Earnings Call: Q3 2017

Oct 11, 2017

Ladies and gentlemen, welcome to the conference call regarding the publication of Garezheimer AG's Q3 Results 2017. At the moment, all participants have been placed on a listen only mode. Now I hand over to Ms. Severin Gomp, Corporate Senior Director, Investor Relations at Gareseimer AG. Good afternoon, everyone. Thank you very much for joining our Q3 results call. With me today are Christian Fisher, our CEO since September 1 and Rainer Beaujean, our CFO. As usual, we are presenting a set of slides to accompany our remarks on this conference call. The interim report, the slide presentation and the press release are posted on the Investor Relations page of our website under geassignment.com/investorrelations. Please note that this call is being webcast live and will be archived on our website. Before we start, I would also like to remind you that the presentation and the discussions are, as always, conducted subject to the 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 today starts with a presentation by Christian and Reinhard, and after that, we will enter into a Q and A session. And with that being said, I'm now handing over to Christian. Yes. Thank you, Severin. Good afternoon and good morning to everyone, and thanks for joining us on this conference call today. Before I hand over to Rainer for the review of our Q3 earnings, I would, of course, like to take the opportunity to give a bit of background about myself and share with you my first impressions. The 1st weeks, and I think that's not a surprise, has gone by really fast. I want to start with a special thanks to my predecessor, Uwe Rohlf, for his remarkable and excellent handover. He has shared his in-depth knowledge of the company and its market, and that was very helpful. Together, we visited several sites, suppliers as well as partners. Just a few words about myself, 53 years old, married and we have a grown up daughter. I have a master degree and a PhD in chemistry and studied business administration. And from a business point of view, I spent almost 25 years at BASF in different functions, research and technology, controlling marketing as well as settings and BU Management. And I lived in different regions, worked 1 year in U. S, of course, several years in Europe and overall, 8 years in Asia. They are first responsible for the plastics business in China. And later, as business unit had for entire Asia for fine chemicals, and here worked very closely with customers from the pharmaceutical, cosmetics and food industry, and that experience will help me now also at Gerasana because we want to grow in these industries, especially in emerging markets. After that, I was, for several years, responsible for research, to be precise, for Materials and Systems Research and recently, as President, Performance Chemicals, for a division with overall 5,000 employees, €4,000,000,000 turnover and sites across the globe. Key takeaways from these excellent years are solid strategy, the stringent implementation of a road map and clear solid business models are key for continued sustainable success of a company. Operation excellence on the one side and customer centricity on the other side are the foundation for profitecra growth. A strong presence in emerging market is today crucial for above average growth. Innovation, I should say, innovation is the icing of the cake to be a real solution provider for your customers. And above all, the passion of our employees is the driver of success. So what are my first impressions after a few weeks? Very exciting and very encouraging. I visited the majority of our production sites, and to be precise, 28 out of 35, talked with colleagues from our business units in North as well as South America, Europe, including all our German sites, and have visited our sites in Asia, in India as well as China. Goal is to have visited almost, almost all our sites by early next year. Wherever I've been, I came across very motivated employees with a passion about our production, passion about products, quality and customers. I'm impressed about the passion, the driver for our current as well as future success. We have seen quite some strength in operations and people are proud about. Standardization of technology is rather advanced and the focus on quality is clearly visible, a key aspect, not only but especially for the pharmaceutical industry. We will continue to strengthen operations. I think we have a good solid basis to build upon. And I see personally good opportunities in the digitization of our operations. Main pillars: 1st, introduction of our manufacturing execution system software, especially in primary packaging class 2nd, selective further upgrade of quality inspection systems and third, further automation. All 3 are crucial to boost productivity further and meet increasing quality demands. Let me also share first impressions from a market point of view. Pharma, Healthcare and Cosmetics are attractive markets with overall promising growth rates. Long term megatrends drive growth, such as rising life expectancy, growing work population and increasing prosperity. Interesting for us, especially, development of new tracks, especially in BioPharma and the increasing trend toward more and more self medication. The overall cost pressure in health care markets create opportunities for reliable and cost competitive supplier. My priority remains to meet more and more customers, learn about their needs understand even better how markets are going to develop. Just recently, I had several customer meetings during Luxpark Cosmetic Fair in Southern Europe. And in just 2 weeks, I will meet customers at the leading pharmaceutical trade show and the CPHI in Frankfurt. Customer centricity will be an important pillar of my work and for the senior management as a whole in the months years to come, and in particular, of course, for our sales, marketing and business development teams. Professional sales and marketing teams and dedicated even more global key account management is essential, and we will implement focused and industry specific business models. In the summer 1st weeks months up, we have a strong team, very committed team. The company has shortened its portfolio. Yes, currently, we do face some temporary headwinds. In the 1st three quarters of the financial year, we saw softer demand. And Rainer will now elaborate on that in more detail. Rainer? Many thanks, Christian, and good afternoon and morning also to all of you on this call from my side as well. Before I start to go more into the detailed review of our Q3 earnings call, I would like to echo some of Christian's comments. 1st, needless to say that this past quarter has been challenging from a revenue perspective. However, we have been able to maintain and even slightly increase our adjusted EBITDA margin year on year. This is thanks to a continuous stringent cost control and focus on operational efficiencies from all teams in place, which is something that we have become better at over the past years. 2nd, the revenues decrease on CounterACT in the Q3 is not due to a new series of problems arising suddenly in the Q3, but still linked to some of the customer related issues we started to flag at the beginning of the year. Against this backdrop, what we have seen is less orders and in parallel some postponement. 3rd, we are heading towards a good Q4. Everyone will remain committed here until the very last day of our financial year to execute as seamlessly as possible. After these opening remarks, let me give you an overview of Q3 in terms of top line and profitability and how we gauge Q4 at this current stage. Reported revenues decreased by 5.4 percent to $331,500,000 in Q3 20.70. In absolute terms, on a reported basis for the 1st 9 months of the year, it represents a total of €44,000,000 less than the same period last year. Organically, the decrease was 4.3% from a currency perspective. There were a bit more than $3,000,000 of adverse currency effects in the quarter versus Q3 last year, essentially stemming from the U. S. Dollar and Chinese renminbi. As just mentioned, the main factor for the decrease in the 3rd quarter is linked to the fact that the somewhat softer customer demand that started to affect us early in this year continued to linger in the Q3. As in the preceding quarter, it was linked to the device business as well as our primary packaging glass operations in the U. S. And as we also mentioned in precedent calls, there was just there was not just one single reason prevailing, and I will elaborate on these on the next slide. Despite the trend in revenues, we have been able to slightly improve margins year on year. Adjusted EBITDA margin was 23.4% in Q3 2017 against 23.2% in the Q3 last year. Here, we saw the same mechanism at work than those which helped support our margins in the first half of the year. Plastics and Devices, thanks essentially to product mix and our price volume clauses, the adjusted EBITDA margin even improved by 80 basis points. Primary packaging glass, our margins decreased only slightly to 20.1%, and this despite the revenues decrease and the fact that we did not completely reduce our production capacity in anticipation of the solid volumes expected in Q4. In both divisions, we have continued to manage our cost base tightly. I will spend a bit more time later to discuss cash and earnings financials, but most of the trends on the rest of the P and L and cash development side are essentially derived from the top line development. I will also update you on the successful issuance of our €250,000,000 of promissory loan and its implication for the financial results of 2018 2019 later on. Over the next slides, I would like to walk you through the main drivers that have affected Q3 and provide you with the current risks and opportunity we see for the Q4. In essence, the message that we provided during our last earnings call has not changed. We are expecting strong volumes in both divisions for the Q4 of 2017. However, based on the revenue development over the 1st 9 months of the year and what is expected from us for Q4, it would be wrong to say that this does not pose any operational challenges. It indeed requires a seamless coordination of all parties. And when I say all parties, I mean our suppliers, our partners, our clients and of course, ourselves to be able to execute as much as we can. It means obviously that the production needs to run as efficiently as possible. I think it is important here that I describe the reality of our business and the swing factors involved. We have always said that the 4th quarter is our ideal one as they are, apart from Thanksgiving, no holidays or breaks whatsoever. And as such, the entire organization is completely focused on delivering as much as we can in Q4. In my function as CFO, it is my role to look also at a scenario analysis. As a whole, the magnitude of the increase that Q4 is 1st and foremost to be determined by how much we are going to be able to compensate the revenues lost to date. As I will detail later on, this is partly under control and lies without execution capabilities, but is still, as always and more pronounced this year, in the hands of our customers. From a scenario analysis viewpoint, we currently estimate a total of approximately €30,000,000 revenues at risk on a currency neutral basis, whereas the €1,400,000,000 which we have announced in our Q2 earnings call. Some of you might question why we are not just giving you a final number for the year end. The truth of the matter is that still a lot can happen over the next 7 weeks. And given how critical these weeks are going to be, there are a number of factors that could possibly amplify the revenue risk described. Let's now delve into the details of Q3 drivers. Move on with me to Slide number 7. As Christian mentioned earlier, we have not seen any significant changes in our operating model. Overall, the underlying trends are healthy. On a reported and year on year basis, we have posted a total revenues decrease of a bit less than €19,000,000 in Q3, of which approximately €11,000,000 is attributable to plastics and devices and the remaining $8,000,000 to primary packaging glass. The trends can be seen on the chart in the top right corner of this slide. What we have then tried to present on this slide are, for each division, the factors we outlined during our Q2 calls and whether these still impacted Q3. In essence, you can see that all the trends, both on the negative as well as on the positive side, are more or less valid. If we start with the trends of plastics and devices, please move with me towards the box at the bottom left corner. The totality of the sales decrease in Q3 is attributable to the devices business. As increased in quarters and as previously flagged, it has to do first with lower tooling revenues, where we still anticipate almost half of the expected full year revenues to come in Q4. There are essentially 2 sets of revenues in tooling. On the one hand, revenues with engineering hours on the other hand, revenues with assembly machines and tools, both of which are generated from own activities as well as from external suppliers. Especially the timing of the invoicing of our external suppliers is critical. And as a consequence of the various projects we are currently working on right now, there will be a lot of invoicing and payment booked into the Q4 of this year. The other factor that is impacting the devices revenues in Q3 is the result of unfavorable customer dynamics, in particular within our inhaler business. This has nothing to do with the inhaler market per day, which is still poised to develop further, but has more to do with the various life cycles of the products that we are currently being managed within our customer base. As mentioned last time, you have to remember that we have quite a good market share in inhalers, both with pharma as well as with generic customers. And within our customer base, we are seeing heightened competitive dynamics and specific management of the life cycle for certain products and medications that have led to lower volumes for certain customers of postponement. This is something that can happen, nothing out of the extraordinary year, especially when one considers that given our high market share, we are not immune to market share. Having said that, and despite these high market shares, which we are constantly working on, the new project pipeline has demonstrated by the ramp up in Peachtree. Here, as already mentioned in Q2, we saw postponements of orders from the first half into Q4, and this is still the assumption we are working on. The rest of the business has evolved according to our expectations in Q3. This is the case for plastic packaging overall and for our Syringe business, where we saw here some pickup in Q3 as announced previously. Profitability wise, we are seeing the same trends as in the precedent quarters. Lower volumes in the device business triggered contractually agreed price escalation clause. Such higher prices in combination with the decrease in the lower margin tooling revenues, translating in a favorable sales mix, have enabled us to even increase the adjusted EBITDA margin by 80 basis points at 28.7% despite lower revenues in plastics and device. If you now move on to the right hand bottom side of the chart to review the drivers for our primary packaging glass. The main factors for the revenues decrease remains in the U. S. Glass business. We have seen less orders from our U. S. Customers, both traditional pharma and generic one. It is difficult for us to pin it down to a single component. As mentioned in previous calls, there's an area of reasons that have led to this trend. Here again, it has in part to do with the competitive positioning of our customers, and we have been also impacted by destocking. We even saw some mentions of drug shortages for some specific medication. Overall volumes are not disappearing. But as always, as a supplier, we are not informed first step about delays from our customers and can influence their order path. As a whole outside the U. S, the revenues remain broadly stable. From a profitability standpoint, we were able to maintain the margin in a 20% region as a result of operational agility and efficiency. As mentioned before, we have also taken the conscious decision not to reduce significantly our production capacity in anticipation of the volumes expected for Q4 2017. As such, the slightly softer margin is due to a lower utilization. I hope this provides you some color on the factors that have affected Q3. I will comment more in detail on what we judge to be the drivers of outperformance in Q4 versus Q4 last year. But before that, I would like to spend some time on the financial for Q3. As a matter of fact, there are a number of positives we can also report on from a financing and leverage perspective, which are also supportive for our value creation approach going forward. So please first move with me to Slide number 9. As in the precedent quarter, you can find the slide on revenues and profitability for the quarter in the appendix. So on this slide, we are comparing the reported Q3 2017 results with those of Q3 2016 for continued operations only as both exclude the results from Life Science Research, which have been treated as discontinued operations for full year 2016 and subsequently for each quarter of 2016. During the quarter, we can see that the reduction in adjusted EBITDA, coupled with some depreciation and tax increase, overall leads to a $5,000,000 decrease in the net income from continued operations. Let me describe the main position to you. The increase in depreciation is less than €1,000,000 and in line with the trends that we have outlined in the previous calls. The one off effects of €800,000 do include mainly nonrecurring costs secured in conjunction with an acquisition opportunity we evaluated, but for which another buyer was ultimately selected. The amortization of the fair value adjustment is as in the preceding quarters for a large part driven by the center acquisition. As a whole, we thus achieved an EBIT of EUR46,300,000 in Q3 compared to EUR50,700,000 in Q3 2,006. Below the EBIT line, the net finance expenses is essentially in line with last year. Regarding taxes, the quarterly comparison is not necessarily the most relevant given the complexity of the topic by country. As such, we like to look at it more on a year to date basis. In the 1st 9 months of the year, the tax rate at group level was 30.2%. This compares to 28.3% for the same period last year. The difference is essentially linked to the timing of the occurrence of certain tax free income or nondeductibles expenses. In Q3 2017, we recorded a net income of €26,300,000 compared with a net income from continuing operations of €31,300,000 last year. After adding back the one offs and subtracting the noncontrolling interest and on the basis of a stable share count year on year, the adjusted earnings per share after noncontrolling interest amounted to EUR 1,000,000 compared to EUR 1.17 in Q3 2016. Please move with me to Slide number 10 to review selected balance sheet and cash items. Looking first at the equity portion of our balance sheet, we know the decrease of 1.7% from total equity from €763,300,000 at the end of full year 2016 compared to €750,700,000 as of August 31, 2017. This increase results on the one hand from the payment of the dividends recorded for the period under revenue and negative currency effect. As a whole, the equity ratio increased slightly from 32.1% at the end of full year 2016 to 33.3% at the end of Q3 20 17. The €24,000,000 increase in net working capital is essentially linked to a decrease in trade payables as well as an increase of the inventory. The average net working capital in percentage of the last 12 months revenues was 16.7% compared to 15.8% at the end of last year. The figure as of August 31, 2017, has to be seen in conjunction with our expectations towards a stronger sales performance expected for the Q4 of this year. Operating cash flow decreased from €131,500,000 excluding Life Science Research to €121,200,000 year on year, a trend that is explained by the lower adjusted EBITDA contribution on the one hand and by the increase in net working capital I just mentioned. In relative terms and excluding Life Science Research for the 1st 9 months of 2016, CapEx to sales remained practically unchanged year on year at 6.6% of sales. Looking at the Transfer division. A large part of the CapEx spend in Q3 was in plastics and devices, mostly linked to the acquisition of an exclusive license enabling us to launch an innovative integrated passive syringe safety solution as well as additional investments for our PEACH tree facility. Investments in primary packaging glass were significantly lower than last year, which was impacted in Q3 2016 by the complete overhaul of our furnace in TETO. In Q3 2017, CapEx spend for the division essentially deals with the investments of molds and tools as well as modernization initiatives. As a whole, since the beginning of the year, we have invested up to €50,000,000 in intangible assets, the majority of which comprised of our licensing agreement. Net debt amounted to EUR 765,800,000 which corresponds to a decrease of €22,400,000 and is essentially driven by a lower draw down on our revolving credit facility and positive currency effects resulting from the currency U. S. Dollar to euro exchange rate. Based on the last 12 months adjusted EBITDA calculation as of August 31, 2017, Leverage therefore remained unchanged at 2.6x versus the end of last year. I think this is an important element to flag at this point towards a very good development of our leverage and demonstrates further that we remain very disciplined also when top one becomes challenging and never achieved to focus on cash. This is one of the strengths of Gerasimer as a corporate issuer, which has been constantly recognized as well by the debt capital markets and has allowed us to successfully issue a €250,000,000 Schulsteiner promissory loan at very good condition. Let me describe these on the next slide. So here on this slide, I want to focus on the new emission and also provide you as an indication with the pro form a financing structure should the new promissory loan have already been recorded during the Q3. First, the new issue. On September 27, 2017, we successfully issued promissory loan amounting to EUR 250,000,000 The strength of our creditor and company profile as well as favorable market conditions enabled us to upsize the initially announced volume of $150,000,000 to a final size of 250,000,000 We even had an oversubscription by €100,500,000 96% of the promissor alone is linked to fixed interest rates varying between 0.82% and 1.72%. So even better conditions than the precedent issue following the Center acquisition. The remaining 4% are standard variable rates that is 6 month oil above plus 60 or 75 basis. We have also overall extended the debt maturities of our financing as a promissory loan at 3 tranches, each maturing as of September 2022, 2024 and 2027. So a strong signal of the trust and the confidence of the debt capital markets in our business and cash generation profile. Now let's look at the pro form a financing profile. In essence, with the new promissor alone, it means that until May 2018, we will not need to draw on the revolving credit facility. This is reflected in the last comment of this table of Slide 11. This would conclude my review of Q3 financials, and I would like to go back current trading and our expectations for Q4. Moving on to Slide number 30. On this slide, we have outlined the trends as we see them currently and which should support the growth that we are expecting for the last quarter of the year. To be clear, we are talking about drivers which are going to support the outperformance in Q4 2017 versus Q4 2016. Plastics and devices should contribute for approximately 80% of the outperformance in Q4 on the basis of a solid performance year on year in devices and systems, both in Europe as well as in the U. S. We are definitely expecting a much higher production run-in our PHT facility by the end of Q4. Syringes will also continue to add to the top line in Q4. We anticipate the bulk of tooling revenues, close to half of the total revenues for the year, to be precise, to be recorded in Q4. This will also contribute to the increase in Q4 year on year as we realize more revenues in the 9 months of 2016 than this year. So there will be growth in tooling in Q4 versus last year. In plastic packaging, we expect further growth, in line with our expectations in all regions. In Primary Packaging Glass, we expected solid performance versus the last year as a result of, 1st, moderate growth expectations in the U. S. And European pharma sales. 2nd, we expect an improved performance in emerging Asian markets. And third, the cosmetics business is to benefit from stronger seasonal uptick ahead of the Christmas. I talked about scenario analysis before, and I also would want to provide you with the supporting factors as well as those that we continue to monitor carefully. On the plus side, we have a good level of committed orders on hand for the end of the year. We maintained capacities in order to be able to deliver targeted volumes in Q4. We have taken operationally the necessary measures and are ready for higher production levels. Our improvement of sales doesn't come from one product or out of one plant or segment, but the shipping of the various products is expected to occur from different plant. However, it does not necessarily diminish the complexity of what we need to accomplish. On the flip side, the aspects that we will continue to monitor until the very end of the year are the overall customer dynamics, As I have always said, the maternal softer demand of many pharma companies will also have a corresponding impact on us as a packaging specialist. As a supplier, our information knowledge is more back end loaded as we usually notice possible trends after pharmaceutical companies publish their financial statement. Another aspect to bear in mind has to do with supply chain swings. There has been mention of drug shortages in the U. S. And in Europe, implying some disruptions in the supply chain. This is something which we cannot necessarily control and which can also be linked to external factors as the hurricanes, which have hampered logistics of some distribution centers in the U. S. Which brings me essentially to my last remark, which is that we are not the only one in the driving seat here, but are also dependent on external factors. All in all, the level of preparedness of all parties involved to support processing, these expected large amount of volumes will play a critical role in Q4. I hope I have provided you here with a guidance and assessment on where we stand today. Let me now address the details on how we compute our estimates for Q4 and link it to our outlook. Turning to Slide number 40. As just mentioned, we are expecting a good 4th quarter. However, based on the computation we have made for Q4, the overall objective to post revenues in the amount of €1,400,000,000 on a currency neutral basis seems more than ambitious at the current stage. Our current scenario analysis points towards a downside risk in the amount of approximately $30,000,000 on a currency neutral basis. Should this come to realization, which appears to be more likely than not at present, this may also lead to variations to our adjusted EBITDA and as a consequence to our adjusted earnings per share after non controlling interest. You can see these variations on the right hand side of the table. They are all on a currency neutral basis, and they indicate an estimated delta of approximately €10,000,000 whereas our adjusted EBITDA objective of €320,000,000 and an estimated delta of approximately €0.17 for the adjusted earnings per share after non controlling interest, whereas our stated objective of €4,250,000 From that perspective, as I mentioned earlier, we feel it is more transparent to provide you with our current risk estimate at this stage. For our metrics, such as investments, our ratio of approximately 8% of sales remains unchanged. A few modeling elements here. First, currency impacts. Should the U. S. Dollar further weaken compared to the euro? Let's assume that the rate for Q4 2017 is €120,000,000 then it would be probable right to assume roughly a €10,000,000 translation impact on sales for Q4 alone. As you remember, we have always said that on a full year basis, a cent variation for the dollar would have roughly a €4,000,000 impact. On revenues, if you make this calculation on a yearly basis, €120,000,000 versus €140,000,000 would mean a decrease of sales of roughly EUR 40,000,000 if you then just divide the $40,000,000 by 4 for the sake of the calculation, then you arrive at the €10,000,000 currency effect I just mentioned. On adjusted EBITDA basis, the impact will be less. As we said, that €0.01 variation would lead roughly to €1,000,000 impact. 2nd, CapEx. The approximately 8% excludes our investment into long term licensing agreements. As we have described in the past with regards to our external growth strategy, we have always said that acquiring IPs or patents or for what for that matter, investing in licensee agreements should be more or less treated as M and A and are necessary to fund our external growth strategy. Turning to 2018. In principle, we continue to adhere to our guidance for 2018 Based on revenues as of the year end 2017, we currently see the targets for 2018 as follows: We are aiming for organic revenue growth of 4% to 5%. For the adjusted EBITDA margin, our target is some 23% for the financial year 2018. In order to meet these targets, we require annual CapEx expenditures of around 8% of revenues at constant exchange rates. We anticipate that average net working capital as a percentage of revenues will be approximately 16%. To continue to expect that our operating we continue to expect that our operating cash flow margin will be around 30%. So let's discuss again the great progress and initiatives we have been able to see in the past few months, and I would like to spend a few minutes on this before I hand over to Christian for the concluding remarks. Please move with me to the next slide. We have presented the slide already on the occasion of our Q2 earnings call. But since then, we have further worked on enhancing our Specialty Pharma offering, in particular with the launch of an innovative, passive and integrated syringe safety solution. As you might know, the higher mind of needle stick related injuries among health care workers has led to increasing demand for safety solutions, and this is backed by international regulation. Currently, there are only nonintegrated safety devices on the market, which means that the device is assembled after the filling, an additional progress step for the customers. Our cooperation with Farmers through the licensing agreement that we filed in July foresees that the integrated passive safety solutions or so called safety syringes are delivered, preassembled by us to our customers, ready to be filled using standard nests and taps. So for our customer, it means less process steps and no need to invest in an extra assembly step. This greatly enhanced our offer proposition, especially for the specialty farmer as a primary target is to win new customers that want to launch new products and solutions in the market, especially in biotech. First, customers' discussions and reactions are positive. But as always, with these initiatives at Farmer, it will take another few years before it starts to significantly impact our top line. This, together with the agreement on the ready to survive that we filled with the Stefanato Group earlier this year, demonstrates that Allianzus, its partners, in this case through licensing agreements, can be a way for us to support profitable growth. Another type of Allianz has come from the collaboration with Corning with the aim to deliver a new type of glass, the so called Velar glass, to the pharmaceutical packaging market. All in all, this means that we are progressing well towards complete system solution offerings to offer our customers an innovative and complete solutions portfolio. And with that, I'm now handing back to Christian for his concluding remarks before we open the Q and A session. Thanks, Rainer. One more comment on innovations. I was impressed by our process development expertise at our technical competence center in Wackerstorf in Germany. We do have a solid pipeline. Our development teams and our newly established GX Solutions business development teams are now working hard and preparing the launch professional and the go to market approach is important. Right now, as Reiner mentioned already, all teams in the business units, regions and sites may have their hands on the steering wheel and working hard to bring home a solid quarter 4. Cost discipline throughout the entire organization is essential. I think it is important for me to spend now time learning more about Gerasimer, our markets and customers. Together with the entire leadership team, time to discuss strategy. Then on February 22, next year, we will share with you our 2017 full year results, talk, of course, about 2018 and talk about strategic topics. Severin is already working out a detailed plan for my first meetings with you during roadshows and conferences after our full year results. But I think now having talked long enough, and now we open the floor for questions. Thank you very much. So let's enter into our Q and A session. The lines are now open for any questions you may have. And to register for questions, you need to press 9 star on your telephone keypad. And in case you want to cancel your questions, you need to press 9 The first question comes from Scott Bardo from Berenberg. Go ahead, Scott. Thanks, Helane, and welcome, Doctor. Fisher. Yes, so thank you very much for taking the questions. 2, please. Firstly, I want to understand a little bit better the fundamental performance of the company, not just in this quarter, but over the last few years. And I wonder, Doctor. Fischer, can you share some thoughts actually as to why Geraschheimer has had slowing growth and accommodated in negative growth this year. I appreciate there are some near term industry related or any market topics that some of your competitors also face those and are growing at a faster pace. So could you perhaps share some thoughts as to why Geraschheimer has been losing share and what Question number 2 just relates to the financial guidance that has been given both of this year and provisionally into next year. And very simple question, actually. I mean, given the financial performance to date, the guidance still calls for a very significant acceleration in the 4th quarter and still very healthy profitability with some resuming accelerating growth next year. So I wonder why Gerashant must still set the hurdle quite high this year given that, if you like, these issues are now being flagged. Investor expectation is low. Would it not have been preferable to, if you like, rebased guidance to an even lower and sustainably more achievable level? Thank you. Thank you very much. Let me start with the first question. I think overall, on the Garellheimers really operates in healthy markets. Healthcare, pharma as well as cosmetics are an attractive market with more promising overall growth rates. And our target at Garatama has to be grow above average. But for that, you need to have a very solid presence within emerging markets. I think we are an international company. I'm well organized there, but have to go more in emerging markets. I think that's one topic. And but the other thing, I'm not 6 weeks in the company and am I analyzing, talking a lot with people, but I think overall, I'm always working in effective markets. Regarding financial guidance, I think here the same applies. Our target has to be that we grow above the market, but also here. I'm 6 weeks now here in the company. And after 6 weeks, I have no reasons to adjust that. And Scott, from my side, when you look on the expectation for the year end, for sure, it's ambitious. That's what we've said. That's the reason why I have outlined the risk scenario of €30,000,000 We also said that there is the possibility that we have a further downside potential because when you calculate it correctly based on the last year, it means, currency neutral, that we have to do €32,000,000 more in Q4, which is already normally the best quarter. But on the other side, we have fundamentally discussed it internally with our people several times, and especially the revenues are key for that. And we have evidence, and we also have 6 weeks to go or 7 weeks to go to get to this point again, but it means that we have delivered everything. Do we have a chance to outperform that? And that's what we hopefully also stated clearly in my speech that we don't see that, that the €30,000,000 is currently the scenario where we live with. And we will further discuss it, and we will further figure out how it will come out. And that's the basis for our discussion, and that's the reason why we have given out the numbers. This is always our philosophy. We talk openly to our investors, and that's the basis of our guidance. Okay. Very good. And just one quick follow-up, if I may. Just to understand then this €1,370,000,000 revenue expectation for this year, that it should be seen as a peak guidance or an optimistic scenario? Or that is a scenario which you can still have potential to beat? Or there's some error margin around that? Or is that very much the ceiling guidance for this year, if you could clarify? Also, just want to get some specifics, please, on what you see the contribution coming from tooling. I think you referred to something like a €30,000,000 contribution in Q4, if I'm correct. And also, what the from Peachtree is likely to be in the Q4 so that we can get some additional comfort actually as to the contribution for full year 2018? Yes. First of all, we have set this is our risk scenario where we're working with, and there's also downside potential. So we are not we can't say if it's this number or that number. That's the reason why we have to say it's a risk scenario of the €30,000,000 And for sure, when you look on our expectation for the Q4, the tool revenues have to grow compared to last year because also last year, we had the effect that in Q4, we generated most of our tool revenues. They have to grow with approximately CHF10 1,000,000. Peachtree is also a small amount of CHF5 1,000,000 syringe is approximately CHF5 1,000,000 plastic packaging, approximately €5,000,000 and so on. So that's what I've said in my speech. It's all over. And I also said it's 80%. That means that would end up with approximately CHF 27,000,000, which we expect more in the 4th. Okay. Thanks very much. We'll turn back in the queue. Okay. All right. Sorry for that. It seems to be a little bit of problem with the system here. Yes, I have to say that approximately EUR 27,000,000 is our approximately. I can't say precisely as our expectation comes out of plastics and devices. And then a solid growth in Q4 and Primary Packaging Glass, which is at the end of the day also not one effect, one plan. It's all over. And that's the reason where our challenge comes from. At the end of the day, we have to deliver on all plans all over, and that's also the risk for our numbers here. So the next question comes from Falko Friedrich from Deutsche Bank. Hello. Thanks for taking my questions. I would have 3. Firstly, and now that we are 6 weeks into your Q4, do you see market trends intact to reach the double digit sales growth that you could require even to reach the lower end specification, meaning the EUR 1,370,000,000 And secondly, do you feel that you still did not lose any market shares now in Q3, meaning that this continues to be declines that should impact your competitors as well? And then thirdly, you said one of the important drivers to get to the 4% to 5% sales growth is emerging markets. Could you maybe share your strategy on how you plan to improve your presence there and more specifically? Can you hear me now? Now we can hear you. Thank you. Sorry. We're changing systems here several times. Now I have a new one on my app, so great. I start with the first one. The inhaler trends overall Overall, the trends in our opinion are intact. For us, it means in Q4 that it's all about execution. And that's clearly what we have to deliver. Yes. To lose shares here or there, it's difficult to say when you have a situation that all your customers are going down and you could see that we are serving the top 10 pharma companies. And that means when you get less share here and less share there and all that is also getting less share there and there, and you also can listen to that in our business model. It means being the market leader here or there that basically we feel comfortable that the markets are intact and that we perform as we should as we have expected originally. And the last one, perhaps you can repeat the question because I don't have them in mind. Emerging markets? What was the question? Yes, correct. Just in terms of your strategy and how you plan to improve your presence and more specifically? Markets, I think Geraslamer is already more internationally well placed. But very clearly, growth rates are in the Asian markets. And here in the emerging markets, and like China and India, I'm aware we are active already, but where we very clearly need to work on broadening our customer base. That's one topic. And also in some segments in South America, there are opportunities. The next question comes from David Adlington from JPMorgan. Go ahead, David. Hey, guys. Thanks for the questions. So firstly, just with respect to the Q4 again, obviously, we're 6 weeks in and you've identified that €30,000,000 sort of potential shortfall. I'm just wondering what would cause that to be amplified. And I suppose really the follow-up from that really is, I think you've answered it on the last question, but just wanted to be sure. Is you're delivering the Q4, is that a demand or your ability to supply restriction? I do have sufficient demand. It's a question whether you can actually supply to customers or not. And then secondly, just with respect to obviously given the disappointments of this year, I suppose what gives you the confidence that you've not had to alter your outlook for next year? Thank you. So let's start with the first one. 4th quarter, we've sat already, so we're not discussing the shortfall compared to the €1,400,000,000 because at the end of the day, that's what we lost from beginning of the year after now. Because currency neutral, we lost €48,000,000 reported €44,000,000 So for me, more or less, it's more of the challenge which comes in the last quarter that we have to reach the risk scenario, which we as I said, it's a risk scenario. To reach this number, we have to do €30,000,000 more, and that's more or less a challenge for me. And for sure, it depends how we can deliver all that, what we have in our hand. And again, I also said in my speech that we have to look on all market trends, that we have to see how customers work on further and that there are no surprises going on further. And that's clearly the scenario which we have to address and which we should look at in the outlook for 2018. As you could see, we cut it back on that case that we have set that based on the numbers which we reached at the end of 2017, we want to grow. And again, our performance here in Q4 is essential to put on further because first, we have to deliver on that. And we haven't changed it dramatically, but we changed it. And due to the fact that the basis for our next year numbers is 2017, and that's something which we will discuss then about the 2018 numbers again in the at the second of February 22nd February next year. And but fundamentally, the market haven't changed, and that's the reason why the basis for our business model is a 3 percent growth, which you normally should see in a year. We haven't seen that in volume growth this year. But normally, it should come and that's the basis for our overall business model. Just let me add a few more sentences to that. In my first couple of weeks, the focus really was on operational topic and to talk with the team and the entire team is now focused to bring home a solid quarter for. But in addition, we will start now in the next couple of weeks to discuss strategy and reflect on the growth development of the last couple of years. And as Rainer said, then in February, we come back to talk about 2018 and to talk about strategic topics. Understood. Thank you. Did we answer your question, David? That's fine. Yes. Thank you. Thank you. So we will take the next question from Veronika from Goldman Sachs. Good afternoon and thank you for taking my questions. Really appreciate it. I'll keep it to 2, please. My first one is actually, Doctor. Fisher, on one of the comments you made to the previous questions, which is your end markets are growing 4% to 5%. And for you to grow at that rate you need to have a broad portfolio. Do you feel that Dara Shimer has that breadth of the portfolio from a customer mix and geographic presence that you'd like to see. I guess if I look at the business the last number of years, not just this year, you have fallen short of that 4% to 5% organic revenue growth target. Do you think that the fix there is about the breadth and the depth? Or is it more about getting more innovation and maybe broadening your presence in a particular vertical of the business? That would be my first question, and I'll let you answer that. And then I'll have one more follow-up, if that's okay. Okay. Let's start with our end markets. There are several market reports that describing the situation in cosmetics as well in pharma. From a volume point of view, pharma markets globally, weighted average growth roughly about 3%. In order to grow at least another 3%, I think you have to be globally well established. I think we are a seasoned player, especially in the European and in the German markets, and there are, for us, opportunities in emerging markets, especially in Asia. So in order to at least grow with the market, you need to have a broad customer portfolio. And so I mentioned our topics in emerging markets. And in established markets, in order to increase the share of wallet, I mean, we really need to come up with innovations. We need to have a solid portfolio. And I mean, in the pharma markets, I mean, you know the life cycles in pharma market, and it takes for validations. So it's not overnight, but the markets as such are attractive. Okay. And how do you think about, I guess, in emerging markets, as you want to get broader, is that a function of winning more customers? Or is that a function of acquiring a competitor who has these customers and you can convert them to your business? I'm just trying to understand how quickly you can execute on this desire to accelerate the top line to that 4% to 5% that you were guiding us to in the medium term. The most important topic regarding emerging market is that you are present in the emerging market. And the topic is on sales and marketing organizations where we will work on. Okay. Fantastic. That's very helpful. And then my second question is just very briefly. As you look at the glass environment in the U. S. In the Q4, can you comment in the 6 weeks that you've been operational in the Q4 as to whether you've seen any improvement there? Thank you. I think you guys are going to answer already partly after 6 weeks. It's a bit difficult, but I've been there already on my 2 times. I talk with colleagues and meet my first customers. The situation in the U. S. Right now, I think it's fair to describe it. It's a bit challenging. Okay. Okay. Excellent. Thank you both very much. Really appreciate it. So we have the next question is coming from Daniel Riga from HSBC. Go ahead, Daniel. Good afternoon. Thank you for taking my questions. I have only 2. The first one is that you mentioned difficulties in fulfilling all devices orders in 2017, particularly due to disruptions in the supply chain due to drug shortages. Could you please elaborate on those difficulties and maybe give an indication of how this would be resolved going into 2018 and how this conversion from orders to sales is going? And secondly, thinking ahead to 2018, as far as I understand, one reason you are able to maintain your margin is due to your price escalation clauses. For how long can you maintain your margin if the slowdown continues and contracts are up or renegotiating negotiation? Thank you very much. So we'll start with the second one. The price escalation clause is always secure as a combination between price and volume. So we have then the difficulty when the price is increasing that my contribution margin is lower due to the fact that utilization of my manufacturing is the basis for higher margin. So overall, we would be happy to have a higher percentage in the part areas. The main reason for the margin increase also in Q3 is for sure the more tooling revenues, which we have in Q3 compared this year compared to last year, because the margin of tools are a lot lower than the margin of parts. And that's for sure one of the main reasons why the margin is pretty strong in Q3. And going on further, for sure, that's something which we should then discuss next year. Again, we have given you a general idea where we think where we will be or where we can be based on the numbers at the end of 2017. And that's the best which we can give you right now because normally, in February, we discuss how 'eighteen works and not today because that's too early. You also asked us for you also asked me for the suppliers and how the situation looks like, drug shortages and so on. That's all something which you can read in the different newspapers all over. I can't comment on customers here because that's what we're not allowed to do. And again, my general statement to that only can be when the big pharma companies all over, you name pharma as generics, do have problems in the market, that normally hurts us. And that was the reason which happened up to the 1st 3 quarters. And for sure, we have, when you look on our outlook for the rest of the year, a better feeling for it. But again, in Primary Packaging Glass, this is a solid growth. This is a small growth, which we're expecting. The majority of our growth comes out of plastics and devices. And as I said before, first step, tool revenues 2nd, PEACHTREE 3rd, syringes and 4th, a little bit the plastic packaging business means center as well as the European part. And that's the majority of our growth in 4th quarter, and that's 80% of the overall growth. And that's the situation which we address here. So we're going to take the last sorry, sorry, Daniel. Last question, we have Scott again in the queue. So that's going to be our last question. Thanks for taking the follow-up, Scott. Yes, thank you. So I think you mentioned that you've done relatively well considering margins at high level despite the weak top line. I think that's absolutely the case. But how confident are you that you've not cut too close to the bone to jeopardize growth? And if we go into a situation next year where the top line doesn't materialize as you expected, should we then expect some pressures to start to unfold on your margin given some of the near term relief starts to abate on the profitability side. So if you can talk us through that dynamic, I would appreciate. And second follow-up, please. You've talked about Peachtree being a significant driver of growth. I think Doctor. Fisher, your predecessor highlighted that new growth projects will likely drive 2% to 3% top line growth for the group for not just next year, but for a few years to come, mainly Peachtree, which would imply, to me at least, that into next year, Peachtree should generate some €30,000,000 or so in revenues. That would help us at least get the bridge actually as to how you return to more reasonable growth rates next year. So perhaps if you could give us some additional details as to how significant the contribution from PEACHTREE would be, that would be very helpful. Thank you. So I start with the last one. Peachtree, for sure, Peachtree is an important driver, and that's what we have said before is still the case. And that's also part of the situation, and that's the reason why the ramp up is also important. As I already said in my speech, we had postponements from the first half of the year in the fourth quarter here. But overall, PEACHTREE is doing very well. And we also have a good situation going on further. Profitability. If we can maintain the margin going on further here, I clearly have to say our profitability is for us based on the flexibility which we have. If we have more revenues, it's much easier for us to have a better profitability. On the other side, we haven't cut back investments this year. So if we take up next year, for sure, we are able to deliver all that things, which will come. And our belief also this year was that we will have a good year, and we also believe again that we will have a good year next year. We don't think that our profitability is hurt as is or that because we are still ramping up facilities. Don't forget, we are ramping up our facility in Oglovskitorn. We are ramping up our facility in India. We are ramping up in Peachtree. So there are there is a lot of work beside all that difficulties which we have right now. So that what we have told you in the past is that what we believe is also true. And by the way, approximately 23% means not exactly 23%. It could mean also a little bit less. But at the end of the day, we have to deliver that and we have to see what we will discuss at the 22nd February when we then talk about 2018. Very good. Just squeeze one very quick one in, please. And so this €5,000,000 incremental contribution from Peachtree you're calling out in the 4th quarter, am I to understand that this facility is not at full manufacturing output this quarter and so that the run rate would be potentially higher into next year, if you wouldn't mind clarifying? Correct. We are still ramping up. As Reiner commented, the situation in plastic and devices, let me add a few more words on the Primary Packaging Cloud 5. As I said in my introduction speech, our goal very clearly is to be a reliable quality supplier for the pharmaceutical market. And for us, operational excellence is a key topic where we will continue to work and productivity is on the agenda because I mean it's good to be prepared also for the years to come and competition is always intense. Very good. Okay. Thanks very much for taking my questions. Thank you very much, Scott. Thank you very much, everybody, for attending the call. That would actually conclude the call. Just a few housekeeping elements here. So the results for the full year will be published, as mentioned several times here, on the 22nd February 2018. We are going to be on roadshow in the next few weeks. So and the Investor Relations team is there for any questions you might have. Thank you very much.