The conference is now being recorded. Welcome to the conference call regarding the publication of Gerresheimer AG's Q1 results 2015. At the moment, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Now I hand over to Mrs. Anke Limpert, Corporate Senior Director, Investor Relations and Creditor Relations at Gerresheimer AG.
Good afternoon, and welcome to our first quarter results conference call. With me today are Uwe Röhrhoff, our CEO, and Rainer Beaujean, our CFO. As we did in the past, we are presenting a set of slides to accompany our remarks on this call. The slide presentation, the press release, and the quarterly report are posted on the investor relations page of our website at gerresheimer.com/investor-relations. Please note that this call is being webcast live and will be archived on our website. Before we start, I would like to remind you that the presentations and discussions are conducted subject to the disclaimer. We will not read the disclaimer but propose we take it as read into the record for the purpose of this conference call. Our agenda for today starts with the presentations by Uwe and Rainer. After that, we will enter into a Q&A session.
With that, I hand over to Uwe.
Thanks, Anke. Good afternoon, everybody, and thank you very much for joining the call. Our first quarter came in as expected with a slight decrease in revenues on an FX neutral basis and a strong improvement of our adjusted EBITDA margin. There is no change to our guidance. On top, we benefited from currency tailwinds, given that the strong US dollar currently drives revenues and earnings when compared with our guidance, which is based on constant currencies. We are on track after Q1. Group performance in the first quarter 2015 is what we have on slide four. More important, the adjusted EBITDA increased substantially by 7.2%. Sorry, I got lost here somewhere in my notes. Before we go to the EBITDA, which I like to comment more on, we start with the revenues. Revenues rose by 1.4% to EUR 301.8 million.
Excluding exchange rate effects, we recorded organic revenue growth of -2.4%. As predicted, revenues in the Plastics & Devices increased only slightly in the first quarter, plus 0.3% organic, but showed a much stronger mix with higher parts sales offsetting lower tooling revenues from last year's record high in Q1. Demand for devices remains strong and our pipeline for new projects is exciting. In Primary Packaging Glass, revenues came in flat compared to prior year's first quarter. As expected, the weak demand in the U.S. continued through Q1 and resulted in an organic revenue growth of -4.9%. We expect that starting in Q2, demand will increase, and we are confident to achieve our revenue targets for the year. Revenues of our cosmetic glass business are recorded mainly in Europe and came in at about prior year's level. In Life Science Research, we recorded only flat-ish revenues on an organic basis.
As Life Science Research is almost a pure U.S. business, reported numbers reflect strong tailwinds from the U.S. dollar. More important, now I come to the part that I like most, the adjusted EBITDA increased substantially by 7.2%, and the margin improved to 16.9%. In Plastics & Devices, profitability benefited from the favorable revenue mix, with tooling revenues just on normal level, so that the margin improved significantly from 15.5% up to 18.5%. In Primary Packaging Glass, we managed our cost down to lower utilization levels and kept the margin with 19.1% almost stable quarter-over-quarter. In the course of the portfolio optimization, as announced last year, we took one U.S. furnace permanently out of service. The improvement of the adjusted EBITDA translates all the way to the bottom line. Net earnings per share increased by 20.7% to EUR 0.35.
Adjusted net earnings per share were up 13.2% to EUR 0.43. We managed our operating cash flow through a substantial increase from -EUR 1.7 million to EUR 15.9 million quarter-over-quarter. About half of that improvement was due to EUR 7.8 million lower CapEx spending compared to prior year. That, however, is only a timing effect. We continue to execute our key initiatives in Plastics & Devices and Primary Packaging Glass that we have addressed during our last two calls, and we keep pushing all of those projects that will drive revenue growth and efficiency improvements over the next year. In fact, we are making excellent progress on those investments and growth projects. Here on slide six, we have a few pictures documenting that. As you know, we are about to build a new building for a new inhaler in the U.S.
We started last year, and now in the first quarter, we have successfully completed the setup of the clean room in our Peachtree plant. Next steps are hiring and training, installation of equipment, and then we will start the complex validation process. In the Czech Republic, we are enhancing our production capacity for two existing inhalers. Here we started to build a new production hall last year. As of today, our Czech plant has basically all installations done and now goes through training and then validation. In India, we completed construction of our new facility for vial and ampoule manufacturing. Next steps here are, again, hiring and training, then machine installation and validation. These initiatives are all very complex. In contrast, the installation of new equipment in Primary Packaging Glass tubular glass seems to be an easy one. Far wrong.
Also PPG, we started to implement our global machine strategy, and we have to perform training and validation for each and every machine to minimize the start-up cost while we are maintaining high service and quality levels. All in all, the first quarter was in line with our expectations. We expect an acceleration of the growth rate throughout the year. With this, I would now like to hand over to Rainer, who will run you through the financials before I will come back on the outlook.
Thanks, Uwe. Ladies and gentlemen, welcome also from my side. Let's have a look at the revenue development and the relevant effects for the first quarter 2015 on slide number seven. On group level, revenues were up by 1.4% and amounted to EUR 301.8 million. Including the effect of especially the foreign currency movement, organic revenue growth quarter-over-quarter was -2.4%. We had a strong and positive currency translation effect, which can mainly be attributed to the US dollar. You can see this pattern of stronger reported growth rates compared with the organic growth rates in all of our three divisions. Let's start by having a look at the Plastics & Devices division, where growth came in at 1.5%, helped by currency translation. The organic growth rate amounted to 0.3% and reflects strong growth in part sales, especially in inhalers. Also, primary packaging products made a contribution to growth.
The tooling and engineering revenues, which had been abnormally high in the prior year's first quarter, came back down to a more normal level, thereby almost offsetting the growth effects coming from the product side. In the Primary Packaging Glass division, the pattern of soft demand that we saw in the second half of the prior financial year did actually continue in the first quarter 2015. While positive currency translation effects did push revenues growth into positive territory, organic revenue growth was -4.9%. It was caused by softer demand and the effect of the furnace that we had permanently closed at the end of the previous financial year, since it did not meet our targets. To offset this effect, we extended the holidays of our plants in the U.S.
Finally, in Life Science Research, the strengthening of the US dollar quarter-over-quarter caused a 12.4% rise in the reported revenues in the first quarter 2015. This positive development was purely thanks to the euro-US dollar foreign exchange rate movement. Organic growth was actually negative at -1.7%. The softer demand was partly offset by the extension of plant holidays in our U.S. plant. To sum it up, we saw a soft U.S. demand in the first quarter, which led to lower organic revenues. However, strengthened key currency, most of all the US dollar, pushed the reported growth rate into positive territory. Overall, this development in Q1 was fully as expected. Let's move on then to the adjusted EBITDA slide, and that's slide number eight.
Here, the development in the first quarter 2015 was positive, driven by the markedly lower tooling and engineering revenues in the quarter, which have lower margins. The adjusted EBITDA margin in Q1 2015 was 16.9%, compared to 16% in the prior year's Q1. The Group's adjusted EBITDA came in at EUR 51 million in the quarter, above the number in the prior year's quarter, where it had amounted to EUR 47.6 million. In the second line on the slide, you can see that the margin in Plastics & Devices went up from 15.5% in Q1 2014 to now 18.5% in Q1 2015. This is primarily due to a positive mix effect coming from the aforementioned lower tooling and engineering revenues, as well as the plastic primary packaging business. In Primary Packaging Glass, the margin amounted to 19.1% and was only slightly below the level in Q1 2014, which had been 19.6%.
This means that our countermeasures in the form of our continued high cost discipline and the extension of plant holidays in that segment actually paid off. Finally, in Life Science, the extension of planned holidays to mitigate the seasonality weaker demand and the strong tailwind coming from the U.S. dollar translation led to a flat margin quarter-over-quarter. Effectively, we achieved a margin of 12.1% for the quarter, which is slightly below the margin in Q1 2014, where it had amounted to 12.2%. To sum it up, we managed to slightly increase profitability in Q1 compared to the previous year. That was achieved by a margin increase in Plastics & Devices, as well as for our continued high cost discipline in Primary Packaging Glass. Please move on with me to slide number 9, which shows the improvement of our earnings figures in Q1 2015.
Starting with adjusted EBITDA, which was up 7.2%, we first of all deduct ordinary depreciation and amortization, as well as the amortization of fair value adjustment. Ordinary depreciation and amortization went slightly up in the quarter, reflecting our high CapEx investments in our business. At the same time, the figure for the amortization of fair value adjustments was slightly lower and reflects the fact that some fair value adjustments have been fully amortized according to the depreciable life. After these costs, EBIT amounted to EUR 24.6 million, which is 13.1% above the figure that we recorded in the prior year's first quarter.
The next items are the net finance expense for the quarter, which slightly improved due to the lower applicable pension interest rate and the tax charge, which was a touch higher, while the tax rate of 27.5% was still almost as low as in Q1 2014, where it had amounted to 27.2%. The combined figure of finance expenses and taxes was slightly higher in the Q1 compared to the last Q1. As EBIT was markedly higher quarter-over-quarter, net income still rose by an even stronger rate of 22.8% and amounted to EUR 12.7 million after EUR 10.3 million in Q1 of the last year. Accordingly, both earnings per share and adjusted earnings per share were up by 20.7% and 13.2% to EUR 0.35 and EUR 0.43 per share, respectively.
Overall, on the earnings side, it was a successful quarter with good improvements in all earnings metrics that you can see on this slide. Let's have a closer look at the key balance sheet and cash flow figures. Overall, we recorded a solid set of results, meaning our balance sheet remains healthy and cash flow developed favorably. Total assets were up by 5.8% on the comparative quarter's end, and that's coming from higher current and non-current asset values, which was mainly driven by changes in foreign exchange rates. Excluding the positive effect from foreign exchange translation, the total assets figure would have risen by 0.8%. Group equity was up by 9.2% to EUR 623.5 million. Most of the increase attributable to the positive development of group net income. Accordingly, the equity ratio rose to 36.8%.
Net working capital was up by about EUR 35 million compared to the previous year's quarter. However, a lot of that was caused by the strengthening of the US dollar, and if we look at the average net working capital figures, this figure was only about EUR 17 million higher than the comparative figure for the previous year's Q1. CapEx spending was 7.8% lower than in Q1 2014, but this is only a temporary effect as CapEx for the whole year will be spent as previously guided. Finally, looking at the key cash flow figures for the first quarter, what I can say is that all of them are up. The reasons for that are, first of all, the higher earnings figure quarter-over-quarter, for sure, the lower CapEx spending and the lower buildup of foreign exchange neutral net working capital compared to Q1 2014.
Overall, the good Q1 performance is reflected favorably in the balance sheet and cash flow figures for the quarter. Speaking of cash, let's move on with me to slide number 11, where you can see our long-term financing structure. It remains very solid and provides us with mid to long-term funding security. The interest rates are completely fixed and the long-term bank debt and the bond have residual terms of about one and three years respectively. As already communicated on the occasion of our full-year results conference, we intend to do a refinancing later in the year, of course, without touching the bond. The amount of cash and cash equivalents we had at the end of the first quarter was EUR 67.6 million, and our revolving credit facility still gives us more than EUR 160 million to draw on in instance.
The net financial debt figure of EUR 441.1 million is higher compared to the November 30th, 2014 figure of EUR 423.8 million. The increase resulted mainly due to the strengthening of the US dollar. Foreign exchange neutral, the increase would have been only EUR 5.2 million. Because our last 12 months adjusted EBITDA improved further since the end of full year 2014, the adjusted EBITDA leverage figure remains at a very solid level of 1.7 times last 12 months adjusted EBITDA. That means we still have a lot of headroom within the existing structure to continue to implement our growth strategy. Now, before I hand it back over to Uwe, let me just wrap up the key points from my part of the presentation. In Q1 2015, we increased the operating profitability of the company by 7.2%.
The same is true for EBIT, which we managed to increase by 13.1% to EUR 24.6 million. Also, we increased reported earnings per share by 20.7%, and that despite higher one-offs compared to Q1 2014. Operating cash flow also improved markedly and was now clearly in positive territory in the first quarter. Overall, we continue to have a very strong setup in place, and that will enable us to execute on our strategy for profitable growth going forward. With that, I now hand it back over to Uwe.
Yeah. Thanks, Rainer. We now come into the guidance. In summarizing what I have said so far, Q1 came in in line with our expectation, and we fully confirm our guidance for the fiscal year 2015. As I have said, we expect growth to accelerate throughout the year. We expect organic revenue growth of 1%-3% for full year 2014, and 4%-6% in the year 2016-2018. We continue our strong focus on profitability. For the adjusted EBITDA, we reiterate the range of EUR 255 million up to EUR 265 million at constant currencies for 2015, and an increase in the adjusted EBITDA margin to a level of 21% by 2018. We continue to invest into the future of our business, with the market being in good shape and the mega trends of our industry supporting our growth initiatives.
To achieve these targets, we will require an estimated annual investment volume of between 9%-10% of revenues at constant currencies throughout 2018. Thus, we are maximizing the return of our products while also improving product quality. We are well-positioned for the years ahead, and we have defined clear steps to ensure our continued success going forward. These include expanding capacities at various locations and further standardizing our production technology, some of which were initiated during the past financial year, and further progress is scheduled for this year. With that, I hand it over to Anke.
Thank you for your presentation. We are now ready to take your questions. The lines are open, and in order to ask a question on a first-come, first-served basis, please dial nine plus star to register for a question. Thank you. First question comes from Daniel
Daniel, thanks for taking my questions. Two, if I may. One, with regards to the organic Q1 performance and putting this into perspective to the full-year guidance, in particular, looking at the Primary Packaging Glass division. According to my understanding, the Chicago Heights plant will largely be completely refurbished, renewed in Q2, Q3, which could potentially burden the performance of this division in Q2 and Q3, I would estimate. The earnings or the sales growth expansion is then largely coming from Plastics & Devices. That would be my first question. Second question is really a housekeeping item with regards to the tax rate, which was also well below 30% in the first quarter. Is that something we should now also expect going forward in this ballpark? Thank you.
Question number one is actually a relatively straightforward consideration if you look at the year. Number one, keep in mind that Primary Packaging Glass does not only include U.S. business and not only a molded U.S. business in the Chicago. That's only a certain portion of that. You are correct. That effect is estimated to be seen mainly in Q3 2015, and as such, it was part of our guidance to be foreseen in that. What we have seen so far, and what I have said in the last call, was that I continue to see weak demand for primary packaging containers made of tubular and molded glass in North America in Q1. I already see, looking at the order status and the shipments in March, that this will pick up in Q2 as we have expected.
We see the market development pretty much in line with what we have anticipated. From a cost perspective, keep in mind that we have in the U.S., in primary packaging, basically closed the furnace in Q1, and actually also had capacity down significantly in Q1, so that with the additional revenues coming into the next quarter, that will also have a positive impact on the bottom line. It is correct that, from a performance perspective, Q3 will be impacted by the Chicago Heights furnace takedown. From the perspective of contribution of Plastics & Devices, we have always said that's the growth driver of the company. We have always said that we have a couple of issues that this year will impact the growth of that business. Two of those you know.
The tooling, which you have seen the effects already this quarter, even though that from a mix perspective, we had an outstanding contribution of our Plastics business that shows in the margins. On top of that, you know that we do not see the inhaler business growing at the speed we were expected to be. Keep in mind that the inhaler business still had an excellent growth contribution during this quarter. Yes, it is definitely correct that Plastics & Devices will continue to be the growth driver for Gerresheimer also in the coming quarters. The weakness of the Primary Packaging Glass division should have seen its low in Q1, and will accelerate growth in the quarters to come.
Okay.
Answering your question to tax rate. Tax rate in Q1 amounted to 27.5%. We had some one-off effects here. Main reasons are we had, I can give you some examples. We had a tax refund for prior years in China. We had income resulting from domestic production in the U.S., as well as we had a recognition of deferred taxes in France. All this effect was roughly EUR 600,000 altogether. We also had last year a couple of special effects, in the first quarter. The 30%, which we normally give you as a run rate, is a number which I would work with for the year, because that's a normalized number, which we normally use also internally.
I think that's fine, because you can't really forecast tax rates, going on further because you also can have tax authority discussion that the [run rate] of 30% should give you a good guide going on further. That could change in the future for sure if the emerging markets take a higher percentage, but that's something perhaps for three to four years. Right now, 30% is a good number.
Thank you.
Okay, Torben Teisler please.
Yeah. Hello, gentlemen. I have a question or two questions, in fact. One on the Primary Packaging Glass. You said that demand is likely or demand has, as far as you can see in the order intakes, has increased here. Does that maybe imply some structural improvement in the U.S. that you see capacities of customers coming back on stream on a larger scale? Is that basically the turning point for the difficult situation you encountered in the U.S. previously? Secondly, with regard to the furnace repair, or the shutdown of the Chicago plant. That's obviously not a sort of standard furnace repair you are doing sometimes. Could you give us a feeling for the extent of the costs related to that shutdown, and when that would be booked?
Is it fair to assume that will be booked in Q3, or would you book provisions in Q2 just to get a sense for how that splits across Q2 and Q3? Thank you.
Coming to the revenue question for PPG first. U.S. business, it's a little difficult for me to assess what are the reasons right now for the customers to order more. What I see is particularly in the lower value generic areas, a much higher order rate than I have seen in the last quarters. This could have multiple reasons. We know that some actually did have FDA issues, but some continue to have those. I'm not really sure that they are out of the FDA issues reason. More likely is it that still a couple of inventory adjustment could have been done, going into the year end, that's the fiscal year. Right now, I would basically say that I really don't know since I can exclude that it was a shift of market share.
We see generally from a lot of customers, definitely higher order situations in Q2. From my perspective, that is an encouraging sign and it was expected since we could not assume that the low order rate would continue since the underlying demand of generic drugs in North America remains solid. I'm not sure that I can shed more light on this, other than what the facts are, that is that the order situation has significantly improved during Q2. On the furnace shutdown, yes, it is not a normal shutdown. Might take 60 days plus in startup curve. Most of the cost will be recorded in the third quarter. That depends always a little bit on the timing, when we start and when we finish. Third quarter is the best assumption that I can give you today.
All right. In terms of the extent of the cost.
I cannot disclose that.
All right. Okay. Thank you very much.
David, please.
Afternoon, gents. David Adlington from JPMorgan. Two questions, please. Firstly, are you seeing any opportunities for increasing your prices given that you've had to increase your investment in quality? Secondly, following on from that, your depreciation amortization, given your investment on the CapEx side, how we should be expecting the depreciation and amortization in line to develop through this year and beyond? Thank you.
Hey, David. I start with the price question. Actually, I like that question since we all want to see an increased value proposition translating in a higher value. I would frame it a little bit different since we have pointed out in our Capital Markets Day last year that we have a couple of new product lines out there in the offering that offer higher value product with a better value proposition for the customer. Those will actually sell at higher prices. Obviously, first we have to go through validations, customer acceptance, procedures, in the respective facilities. That is nothing that I think makes a significant contribution already this year. It clearly is our target that with the investments we do with Primary Packaging Glass, we offer higher value product that actually should translate in a better pricing situation compared with standard container.
Yes. Depreciation, we had last year 6.8%. This year is a slight increase, perhaps. I can't give you an exact figure, but perhaps around 7%. We are not expecting that to increase up to the year 2018, above 8%. We will have a slight increase during the next years in percentage-wise due to the fact that we have invested a lot in the past, but mostly in buildings, in machines, all the stuff which will be depreciated over longer time period. Hopefully that gives you an indication for the next years.
Great. Thank you. Then maybe just one quick follow-up. Just wonder if you could give us any color on how the fourth RTF line is ramping.
Can you repeat that question?
The fourth RTF line.
Yes, the fourth RTF line.
Oh, the fourth RTF line. That is actually running quite well. We are very happy with the result. We are trying to encourage as many customers to approve the line. What we receive back from customers is they are very happy with the performance of the line. I'd say so far the line is fulfilling the quality expectations that we were hoping to get out of it. We hope that we will see more and more customers acknowledge that.
Great. Thank you.
Are there any further questions? Again, it's nine plus star to register. Thank you. Scott, please.
Thanks very much for taking my questions. First question, please. I wonder if you could provide a little bit more detail about the plastic products ramp up into next year actually. I think you've mentioned that this year is particularly burdened by a slower adoption or launch of one of your customers for an inhalation device. I just wonder if you could share some flavor on, subsequent to your discussions with that customer, are you very confident that those sorts of revenues snap back or start to flow through more visibly into next year? Perhaps following on from that discussion, you could perhaps just take us through progress at Peachtree. That's the first question, please. The second question, just again follows on from a little bit of the work going on with Chicago Heights.
Is it a fair summary that the reason that you remediate that facility this year is really somewhat opportunistic given your anticipated weaker volumes from your U.S. pharma customers? Presumably this facility would have needed remediating at some point anyway. Perhaps if you can just talk around that, when do you expect to roll out some of this machine upgrade to some of your other facilities? When can we start to see that activity? Thank you.
I start with the plastic product ramp-up next year. With the customer where we have reported the delayed ramp-up, we are in continuous discussion. The actual situation I would describe as such, there are no news to what we have said before, but we have a strong customer interaction, to basically match their demand forecast, their marketing actions with our ramp-up curve. We are basically adjusting that frequently. That is, I would say, a permanent discussion since it is extremely important for the customer, if their marketing efforts of the product are successful, that they have product in the pipeline. They work extremely close with us. At this point, we expect exactly what we have discussed during the Capital Markets Day, that it is a one-year delay. On the Peachtree City, I'm a bit on the optimistic side, to be honest.
It goes well, we are at the very early stages. There are a couple of critical stages in a new inhaler project. Number one is the phase when you validate the product, which means you produce out of a lot of different mold parts, and then you have to ensure that parts out of all molds can be combined in any possible way to a functional inhaler. We are not there. You have seen the empty facility, that is one of the next steps. Then, of course, we need to trust that our customer is successful in the market. The initial signs we see from the customer is that they are continue to be very positive with the product launch. I would say we are working on all cylinders, so to speak, to get this project done. I'm optimistic on that.
On the Chicago Heights side, I think you made a very smart comment, to be honest. It is a little bit opportunistic what we have done. We were planning to do it a year later. A couple of things happened. One of the patents we have filed a little early, we could do that. The second is that the demand was lower than we have historically seen it, we have actually a good window to do it for that gives us an advantage in the marketplace. The technology we introduce here is actually partially already introduced in a few other facilities.
The infrastructure technology, as well, the rollout, this is a type 1 business that mainly produces containers for injectable, has a mirror product facility in India, where we are implementing right now as we speak, actually, on a much smaller case, since the furnaces are smaller, an identical technological project. The rollout is underway as we speak.
Perfect. Thank you. If possible, just one very quick follow-up, if I may. Obviously, we have seen some relatively favorable profitability mix dynamics in the Plastics & Devices division, as one might expect, with a higher contribution from the devices. With that in mind and the fact that you anticipate a relatively decent rollout into next year as well, I appreciate you're not going to give guidance into 2015, but you've given a margin framework. Is there any reason not to assume operating margin progress into 2015 aligned with your broader margin expectations? Any events that we should know about that would otherwise impact that sort of progression that appears to be apparent at this stage?
I would say that at this time, I would advise everybody to stick to our guidance. We are certainly trying to implement improvements as quickly as possible. I think, once we are comfortable and we have enough favorable news, we would be glad to share that with you. At this time, I think I would advise everybody to stick to the guidance.
That's great. That's it from me. Thank you.
Are there any further questions? This doesn't seem to be the case. Therefore, I would like to thank you for joining us today. Please note that we are going to publish our Q2 results on July 9, 2015. Thank you very much. Have a great day.