growth coming out of the glass. You will see the growth coming out of the plastic and you will come see the growth out of the devices. If you then in the later years really, we see this digging in of the Sensile business. This will come on top and that is something which is very good. There was a slight question regarding the restructuring in the glass business. I wouldn't call it restructuring. There's no doubt we're investing a lot into the improvement of our processes. And yes, it was necessary to improve the process in our plans. But with the investments in both taking 2019 2020, we will bring our facilities here back on track, what I call, being able to supply and to offer very competitive. And you honestly spoken, if you look into the results of the glass business that we deliver now in the last quarter already in 2019 and you see this in 1st and second quarter. You can already see these improvements, yes? The next thing is the network capital improvement. Bernd, that's definitely a question for you. Before jumping into the networking capital improvement, just to step regarding into the margin guidance, step into this because it's really good. It gives us the occasion also to differentiate in our guidance statement because in the end, we have also in the next year without the support of IFRS 16, we have basically in our core business a margin of 21%. And this without any EFIS support, EFS support, we expect in the core business to grow into this and increase our margin to 23%. That's something what is really important. So finally, what you will see now in 2000 just at this in this context, what you will see in 2020 is that we use the our operations in will improve the margin going forward. Where is this profitability increase is coming from? In the end, what Dietmar said, it's finally, it's a growth because scale. And on the other side, you have also definitely efficiency gains mentioned also by Deepma before, so automation, digitalization, reduction of cost of non quality and so on. And these are the drivers, actually the key drivers where we will get our improvements of the margin going forward. Now coming to your last question regarding net working capital. The net working capital was influenced in Q4 by €10,000,000 actually. But even if you take this €10,000,000 out, it was a very strong cash flow performance in Q4. Why we are doing this kind of factoring? The reason is that in the end, here and there, our customers want to have different payment terms. So basically, let's say, want to pay us later, but offer in the same time also some factoring in the end, which is very cheap, cheaper than our own financing. So finally, we really have also some gains out of this kind of concept because the financing there is cheaper than our financing with our own banking funding. That's how you have to see Q4 20 19, so €10,000,000 factoring. On the other side, going forward, for 2020, we expect over the year very balanced 16% net working capital performance, what we have always guided also in the past. This is my questions. The next question is from Scott Bauder of Berenberg. Your line is now open. Please go ahead. Yes. Thanks very much for taking my questions. So the first one is a relatively small picture one, just on why you're anticipating relatively flattish development in the Q1. I don't think it was a tremendously demanding growth quarter for Garifuna, albeit arguably not too bad in the context of the full year. So is there any impact from external macroeconomic impacts? Or is this more relates to the phasing of your orders and your launch flow? The second question, please. I wonder if you could explain in a little bit more detail how the business model and consolidation of Sensil or your advanced technologies is now taking place within the company. Obviously, we've gone from a period of having some revenues and a little bit of positive EBITDA to now being quite a negative, both this year and presumably a negative or so the year after. So what is it that is different here? Is it bloated operational costs? Or have you decided to change the model slightly? And then would like you to further extend upon your initial comments, please, as to how this technology is being developed for other customers. Are you optimistic that you could strike something more significant first to take the CEO than you always are the first to take the questions. I'll go for the first one. I think the answer is even more simple than you anticipate, yes? The core again, the core business is developing reasonable also in the Q1. We have some delay in one of the development contracts we expected for Sensile, and this will lead to the relatively flattish picture. And also 2019, don't forget, we were not bad in the Q1 and that gives a challenging starting point. Now the base business you will see developing nicely in Q1 as well. 2nd, how is the model developing? I think this is key. What we did and this is one of the reasons why you see some cost that we in the former times showed as sales in Sensile are now in cost. It's because we are kind of changing the business model in a certain way because in the past, we did we had development contracts with the customers and we developed and they paid for the development. But this is something we are clearly changing because we want to develop into our IP. We kind of have the costs of the development costs as R and D costs that are, of course, a cost burden. But in the end, we should not forget, we are transforming the company into a company where you are selling not only product that you produce, but also very clearly IP and so on that gives you more business models. I don't know whether you want to add something to this, Bernd. Scott, it's quite regarding the question for Zenzai. In the end, as a company, have some bigger room, and we should also use the opportunity, which we have now with Sensai, to expand it somehow and to see this negative EBITDA of €10,000,000 as really expenses into innovation, if you want so. And this gives us the opportunity to get a higher share of the cake from the product if we have really if you have really this on the market. And that means that you have a higher transaction value and you have a for you differently like we have done it in the past. And that's a little bit the principle, how we are approaching Sensai differently like we have done it in the past. You asked also for the other customers. It was quite interesting that after we have successfully launched EVA Pharma, our project for Parkinson, where we get a regulatory approval last year, you know it, we get a lot of interest from other blue chip companies, pharma companies, which are really interested now in our pump. And this makes me very confident. And somehow, out of these kind of leads, you will really get some tangible result out of these leads. So and we are very concrete. We have also very concrete project at hand. I don't know, Dietmar, whether you want to talk about it, yes? Yes, definitely. It's a risky question because the risk is that I talk talk for an hour around this point. Yes, the technology is yes, let me it different, yes. We took the hit with Sanofi this year. And in the very early 2019, we took the hit with ST Pharma, which in the end turned out to be a big win because with the loss of the exclusivity, we were successfully able to win the business with SQNOVATION, which is the significantly better and state of the art pump. The Sanofi wasn't hidden. You can't talk it beautiful. But in the end, it doesn't change the attractiveness of the profits because it all takes quite some time. But we are working, as Bernd said, with various customers in various therapy fields, clearly confirming how broad the ability of this pump actually is. And I am 2020. I'm still, yes, fascinated about the technology because it opens the door for our change for way, a clear change for Gareseimer, even though we all have to be pretty yes, and we have to wait some time and we have to be patient before we really see the results. That's why it is so important that what we are doing at the moment, focusing on the core business as well, showing the result of the next years and delivering the results and growth of the next years with the core business alone. Okay. Very good. And it's certainly appreciated that you give a guidance which more reflects your base business progression than leaving, if you like, this Sensil as medium term optionality. I think that makes a lot of sense. Question just from me then, please, just sort of related to this topic. You highlight around €10,000,000 or so IFRS 16 benefit to EBITDA in 2020. As you highlight, that's basically being offset by €10,000,000 negatives for Sensil. That implies, if I'm correct, that the EBITDA margins of your plastics and primary packaging glass business will be broadly flat, which seems to me somewhat of a surprise given your comments about operational leverage growth and ongoing efficiencies that you've been working through and demonstrating in 2019. So why what are the counter forces that would lead to flat margins in Plastics and Devices and Primary Packaging throughout the course of 2020? Thanks. Just to step into this, In practice, we see a very slight I agree with you, it's mathematically typical, but we see even a slight a very slight increase there in reality, but very slight. And the key thing is that PPG will be actually you will have a margin improvement. You will not see this for the area of PPG for plastic and devices. And the key reason is, in the end, it's somehow in this business, it's a product mix effect what we see in 20 20. But going forward also there, so in 2021 and also given that we're investing now also operational expenses, we will have in the area of Skopje and so on, which is dragging slightly relative on the potential to have economics of scale here. That's a little bit the reason. But you will see in 2021 also a nice profitability increase in the area of P and D. Okay. Thanks very much indeed. Somehow PPG here. Understood. The next question is from David Adlington, JPMorgan. Your line is now open. Please go ahead. Hey, guys. Thanks for taking questions. Firstly, some technical questions just around some of the numbers. So just wondering if you're able to quantify the FX impact on both top line and margin as things currently stand. And then just with respect to IFRS 16, obviously EUR 10,000,000 and L. So maybe you could give us some help with depreciation and full year financial expenses as well. And also, the tax rate been banging around a bit over the last few quarters. Just wanted to get a clarification on tax rate for 2020. And then away from the numbers, just you've been one of the only companies so far this reporting season that hasn't mentioned coronavirus. I just wondered if you could give us your thoughts on the impact or potential impact there. Thanks. Just to start with the EFAS effects of depreciation and so on. So basically, these are, as you mentioned, euros 10,000,000 and really roughly now, probably this will translate in €9,000,000 depreciation and €1,000,000 interest. But something like this, it's really of the change here, just ballpark. Looked at it before. This is so far the EFS question is concerned. Your first question was referring to Foreign exchange. The FX effects, I think basically we should have €10,000,000 we have €10,000,000 on sales and €4,000,000 on adjusted EBITDA. This is the FX effect for 20 19. Okay. And just as helpful in terms of the absolute financial income line, absolute depreciation dollars included IFRS 112,000,000 period, yes, including FY 2016 for 2020. So that's the depreciation and then financial expenses? And then you can basically use your €25,000,000 plus the €1,000,000 so we'll basically be the same level probably the same level as in 2019. Understood. Yes. I would take over the coronavirus. Why didn't we talk about the coronavirus a lot? Because there's 2 aspects with this. 1, it's not clear what really how much it really impacts the economy of China in total. And the key reason is the impact on us is actually not so big, especially not so far. We have, as you know, 5 plants in China. 2 of them, one of them is misdevised, one is plastic, which are relatively small facilities. The 3 key plants are all glass business, where we by extra permission, were allowed not only to start production after Chinese New Year Monday, where the plastic plant facilities started but already 1 year ahead. And we are in full production. There's no influence, no impact so far. That's why it's I see this with 2 things, yes? You could also see quite a potential opportunity for us. If you see Chinese government for the next years to decide that there will be a vaccine for flu law, then of course, it would be a fantastic opportunity for us to grow our sales with syringes. As a tax adviser, I'm very happy for your question and then I forgot to answer this. About the tax rate for 2020, I would calculate for around 30%, 31% for 2020 for your model. And but we will look at it that we sepe gets us around for the 30%, but we're working on this item as well. Great. Thanks so much. The next question is from Farquhar Friedrich, Deutsche Bank. Your line is now open. Please go ahead. Hello. Thanks for taking my questions. I would have 3, please. Firstly, on your midterm guidance, which now calls for mid single digit sales growth, can you further specify what you mean by mid single digits? Before today, your guidance called for the 4% to 7% growth in 2020 to 2022. So do you still assume that this range is possible? Or is it slightly different now? Then secondly, also on the midterm guidance, in which year do you roughly intend to reach the 23% adjusted EBITDA margin now? Is that still possible in 2022? And then thirdly, it looks like you slightly increased your CapEx I think 1% to 2% going forward? Yes. I take over the questions because in the end, what we actually changed was a little bit how we named the guidance. We actually didn't change the guidance, yes? Mid single digit is in the frame, which is identical with the old, it's from 3 to 7, 4 to 7. We actually didn't change the guidance and I don't expect that we do not deliver to the guidance. However, you take the old one or the new one, which really different is what I mentioned before. We believe that we can deliver the guidance based on the core business without Sensile. If Sensile digs in, this will come on top. And then of course, most likely, you will also be able to see the upper end of the former given range. The second part is the 23% margin, which is something we see at the end of the planning period as we now plan from 2020 to 2024, it's more at the end of the planning period. But we see a we will see a steady increase of the margins toward the end of the planning period. The cappings guidance has actually not changed much. What has significantly changed is how we see the guidance. I would like to one more time remind 2021 on, not 2020, but 2021 on, you 2021 on not 2020, but 2021 on, you will see the 4% base CapEx plus growth. So it's very clear if you if we then spend 8% CapEx, you will only see 4% growth. That's why the guidance is 8% to 10% because probably 4% of growth is not enough. And where do you spend it? It's unchanged. Capacity increased mainly, especially after 2021, it's very strongly into capacity increase. And until then 2019 2020, I think we mentioned it a couple of times, it's a lot of digitalization, it's process improvements, these things. It was necessary 2019 2020 to do this to bring our plans back on attack mode. But from 2021 on, we will mainly see this for growth. Okay. Thank you. So if you end up spending 10% beyond 2020, we can assume that you are able to deliver 6% of top line growth. The mathematics would show this, yes. Okay. So if I decide to spend 12% CapEx, you should be happy. Okay. Thank you. The next question is from Oliver Reinberg, Kepler Cheuvreux. Your line is now open. Please go ahead. Yes, thanks for taking my question. Oliver Reinberg from Kepler Cheuvreux. First question on operating cash flow. In your segment accounts, I find obviously the operating cash flow by division. And here, the operating cash flow actually declined by 20% in the full year for both divisions, Plastics and Devices and PPG. And if you compare that over the last 2 years, it was actually even down 30% despite no meaningful change in the EBITDA. So hence, in other words, the cash conversion has deteriorated. So can you just discuss this, what was affecting that? Secondly, on capitalized R and D, I noted that the capitalized R and D was coming in at €6,000,000 and there was a rather small amount in the past. So two questions to this. Or net? Because I realize that you also wrote down EUR 4,000,000 of capitalized R and D. And secondly, as part of your new business plan for Sensa, do you expect this kind of capitalized R and D? And secondly, as part of your new business plan for Sensile, do you expect this kind of capitalized R and D charges to go up in your budget for 2020? And last question, can you just provide an update on U. S. Client, which was showing some kind of weakness in the past? Is this recovering? Any outlook here will be great. Thanks very much. Just, Oliver, to understand your question better, the EUR 6,000,000 what you're referring to? The EUR 6,000,000 was actually EUR 5,900,000 and that is the capitalized R and D that you show in your annual report. And I think the year before was €1,300,000 And when you look at the data between adjusted EBITDA and adjusted EBITDA, you referred to €4,200,000 write down on capitalized development costs. So the question 1 is, is the €6,000,000 or the €5,900,000 actually a gross number or a net number? Or is it actually like, if I have to add the €4,000,000 on top €10,000,000 And then secondly, do you generally plan in capitalized R and D? From my perspective, just for talking for 2020, I don't expect that we increase here the capitalized R and D. Indeed, if you have development in the area of Senzaile, then you have always to ask whether you can have an intangible asset or not. And but we don't plan for higher capitalized R and D. And part of the write off was also definitely linked to capitalized R and D in the relation of Sanofi and Verily off in this regard for 2019. Yes, regarding the operating cash flow, it's highly impacted by CapEx. That is why you see a decrease in operating cash flow by division. That's important because don't forget, it was our highest CapEx spend year 2019. And that's, at the end of the day, the result of it, of the operating cash flow. Because we have here a very specific definition, if you ask me. Since the beginning, if you look at our numbers, we basically say we have our adjusted EBITDA, then we use working capital and CapEx and then we end up with the operating cash flow. And that's the reason for it, of the decline. Yes. Secret client, which is Pfizer. It's Pfizer's PRF facilities. We are today actually not seeing much improvement here. What is helping us though is that we are now step by step compensating this business with other customers. That's helpful. And at this stage, you don't expect any kind of recovery during the course of the year? Yes. But they talk about a recovery, but we don't see the recovery so far in our volumes. The recovery that we see actually at the moment is because what I mentioned before, we are compensating with growth with other customers. The pity here is that we with this client U. S. That you see our market share is, of course, very high, our share of wallet is beyond 80%. And that is not 101 the case with the other customers. But you see the growth with the other customers that is slightly compensating this situation. Okay. Thanks very much. The next question is from Daniel Vanders, Commerzbank. Your line is now open. Please go ahead. Yes. Thanks for taking my questions. The first one would be on Zansa Medical again, please. And what makes you so confident on the SQ innovation project? To my understanding, it's still quite a young company. And what are the next data points here? That would be my first question. The second one is an add on or a follow-up really on the Primary Packaging Glass. Q4 was really in the 2nd strong quarter for that business in a row. I understand the point on cosmetics, but given what you just said on Pfizer Spira, what is really driving the demand outside of cosmetics? Is it you gaining market share? Or is it the market being better for you in both North America or Europe? Any more color there would be much appreciated. Yes. What makes us confident with the SQNOVATION project, yes, the company is new and is young. But the drug for isomide that they're working with, with this heart failure is not a new drug. And what makes us relatively confident is that we are pretty far with the product and the whole principle what we are doing at the moment, we are far ahead. The sign freeze was done end of last year. We are now preparing the clinical study together with the customer. The clinical study will take place over the summer this year. So we believe that we over the after the summer with positive results of the clinical study that we all hope for are able to file the project with the FDA. That usually takes 9 months. And if this is then also positively comes to a positive result, we should be able to produce. So the projects for lines, the small volume lines are already running, but the midsize volume lines are then in execution. And we should really be able to start production by, call it, summerfall20 21, which is on track. By this way, it's not only SQ Innovation. Also the other project with Ever Pharma that so far only shows very small volumes will develop in a good direction and will be able to show better results in, let me say, some 2022 and 2023. Coming to the glass, yes, Q4 was the 2nd strong quarter in a row and we will also see this for the next quarters to come. Where is this growth actually coming from? Some of the things are really easy because they are new businesses. I spoke about this red to fill vials. I spoke about this the glass business, Elite Glass. But the majority of the growth actually comes from, on the one side, demand in the market and also increasing our share of wallet with existing customer. Why is this out of the sudden principle the CapEx you've seen in 2019 that is now translating into better products in a higher efficiency, so in a better excellence. So we have customers that are more switching towards Karasyama products because they are superior to the products of the competition. And of course, the cost competitiveness we have gained in the plans with state of the art processes, of course, also helping us to quote in a better way. So I can give you a couple of examples. Tubular Glass in Europe. There's a lot of areas beyond the cosmetic business that are showing growth. In the cosmetic business, if you look into the 2019, it was already good, but the margin was not so super attractive because a lot of the additional sales we generated with decoration, we had to do outside because the internal capacities were far from being enough. And this will also change over the loop of 2020. Okay. Thank you. Very helpful. The next question is from Kaes Skoglare, Credit Suisse. Your line is now open. Please go ahead. Thank you. Good afternoon, Dietmar, Bernd. I have, first, a clarification question. Just now on the base of your growth guidance, is this actually the underlying number, the $14.10 or kind of the actual reported, the $13.92 on revenue? No, for your thanks for the question. Just to clarify this, we basically used I simplify the things now. We basically used our underlying revenues, which were 13 as 13.97 percent and 13.98 percent plus the FX effects of $10,000,000,000 Yes? And then you come actually at the number of €14,148,000,000 And then you have to deduct, I think, euros 2,000,000, euros 3,000,000 because of we sold our Argentine business from plastic and then you need to deduct this for M and A. And that's the key calculation. And then you end up with 14.06. So really we used our underlying performance, 1,000,000,000,000,000 mean, that continues to be a very impressive business. Could you actually speak on the capacity utilization at the moment? I might have lost a bit traction with all the investment that are going on. So how much leeway for further growth is there with existing capacity over the planned expansion project that you have coming up? Yes. I wish I would have more already. There's no doubt we increased the capacity of the Essent plant last year, but this capacity is not immediately available and it will because it's not only the furnace, you also need additional machines. So to make full use of the additional capacity, it will take step by step, it will take over 2020 and also 2020 one. We will further increase the capacity with the lower expansion in 2020, which is this year. Then the capacity that we need for the cosmetic is something we only generate in 2020 one, where we do the renewal of the furnace in Tethau and then also in Montminier, the Belgium facility. Decoration capacity is definitely something that we have available. A little bit the side of the glass, but it's in the end also glasses, of course, the syringes. We should not forget that the syringes grew double digit last year, and they will also grow double digit this year. The new ready to fill line that we built and invested in 2019 will be available in 2020. It obviously is some delay in there to set up the line. But we should not forget that this line gives us an additional capacity of ready to fill syringes of around 100,000,000 units a year. And also this is something that would help us with quarter 3 step by step quarter 3 2020 and then the next years. And as I'm already talking about this, we should not forget this in 2020, we do another 100,000,000 units, syringes. 100,000,000 units, syringes from the capacity. Okay. That sounds clear enough. And then just actually one last question on the phasing. Is there anything you can hint us and give us some guidance how we should think about the current year and phasing of growth and your margin performance maybe? So for example, if you have some furnace repairs or kind of maintenance, etcetera, so kind of any guidance there would be kind of helpful? So basically regarding the phasing, if you see now 2019, 2019 just to start with was in the end front loaded more or less because the 1st 6 months were quite strong. And this is something to consider if you look at 2020. Indeed, the 2020 will be slightly back end loaded. And the real strong growth kicking in, in the second quarter, 3rd and fourth quarter sets our perspective. And yes, about the margin, it's difficult to discuss now. I have to look into it carefully. But in the end, it should follow the same pattern. And that where you have more revenues, you should have also higher margin, conceptually. It's clear. Okay. But decent good margins. Yes. Got it. Thank you. That's very helpful. In the end, you have to come back to what to the very first question from Goldman Sachs, yes? And it's all about delivery, yes? The guidance is relatively clear, yes? We have this mid single percentage of growth. We have our 21% EBITDA and we have 12% CapEx. And the revolution out there in the market would be when finally Gerasimo this year delivers, and that's what we are aiming for. Got it. Thank you. The next question is from Alexander Hanitzer, Haugen Aufreza. Your line is now open. Please go ahead. Yes. Hi. Thank you very much for taking my question. Just maybe to clarify on this SQ Innovation project. So have you actually managed to get further in the development approval pipeline with this first one. Yes. It's an easy one. Yes, we are further than we have been with any other project beyond ever, of course, that is in the market. But we spoke more this ST Pharma and also the Sanofi project. We are significantly further developed, yes? Okay, understood. We have to be fair, yes? The pump that we are using for SQ Innovation is in principle a simplified version of the Sanofi project and that all the complicated portions in the Sanofi, they are not existing because the pump is a slightly simpler one. And then to clarify on the adjusted EBITDA margin target for 2020, you say that it is 21% roughly, including the benefit from IFRS 16. And then on the midterm, you have 23% margin target. If I understood correctly, you mentioned that this one does not account for the tailwind from the IFRS, so we are actually looking at 24% the more in this direction? Yes. It's good calculated, Alexander. First of all, to start with the 21% in 2020, and we are very transparent on that, is this is a you have this 21% without the support. And we use this kind of funds for I repeat this for the technically for Zenzyl for the minus €10,000,000 for 2020. For the midterm, indeed, our guidance, what we have given is 23%, we're doing basically without IFRS 16. That's our idea. But the question is always it's so far behind, yes, in 20 23, 2024. I think you have to see this somehow a little bit opportunistically, how we are handling this and how we have to look at these topics in 2020, 23, it's by far too early. But technically speaking, it is what I just said. Okay. And then 2 more. There were reports on shortage of heparin due to Aphi bottlenecks. Do you see the potential effect in the ramp up of the new facility for prefilled syringes? Or you don't see any effect on that? No. We don't expect any effect on that at the moment. I could definitely sell 10%, 15% more of the syringes if I would have the capacity. Okay. And lastly, in general, if you could give a little bit more color, how do you think about the structural growth profile of Gerasimo? You say that this mid single digit percentage range you could achieve without Sensile. So are you confident to really grow that much organically through 2023 and also beyond if no projects from Sensile are kicking in? Or how do you see more of a structurally not until 2023 and Yes. In the end, this is what actually did with our process that we started when I what we started in early 2019 when I started as a company, yes, we refocused the company on the capability to grow in the base business, which I think is absolutely core. It's nice if you have this Bavarian way, sugar on top babies like the sensors, but you have to make sure that you grow your base business and that's what we are focusing. And that's in the end now what you will see in the next year that will give us the growth is the base business because until the Sensile digs in, it is 22% or let me say it's 23 before they dig in. And then when this business which is an attractive and good business with a lot of potential. And you will see this. It's both the see this in the devices. Okay. Thanks a lot. And we have a follow-up question from Scott Bardo, Berenberg. Your line is now open. Please go ahead. Yes. Thanks very much for the quick follow ups. You mentioned within your presentation, Dietmar, that there's a focus on biologics and also on innovative products. And I appreciate that some of your peers in the market report those lines for investors. So I wonder if you could give us some sense or flavor as to what percentage of group revenues today relate to biologics, what percentage of group revenues relate to innovative products without in a sense double counting there? Maybe if you can give some flavor there. And just lastly, just with respect to the sort of medium term or end of the planning period comments on EBITDA margin. Can you please give us some sense of what you're thinking here with respect to the contribution of Sensil? Is that an outlook you give over the medium term without any material positive impact from Sensil? Or are you assuming here some positive contribution? Would appreciate some color correction. I'll take the first one because the third I didn't even understand. You have to take this one. So the biological topic, I have give you a guess because I do not exactly how much we really have in biological. It's not that Gerasimer has no business with biological customers because we have, of course, today a lot of vials and syringes. But rough guess, don't name me on a single percentage but not with a clear focus on biologicals, but just as a packaging solution. It was one of the areas which was not approached in the right way from Gerasimer because of our lack of capability to do cross divisional and cross BU business. And that has with the elimination of the silos and silos really changed. And that opens the possibility for us to not only sell a product itself, a vial or a syringe or an ampoule, but also supply the with a clear focus. We have now a key account management focused on these biological markets with specific needs. And here, I see significant growth potentials, yes? It is challenging, though. It is not only a little bit of sales, yes? You have to be able to cluster your services and you have to be aware that usually lot sizes in this market are much smaller. And investments that we, for example, did in 2019 in Wackers 12 and our small lot size lines is what opens the doors towards this market. Scott, taking your second question. In the end, it's a little bit the logic. We don't want to overpromise and underdeliver. In this sense, we also basically excluded from our guidance Sensile, with the exception of 20, because that's the reason why we have 21 percentage margin because of the because of Senzile where we need €10,000,000 where we have a negative EBITDA of €10,000,000 for Senzai. Going forward, the mid single digit growth and also the profitability of 23 is without Sensite. So we have not attached any euro into this into the guidance. It's something what comes really on top in the guidance is actually our Zenzai contribution if it comes. And we are convinced the Advanced Therapies, materialize for the longer term for the business, is there any reason to assume that these won't be margin accretive for the group, I. E. Could we see then more of a mid- to high-20s EBITDA profile for the long term for Geratroma? If you could just indulge just there a little bit that would be helpful. No, this is not a difficult question. What we are doing here is significantly different than just a definitely accretive. Okay. Excellent. Thank you, guys. There are currently no further questions. So I hand back to Jens Stegor Brine for closing remarks. Thank you very much, operator. As there are no further questions, we would like to thank you for joining us today. Please note that we are going to publish our Q1 results for 2020 on April 9. Thank you so much, and see you on the road or any upcoming conferences. Thank you.