Welcome to the conference call regarding the publication of Gerresheimer AG annual results 2017. At the moment, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now hand over to Mrs. Severine Kamp, Corporate Senior Director, Investor Relations at Gerresheimer.
Thank you. Hello, everyone. Thank you very much for joining us to review our annual results 2017. With me today is Rainer Beaujean, CFO and Speaker of the Management Board. As we did in the past, we are presenting a set of slides to accompany our results from this conference call. The annual report, the compliance statement, press release are posted on the Investor Relations website. Please note that this call is being recorded and will be also archived on our website. Before we start, I would like to remind you that are conducted subject to the disclaimer. We will not read the disclaimer, but propose we have read into the record for the purpose of this conference call. We are now starting with the presentation from Rainer.
Thanks, Severine. Good afternoon, ladies and gentlemen. Many thanks for joining us via our conference call, or either here in person in Düsseldorf. Our intentions for this presentation is to address 2017 financials, 2018 modeling assumptions and guidance, as well as to outline our strategic priorities going forward. While all topics are equally important, I would like to spend some more time on what excites us for the future and how we intend to tackle these opportunities. If there's one thing that I would like to mention today, we have a very committed executive team in place with no intention to act just as like an interim solution, but with a real drive to push the business forward. With that in mind, let us start with the review of full year 2017. Move with me to slide number four to discuss how we performed Q4 2017.
When we spoke last time on occasion of our Q3 earnings call, we outlined risk scenario and our PS 2017 guidance. This scenario was based on our computation for Q4 2017, and more precisely, by how much we expected to outperform Q4 2016. Let's start with Q4 as a whole. We showed a very strong Q4 2017 performance with organic sales up 6.7% year-on-year. The expected outperformance on a currency neutral basis was EUR 27 million for Plastics & Devices, and we delivered exactly EUR 27 million in Q4 2017 over Q4 2016. Main drivers were a low double-digit number inhaler price by how much we expected to outperform Q4 2016. Let's start with Q4 as a whole. We showed a very strong Q4 2017 performance with organic sales up 6.7% year-on-year.
The expected outperformance on a currency neutral basis was €27 million for Plastics & Devices, and we delivered exactly €27 million in Q4 2017 over Q4 2016. Main drivers were a low double-digit number revenues contribution from strong volume increase coming in particular from our inhalator project in Peachtree and from our syringes business. Strong tooling revenues and a very good contribution in primary plastic packaging business overall, including Centor. The picture is more mixed for Primary Packaging Glass. Overall, we had a good quarter in cosmetics as expected. We had a weaker quarter year-on-year in pharma Primary Packaging Glass, mainly due to continuing soft business in the U.S. The year-on-year revenues growth in emerging markets was lower than originally expected.
All in all, as shown on the chart in the middle of the slide, we delivered a total of €24 million above last year's Q4 2017, which underpins the group capacity to operationally and commercially handle large volumes of orders in tight deadlines. This means as well that our scenario that we outlined on the Q3 call has largely materialized on the revenue side, as we can see on the next slide, in slide number five. Group revenues at constant exchange rates in the financial year 2017 were thus €1.362 million. Needless to say that we are not satisfied with this -1.8% organic revenues decline. We are happy with our performance in Q4. On the profitability side, however, we have been able to contain the risk at €10 million, exactly in line what we have forecasted.
This demonstrates that we have consistently said over the past quarters and years, which is that we have much more control on cost and efficiency than on our customer schedules. We posted a total of €314.3 million adjusted EBITDA on a currency neutral basis. Deducting the €3.6 million in other operating income from the valuation of the Triveni put option, adjusted EBITDA at constant exchange rate was €310.7 million. To review the rest of the guidance components, adjusting earnings per share at constant exchange rates after non-controlling interest €4.10, it was slightly better than on basis of the most recently expected risk scenario. Excluding the purchase of licenses, the ratio of capital expenditures to revenues at constant exchange rate was 8%, which was within our guidance range. Our dividend policy is unchanged. I will comment on the proposed dividend for full year 2017 in the next section.
Let's turn to slide number seven. Looking at the revenues and adjusted EBITDA for the group and by division for full year 2017, we were able to post a margin increase despite lower revenues. Group revenues decreased by 2% on a reported basis and by 1.8% organically in full year 2017. The only difference between reported and organic here is currency, in particular in Q4 2017, due to the accentuated weakness of the US dollar. At the division level, Plastics & Devices decreased by 1.1% on a reported basis and by 1.4% organically. The main reason for the decrease lies with the medical plastics systems business. As we already announced at the beginning of the financial year, there was lower demand from a number of pharma customers where Gerresheimer is sole supplier.
This effect was compounded by a fall in demand in the inhalation business, even if we saw a good contribution stemming from our new inhaler business at the end of Q4 2017. The other parts of the business performed in line with our expectations. We recorded different revenue patterns, for example, in syringes or in tooling on a quarterly basis in full year 2017 than in some other years. However, these were strictly linked to timing effects and not to operational performance. This might happen again this year, by the way. Overall, sales at plastic packaging for liquid and solid drugs showed solid growth rates across all regions in the financial year 2017. We were very satisfied with the revenue development at Centor. The Primary Packaging Glass division posted a decrease in reported revenues of 3%, or 2.2% on organic basis.
The main reason for the lower revenues compared with the prior year was a decrease in North America. Greater uncertainty with regard to the new U.S. government led thereto a relatively market reticence among our large pharma customers to place orders. Outside of North America, revenues in the Primary Packaging Glass division were at slightly higher level than in the prior years, driven, among other things, by growth in the cosmetics business. We generated an adjusted EBITDA of EUR 310.8 million at group level, exceeding the prior year figure by another 1%, despite the 2% revenues decrease. Adjusted EBITDA in the Plastics & Devices division was EUR 215.2 million in the financial year 2017, well above the EUR 204 million recorded in the prior year. The adjusted EBITDA margin rose from 26.6% in the prior year to 28.4% in the financial year 2017.
This year, we have been particularly aided by the volume-based price escalation clauses triggered for certain device contracts, a different product mix, and overall improved productivity costs associated with an ongoing cost control. Adjusted EBITDA in the Primary Packaging Glass division ended at EUR 160 million and was EUR 8.7 million, or 7% down on the prior year figure. At 19.6%, the adjusted EBITDA margin was slightly below the prior year figure of 20.4%. The lower adjusted EBITDA was due to impacts of the revenue decrease in our North American pharma business. Cost and capacity adjustments were made here to a lesser degree in order to maintain delivery capability at all times when demand picks up. Let's move on to slide number eight. Basically, net income from continuing operation remained more or less stable year-on-year.
Adjusted EBITA was down by EUR 1.4 million year-on-year as a higher level of depreciation reflecting the nature of CapEx investment we have made in the past, compensated for the increase in adjusted EBITDA. Regarding the amount of EUR 33.5 million in amortization of fair value adjustments, the bulk of it comes from the acquisition of Centor. Net interest finance expenses were approximately EUR 2 million higher year-on-year at EUR 35.3 million. At 29.2%, the income tax rate for full year 2017 was in line with our, in general, applicable tax rate of 29%. This led to a net income from continuing operations in the amount of EUR 103.1 million in full year 2017, compared to EUR 104.5 million last year. The reconciliation can be described pretty quickly.
To go from net income from continuing operations to adjusted net income from continuing operations, we have to deduct the tax-related portion of the one-offs we want to add back. This explains the EUR 13.7 million. As a result, the adjusted net income from continuing operations was more or less stable year-on-year at EUR 130 million. Let's move on to slide number 10. The asset side of the balance sheet was mainly affected by significantly higher cash and cash equivalents due to the early refinancing of the bond maturing in May 2018, and on top, lower intangible assets due to amortization and exchange rate changes. Looking at the equity portion of our balance sheet, we note an increase of 3.4%. The increase reflects positive net earnings and the payout of the dividend in 2017, partially offset by exchange rate difference.
The equity ratio was at 32.3% as of November 30th, 2017, practically unchanged year-on-year. As a percentage of revenues in the last 12 months, average net working capital came to 16.5% as of November 30th, 2017. The operating cash flow margin, relative to revenues at constant exchange rates, was 15.3% in the 2017 financial year, clearly above our target of higher than 13%. Including the purchase of licenses in the amount of EUR 10.3 million, CapEx amounted to EUR 118.6 million in full year 2017. The Plastics & Devices division accounted for the lion's share of capital expenditure. This primarily comprised the purchase of an exclusive license for an integrated passive syringe safety system and a packaging design for RTF vials. A further focus was on additional production capacity at our sites in Peachtree City, in the U.S., and Koziegłowy in Poland.
Capital expenditure in the Primary Packaging Glass division mainly related to plant modernization and automation and further development of finishing capabilities. As in previous years, we also invested in upgrading our vial machinery, molds and tooling, all important investments to increase our quality. Let's move on to the next slide, page number 11. The main takeaways are here. The increased cash and cash equivalent position led to a net debt reduction of EUR 75.5 million year-on-year. Overall, net debt stood at EUR 712.7 million. This decrease in net debt, coupled with the positive development on the adjusted EBITDA side, has enabled the group to reach a leverage of 2.3 times, ahead of our midterm leverage target of two and a half times.
As mentioned during the last call, as well in September of our last year, we have managed to successfully issue a EUR 250 million promissory loan at very good conditions to redeem the EUR 300 million bonds, which will expire in May this year. This also means that going forward, we will benefit from lower interest burden overall, which will improve our financial results. This is one of the technical modeling aspects to bear in mind for 2018 as well as for 2019. To summarize the full year 2017 on slide number 12, we are not satisfied with the decrease in organic revenues at 1.8%. We have flagged this challenging trend very early in the year. Conversely, we are very proud of what the teams have accomplished in Q4 2017. Despite headwinds from the market, we improved our margin up to 22.8%, excluding Triveni.
Operating cash flow margin was equally strong at 15.3% for full year 2017, as a consequence of the improved profitability and stringent working capital management and CapEx spend. Improved cash flow matrix, attractive refinancing led in turn to a decrease in net debt and a leverage already below our midterm target. All in all, and this despite the revenue decrease, we were able to protect our margins and strengthened our balance sheet. The management and supervisory board will propose to issue a dividend of EUR 1.10 per share for full year 2017, an amount which is in line with our policy and represent close to a 5% increase year-on-year, reflecting our confidence in the business. At the next slide, I would like to give you our view of the market sentiment in 2017, because it undoubtedly sets the scene on how we are entering into 2018.
Please move with me to slide number 13. First of all, the market as a whole has experienced a slowdown in full year 2017. This is evidenced by the latest statistic gathering and made available by IQVIA, which is known as the former IMS Quintiles Institute. The global volumes for medical standard units remained flat in full year 2017. It is important to bear in mind that within these statistics, tablets or capsules, which account for more than 50% of standard units, are often packed in blisters, which we do not have. This is nonetheless a proxy to indicate how the market evolved in full year 2017, and we see that 2017, compared with the standard unit growth previous year, was definitely a year with very modest growth in primary packaging.
As part of the generic volumes, which are included in the total medicine statistics, grew only by 1% in full year 2017. Looking back over the past five years, it means that the overall market, measured with standard units, has grown by a compounded average growth rate of 2.1%. Of course, there are regional differences, and I will address this later again, but I think this first of all underpins what we have been saying all along, that 2017, in our view, was an exceptional year and a year of limited growth. Overall, we are entering into full year 2018 after a period of no growth in the year before, at least from a global volume perspective. The last part of the equation is to look at what has been happening in the world's most important pharma market, the U.S.
Honestly, if you would have asked me this question on December 15th, I would have told you that a lot of the question remarks remain for our customers. Since then, however, the tax reform has passed. The fact that a decision has been taken is positive in our view, and all in all, it seems that for our clients, the outcome is mostly positive. What is still unclear is the decision on the North American Free Trade Agreement, NAFTA, where our customers and ourselves deal with uncertainty. Last but not least, I wanted to mention the impact of currency and specifically the dollar. In summary, we are entering into full year 2018 after a year of relative stagnation, some customer dynamics, which might still affect us negatively, and with still some uncertainty from a regulatory trade standpoint of view.
On the other side, we have clear drivers for growth for 2018 and beyond. I will talk about it in the next section of the presentation. For full year 2018, we are, as in precedent years, presenting our guidance matrix on a currency-neutral basis. We used the average exchange rate of our last financial year, 2017, as basis for our currency-neutral guidance. You find all the details in our annual report on page number 85. The exchange rate that we take, for example, for the U.S. dollar is therefore 112 U.S. dollar per EUR. We have also put on the slides, as well as in our annual report, how to model U.S. dollar variations. This should help as a reference when looking at reported and organic figures in all following quarters. With this in mind, let us talk about our guidance.
For our group revenues, we anticipate a range whose lower end corresponds to the figure for the full year 2017. At the upper end, we expect group revenues to be up to approximately EUR 1.4 billion. For adjusted EBITDA, we expect a range of EUR 305 million to EUR 350 million in the 2018 financial year. Capital expenditure in 2018 will amount to around 8% of revenues at constant exchange rates, and net working capital target as percentage of sales stays at around 16% in full year 2018. On a slide in the back up, we have detailed three main new impacts to model for 2018 and beyond for under the adjusted EBITDA line. First, the one-off positive effect as a result of remeasurement of deferred taxes between EUR 50 million-EUR 55 million.
Second, the impact of the U.S. Tax Cuts and Jobs Act, which should have a positive effect on current income taxes. We indicated in the prior release that it would have positively impacted our net income for 2017 in a low single-digit million EUR amount if this would have been applied to the 2017 results. Third, once the bonds have expired in May, we expect that this alone will lead, on a constant exchange rate basis, to a EUR 5.5 million improvement in net finance expense compared with the financial year 2017. In full year 2019, there will be another improvement of EUR 5.5 million whereas full year 2018. If you've any further questions on that, we can touch them during the Q&A session or directly with the IR department at a later stage.
Let me talk a little bit about phasing revenues and adjusted EBITDA in 2018 along the next quarters. We expect revenue growth to come in the second half of the year. Therefore, Q1 2018 should be pretty stable year-on-year. Main reasons are, we had a furnace repair in Q1 2018, and we will have lower tooling revenues year-on-year. On top, especially in Primary Packaging Glass, the weaker demand started beginning of Q2 2017 last year. Therefore, Q1 last year was a pretty good quarter and therefore a tough comparable. Based on that, our adjusted EBITDA in Q1 2018 will also be weaker compared to last year. First, we have decided to further invest in people in which areas I will describe in the next part of this presentation. Second, costs for raw materials and plastic packaging have increased.
Please remember that the pass-through clauses in Centor do have a delay of up to 3 months. Third, for being ready to deliver in Q3 and Q4, for example, the new Gx Elite vials, which will take up in the second half of 2018, we have to pre-produce. Overall, we invest in Q1, and we will see the positive effects later in the year. What I would like to do next is to provide you with our current views on how we see market trends evolving, how we judge our current positioning, and more importantly, what we want to set in motion to support Gerresheimer trajectory to sustainable profitable growth. Allow me a didactic remark here, which is to remind you that we operate in rather long-term product cycles, say between 5 to 10 years.
Like every year, in the course of updating our five years rolling strategic plan, we have this year once again taken a broad and comprehensive view on our markets and the opportunities for our company. We continue to see strong social and macroeconomic trends that support growth in the healthcare packaging sector. These are the mega trends. When it comes to distilling it down to our markets, let's move to the next slide. Slide number 17. Here we have taken the view that our focus and a first approach should be on the strategic relevant markets for Gerresheimer. This includes our actual business today. Thus, for example, the inhalers, the market potential addressable with our current capabilities, such as, for example, the meters with Wolf.
Also some adjacent areas that offer potential growth opportunities further down the road that cannot be unlocked with our current expertise and our current infrastructure, such as, for example, connected devices. We operate in very large and attractive markets, and we have some parts with high and some parts with low market shares. Of course, there are differences between, say, for example, syringes, which is a market to forecast to grow at a mid-single digit, and say, overall, plastic packaging, which is forecast to grow at a low single digit. When you look at the size of the plastic packaging market, it means there are areas where we could potentially grow through new entries and market share gains. We know where our future potential lies, but just to be clear, we are showing here only the top-line potential.
How we enter the most viable business models and generate attractive returns will be determined markets by markets and project by project. Let's look deeper into further market trends on the next slide. Market trends in our segments are, on the one hand, driven by regional dynamics, and on the other hand, by specific packaging requirements for the pharma and healthcare industry. If we take, for example, the outlook for global medicine, volumes are expected to grow by 2% compounded average growth over the next five years. Within that, there is additional growth in emerging countries, in aggregate at 3% compounded average growth rates, while the rest of the world countries, including, for example, the U.S. and Europe, is expected to grow at around 1.7%. I said earlier, these numbers do not 100% cover our core markets, but demonstrate which regions provide most potential.
In parallel, global pharma trends have also an impact on packaging requirements, enhanced biocompatibility of materials, notably for biopharma and biosimilar drugs and formulations. End user safety, which also ties back to the self-medication mega trends. Compatibility of devices for device applications such as auto-injectors. Total cost of ownership analysis, important for our customers to weigh future needs. These specific trends and challenges for the packaging industry drive our decision on where to deploy additional capital and resources today and in the future. A few words on that in the next slide 19. We are a leading global player in healthcare and cosmetics packaging. We have a very attractive portfolio, backed by our bigger than 20% market share in primary glass and top three position in high-growth devices for inhalation and diabetes. We have a solid, broad, and balanced blue-chip customer base with long-term relationships.
All of major pharma companies are our customers. We have a well-invested global manufacturing footprint. Both on the top management side as well as on the top one and two levels beneath, we have experienced managers with broad relevant industry experience. As a matter of fact, there has been, over the past year, a lot of stability within the different layers of this company. Again, at management level, we are acting in concert and are definitely committing to bring more business to Gerresheimer, hopefully sooner rather than later. The departure of Christian Fischer was a surprise to all of us. I think you have all read the ad hoc release. This should not overshadow the work and goals that we are pursuing here. No standstill from our end, I can assure you that, and we will continue with a clear direction.
All in all, strong foundations that we can leverage further on. To be clear, our focus is to ensure profitable and sustainable growth. Our initiatives will be based on four growth levers, which you can see on this slide. They are all interlinked and supported by our efforts to defend cost and quality leadership. They are regional expansion, customer engagement, product and innovation, and enhancing our value proposition. When thinking about regional expansion and linking it to the statistics I have just shared with you, the first thing that comes to mind is expansion in emerging markets. This is definitely a focus and an area we want to continue to prioritize in the future.
We are looking at the markets where we are already present, such as China, India, Brazil, and Argentina, and where acquisitions and primary packaging business would be feasible because they offer exposure to a new customer base or market segment. At new markets for largely in Asia, Middle East, North America, or South America. In terms of vehicle of growth, M&A is an option, but so are, depending on the countries and ties we might have already with customers, partnerships, or own investments. Of course, this has to be always in line with Gerresheimer Financial's criteria, which I will outline later on. Currently, we are looking at a number of projects, probably more in the small-scale area, but strategically interesting.
Regional expansion is also a target within our core markets through consolidation on an opportunistic matter as we tried last year, but also in penetrating new markets with new customers or products, which leads me to the next slide. There are definitely opportunities to explore within our existing customer base or more largely on the one that is addressable in the pharma and healthcare markets as we have mapped them out. To start with, we have a very wide portfolio and serving so to speak, as very broad customer base. Continue to explore the opportunities available. We will continue to beef up our sales, marketing, and technical service. I'm not talking large investment, but dedicated measures that are anyway included in our budget and 5-year plan.
Regarding biotech customers, we want to continue executing on our specific commercial and business development strategy towards this specific customer audience to unlock new opportunities and customers. The newly found Gx Solutions organization will be further leveraged as business and product development engine. We have progressed quite a lot on enhancing our product portfolio, but if you think about syringes, for example, we generate about a third of our sales with biotech products already today. Let's go to the next slide number 23. Innovation is not only represented by new devices, ideas or methods, but also by the process of uncovering new ways to do things. Let me pick a few recent examples here. Adding new decoration technology has more to do with operational process than product innovation.
The commercial impact, however, is immediate as we can do more for our existing and future customers, and this is a margin-enhancing business. Gx Elite Glass is the combination of product innovation as well as process innovation, as by definition. The Gx Elite vials are high-end vials made of Type I borosilicate glass, but where the converting process is conducted without any glass-to-glass contact. Do we have to do it all by ourselves and increase our R&D spending? Not necessarily, as we are keen to set standards in our industry, which sometimes requires working together with peers. This is also value-creating as it allows us either to take a portion jointly from other competitors. If you take the example of the cooperation through licensing agreements with West and safety syringes in a market which is today dominated by others, or to establish new standards and address new markets and requirements.
If you think, for example, about the cooperation through licensing agreements as well with Ompi on Ready-to-Use vials. Let me give you a short update on the Ready-to-Use vials, by the way, and tie it back to market trends. The markets for Ready-to-Fill vials is growing faster than the Primary Packaging Glass market overall, so more around a high single-digit trend than in the low single digits indicated on slide number 18. Why? Because it is amongst others, attractive for the biotech markets, corresponds to higher quality requirements, and fits with the trends to lower production batches for some products. We have decided that our site in Bünde, Germany, will now be the central production place for the RTU vials because we can leverage, in particular, the ready-to-fill expertise of the teams there.
We are now installing a new vial washing and packaging production line where we will be using the patents and packaging systems from Ompi. Just to be clear, we are already marketing our ready-to-fill vials to our customers based on our own U.S. vial production, washed, packaged, and then sterilized. Starting 2019, we expect Bünde to assume the entire production process. This is all included in our growth CapEx is in our 8% of foreign exchange neutral revenue guidance. Two main considerations when you think about improving our value proposition. The first one is that we need to further offer total solutions to our customers. This also includes profiling our validation know-how and services, which is clearly value-enhancing. An example is our investment into a new small batch production for glass syringes in Wackersdorf, Germany.
Similar to the successful concept on the plastic side, we are investing in a dedicated, ready-to-fill syringe line that is exclusively dedicated to the development of new products. Independently of the production, we can tailor new products to our customers' needs. The other consideration applies to devices. A lot of you have asked us rightly how we intend to develop further our device business. There are different directions to explore. None of them are mutually exclusive. First, continuing to strengthen our device contract manufacturing business. Our plant in Horšovský Týn for example, has become one of the most efficient one and demonstrates our capability to run a state-of-the-art production in Eastern Europe. We have here very crucial projects for large pharma customers. Second, extend design, pharmaceutical assembly, services, and technologies. We are already doing so. The item GmbH company we acquired some time ago, which is a design entity.
For example, in delivering pre-assembled products, which would mean taking over a process step from our customers. For example, we would assemble a filled insulin cartridge into a pen, thus saving costs into overall pharmaceutical supply chain. Thirdly, it also means to showcase our own prototypes, develop our own device platforms, including connected features. Let me elaborate here what we mean with this. Going back to the market sounding exercise we did, there are a number of generics of smaller companies where the financial resources to invest in marketing and differentiation are limited and for which a proprietary platform solution is of value. With connected devices, we know where our competencies lie. We are not an IT company, but we also know that we have the capabilities to become a partner of choice for services with electronics connected components.
That is more a longer shot. The question here is the path you want to go through. Through own development, partnerships or M&A, we clearly see that as a growth market for mid and long term and are currently exploring some options with high priority. As with the three precedent slides, I am outlining here the strategic direction that we are pursuing, some of them more advanced than others. All the decisions will obey to clearly quality and returns requirements. I will detail this in a minute. Before I do that, I would like to illustrate how we are moving ahead. We have decided to explain this with our syringe business.
If you remember the market trends from page 18, the RTF syringe market is forecasted to grow at mid-single digit, but of course, this is a blended rate which encompasses both the heparin and vaccine volumes, which grow at a slower rate, as well as the biopharma market, which is growing at a higher rate. This slide shows that we have considerably enhanced our syringe product portfolio over the past years, more particularly our RTF syringe. We are now starting to build our RTF 5 line at our site in Römhild, Germany. Römhild has right now 4 lines, 3 of which, the RTF 1 to 3 are quite similar to the way they are built. With the RTF 4, we eliminated the glass-to-glass contact and improved the washing process.
Syringes with higher quality requirements are being produced on the RTF 4 line, e.g., for example, for the biopharma and ophthalmic markets. The RTF 5 line will be an enhanced RTF 4 line, including amongst others, increased automation and a direct measurement of the needle position through X-ray systems. The plan is to have the RTF 5 line starting commercial production in Q1 2020, and to concurrently stop the RTF 1 line, which has been in place for almost 20 years by then. This demonstrates that we have a very broad portfolio to address the entire market and are moving up the value chain. All investments here again are covered within our budget and strategic planning and hence, for example, into the CapEx and adjusted EBITDA guidance.
This leads me to the last aspect of this strategic roadmap, which I hope I have already hammered, which is that we have clear capital deployment principles and expectations. We will always tighten the funnel of opportunities to only retain those which financially make sense. Casting the net wide makes sense in a first step. As demonstrated in recent projects, we have a disciplined approach to capital allocation. The criteria are outlined on the slide. Besides any strategic criteria, there is for us a clear objective, which is to create value. We measure value creation through our Gerresheimer return on capital employed, as well as through RONOA. The definitions are outlined in our annual report, but essentially we see our Gerresheimer return on capital employed as a profitability metric at group level and indicates how efficiently we put the capital employed in the business to work.
It is a key medium to long-term target indicator for the Gerresheimer Group and the entire top management team here in Gerresheimer. A further indicator we track is Gerresheimer return on net operating assets, Gx RONOA. This performance indicator is also suitable for comparison with other companies, notably because it excludes acquisition effects such as goodwill. Here, for example, with the Gx return on net operating assets at 27.3% in 2017, we rank higher than packaging and medical device peers. I think we have been pretty clear with regards as well to our leverage and dividend policy in the long term, and for the sake of transparency, we have outlined the main principles here.
As we have always said, we would potentially tolerate a temporary variation of our leverage in case of relevant M&A, but we are nonetheless committed to an investment-grade rating in the long term. Follow me now to our last slide on page number 27. To briefly recap, entire management team has one key priority, return quickly to sustainable growth. We have started to pave the way for short-term and long-term impact and have a clear strategic framework to methodically address opportunities on the four levers that I've outlined. This will be implemented under clear quality and financial returns guidelines and rules. We are now setting ourselves the new goal to increase our Gerresheimer return on capital employed from previously 12% to around 15%. The clear driver for this improvement is top-line growth. Thank you for your attention.
More than happy to take now questions and hand over to Severine, who hopefully helps you then to answer them and also take over the moderation. Thanks.
Thank you very much. We will start taking first questions from the audience here, but for all of those of you on the conference call, the lines are now open for any questions, and you need to press nine star on your telephone keypad. Let's start with question from the audience here.
Hi, this is Thomas Schisler. A quick question on the top-line development. You are striving for top-line growth. By region, will it be farming markets heading the expansion or the traditional markets? Is this only organic or is there in your guidance already some M&A within? Thank you.
First of all, our guidance is always organic, there is no M&A included. The 8% has two main effects. First, you can approximately say 4% of revenues is for maintenance and refurbishment. The other 4% is for growth. Why 4% for growth? Rule of thumb is, if you want to grow 1% in three years, you normally have to invest in capacity, in new machines, in people, approximately 1% right now. For the regional question, overall, it's all over. We are investing in the U.S., especially in our Peachtree facility for the new inhaler business. We are investing in the emerging markets, especially in Brazil. We build a new manufacturing. We already said that several, I think two years ago in Goiás. We're also investing in India, new converting plants, which is in the ramp-up phase.
We already have invested it, mostly for ampoules and later on, vials. We're also investing in Centor. We are investing in syringes in the European market. We are investing in all parts of the U.S. We are further investing in our machine strategy, which is in China. We have all over investments right now, because we can't stop due to the fact that we had a bad year in 2017, we have to run further because we believe in the overall trends in our markets. We know it will happen. Therefore, clear for us, we have to invest further, that's clear what we do. All over. It's not one region, more or less.
Let's maybe switch and start taking questions from the call, the first questions would come from Oliver. Oliver Reinberg.
Oh, yeah. Good afternoon. Oliver Reinberg from Kepler Cheuvreux. Three questions I made. Firstly, in terms of your thinking for the top line 2018, apparently that is a bit softer than what you were still expecting in the Q3 call. I was just trying to get a feeling what has changed your thinking that 2018 dynamic may be a bit softer. As part of this discussion, can you update us on your thoughts on Peachtree? I would assume that given with at least EUR 5 million sales contribution Q4, that we have at least EUR 50 million incremental sales in 2018, if you can provide any update on that, would be appreciated. Otherwise, I acknowledge the Q1 comp is still difficult, otherwise, I would have expected a bit of more dynamic in the rest of the portfolio.
You alluded to the fact that you're trying to accelerate the expansion in emerging markets, also on an organic basis. I was just trying to get a feeling, should we assume that this could also lead to a kind of interim dilution of the EBITDA margin, or can you help us overall how to think about going forward? I mean, you provide a guidance for 2018, but going beyond, should we still think in the format of 4%-5% top line growth and 23% EBITDA margin? That would be helpful. Just in terms of housekeeping, the Tax Reform, I think when you talked about low single-digit impact in 2017, that probably applies two percentage points on the tax side. Should we actually model with the 27% for 2018? Also, can you give us any indication for the depreciation?
Is the EUR 95 million roughly a good ballpark here? Thank you.
You have to stay in the line, because if I forget one of your questions, perhaps you have to remind me.
Sure.
We start with the top-line question on 2018. I come out of the year 2017, where I missed my budget with EUR 70 million on revenue. We had organically a decline of 1.8%. That's one of the reasons why we have taken for sure a more conservative stance at the beginning of the year, we widened our range for guidance. In that case, that we have started the year based on the lower end up to the higher end, which is then EUR 1.4 billion. My budget is not at the lower end of the range. I can't say more. Our target internally, I'm not getting a bonus if we are not coming in at minimum mid or higher. For us, clearly, the target is to grow this year.
That's the reason why we are investing, why we are investing in Q1, and that's the reason why my comment was clear on that, hopefully, that we are investing also in our sales team, in our technical competence, in some areas, and we are also pre-producing. This is our assumption for the second half of the year, and the growth will come in the second half of the year 2018, because we know already and we have orders in for specific new products like, for instance, Gx Elite vials and so on. We know there's uptake and you have the Peachtree question. We also expect that when we are investing further in Peachtree and further build it out, that also, and you could see that also in the year 2017, this is one of the areas which was growing, by the way, in 2017, this Peachtree inhaler.
We also assume that you said EUR 50 million. I'm not giving you a precise number, but it's perhaps not so wrong. You know that we are also assuming, also from the Peachtree inhaler, a good growth also going on further. You were also asking me what is beyond. When you look on our slide about the markets and you would take the revenues in, which we have, you would figure out and you make it blended in that area, and we only would grow with the market. We are at least on the level, which is forecasted going on further for the different-- for the outlook, for instance, from the IQVIA. I have problems to remember that because for me, it's still IMS, but they are boards, so therefore, I have to learn this name.
That means for me also with the mix which we have on top, and all the other stuff, we also have a chance to grow further. Again, for us, the first target is to deliver and to come back to growth in 2018. I'm not giving you right now a guidance going on further, but hopefully in my presentation I've shown and we have explained that we have a strong belief that our markets are growing, that we are in very healthy markets, that the mega trends are intact and that we believe we want to grow and that there are a lot of opportunities for us to do it. Again, after a year where I had a decline of organically 1.8%, it is difficult for us in the board to be too optimistic going on further, and therefore we start the year with the wide range.
We will see what will happen during the next quarters, and then we will tighten it more and perhaps we have then more clarity going on further. U.S. market stays for us as a very important market. I already hammered that during my presentation. Therefore, we can see currently that after everybody was waiting last year for several decisions, take the whole year for the tax decision, which then came at the 15th of December. The other stuff is not solved. We have the healthcare system which is not solved. We have the situation that NAFTA is not clear. Therefore, there are some uncertainties in the U.S., but on the other side, you can't stay two years in a row and doing nothing. That's exactly what we can see right now.
The pharma companies have started to work as usual again, that also makes us optimistic, that there is supporting the situation from our customers and their forecast, that we have a good chance also in the U.S. market to be stronger again. That's at least our picture right now. Again, our guidance is our guidance and hopefully that explains it. Tax reform. Yes, we set low single million EUR amounts, when the tax reform would have been used in 2017. That translates to a certain reduction of our 29%. To take 27%-28% is perhaps not wrong. At the end of the day, it's not more, and that's perhaps good for your model. Question about depreciation.
No, there was a question about.
No. For us, when we are investing in emerging markets, we want to have the same margins at minimum than we have in the other parts. For us, investing in emerging markets is a business model. It's not a nice to have. Therefore, when we invest in that area, we need the same amount of margins. We have the same rules to invest in these markets, and this doesn't mean for us that the number goes down. You were also asking, when I remember correctly, is the around 23%, is that something which is difficult or which is a number which is difficult to reach? We reached this year 22.8% without Triveni. I can't tell you right now if it will be 23 point whatever, if it will be 22.8% or it will be 22.7%.
Our main focus in 2018 is clearly to get to growth, to let the company grow again. The consequence of growth for us means better contribution margins, better utilization, better cost position, and that's clearly our target, and therefore we stay with this target, and this is a good number, and we are not against it. Again, we are guiding right now currently only 2018, all the numbers are out, and hopefully that's clear enough. Question on depreciation.
The question on depreciation, well, I think from a modeling perspective, taking 6.87% in terms of sales is probably not a bad guess so.
It's exactly in line with that what we have said in 2016. We have told you there, and I check it with that what I've said at that time, we said clearly, you have to assume that it went up from the 6.3% in 2016 to approximately 6.8%-7% in 2018, and that's the number which you should have in mind.
Right. If I'm just very brief my follow-up. Going forward with these initiatives, we should not fear that beyond 2018, there is a period of flattish or even declining margins.
Exactly. Our expectation is not that we are investing here and then later on we'll have lower margins or whatever. Again, can I guarantee you that we always will have 23%? That would be ridiculous. Yeah. In my opinion, our target is, and that's clearly the number for 2018, to have adjusted EBITDA at the end of the day between EUR 305 million and EUR 315 million. That's clearly our target. That translates to a certain margin dependent on which revenues you have from. Again, our target for all the initiatives which we have is to make profits. We have clearly indicated that our long-term target for return on capital employed is to increase this number from above 12%-15%.
If you are not increasing, you know the definition for us is that you have an adjusted EBIT in that. The adjusted EBIT, on top of that, you have the depreciation, the EBITDA. If the EBITDA is not growing, if the EBITDA is not strong, you never come in a percentage to this amount. Because we will invest further, as we have said, on the CapEx side, that means that the assets will increase. Therefore, we have to have a good number. Otherwise, we don't reach the 15%, and that's clearly our target. Otherwise, I wouldn't give it out.
Makes perfect sense. Thanks for the comprehensive answers.
We'll take the next question from Credit Suisse.
Yes. Hi, good afternoon. I actually have two questions. The first, just, a bit high level. If I look at your growth over the last two years, it was barely maybe 1%, on average. Yet, you invested 8%, on CapEx to sales ratio. Following your comments, basically that would be 10%, 12% extra growth that should have materialized out of these above maintenance CapEx investments. Can you help me understand what's been going on here over a non-extended frame? Then the second question, maybe I'll come back to the second question after.
The first question is easy to answer. If you make the same exercise and take the 2017 with the minus 2% out, you come up to a different growth perspective in that area. Again, it is only a rough calculation when I give you this rule of thumb of 1%. We have areas, for instance, and we had years in the past where we are also growing above 4%, dependent on what we are investing in and how this uptake is. I give you one example. When you have, for instance, the Peachtree inhaler and would calculate the growth rate coming out of that, which is pretty strong, and you will have other investments like for instance, in standard machines or a new converting manufacturing in India, where the growth rate is also very, very high, even double digits.
You have other areas like, for instance, in cosmetics, where the investment, when you then add on, the profitability is more important in that case because it is a value add. The overall growth is not increasing out of that. They are different patterns. This is only a rule of thumb when I say out of our 8% in correlation to revenues, 4%, you have to invest to grow approximately 4% in 3 years. This is nothing more. In some cases, it needs a little bit longer, in some cases, grows a little bit faster. Again, you are right. After a year with minus 1.8%, the calculation look all difficult.
Okay. Fair enough. The second question is now on the USD impact. If I remember right, in the past, it was always about a quarter of your business and there was no transactional effect. Now if I read your fine print, basically you are saying about a third is now USD derived or USD exposed and then, basically actually on a EBITDA level, it is over-proportionate. Can you elaborate on that?
First of all, you are totally right. We do not have huge transactional risks. We only have translational risks. We have given out this guidance. When the dollar changes $0.01 in up and down, that means for sales approximately EUR 4 million deviation, and for the adjusted EBIT, EUR 1 million. Have in mind that most of our profitability comes out of the U.S. due to the Centor business. Here in Centor, we do have margins above 45%. That is the reason why theoretically, when you then recalculate it, that even if our revenues are only one-third of the overall revenues, the profitability part due to Centor is much higher, and therefore your calculation is correct, but also what I have said is correct, in that case, that the influence of the U.S. dollar in that basis is higher due to the Centor business.
Okay. The last question is just regarding your comments on Q1. If I understood that correctly, that mainly referred to adjusted EBITDA. If you look at sales, you have a pretty easy comp space now, for example, in Plastics & Devices business now. Should we also expect sales to be down or just margin because of the investments?
It's a little bit too early because the quarter isn't finished. We set, and I would like to give that again. We are expecting flat sales. What is the reason for that? First of all, tool revenues. We have lower tool revenues in Q1 2018 than last year. Tool revenues, by the way, is easy because it will take up for the rest of the year. For all those of you who don't know it, that's engineering capacity, which we sell to customers. That's approximately EUR 60 million-EUR 70 million on a yearly basis. That's really easy to take up. That's based on percentage of completion.
The main reason why the comparison is difficult for Q1 last year was that the Primary Packaging Glass business was pretty strong in Q1 last year because the effects out of the election weren't taken in on the first quarter because everybody, I think, was surprised in 2016 that Mr. Trump won. All the effects for the Primary Packaging Glass business, especially the injectable business, started in the second quarter of the year. Therefore, Primary Packaging Glass was a very difficult year to compare with. On the other side, you have the situation, as I said, tool revenues are lower. Profitability-wise, you are right. We have two areas, or three areas. First, we are investing in people. Second, we have the resin price increase for raw material and plastic packaging. We have pass-through clauses, which stepped in three months later, especially in Centor, and there it's relevant.
We had also a furnace repair in the first quarter, which normally also means that the efficiency is not as high as you normally have it. On top of that, we are pre-producing several products. I have given one example, which were the Gx Elite vials, where we know that they will be taken in the second half of the year, which also means that our efficiency is hurt. So several issues, which takes our adjusted EBITDA margin compared to last year down compared Q1 to Q1.
Okay. Yes, got that. Thank you. Was very clear.
Thank you. The next questions comes from MainFirst.
Yeah, Markus Siebrecht, MainFirst. Hello. Can you hear me now? Markus Siebrecht, MainFirst.
Yeah, we can hear you. Thank you.
Excellent. Two questions, please. One is on the other operating income. When I look at the trends there, that number has been going up over the last years and was quite significant in 2017. That figure includes a lot of non-cash earnings drivers like provision releases, like some de-recognition of liabilities, et cetera, as well as the Triveni revaluation, obviously. If I add all that, it's roughly EUR 20 million. It looks like that the 2017 EBITDA has been positively, I wouldn't say inflated, but positively impacted from these other operating income. My question is how recurring are those other operating incomes? Are there more provisions which may be released in the coming years? How much create those a burden for 2018 guidance, actually? Second question would be on EPS. You do not provide an adjusted EPS guidance this time.
Basic question here would be with all the non-operating factors we know, lower financial charges, lower tax rate, et cetera, could you rule out a decline 2018 versus 2017 on the adjusted EPS level? Thank you.
Perhaps let's start with the first question. Sorry for all those who have a degree in accounting, because now I have to explain a little bit accounting. Perhaps you all move to our annual report on page 128 and on the other provisions here, because that's one of the effects in the other operating income, which is the reversal of some other operating expenses. Perhaps you look on the right side here, the additions, EUR 21.5 million. These are the two effects for the profit and loss.
You can see here clearly we made more additions than reversals because the additions are booked in the functional costs and not, I've also heard that comment several times, from some people who phoned up in the investor relations department, and I was totally surprised that, under IFRS, under German GAAP, and also under US GAAP, the situation is that other operating expenses and other operating income are not corresponding positions in accounting. Additions are booked under functional costs. Same, for instance, for warranties, for quality as an example. Warranties for quality in the current year have to be booked against sales. Only if they are from a former year, then they are on other operating expenses.
The most important question was on the releases of accruals here, and I can clearly say, we have increased, and from the profit and loss, we have spent more money to build up. The additions are higher than the accruals. Let's talk about the other positions here. Maybe let's be pretty clear, it's on page 110, and I explain you a little bit what is in the other operating income. Again, we talked a little bit about the reversal of provisions. Here you have higher additions, hopefully that answers this question. The second one, income from the derecognition of liabilities. This is our bonus.
As you can imagine, when you have a year where you are lower than approximately EUR 70 million compared to last year, most of the time it's the bonus accruals, which you had at the beginning of the year, which you can reduce because the bonus in Gerresheimer this year is pretty weak, and therefore, you have this effect. On top of that, when you then look on the next line, which is the income from refund claims against third parties and income from transaction service agreements. Here, this is nothing else than when you have, for instance, a fire, and we had two fires last year, where you have a business interruption into your business, then you have an insurance for that. You get the money back. Normally you would have seen a higher revenue because you only get back all costs. You're not getting back the revenues.
The negative thing about that is, for sure, I get back my money, which I lost, after my calculation, which I provided to the insurance company, but I lost my revenues. That's normally an effect you can say, "Would have been better not having this other operating income because I would have better shown the revenues." This is positive. Triveni put option, I totally give that as a clear signal. That's a one-time effect, EUR 3.6 million. That's the reason why we always say, put that out, and when we compare it other, also with the next year, we always say, without Triveni put option, that's something which is for sure something special. Income from disposal of intangibles. Yeah, what is that? That, for instance, when you give up a part of your business, we're always doing a portfolio optimization.
In some cases, you don't need the land anymore. If you consolidate this over there, and that's always happening. We always sell some land somewhere in the world. As you could see the year before, here we had a positive gain of EUR 500,000. I don't know what is happening this year, but be aware, we also streamline and optimize our portfolio, and the rest is, I would say, irrelevant. Hopefully that answers a little bit this point. Please don't make this mistake, to net other operating income and other operating expenses and say, "Okay, that's the effect coming out of that in the two years." Always look on the accruals and the additions, and then you figure out if we had a positive or negative effect to our profit and loss. Hopefully that answers this question.
Yep. Pretty good. Thanks.
Perfect. Earnings per share. Yeah, why no guidance? First of all, we helped you in nearly all areas. I've clearly explained to you the deferred tax effect out of between EUR 50 million and EUR 55 million. Again, we will book it in Q1, and it will be part of our adjusted earnings per share because in our definition, it is nothing which we adjust. It will be a number which will be in there. It's a strong number, which you will see in Q1. We've also given you the yearly effect out of the tax rate. The net interest, we also said to you should assume for the year 2018 that it's 5.5% interest rates are lower than in the year 2017. That's also strong guidance we give to you.
The only thing which we are not giving to you is the adjusted earnings per share, that has to do also with the currency effect. You have to make your assumption, what is your currency assumption for the year, you calculate it down, otherwise, I would give you such a wide range here, dependent, in that area, an adjusted earnings per share without a currency assumption doesn't make any sense. I can do it, but it doesn't help you. I think we have given you everything. We also discussed a minute ago or 15 minutes ago about the depreciation. You know now that it's approximately 6.8% to 7%. I think there is no missing piece, so you can make your calculation.
Hopefully.
Okay. Thank you.
That's the reason why we haven't given an earnings per share guidance, because that's the most difficult one to give in a current situation. Because I give you one example. Take the deferred tax effect. With 110 or between EUR 50 million and EUR 55 million, it's a totally different number in euros than with 124. We have to book it at the end of the quarter or somewhere between, and then you know what the course is, describes how big the effect is.
It's much easier for you to do that as I can do it, because you know exactly how the U.S. dollar will develop this year, and that's the reason why we haven't forecasted that, and why we've said, "Let's stay with the average currency how it is, You model it in however you want to do it." To discuss currency is very difficult for us. That's the reason why we have decided against an adjusted earnings per share guidance.
Okay. Cool, thanks.
Looks like we do not have any other further questions from the conference call. Maybe a last round here, if there are any follow-up question in the audience. Yes, we do. Just need a microphone.
Rainer, you had a strong message on the biotech side. If I understood correctly, you said about a third of your business is already biotech.
Syringe business.
Right. This would have been my question, where does it show up? Is it the pre-filled syringes, the syringes, or even the Gx Elite vials, which is also injectables. How do you tackle this market given the huge wave of biosimilars and antibodies coming to the market? I would expect organically, and you showed us the growth rates in the different segments. This is one which grows easily high single digit, double digit.
We also assume that. That's the reason why we have invested in that area. That's the reason why we tackled it due to three initiatives, first of all. First, we invested further on in our syringe business. That's the reason why we made this announcement, that we bought the patent from West. We work together there to have a better solution for the safety device on that area, safety syringe. On top of that, we have the RTU vials, which is the next step because, you don't have only syringes, you also have vials. Biopharma, biosimilar companies don't have all this experience in this or that area that they want to have, like a big pharma company or generic companies. They have different processes, different structure, different knowledge. Therefore, we need. That's the reason why the third initiative is Gx Solutions.
In Gx Solutions, this is a specific sales force, which addresses exactly the wants and needs of these kind of customers. Here, and this is the advantage perhaps of Gerresheimer compared to others, because we don't have only one specific technique like plastic or glass. We can offer nearly everything. We are the only one, for instance, on glass types, who can offer Type III, Type II, Type I. We can offer bailer, we can offer Gx Elite. Different kinds of glass with different quality, different prices, different ideas. Same for all the other stuff. We have COP vials, we have Gx MultiShell vials. We have all kinds. We have plastic syringes, we have glass syringes. We normally the perfect fit for someone who needs a solution for here and there.
That's the reason, and we always said that in the past, where we missed something to start up two years ago. Now we have to get back on track in that area, and that's the reason why we have a focus on these kind of things, but we are already good in that. The RTF4 line was specifically designed for these kind of customers. Also the RTF5 line, which I announced today that we are investing in Bünde in that area, is specifically for these kind of products and customers. On top of that, we have the small batch production, which I also said today in my speech, which will be in Wackersdorf, which also addresses these kind of customers because the batch size is different than, for instance, for a heparin or vaccine product. That's exactly how we want to tackle it.
This is nothing which is something for in 15 years. That's something where we have to work on, where all our teams are working on, and we are pretty optimistic that we are able to get more out of that market than we did in the past.
Okay, I see no hands being raised, so I think we will now conclude this conference call. Thank you very much for attending, and as far as we are concerned, we will publish our Q1 results on the 12th of April. Thank you very much.
Thank you.