Q4 2020 Aptargroup Inc Earnings Call
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Good day.
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Ladies and gentlemen, thank you for standing by while from two <unk> 2024th quarter Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Introducing today's conference call is Mr. Matt della Maria Senior Vice President Investor Relations and Communications. Please go ahead Sir.
Thank you I'd like to welcome everyone joining us on the call today.
And everyone listening to the webcast.
Joining me on today's call for Stephane, timbre, President and CEO, and Bob Kuhn Executive Vice President and CFO.
Our press release and accompanying slide deck has been posted to our website. If you are following along on the website you can advance.
Alright.
The presentation screen and clicking out of the arrows on the right and on the left.
As always we will post a replay of this call on the website.
Today's call includes some forward looking statements.
Please refer to our SEC filings to review the factors that could cause.
The results to differ materially from what we are discussing today.
I would now and concern of the conference call over to Stephane.
Thank you, Matt and good morning, everyone. We appreciate the joining us today I hope that you and your families are staying healthy and safe.
Before we turn the page in 2020 I would like.
Actual good moment to speak to slide three Inc. Recognized our people for the tremendous commitment to deliver on the promises we made to our customers patients consumers and business partners.
I want to thank our teams for facing the challenges presented throughout the year with unwavering strength and resilience.
The leading up to our purpose and responsibility to society.
Mainly to ensure that our innovative solutions are readily available for defense critical medicines and consumer products for millions of people each day.
And after we are focused on transforming ideas into product.
Everyday lives.
We are proud.
And for the company's vital role in society.
We're well positioned to continue to invest and grow in 2021.
Turning now to slide for the steady long term compounded growth story.
That is how we manage the business for growth over the next five to 10 years and well beyond.
In 2020.
We continued our strong total shareholder return journey and our shareholders achieved the 102% total shareholder return or <unk> over the past five years.
Our diversified business proved to be resilient to the significant economic and pandemic challenges and helped us overcome temporary weaknesses in certain markets.
Of the comedian lead the beauty market.
We also made strategic investments during the year debt will add critical capacity the key areas such as lotion pumps and components, we injected medicines.
Andrew we were active on the M&A from acquiring fusion PK G to bolster our go to market turnkey capabilities.
In addition, we invested in selected partners such as on growth with developing connected healthcare solutions for.
Further strengthening our portfolio.
Looking at our performance for the year, our reported two decreased 2% and for the comparative basis core sales were in line with the prior year.
I am pleased.
We achieved record cash flow from operations and record free cash flow through the combination of the strong performance of our pharma segment.
Contributions from recent cash accretive acquisitions cost containment efforts and working capital improvements.
Further our balance sheet remains in excellent condition, and we are well positioned to.
We need to pursue strategic M&A opportunities.
Another key element of our compounding growth story is our dividend program and I'm happy to report that in 2020, we returned $93 million to shareholders. This was our 27th consecutive year of paying an increased dividend.
I will briefly comment on the.
Compete for results as shown on slide 12 before turning it over the bulk who will go into more detail.
Our team delivered a strong finish to the year with fourth quarter core sales growth of 5% and recent acquisitions, adding 3% from top of debt.
Broad based demand for our industry, leading drug delivery devices for our food.
Our closures drove double digit core sales increases of pharma and food and beverage segment.
In our pharma segment I am pleased with the diverse growth across our pharma divisions as we continue to supply critical devices for everyday medicine, while we further engage with customers with more urgent needs related to fighting the pandemic.
The spend on food and beverage segment steady strong demand for food closures and some restocking by certain beverage customers jumped in the quarter.
Our beauty and home segment continued to make top line progress and good of posted positive core sales growth.
Would it not be for lower custom tooling sales compared to the prior year.
We achieved.
<unk> double digit core growth in our personal care and home care applications on strong demand for our dispensing systems used with advertisers and cleaners.
We also saw a gradual improvement in the beauty fragrance market, though sales were still considerably behind the prior year the decline in the fragrance business growth, partially offset by increased sales of.
<unk> benches for facial skincare products.
We have successfully implemented the vast majority of our plant the initiatives related to our transformation over the past three years, including implementing new commercial strategies, reducing costs and adding capabilities in Asia and in fast growing application fields that we believe the position to segment for the future growth.
Of the planned expanded profitability.
However, the 2020, COVID-19 global pandemic of several initiatives.
We're expected to be completed by the end of the year to be somewhat delayed including the planned closure of two facilities in the U S and resulted in the significant decline in the beauty business.
While our beauty.
Growth segment continues to be profitable the disruption caused by the pandemic, including higher operating costs more than offset and the expected growth in earnings from our transformation.
We remain committed to completing our remaining trends from wishing initiatives and expect the return to growth would be gradual and non linear.
<unk> homes. This market is highly correlated to the return of post pandemic normal consumer behavior, including travel, which to date has proven to be sporadic and uncertain.
We continue to invest in research and development efforts to support our growing patent portfolio of over 5000 active patents.
Are examples.
Ample of the recent technology innovation solutions are found on slide six.
I would like to highlight just a few of them.
In pharma, we announced this week that our three phase actually film technology was chosen to protect the new starts rapid antigen tests for COVID-19, the trees.
As received emergency use authorization from the U S FDA.
The quick view Sars antigen test is the point of care rapid antigen test developed by <unk> Corporation.
That delivered the test results in 10 minutes.
The <unk> test requires no supplemental instrumentation and off of expanded access.
In view of affordable and accurate COVID-19 testing that will help meet the <unk> testing needs and those in school systems and growth areas.
And the Injectables market, we have the supply position on several of the leading COVID-19 vaccines and treatments in selected parts of the world.
In the.
So as to help them market rehab P&G extend the maple pool portfolio of without meeting spray device the deliver them ultra finalist for their new vapor, who sign of sponges and pressure relief product.
In beauty alone we have helped the company called <unk> in France to launch of home use.
Take.
Consumers with infrared regenerative light, which photo exit of pack serums to provide skin rejuvenation and regeneration.
After the provided the airless piston system and renewable recyclable capsules.
Our <unk> technologies all the features of L'oreal keel brand hydro pumping hydrating serum.
The 31 and was customized for an ice cream in China by the brand <unk>.
The technology comes in the right range of sizes that are of great solution for dispensing systems for facial skincare and visit the same technology used in our pharma business for dermal products.
Finally, our fusion phe team.
<unk> is focused on turnkey beauty solutions and.
And recently provided 13 packaging items for a new line of nourishing feature of the oil by the end.
Of the brand that habit.
In food and beverage a revolutionary simple squeezed the Latin America about the dine.
Is one of the customers turn to for its wide range of applications.
Zero and for precise and accurate flow control and these used in applications within beauty and home and pharma as well. This technology featured on the new coconut based.
<unk> pouch in India.
Additionally, the interest squeezes, bringing convenience effects of the packaging.
<unk> product that has historically been marketed Inc.
In jars or tubs to be moved to a pouch.
The new squeeze of the Queen peanut butter and natural we screen peanut butter spread both markets are great. Examples of this ongoing conversion of the category.
Using the same kind of power solution with GAAP disclosure of simply squeeze valve and fitment.
Cash in the package eliminates the need for a knife and brief convenience and ease of use.
During the quarter, we also provided of new custom closure for.
For cappuccino powder in Latin America, using our best technology.
Which stands for after the bonded aluminum to plastic patented solution of.
From used in the food and beverage market.
Whereas the acuity of as needed.
<unk> opening feature attitude for consumers. The same best technology is used for a major infant formula brands in North America into the key technology for the success of Tropicana Orange juice Carafe package and for Valvoline as automotive for package the.
The continued to be very.
First of all its share in the resources and innovation across our segments.
The billing significant economies of scale and the more efficient pathway to market it in growth.
The technology the nice start in pharma at the opening in our food and home and food and beverage segments as well.
We also see many opportunities to leverage our active packaging.
And material science technology, and drug delivery and consumer packaging.
Our technical expertise along with the product manufacturing and custom the synergies we have across our business that make up the highly successful in the past and will continue to strength our business model as we look to the future before I turn the call over to Bob I would like.
To share a few additional highlights as shown on slide seven.
At the close out 2020, our steady progress on environmental and social responsibility of topics resulted in naphtha or achieving the procedures CBP.
The status for our climate change his estimates.
And after being named the supplier engagement leader.
<unk> was also named in the top 100 of America's most responsible companies by Newsweek and ranked in the top 100 of Barron's most sustainable companies growth for 2021.
We were also recognized with.
The status by the DSG, one of the world's leading rating agencies for sustainable.
Investments.
At the has published new policy, the around human rights diversity equity and inclusion and community engagement and global giving on our website, which outlines our commitment to uphold the human right. The <unk>.
Current and the convening the mutually off right.
Finally, we announced earlier this week that would be.
Pardon.
Partnering with care and Remarket the organization that works around the globe to save lives the fees.
Property and the cheap social justice.
Through our global partnership after will support care education programming women's economic empowerment efforts and cash prices respond and pain, including the fastest sphere Hulu.
19 vaccine response campaign.
With that I will now turn it over to Bob who will provide additional comments on our results.
Thank you Stefan and good morning, everyone.
I will walk through some of the details around our fourth quarter performance, starting with slide eight.
From the fourth quarter 2020 reported.
Sales, including positive effects of currency translation rates and recent acquisitions increased 12%.
And core sales increased approximately 5% if.
The bond mentioned, our pharma segment had another outstanding quarter and achieved core sales growth of 10% and an adjusted EBITDA margin of 33%.
Looking.
Sales growth by market core sales for the prescription market increased 12% from the prior year.
The growth was primarily due to increased sales of our devices for central nervous system medications certain customers building safety stock levels of inventory in anticipation of potential Brexit related supply chain concerns and higher tooling sales.
Core sales for the consumer healthcare market increased 2%, mainly due to an increase of tooling sales.
Core sales for the Injectables market increased 15% with higher demand for our Latin America components used with vaccines and other injected medications.
Core sales of our active materials solutions grew 11.
Looking at percent, primarily due to increased demand for our ACA solutions for probiotics and diabetes applications.
Recent articles have mentioned the health benefits of probiotics and the fight against COVID-19, and this along with new customers in the space has contributed to our growth for us.
Turning to our beauty and home segment core sales decreased.
Decreased 2% and would have been equal with the prior year had it not been for a decrease from custom tooling sales.
Beauty <unk> home's adjusted EBITDA margin was 11% in the quarter and was negatively impacted by lower sales to the beauty fragrance market.
Looking at sales growth by market on a core basis for.
Our sales.
For the beauty market decreased 15%.
Due to a significant reduction in fragrance travel and commercial retail sales.
Core sales for the personal care market increased 10% due.
Due to increased sales of our pumps and closures used on sanitizers soaps and personal cleansing products.
Core sales for the home.
Care market increased 20% due to higher demand for our dispensing systems for household cleaner and disinfectant products.
Turning to our food and beverage segment of <unk>.
Core sales increased 13% despite resin pass through headwinds of 2% food.
Food and beverage segments adjusted EBITDA margin grew to.
10% due to a strong mix of products.
Looking at each market core sales for the food market increased 16% due to increased demand for our dispensing solutions used on pantry staples as consumers continue to cook at home during the pandemic.
Core sales for the beverage market increased for.
For <unk> due to increased sales of our closures used on functional drink some concentrates which appears to be of restocking effect. The Stefan mentioned after several quarters of declining volumes.
Turning to slide nine fourth quarter adjusted earnings per share increased 8% to <unk> 92 per share on a comparable basis with the.
For Percy here, including adjusting for currency effects.
Slides 10, and 11 cover our year to date performance and I'd like to highlight a few points.
Core sales were equal to the prior year, despite the challenging year.
Adjusted EBITDA decreased slightly approximately 1%.
And this includes the <unk>.
The prior $7 million of expense related to a onetime. Thank you award given to employees in the first half of the year and appreciation for their efforts during the pandemic.
Adjusted earnings per share decreased 9% for $3 64 per share on a comparable basis with the prior year, including adjusting for currency effects and reflecting.
Little over to direct and indirect impacts of the pandemic, including the employee. Thank you Award.
Slide 12 outlines our outlook for the first quarter as.
As the fund discussed we expect to have a mix effect in pharma with anticipated strength in our injectables components and active material solutions and weakness in a prescription of.
Consumer health care markets.
In addition to the pressure on beauty fragrance business, our beauty and home segment is expected to have a negative impact from rising raw material costs.
Summing it up we expect our first quarter adjusted earnings per share range to be 86 to 94 in the first quarter and.
And this compares to the 99.
Per share in the prior year when adjusting for currency effects.
While the effects of the severe weather in Texas is still unfolding and we're monitoring raw material costs.
It is still too early for us to assess any potential impact.
Turning to slide 13, I'd like to share a few details around our forecasted capital expenditure.
Expenditures for the year and three important growth projects that we are excited to get underway and are in addition to our normal capital spending envelope.
There are three projects that I would like to highlight.
First we've spoken a lot of about the recent growth and potential opportunities in our Injectables business.
This is a very important part of our future and we.
C. After are playing a significant role in the stable supply chain for critical injected medicines.
We will be pulling forward investments that we had planned to make over the next five years and begin to increase our capacity in France and the U S.
Since we began to make in 2021 will be completed in 2022 and 'twenty.
<unk> thousand 23.
The expected cash outlay in 2021 for this phase of our Injectables capacity expansion the $35 million.
The second growth investment that's being made in the new facility in Suzhou China.
That will optimize our footprint and bring all of our existing operations in the Suzhou area of under one roof.
As the investment is predominantly focused on pharma and also includes state of the art machinery and automation for the other segments.
This also aligns with the strategy to expand our presence and capabilities in the important fast growing Chinese market.
This will begin in 2021 and be completed in 2022.
Roof, the expected cash outlay in 2021 for this project is $14 million.
We also are optimizing our footprint and creating a center of excellence in France for a highly value decorative capabilities for the beauty market.
We have several facilities that in the recent past were not operating efficiently and.
The upgrade our capacity and efficiency under one roof for these activities.
This will add to our competitive advantage in many of our large beauty customers have been very supportive of this decision.
This will also begin in 2021 and be completed in 2022.
The expected cash outlay in 2021.
One for this project is $22 million.
Including the above roughly $71 million, we are projecting that our 2021 capital expenditures will be in the range of 300 million the $330 million.
At this time the final will provide a few closing comments before we move the.
Amy.
Thank you Bob.
In closing on slide 14, we had a strong fourth quarter and the good year due to our diversified business the growth characteristics of our product portfolio and continued investment in technology and innovation.
Importantly, our business performed with great resiliency.
The Q&A and the very difficult market environment, we generated record cash flow from operations and a record free cash flow for the year.
As Bob mentioned, we will be making significant growth investments in 2021, while we continue to return capital to shareholders as the company, we have increased our ESG commitment and receive the additional.
The vision for several organizations for our work and efforts to day to make after an even more sustainable diverse and inclusive company.
Clearly the recovery from the pandemic and the pace of economic reopening is somewhat the lease compared to what we all book only a quarter ago. The beauty in beverage markets continue to be.
On the pressure and we are experiencing a drawdown of inventories by certain prescription growth in consumer health care customers due to fewer cold and flu illnesses, resulting from pandemic related confinement.
And fewer non critical doctor visits.
Some customers also build safety stock as they were concerned with potential breaks.
<unk> related supply chain disruptions.
We expect continued solid growth in the pharma injectable components for.
Active material solutions and dispensing systems for 30 days of clean US Inc. Food products.
A positive bump.
The long term view is unchanged based on our strong innovation and customer.
Pipelines in fact, we are encouraged and are taking significant steps to invest in growth capacity and new ways of working the book position us even better in the post pandemic era of.
Balance sheet is in excellent condition, which allows us to take advantage of strategic opportunities.
When we raised our sights passes.
The global pandemic induced prices the future is promising.
And we look forward to growing each of our businesses for the long term benefit of all stakeholders with debt I would like to open the call up for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your.
Project, then press the pound or husky.
In the interest of time and fairness to all participants please limit yourself to two questions and one follow up question then come back into the queue. If you have more questions as time allows please standby, while we compile the Q&A roster.
Your first question comes from John Kreger with William Blair. Please go ahead.
Hi, Thanks, very much Stephane can you maybe expand a little bit on your injectable comments.
It sounds like you're accelerating some capacity expansion, but do you have around to satisfy.
Some of the Covid related.
The orders this year before that capacity comes online.
Hi, John Yes, Thank you yes.
The.
What we're doing in terms of capital expenditures really pulling forward. The plans that we have over the next five years.
Dissipating.
Continued growth.
In this area, we talked previously that the re spin very encouraged by customer response to our technical capabilities as everybody was better in that the.
You know proving that the supply chain frenzy.
And we have every reason to be optimistic about the future that we're bringing forward.
<unk> ethylene restaurants book, we have need cash.
Capital needs the only.
For the years past, so we have the capacity, including search capacity to fulfill the current requirements.
Clearly in the fourth quarter, roughly 50% of of our growth has not been.
For the Q2.
Covid related.
Business and the majority of that is actively supplying the vaccine supply chain.
Hi, great. Thank you and.
In your planning process are you treating the.
Covid orders as sort of durable and sustainable or more.
Kind of a one time.
All of US debt, we'll sort of fade over the next few years.
Well, it's really a mix of growth I mean, most of our customers of being on the record as of for the many of the experts that at least for a number of years.
We will probably be of recurring.
Seasonal vaccine.
All of us.
Vaccine itself has adopted the new streams.
The.
At the same time, we believe that.
The recognition of our technical capability bodes well for the broader supply in biotech large molecule drugs as well as the traditional.
True.
Theme and from treatment in general the they're injected.
Great. Thanks, and then a quick question on <unk>.
Judy do you think that business can recover.
Before the sort of travel retail Pat.
Patterns get back to normal or is this one of the where you would probably just have to wait for for that sort of eventually.
I'll come back.
Oh of course.
It's not.
Homogeneous monolithic business, we have parts of the business that are doing very well, obviously everything of it has to do with cleaning sanitizing.
We are encouraged by the.
The growth.
And come back already of.
<unk> care.
Clearly the luxury fragrance business was very much driven by.
The travel retail and keep between retail and debt will indeed have to wait.
<unk> became a snap back to the new normal so to speak of.
What we hear from customers they are starting to gear.
For that.
Clearly there has been some encouragement that there was the.
Let's say the temporary of reopening by.
Coming back China of course leads the way, although China is not as large in fragrances at all.
But the testing is expected to snap back as soon as travel resumes and certain.
For Europe.
Anecdotally people.
The pent up travel intention of now.
Seeing if they can drive a level of assuming debt will bode well for that business.
Great. Thank you.
Your next question comes from George Staphos.
Certain link of America Securities. Please go ahead.
Hi, everyone. Good morning, Stefan Bob Matt.
Thanks for the details hope you're doing well and congratulations on the progress.
My question to start is on how you assess your market share and progress given.
With all of the.
It's not a new story it after it's been the legacy of the company all of the new products that you bring out quarter by quarter by quarter are there any sectors that you would be able to inform investors and analysts on in terms of where you think you're particularly gaining market share or per.
Perhaps.
Absolutely share and then specifically within Injectables do you think that you are at least getting your market share if not more of the COVID-19 vaccine and related products that are in the market or requiring injectable.
Packaging solutions.
Thanks, George Good morning.
Starting with the second part of the crushing.
Feel comfortable that we're getting at least.
For your share.
In the injectable space stroke.
The broken through the previously.
The effect I think the whole.
And then make.
It's helped our business in terms of being recognized by customers as the technically equivalent to the market leader in.
The not only the order book book the inquiries.
The project build is very promising so I feel very.
Confident the three.
Get our fair share.
Even a bit more than the in the injectable space.
In terms of the market share your larger question.
Much harder.
The question to answer is our competitive set.
It's really true.
Right.
Broke through.
Each segment the product platform.
We are highly encouraged of course, the progress, we're making with our <unk> material solutions.
We are highly encouraged with the progress, we're making in skin care and moving down the value chain to more rapid turnkey solutions with fusion PPG, which is developing.
Pivot to Asia, certainly should be faster if you ask me, but the.
Uh huh.
Rome wasn't built on the day, but certainly more and more of the growth is coming from there and we are busy with making sure our footprint accommodates debt and good serving customers we have.
The growth is.
<unk> revenue, let me leave it there.
Okay. Thanks, Stefan My other question broadly is on margin and profitability.
Nearer term and then longer term. So is there a way that you could perhaps quantify what the effect of the Destocking and resin impact is in your guidance.
<unk> for the first quarter, and then stretching a bit here to beauty and home.
If we didn't have COVID-19.
And we hadn't had the transformation benefits coming do you think this business would have still been about $100 million EBIT business in terms of.
The profit generation and obviously the reason I'm asking at some point when we do get back to normal can we look at your past profitability and tack on the.
The roughly $70 million to $80 million and have that to start with or has the world changed in your view. Thank you.
Let me take the second part of the question maybe book.
Address the first part of the question so.
<unk>.
We have set out.
On the big scope for the transformation.
The expanded the scope as we went through it and I'm actually quite happy with what we've.
Countless to date Mark to do.
Especially on.
More of them.
It brings the rationalization projects.
And.
Clearly the Covid was not part of the plan and when we look at the end users that are advantaged.
By cleaning sanitizing and so on the profitability levels are already getting close to the.
Some of the range so.
You didn't see that but that tells me that we.
We have traction.
Our actions in.
We are fully committed to game of this business into the 15% to 17% EBITDA range and then build from there and clearly the COVID-19 volume recovery needs to be part.
The target story.
George I can take the the first part of that question. So.
As we highlighted the Destocking and the pharma side is really primarily coming from the prescription division and the CDC.
The division consumer healthcare, so those as you know our highest two.
If the margin divisions within inside of the pharma in the pharma segment. So we did bake in a little bit.
In fact, amongst the divisions because again, we still see good growth on Injectables enacted material solutions.
<unk>.
Now the ramp up in the Injectables.
Two.
What happens oftentimes and other things and we saw a little bit in Q4, you end up having some additional costs as the volume start spiking ranking of additional over timing of some additional expenses that are include there. So we did see in Q4 this year, a little bit of negative effect on the margin and injectables to.
Due to some of those additional costs and enacted packaging. There is also a mix effect.
In what is sold in the quarter. So we had a little bit of an unfavorable mix effect in Q4.
We're not really baking in a lot of mix effect into Q1.
But I can't give you a specific number in terms of the.
The more Directionally and then as far as resin goes.
We are seeing resin spiking up in Q1 at least.
In both North America, and Europe, So far we didn't we only saw the increase in Q4 coming from North America.
What's happened in the path of the euro strengthened considerably against the dollar so.
Somewhat neutralized any increase in the resin cost, but we are seeing rising costs for both North America and Europe in Q1. So we did bake in some negative effects on margin. There I will tell you, though that when we did our estimates it was still too early to put in any impact that may have come from.
The the storms down in Texas, So we're actively looking at debt now.
And see if that will have an additional impact.
We've taken altogether.
Before storms 5 million 10 million timberland, just anything to got it and thanks guys. Good luck in the quarter.
Yes, I don't I don't have right at my fingertips.
From the accurate what each segment is doing because it's really depending on the pass through the volumes in the quarter, which customers. So there's a whole host of of.
Factors that go into it.
Okay. Thank you.
Your next question comes from Ghansham Panjabi with Baird.
Please go ahead.
Hey, guys. Good morning, Thanks for taking my questions. So I guess first off just taking with pharma.
There's a lot going on with your various sub segments within that.
Operating unit.
The destock you referenced in the first quarter for Rx and OTC the Injectables.
<unk> growth.
And then the comparisons youre going to have from really three strong years, and particularly so last year when it was.
Sort of.
The stocking effect, if you will for certain prescription drugs et cetera, So I.
The question is just kind of think about 2021 versus 2020.
Can you sort of take us through.
Which of the sub segments will actually grow on a year over year basis apart from the Injectables and just trying to get a sense as to whether we're going to be in of normalization year more broadly for.
For pharmaceuticals in 2021.
Thanks Ghansham.
Overall.
We remain very bullish.
On the pharma business and the of course bullish on the company.
Clearly the Destocking.
<unk> for.
Since the UHC.
It seems so obvious.
For the hindsight is always 2020.
Clearly the flu season is almost non.
And so with all of the protective measures of people take against Covid.
They don't get cold they don't get fluid they don't get bronchitis.
While the.
Our customers have been making sure that the traded stock the consumers are stopped.
And consumers themselves.
The exist one of the nature of the and if theyre stuck around so no but there is no cold in the.
Moving to speak of.
This destocking.
The.
Is the logical consequence, but as transitory.
We believe pharma growth.
<unk> continued to grow ROE for the full year, obviously more in the second half of it.
Sales force.
<unk>.
We continue to look at a 6% to 10% range in the.
Believe it will be inside that range, maybe at the lower end of the range, but of the year, it's very early.
But clearly we continue the good growth.
Injectables and active material solutions.
And the for the very well, but also Rx and the achieved will come back.
Okay got it and then for the beauty and fragrance piece I mean, I think if my notes of correct you were down 21% in <unk> year over year.
Down, 15% and <unk>, a lot of your customers and the suppliers that sell into the.
Your customers <unk> and so on and so forth of actually talked about a normalization higher on a year over year basis, starting with <unk>.
Just wondering why you haven't seen that and then can you also clarify the.
Your comments about the first quarter not fully seen the effect from Covid free.
Quarter of 'twenty.
When.
The comps, we're still down 8% for that segment from the based on our based on our numbers.
Yes.
A couple of things one is clearly customers.
Our tasting the recovery.
So when it comes the customer projects customer discussions pipeline planning.
There's a lot of optimism in the industry.
We have an overage overexposure to luxury fragrances, which is kind of a trailing.
Mass fragrances doing better places like Brazil are already growing but luxury fragrances are still trailing we see too.
All of the good growth in skincare, but again, our overexposure of the luxury fragrances.
It's.
Coloring our comments.
Sorry, I forgot the second part of your question.
The key tenders I can answer the yes.
The second part of the questions. So if you remember done some back.
Back in Q end of Q3, beginning of Q4 and into Q1, we were in a destocking phase on the personal care side of the business for beauty was still doing relatively well. So when we got in Q1 form of.
Normalized I would say quarter right because we were at the tail.
Palin of any destocking on the personal care, so very little effect there.
The really China was the only read the region debt was impacted in Q1 Covid.
And there are.
Part of our size.
And waited not until significant and you also have.
Every year, the the Chinese new year holiday period.
You didn't have that significant an impact on our Q1 results and then as far as the very tail end of March we did see a weaker finish to the first quarter, primarily in Europe, but it was negligible compared to a full blown quarter like we saw in Q2 and Q3.
Perfect. Thanks for clarifying.
Your next question comes from Mike will the with BMO capital markets. Please go ahead.
Hi, Good morning, good morning, Bob.
Hi, Mark.
I Wonder if you can help us and just thinking about the total capital commitment on those three initiatives you outlined that you gave us the number of 70.
$1 million for this year, but what is the total look like for all three of those projects.
When does that help translate into for sort.
Sort of a run.
Cut it where capex for the company will be in 'twenty two 'twenty three.
Okay, Great question Mark so.
If I looked.
73 projects, starting with the Injectables expansion, we're really looking at a total of about $88 million in total so little bit of less than half spent in 2021 and then the <unk>.
Project will continue for the next couple of years.
On the China facility, we're going to spend $14 million.
As I mentioned, that's about roughly a $40 million $42 million total investment in that the remainder of that would be spent in 2022 and the.
Then the French decorating facility.
We're spending about half of that or $22 million in 2021 of the total cost.
There's about $44 million and we should see that completed at the end of 2022. So if you look at the China and the French decorating facility those are as much I would say efficiency.
Cost savings type of plant consolidations.
And then the injectable expansion is really tied towards the pharma has mentioned in terms of the growth in the sector.
And the need for ongoing vaccines and just general growth in net in that category I would expect our normal capex could be kind of the net $242 50 range on an annualized basis.
And like we said the here we've addressed these three.
More specific projects.
With the sit on top of it so it sounds like your Capex for.
<unk> two is probably in the $300 million little over $300 million range of is that fair yeah. Yeah. I mean, that's that's in the ballpark Mark and again I think.
Think what we've tried to do is really put an emphasis and focus on working capital improvements and I think you've seen that in 2020, we did a terrific job really across all three of our inventory and payables and we're going to we're going to focus again in 2021 and squeezed a little bit.
And then out of that as well to help offset some of that additional increase.
As much as we can so we're really.
Focusing.
Turning to offset some of those extra spend with <unk>.
Working capital improvements.
Okay, and then for my follow on.
<unk>.
You talked the.
During the presentation about sort of.
The 5000 patents of the company so I'm just curious.
As you think about expanding in Asia.
But the delays you think about expanding the pharma business.
China can you just talk generally about.
Protecting intellectual property.
Sure.
Sure.
No.
Maybe let me start with.
The last three intellectual property challenges.
We had at the company came from the U S and Europe.
China has become a lot stronger around the <unk>.
Protecting intellectual properties.
And ways to enforcing it so I would not look at China any differently than any of other.
The other major countries in terms of how we go about it.
Finally.
Protecting trade secrets, the import mentalizing knowledge.
To review non following.
Following the same practices.
And.
No single person of the secret recipe to everything.
We document trade secrets in the final for IP.
No different than we do any rentals.
Okay, I'll turn it over the thanks very much.
In the.
The interest of time and fairness to all participants please remember to limit yourself to two questions and one follow up questions. You may reenter the queue. If you have more questions as time allows.
Our next question comes from kind of late with Deutsche Bank. Please go ahead.
Hey, Good morning hope everyone is doing relative to take the questions one of the focus.
On pharma for us just kind of a broader top question.
We're seeing the rise of telemedicine with lakes.
The precision side it looks to be more accessible and widespread everyone is this an opportunity for you or your product is not really exposed to the specialty drugs that would be prescribed over telehealth.
Right.
The more speculating here I'm not sure of it we've got good data but.
I found <unk> to be more about maintaining.
The connection with your GP.
In the rolling over your prescription when it comes to diagnosing.
<unk>.
The new <unk>.
Non critical conditions, Inc.
Actually getting new branded prescriptions.
That is clearly down.
No.
Classic <unk>.
You go to the Doctor.
Sure.
The bombarded by pharma salespeople.
And in all of the zone, you end up with the new branded prescription the transitions you into a better medicine to more contemporary medicine debt.
At least anecdotally from some.
The more interest in visits David Cohen of at the moment over time, hopefully the changes, but clearly.
Dr with Doctor visits being down.
We can see the NUPLAZID prescriptions are down.
Yes that makes total debt.
I think in long term for the but and then also I wanted to focus on the margins and the pharma I know your long term target is the 32% to 36% range.
At the lower end of that range. This quarter typically we have always asked of you would need to increase the range, but as you invest.
And grown injectables that the risks that margin by fall below the targeted range longer term.
No.
The commute to do.
The range there.
For some onetime items both Kentucky.
Write down of an asset.
In quarter four.
One.
Down $3 million. In addition, we needed some temporary labor in the injectable business too.
Backfill absenteeism from Covid. So there was some margin.
Margin pressure in Q4 book generally the 32% to 36% range is the right range.
What makes the silicon the.
Thanks.
Your next question comes from Gabe <unk> with Wells Fargo. Please go ahead.
Stefan Bob Matt Good morning, Thanks for taking the question.
Yes.
Stephane you made some comments.
And I appreciate that you've talked about kind of the interdependent on each segment sharing of technology.
<unk> and manufacturing capabilities.
And I also appreciate that some of the difficult topic to discuss in the public format, but should we take from these comments out of your view of the company's perspective that appetite of better off together.
Versus what could be an alternative or.
Was there something else you're trying to get across.
Across the board.
No not at all.
I think.
We've been.
Over the ground quite a bit.
<unk> clearly.
<unk>.
After as an integrated business with the industrial unit operations that are almost identical in some case.
Sure.
Beverage technologies products.
The.
The national footprint zone.
We do precision injection molding ISP the assembly metal operations and the of course, the retailers seems to different segments of used the analogy of jet engines before.
Because of the immune to meet the new devices.
And the G. So of jet engines too.
The lines to make moving.
And price zone to power plant operators make another price for the meet the core technologies the assumed so we're not.
Not at all interested in any large scale separations.
<unk> gives the question behind.
Good question.
Of course, we will always look at what should we do in house, what should we outsource.
How can we improve the effectiveness of our organization, but it is the.
Coherent the industrial business.
The serves multiple end users.
The.
We.
Yeah.
Moving back and forth technologies inside.
Innovations all the time, when we discussed with customers, we bring the whole portfolio to the table.
Sales of the hanging Hey, this is a very interesting rebuilding of beauty.
Try to bring it out of the pharma or the other way around.
Well I appreciate all of that income.
The point, where he talked about CSR for long periods of time of its successful sale.
Thank you for that and then.
The capital allocation of redeployment side, obviously, you have an elevated internal investment cycle, which we actually like.
For those.
Those carry lower risk versus in the acquisition driven expansion, but just curious of that sends a signal of the hotels kind of thing.
As it relates to kind of the acquisition market, whether its evaluation or just properties available.
And then on the share repurchase from is this something that we should think of those.
As somewhat.
Opportunistic or more programmatic as you guys go throughout the year.
Thanks.
Maybe I can start.
Yes, let me start with the last and we'll work our way backwards. So I think one of the things that we've seen over the last several years is even within.
Of our Capex.
A stronger portion of our capital being allocated the pharma net you'll see that continue for 2021.
So we're inside the company for Capex, we're allocating the.
A larger percentage into the pharma side as it relates to.
The share repurchase.
We generated record cash flow this year of $324 million and our leverage at the end of the year was one six so we had a pretty significant deleveraging effect. So I think with the <unk>.
And for US lifting the temporary suspension is more due to the fact of our confidence and of the cash flow generation and the effort.
We've put an made towards working capital reduction and so we would like to have some optionality there should that continue in our leverage pushing even lower Alex the <unk> talked about the acquisitions, but as we've said many times.
Even if theres actionable assets that are out there the timing may not be exactly perfect.
That we want that additional piece of Optionality, there thats, not saying anything of reading into it we're back in the market actively.
Each quarter, it's just more giving us the.
The indicative more of the confidence that we have in our cash flow generation for the fine if you want to mention something about the execution.
So look the.
Our M&A.
<unk> machine has never stopped and continues to be active.
At the same time re price.
Net sales to be disciplined acquirers in the.
Certainly walk away from more deals and the execution for everyone of you execute.
You look at them.
So, but it remains an active M&A environment certainly variations.
Can be challenging.
With the.
The debt markets being very right open.
But we will continue to work work it.
As we've discussed previously very much like a bolt on acquisition.
The issues that <unk>.
Compliment organic growth.
But we're very conscious of the first and foremost we need to be able to grow our own business and then complementary bolt ons and the at the same time be able to complement our innovation.
The prospecting engine entering investments and you've seen us make.
Some of those in the.
For the most part of it.
The proven very successful.
Always brings something to the company, whether it's the license whether it's the board seat with the <unk>.
Ability.
The increase the stake later on in the number of collaboration agreements of adventuring investments really give us the from proceeds.
If you without having to into the fully in each and every area of technology advancement.
Great. Thank you.
Your next question comes from Adam Josephson with Keybanc. Please go ahead.
The final Bob Matt Good morning, Hope you and.
We wish her well.
Both beginning though.
Hey, Matt.
Bob would you mind.
Flushing out the earnings progression comment that you made in the release and presentation, you expect progressive improvement I know typically in a normal year.
In your family of the first quarter and fourth quarter are typically the lowest just for seasonal reasons. So I was just wondering how much differently. You expect this year to play out the normal and although the season of seasonal factors be offset or more than offset by <unk>.
Different demand patterns that you are expecting this year.
Sure sure.
Sure so.
I'm not going to give specifics.
<unk>.
Each quarter by quarter for instance, we don't give the.
The annual guidance, but if I look at it you are correct in what you say what we've seen the last couple of years, though is that we have actually seen.
From higher back end performance than the than the first half.
Then what is usually like you said stronger Q2, and Q3, and then softer Q1 and Q4.
We see that trend continuing quite honestly, and it's probably more COVID-19 related than anything else. So.
So we do see a.
A pretty good bump up in our in the way we split the 2021 budget from from Q1 for the remainder of the year. So we'll see obviously an increase in Q2, but then let's say of continued increase in Q3, and then Q4.
Similar to where we.
We're looking at for Q3 later in that ballpark.
And are you talking absolute EPS in that regard, Bob just to be clear enough of the year for better.
Thats correct.
Yes.
Okay terrific. Thank you and Stefan just fact.
One of <unk> question just about.
The.
The potential separation of the businesses and I know you mentioned the industrial logic of keeping these businesses together and the share of technology et cetera. Can you just talk about is the split something you've looked into and seriously and if in fact, you have if there in your mind some advantage.
Advantages to doing so even even though when your conclusion is that the industrial logic of having these businesses together.
As sufficiently powerful that debt a separation is not worthwhile I'm just wondering what the.
Any pros and cons you see from.
From.
Possibly doing that.
Acknowledging that you said earlier in the call that you don't intend to do so.
Yes.
Of course Luke.
On an annual basis go through a strategic planning exercise.
And we review the plan was the board.
It's included.
<unk>.
Assessment by external advisers, so of the board takes the responsibility.
Seriously and looked at the.
Valuation of the plan.
So looked at alternatives.
It's the board's responsibility.
We feel very good about the plan and the value creation.
Really.
The real achieved with that.
We're very happy with the Investor base, we have most of them have been in the stock for the very much the reason.
We built our company for the long term for a long.
So from pounding.
And being exposed to the.
The macro trend advantage to end users.
Generally the long term growth.
Sure.
We think there are more interest is out there the interest have been so thats why we also talk to healthcare investors more and more we drove the consumer interest.
For some more we drove gains internationally most of the more and we took a.
Related investors more but.
And then of the the answer to your question is absolutely. There is we believe this is the best plan for shareholders.
The.
Most of them of long term holders of much agree with debt.
Just wanted to follow up to the defined do you think the value in pharma gets lost to some degree because of the fact that its combined with this beauty and home business that has very very different characteristics.
Do not necessarily think that thats happening.
Well there's always.
The short term and the long term in the short term.
The Bulls and valuations can always be.
The dislocated, but you don't manage the company for.
And you know what the multiple is that the current momentum.
You might do but build the company for the long term.
And over time.
Multiple photos as a result ultimately million objectives. The multiple is the result of the goodwill you create.
In the previous life of giving the company the move from polyolefin to nutrition and the multiple addition, with pinpoint but it took 15 years to get the multiple location.
It's a much stronger company and many of the things that made it stronger still there so.
It is the long term long term compounding nature E&P exposure to multiple attractive end uses that makes the formula within the industrial coherent operations.
Net.
Term debt.
You could get the short term pop but.
That's not the objective of running the company for the long term.
Understood. Thanks, so much the fine.
Okay.
Your next question comes from Neel Kumar of Morgan Stanley. Please go ahead.
Thanks for taking the question.
Terms of the new and yet the growth capacity in the U S and France.
It gives a sense of the magnitude of the increase relative to your current capacity and the potential return.
And then in terms of the timing of it seems like the project wont be completed until 2022 of 23.
Would you characterize the two.
One year of two to three year duration of the project is typical of more extended out the normal.
When you think about pharma project.
Is the very minimal so the par.
Business, the physical book, but that's actually the <unk>.
For it.
The.
And then.
Then the validation for equipment the validation with customers.
The quality systems is the.
The flip side of business being highly.
Differentiated.
And defensible.
The love that goes.
True not only building the qualifying additional capacity. So this is quite normal.
In terms of the magnitude of the increase.
I'm not sure what the operating.
Yes, I mean, roughly we are adding downstream.
As intensity, probably in two to three years, which is about 25% to 30% of additional capacity downstream.
Okay. That's helpful.
And I was just wondering if you can just give an update on how the integration of <unk>.
<unk> has been progressing relative to expectations, how does the company the conforming.
And the type of environment.
Yes.
You see from a taking a very.
The satisfied with the.
For the infusion of Vaca <unk> is <unk>.
Forming the Phoenix.
Extremely agile to adjust to the new environment.
Customers that have been very excited about.
The combined capability.
Of fusion <unk> inside of upturn.
And the linkages.
Combined offerings, we were able to make so.
Great acquisition and good performance.
Great. Thank you.
Your next question comes from Salvator Tiano with Seaport Global Please go ahead.
Yeah, hi from both of them.
Firstly following all the meals question.
These are kind of summer July with the you can provide with regard to the return on this investment so it.
For the vessels 71 million of this year and I guess, a good number after that also for the entire project.
What's kind of the EBITDA or EBIT the benefit you'd expect to see and also kind of clarify the comment about the 22, 5% to 30% growth in the next few years ease of Jess for I guess, the injectable segment or.
If your pharma overall.
Good day, Yeah, I'll take the last one to start with so the 25, 30% of additional downstream capacity was specifically for the Injectables business not the other segments at all and again.
Debt to the components as the multi.
The <unk> process.
So.
As the volumes increase there is always additional investments at various stages, whether it's upfront in the mixing capacity or then the the finishing in the Washington, the drawing the line. So this is just really kind of adding a total of point of five to 30.
30% capacity for certain components that we manufacture, but does not impact the other day.
The other pharma divisions.
Sorry, and on the Port.
Thanks for learnings for return on all of these investments.
Sure I mean.
See you.
Its definitely above where our hurdle rates are.
And obviously being a pharma investment is going to be a pretty good return, but none of it.
Really don't want to hang my head on anything right now, but certainly the projects that we have the mix.
All of a sense of the world that will be it will be of positive.
So the return on investment much positive.
Okay.
The class suddenly very quickly on I guess, the consumer health care of prescription.
How do you see things pulse call of it because it seems like some of the trends with people washing their hands more potentially of wearing masks a little bit more.
Could the new the flu season, even after social distancing is the restrictions of at least that is there any chance that that we will not see the same the pre COVID-19 demand in the few years will not return of the ADESA.
Yes.
Too early to speculate on debt.
Bureau creature.
<unk> of habit.
I think people want to get out in England, again and travel again.
Certainly.
Sure.
A good Inc.
Environment over for <unk>.
Having said that of course, we of a broader portfolio.
It was the strong growth.
You saw in the quarter for us it was actually from.
The the CNS category.
So overall we.
Looking at the pipeline, we have and customer feedback we continue to be very bullish on the growth in pharma.
I think it's fair to say that all of the netting off of all of the effects of Covid.
A couple of quarters to sort out.
And two once we are in the new environment, a couple of quarters until the adult balances out maybe one.
From the.
I also wanted to make many parts of the economy are of course going to full stop and now the.
The economy.
As the reopening hopefully it's not just the push button there are many.
The things that need to be worked out from the basic things like.
How many shipping containers that are available.
The ship between reach and needs of this.
The lot of dislocation in that area.
Availability of supply.
<unk> been blessed debt.
Our operations from.
Kept running them, but the larger economy, but hit some bumps.
You all have followed the chip's story with automakers there will be many more of those stores because you don't just restarting the economy thats been products for three months per.
The quarter's and push the button.
Okay. Thank you very much.
Your next question comes from Gabe <unk> with Wells Fargo. Please go ahead.
Hey, guys. Thanks for taking the follow up I appreciate it.
Just one quick one on the competitive landscape in the.
The home, maybe more specifically fragrance.
Appreciating that maybe personal current.
Doing all of the better because volumes are in fact positive but just.
We kind of sometimes here through the trade channels.
Businesses potentially transacting that there could be some disruptive behavior.
<unk>.
There has been kind of two big deals in the past 36 months or so on the beating home side can you comment at all if you think you can change.
Just what's your eyebrows in terms of the competitive landscape and that business.
Not really.
Assets.
These assets are quite popular with sponsors.
And they have changed hands of loss.
Sometimes they get absorbed for strategic which is with one of the transaction you talked about.
But I haven't really seen a change in competitive dynamics, maybe its strategic get involved becomes a bit more responsible but the overall.
Relative dynamics have not changed.
Yes.
Alright, I think this is about.
As much as the.
We can do the being over time and with that I. Thank you all for your interest looking forward.
The couple of virtual interactions to dig into more details and see on the next call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
For two.
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