Earnings Call: Q1 2017

Apr 6, 2017

Ladies and gentlemen, welcome to the conference call regarding the publication of Geraisheimer's Q1 Results 2017. At the moment, all participants have been placed in a listen only mode. The floor will be open for questions following the presentation. Now I'd like to hand over to Ms. Severine Compe, Corporate Senior Director for Investor Relations at Karasheimer. Good afternoon, everyone. Thank you very much for joining us to review the Q1 2017 results. With me today are Hugo Rojo, our CEO and Reiner Beaujean, our CFO. As we did in the past, 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 at glsilon.com/investorrelations. Please note as well that this call is being webcast live and will be archived in our website. Before we start, I would like to remind you that the presentations and discussions are 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 for today starts with a presentation by Hugo Rohof and Rainer Beaujean. And after that, we will enter into Q and A session. And I'm now turning over the call to Owen. Thank you, Severin. Good afternoon or good morning to all of you attending our Q1 'twenty 7 earnings conference call. Let me start with Slide 4 of the presentation deck. During the quarter, all of the internal and external trends potentially affecting revenues in Q1 and a slag during our full year 2016 earnings presentation have materialized. I will comment in greater details on these in the next slide. Overall, we have maintained our adjusted EBITDA margin at a high level year on year, and this is by the decline in revenues. Starting clockwise on the slide with revenues. We have been mainly impacted by timing effects in Q1 'twenty seven. Reported revenues amounted to €302,800,000 in Q1 compared to €320,200,000 in Q1 2016. On a reported basis, revenues decreased by 5.4%. Or on neutral currencies, this represents a decrease of 6.2%. During the quarter, U. S. Dollar and Brazilian real related currency tailwinds were partially compensated by adverse currency movements, and particularly stemming from the Mexican peso and Polish lotties. Moving on to adjusted EBITDA. Some of you might remember that we reached last year our highest adjusted EBITDA margin in the This margin level has been further retained in Q1 2017 despite declining revenue year over year. Overall, adjusted EBITDA amounted to €59,900,000 in Q1 2017 compared to €63,500,000 in Q1 2016. And the equivalent adjusted EBITDA margin was 19.8% in Q1 2017 that is unchanged versus Q1 20 60. The main reasons for the margin stability are revenue mix as well as an ongoing focus on maintaining an operational and hence certain cost flexibility to the entire organization when confronted with the variability on our top line. It is worth noting as well that Q1 2017 was also slightly distorted by the cost linked to furnace repair in Momini, Belgium. We undertook that quarter as opposed to Q3 last year in Tethr, Germany. Regarding our adjusted EPS after non controlling interest, I just want to outline here that I am looking at our reported Q1 2017 figure versus the adjusted EPS of continuous operations that is excluding Life Science Research after non controlling interest reported for Q1 2016 to allow a consistent comparison basis. Adjusted EPS after non controlling interest was €0.60 in Q1 2017 versus EUR 0.72 in Q1 2016. This latter figure, as I just said, excluding any contribution from Life Science Research. This corresponds to a euro 0.12 decrease year on year and basically reflect the underlying operational performance of the group in Q1 as we did not record any exceptional items. Finally, looking at our cash and our balance sheet metrics, we note that our operating cash flow amounted to €24,700,000 in Q1 2017 compared to €29,200,000 for the equivalent period last year. That is for continued operation excluding Life Science Research. This is a pretty solid number for Q1. Net debt was more or less unchanged since the end of last year and amounted to EUR 798,800,000 89,900,000 which is precisely $1,600,000 above the level of November 30, 2016. Based on an LCM adjusted EBITDA calculated as of February 28, 17, leverage remained unchanged since the end of last year at 2.6x. So as I already mentioned, we expect the sales development, and we had outlined that during our last investor call in February. Let us move to the next slide to review in greater detail the main drivers for our business performance in Q1. Moving on to Slide 5. Timing effects and uncertainties surrounding the business environment for some of our customers has impacted our results in Q1 2017. Let's start first with the driver that had an on revenues of our Plastics and Device division within the quarter. First, timing effect, which will gradually unwind throughout the course of the year, namely the phasing of our tooling revenues, which were significantly lower year on year. As mentioned before, tooling revenues can be and have been lumpy in the past, and they are often linked to the completion of specific deadlines on given projects with our customers. I also want to reiterate what I have said on February 15, which is the tooling revenues should at least remain stable year on year, if not slightly increase. Based on our project pipeline, that is in really good shape. The second factor is an external one and is customer demand related. During Q1, we have experienced a lower demand year on year coming from the view of our large pharma customer where we are single cell supplier. While this lower demand had an impact on revenues generated with our systems businesses, we are also able to trigger our price escalation clauses, which foresee a higher unit price in case of lower volumes. This is one of the measures that help supporting the margin stabilization in Q1. Looking at our Primary Packaging Glass division, a few comments here as well. The timing factor I want to flag is related to the furnace repair we had undertaken in Q1. As you know, we usually tend to have 1 furnace repair a year and normally try to maximize the lifetime of our asset, which is why it does not systematically happen in the regular period every year. This time, for our Belgian plan, it was Q1. This means 2 things. First, that while furnace repairs mostly involve CapEx, there are as well as operational expenses involved, and this is impacting the profitability of Primary Packaging Glass in the quarter. Secondly, this means that we will have an easier common base in the second half of twenty seventeen as our 2016 furnace repair took place in Q3 last year. Additionally, with this division, we see a cautious stance in the U. S. Pharma industry with some of our customers that might have affected demand levels and inventory levels for standard generic injectable packaging compared to prior year quarter. Good news is certainly that Obama Care is still in place, but a bit of uncertainty remains based on what the new administration is going to do next regarding health care reform. So what does that mean for us? Firstly, that we expect the phasing of our overall group's revenues to be definitely more weighted towards the second half of the year, partially because of timing effects I just mentioned. Secondly, this also means that we should have more visibility on external trends towards the end of our Q2 because by then we expect customers to have clarified their volume needs for the year based on the forecast for the respective medications. I also want to complete this picture by adding that we also continue to see good development in other areas of the group. A few examples here. Our PEACHTREE operations continue to ramp up well and in line with our and our customer business plan. We see encouraging developments in certain emerging markets such as China and Brazil, while India had a very slow quarter. And the Cosmetics business forced to grow year over year. On the operational side, we are continuously and rigorously managing all key variables to deliver on results. Move with me to Page 6 to discuss this. We remain focused further developing the business opportunities we have identified to support our expansion while protecting profitability. As such, we are continuing to refine our customer approach and in this respect are now building up and deploying our new dedicated organization, GX Solutions, which is targeted to better serve the specialty market. These activities include reassigning existing resources exclusively to this market segment and recruiting additional resources to fully staff the organizational unit during 2017. Product Development and Business Development will launch various product families made of glass and plastic during this year that are tailored to address the needs of the biotech market. At the same time, we are continuing to execute on key projects to sustain investments In the U. S, at each need to support the expected growth of our inhaler business, but also by enhancing our product portfolio for the specialty pharma and biotech market with the introduction of the ready to fill or ready to use vials as recently announced with the launch of our GX RDF vials, we have acquired the right to utilize the OMD EasyFill platform to market our various glass and plastic vials and cartridges in a ready to fill format that is compatible to most of the existing filling sheets. This demonstrates our endeavor to satisfy client requirements and more generally our commitment to invest in growth areas. On the bottom line, we are adapting our structures to allow maximum operational efficiency. We are making sure that we maintain our operational focus towards the priorities we outlined, such as further enhancing our quality output and achieving greater manufacturing efficiency as this will support the resilience of our business going forward. More generally, we can rely on a flexible operating model in a number of plants to adjust to demand fluctuation. I hope this gives you a good overview on what we are witnessing right now in the market and how we are responding to ensure earnings growth. With that in mind, I now will hand over to Reinhard for a review on the financials. Many thanks, Uwe. Let's start with Slide number 8, where we have detailed the year on year revenues and profitability for both the group and the division. Starting with revenues, as mentioned by Uwe, group revenues decreased from €320,200,000 in Q1 2016 to €302,800,000 in Q1 2017 as expected. This corresponds to a 5.4% reported decrease. Out of the €17,400,000 absolute decrease year on year, €13,000,000 has impacted the Plastics and Devices division, which posted total revenues of €164,600,000 in Q1 2017. Overall, reported revenues within this division decreased by 7.3%, and the organic decrease was 9%. As mentioned previously, a portion of the revenue decrease is attributable to a lower contribution from the tooling business in Q1 2017 compared to last year. These revenues are booked following certain stages of project completion and as such can be lumpy on a quarterly basis. Overall, we will have a total for the year, which is at minimum in line with 2016. Additionally, lower demand stemming from some of our large pharma customers for which we act as simple source supplier has also driven part of the revenue decrease within plastics and devices year on year. Regarding the Primer Packaging Glass division, revenues went down on a reported basis by 2.9% versus and went down on a reported basis by 2.9% versus Q1 20 60. The organic decrease was 2.5%. Most of the decrease was observed in the molded glass roof business and within that, essentially in the U. S. Let me summarize. The general cautionness observed amongst our customers in translating into less orders has also impacted the performance of both divisions. This has translated into more subdued demand coming from some of our large pharma customers. Moving on to adjusted EBITDA. Adjusted EBITDA for the group was €59,900,000 in Q1 2017, which represents a €3,600,000 decrease compared to Q1 20 60. The decrease is roughly equally divided within plastics and devices as well as primary packaging glass. As a whole, adjusted EBITDA margin for the group remained stable year on year at 19.8 percent despite the decrease in revenues. This is a function of revenue mix as well as a result from the action undertaken by group in the quarter to adapt our operational profile. Let's start with Plastics and Devices. Adjusted EBITDA margin was 24.5 percent in Q1 2017 versus the 23.7% in Q1 2016. This translates into an improvement of 80 basis points year on year, which essentially results from the reduced portion of the lower margin tool revenues in comparison to the same period last year. On top, while lower demand had an impact on the revenues generated with our systems businesses, we were also able to trigger our price escalation clauses, which foresee a higher price unit price in case of lower volumes. This is one of the measures that helped support the margin stabilization in Q1. Within Primary Packaging Glass, adjusted EBITDA margin decreased from 18.3% in Q1 2016 to 70.5% in Q1 2017. This is partly attributable to the decrease in revenues, but also to the incremental OpEx recorded in the quarter on the back of our furnace repair. As you know, as furnace repairs consume essentially CapEx, there's a certain amount of costs associated to this as well, which has thus impacted the profitability on the motor class business in Q1. Conversely, it is also worth noticing that the adjusted EBITDA margin for the whole converging business improved year on year, a proof point of the development of our machine strategy and its benefits. More generally, as already mentioned by Uwe, we have reacted early on the anticipated lower demand from some of our large pharma customers and consequently extended planned holidays during the Q1 of this year. Let us move to other profit and loss items on the next slide. On Slide 9, you make sure to make sure we can compare apples with apples, we are comparing the reported Q1 2017 results with those of Q1 2016 for continued operations only as both exclude the results from Life Science Research, which, as said earlier, have been treated as discontinued operations for full year 2016 and subsequently for each quarter of 2016. With that in mind, we can see that the year on year comparison at adjusted EBITDA level and flowing through to adjusted net income after non controlling interest is basically impacted by lower sales and the extra OpEx costs linked to the furnace repair in Q1 2017. As you can see, year on year variation at adjusted EBITDA level was negative €3,600,000 and a negative €3,500,000 at the level of results before income taxes. The profit and loss positions outlined in the table are pretty comparable year on year, and items such as amortization of fair value adjustments should be pretty well known to all of you as these are mostly attributable to Centa, whilst the amortization related to prior acquisitions tend to decrease. Tax was at €6,400,000 in the quarter, and as such, net income amounted to €13,300,000 down €2,900,000 as compared to last year. The tax rate was 32.6% compared to 30.2% a year ago. The adjusted net income after non controlling interest was €18,700,000 in Q1 2017 compared to €22,700,000 in Q1 2016 and corresponded to a decrease of €4,000,000 The increase in the year on year variation between net income and net income after non controlling interest was mostly led by the fact that higher one offs, including amortization and tax effects, were recorded in Q1 twenty sixteen than in Q1 2017, that is €7,100,000 versus €5,900,000 Diar one off recorded in Q1 2016 has to be seen in conjunction with tail off effects from the sale of the Tubing business and higher portfolio optimization expense. It is worth noting that post Life Science research disposal, noncontrolling interest remained more or less stable year on year. As a consequence of the various P and L effects just mentioned here, adjusted earnings per share after noncontrolling interest amounted to EUR0.60 compared to EUR0.72 in Q1 20 16. Please move with me to Slide 10 to review selected balance sheet and cash items. Looking first at the equity portion of our balance sheet. We know that an increase of 3.5 percent from total equity from €763,300,000 at the end of full year 2016 compared to €789,800,000 as of February 28, 2017. This increase results on the one hand, from the positive group income record for the period under review as well as, on the other hand, from positive currency effects. As a whole, the equity ratio increased from 32.1% at the end of full year 2016 to 33.3% at the end of Q1 20 in net working capital is in line with increases generally recorded in the Q1 of our financial year and results here in Q1 20 17 mostly from the decrease in accounts payable as other variation have been more or less net. Measured in average, the average net working capital and percentage of the last 12 months revenues was 16.1% compared to 15.8% at the end of last year and is in line with the expectations set out for 2018. Operating cash flow decreased from €29,200,000 to €24,500,000 year on year, a trend that is fully explained by the lower adjusted EBITDA contribution on the one hand and by the continued investment in CapEx on the other hand. These figures exclude Life Science Research by the way and are overall solid for the quarter. In absolute terms and including Life Science Research for Q1 2016, CapEx amounted to €15,100,000 in Q1 2017 compared to €13,500,000 in Q1 twenty sixteen. The increase is essentially explained by the investments made in Q1 twenty seventeen relating to the launch of our GX RTF whilst mentioned by Uwe and the use of relevant licenses for it. This increase in absolute terms, coupled with a decrease in revenues year on year, explains a slight increase of the CapEx to sales ratio. As mentioned before, despite the decrease in operating cash flow and the fact that we had also to pay the cash taxes corresponding to the sale of our portion of the life science research business of approximately €40,000,000 Net debt remained more or less unchanged compared to the end of last year, and leverage remained stable at 2.6x. This would conclude my first revenue of the financials for the quarter, and I'm handing over back to Uwe for the conclusion. Thanks, Rainer. Moving on to Slide 12. On this slide, the main message is a reiteration of what we have told you in February. We are confirming our targets for the year. For our revenue target, we are currently starting at the lower end of the range, namely EUR 1,015,000,000 We expect phasing of the group revenues to be more weighted towards the second half of the year. All the other remaining objectives remain unchanged in their ranges as we are working on all existing levers to ensure earnings growth, amongst others. This means that we are more optimistic with regards to the adjusted EBITDA guidance because changes in our cost and operating structure implemented in the preceding years have enabled us to respond to change in customer ordering patterns in a timely fashion and with cost effective implementation. We are also confirming our CapEx objectives for the year as we continue to allocate more than half of our CapEx spend on growth projects. The following slide outlines our midterm targets for the sake of comprehensiveness, and as you can see, it remains as before. Here, there are simply no changes as we reconfirm our midterm objective. I know and we have heard from our interaction with investors and analysts several times that the revenues outlook looks ambitious, and it is. But there are still market segments where we have substantial opportunity to improve our revenue base. And this is what we need to implement consistently step by step like the GEDIC solution or the new product offerings for the specialty and biotech market. So a few words of conclusion from my end before we move to Q and A. First of all, I want to reiterate the fact that we are not much surprised by what we are seeing in the market And as we understand, the relatively cautiousness from some of our clients regarding the impact of the political change in the U. S. Or just regarding their forecast on volumes of certain medications itself. I also want to point out again that whilst we are linked to the growth patterns of our clients from a volume perspective, we are also evolving in an industry with strong supportive fundamentals for the growth in the mid- to long term. This remains unchanged. As such, our focus is to navigate this short term softness whilst continuing to focus on what has become our mantra over the past years, that is quality, reliability and discipline. On that angle, having a client centric approach remains critical. As mentioned, from an operational standpoint, we are proactively managing the organization and its processes to allow operational flexibility, which should be visible in our profitability also for this year. Ultimately, we remain committed to execute a consistent long term strategy with growing results as an aim. From a pragmatic standpoint, we should have a better view on the year as a whole during the next earnings release. I would be happy to take your questions now. Thank you very much. So we are now going to enter into our Q and A session, and the line should be now open for any question you might have. I think we're going to pause a little bit for questions, so to enable everybody to ask questions, and we're going to start. So we're going to take the first questions from Falko Friedrich from Deutsche Bank. Mr. Friedrich, your line is open. You can ask your question. Paco, maybe you're on mute. So I think we're going to try we're going to potentially move the we're going to wait until Falco maybe the possibility to ask the questions. And the next question is going to be from Daniel Van Dorff. Questions. And one with regards to tooling revenues, how should we think about Q2 given that you expect for the full year at least stable, if not, including revenues even being up? Any color there would be helpful. And the second question is really 3 small questions on Geek Solutions. Is that correct that you now also offer like full pre fillable plastic syringes in that new business group? How important could the exclusion become for Verusma over 2 to 3 years? Any more color there would be helpful. And can you potentially also talk about the production network for the exclusions? I assume you would use your sites in Grundy and Khorsofsky, Trim for that. Maybe I'm wrong. Any more color there would be helpful too. Thank you. Yes. Thanks for the question. I'll start with the JX Solution. JX Solution is going to be a separate unit that basically is under the responsibility from Andreas Schuette, but it comprehensively captures all of our product offering for the specialty and biotech market. This includes and that answers one of your questions as well, ready to fill plastic syringes that we are offering, but it will also include, for example, ready to fill wires or ready to fill cartridges from plastics and glass in various value proposition forms that could come out of our joint venture with Corning. They could come out of our existing plans and our various structures as well. So from the standpoint of the organization, you basically have to look at a market centric organization with product development, business development and sales as one unit. The center for the product development will be tightly linked to technical competence center in Germany for glass and plastics. And the manufacturing side will be utilized as they are because we don't want to give up any of the operational efficiencies we have right now, which means, of course bunde for syringes, which means vials in any of the plants we make vials for that specific product as well as plastic product or injectors out of the plastic and device. So basically, what we want to do is bundle our product offering through 1 organization that basically combines commercial aspects, product development aspects and business development aspects out of one hand, particularly for those customers that need that I need of greater help and support on those type of products. And I think over the next year, this will become a pretty important part of Gerhardheimer. In this industry, nothing moves fast. But I think you know that we that this step was extremely necessary and is going to be very important for the future. Okay. So tool revenues, you know we are not giving quarterly guidance on specific areas, but I know where your question comes from because last year Q2 was pretty weak. You shouldn't assume that we take back everything in the 2 revenues in the Q2. So it will be also pretty weak too. So the tool revenues will come back in the second half of the year. And as already mentioned, Here, we are pretty sure because we know how the order pattern is in that case. So overall, we know that the revenues will be on the same level for the whole year and can be even a little bit higher for the whole year. So we're not afraid of that, but we know that Q2 is also not a very strong tool area. Okay. Thank you. That's helpful. So we're going to try again Falco Frides. Hello. Can you hear me now? Perfect. Okay, great. Must have been something wrong with my headset. So hey, everyone. Thanks for taking my questions. 3, if I may. The first one would be on your Plastics and Devices division. Could you give us a better feeling for how much of the decline in Q1 was driven by the tooling revenues, the lower ones and how much was caused by the cautious order pattern of your pharma clients? And then secondly, we understand it's still early, but could you give us a first indication how you see the cautious order pattern of your pharma clients evolve in Q2? So do you expect a similar low level of demand in Q2 as well? And then thirdly, you mentioned those flexible operating models that you're using in a number of plants. Could you give a bit more color on those and what it entails? Specifically, how quickly could you temporarily shut down production lines here? I'll start with the operating model. And that actually does not only apply to plastics and devices, it applies as well to our primary packaging glass division. On the plastics and devices, you might know that we have dedicated lines to a certain product. So if we are single source for a customer, that means generally that we have 1, 2 or 3 manufacturing lines in 1 or 2 plants servicing the customer. The operating model in this case is that we have pricing grids that depend on volume, which means that the customer basically compensates us for lower volumes with higher prices for those compared to utilizing the full line. And the way we basically do that is for those lines where we have multiple lines and in multiple sites, we obviously have a clear order on what lines to produce based on the cost position and the regulatory position we have with the client on those. We have much more flexibility for products that are not tailored to one customer and to one line. For example, I take the other opposite of the line, which is a comparable 2 ml standard glass vial. For example, I could as well take a plastic product for that where we have various plants. We have equal machines, similar identical machines in all the plans. And what we have what we are doing is basically we might reduce the operating pattern in one plan, generally the highest cost plan from 7 days maybe to 5 days, which would be we always try to go in certain steps so that we have a flexible flex out enough cost or we could go to 5 days, which would be extreme from 7 days. What we don't do is actually shut a line down in this plant, in that plant and another plant that would be very inefficient. And the way we can do that is that we have set up agreements with customer where products are qualified on multiple identical lines in multiple locations. That gives us the flexibility to run our cost by fairly quickly. And by the way, we did some of that already in Q1, even though in those in Q1, you have a lot of holidays where you actually can use those to shut down plans a day or 2 longer than you normally would do that if you are fully utilized. That's basically how it works. Once it is all implemented, it's not too difficult. So let me answer your question on the plastics and devices decline of SEK13 1,000,000. The majority is for sure the tool business, as you can see in the parts. And then we have majority means a single effect. For sure, we have different pharma companies, but in this case, it's not the U. S. As you know, we have, especially in the U. S. In plastics and devices, 2 areas, which is center as well as the inhaler business in PEACHTREE. This was very successful, especially the inhaler business taking up pretty well. We are not allowed to comment on customers, but in this case, as Ori said before, we are single source, so we had the advantage of a higher due to our price escalation clauses in that area, means we had a higher price with a lower volume. And that's the situation which we had to address there. Is that changing fast? Seriously, we don't know. We have to see how the order pattern looks like. And that's currently the situation. Many thanks. And in terms of Q2, so too early to say? We are not what we can say for the quarter that for sure, and you know that from a seasonality, but that's a given fact that normally our Q1 overall for the group is the weakest quarter of the year. And for sure, we assume that the Q2 will be better than the Q1. But if it's a €1,000,000 up or down compared to last year, that's too early to say. Okay, great. Thank you. So we're going to take the next question from Oliver Heinberg from Kepler Schutel. Yes, thanks for taking my question. Firstly, on the price escalation clauses, I was just wondering if you can provide a bit more clarity here. Is this multi tier? Or let me put it this way, is it quite often that you have to use these price escalation clauses? Or are there other exceptions? And can you provide any kind of color the order volumes? Is this measured on a monthly basis or half yearly basis? Any color here would be helpful. Secondly, I was wondering whether you can just digitally talk about your willingness to also do larger acquisitions, in particular, if you would be willing to also deploy meaningful capital towards an offering for Glassware in Europe or whether you focus for M and A is rather on the medical device side? 3rd question and last question. Can you just say a word on depreciations, excluding the fair value part? This was up obviously to 7.5 percent of sales. I guess this reflects obviously softer sales quarter. But if you can give us a guidance like by what percentage you would expect total depreciation in the full year to be up? Thanks. Yes. I'll start with the first question. I probably have to explain here a bit more. Number 1 is you need to keep in mind that other than in most industry, the pharma industry keeps the highest amount of inventory in their supply chain. There reports out that this can be up to 12 months easily meaning the entire supply chain. So the pharma industry obviously due to the fact that the worst thing for any pharma company is not having a product available when a patient is in need of a treatment is the worst absolute worst case scenario. So we are talking here about an industry that has a lot to work with in inventory and is very caution to the end client. At the end of the day, what we see here on the orders, 2 different basically, 2 different things. On single source customer where we have committed volumes basically and committed single installed capacity, Customers do not compete for those capacities. So they can be relatively flexible with their orders because we have price escalation and de escalation clauses based on their consumption. Within those customers, it is really normal if they exceed their forecasted volume that the price de escalation is advantageous and it could be the other way around. So far, I think particularly when you ramp up a product or at the end of the life cycle of a product, these are generally the phases where you see escalation or de escalation at a lower level or in times where there are uncertainties. It could be also the effect that a customer has an internal maintenance project that shuts the line down for 3 months that could affect it as well. So that is typical for the single use. For the lines where you manufacture a standard product, customers actually compete on the capacity, which means if you have a very high order pattern, your lead times go high when the lead times go high, customers tend to keep more inventory because they don't like lead times exceeding a certain level. So from that perspective, you basically need to differentiate on that. So the price escalation clause, obviously, or de escalation applies only to those that are dedicated to one line and have and in most cases actually co investors in the line. On everything else, I think it is pretty flexible and you can have orders out 2 weeks, you can have orders out 6 weeks. That is depends from customer to customer. For many customers, we get forecast, other customers, we get only For many customers, we get forecast. Other customers, we get only firm orders. So this is a whole bag of mixture. That's why I said initially, on the Primary Packaging Glass side, it is hard to say if it was just adjustments in their supply chain, if it is really cautiousness on what is as a result of cautiousness what is going to happen in the U. S. I have visited a lot of customers over the last 8 weeks. And quite frankly, I'm not that concerned about the development for this year on the U. S. Pharma market. Yes. To answer your depreciation question, I already said it at 15th February. We expect here a slightly increase to approximately 6.8% to 7% in 2018 from the 6.3% at the end of 2016. And therefore, you already have given the reason why the number was higher in the Q1 due to the lower revenues. That's the only reason because the depreciation can change quarter by quarter. So you can forecast that pretty precisely for the rest of the year. And your question based on M and A, for sure, as a company, we can comment on M and A rumors, and this also applies to the announced sales process of Premier and Evoqua. For sure, as you know that and you've seen that also in the past that M and A is definitely a component of our value creation strategy also in the last years when you, for instance, remember our Santa acquisition. And as mentioned in February, for sure, we are open to a number of options, including and at end of the year, not only acquisitions also, and that's what we also said several times now, that we also would expand our range of products or technologies, which is also very interesting for us. And if there is something if there is an opportunity in Europe, that also can be interesting, but like always depending on price or scope or whatever. And as you know, in general, for any related M and A methods, we are always carefully access antitrust considerations upfront very early in the process and also to avoid any surprises. And that's the reason for sure. When we would go in Europe, that's what we would do upfront. And if we would be in such a process for sure, we know that there is no risk for us. Right. And if there's an asset obviously that includes parts of the business that is actually not the focus of Gerasana, would you be willing to do the split up of it? You know that we are very, very straightforward. And we are not commenting on that thing, but for sure that we are out of bottles business or tableware isn't that for sure. Okay. Thanks very much. So we're going to take the next question from Jan Kepler from HSBC. Yes. Jan Kepler from HSBC. Thanks for taking my question. Two questions, please. The first is on your midterm guidance and here the organic revenue growth target of 4% to 5% on average for 2017 2018. I think, yes, the lower end of your current guidance for 2017 implies 2% organic growth. So that leaves 6% to 8% growth then for 2018, quite an acceleration. Yes, I think I tried again. Can you be a bit more specific actually what will drive that acceleration? You mentioned Gx solutions, also the inhalers. So I was wondering how much of extra growth is actually coming from that launches and how much has to be delivered by the existing business? And then the second question is again, sorry, on the U. S. Business, just for me to understand that a bit better. What is driving actually this weaker orders? Because I thought actually that, yes, the main uncertainty for pharma is rather on the pricing side currently, not so much on the volume side, which then would trigger kind of destocking effect or something like that. So maybe just a bit more color. Is it really that your customers are also a bit cautious on volume growth in the market for the next couple of quarters? Or are there any other topics currently which could explain destocking effects in the industry? I'll start with question 2, U. S. It is a difficult question. We as I said, I can only talk to existing customers. We see different reactions from different customers. We are in Primary Packaging, we are a market leader, and we see basically 2 things. We see basically no changes on what I call specialty type of products, specialty type of products that go into specialty market, higher value products in North America has been pretty good. So what I have seen is I have seen that in the standard products for this quarter only. And as I said originally, we are not really sure what is causing it for the moment. Could it could be that we have been hit extraordinary because of our customer mix being in the market either particularly with some higher volume customers. But I still see, when I look at the order pattern, generally a more short term oriented reaction in the market. So therefore, I think we will see over the next month how that develops. I still think that the overall mood in the market in North America is still concerned about consistency of a political agenda that could potentially affect the pharmaceutical industry. I would agree with you that the main concern is price for high priced type of products. But you know that more than 80% of the prescriptions filled are generics. And those generics depend basically on how those prescriptions are funded by insurance and that is where Obamacare and potential changes on Obamacare could make an impact. And here the good news, as I said, is it is still in place, which, from my perspective, makes the second half of the year look much better from that perspective, even though that I don't know and probably nobody knows what the administration plans to do next with the health care reform. But eliminating support for a larger number of people could have a potential effect. I have said that before. I hope it's not happening. But we will see and that could also affect those type of customers. On the midterm guidance, yes, the math is right. The lower we end up this year, the more difficult it is to achieve the 4% to 5% for 2018. That is absolutely correct. I think there's no discussion. What I personally think is needs to drive it is basically our overall business needs to be robust. That means we need in our, what I call, bread and butter business, which is our primary packaging business, we need a solid growth, which we haven't seen definitely in this quarter. Since the market fundamentals from my perspective have not changed, I really see that as a temporary softness where that comes back. What has to come on top to achieve that is definitely more traction on what I call the specialty pharma and biotech side that offering the new products that we have, whether it's a ready to fill product. Here, I would not expect significant revenues anywhere before 2018. It's very similar with our plastic syringe business, with some of our new needle free or tungsten free big on silicon glass syringes with the tariffs that see a lot of interest in the market. But here time to market to volume with the development takes time, but I see a great potential. I see very good potential on the inhaler business in the United States. So I think there are a lot of things. I see China picking up. I see Brazil picking up. So when I look at the softness right now, I would say that I still see enough areas that could develop very, very well for Gerasheimer within the next 18 months to bring us back on the growth perspective. And don't forget that this quarter, we had on the Cosmetics, the Furnace Repair, we still posted a growth. The Cosmetics business continues to develop solidly and with the mathematics. But when I look at the underlying business and the actions that we have taken, I feel pretty good about the future. Great. Thanks for that color. Thank you very much. We're going to post maybe once again, if anybody has follow-up questions, to press 9 star. And if not, we'll be concluding the call. It looks like nobody else has any further questions. So with that, we would like to thank you for joining us today. And if there are any follow-up questions, do not hesitate to call us. And our next quarter results will be for July 13. Thank you very much.