Earnings Call: Q4 2016

Feb 15, 2017

Ladies and gentlemen, welcome to the conference call regarding the publication of Gareseimer AG's Annual Results 2016. At the moment, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Let me now hand over to Ms. Severine Compe, Corporate Senior Director, Investor Relations at Gareseimer AG. Hi, good afternoon, everyone. First of all, apologies for the slight delay in starting. We had more technical issues with our phone line. And thank you for joining us on this call to review our results. With me today are Ove Roycroft, our CEO and Rainer Beaujon, CFO. As we did in the past, we are presenting a set of slides to a couple of remarks on the conference call. And the annual report, the presentation and the press release are as well posted on our Investor Relations website. Please note also that the call is being web cast live and will be archived on our website. And before we start, there is the usual reminder about our disclaimer. So all this presentation and discussions are conducted subject to the disclaimer. We will not read the disclaimer, but we propose to take it as read into the records for the purpose of this conference call. And having said that, now I would like to hand over to Uwe. Thank you, Severin, and many thanks for attending our fiscal year 2016 presentation here in Dusseldorf and a warm welcome to those of you listening on the webcast as well. As you might have noticed, the title of this presentation of our annual report is on the right track. And overall, our fiscal year 2016 performance is a strong proof point of the solid progress we have made on our strategic operational and financial journey. First of all, we have continued to deliver profitable growth. On a reported basis, revenues were up 7.2% year on year at €1,375,000,000 which on a FX neutral basis corresponds to €1,383,000,000 or a 2.9% organic growth. This revenue base, combined with the reported adjusted EBITDA in the amount of €307,800,000 for 20.16 translate into an adjusted EBITDA margin of 22 4% or 190 basis points margin expansion. The improvement is led by the change in our portfolio of the recent years and by our continuous focus on productivity and efficiency within our organization. We achieved an adjusted EBITDA an adjusted EPS after non controlling interest of €4.22 which is another record in the Group's history. Secondly, the business generated in 2016 strong operating cash flow. And of course, we are pleased to propose at the upcoming AGM a dividend per share of €1.05 This is an increase of 23.5% compared to previous year. Last but not least, we have in the past year further refined our business model with the sale of our Life Science Research business, strengthening business fundamentals by expanding our product offering and driving further improvement in operational efficiency and the quality of our products. We are entering 2017 with a stronger basis. Now let me address here our key financial highlights. Before going into the details, let me remind you that our as per IFRS. Rainer will later cover all accounting details, which seem to be pretty complex. We have achieved our full year's guidance. Our guidance updated from the sale of Life Science Research comprised 4 elements and for each of them, we have delivered in line or even slightly ahead of the range. Our revenue guidance was €1,400,000,000 on a neutral currency basis, excluding Life Science Research and with an upward or downward range of €25,000,000 Against this target, we posted revenues of €1,383,000,000 on a currency neutral basis, coming in closer to the lower end of the guidance. Following the same logic, our adjusted EBITDA guidance was €500,000 plusminus €10,000,000 year again on a currency neutral basis. Our company delivered €311,300,000 for fiscal year 2016. That again is at the higher end of the range. Additional metrics for the year were our CapEx to sales ratio and average net working capital in percentage of sales, both at constant currencies. And we also were very satisfied with the numbers we have here, excluding Life Science Research, CapEx to sales ratio was 8.2%, in line with our target of 8%. With regard to average net working capital without life science research, we are at 15.8% of sales, so far ahead of the stated objective of 17%. These numbers contribute to the encouraging progress against our midterm objectives across all metrics. Our operating cash flow margin is at 14.3%. On leverage, we are at 2.6 times, so very close to the 2.5 times, which we estimated as the right leverage level ongoing concern basis. And if I look at the ROCE, we are 12.6%. Slide 6, key message here are essentially the following. Our asset base represents now 100% of our core business we feel that our asset profile is well set up to support our strategy. The portfolio development undergone in the past years also contributes to a more balanced portfolio of activities and greater revenue diversification, which underpins the resilience of our business. Overall, we generated 83 12% with our cosmetic clients. Our exposure to the Americas is now at 26%, including center and revenue contribution from the emerging markets is at 15% in fiscal year 2016. A few words on emerging markets. These markets are and remain very important for us and for our customers since they continue to be the main volume driver going forward. Over 2016, we have continued to observe more volatility in these markets and as a whole and more specifically in China where market growth was muted. Nonetheless, we continue to focus on these regions such as Brazil, Slide 7. So how do the full year 2016 results fit into the trajectory of the group's after non controlling interest CAGR over the past 5 years. After non controlling interest CAGR over the past 5 years. The figures on the slides are provided excluding Life Science Research for the entire period as illustrative purpose and to ease future comparison references. Through a combination of organic growth, productivity gains, accretive M and A and divestitures, we have been able to deliver superior earning growth. Over the 5 year period, 2011 to 2016 and excluding Life Science Research for all periods, revenue CAGR was 6.4%, adjusted EBITDA CAGR 8.3% and adjusted EPS CAGR 11.2%. This demonstrates solid revenue increases over the past 5 years despite annual fluctuations, which are outpaced by superior profitability and earnings growth. This shows as well for us both M and A and organic expansion are pillars of our growth and earnings enhancement. While we pursue this profitable growth strategy, we remain very disciplined and it will not come at any price. Patient safety and quality delivery are our utmost priorities. I would like to take a few minutes to share with you some examples of the progress we made and projects we worked on in 2016 on Slide number 8. Let me start with our client priorities. This results in a restless focus on quality improvements, a work ethic and objectives that we share with our customers. And requirements to improve quality are constantly rising with 0 defect products in mind. As part of our capital expenditures in the last year, we have continued to enhance our production and inspection processes across all product lines. We invested into new machines, quality and inspection equipment for delivering best in class quality combined with changing our quality culture towards 0 defect approach. Regarding industrial efficiency, we are not short of examples in 2016. After successful implementation in North America in the last years, we have continued to roll out our wire machine strategy in converting to Europe and Asia. Our inhaler project in the U. S. Has ramped up accordingly to plan, which supports our ability to support our plastic and device customers for large scale projects in the United States. And last but not least, we have accomplished a major furnace overhaul and extension in our cosmetics plant, TETTAU in Germany in record times, hereby upgrading our production standards and providing capacity for future growth. So this hopefully provides some color on some of our operational achievements in 2016. Let me now also provide some more context on some of our recent product launches. On Slide 9, you see 3 main examples of innovative solutions for our pharma customers. In 2016, we have started the initial first sample production of our Clearjack COP syringe. The fillable cyclic olefin polymer syringes are gaining importance for administering high viscous products like hyaluronic acids, contrast media and very sensitive biotech drugs Via collaboration with the Japanese company, Tazaikako, we have successfully established Clear Check as one the leading COP syringe brands in Europe and the Americas. We have now developed our own technical samples that we are actively marketing now. Next to this and with the same endeavor to further improve quality, we do find the whole family of GX Elite Glass products. These products are made of Type 1 borosilicate glass. They were developed to meet increasingly stringent requirements of pharmaceutical customers. Their features are considerably higher break resistance on the fitting line and during improved delamination resistance. The switch to Welite glass does not require refiling of our customers, a strong rationale for our value proposition. Moving on to Primary Plastic Packaging, we wanted to also talk about an interesting product launch, namely our Biopag. This is Geras Heimer's first eco friendly plastic container for pharmaceutical and cosmetic applications. It makes an excellent substitute for traditional PE and PET because it has the same properties, but it is completely recyclable. With one of our most noticeable trends within the cosmetic industry being greater brand and product identity, need for the state of the art molding design support and decoration processes become even more critical in cosmetics. We launched last year over 100 innovative products, which are designed to support our specific customer requirements in terms of design declarations and production deadlines. This will conclude my review of the year. And before I share with you some thoughts about the future, I'm now handing over to Rainer for the financials. Many thanks, Uwe. Good morning and afternoon to everybody from my side as well. So let us start with the full year 2016 top line revenue. As mentioned earlier, on a reported basis, revenues grew by 7.2 percent to €1,375,000,000 This increase is mostly driven by Plastics and Devices and within that by the first time consolidation on a full year basis of Center, which was only recorded for 1 quarter in full year 2015. On an organic basis, revenues were up 2.9 percent year on year. On balance, the experienced currency headwinds in full year 2016 as a positive translation effect driven by the appreciation of the U. S. Dollar versus the euro was compensated by adverse currency movements linked to the depreciation of a number of currencies, in particular South American ones. Looking now at the division. Plastics and Devices grew by 18.6% on a reported basis, here again mainly driven by the Center consolidation. On an organic basis, the division posted an increase of 3 percent year on year, which is essentially driven by, 1st of all, a good overall performance within our Medical Plastic Systems, in particular, a strong increase in inhaler sales, tooling revenues slightly above last year level and overall solid performance within our plastic packaging business, including Center. We are very satisfied with Center performance in 20 16, where we reached our initial business plan assumptions. As I mentioned during the Q3 conference call, we indeed, as expected, at a more normalized Q4 2016 compared to weaker Q4 2015. On a year on year basis, reported revenues within our Primary Packaging Glass division were down by 6.2%, which is mainly driven by the sale of our Tubing business in November 2015 and the closure of our Millville plant in Q3 2015. On an organic growth, however, revenues were up 2.7%, a result which underpins our good performance within our glass converting business, particular in the U. S. Our molded glass business also grew slightly on an organic basis and cosmetic sales were encouraging. So all in all, a good finish to the year and full year top line outcome in line with expectations. Looking now on adjusted EBITDA slide. We are very pleased with the progress seen over full year 2016. The reported group's adjusted EBITDA was €307,800,000 in full year 2016 compared with €262,600,000 in full year 2015. Currency neutral, our adjusted EBITDA increased to €311,000,000 which is the higher end of our guidance. As a percentage of sales, adjusted EBITDA margin was 22.4%, so basically roughly an increase of 2 percentage points year on year. As mentioned by Uwe, this improvement is in part, of course, driven by a change in our portfolio, but also stemming from our own initiatives towards more efficiency and productivity. If we look now in more details into the division, several drivers played a role. Within Plastics and Devices, margin expanded by 4.7 percentage points to 26.6%. This again is a large part driven by the accretive effect from the first time consolidation of Centa on a full year basis. But it should be noted as well that from a more organic standpoint, we could see further contribution from other levers such as customer mix and productivity improvements, in particular within medical plastic systems and syringes where we could increase our margin year on year. Within our Primary Packaging Glass division, the decrease in margin of 1.7 percentage points is attributable to change in parameter effects, namely the sale of our Tubing business at the end of 2015. Organically, margins were increased both in the molded as well as in the tubular glass business with the North America converting business showing the steepest increase. On Slide 13, we have tried to outline at a high level the factors which are key margin levers in our business and equally important, how we manage these levers against external influence. In essence, we see 5 main levers namely cost inflation, pricing, mix, volumes and productivity. If we look at cost inflation, which in general is a negative lever, there are 2 distinctive elements to take into consideration. Labor costs on the one hand are definitely rising every year with a magnitude dependent on geographies. This is largely a fact we need to monitor and take as is for our business plan. Regarding energy and raw material costs on the other hand, here we have some mitigation mechanism through our pass through clauses in plastics and devices. Now looking at pricing, I often I very often get the question about pricing pressures from clients and how it impacts us. And my view is that actually I see pricing primarily as a function of volume. And from that angle, I'm hoping to consider pricing decrease in exchange of higher set of volumes for given products. As we are repeatedly saying, we are a volume producer and for us it is all about increasing our contribution margin. And then basically, there are 3 main levers, which we are working on to protect in those margins. The first one is mix, that is product and customer mix. Here the key focus is on our mix management and the ability to deliver higher value products, e. G. For the Biotech market. 2nd is a very logical one, volume. Higher volume has a direct impact on operational leverage. And lastly, what I would call self help potential, that is basically all the productivity measures that we can drive within the organization. This is applicable on all levels. That is labor deployment, machines productivity and more generally achieving the highest possible yields. With that in mind, I just want to point out that whilst volume growth remains a very important driver for our margin, there are indeed other levers that we are managing in order to further protect and expand our profitability. So when looking at Slide 13, it is important to keep 2 main elements in mind to comparable fiscal years. First, that all income and expenses relating to both the Life Science Research performance and full year 2015 as well as the net gain derived from the sale in full year 2016 are now reported in the profit and loss as net income from discontinued operations. This is the amount of 60 €3,700,000 shown here under the net income from discontinued operations, including book gain from the disposal of Life Science Retail of €74,300,000 Related project costs and tax expenses amounted respectively to 4 point €4,000,000 13,800,000 as well as the corresponding results from the Life Science Resource operation for the 1st 11 months of 2016, which were approximately €7,600,000 2nd, that for full year 2015, however, our Tubing business was sold at the end of the year and was not accounted for as a discontinued operation. As such, we recorded a positive one off income from the disposal of the Glass Tubing business in the amount of €52,200,000 above the EBIT line in full year 20 50. One way of that in mind, this explains why at EBIT and net income from continuing operation levels, the figures are almost stable. And as such, it does not provide really fair comparison basis for both years. Once we have cleared that, let's review the other relevant P and L items from this chart. Overall, depreciation remained fairly stable year on year. One off items, in this case for continued operations for full year 2016, were fairly limited in the amount of €3,800,000 for the year. Regarding the amount of €36,600,000 in amortization of fair value adjustments, there are actually 2 opposite effects playing a role this year. On the one hand, we noticed significant increase linked to the full year impact coming from the fair value Net interest, finance expenses were approximately €1,000,000 lower year on year at €33,500,000 At 28.9 percent, the income tax rate for full year 2016 was in line with our general applicable tax rate of 29%. And I've already touched upon the net income from discontinued operations in full year 2016. So all in all, we were able to increase our net income by almost 50% year on year. So let me now reconcile for you the net income to adjusted net income with a focus on adjusted net income after non controlling interest because this is the basis for our dividend payment. Reconciliation can be described pretty quickly. I already explained the one off effects, which in this table also includes the pretax book gain from the disposal of Life Science Research and the related project costs, all in all, EUR 66,100,000. I also touched on the fair value effect early on. Rest of one off effects are pretty insignificant in comparison. As a result, the adjusted net income was up by 21 €300,000 and amounted to €139,000,000 We need then to subtract in full year 2016 an amount €66,400,000 of non controlling interest and land by an adjusted net income post controlling non controlling interest of 100 and 2,600,000 up 23.8 percent or €25,600,000 year on year. As a result, there is a strong increase in adjusted earnings per share after non controlling interest from €3.41 to €4.22 As you know, our dividend policy is to distribute 20% to 30% of the adjusted net income after non controlling interest. At 1.0 €5 per share as proposed dividend, this was correspond to a bit less than a 25% payout. Please have in mind that the adjusted earnings per share after non controlling interest of €4.22 includes the earnings from Life Science Research in 2016. Excluding Life Science Research, as a comparison basis for next year, the equivalent adjusted earnings per share after non controlling interest for full year 2016 would be €4.07 Before we start Slide 16, I want to draw your attention on the Life Science Research impact. In our balance sheet, Life Science Research assets are not included in the full year 2016. Our cash flow statement includes the Life results fully until the closing of the transaction. This is important to bear this account methodology after IFRS 5 in mind when reviewing performance metrics that pertain to balance sheet or cash flow items in relation to sales such as operating cash flow margin or return on capital employed. If we start by looking at our balance sheet, group equity was up 9.3% to 763 point €3,000,000 and the group equity ratio now stands at 32.1%. This increase mostly attributable on the positive development of the Group net income. On the cash side, excluding Life Science Research, the average net working capital in percentage of sales was noticeable under previous year level, namely 15.8%. This lower rate is on the one hand linked to the sale of the Tubing business at the end of 20 15 and sent up full year consolidation as well as our internal ongoing improvement regarding net working capital management. It should be noted that the level of working capital within Life Science Research has been historically high due to the nature of the business. Cash flow from operating activities decreased by 14.9% year on year, whilst operating cash flow increased by 11.5% for the same period under revenue. The main reason, as you might remember, for the decrease in the cash flow of operating activities is linked to a higher amount of cash taxes paid in 2016 and more precisely in Q1 on the past year. The increase in cash taxes in Q1 was based of sale of the Tubing business at the end of full year 2015 and the amount in Q1 2016 was approximately €45,000,000 Operating cash flow was strong as a consequence of increased EBITDA and disciplined CapEx investments in full year 2016. Resulting operating cash flow margin was 14.3%. Finally looking at the CapEx figures, nothing surprising here, all in line with our expectation, a consequence of the portfolio readjustment we have undertaken over the past years and now reflective of an asset light model. So overall, very good progress in terms of cash metrics against our midterm objective. In full year 2016, we were not able to decrease our net debt levels by €89,300,000 but we have also made considerable progress on getting very close to our targeted leverage profile of 2 point 5 times. First on net debt. As of November 30, 2016, net debt amounts to 788 $8,000,000 compared to $878,000,000 in the prior fiscal year. The decrease is led by a combination of increased adjusted EBITDA and improved cash generation. The table on the right hand side of the chart provides you with a breakdown of our net debt as of November 30, 2016. On the leverage, as mentioned, we landed at 2.6 times at year end as a function of improved EBITDA and lower net debt. Just as a reminder, leverage was 2.9 times at the beginning of the year. At 2.6x, we are closer and this is by almost 1 year of our target leverage profile of 2.5x. We have the view that 2.5x is a good target for a growing like ours, and we definitely see ourselves with an investment grade profile. Having said that, we also would like to mention the fact that potential M and A activities might have a short term impact on leverage and we are comfortable with it. This will now conclude my review of full year 2016, and I'm now pleased to hand the mic over to Uwe, who will share with you some thoughts about how we go about seventeen-nineteen. Thanks, Rainer, for explaining those complicated bookkeeping activities. I'm not really sure that I have as always have to better understand the numbers. So maybe instead, we talk a few minutes about how we see the market and the environment. And we continue to evolve within an environment, which is on the one hand, driven by long term growth drivers, such Pharma and Healthcare Industry supported by specific megatrends. All these factors have different dynamics and implications for our business. Let me take three examples. 1st, globalization and population increase. According to IMS, the total volume of medicines consumed globally will increase by about 3% annually for the period 2016 to 2020 In that frame time frame, volume growth in the farm emerging market is expected to be around 4 percent, slowing down from an average of 7% over the past 5 years. This underlines once again the weight of the farm emerging countries as the emerging countries as the main driver for volume growth. Overall, volume growth continues to be driven by non original products that account for 91% of volume in far emerging markets. 2nd, the rise of chronic diseases. For example, IMS expects diabetes spending to be higher at an average of 8 percent to 11% over the next 5 years. In the case of diabetes, the treatments will focus on more convenient formulations, combinations and delivery systems, which will include among others long acting medications. For the same time frame by the way, respiratory spending CAGR is expected to be between 2% 5% over the next 5 years. 3rd, New Medicines. Market entries in 2016, there were 2,240 drugs, which are in late strategy development Phase 2 registers and a great deal of these being driven by specialty pharma or biotech. Year of global spending for specialty pharma will continue to rise from less than 20% 10 years ago to 30% in 2016 and 35% in 2021. Moving on to Slide 20, this demonstrates pretty much our leading anchor value position is that we offer choices, choices of materials, choices of technologies and end products. As we are set up to work together with our clients in order to develop the best suitable solution their product and their marketing roadmap. Slide 21. To better identify the needs of our customers, we rely on a targeted marketing approach. What does that mean? 1st, and going back to the megatrends, this means we are not serving a uniform customer base, but recognize that within our pharma and Care addressable markets, we have different audiences. Large Pharma Companies with a broad product portfolio and regional presence, generic companies in demand of standardized and cost effective solutions and biotech companies that need tailored packaging and drug delivery solutions for complex drugs. So for us, it is critical to continue to segment according to our customer landscape. All of them want quality and market access. Quality means 0 defect expectations from every product that we deliver and 100% security of supply to be from our capacity or supply chain standpoint. Market access means that our customer want to work with suppliers that support them in the expansion roadmap in a timely fashion. Our customers expect agility in the product and solution offering we display. This is particularly the case for the biotech customers. For us, it's not about launching the new mega product for a particular customer or a particular disease, but to be able to offer the largest range of packaging and drug delivery solutions. We have leading positions in a number of segments and want to continue to be as tailored as possible to our customer needs. Here, we are building a team internally, which will exclusively address the specialty pharma and biotech markets that is a new setup for us. We have the products, the production know how and the regulatory expertise. It's all about building it in the right way. From pharma vials to ready to fill syringes or injection devices, we are able to offer complete solutions for given medication and to differentiate ourselves from competition. We master large scale or small batch production processes. And we feel very strongly about regulatory know how and drug filling expertise as far as part of our solution offering. This approach is essential because it means that our execution strategy is twofold. We remain global volume producer and need to further expand where we expect growth. And we need to further improve our value proposition and offer, for example, more agility towards biotech and specialty pharma companies. I have touched on most aspects of the operational framework. Organically, this means continue to delineate the right customer proposition, drive quality and product innovation and achieve best in class operating In this respect, we would in particular look at acquisitions that would either support our regional expansion or help us acquiring adjacent products or technologies that complete our system offering. As always within our industry, we are talking about long term trends. So the result of these ongoing initiatives will pan out in the mid- to long term. So let me now address our full year 2017 guidance and our longer term objectives. Slide 23. First of all, our starting base for building our guidance is the reported 2016 set of numbers as you can see in the first column. From there on, we apply a fixed set of currency assumptions and provide you for most metrics with expected targets on a neutral currency basis. For information, our U. S. Dollar euro assumption at the time of budget planning was €1 equaling 1 point $10. In terms of revenues, we expect a currency neutral revenue in the amount of 1,430,000,000 euros plusminus €25,000,000 Based on the visibility we have so far in Q1, we are starting the year at the lower end of the range. We realize Geva Simon's revenue objective is also dependent on a number of external factors such as macroeconomic ones. We are also linked to our clients and their respective product success, and it is for us a more challenging element to predict given uncertainties that could impact the seasonality of the revenue stream, like for example, the U. S. Summer market. As such, we expect your 1/27 FEEL to be impacted by timing effects and sales to be lower year on year. Main drivers are 1 furnace repair this year that is actually happening right now during Q1. So only one furnace repair happening during Q1. Timing on tooling business, leading revenues to shift into subsequent quarters in 2017. And as I just mentioned, some cautiousness of our clients ahead of 2017. We have, of course, already adapted our cost structure to this, for example, by having planned shutdowns over the Christmas holidays. Regarding profitability, we expect adjusted EBITDA to come in at €320,000,000 in 20.17 with a range of plusminus €10,000,000 We are adding another element of the guidance for 2017, namely the EPS target. To be very precise, we are talking about adjusted EPS after non controlling interest, which forms the basis for our dividend policy. Our EPS after non controlling interest target underpins our financial ambition. Excluding Life Science Research, the starting point is an EPS after non controlling interest of €4.07 in 2016. For 2017, we are aiming at a range of €4.20 to €4.55 CapEx to sales guidance remains unchanged in 2017, namely 8%. On the next slide, we have as well outlined further indications with regard to additional objectives. We have set for ourselves for the longer term. We continue to strive for an organic revenue CAGR in the range of 4% to 5% for the period 2017 to 2018. We feel very comfortable with our ability to execute on profitability. As a result, we are slightly lifting our expectation in terms of adjusted EBITDA margin for 2018, namely of around 23% versus over 22% previously. The same applies to cash management. And we are aiming for an average net working capital target in percentage of sales at 16% by full year 2018 versus 17% previously. With regards to the other longer term metrics outlined on this chart, operating cash flow margin and return on capital employed objectives remain unchanged at respectively over 13% for operating cash flow and 12% for return on capital employed. So before taking your questions, let me briefly We are coming out of 2016 with leaner and more efficient asset base and a sharpened focus on our operational and commercial roadmaps. Additionally, we have done as we have done in the past, everything that we do obeys to rigorous financial criteria, both regarding organic and inorganic considerations. So from my end, whilst of course a lot remains to be done and delivered, I strongly feel that we are on the right track to execute on our strategic priorities and with that further deliver value for all stakeholders. Thank you. So we're going to now enter our Q and A session, and we're going to start by taking questions from the room. And for all of those listening to the call, the lines are also open for any questions. And you just need to press 9 star Sven Koen from DZ Bank. I have two questions. First one is on the U. S. Business. The question is if you received them, again, some clarity in the recent weeks, what Trump could mean for U. S. Business and not as a lot of uncertainty, but maybe you got some feedback from over there. And the second one is if there was some material impact from preveniput option in Q4? Thank you. Thanks for the question on the U. S. I think I have spent most of the time this year in the U. S, at least more than I have spent in Germany, and I think I'm going to spend the next week in the U. S. As well. What is interesting to report from my point of view is that I see a general uncertainty also with the pharma companies on the effects of what is going to happen with respect to the impact on taking away Obamacare, which is a volume impact a potential volume impact and secondly, pricing impact on drug products. So for us, obviously, being a volume producer, I see the larger exposure obviously to a potential effect on Obamacare, if that would lead to a lower demand for prescription drugs. What actually works dampening to it is that a lot of people, whether they are reimbursed for the prescription drugs or not, are still in need of those drugs. So I personally do not consider the long term effect to be that significant. But at this point, we don't know. Nobody knows exactly how many people are going to be hit by this. And generally, forecast of our customers for this year and you see that also when you look at their revenue prediction have a relatively wide range and the lower end of the range is generally in the very, very low single digit. So we just wanted to point that ours is an important market. We will see how that develops. Through the lower end or production from the customers in the lower end of the guidance already or is it something which you didn't consider so far? No. Obviously, we presented you today with the guidance and everything I say today and I said for Q1 is included in our guidance. So our guidance fully reflects those concern and those uncertainties. Treveni put option, as you know, this is based on the fair value evaluation from Triveni and that normally has to be handled at the 31st March 2018. We have a negative effect of 1 point €4,000,000 on this one in the past. When we had a positive one, we have always taken that out. So you can say our operating numbers would have been €1,400,000 better, because last year, we had no effect, but we haven't taken that out. Better because last year we had no effect, but we haven't taken that because you also can find that on Page 113 in our annual report and how the metrics is implemented. Two questions. One regarding your cost inflation topic, which you raised. You mentioned that the price escalation clause in the Plastics division. Can you remind us on the energy costs in the glass division? I remember there were price escalation clauses as well in the older contracts to say this way. And second question would be the top end of your guidance. And what would need to happen that you reach that? So what underlying assumptions do you have for reaching the rather higher end of your guidance for this year? So first of all, we hedge energy normally. So it's more than 50% is already hedged. So that gives us also clarity going on further. Yes. What has to happen for the top end of our guidance, obviously, I highlighted on a few product innovations we have done. So we have obviously some opportunities that we might have cautiously considered in our guidance. So if those type of products are taking off quicker than we have expected, that could actually accelerate the growth from that perspective. Perspective. I think what is important, if you take a look at the markets that in plastic and devices, we need a reasonable year with our high volume devices in particularly in Respiratory Products where we have a higher single product risk than we have in standard. Primary packaging, where in a 2 ml vial, hundreds of products are packaged. So that's not that much of a risk. And as I said, a normal year in the U. S, we had a very good year in the U. S. Last year. I'd say a normal year in the U. S. Would be good for us. So we will see how that I think this year coming into it, all the macro effects are a little bit more uncertain. And I'm hoping that that pins out during the year in favor of us. And I'm as I say, most of the products we package and we deliver are not discretionary for people to take. So I'm quite hopeful that we continue to prove the resilience of our business model. Business model. Also one technical effect which you have to have in mind, the currency which we use for our planning is 1.10. So if the U. S. Dollar is going down to 1.05 during the whole year on average, for sure, there comes a positive effect on the revenue side also out of that, which is approximately €20,000,000 which is translational, but at the end of the day, that's also for the reported numbers. Questions from the room? Two questions. One is related to a larger customer in Denmark, which has sent some signals to the market, which imply that they are a bit more cautious. I would assume there's a lot of Fed to cut there. Let's assume they consider outsourcing an alternative, particularly for the pen production. Would that be a scenario you would be benefiting from? And the second question is regarding to your operating cash flow target 2018. You intend to increase the EBITDA margin, net working capital as a percentage of sales stable, but you still shoot for a bit more than 13% rather than the same level that we saw last year. Is that a bit too cautious? We start with the last one. First of all, you have to have in mind for this year, 2017, like last year, that we have to pay taxes. Again, for the Life Science Research sale, which is approximately €40,000,000 which is a special effect. Like last year, we paid €45,000,000 million, which is the operating cash flow. I would like to mention that this is an idea, the operating cash flow. So we will see how it works. The performance this year was pretty strong for the operating cash flow and there is for sure an opportunity. And with the question to the particular customer in Denmark, we would love to outsource to see that customer outsource more would be one of the things where we would go after if that is going to happen. So far we do not see those signs, quite frankly. So how as we right now don't have questions from the room, we are going to switch to questions from the call. And the first question is from Mr. Oliver Heinberg. Oliver Heinberg from Kepler Cheuvreux. Three questions, if I may. Firstly, looking at Q4, my impression in the last call was that you anticipated somewhat stronger organic growth. I mean, the 4.7% was a good number, but I think you had more in mind. Is that correct? And can you just talk about in which kind of product areas in Q4 would you have potentially expected stronger performance? And also with Q4, can you just say a word on the margin in Private Packaging Glass? Normally, Q4 is by far the strongest quarter. I think this year, it stood at 20% in Q4. Any color on that would be appreciated. In terms of housekeeping, can you just share with us the center, how much it generated in sales and adjusted EBITDA? That would be helpful. And then last question on RTF. Do you have any plans for potential RTF V? Thanks. Yes. I might start with the organic growth question and PPG since they are connected. Good observation. I think we had a very strong development in PPG and particularly in America in the first 3 quarters. Q4 was already softer from that perspective and we did see that as well in the margin. Not a concern from my perspective, as I've always said, we operate pretty much at an excellent OEE level in that division and I consider our ability to maintain our margin level in PPG quite good. So, I don't think that should be a concern. But what you could see is basically a little bit of the effect that we also saw in Q1 that with the uncertainty coming up, the Q4 was a little bit softer than my original expectation. And Rainer just gave me a hint that for those who always forget that tubing sale happened in 2015. So on a like for like comparison, we had 2 months less of tubing, which but I'm sure that you all realize that anyway and to sell in your into the account. We had last year approximately €31,200,000 on EBITDA, but in revenues last year. That would have been good in EBITDA in revenues. And we have said that we expect a more normal quarter, which is then on average, it was approximately 38%. And we reached that and for sure past. Would you mind to share the full year numbers? Yes. We have said that our target at the beginning of the year was that we reach a similar number like last year, which was approximately I have to remember that out of my head, it's approximately €145,000,000 in revenues and we were a little bit above, but not a lot. Revenues and then again the margin above 40%. So overall a super year for us, especially with our expectations which we had for Sensa. Thanks. And Adi F5? Well, we have just finished last year our what I call our strategy for our product categories. And we are going to significantly invest over the next years in our syringe capacity, which is a twofold type of an investment. Number 1 is we will continue to work on our product offering with respect to biotech companies, which are smaller batches, very individualized, high quality products. That is key for our future success. And secondly, we will try to maintain our market share on heparin and on vaccines. So therefore, it is likely that we will start investment in another RTF line. I would not call it RTF V. It could also be an RTF I. Those decisions are not made yet. But the investment in ready to fill syringes is a key step in our delivery strategy for devices. Great. Can I just squeeze in last housekeeping question? When you talked about the dollar sensitivity, I think in the past, you gave us the color of €0.01 is worth €2,500,000 sales, and I think €700,000 EBITDA. Can you update us on that side? And also given that the Brazilian real is stronger, what kind of way do you actually have in your budget? Thanks. Yes. I can give you the metrics on that basis. First of all, when the exchange rate changes, first of all, revenue is for sure. If the exchange rate changes from 1.10 to 1.05, you will have an positive effect in the year 2017 of approximately €20,000,000 in revenues. And when you look on which is similar to that what we've said in the past, by the way. And when you look on the adjusted EBITDA, that's then approximately 6,000,000 euros On top of that, your question was the Brazilian real. We have in our budget number of let me check, I think it's 360. Average is I was correct. 360 is our number on average. And that's pretty similar to that what we also have seen doing this year. Brilliant. Thanks a lot. So the next questions come from Falko Friedrich from Deutsche Bank. Hi. Thanks for taking my questions. I have 3, if I may. And the first one would be, is the weakness in the beginning of the year, is it mainly specific to one of the segments? Or does it affect both of them? And secondly, what is your outlook on tooling revenues for the full year maybe compared to last year? And then thirdly, could you give us your current thinking on refinancing of your bond in 2018? Thank you. Thanks for your questions. Based on the trends that I have lined out before for Q1, I already mentioned lower tooling revenues in Q1 that will that we will see back in the consecutive quarters. So that clearly states that you will see it in both divisions, the weakness. Tooling revenues for the year, I'm very confident that we have a good tooling year in front of us. What is always and I can only say that what is always difficult to predict is in what quarter, therefore. Since they are sometimes fairly bulky based on how we finish the projects with the moss, how much molds versus engineering revenues are in it, etcetera. So that is why I cannot give you more clarity good for the year. Let me answer your bond question a little bit with the financial result question because we assume for 2017 that the financial result will be on a similar level like in 2016 means approximately €34,000,000 And then we have the May 20 18. And I would assume that perhaps we have some savings in a single near $1,000,000 amount. And then you have to make up your own assumption because it all depends then what are we doing this year, what are we doing up to May 2018? And that also drives a little bit the situation how much I do have to refinance. As you know, there are €300,000,000 which run out and we have to see when the cash generation is pretty strong, how much we need as a further volume and that's something which we have to discuss a little bit later during this year. Okay, great. Maybe one quick follow-up question in terms of the tooling revenues. You said you're expecting a good year. And would that mean year on year growth? I would say yes. Okay, great. Thank you. So we're going to take the next question from Scott Pardo from BMO. Yeah. Thanks very much for taking my questions. First one, just related to the anticipated, I think you said negative top line growth in the Q1. Just wanted to clarify that. But we haven't seen that, that often for Garishwimera, I think, historically. So what I just wanted a little bit of better understanding was how much of that, if you like, caught use by surprise post budgeting for the full year? I know you do your budgets relatively early. Is the majority of it just phasing for the tooling issue? Or has there been some significant proportion where people have just delayed and canceled their orders, if you like, in the Q1? If you could talk a little bit to that, please, that would be helpful. Also, just like to understand a little bit the tooling component, which obviously is a nice precursor to the future growth of your plastics and device business. It appears at least from this side to be a little bit sort of less predictable than perhaps it has been in the past and maybe not as higher growth as it has been in the past. So I wonder, is it your sense that some of your customers are, if you like, losing some confidence to make these sorts of investments amid the current uncertain political backdrop? Or is it just relating to your own decision not to take as many of these contracts on or product cycles? Maybe just talk a little bit about what's shaping appetite there, if you like, for the tooling business? Lastly, very pleased for you to highlight all of these sort of new product launches that you're bringing to the market. I'm particularly interested in this Elite Glass product that you mentioned. Can you confirm whether this is with your collaboration with Corning? And out of the recent products that you mentioned here, the ClearJet, Elite Glass, Biopak, can you give us some feeling for which one is the sort of the star product we should watch out for? Do you think that there's any particular product of note which could be a more significant driver for you going forward? Thank you. All right. I tried to answer as many questions as I can remember. And if I forget one question, please ask again. Tooling, I don't know how to explain it since I'm trying to do that now since the number of years on the tooling side. Tooling orders, engineering services, development services are services that vary quite significantly based on the project. We do those for projects that may never come to the market and maybe the majority of those projects actually customers never bring to the market. And the more tooling revenues are part of it, the more likely is it that a project comes to the market or a customer has a project that has a high likelihood to be implemented. So particularly for those tooling revenues, as you might remember, that we had when we entered the insulin pen business, for example, for Zanofi on an existing product, we had a fantastic visibility because that's in the nature of the business. The product is already established. The customer ramps it up. So we know that medication is not new to the market. It is just additional device volume that is developed. So we had a super clear visibility on the success of those and the implementation of those. If we develop a completely new project, it starts with design services. Then if that progresses, engineering services maybe for a small batch production come. And then hopefully, tooling services and small batch production for clinical trials for that product before somebody decides if that project actually comes to market. So that is the difficulty of predictability in that. And I always say, the more development and engineering services we have, the higher the margin is for the tooling business. The more toolings we have, the lower the margins, but maybe a higher likely what you know of higher volumes coming on the part. So this business is not less or more difficult to predict than it was 5 years ago or 6 years ago. It just depends on the pipeline how many new projects we have versus projects where we just become a second supplier and that determines the likelihood. So overall, I think I'm quite happy with our pipeline. But again, here we are obviously delivering and you saw that last year, we're delivering relatively volatile numbers quarter over quarter. And if you look at the full year numbers for the last 5 years, that volatility is relatively modest. So all I can say, I cannot predict it better, because my customers cannot predict their products better either and their success what's going from clinical development Phase III actually into markets. On the Elita tubing, this is not the Corning development. The Corning development is not listed on those slides. So that is another product development that is underway with samples in the market. So if you look at our value proposition for glass, you have our standard value proposition that we had in the market. Then the Elite glass is an improved value proposition based on the same chemical consistency of the glass compared to the traditional glass, but with production wise improved product value propositions with respect to delamination and break resist. With Corning, we are working on what I would say is the unbreakable glass that would be even a step higher. So today, I don't know what the star product is. I hope that all three fit into the marketplace in certain areas and finds their clients and that is what I'm looking for. As I said before, we don't need another star product. We want to increase our product offering. We want to cover niches better where we can achieve, as Reiner said, a better product mix. And that is a whole task that we have here. And the same applies actually to the COP syringe, which is a product that is particularly good for high viscous drugs. And we offer here a stake in needle solution, which is I think a pretty good selling proposition. But we are also operating in a market environment where I'd say what works in our favor also does not work in our favor here and there because you go through regulatory approvals. And those regulatory approvals protect you with your existing products, but they also make it not so easy and actually add time for new products to achieve significant volumes. That's the nature of this business, works actually in both directions and keep always keep that always in mind. I apologize for that at least one question or Yes. It was just about the Q1 softness. I mean, you mentioned the furnace repair and the phasing of tooling. Exactly. If it comes down to Q1, and I think you know that you guys know us now for a number of years. We have always talked about the business situation ahead of time and try to avoid any surprises. We have the visibility for the Q1. We actually did expect in our budget a soft Q1 And nobody can really predict within a percent or not how a quarter turns out. We guys at GeraFheim are actually not that smart. I apologize for that, but that is the case. So overall, I would say you can basically pin it down to those 3. Furnace repair in Q1 was last year, not in Q1, so effect. Tooling revenues, I said weak, so I mean weak, has an effect. And then we have what I call the general uncertainty. We might have expected uncertainty with the elections going on, but who would know who was elected when the election actually happened? I think most of the people were caught by surprise. That happened to us as well. So I would say nothing significant. That's why we mentioned it here and that is all completely considered in our guidance for the year. Understood. Thank you. Maybe if I could just sneak in another quick question. And it's very pleasing to see the group delever the way it has been. So I just wanted to understand that you maintain this sort of capital target of 2.5% leverage profile, I think, over the midterm. So, Rainer, I might have to understand what you're essentially saying there given the guidance on growth and EBITDA is that the group have, let's say, €300,000,000 €400,000,000 worth of acquisition capacity over the next couple of years? Am I interpreting that correctly? Yes. First of all, you can refer to our headroom because that's easy to calculate. If you take, for instance, euros 30 €4,000,000 €305,000,000 last 12 months EBITDA in the contract, which is a little bit different than the normal EBITDA because there are some other deductions and multiple it with 0.9 because that's the difference to the maximum of 3.5. That's the headroom which we have. If you then would acquire something, you always have on top the EBITDA. And there is headroom. There is a possibility. The 2.5 times adjusted EBITDA to net debt is nothing else than our idea of what is the right leverage for our company. I've said that already by the way when we had 1.7 times. So it's not that we change that every time. That's a target which we have internally because you can calculate that since several years, at least since I'm on board. And that was the reason why when we bought Centa, where we directly set our target is to go down to 2.5%. And we would like to do that as soon as possible. And I think we have proven that we can do it. For sure, it was helpful that we also have the Life Science Research sale. But that's not at the end the reason why we are there because we have done a lot in cash flow. You've seen the improvements in working capital. You have seen with the Tubing business that our risk profile is different. So there are lots of opportunities taking down our risk on top of that. We believe that the 2.5% is a good number for us going on first. Thanks a lot, Kartik. Thanks. And being mindful of time, we're just going to take the last two questions from those who haven't addressed the questions first on the call. And we're going to start with David Adlington from JPMorgan. Hi, guys. Thanks for taking the question. Just following on from Scott a second again. I mean, on the M and A side, obviously, you had a big portfolio reconstruction over the last couple of years. What areas are they geographically or product wise would you like to add? And are you seeing assets coming through at the moment? Could we expect an announcement in the next 6 to 12 months on that front? And then secondly, just on the CapEx, you mentioned the potential to expand, particularly on the Syringe side. I just wanted to check that any expansion plans you see there is captured in your 8% CapEx guidance? Thanks. 2nd question I can answer pretty quickly. Yes, it's all included. Perfect. Yes. On the M and A side, I have Mr. Disciplined sitting next to me here right now. Always watches that we don't do anything that doesn't make sense. And I can tell you does an excellent job with that. On the target side, and in our space, a lot depends on the opportunity coming along. That is we operate here in a window where we say, number 1, would like to improve our product offering, particularly with respect to systems for delivery devices. I think that continues to be the focus. So here, we want to see what adds value to our portfolio, what adds value for the customer in integrating device know how into a platform. That for us is the key. The second important cornerstone here from my perspective remains regional expansion, particularly in Asia, where I see a number of countries with respect to size of population, spending on medication per per capita. I see opportunities here to continue to drive volume growth in those countries where constantly. And as Reinhard said, I think with our strong cash flow profile, we have the opportunity to do those things when they come along and they make sense. Perfect. Thank you. Last question we're going to take today comes from Veronika from Goldman Sachs. Good afternoon and thank you very much for squeezing me in at the end. I really appreciate it. Most of my questions have actually been answered, so I just have 2. The first one is on the medium term organic revenue growth guidance of 4% to 5 percent. If I look at your track record over the past couple of years, you have fallen short of that. And I was hoping maybe that you could spend a couple of minutes helping us think through what are the sources of that 4% to 5% growth either on a divisional basis or on a product basis to the extent that you can give us some insight into that and give us a little bit more confidence given that you've been trending closer to 3% growth that you can get to that 4% to 5% over the next couple of years? And then my second question is for Rainer and this is highly speculative, but obviously there is some discussion about potential changes to the tax regime in the U. S. And I really appreciate your thoughts on what that might mean for Garishheimer for your tax rate if we see a lower corporate tax rate in the U. S. And or a potential move to a border adjusted tax regime? Thank you very much. Yes. Thanks for the midterm question on revenue. I think that is not that easy to answer, particularly if we have to take a look at where it comes from. Number 1 is, as I said, we are volume producer. That means we need stable volume growth in generic volumes for particular prescription drugs. So where is that supposed to come from? We basically need stable markets in Europe and in North America to deliver that because they have a high volume of those type of products. And we need the emerging markets to grow. So what we had here over the last years, particularly last year, we had a muted demand in certain countries, Brazil came around a little bit towards the end of the year. From a volume perspective, that is important for us. Secondly, what is important for us is that our new product development pipeline finds attraction is attractive to the market. That means that particularly our offering for the biotech industry of higher value products that have lower volume, but higher value contribution to our top line gain traction. And that is basically number 1, obviously, in the plastic and device section of our business, in the segment of our business. But with some products, as we have pointed out on the innovation side as well on the primary packaging side, with the new type of glass products that we have targeted particularly for higher value drugs to protect customers from losses in production and better packaging solutions. Those products will sell at a significantly higher price since they are significantly more costly to produce. Then it's necessary. And hopefully, an environment in the United States where the uncertainty about its pharmaceutical markets go away rather quickly, which we all hope for. Regarding the changes in corporate taxation, you already mentioned it in your question, it's a little bit of wait and see position where we have to look at and where we stand. For sure, the U. S. Has in general a quite high corporate tax rate. So if there are ideas to reduce that, that fortunately or would help us a lot, that would be good news. Regarding border taxes, here again, too early to come as precise answers. As you know, we have a Mexico operation, which mainly exports to the U. S. In theory. In theory, we could move more production to the U. S. Because we are also one of the biggest producers in the U. S. But having said that, our packaging contains in most instances life saving drugs, which is not something you want to get a shortage of or disruption of supply chain. So and even if it's for tax reasons, that's something which is critical. So therefore, we have to see what is happening in our industry. And the other thing we achieved that was the repatriated corporate profits held offshore at a onetime tax rate. You want to get 10% for that. That's something which is not relevant for us. So there we have nothing to do with. So that's a little bit my answer that hopefully that helps a little bit. As I said, it's a little bit of wait and see position. But if they really want to reduce corporate taxes in the U. S, that for sure will help us because you could see that in our regional split, we do have a high percentage in the U. S. And we sell a lot in the U. S. And we produce a lot in the U. S. That's great, So if I can just quickly follow-up on that, would you say that for your U. S. Revenues, your cost of goods sold are 2 thirds match to the U. S, more or less than that? The answer is easy. It's more than 2 thirds. Okay. That's great. Thank you very much. Okay, great. Well, thank you very much for everybody to attend the call. And for those who are still other questions, well, the Investor Relations team is here to try and answer. Thanks a lot.